yanai - Tomer Appelbaum - November 4 2011
Shlomo Yanai Photo by Tomer Appelbaum
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Haaretz
Copaxone Photo by Haaretz

Shlomo Yanai, CEO of Teva Pharmaceutical Industries, said he doesn't expect the company to be making any further major acquisitions. In a conference call following publication of its third-quarter financial statements, he told analysts: "Teva doesn't need a major purchase to meet its objectives." He also redefined the strategic plan as a road map for the company and investors, as opposed to a long-term forecast of sales and profits.

Yanai said, however, that he thinks Teva could make a play for companies to round out its capabilities and resources. These, he said, might include companies operating in places where Teva lacks market presence, or those with a promising drug in the pipeline, within the range of just several hundreds of millions of dollars.

Yanai mentioned that the company is expected to generate a cash flow surplus of $5 billion, and its directors are deliberating over whether to increase dividend payouts: Considering that, as a company with annual sales of $20 billion, Teva can't continue acting like a much smaller company in its growth phase; it but should recognize itself as a mature company with a more moderate growth outlook.

Sales forecast drops by $1b

Teva lowered its forecast for fourth-quarter profits from between $1.52 and $1.82 per share to the range of $1.54 to $1.64 per share. The updated forecast includes an estimated $0.15 per share contribution from Cephalon not included in the earlier forecast, following completion of its purchase three weeks ago. Without including Cephalon's contribution, the forecast now stands in the range of $1.39 to $1.49 per share.

The company also updated its annual sales forecast for 2011 from between $18.5 billion and $19 billion, without Cephalon, to between $18.3 billion and $18.6 billion including Cephalon's fourth-quarter sales, which amounted to $775 million in the second quarter. So the reduction in sales that Teva forecasts for the fourth quarter is in the ballpark of between $975 million and $1.175 billion.

Hopes pegged to mystery drug

Yanai told analysts that the range provided by the forecast reflects uncertainty over the launch date of an important generic product which he refrained from naming. He said the company expects to achieve the low end of its forecast if the U.S. Food and Drug Administration doesn't grant approval for marketing the "mystery" drug before the end of the year.

Bill Marth, CEO of Teva North America, said the company aimed to launch the product at the beginning of the third quarter, and the delay in obtaining FDA approval was partly responsible for Teva's problems in the U.S. generics market during the reported period. It seems that, contrary to the impression given in the not-too-distant past, Teva does have a rabbit up its sleeve that it can use to convince market skeptics of its plans to achieve its fourth-quarter sales and profits objectives.

In reference to Laquinimod - the pill developed by Teva to treat multiple sclerosis, but which showed disappointing results in its decisive Phase III clinical trials - Yanai said it's still too early to apply for marketing approval. He also hinted at Teva's intention to perform new trials on the drug.

Analysts didn't pull any punches challenging Teva's five-year strategic plan, which calls for $31 billion in annual sales and $6.8 billion net profits by 2015, insisting that these goals are beyond reach. They wanted to know if Yanai attributed more importance to these objectives or to increasing cash payments - dividends - to shareholders.

Top dog in Germany

Teva exhibited strong growth in Europe in the third quarter, increasing revenues by 34%. Net of exchange-rate differences, sales there rose by 24%. Most of the increase was due to the consolidation of sales by Ratiopharm, the German generics company Teva bought in August 2010. Teva enjoyed organic sales growth of 9% in Europe. Organic growth was 8% in Germany, Europe's largest market - impressive in light of declining sales reported there by Sandoz, of the Novartis International group, previously the leading company in the German market. Yanai pointed out that in September Teva took over the lead in sales for that market.

Sales outside Western Europe and the U.S. shot up by 56% to $817 million for the quarter. Teva's recent acquisition of Japan's Taiyo Pharmaceutical Industry contributed 45% of the increase - $130 million - while organic sales jumped 27% in Russia and 21% in Latin America.

Generic sales tank in U.S.

However, Teva continued to suffer sharply lower generic sales in the United States, which fell to $845 million for the quarter, a 48% drop from the parallel quarter, following declines of 40% in the second quarter and 32% in the first quarter.

Reasons given for the flagging U.S. sales were that the company didn't launch any significant new products during the quarter, the loss of market exclusivity for several drugs - including Effexor XR for treating depression - and the fact that a number of generic drugs sold a year ago all but disappeared, contributing $56 million to sales against $560 million in the third quarter of 2010.

Marth, though, remained optimistic, saying Teva will gain $300 million in sales for the joint marketing with Dr. Reddy's Laboratories of a generic version of Zyprexa for the treatment of psychotic conditions, and an additional $100 million from a generic version of Combivir, a drug for treating HIV.