Teva Sees Sales Grow by 16% But Fails to Meet US$16.4-Bil. Topline Guidance for 2010

Teva's Full-Year Results

Israel's Teva Pharmaceuticals has reported annual results for 2010, with total net sales for the year enjoying 16% year-on-year (y/y) growth to US$16.1 billion, driven by strong growth across all markets and businesses. Its net income and operating income rose by 66.6% and 40.2% y/y to reach US$3.34 billion and US$4.3 billion respectively, on account of strong generic sales in the United States, increased Copaxone (glatiramer acetate) sales, and the inclusion of German acquisition Ratiopharm's results, which bolstered European and Canadian sales. The company's research and development (R&D) expenditures totalled US$951 million, up by 15.3% to 5.9% of sales. The cost of sales, selling, and marketing, and general and administrative expenses over the same period grew by 8.0%, 11.0%, and 5.1% y/y respectively for the full year. Selling and marketing expenses grew on account of higher royalty payments in connection with recently launched products in the United States and expenses associated with the Ratiopharm business. Foreign-exchange-rate fluctuations negatively affected full-year net sales by approximately US$216 million due to a decline in the value of certain European currencies relative to the U.S. dollar, which was partially offset by strengthening of other currencies in the same period, and had affected the company's operating income by US$50 million. The Israeli firm's 2010 litigation costs decreased by 36% y/y to US$410 million, compared with US$638 million in 2009, on account of more settlements.

Teva's Geographical and Product-Wise Revenues

Teva's revenues grew in each of its principal geographic markets, with North American sales growing 16% y/y to US$9.99 billion, contributing 62% of the firm's total annual sales. The full-year North American results were boosted by strong generic sales—which grew 16% to reach US$5.8 billion—and continued growth of Copaxone revenues. Strong U.S generic sales were due to strong sales of Effexor XR (venlafaxine hydrochloride) and Pulmicort (budesonide inhalation). European sales increased by 21% y/y to reach US$3.95 billion, making up 24% of total sales, bolstered by Ratiopharm's results starting August 2010, and strong generic sales in Germany, Spain, Italy, Poland, and France. In the Rest of the World (RoW) markets, Teva saw revenues of US$2.19 billion, a 7% y/y increase as compared to 2009, benefited by sales in Latin America, Israel, and Russia.

Copaxone continues to be Teva's leading revenue generator, recording global sales of US$3.32 billion, a y/y increase of 17%, driven by U.S. sales' growth of 19% to US$2.29 billion. Non-U.S. Copaxone sales increased by 13% to US$1.03 billion, and the drug remains the top multiple sclerosis treatment. Azilect (rasagiline mesilate), the Israeli firm's second innovative product, saw its revenues increase by 31% to US$318 million, primarily due to volume growth in Europe and the United States. Its respiratory product sales reached US$825 million in 2010, a decline of 3% from 2009 sales of US$898 million. The U.S. market continues to be the major contributor in this product segment with sales of US$556 million for the full year 2010. The decline in respiratory product sales were due to reduced sales of ProAir (albuterol sulphate) resulting from a moderate flu season compared with 2009 and increased competition in the short-acting beta agonist market. The decline was offset by increased sales of Qvar (inhaled beclomethasone dipropionate).

The firm also saw higher sales of its active pharmaceutical ingredients (APIs) to third parties totalling US$641 million, up by 13.5%. Women's Health products saw a 4.8% increase in revenues to US$374 million in 2010, compared with US$357 million in 2009, benefiting from strong sales of Seasonique (levonorgestrel/ethinyl estradiol and ethinyl estradiol tablets) and Plan B One-Step (levonorgestrel).

Outlook and Implications

Teva is showing continued good performance, following impressive results for four quarters in a row, with good growth across all its businesses. The firm met its original annual topline guidance of US$16 billion, but failed to meet its amended US$16.4-billion guidance, possibly on account of acquisition costs. As indicated, new product launches in the United States, and sales of Copaxone continue to be large revenue generators. Copaxone contributes 20–21% of the firm's revenues. U.S. generics sales continue to be a major revenue contributor, continuing a trend seen across the generics industry. In comparison with other generic firms in the European market, Teva continues to fare significantly better, with double-digit growth compared to the single-digit and negative growth experienced by other firms. With the acquisition of Ratiopharm, Teva became the leading generics firm in Europe and globally.

Going forward, the firm will have to ensure that its revenues over the next four years grow by over 95%, averaging approximately 24% growth per year, 8 percentage points higher than current growth figures, in order to achieve its 2015 guidance of US$31 billion. It will also have to resolve its manufacturing issues at both its Jerusalem (Israel) and Irvine, California, facilities to prevent any stay in approvals and product bans. Teva should see continued growth across its markets, with 206 Abbreviated New Drug Applications (ANDAs) pending approval in the United States, of which 44 have gained tentative approval with an estimated market value of US$121 billion. Of the 206, 134 are Paragraph IV certification applications challenging patents of branded drugs, and 80 have first-to-file status. In Europe, Teva received 1,846 generic approvals in 2010, and as of December 2010 had 3,568 marketing authorisation applications in Europe relating to 290 compounds. The firm's strong financial base and total equity of US$22 billion should provide the firm with the backing to achieve its long-term strategies. However, in the immediate term it faces generic competition for its major revenue contributor Copaxone, whose revenues will be negatively affected following expiry of the 30-month stay of approval (see Israel: 10 January 2011: Generic Copaxone a Possibility As 30-Month Stay of Approval Expires). Meanwhile, optimisation activities—such as the acquisitions of German pharma major Merck KGaA's women's health division and Peruvian drug firm Corporación Infarmasa, the expansion of its biosimilar range with the launch of TevaGrastim, and potentially approval pending for Lovenox (enoxaparin sodium), continued expansion of its innovative drug profile, and market expansion plans in Japan with Kowa (Japan)—should all enable the firm to meet its new guidance and future growth prospects as it expands its presence across all its core geographical regions.