Profits Down, Dividends Up at Teva Pharmaceuticals
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Profits went down, but dividends went up at Teva Pharmaceuticals (NASDAQ: TEVA).
The company's fourth-quarter profit declined 34%, due to acquisition-related costs of last year's purchase of Cephalon Inc. Teva reported a profit of $506 million, compared with $771 million in 2010. In spite of the decline, the company increased its quarterly dividend by 25% to 26.8 cents per share.
Teva is the world's largest manufacturer of generic drugs, based in Jerusalem, Israel. The company manufactures oncology, pain, respiratory and women's health therapies. The company employs approximately 47,000 people around the world and reached $18.3 billion in net revenues in 2011.
The company said that 2011 was a difficult year due to increased scrutiny in the United States on generic drugs. Net revenues in the United States in the fourth quarter were $3.0 billion (representing 54% of total revenues), an increase of 32% compared to the fourth quarter of 2010. This was primarily a result of the Cephalon acquisition and strong revenues of the company's branded (not generic) products, offset by slightly lower revenues from sales of generic products.
The company's sales increased by 28% to $5.7 billion in the fourth quarter, fueled by the $6.8 billion acquisition of Cephalon. Generic product revenue improved overall by 12% to $3 billion. However, US generic revenue declined 5%, otherwise, US revenue rose 32% to $3 billion. European revenue increased 13% to $1.5 billion, while revenue in the rest of the world rose 44% to $1.1 billion.
Branded products were up 68% to $2.3 billion. Teva's biggest drug, the Copaxone treatment for multiple sclerosis, had sales of $927 million, up 11%. Cephalon sales included Provigil ($350 million in revenues), Treanda ($131 million revenues), and Nuvigil ($86 million revenues).
The company projects a positive outlook for 2012 thanks to the Cephalon and other acquisitions. The company is also looking forward to a joint venture with Procter and Gamble. Additionally, the company will launch a generic version of Forest Laboratories (NYSE: FRX) antidepressant, Lexapro, in 2012.
In comparison, Forest Laboratories ended its fiscal third quarter beating expectations on revenues and earnings per share. The company brought in revenue of $1.2 billion and sales were 7.8% higher than the prior-year quarter's $1.1 billion. The loss of Lexapro to the generic market puts nearly half of the company's top-line at risk. The company will launch new drugs throughout the year, but experts do not feel it will be enough to keep the company from losing significant revenues.
All generic-drug makers are looking to the future as Eli Lilly & Co's Zyprexa antipsychotic, Pfizer Inc.'s (NYSE: PFE) popular Lipitor cholesterol busting drug, and Merck & Co.'s Singulair allergy and asthma drug become available for generic reproductions in the US in 2012. After losing Lipitor in November, Pfizer's overall revenue dropped 4%,. The company is compensating for the loss with massive reductions, including a 17% cut in R&D. It will be difficult for the company to be fiercely competitive with smaller R&D.
Teva carries $22 billion of goodwill and intangibles. While this seems to be a positive number at first glance, a company banking too much on its good name and reputation can falter later on down the road. After all, reputations can be ruined in an instance. While goodwill cannot be ignored, it must be balanced out with tangible book value before determining what a company is really worth. Teva carries a safe and positive tangible book value. The Teva business model of acquisitions and replications, exposes itself to a number of liabilities (trademark, copyright, etc.) while these are taken into account when valuating a company, and investor must also stop and ask if it is the best place to risk his or her money. For instance, Teva is in a legal battle for the rights to Copaxone against four other companies. The loss of Copaxone could be seriously damaging to revenue.
However, Teva is a smart company with excellent leadership. The company's acquisitions are methodical and well-timed to gain an edge in different markets. The company has also built in redundancies into the manufacturing process to protect itself against “disruptions” in Israel. Teva is posed for long term growth and stability, prepared for unfavorable conditions.
Teva receives a “proceed with caution” on buying, and a hold for current owners for now.
Motley Fool newsletter services recommend Pfizer and Teva Pharmaceutical Industries. The Motley Fool owns shares of Teva Pharmaceutical Industries. ErinAnnie has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
