WASHINGTON, May 15 (UPI) -- Teva failed to beat expectations in its first-quarter earnings report, and analysts are expressing concern about the company's ability to sustain growth and the future of its multiple-sclerosis drug Copaxone.
S.G. Cowen analyst Ken Cacciatore downgraded Teva from "outperform" to "neutral" but noted that it was not predominantly due to the first-quarter results.
"What has changed is our conviction in the sustainability of the growth story -- which is now less certain," Cacciatore stated in a research report. "Also, management indicates that a greater portion of future growth should come from international markets --which due to our inability to appropriately monitor -- is of slightly lower quality."
He also faulted management for failing to present a clear growth strategy for 2007-2008 and expressed concern that Copaxone may not be as lucrative as previously thought.
"The Copaxone U.S. rights buyback that we assumed would provide a solid cushion in 2008 may not be as accretive as we originally conjectured," he stated. "There will be -- depending on the terms -- either a royalty to Sanofi-Aventis or amortization expense, either of which may limit the initial contribution far below what we had previously modeled."
Cacciatore said that the Food and Drug Administration's approval of Teva's generic Zocor, which he thinks the agency is very likely to grant, could give the firm's shares a brief boost. But he added, "That would in no way alter our Neutral rating."
Teva reported a first-quarter loss of $1 billion, or $1.40 per share. This included more than $1.2 billion related to its acquisition of Ivax in January.
Teva, which did not respond to a phone call from United Press International requesting comment, said in a statement excluding the Ivax costs yielded a better indicator of the firm's financial health. The adjusted net income for the quarter was $286 million, or a 10-percent increase from the year-ago quarter.
However, Teva included Ivax sales in its net-sales tally for the quarter, which increased 28 percent over the first quarter of 2005 to $1.6 billion. Ivax's sales totaled $329 million.
"We are very pleased with the results of this special quarter in which we began, and have made excellent progress in, the integration of IVAX into Teva," Israel Makov, Teva's president and chief executive officer, said in a statement.
Despite analysts' reservations about the multiple-sclerosis drug, Makov emphasized Copaxone's performance during the quarter.
"This was an especially good quarter for Copaxone, which continues to break sales records and to outpace the growth of the global MS market," he said. "We are very excited about 2006, which we believe will be a great year for Teva."
Global sales of Copaxone amounted to $329 million, an increase of 29 percent over the year-ago quarter. The drug is now the second-largest MS treatment worldwide, Teva said.
Bank of America analyst David Maris wondered if Teva's poor showing reflected an overall trend among generic companies.
"Are the times changing for all of generics or is this just a hiccup for Teva?" Maris asked in a research report. "A valid question, given Teva is the latest of several generic companies to miss the quarter."
Maris thinks Teva's troubles are reflective of changes across the generic industry that are partly due to the emergence of companies in India. "Vertically integrated India-based competitors have too great a cost advantage to not have major impacts in the U.S. pricing environment -- making commodity generics less profitable," he stated.
Challenges that specifically relate to Teva include the future of Copaxone, Maris said. The potential reintroduction of Elan/Biogen Idec's Tysabri and a Copaxone buyout in 2008 could create barriers for the drug.
"We are ... somewhat concerned that the undisclosed buyout price for Copaxone could be an eventual burden in 2008," Maris stated. "We believe that Teva has no real option of not buying the rights, but at that time the threat of generic Copaxone could be great."
Prudential analyst David Woodburn had a more positive view of Teva, stating in a research report that he thought the company continued to be "a steady and stable earnings grower amongst much more volatile peer companies, and with potential for upside."
Woodburn maintained his "overweight" rating, stating, "Do we think that Teva shares offer an attractive value at this point? Yes, but we admit there's some uncertainty as to exactly when share appreciation will restart."
Potential catalysts in the near-term include FDA approval of Teva's generic Zocor and its proprietary products Agilect and albuterol BAI, Woodburn said.
However, he added that he thinks the FDA decision on Zocor could go either way after the May 1 ruling by the U.S. District Court for the District of Columbia that granted Teva and Ranbaxy's motions for summary judgment for 180-days exclusivity on generic versions of the drug.
Teva said Agilect, an irreversible monoamine oxidase type-B inhibitor being developed for the treatment of Parkinson's disease, could be launched in the United States this year.
Woodburn estimated Agilect could generate $95 million in sales in 2007 and ultimately bring in peak sales of $150 million.
