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Teva Pharmaceuticals Industries Ltd., the world's biggest supplier of generic drugs, more than doubled net profit in the third quarter, but questions about long-term growth prospects and the replacement of its CEO lingered.
"This was a brilliant quarter for Teva, with record financial results driven by strong performances from all of our businesses and geographies, including record-breaking results in both North America and our international business,"said Israel Makov, Teva's president and CEO told The Jerusalem Post. "This quarter was driven by the the extremely successful launches of two very major generic products in the US, and the excellent launch of Azilect, our second innovative product, in the US market."
Teva's net profit for the period rose to $606 million, or 74 cents a share, from $267m., or 40 cents, a year earlier. Analysts were expecting around $535m., or 63 cents a share. In addition, Teva raised its earnings forecast for the full year to $2.25-2.35 a share from $2.15-2.25.
"Overall it was a surprisingly good quarter at the bottom line, although I expected a very good result of the quarter," said Yisca Erez, analyst at Clal Finance Batucha.
Net sales at the Petah Tikva-based company jumped 74 percent to $2.28 billion, compared with average market expectations of $2.33b. and $1.13b. in the same quarter of 2005.
"Sales were slightly below our expectations but still in a good range," said Erez.
Analysts attributed the surge in sales and profit to the merger with Ivax and the exclusive rights to sell copycat versions of blockbuster drugs in the US, such as for Pfizer's anti-depressant Zoloft, Merck & Co's anti-cholesterol drug Zocor and Bristol-Myers Squibb Co.'s Pravachol.
Teva improved its gross profit margin to 55.2%, compared with 47.2% for all of 2005.
North American pharmaceutical sales (including Copaxone) topped $1.32b. in the quarter, compared to $707m. in the corresponding quarter of 2005, accounting for 62% of net sales. Pharmaceutical sales in Europe (including Copaxone), which made of 23% of sales, increased 36% in the quarter to $464m.
"Prior to the results, I had my reservations over whether earnings growth potential, which seems limited at the moment, was sustainable looking ahead to 2007," said Erez. "In the conference call, Teva did not provide a forecast for 2007, but indicated that management was expecting single-digit growth for next year." Previously Teva's management had established a growth target of 15-17% for 2006 to 2010.
Makov admitted that profit growth in 2007 would be more challenging given the overwhelming results in 2006.
"If compared with 2006, the growth level next year will be normalized and, therefore, slower," he said.
In addition, Teva announced Tuesday that its board of directors had authorized the company to repurchase up to $600m. of its shares.
Clal's Erez, meanwhile, noted that much uncertainty remained in the market over the successful succession of incoming CEO Shlomo Yanai, who will replace Makov but has no experience in the pharmaceutical industry.
"There are still questions over how much help Yanai can get from management to swiftly move into the position and study the ins and outs of the pharmaceutical sector," she said. "The influence of his succession will not be felt before the end of 2007 or 2008."