FRX Forest Road Acquisition Corp

Teva Pharmaceutical Industries Ltd. (TEVA) recently provided guidance for 2012. The company expects to earn $5.48 and $5.68 per share on total net sales of about $22 billion. Guidance was generally in line with expectations. While the Zacks Consensus Earnings Estimate, prior to the release of guidance, was $5.62, the Zacks Consensus Revenue Estimate was about $21.8 billion. The Cephalon acquisition is expected to boost 2012 earnings by 20-25 cents.

Teva expects to generate $11 billion sales in the US with the EU and Rest of the World (RoW) generating sales of $6.6 billion and $4.4 billion, respectively. The major chunk of revenues ($11.8 billion) will be provided by the generics business.

US Generics Biz to Rebound

Teva’s US generics business, which has been performing below expectations over the past few quarters, is expected to rebound in 2012. The company is guiding towards sales of $5 billion, with sales slated to benefit from patent expirations and product launches. New generic launches are expected to contribute $650 million to sales. However, we were disappointed to hear that new product launches do not include the generic version of Abbott Laboratories’ (ABT) TriCor.

Performance in the EU generics business will remain strong at $4 billion with Teva holding a leading position in several EU markets. RoW generic product sales are expected to be about $2.8 billion, with Japan and Russia continuing to perform well.

Meanwhile, branded products are expected to contribute $8.2 billion to the top line with multiple sclerosis drug, Copaxone, contributing $3.8 billion. Oncology product, Treanda (a part of Cephalon’s portfolio), is expected to generate sales of $550 million. Sleep disorder drugs Provigil and Nuvigil are expected to generate sales of $375 million and $300 million, respectively.

While Women’s Health products are expected to contribute $525 million to revenues, ProAir HFA is expected to generate revenues of $490 million. QVAR and Azilect are slated to post revenues of $400 million and $350 million, respectively. Finally, OTC sales are expected to be about $1 billion. Teva has a partnership agreement with Procter & Gamble (PG) that will target the consumer health care market. Other net sales are also expected to be $1 billion.

Teva expects to spend between 6.9% to $7.3% of net sales on R&D. With the Cephalon acquisition, Teva now has 40 late stage clinical programs, most of which are in phase III. We expect detailed information on the company’s innovative pipeline mid-2012.

Selling & marketing expenses (including royalties of about $400 million) are expected to range between 18.4% and 20% of net sales. General and administrative expenses are expected in the range of 5.1% - 5.5% of net sales.

First and Last Quarters to be Strong

As far as quarterly performance is concerned, the first quarter is expected to be relatively strong mainly due to Provigil and the launch of a generic version of Forest Laboratories’ (FRX) Lexapro. The second and third quarters of 2012 will be lighter with the entry of generic versions of Provigil. The fourth quarter is expected to be strong on the back of several generic launches and the winter seasonality effect.

Positive on Share Buyback Program

Teva also announced a share buyback program. The company will be repurchasing shares worth up to $3 billion, potentially over a three-year time frame. The share buyback will be financed out of free cash flow, which is expected to be about $3 billion in 2012. We are positive on this program which will return value to shareholders.

Our Take

We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short-term Hold rating). We are encouraged to see that the company has set achievable targets for 2012. However, we expect the stock to remain range-bound given the lack of significant catalysts.

 
ABBOTT LABS (ABT): Free Stock Analysis Report
 
FOREST LABS A (FRX): Free Stock Analysis Report
 
PROCTER & GAMBL (PG): Free Stock Analysis Report
 
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research