Teva Pharmaceutical Industries Ltd.'s (TEVA, TEVA.TV) second-quarter net income dropped 28% on higher costs and charges, along with weakness in its key North American generics business.

The Israel-based generic drug giant's U.S. generics business saw sales drop 40% because of a dearth of product launches, while its European business helped offset the shortfall with boosts from an acquisition and weakness in the dollar. Teva expects its U.S. business to turn around later this year as major drug launches get underway, prompting the company to back its 2011 financial projections.

"We do not, in any way, view the challenges we face in the U.S. during the first half of 2011 as representing a trend," Shlomo Yanai, Teva's chief executive officer, said on a conference call Wednesday.

The company's earnings per share beat Wall Street estimates by 2 cents, while revenue was just below expectations.

American depositary shares of Teva dropped 1.4% to $46.12 in recent trading.

Teva backed its full-year adjusted earnings projection of $4.90 to $5.20 a share on sales of $18.5 billion to $19 billion. Wall Street analysts project 2011 earnings of $5.07 a share on revenue of $18.53 billion, according to Thomson Reuters.

For the third quarter, the company projected adjusted earnings of $1.22 a share, which is below analyst expectations of $1.35 a share.

The company's projection means that fourth-quarter adjusted earnings will be $1.54 to $1.84. Analysts currently estimate earnings of $1.61 a share, but the company could have to report fourth-quarter earnings of $1.71 a share to meet Wall Street's full-year estimate.

As the year progresses, Teva expects new products to help drive growth, including an exclusive generic version of Eli Lilly & Co.'s (LLY) antipsychotic Zyprexa, which had U.S. sales of $2.5 billion in 2010.

Teva said that the Food and Drug Administration has re-inspected a Jerusalem pill-making facility and found no issues at the site. The company received a warning letter earlier this year from the agency stemming from a September inspection that found deficiencies in reporting and quality-control systems.

Teva said that the FDA told the company that its response appears to address the issues at the plant and approvals for drugs made at the site have continued.

The company also said that production continues to increase at an Irvine, Calif., facility that was on voluntary hold for a year until April because of quality-control issues and regulatory intervention.

For the three months ended June 30, net income fell to $576 million, or 64 cents a share, from $797 million, or 88 cents a share, a year ago. Excluding items, earnings were $1.10 a share, beating an analyst estimate of $1.08.

Sales in the period rose 11% $4.21 billion, just missing expectations of $4.22 billion.

The quarter faced a tough comparison to a strong year-ago period that benefitted from several large drug launches in the U.S., while there were no major launches in the latest quarter.

North American sales dropped 15% to $2.1 billion, while European sales rose 82% to $1.48 billion. The company said there was some European organic growth--which excludes acquisitions--but that most of the region's increase came from its $5 billion deal for German generic-drug company Ratiopharm last year.

The European operations were also helped by weakness in the dollar versus the euro. In local currencies, sales in Europe grew by 60%. Teva said that foreign exchange boosted total sales by $222 million, compared with the year-ago quarter.

Sales of Teva's multiple sclerosis drug Copaxone rose 24% to $957 million in the period. The drug is generally more profitable for Teva than sales of generic drugs and has been a major growth driver over the years.

But its future has also been a source of uncertainty for investors as its faces a generic challenge from Mylan Inc. (MYL), Momenta Pharmaceuticals Inc. (MNTA) and Novartis AG (NVS, NOVN.VX). One trial related to the matter is ongoing, while the main trial is set for September.

Teva is also in the process of closing its acquisition of Cephalon Inc. (CEPH) for $6.8 billion. It now expects the deal to close in October, compared to previous expectations for the third quarter, as the Federal Trade Commission and European Commission need to approve the deal.

The company's financial guidance doesn't include the Cephalon acquisition.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

Cephalon (NASDAQ:CEPH)
Historical Stock Chart
From Jun 2024 to Jul 2024 Click Here for more Cephalon Charts.
Cephalon (NASDAQ:CEPH)
Historical Stock Chart
From Jul 2023 to Jul 2024 Click Here for more Cephalon Charts.