Teva Tanks but Fans Hang In

Wall Streeters still like the drug maker's growth prospects.
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Teva Pharmaceutical

(TEVA) - Get Report

sank 11% Thursday after the world's largest generic-drug company disappointed Wall Street with a soft first quarter and subpar guidance.

The Israel-based drugmaker reported a gaping first-quarter loss Wednesday due to a charge related to its acquisition of onetime rival Ivax. The deal closed in January.

Teva lost $1 billion, or $1.40 a share, in the quarter, compared with earnings of $259.1 million, or 38 cents a share, a year ago. The latest quarter had a charge of $1.2 billion for the Ivax deal. Excluding that and a 1-cent stock-options expense, Teva earned 38 cents a share in the latest quarter, missing the Thomson First Call estimate by 3 cents.

First-quarter sales rose 28% from a year ago to $1.67 billion, also short of the Wall Street consensus, which was for sales of $1.9 billion.

Teva's stock was hit hard Thursday, sinking $4.53 to $38.38 by early afternoon. Trading volume was just over 29 million shares, or more than six times the average daily trade of 4.6 million shares for the past three months.

Teva lost ground in part because its earnings per share guidance of $1.82 to $1.90, excluding charges, was below the Thomson First Call consensus of $1.92. Revenue guidance of $8.2 billion to $8.5 billion was lower than the average prediction of $8.77 billion.

The company's fans weren't giving up, however.

"Though guidance is a bit disappointing relative to our expectations, Teva still has the best growth prospects in 2006 with continued growth in 2007, too," says David Woodburn, who follows major generic-drug companies for Prudential Equity Group. Woodburn was expecting full-year EPS of $1.94. He tells clients in a research note Thursday that he is maintaining an overweight rating. Woodburn doesn't own shares; his firm is a market maker.

"While these results will certainly come with a negative surprise," Teva's long-term prospects look good due to "strong generic product flow" and new brand-name drugs from Ivax, says Richard Watson, of William Blair & Co., in a report to clients. He has an outperform rating on Teva. Watson doesn't own shares; his firm is a market maker.

Teva has more fans than foes. Thomson First Call says there are 19 buy ratings, seven hold recommendations and only one sell rating.

"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," the company said. Teva said sales of its multiple sclerosis drug Copaxone rose 29% from a year ago to $329 million. By region, North American pharmaceuticals sales rose 17% to $851 million, making up 57% of total sales, while European pharmaceutical sales rose 17% to $381 million, or 26% of total sales.

"This was an especially good quarter for Copaxone, which continues to break sales records and to outpace the growth of the global MS market," Teva said.