Sector Snap: Generic drug cos. show strong profits

Israeli-based Teva said the company's profit surged 20 percent in the third quarter on higher sales of its low-cost generic medications and branded multiple-sclerosis treatment Copaxone.

Based on the performance, Teva raised its full-year earnings guidance to between $2.79 and $2.85 per share from $2.69 to $2.75 per share.

Teva is the word's largest generic drugmaker and is in the process of buying rival Barr for $7.5 billion, a move that will expand its presence throughout the world. Barr will hold a meeting Nov. 21 at its Montvale, N.J.-based headquarters to allow shareholders to vote on the purchase plan. The deal is expected to close by the end of the year.

Cowen and Co. analyst Ken Cacciatore reiterated an "outperform" rating for Teva, indicating the acquisition could help push company earnings even higher.

"Given the broadening diversification and strength of Teva's various franchises--including the assumed contribution from Barr--we believe additional upside exists to our 2009 to 2012 estimates," Cacciatore wrote in a note to investors.

Barr Pharmaceuticals' profit shrank 21 percent in the third quarter, as greater costs counteracted rising sales of its generic birth control pills.

But excluding one-time costs, it said its earnings grew to 83 cents per share from 71 cents per share. And revenue rose 22 percent as product sales improved while other revenue held steady.

The generic pharmaceutical industry is one of the few health care sectors expected to flourish during the anticipated recession. As ballooning health care costs threaten cash-strapped companies and consumers, low-cost generics are seen as one way to reduce spending.

"I believe the financial crisis will create an even more urgent need for high quality generics as government, payers and patients around the world face increased financial pressures," Teva Chief Executive Shlomo Yanai said in a conference call with investors.