Research & development continues to rise
In the first quarter of 2013, Teva’s R&D provision for specialty medicines rose to 10% compared to the first quarter of 2012. Nonetheless, other specialty medicines companies continue to allocate a larger portion of their revenue towards R&D as indicated in the chart below.
Pfizer’s R&D as percent of revenue reached 13% in the first quarter of 2013; Merck’s ratio is the highest of these three companies at 17%. Moreover, Merck slightly increased its R&D provision, which will help the company develop new treatments and thus reach growth in revenue in the future. Pfizer’s R&D as a percent of revenue remained nearly the same compared to the first quarter last year. Looking forward, the company may need to allocate more funds towards R&D in order to augment its revenue.
One of the reasons for Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s lower R&D-to-revenue ratio is its R&D allocation for generic drugs (roughly 38% of the company’s R&D is allotted toward generic drugs.) If Teva’s R&D-to-revenue ratio in the specialty medicines segment remains, the company’s potential growth in the future is questionable.
Dividend
Teva’s rise in dividend payment pulls its annual yield much closer to companies such as Pfizer and Merck. Teva’s current annual yield is nearly 2.8%. In comparison, Pfizer’s yearly dividend yield is 3.3%, and Merck’s annual dividend yield is 3.6%. Therefore, even though Teva has a large generic-business segment that has a much lower profit margin, its dividend yield isn’t much lower than specialty medicine companies such Pfizer and Merck.
The bottom line
Teva hasn’t done well in the first quarter, and based on the above, the company isn’t likely to show signs of recovery in the coming quarters. Nonetheless, the company’s lack of growth in revenue is common in the pharmaceutical industry. Moreover, its reasonable profit margin and dividend yield compared to other leading pharmaceutical companies suggest that the company isn’t doing much worse than companies such as Pfizer and Merck. But even so, I don’t think Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is a company worth having at this point, and I doubt if the company will surprise its investors in the coming quarters.
The article Is Teva Making a Comeback? originally appeared on Fool.com and is written by Lior Cohen.
Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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