*Teva (TEVA) surprised on the upside today reporting Q4 sales of $6.5 bn and full year sales of $21.9 bn, both nicely over estimates, thanks to its continued good performance in its two main business lines, generics and multiple sclerosis drug Copaxone. The full year 11% rise and Q4 rise of a third were boosted by the consolidation of Activis Generics in H2. Analysts had forecast sales of $6.26 bn. However profits were down sharply, a $1.10 loss/sh in Q4, and a mere 7 cents profit/sh for the full year 2016. (GAAP figures). The profit numbers also beat analyst forecasts. TEVA stock gained about 5.5% on Wall St.

Interim CEO Isaac Peterburg also provided non-GAAP figures removing one-offs, of $5.14/sh profits in 2016 and $1.38 in Q4. The adjustments ranged from offsetting currency-related losses for Teva, a dollar company, to excluding huge but meaningless gains in profits and sales from Venezuela. The figure excluded $900 mn of goodwill impairment over the Rimsa takeover in Mexico and a similar impairment over Zecuity, and hefty fines paid to the US DoJ and SEC. But it also excluded gains of the sale of $693 mn of former bits of Actavis Generics.

Teva also spent heavily on R&D, up 38% to $2.1 bn. Excluding share options to researchers, the R&D level was $1.7 bn vs prior year $1.3 bn, with spending up most in generics and specialty meds.

Teva also produced adjusted cash-flow numbers (excluding amortization and depreciation but including interest and lowered taxes) at $7.3 bn, up 11% y/o/y.

Sector-wise generics profits hit $1.075 bn in 2016 vs a mere $693 mn (before Activis Generics was taken over August 1) in 2015. In Q4 the jump was 55% to generics profits of $1.075 bn. Specialty meds profits rose 1% y/o/y and 9% in Q4, hitting $1.24 bn.

In the course of 2016, Teva disbursed $35.74 bn for the Activis and other buys, of which $25.22 bn came from financing activities, all in Q4. I think this was the reason for Erez Vigodman being ousted. Teva was behaving like Trump, which worried the century-old company's senior shareholders. At that time no guidance was given for the current year, frightening them even more.

Making the case for the higher non-GAAP numbers was GAAP cash flow from operations, a healthy $1.4 bn in Q4 and $5.2 bn in the whole year, which Dr. Peterburg called “a transitional year”. He outlined a plan to immediately move to “extracting synergies” with Activis generics, a matter which some analysts fear will delay the naming of a new CEO.

The reason may have been that Dr. Peterberg reiterated Teva's non-GAAP forecasts for this year, of revenues of $23.8 -$24.5 bn, and non-GAAP EPS of $4.9-$5.3/sh. This certainly helped boost TEVA.

While Teva is up it has been a rocky road, with two senior executives ousted and a dramatic price drop after some of the Copaxone patents were disallowed by US courts. That was when I averaged down at the price now showing on our tables.

In the end, some of the MS drug patents still apply and Teva's Copaxone profits rose 14% in Q4 to $816 mn. Its total non-generic pharmaceutical sector gross profits rose 5% last year to $7.558 bn and net profits rose 7% to $4.662 bn, both up modestly. This is where the future of Teva will be played out. It will continue to spend on R&D and drug development, balancing its generic arm. I am enthusiastic about the way the labs keep working away despite the upheaval in the boardroom. A source at Teva says that the company had become “an unhappy place” at the end of last year for researchers. That may now correct under Dr. Peterberg.

I don't think Teva wants to split in two, hiving off its ethical drugs and the associated debt while keeping the generic side, but that street talk also is boosting Teva's share price. But the conference call wanted that discussed. It will have to wait for a real CEO said board chairman Sol Barer. He also said: “the line between specialty and generics isn't what it once was.” Specialty is Teva's terms for ethical (patented) drugs.

*Keeping up both generic and ethical drugs is a developed strategy used by Swiss Roche Holdings.