Teva Reports Second Quarter 2019 Financial Results
August 7, 2019- Revenues of $4.3 billion
- GAAP diluted loss per share of $0.63
- Non-GAAP diluted EPS of $0.60
- Spend base reduction of $2.7 billion since initiation of the restructuring plan in 2018; on-track to achieve $3.0 billion by the end of 2019
- Full year 2019 revenues and EPS guidance reaffirmed
JERUSALEM–(BUSINESS WIRE)–Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA) today reported results for the quarter ended June 30, 2019.
Mr. Kåre Schultz, Teva’s President and CEO, said, “During the second quarter, portfolio optimization and new launches stabilized our North American generics business, COPAXONE® performed above expectations and AUSTEDO® achieved a very strong growth rate. We continue to focus our efforts on growth for AJOVY® in the US and are excited by the early momentum of the product’s recent launches in the EU.”
Mr. Schultz continued: “We are on track to achieve the targets of our two year restructuring plan and based on our good results for the first half of the year we are reaffirming our full year guidance.”
Second Quarter 2019 Consolidated Results
Revenues in the second quarter of 2019 were $4,337 million, a decrease of 8%, or 5% in local currency terms, compared to the second quarter of 2018, mainly due to generic competition to COPAXONE®, as well as declines in revenues from TREANDA®/BENDEKA®, certain other specialty products in the U.S., our Europe segment and Japan, partially offset by higher revenues from AUSTEDO®, AJOVY® and QVAR® in the United States.
Exchange rate differences between the second quarter of 2019 and the second quarter of 2018 negatively impacted our revenues and GAAP operating income by $125 million and $41 million, respectively. Our non-GAAP operating income was negatively impacted by $47 million.
GAAP gross profit was $1,893 million in the second quarter of 2019, a decrease of 7% compared to the second quarter of 2018. GAAP gross profit margin was 43.7% in the second quarter of 2019, compared to 43.2% in the second quarter of 2018. Non-GAAP gross profit was $2,188 million in the second quarter of 2019, a decline of 6% compared to the second quarter of 2018. Non-GAAP gross profit margin was 50.5% in the second quarter of 2019, compared to 49.7% in the second quarter of 2018. The increase in gross profit as a percentage of revenues was mainly due to higher profitability in Europe, partially offset by lower profitability in North America, resulting mainly from a decline in COPAXONE revenues due to generic competition.
GAAP Research and Development (R&D) expenses in the second quarter of 2019 were $276 million, a decrease of 5% compared to the second quarter of 2018. Non-GAAP R&D expenses were $271 million, or 6.2% of quarterly revenues in the second quarter of 2019, compared to $281 million, or 6.0%, in the second quarter of 2018. The decrease in R&D expenses resulted primarily from pipeline optimization and related headcount reductions.
GAAP Selling and Marketing (S&M) expenses in the second quarter of 2019 were $666 million, a decrease of 2% compared to the second quarter of 2018. Non-GAAP S&M expenses were $621 million, or 14.3% of quarterly revenues, in the second quarter of 2019, compared to $634 million, or 13.5%, in the second quarter of 2018. The decrease was mainly due to cost reduction and efficiency measures as part of the restructuring plan.
GAAP General and Administrative (G&A) expenses in the second quarter of 2019 were $296 million, a decrease of 6% compared to the second quarter of 2018. Non-GAAP G&A expenses were $286 million, or 6.6% of quarterly revenues, in the second quarter of 2019, compared to $292 million, or 6.2%, in the second quarter of 2018. The decrease was mainly due to cost reduction and efficiency measures as part of the restructuring plan.
GAAP other income in the second quarter of 2019 was $9 million, compared to $96 million in the second quarter of 2018. We did not have Non-GAAP other income in the second quarter of 2019, compared to $106 million in the second quarter of 2018. Other income in the second quarter of 2018 was primarily the result of legal recovery of lost profits, where U.S. patent infringement litigation had previously prevented a product’s sales.
GAAP operating loss in the second quarter of 2019 was $644 million, compared to $14 million in the second quarter of 2018. Non-GAAP operating income in the second quarter of 2019 was $1,011 million, a decrease of 18% compared to $1,238 million in the second quarter of 2018. The decrease in non-GAAP operating income was mainly due to lower profits in North America resulting mainly from a decline in COPAXONE revenues due to generic competition, lower revenues of certain other specialty products in North America and the lack of other income, partially offset by cost reductions and efficiency measures as part of the restructuring plan and higher revenues of AUSTEDO.
EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,144 million in the second quarter of 2019, a decrease of 18% compared to $1,387 million in the second quarter of 2018.
GAAP financial expenses were $206 million in the second quarter of 2019, compared to $236 million in the second quarter of 2018.
Non-GAAP financial expenses were $198 million in the second quarter of 2019, compared to $238 million in the second quarter of 2018. The decrease in non-GAAP financial expenses was mainly due to gains on our hedging and derivatives activities, lower interest expenses resulting from debt prepayments during the period, as well as increased financial income derived from higher average cash balances.
In the second quarter of 2019, we recognized a tax benefit of $179 million, or 21%, on pre-tax loss of $850 million. In the second quarter of 2018, we recognized a tax benefit of $76 million, or 30%, on pre-tax loss of $250 million. Our tax rate for the second quarter of 2019 was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act. Non-GAAP income taxes for the second quarter of 2019 were $134 million, or 16%, on pre-tax non-GAAP income of $812 million. Non-GAAP income taxes in the second quarter of 2018 were $127 million, or 13%, on pre-tax non-GAAP income of $1,000 million. Our non-GAAP tax rate for the second quarter of 2019 was mainly affected by the mix of products sold in different geographies and the enactment of the U.S. Tax Cuts and Jobs Act.
Net loss attributable to ordinary shareholders was $689 million in the second quarter of 2019, compared to net loss of $241 million in the second quarter of 2018. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the second quarter of 2019 were $653 million and $0.60, respectively, compared to $794 million and $0.78 in the second quarter of 2018.
The weighted average diluted outstanding shares used for the fully diluted share calculation on a GAAP basis for the three months ended June 30, 2019 and 2018 were 1,092 million and 1,018 million shares, respectively. The weighted average outstanding shares for the fully diluted EPS calculation on a non-GAAP basis for the three months ended June 30, 2019 and 2018 were 1,093 million, and 1,021 million, respectively. The increase was mainly due to the conversion of the mandatory convertible preferred shares to ordinary shares on December 17, 2018.
As of June 30, 2019 and 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,107 million and 1,109 million, respectively.
Non-GAAP information: Net non-GAAP adjustments in the second quarter of 2019 were $1,342 million. Non-GAAP net income and non-GAAP EPS for the second quarter of 2019 were adjusted to exclude the following items:
- Legal settlements and loss contingencies of $646 million, mainly related to the $85 million settlement paid in the litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases;
- Impairment of long-lived assets of $609 million, comprised mainly of impairment of intangible assets of product rights and IPR&D assets related to the Actavis Generics acquisition;
- Amortization of purchased intangible assets amounting to $285 million, of which $249 million is included in cost of goods sold and the remaining $35 million in S&M expenses;
- Restructuring expenses of $47 million;
- Equity compensation expenses of $35 million;
- Contingent consideration expenses of $24 million;
- Minority income of $8 million;
- Other non-GAAP items expenses of $17 million; and
- Income tax of $312 million.
Teva believes that excluding such items facilitates investors’ understanding of its business. See the attached tables for a reconciliation of the GAAP results to the adjusted non-GAAP figures. Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.
Cash flow used in operating activities during the second quarter of 2019 was $227 million, compared to cash flow generated from operating activities of $162 million in the second quarter of 2018.
Free cash flow (cash flow generated from operations net of cash received for capital investments and beneficial interest collected in exchange for securitized trade receivables) was $168 million in the second quarter of 2019, compared to $559 million in the second quarter of 2018. The decrease in cash flow in the second quarter of 2019 was mainly due to lower revenues, timing of certain customer payments and credits and payments of U.S. customer rebates paid this quarter, primarily related to managed care and Medicaid.
As of June 30, 2019, our debt was $28,726 million, compared to $28,624 million as of March 31, 2019. The increase was mainly due to exchange rates fluctuations.
During the first quarter of 2019, we repurchased and canceled approximately $126 million principal amount of our $1,700 million 1.7% senior notes due July 2019.
During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our $1,574 million 1.7% senior notes due July 2019.
In July 2019, we repaid at maturity our $1,556 million 1.7% senior notes.
In April 2019, the Company entered into a $2.3 billion unsecured syndicated revolving credit facility (“RCF”), which replaced the previous $3 billion RCF. The RCF can be used for general corporate purposes, including repaying existing debt. As of June 30, 2019, no amounts were outstanding under the RCF. As of the date of this press release, $500 million was outstanding under the RCF.
The portion of total debt classified as short-term as of June 30, 2019 was 10%, similar to March 31, 2019.
Segment Results for the Second Quarter 2019
North America Segment
Our North America segment includes the United States and Canada.
The following table presents revenues, expenses and profit for our North America segment for the three months ended June 30, 2019 and 2018:
|
|
Three months ended June 30, |
|||||||||||
|
|
2019 |
|
2018 |
|||||||||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||||||||
|
Revenues |
|
2,071 |
100 |
% |
|
2,263 |
|
100.0 |
% |
|||
|
Gross profit |
|
1,067 |
51.5 |
% |
|
1,179 |
|
52.1 |
% |
|||
|
R&D expenses |
|
175 |
8.5 |
% |
|
182 |
|
8.0 |
% |
|||
|
S&M expenses |
|
269 |
13.0 |
% |
|
272 |
|
12.0 |
% |
|||
|
G&A expenses |
|
117 |
5.6 |
% |
|
103 |
|
4.6 |
% |
|||
|
Other income |
|
2 |
§ |
|
(100 |
) |
(4.4 |
%) |
||||
|
Segment profit* |
|
504 |
24.3 |
% |
|
722 |
|
31.9 |
% |
|||
|
|
|
|
|
|
|
|
||||||
|
* Segment profit does not include amortization and certain other items. |
||||||||||||
|
§ Represents an amount less than 0.5%. |
||||||||||||
Revenues from our North America segment in the second quarter of 2019 were $2,071 million, a decrease of $192 million, or 8%, compared to the second quarter of 2018, mainly due to a decline in revenues of COPAXONE, TREANDA/BENDEKA and certain other specialty products, partially offset by higher revenues from our Anda business, QVAR, AUSTEDO and AJOVY. Revenues in the United States, our largest market, were $1,927 million in the second quarter of 2019, a decrease of $203 million, or 10%, compared to the second quarter of 2018.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the three months ended June 30, 2019 and 2018:
|
|
|
|
|
|
|||||
|
|
|
Three months ended June 30, |
|
Percentage Change |
|||||
|
|
|
2019 |
|
2018 |
|
2019-2018 |
|||
|
|
|
(U.S. $ in millions) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
Generic products |
|
$ |
946 |
|
$ |
947 |
|
§ |
|
|
COPAXONE |
|
|
274 |
|
|
464 |
|
(41 |
%) |
|
TREANDA/BENDEKA |
|
|
115 |
|
|
160 |
|
(28 |
%) |
|
ProAir* |
|
|
65 |
|
|
115 |
|
(44 |
%) |
|
QVAR |
|
|
60 |
|
|
30 |
|
103 |
% |
|
AJOVY |
|
|
23 |
|
|
– |
|
NA |
|
|
AUSTEDO |
|
|
96 |
|
|
44 |
|
117 |
% |
|
Anda |
|
|
351 |
|
|
320 |
|
10 |
% |
|
Other |
|
|
141 |
|
|
183 |
|
(23 |
%) |
|
Total |
|
$ |
2,071 |
|
$ |
2,263 |
|
(8 |
%) |
|
* Does not include sales of ProAir authorized generic, which are included under generics |
|||||||||
|
§ Represents an amount less than 0.5%. |
|||||||||
Generic products revenues in our North America segment in the second quarter of 2019 were $946 million flat compared to the second quarter of 2018, mainly due to new generic product launches, offset by market dynamics, including product mix and price erosion in our U.S. generics business.
In the second quarter of 2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 404 million total prescriptions (based on trailing twelve months), representing 11% of total U.S. generic prescriptions according to IQVIA data.
COPAXONE revenues in our North America segment in the second quarter of 2019 decreased by 41% to $274 million, compared to the second quarter of 2018, mainly due to generic competition in the United States.
COPAXONE revenues in the United States were $260 million in the second quarter of 2019.
BENDEKA and TREANDA combined revenues in our North America segment in the second quarter of 2019 decreased by 28% to $115 million, compared to the second quarter of 2018, mainly due to lower volumes and lower pricing, resulting partly from the June 2018 launch of a ready-to-dilute bendamustine hydrochloride by Eagle Pharmaceuticals, Inc.
ProAir revenues in our North America segment in the second quarter of 2019 decreased by 44% to $65 million, compared to the second quarter of 2018, mainly due to lower volumes as well as lower net pricing. In January 2019, we launched our own ProAir authorized generic in the United States following the launch of a generic version of Ventolin® HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in “generic products” above.
QVAR revenues in our North America segment in the second quarter of 2019 increased by 103% to $60 million, compared to the second quarter of 2018, which was a transition period due to the launch of QVAR RediHaler™.
AJOVY revenues in our North America segment in the second quarter of 2019 were $23 million. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults.
AUSTEDO revenues in our North America segment in the second quarter of 2019 increased by 117%, to $96 million, compared to $44 million in the second quarter of 2018.
Anda revenues in our North America segment increased by 10% to $351 million in the second quarter of 2019, compared to the second quarter of 2018 mainly due to higher volumes.
North America Gross Profit
Gross profit from our North America segment in the second quarter of 2019 was $1,067 million, a decrease of 9%, compared to $1,179 million in the second quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE, as well as a decline in sales of certain other specialty products, partially offset by increases in sales of AUSTEDO, QVAR and AJOVY. Gross profit margin for our North America segment in the second quarter of 2019 decreased to 51.5%, compared to 52.1% in the second quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE and certain other specialty products, partially offset by improved gross profit margin of generic products.
North America Profit
Profit of our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our North America segment in the second quarter of 2019 was $504 million, a decrease of 30%, compared to $722 million in the second quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE, as well as a decline in sales of certain other specialty products and non-recurrence of other income, partially offset by increases in sales of AUSTEDO and QVAR, as well as cost reductions and efficiency measures as part of the restructuring plan.
Europe Segment
Our Europe segment includes the European Union and certain other European countries.
The following table presents revenues, expenses and profit for our Europe segment for the three months ended June 30, 2019 and 2018:
|
|
Three months ended June 30, |
|||||||||||
|
|
2019 |
|
2018 |
|||||||||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||||||||
|
Revenues |
|
1,183 |
100 |
% |
|
1,328 |
|
100 |
% |
|||
|
Gross profit |
|
674 |
56.9 |
% |
|
727 |
|
54.7 |
% |
|||
|
R&D expenses |
|
70 |
5.9 |
% |
|
73 |
|
5.5 |
% |
|||
|
S&M expenses |
|
216 |
18.3 |
% |
|
233 |
|
17.5 |
% |
|||
|
G&A expenses |
|
70 |
5.9 |
% |
|
78 |
|
5.9 |
% |
|||
|
Other income |
|
1 |
§ |
|
(3 |
) |
§ |
|||||
|
Segment profit* |
|
316 |
26.7 |
% |
|
346 |
|
26.1 |
% |
|||
|
___________ |
|
|
|
|
|
|
||||||
|
* Segment profit does not include amortization and certain other items. |
||||||||||||
|
§ Represents an amount less than 0.5%. |
||||||||||||
Revenues from our Europe segment in the second quarter of 2019 were $1,183 million, a decrease of 11% or $145 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 5%, mainly due to a decline in COPAXONE revenues due to the entry of competing glatiramer acetate products and the termination of the PGT joint venture, partially offset by new generic product launches.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the three months ended June 30, 2019 and 2018:
|
|
|
Three months ended June 30, |
|
Percentage Change |
|||||
|
|
|
2019 |
|
2018 |
|
2018-2019 |
|||
|
|
|
(U.S. $ in millions) |
|
|
|||||
|
Generic products |
|
$ |
844 |
|
$ |
907 |
|
(7 |
%) |
|
COPAXONE |
|
|
107 |
|
|
140 |
|
(24 |
%) |
|
Respiratory products |
|
|
89 |
|
|
106 |
|
(16 |
%) |
|
Other |
|
|
143 |
|
|
175 |
|
(18 |
%) |
|
Total |
|
$ |
1,183 |
|
$ |
1,328 |
|
(11 |
%) |
Generic products revenues in our Europe segment in the second quarter of 2019, including OTC products, decreased by 7% to $844 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 1% compared to the second quarter of 2018, mainly due to the loss of revenues from the termination of the PGT joint venture and volume decline due to specific market conditions in various European Union countries, partially offset by new generic product launches.
COPAXONE revenues in our Europe segment in the second quarter of 2019 decreased by 24% to $107 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 19%, mainly due to price reductions resulting from the entry of competing glatiramer acetate products.
Respiratory products revenues in our Europe segment in the second quarter of 2019 decreased by 16% to $89 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 11%, mainly due to lower sales in the United Kingdom.
Europe Gross Profit
Gross profit from our Europe segment in the second quarter of 2019 was $674 million, a decrease of 7% compared to $727 million in the second quarter of 2018. The decrease was mainly due to a decline in COPAXONE revenues, and the impact of currency fluctuations, partially offset by new generic product launches.
Gross profit margin for our Europe segment in the second quarter of 2019 increased to 56.9%, compared to 54.7% in the second quarter of 2018. The increase was mainly due to lower cost of goods sold related to the termination of the PGT joint venture and network optimization.
Europe Profit
Profit of our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our Europe segment in the second quarter of 2019 was $316 million, a decrease of 9% compared to $346 million in the second quarter of 2018. The decrease was mainly due to lower revenues and the impact of currency fluctuations, partially offset by impact of cost reductions and efficiency measures as part of the restructuring plan.
International Markets Segment
Our International Markets segment includes all countries other than those in our North America and Europe segments. The key markets in this segment are Israel, Japan and Russia.
The following table presents revenues, expenses and profit for our International Markets segment for the three months ended June 30, 2019 and 2018:
|
|
Three months ended June 30, |
||||||||||||
|
|
2019 |
|
2018 |
||||||||||
|
|
(U.S. $ in millions / % of Segment Revenues) |
||||||||||||
|
Revenues |
|
741 |
|
100 |
% |
|
789 |
|
100 |
% |
|||
|
Gross profit |
|
312 |
|
42.1 |
% |
|
328 |
|
41.5 |
% |
|||
|
R&D expenses |
|
24 |
|
3.2 |
% |
|
25 |
|
3.2 |
% |
|||
|
S&M expenses |
|
119 |
|
16.1 |
% |
|
130 |
|
16.4 |
% |
|||
|
G&A expenses |
|
34 |
|
4.7 |
% |
|
37 |
|
4.7 |
% |
|||
|
Other income |
|
(1 |
) |
§ |
|
(3 |
) |
§ |
|||||
|
Segment profit* |
|
136 |
|
18.3 |
% |
|
139 |
|
17.6 |
% |
|||
|
__________ |
|
|
|
|
|
|
|||||||
|
* Segment profit does not include amortization and certain other items. |
|||||||||||||
|
§ Represents an amount less than 0.5%. |
|||||||||||||
|
|
|||||||||||||
Revenues from our International Markets segment in the second quarter of 2019 were $741 million, a decrease of $48 million, or 6%, compared to the second quarter of 2018. In local currency terms, revenues decreased 2% compared to the second quarter of 2018, mainly due to lower sales in Japan, partially offset by higher sales in Russia.
Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the three months ended June 30, 2019 and 2018:
|
|
|
|
|
|
|||||
|
|
|
Three months ended June 30, |
|
Percentage Change |
|||||
|
|
|
2019 |
|
2018 |
|
2018-2019 |
|||
|
|
|
(U.S. $ in millions) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
Generic products |
|
$ |
489 |
|
$ |
537 |
|
(9 |
%) |
|
COPAXONE |
|
|
13 |
|
|
22 |
|
(40 |
%) |
|
Distribution |
|
|
164 |
|
|
154 |
|
6 |
% |
|
Other |
|
|
75 |
|
|
76 |
|
(1 |
%) |
|
Total |
|
$ |
741 |
|
$ |
789 |
|
(6 |
%) |
Generic products revenues in our International Markets segment in the second quarter of 2019, which include OTC products, decreased by 9% to $489 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 4%, mainly due to lower sales in Japan resulting from generic competition to off-patented products, partially offset by higher sales in Russia.
COPAXONE revenues in our International Markets segment in the second quarter of 2019 decreased by 40% to $13 million, compared to the second quarter of 2018. In local currency terms, revenues decreased by 28%.
Distribution revenues in our International Markets segment in the second quarter of 2019 increased by 6% to $164 million, compared to the second quarter of 2018. In local currency terms, revenues increased by 7%.
International Markets Gross Profit
Gross profit from our International Markets segment in the second quarter of 2019 was $312 million, a decrease of 5% compared to $328 million in the second quarter of 2018.
Gross profit margin for our International Markets segment in the second quarter of 2019 increased to 42.1%, compared to 41.5% in the second quarter of 2018. The increase was mainly due to lower cost of goods and portfolio optimization, mainly in Russia and Israel.
International Markets Profit
Profit of our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our International Markets segment in the second quarter of 2019 was $136 million, a decrease of 2% compared to $139 million in the second quarter of 2018. The decrease was mainly due to lower sales in Japan resulting from generic competition to off-patent products, partially offset by higher sales in Russia and cost reductions and efficiency measures as part of the restructuring plan.
Contacts
IR Contacts
United States
Kevin C. Mannix
(215) 591-8912
Ran Meir
972 (3) 926-7516
PR Contacts
United States
Kelley Dougherty
(973) 832-2810
Israel
Yonatan Beker
972 (54) 888 5898