Teva Reports Third Quarter 2019 Financial Results
November 7, 2019- Revenues of $4.3 billion
- GAAP diluted loss per share of $0.29
- Non-GAAP diluted EPS of $0.58
- Free cash flow of $551 million
- Spend base reduction of $2.9 billion since initiation of the restructuring plan in 2018; on-track to achieve $3.0 billion by the end of 2019
-
Full year 2019 business outlook revised to:
- Net revenues of $17.2 – $ 17.4 billion (prior $17.0 – $ 17.4 billion)
- Operating income of $4.0 – $ 4.2 billion (prior $3.8 – $ 4.2 billion)
- EBITDA of $4.5 – $ 4.8 billion (prior $4.4 – $ 4.8 billion)
- EPS of $2.30 – $2.50 (prior $2.20 – $2.50)
- Free cash flow of $1.7 – $2.0 billion (prior $1.6 – $2.0 billion)
JERUSALEM–(BUSINESS WIRE)–Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA) today reported results for the quarter ended September 30, 2019.
Mr. Kåre Schultz, Teva’s President and CEO, said, “During the third quarter, we continued to make significant progress in achieving our 2019 goals. Free cash flow was especially strong in the quarter, totaling $550 million. Our North American generics business continued its steady trend, achieving sales of $914 million, supported by 39 new product launches in the first nine months of 2019, including generic EpiPen® Jr. Among our branded products, AUSTEDO® continues to demonstrate consistent growth, and AJOVY® maintained its U.S. market share and is being introduced in the EU.”
Mr. Schultz added: “We remain on track to achieve our two-year restructuring target of a $3 billion spend base reduction. Looking ahead, we are committed to driving long-term shareholder value by maximizing profits from existing core businesses, increasing sales of new brands and products, executing our biosimilar/biologics strategy, delivering manufacturing efficiencies, and generating strong free cash flow for debt repayment.”
Third Quarter 2019 Consolidated Results
Revenues in the third quarter of 2019 were $4,264 million, a decrease of 6%, or 5% in local currency terms, compared to the third quarter of 2018, mainly due to generic competition to COPAXONE®, a decline in revenues from BENDEKA® / TREANDA® and certain other specialty products in the United States, as well as a decline in revenues in Russia and Japan, partially offset by higher revenues from AUSTEDO®, AJOVY® and QVAR® in the United States.
Exchange rate differences between the third quarter of 2019 and the third quarter of 2018 negatively impacted our revenues and GAAP operating income by $55 million and $19 million, respectively. Our non-GAAP operating income was negatively impacted by $22 million.
GAAP gross profit was $1,830 million in the third quarter of 2019, a decrease of 7% compared to the third quarter of 2018. GAAP gross profit margin was 42.9% in the third quarter of 2019, compared to 43.7% in the third quarter of 2018. Non-GAAP gross profit was $2,103 million in the third quarter of 2019, a decline of 7% compared to the third quarter of 2018. Non-GAAP gross profit margin was 49.3% in the third quarter of 2019, compared to 49.9% in the third quarter of 2018. The decrease in gross profit as a percentage of revenues was mainly due to lower profitability in North America, resulting mainly from a decline in COPAXONE revenues due to generic competition, partially offset by higher profitability in Europe, resulting mainly from lower cost of goods sold related to network optimization.
GAAP Research and Development (R&D) expenses in the third quarter of 2019 were $240 million, a decrease of 23% compared to the third quarter of 2018. Non-GAAP R&D expenses were $242 million, or 5.7% of quarterly revenues, in the third quarter of 2019, compared to $243 million, or 5.4%, in the third quarter of 2018. The decrease in R&D expenses resulted from cost of labor reductions, pipeline optimization and project terminations, partially offset by increased investment in early stage projects.
GAAP Selling and Marketing (S&M) expenses in the third quarter of 2019 were $595 million, a decrease of 15% compared to the third quarter of 2018. Non-GAAP S&M expenses were $551 million, or 12.9% of quarterly revenues, in the third quarter of 2019, compared to $634 million, or 14.0%, in the third 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 third quarter of 2019 were $285 million, a decrease of 8% compared to the third quarter of 2018. Non-GAAP G&A expenses were $270 million, or 6.3% of quarterly revenues, in the third quarter of 2019, compared to $284 million, or 6.3%, in the third 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 third quarter of 2019 was $14 million, compared to $35 million in the third quarter of 2018. Non-GAAP other income in the third quarter of 2019 was $11 million, compared to $4 million in the third quarter of 2018.
GAAP operating loss in the third quarter of 2019 was $81 million, compared to GAAP operating income of $16 million in the third quarter of 2018. Non-GAAP operating income in the third quarter of 2019 was $1,051 million, a decrease of 5% compared to $1,104 million in the third quarter of 2018. The decrease in non-GAAP operating income was mainly due to lower profits in North America, mainly resulting from a decline in COPAXONE revenues due to generic competition and lower revenues from certain other specialty products in North America, partially offset by cost reductions and efficiency measures as part of the restructuring plan and higher revenues from AUSTEDO.
EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,183 million in the third quarter of 2019, a decrease of 6% compared to $1,254 million in the third quarter of 2018.
GAAP financial expenses were $211 million in the third quarter of 2019, compared to $229 million in the third quarter of 2018.
Non-GAAP financial expenses were $208 million in the third quarter of 2019, compared to $236 million in the third quarter of 2018. The decrease in non-GAAP financial expenses was mainly due to lower interest expenses resulting from debt prepayments during the period, as well as gains on our hedging and derivatives activities.
In the third quarter of 2019, we recognized a tax expense of $11 million, on pre-tax loss of $292 million. In the third quarter of 2018, we recognized a tax benefit of $26 million, or 12%, on pre-tax loss of $213 million. Our tax rate for the third quarter of 2019 was mainly affected by impairments, amortization, legal settlements with low corresponding tax effect and interest disallowance in connection with the U.S. Tax Cuts and Jobs Act. Non-GAAP income taxes for the third quarter of 2019 were $183 million, or 22%, on pre-tax non-GAAP income of $843 million. Non-GAAP income taxes in the third quarter of 2018 were $85 million, or 10%, on pre-tax non-GAAP income of $868 million. Our non-GAAP tax rate for the third quarter of 2019 was mainly affected by legal settlements with low corresponding tax effect, interest expense disallowance and other changes to tax positions and deductions.
We expect our annual non-GAAP tax rate for 2019 to be 18%, which is higher than our previous projections and our non-GAAP tax rate for 2018. This is due to legal settlements with low corresponding tax effect, interest expense disallowance and other changes to tax positions and deductions.
GAAP net loss attributable to ordinary shareholders was $314 million in the third quarter of 2019, compared to net loss of $273 million in the third quarter of 2018. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the third quarter of 2019 were $637 million and $0.58, respectively, compared to $694 million and $0.68 in the third quarter of 2018. The decrease in non-GAAP net income and EPS in the third quarter of 2019 is mainly due to higher tax expenses and lower operating profit, partially offset by lower finance expenses.
The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended September 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 September 30, 2019 and 2018 were 1,093 million and 1,022 million shares, respectively. The increase was mainly due to the conversion of the mandatory convertible preferred shares to ordinary shares on December 17, 2018.
As of September 30, 2019 and 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,107 million and 1,111 million shares, respectively.
Non-GAAP information: Net non-GAAP adjustments in the third quarter of 2019 were $951 million. Non-GAAP net income and non-GAAP EPS for the third quarter of 2019 were adjusted to exclude the following items:
- Legal settlements and loss contingencies of $468 million, mainly related to the reserve update in connection with the opioids cases;
- Amortization of purchased intangible assets amounting to $255 million, of which $220 million is included in cost of goods sold and the remaining $35 million in S&M expenses;
- Impairment of long-lived assets of $204 million, comprised mainly of impairment of intangible assets of product rights and IPR&D assets in connection with the Actavis Generics acquisition;
- Restructuring expenses of $61 million;
- Contingent consideration expenses of $51 million, mainly related to bendamustine;
- Equity compensation expenses of $35 million;
- Minority income of $12 million;
- Other non-GAAP expenses of $61 million; and
- Income tax of $172 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 generated from operating activities during the third quarter of 2019 was $325 million, compared to $421 million in the third quarter of 2018. The decrease in the third quarter of 2019 was mainly due to lower revenues and a reduction in sales reserves associated with the revenue decline.
Free cash flow (cash flow generated from operating activities, net of cash received for capital investments and beneficial interest collected in exchange for securitized trade receivables) was $551 million in the third quarter of 2019, compared to $704 million in the third quarter of 2018. The decrease in free cash flow was mainly due to the reasons mentioned above, as well as higher capital investments during the third quarter of 2019 compared to the third quarter of 2018.
As of September 30, 2019, our debt was $26,942 million, compared to $28,726 million as of June 30, 2019. The decrease was mainly due to repayment at maturity of our $1,556 million 1.7% senior notes and exchange rate 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.
During the third quarter of 2019 we borrowed $500 million under the RCF and subsequently repaid $400 million of such borrowings. As of September 30, 2019, $100 million was outstanding under the RCF. As of the date hereof, no amounts are outstanding under the RCF.
As of September 30, 2019, the portion of total debt classified as “short-term” was 12%, similar to such portion as of June 30, 2019.
Segment Results for the Third 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 September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|||||
|
|
2019 |
|
2018 |
|||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||
|
Revenues |
$ |
2,051 |
100% |
$ |
2,265 |
100.0% |
|
Gross profit |
|
1,048 |
51.1% |
|
1,196 |
52.8% |
|
R&D expenses |
|
156 |
7.6% |
|
158 |
7.0% |
|
S&M expenses |
|
219 |
10.7% |
|
265 |
11.7% |
|
G&A expenses |
|
112 |
5.5% |
|
128 |
5.7% |
|
Other (income) expense |
|
(5) |
§ |
|
(4) |
§ |
|
Segment profit* |
$ |
565 |
27.5% |
$ |
649 |
28.7% |
|
|
|
|
|
|
|
|
|
* Segment profit does not include amortization and certain other items. |
||||||
Revenues from our North America segment in the third quarter of 2019 were $2,051 million, a decrease of $214 million, or 9%, compared to the third quarter of 2018. The decrease in the third quarter of 2019 was mainly due lower revenues from COPAXONE and certain other specialty products, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR.
Revenues in the United States, our largest market, were $1,906 million in the third quarter of 2019, a decrease of $219 million, or 10%, compared to the third 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 September 30, 2019 and 2018:
|
|
|
|
|
|
||||
|
North America |
|
Three months ended |
|
Percentage Change |
||||
|
|
|
2019 |
|
2018 |
|
2019-2018 |
||
|
|
|
(U.S. $ in millions) |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
Generic products |
|
$ |
914 |
|
$ |
922 |
|
(1%) |
|
COPAXONE |
|
|
271 |
|
|
463 |
|
(41%) |
|
BENDEKA/TREANDA |
|
|
124 |
|
|
161 |
|
(23%) |
|
ProAir* |
|
|
71 |
|
|
107 |
|
(34%) |
|
QVAR |
|
|
60 |
|
|
36 |
|
68% |
|
AJOVY |
|
|
25 |
|
|
– |
|
NA |
|
AUSTEDO |
|
|
105 |
|
|
62 |
|
71% |
|
Anda |
|
|
351 |
|
|
333 |
|
5% |
|
Other |
|
|
131 |
|
|
182 |
|
(28%) |
|
Total |
|
$ |
2,051 |
|
$ |
2,265 |
|
(9%) |
|
_________ |
|
|
|
|
|
|
|
|
|
* Does not include sales of ProAir authorized generic, which are included under generic products. |
||||||||
Generic products revenues in our North America segment in the third quarter of 2019 were $914 million flat compared to the third quarter of 2018, due to new generic product launches, offset by market dynamics, including product mix and price erosion in our U.S. generics business.
In the third quarter of 2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 391 million total prescriptions (based on trailing twelve months), representing 10.6% of total U.S. generic prescriptions according to IQVIA data.
COPAXONE revenues in our North America segment in the third quarter of 2019 decreased by 41% to $271 million, compared to the third quarter of 2018, mainly due to generic competition in the United States.
COPAXONE revenues in the United States were $257 million in the third quarter of 2019.
BENDEKA and TREANDA combined revenues in our North America segment in the third quarter of 2019 decreased by 23% to $124 million, compared to the third quarter of 2018, mainly due to the June 2018 launch of Belrapzo® (a ready-to-dilute bendamustine hydrochloride) by Eagle Pharmaceuticals, Inc.
ProAir revenues in our North America segment in the third quarter of 2019 decreased by 34% to $71 million, compared to the third quarter of 2018, mainly due to lower volumes and 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 third quarter of 2019 increased by 68% to $60 million, compared to the third quarter of 2018 (which was a transition period due to the launch of QVAR® RediHaler™.)
AJOVY revenues in our North America segment in the third quarter of 2019 were $25 million. AJOVY, a preventive treatment of migraine in adults, was approved by the FDA and launched in the United States in September 2018.
AUSTEDO revenues in our North America segment in the third quarter of 2019 increased by 71% to $105 million, compared to $62 million in the third quarter of 2018.
Anda revenues in our North America segment in the third quarter of 2019 increased by 5% to $351 million, compared to $333 million in the third quarter of 2018, mainly due to higher volumes.
North America Gross Profit
Gross profit from our North America segment in the third quarter of 2019 was $1,048 million, a decrease of 12%, compared to $1,196 million in the third quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE and certain other specialty products, partially offset by higher revenues from AUSTEDO, QVAR and AJOVY.
Gross profit margin for our North America segment in the third quarter of 2019 decreased to 51.1%, compared to 52.8% in the third quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE and certain other specialty products, partially offset by higher gross profit margins from generic products.
North America Profit
Profit from 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 third quarter of 2019 was $565 million, a decrease of 13%, compared to $649 million in the third quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE and certain other specialty products, partially offset by higher revenues from AUSTEDO, QVAR and AJOVY, 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 September 30, 2019 and 2018:
|
|
Three months ended September 30, |
|||||||||
|
|
2019 |
|
2018 |
|||||||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||||||
|
Revenues |
$ |
1,163 |
100% |
$ |
1,212 |
100% |
||||
|
Gross profit |
|
662 |
56.9% |
|
676 |
55.8% |
||||
|
R&D expenses |
|
63 |
5.4% |
|
62 |
5.1% |
||||
|
S&M expenses |
|
206 |
17.7% |
|
242 |
20.0% |
||||
|
G&A expenses |
|
56 |
4.9% |
|
74 |
6.1% |
||||
|
Other (income) expense |
|
(4) |
§ |
|
1 |
§ |
||||
|
Segment profit* |
$ |
340.86 |
29.3% |
$ |
297.00 |
24.5% |
||||
|
___________ |
|
|
|
|
|
|
||||
|
* Segment profit does not include amortization and certain other items. |
||||||||||
Revenues from our Europe segment in the third quarter of 2019 were $1,163 million, a decrease of 4% or $49 million, compared to the third quarter of 2018. In local currency terms, revenues were flat, mainly due to strong new generic product launches and higher sales of OTC products, mostly offset by lower revenues from COPAXONE due to competing glatiramer acetate products.
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 September 30, 2019 and 2018:
|
Europe |
|
Three months ended |
|
Percentage Change |
|||||||
|
|
|
2019 |
|
2018 |
|
2018-2019 |
|||||
|
|
|
(U.S. $ in millions) |
|
|
|||||||
|
Generic products |
|
$ |
836 |
|
$ |
845 |
|
(1%) |
|||
|
COPAXONE |
|
|
106 |
|
|
124 |
|
(14%) |
|||
|
Respiratory products |
|
|
87 |
|
|
93 |
|
(7%) |
|||
|
Other |
|
|
134 |
|
|
150 |
|
(10%) |
|||
|
Total |
|
$ |
1,163 |
|
$ |
1,212 |
|
(4%) |
|||
Generic products revenues in our Europe segment in the third quarter of 2019, including OTC products, decreased by 1% to $836 million, compared to the third quarter of 2018. In local currency terms, revenues increased by 4% compared to the third quarter of 2018, mainly due to strong new generic product launches and higher sales of OTC products.
COPAXONE revenues in our Europe segment in the third quarter of 2019 decreased by 14% to $106 million, compared to the third quarter of 2018. In local currency terms, revenues decreased by 10%, mainly due to price reductions, as well as volume decline resulting from competing glatiramer acetate products.
Respiratory products revenues in our Europe segment in the third quarter of 2019 decreased by 7% to $87 million, compared to the third quarter of 2018. In local currency terms, revenues decreased by 2%, mainly due to lower sales in the United Kingdom.
Europe Gross Profit
Gross profit from our Europe segment in the third quarter of 2019 was $662 million, a decrease of 2% compared to $676 million in the third quarter of 2018. The decrease was mainly due to lower revenues from COPAXONE and the impact of currency fluctuations, partially offset by new generic product launches.
Gross profit margin for our Europe segment in the third quarter of 2019 increased to 56.9%, compared to 55.8% in the third quarter of 2018. The increase was mainly due to lower cost of goods sold related to network optimization.
Europe Profit
Profit from 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 third quarter of 2019 was $341 million, an increase of 15%, compared to $297 million in the third quarter of 2018. The increase was mainly due to strong new generic product launches, cost reductions and efficiency measures as part of the restructuring plan, partially offset by the impact of currency fluctuations.
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 September 30, 2019 and 2018:
|
|
Three months ended September 30, |
|||||||||
|
|
2019 |
|
2018 |
|||||||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||||||
|
Revenues |
$ |
736 |
100% |
$ |
726 |
100% |
||||
|
Gross profit |
|
295 |
40.1% |
|
301 |
41.4% |
||||
|
R&D expenses |
|
21 |
2.8% |
|
21 |
2.9% |
||||
|
S&M expenses |
|
114 |
15.4% |
|
120 |
16.5% |
||||
|
G&A expenses |
|
32 |
4.3% |
|
37 |
5.1% |
||||
|
Other (income) expense |
|
(1) |
§ |
|
– |
§ |
||||
|
Segment profit* |
$ |
130 |
17.7% |
$ |
123 |
16.9% |
||||
|
__________ |
|
|
|
|
|
|
||||
|
* Segment profit does not include amortization and certain other items. |
||||||||||
Revenues from our International Markets segment in the third quarter of 2019 were $736 million, an increase of $10 million, or 1%, compared to the third quarter of 2018. In local currency terms, revenues increased 1% compared to the third quarter of 2018, mainly due to higher distribution activities in Israel, partially offset by lower sales in Japan and 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 September 30, 2019 and 2018:
|
|
|
|
|
|
|||||
|
International markets |
|
Three months ended |
|
Percentage Change |
|||||
|
|
|
2019 |
|
2018 |
|
2018-2019 |
|||
|
|
|
(U.S. $ in millions) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
Generic products |
|
$ |
474 |
|
$ |
498 |
|
(5%) |
|
|
COPAXONE |
|
|
20 |
|
|
14 |
|
39% |
|
|
Distribution |
|
|
176 |
|
|
149 |
|
18% |
|
|
Other |
|
|
66 |
|
|
65 |
|
3% |
|
|
Total |
|
$ |
736 |
|
$ |
726 |
|
1% |
|
Generic products revenues in our International Markets segment in the third quarter of 2019, which include OTC products, decreased by 5% to $474 million, compared to the third quarter of 2018. In local currency terms, revenues decreased by 5%, mainly due to lower sales in Japan resulting from generic competition to off-patented products, as well as lower sales in Russia.
COPAXONE revenues in our International Markets segment in the third quarter of 2019 increased by 39% to $20 million, compared to $14 million in the third quarter of 2018. In local currency terms, revenues increased by 46%.
Distribution revenues in our International Markets segment in the third quarter of 2019 increased by 18% to $176 million, compared to $149 million in the third quarter of 2018. In local currency terms, revenues increased by 15%, mainly due to agreements with new distribution partners.
Contacts
IR Contacts
United States
Kevin C. Mannix (215) 591-8912
Ran Meir 972 (3) 926-7516
PR Contacts
United States
Kelley Dougherty (973) 658-0237
Israel
Yonatan Beker 972 (54) 888 5898