Teva Reports Third Quarter 2023 Financial Results and Increases Revenue Guidance
November 8, 20232023 revenues outlook revised to $15.1 – $15.5 billion from $15.0 – $15.4 billion
- Global revenues of $3.9 billion, reflect an increase of 7% from the third quarter of 2022
-
Increased revenues reflect sustained growth of AUSTEDO®, AJOVY® and global generics business:
- Growth of AUSTEDO in North America
- Growth of AJOVY globally
- Stable and sustainable generics business in the U.S.; continued growth in Europe and International Markets
- GAAP diluted EPS of $0.07
- Non-GAAP diluted EPS of $0.60
- Cash flow generated from operating activities of $5 million
- Free cash flow of $229 million
- Exclusive collaboration with Sanofi on Anti TL1-A (TEV-‘574) entered into in October 2023 (PR)
- Olanzapine LAI (TEV-‘749) Phase 3 results accelerated; now expected in the second half of 2024
- Teva api new CEO and management team announced (PR)
-
2023 revenues outlook revised to $15.1-$15.5 billion from $15.0-$15.4 billion; all other key components reaffirmed:
- Non-GAAP operating Income of $4.0 – $4.4 billion
- Adjusted EBITDA of $4.5 – $4.9 billion
- Non-GAAP diluted EPS of $2.25 – $2.55
- Free cash flow of $1.7 – $2.1 billion
TEL AVIV, Israel–(BUSINESS WIRE)–Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported results for the quarter ended September 30, 2023.
Mr. Richard Francis, Teva’s President and CEO, commenting on the war in Israel, said: “Following the terror attacks in Israel on October 7, 2023, Teva’s Board, leadership team, and I have made the safety of our Israeli employees our utmost priority. As a company with deep roots in Israel, we are humbled by the incredible resilience, care and resolve being shown in delivering our medicines to the millions of patients around the world who count on us. Currently, our production remains largely unaffected, and we have increased our emergency medical supplies, product donations and other supporting activities.”
Commenting on Teva’s results for the third quarter of 2023, Mr. Francis said: “In Q3 2023, Teva delivered strong financial and business results, with revenues increasing by 7% compared to Q3 2022, to a total of $3.9 billion. Continued solid performance of AUSTEDO, AJOVY and our generics business delivered growth across all geographies. Based on these strong and consistent results, we are increasing our revenue outlook for 2023 for the second consecutive quarter.”
Mr. Francis continued, “Over the six months since our Pivot to Growth strategy was launched, we made significant progress in executing on all four pillars, as well as realizing our goal of becoming a stronger, bolder and simpler organization. Last month, we announced an exclusive collaboration with Sanofi for our promising Anti TL1-A asset, leveraging the innovative R&D and commercial expertise of both companies. We have accelerated our olanzapine LAI progress, with Phase 3 results now expected in the second half of 2024. In addition, we are on track to reach our 2023 growth targets through continued optimization of sales and marketing efforts. In our generics business, we are focusing our portfolio on high value complex products and optimizing our network. We are advancing toward Teva api becoming a stand-alone unit, and we are announcing the appointment of Dr. R. Ananthanarayanan (Ananth) as CEO of Teva api.”
Pivot to Growth Strategy
In May 2023, we introduced our new “Pivot to Growth” strategy, which is based on four key pillars: (i) delivering on our growth engines, mainly AUSTEDO, AJOVY, UZEDYTM and our late-stage pipeline of biosimilars; (ii) stepping up innovation through delivering on our late-stage innovative pipeline assets as well as building up our early-stage pipeline organically and potentially through business development activities; (iii) sustaining our generics medicines powerhouse with a global commercial footprint, focused portfolio, pipeline and manufacturing footprint; and (iv) focusing our business by optimizing our portfolio and global manufacturing footprint to enable strategic capital deployment to accelerate our near and long-term growth engines and reorganizing certain of our business units to a more optimal structure, while also reorganizing key business units to enhance operational efficiency.
Third Quarter 2023 Consolidated Results
Revenues in the third quarter of 2023 were $3,850 million, an increase of 7% in both U.S. dollars and local currency terms compared to the third quarter of 2022. This increase was mainly due to higher revenues from generic products in all our segments, AUSTEDO in our North America segment and AJOVY in all our segments, partially offset by lower revenues from BENDEKA and TREANDA in our North America segment as well as from API sales to third parties.
Exchange rate movements during the third quarter of 2023, net of hedging effects, negatively impacted our revenues by $9 million, compared to the third quarter of 2022. Exchange rate movements during the third quarter of 2023, including hedging effects, negatively impacted our operating income and non-GAAP operating income by $53 million and $51 million, respectively, compared to the third quarter of 2022.
Gross profit in the third quarter of 2023 was $1,851 million, an increase of 11% compared to $1,669 million in the third quarter of 2022. Gross profit margin was 48.1% in the third quarter of 2023, compared to 46.4% in the third quarter of 2022. Non-GAAP gross profit was $2,060 million in the third quarter of 2023, an increase of 8% compared to the third quarter of 2022. Non-GAAP gross profit margin was 53.5% in the third quarter of 2023, compared to 53.0% in the third quarter of 2022. The increase in both gross profit margin and non-GAAP gross profit margin was mainly due to a favorable mix of products in our North America segment primarily driven by an increase in revenues from AUSTEDO, partially offset by higher costs due to inflationary and other macroeconomic pressures.
Research and Development (R&D) expenses in the third quarter of 2023 were $253 million, an increase of 44% compared to $175 million in the third quarter of 2022 as we continue to execute on our Pivot to Growth Strategy. Our higher R&D expenses in the third quarter of 2023, compared to the third quarter of 2022, were mainly due to an increase related to our late-stage innovative pipeline in neuroscience (mainly neuropsychiatry), in immunology and immuno-oncology. In addition, in the third quarter of 2022 our R&D expenses were lower due to an adjustment in payments pursuant to a contract with one of our R&D partners.
Selling and Marketing (S&M) expenses in the third quarter of 2023 were $576 million, an increase of 7% compared to the third quarter of 2022.
General and Administrative (G&A) expenses in the third quarter of 2023 were $268 million, a decrease of 5% compared to the third quarter of 2022.
Other income in the third quarter of 2023 was $9 million, compared to $2 million in the third quarter of 2022.
Operating income in the third quarter of 2023 was $355 million, compared to an operating income of $419 million in the third quarter of 2022. Operating income as a percentage of revenues was 9.2% in the third quarter of 2023, compared to 11.6% in the third quarter of 2022. The lower operating income in the third quarter of 2023 was mainly due to higher legal settlements and loss contingencies, higher R&D and S&M expenses in the third quarter of 2023, partially offset by higher gross profit in the third quarter of 2023. Non-GAAP operating income in the third quarter of 2023 was $1,020 million representing a non-GAAP operating margin of 26.5% compared to non-GAAP operating income of $977 million representing a non-GAAP operating margin of 27.2% in the third quarter of 2022. The decrease in non-GAAP operating margin in the third quarter of 2023 was mainly impacted by an increase in R&D expenses, partially offset by higher non-GAAP gross profit margin, as discussed above, as well as lower G&A expenses.
Adjusted EBITDA was $1,134 million in the third quarter of 2023, an increase of 4%, compared to $1,089 million in the third quarter of 2022.
Financial expenses, net in the third quarter of 2023 were $280, mainly comprised of net-interest expenses of $247 million and a negative exchange rate impact driven mainly from currencies which we were unable to hedge. In the third quarter of 2022, financial expenses were $252 million, mainly comprised of net-interest expenses of $229 million.
In the third quarter of 2023, we recognized a tax benefit of $12 million, on a pre-tax income of $75 million. In the third quarter of 2022, we recognized a tax expense of $107 million, on a pre-tax income of $166 million. Our tax rate for the third quarter of 2023 was mainly affected by deferred tax benefits resulting from intellectual property related integration plans. Such integration plans have been adopted, among others, in an effort to address the global adoption of the Organization for Economic Co-operation and Development (OECD) Pillar Two minimum effective corporate tax, commencing in 2024.
Non-GAAP tax rate in the third quarter of 2023 was 9%, compared to 10% in the third quarter of 2022. Our non-GAAP tax rate in the third quarter of 2023 was mainly affected by the generation of profits in various jurisdictions with different tax rates, tax benefits in Israel and other countries, deferred tax benefits resulting from intellectual property related integration plans, as well as infrequent or non-recurring items. Our non-GAAP tax rate in the third quarter of 2022 was mainly affected by the mix of products we sold, interest expense disallowances and adjustments to valuation allowances on deferred tax assets.
We expect our annual non-GAAP tax rate for 2023 to be between 12%-15%, higher than our non-GAAP tax rate for 2022, which was 12%, mainly due to the effect of a portion of the realization of losses related to an investment in one of our U.S. subsidiaries in 2022.
Net income attributable to Teva and diluted earnings per share in the third quarter of 2023 were $80 million and $0.07, respectively, compared to $56 million and $0.05, respectively, in the third quarter of 2022. The higher net income in the third quarter of 2023 was mainly due to the tax benefit in 2023 and tax expense in 2022, partially offset by lower operating income, as discussed above. Non-GAAP net income attributable to Teva and non-GAAP diluted earnings per share in the third quarter of 2023 were $677 million and $0.60, respectively, compared to $658 million and $0.59, respectively, in the third quarter of 2022.
As of September 30, 2023 and 2022, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,157 million and 1,144 million, respectively.
Non-GAAP information: net non-GAAP adjustments in the third quarter of 2023 were $598 million. Non-GAAP net income attributable to Teva and non-GAAP diluted EPS for the third quarter of 2023 were adjusted to exclude the following items:
- Amortization of purchased intangible assets of $145 million, of which $130 million is included in cost of sales and the remaining $15 million in S&M expenses;
- Impairment of long-lived assets of $48 million;
- Legal settlements and loss contingencies of $314 million;
- Contingent consideration expenses of $16 million;
- Equity compensation expenses of $31 million;
- Restructuring expenses of $27 million;
- Accelerated depreciation of $25 million;
- Financial expenses of $14 million;
- Costs related to regulatory actions taken in facilities of $1 million;
- Gain on sale of business of $5 million;
- Other non-GAAP items of $63 million;
- Items attributable to non-controlling interests of $1 million; and
- Corresponding tax effects and unusual tax items of $80 million.
We believe that excluding such items facilitates investors’ understanding of our business including underlying performance trends, thereby improving the comparability of our business performance results between reporting periods.
For further information, see the tables below for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and the information under “Non-GAAP Financial Measures.” 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 2023 was $5 million, compared to $543 million in the third quarter of 2022. The lower cash flow generated in the third quarter of 2023 resulted mainly from changes in working capital items, including a negative impact from accounts receivables, net of SR&A, higher inventory levels, and higher legal payments, partially offset by a positive impact from accounts payables.
During the third quarter of 2023, we generated free cash flow of $229 million, which we define as comprising $5 million in cash flow generated from operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program) and $10 million in proceeds from divestitures of businesses and other assets, partially offset by $149 million in cash used for capital investment. During the third quarter of 2022, we generated free cash flow of $685 million, which we define as comprising $543 million in cash flow generated from operating activities, $262 million in beneficial interest collected in exchange for securitized accounts receivables and $2 million in proceeds from divestitures of businesses and other assets, partially offset by $122 million in cash used for capital investment. The decrease in the third quarter of 2023, resulted mainly from lower cash flow generated from operating activities as explained above.
As of September 30, 2023, our debt was $19,974 million, compared to $21,212 million as of December 31, 2022. This decrease was mainly due to $1,646 million senior notes repaid at maturity and $54 million of exchange rate fluctuations, partially offset by $500 million outstanding under our $1.8 billion unsecured syndicated sustainability-linked revolving credit facility, entered into in April 2022, as amended in February 2023 (“RCF”). Additionally, during the first quarter of 2023, we repurchased $2,506 million aggregate principal amount of notes upon consummation of a cash tender offer, and issued $2,445 million of sustainability-linked senior notes net of issuance costs. In July 2023, a total amount of $700 million was withdrawn under the RCF, of which $200 million was repaid in September 2023. As of September 30, 2023 and as of the date of this Press Release, $500 million is outstanding under the RCF. The portion of total debt classified as short-term as of September 30, 2023 was 7% compared to 10% as of December 31, 2022. Our average debt maturity was approximately 6.1 years as of September 30, 2023, compared to 5.8 years as of December 31, 2022.
In October 2023, Israel was attacked by a terrorist organization and entered a state of war. As of the date of this Press Release, the situation is evolving. Israel is included in Teva’s International Markets segment results. Teva’s global headquarters and several manufacturing and R&D facilities are located in Israel. Currently, such activities in Israel remain largely unaffected. Teva continues to maintain contingency plans with backup production locations for key products. As of the date of this Press Release, the impact of the war on Teva’s results of operations and financial condition is immaterial, but such impact may increase, which could be material, as a result of the continuation, escalation or expansion of such war.
Segment Results for the Third Quarter of 2023
North America Segment
Our North America segment includes the United States and Canada. As part of a recent shift in executive management responsibilities, commencing January 1, 2024, Canada will be reported as part of our International Markets segment.
The following table presents revenues, expenses and profit for our North America segment for the three months ended September 30, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|||||
|
|
2023 |
|
2022 |
|||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||
|
Revenues |
$ |
2,002 |
100% |
$ |
1,809 |
100% |
|
Gross profit |
|
1,093 |
54.6% |
|
942 |
52.1% |
|
R&D expenses |
|
163 |
8.1% |
|
111 |
6.1% |
|
S&M expenses |
|
257 |
12.8% |
|
232 |
12.8% |
|
G&A expenses |
|
98 |
4.9% |
|
122 |
6.8% |
|
Other income |
|
(2) |
§ |
|
§ |
§ |
|
Segment profit* |
$ |
577 |
28.8% |
$ |
477 |
26.3% |
|
|
|
|
|
|
|
|
|
* Segment profit does not include amortization and certain other items. |
||||||
Revenues from our North America segment in the third quarter of 2023 were $2,002 million, an increase of $193 million, or 11%, compared to the third quarter of 2022. This increase was mainly due to higher revenues from generic products and certain innovative products, primarily AUSTEDO and AJOVY, partially offset by lower revenues from BENDEKA and TREANDA.
Revenues in the United States, our largest market, were $1,898 million in the third quarter of 2023, an increase of $125 million or 7% compared to the third quarter of 2022.
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, 2023 and 2022:
|
|
|
|
|
|
||||||
|
|
|
Three months ended |
|
Percentage |
||||||
|
|
|
2023 |
|
2022 |
|
2023-2022 |
||||
|
|
|
(U.S. $ in millions) |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||
|
Generic products |
|
$ |
929 |
|
$ |
806 |
|
15% |
||
|
AJOVY |
|
|
61 |
|
|
57 |
|
8% |
||
|
AUSTEDO |
|
|
339 |
|
|
260 |
|
30% |
||
|
BENDEKA and TREANDA |
|
|
57 |
|
|
77 |
|
(26%) |
||
|
COPAXONE® |
|
|
103 |
|
|
105 |
|
(2%) |
||
|
Anda |
|
|
367 |
|
|
371 |
|
(1%) |
||
|
Other* |
|
|
146 |
|
|
133 |
|
10% |
||
|
Total |
|
$ |
2,002 |
|
$ |
1,809 |
|
11% |
||
|
|
|
|
|
|
|
|
|
|
||
* Other revenues in the third quarter of 2023 increased mainly due to a reduction in estimated liabilities in connection with ProAir® HFA following its discontinuation on October 1, 2022.
Generic products revenues in our North America segment (including biosimilars) in the third quarter of 2023 were $929 million, an increase of 15% compared to the third quarter of 2022, mainly due to revenues from lenalidomide capsules (the generic version of Revlimid®), partially offset by increased competition to other generic products.
In the third quarter of 2023, our total prescriptions were approximately 320 million (based on trailing twelve months), representing 8.4% of total U.S. generic prescriptions, compared to approximately 302 million (based on trailing twelve months), representing 8.2% of total U.S. generic prescriptions in the third quarter of 2022, all according to IQVIA data.
AJOVY revenues in our North America segment in the third quarter of 2023 increased by 8% to $61 million, compared to the third quarter of 2022, mainly due to growth in volume. In the third quarter of 2023, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 24.9% compared to 24.7% in the third quarter of 2022.
AUSTEDO revenues in our North America segment in the third quarter of 2023 increased by 30%, to $339 million, compared to $260 million in the third quarter of 2022, mainly due to growth in volume with the launch of AUSTEDO XR in May 2023.
AUSTEDO XR (deutetrabenazine) extended-release tablets was approved by the FDA on February 17, 2023, and became commercially available in the U.S. in May 2023. AUSTEDO XR is a new once-daily formulation indicated in adults for tardive dyskinesia and chorea associated with Huntington’s disease, additional to the currently marketed twice-daily AUSTEDO. AUSTEDO XR is protected by nine Orange Book patents expiring between 2031 and 2041.
UZEDY (risperidone) extended-release injectable suspension was approved by the FDA on April 28, 2023 for the treatment of schizophrenia in adults, and was launched in the U.S. in May 2023. UZEDY is the first subcutaneous, long-acting formulation of risperidone that controls the steady release of risperidone. UZEDY is protected by nine Orange Book patents expiring between 2025 and 2033.
BENDEKA and TREANDA combined revenues in our North America segment in the third quarter of 2023 decreased by 26% to $57 million, compared to the third quarter of 2022, mainly due to generic bendamustine products entry into the market. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022.
COPAXONE revenues in our North America segment in the third quarter of 2023 decreased by 2% to $103 million, compared to the third quarter of 2022, mainly due to generic competition in the United States and a decrease in glatiramer acetate market share due to availability of alternative therapies. COPAXONE revenues in the third quarter of 2023 were also positively impacted by a reduction in sales allowance.
Anda revenues from third-party products in our North America segment in the third quarter of 2023 decreased by 1% to $367 million, compared to $371 million in the third quarter of 2022, mainly due to lower demand.
North America Gross Profit
Gross profit from our North America segment in the third quarter of 2023 was $1,093 million, an increase of 16%, compared to $942 million in the third quarter of 2022.
Gross profit margin for our North America segment in the third quarter of 2023 increased to 54.6%, compared to 52.1% in the third quarter of 2022. This increase was mainly due to a favorable mix of products primarily driven by an increase in revenues from AUSTEDO.
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 2023 was $577 million, an increase of 21% compared to $477 million in the third quarter of 2022. This increase was mainly due to higher gross profit, partially offset by higher R&D expenses.
Europe Segment
Our Europe segment includes the European Union, the United Kingdom and certain other European countries.
The following table presents revenues, expenses and profit for our Europe segment for the three months ended September 30, 2023 and 2022:
|
|
Three months ended September 30, |
|||||
|
|
2023 |
|
2022 |
|||
|
|
(U.S. $ in millions / % of Segment Revenues) |
|||||
|
Revenues |
$ |
1,146 |
100% |
$ |
1,069 |
100% |
|
Gross profit |
|
648 |
56.6% |
|
634 |
59.3% |
|
R&D expenses |
|
62 |
5.4% |
|
44 |
4.1% |
|
S&M expenses |
|
184 |
16.0% |
|
169 |
15.8% |
|
G&A expenses |
|
66 |
5.7% |
|
61 |
5.7% |
|
Other income |
|
§ |
§ |
|
§ |
§ |
|
Segment profit* |
$ |
338 |
29.5% |
$ |
360 |
33.7% |
|
___________ |
|
|
|
|
|
|
|
* Segment profit does not include amortization and certain other items. |
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Revenues from our Europe segment in the third quarter of 2023 were $1,146 million, an increase of 7%, or $77 million, compared to the third quarter of 2022. In local currency terms, revenues were flat compared to the third quarter of 2022. Revenues in the third quarter of 2023 included $15 million from a positive hedging impact, which is included in “Other” in the table below. Revenues in the third quarter of 2022 included $24 million from a positive hedging impact, which is included in “Other” in the table below.
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, 2023 and 2022:
|
|
|
Three months ended |
|
Percentage |
||||
|
|
|
2023 |
|
2022 |
|
2023-2022 |
||
|
|
|
(U.S. $ in millions) |
|
|
||||
|
Generic products |
|
$ |
886 |
|
$ |
803 |
|
10% |
|
AJOVY |
|
|
41 |
|
|
30 |
|
36% |
|
COPAXONE |
|
|
55 |
|
|
63 |
|
(13%) |
|
Respiratory products |
|
|
61 |
|
|
62 |
|
(2%) |
|
Other |
|
|
104 |
|
|
111 |
|
(7%) |
|
Total |
|
$ |
1,146 |
|
$ |
1,069 |
|
7% |
|
|
|
|
|
|
|
|
|
|
Generic products revenues (including OTC and biosimilar products) in our Europe segment in the third quarter of 2023, increased by 10% to $886 million, compared to the third quarter of 2022.
Contacts
IR Contacts
Ran Meir
(215) 591-8912
Yael Ashman
+972 (3) 914 8262
Sanjeev Sharma
(267) 658-2700
PR Contacts
Kelley Dougherty
(973) 832-2810
Eden Klein
+972 (3) 906 2645