- Revenues of $5.1 billion
- Free cash flow of $1.9 billion
- GAAP EPS of $1.03
- Non-GAAP EPS of $0.94
- Restructuring plan on-track to achieve
$1.5 billion of savings in 2018 and $3.0 billion by the end of
2019
- Raising 2018 full year guidance:
- Non-GAAP EPS guidance raised to
$2.40-2.65 from $2.25-2.50
- Free cash flow guidance raised to
$3.0-3.2 billion from $2.6-2.8 billion
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA)
today reported results for the quarter ended March 31, 2018.
Mr. Kåre Schultz, Teva’s President and CEO, said "2018 is off to
a solid start. Our restructuring program is proceeding well, and we
are on track to meet our cost reduction targets of $1.5 billion in
2018 and $3.0 billion by the end of 2019. During this quarter, our
strong cash flow allowed us to continue to reduce our outstanding
debt, and together with our recent debt issuance and covenant
amendment, has placed Teva on a more stable financial footing. We
have also benefited this quarter from the durability of COPAXONE
and a steady flow of generic launches in the U.S. Our strong first
quarter performance, along with our confidence in executing the
restructuring program, gives us a solid foundation to raise our
guidance for the year.”
First Quarter 2018 Consolidated
Results
Revenues in the first quarter of 2018 were $5.1 billion,
a decrease of 10%, or 15% in local currency terms, compared to the
first quarter of 2017, mainly due to adverse market dynamics in the
U.S. generics market, generic competition to COPAXONE and loss of
revenues following our divestment of certain products and
discontinuation of certain activities.
Exchange rate differences between the first quarter of
2018 and the first quarter of 2017 positively impacted our revenues
by $240 million, our GAAP operating income by $37 million and our
non-GAAP operating income by $46 million.
GAAP gross profit was $2.3 billion in the first quarter
of 2018, down 17% compared to the first quarter of 2017. GAAP
gross profit margin was 46.4% in the first quarter of 2018,
compared to 50.2% in the first quarter of 2017.
Non-GAAP gross profit was $2.7 billion in the first
quarter of 2018, a decline of 18% from the first quarter of 2017.
Non-GAAP gross profit margin was 52.3% in the first quarter
of 2018, compared to 56.9% in the first quarter of 2017. The
decrease in gross profit margin, on both a GAAP and a non-GAAP
basis, was mainly the result of lower profitability in our North
America segment due to lower COPAXONE sales and adverse market
dynamics in the U.S. generics market.
Research and Development (R&D) expenses for the first
quarter of 2018 were $317 million, down 27% compared to the first
quarter of 2017. R&D expenses excluding equity compensation
expenses and other R&D expenses were $289 million, or 5.7% of
quarterly revenues in the first quarter of 2018, compared to $420
million, or 7.4%, in the first quarter of 2017. The decrease in
R&D expenses primarily resulted from pipeline optimization,
project terminations, phase 3 studies that ended and related
headcount reductions.
Selling and Marketing (S&M) expenses in the first
quarter of 2018 were $771 million, a decrease of 20% compared to
the first quarter of 2017. S&M expenses excluding amortization
of purchased intangible assets and equity compensation expenses
were $715 million, or 14.1% of revenues, in the first quarter of
2018, compared to $894 million, or 15.8% of revenues, in the first
quarter of 2017. The decrease was mainly due to cost reduction and
efficiency measures as part of the restructuring plan.
General and Administrative (G&A) expenses in the
first quarter of 2018 were $329 million, a decrease of 10% compared
to the first quarter of 2017. G&A expenses excluding equity
compensation expenses and other items were $322 million in the
first quarter of 2018, or 6.4% of quarterly revenues, compared to
$353 million, or 6.2% in the first quarter of 2017. The decrease
was mainly due to cost reduction and efficiency measures as part of
the restructuring plan.
GAAP other income in the first quarter of 2018 was $203
million, an increase of 182% compared to $72 million in the first
quarter of 2017. Non-GAAP other income in the first quarter
of 2018 was $110 million, an increase of 53% compared to $72
million in the first quarter of 2017. The increase in other income
was primarily the result of higher Section 8 recoveries in Canada
and a $93 million net gain related to the divestment of our women’s
health business, which was excluded from our non-GAAP results.
GAAP operating income in the first quarter of 2018 was
$1.5 billion, compared to $895 million in the first quarter of
2017. Non-GAAP operating income in the first quarter of 2018
was $1.4 billion, a decrease of 11% compared to the first quarter
of 2017. GAAP operating margin was 30.0% in the first
quarter of 2018 compared to 15.8% in the first quarter of 2017.
Non-GAAP operating margin was 28.3% in the first quarter of
2018 compared to 28.7% in the first quarter of 2017.
EBITDA (non-GAAP operating income, which excludes
amortization and certain other items, as well as excluding
depreciation expenses) was $1.6 billion in the first quarter of
2018, down 10% compared to $1.8 billion in the first quarter of
2017.
GAAP financial expenses for the first quarter of 2018
were $271 million, compared to $207 million in the first quarter of
2017. Non-GAAP financial expenses were $203 million in the
first quarter of 2018, compared to $235 million in the first
quarter of 2017. The decrease in our non-GAAP financial expenses
was mainly due to an increased gain in our hedging and derivatives
activities and lower interest expenses resulting from reduced
overall debt, partially offset by an increase in interest and
foreign exchange rates.
GAAP income taxes for the first quarter of 2018 were $46
million, or 4%, on pre-tax income of $1.3 billion. In the first
quarter of 2017, GAAP income taxes were $54 million, or 8%, on
pre-tax income of $688 million. Our tax rate for the first quarter
of 2018 was mainly affected by one-time legal settlements and
divestments that had a low corresponding tax effect. Non-GAAP
income taxes for the first quarter of 2018 were $211 million
on pre-tax non-GAAP income of $1.2 billion, for a quarterly tax
rate of 17%. Non-GAAP income taxes in the first quarter of 2017
were $240 million on pre-tax non-GAAP income of $1.4 billion, for a
quarterly tax rate of 17%.
GAAP net income attributable to ordinary shareholders and
GAAP diluted EPS in the first quarter of 2018 were $1.1
billion and $1.03, respectively, compared to $580 million and
$0.57, respectively, in the first quarter of 2017. Non-GAAP net
income attributable to ordinary shareholders and non-GAAP
diluted EPS in the first quarter of 2018 were $954 million
and $0.94, respectively, compared to $1.1 billion and $1.06 in the
first quarter of 2017.
For the first quarter of 2018, the weighted average
outstanding shares for the fully diluted EPS calculation on
both a GAAP and a non-GAAP basis was 1,020 million, compared to
1,017 million on a GAAP and non-GAAP basis for the first quarter of
2017. Additionally, no account was taken of the potential dilution
by the mandatory convertible preferred shares, amounting to 64
million (including shares that may be issued due to unpaid
dividends to date) for the three months ended March 31, 2018 and 59
million for the three months ended March 31, 2017, as well as for
the convertible senior debentures for the respective periods, since
both had an anti-dilutive effect on EPS.
Non-GAAP information: Net non-GAAP adjustments in the
first quarter of 2018 were positive $101 million. Non-GAAP net
income and non-GAAP EPS for the quarter were adjusted to exclude
the following items:
- Impairments of $612 million, mainly a
goodwill impairment related to Rimsa, impairment of intangible
assets of product rights and IPR&D assets related to the
Actavis Generics acquisition, as well as impairment for closure of
manufacturing sites and other fixed assets. The impairment also
includes $56 million related to a plant located in India in
connection with the termination of PGT Healthcare joint
venture.
- Impairments of equity investments of
$94 million due to termination of PGT Healthcare joint
venture.
- Amortization of purchased intangible
assets totaling $310 million, of which $264 million is included in
cost of goods sold and the remaining $46 million in S&M
expenses;
- Restructuring expenses of $247
million;
- Financial expenses of $68 million
mainly related to early redemption fees;
- Other non-GAAP items of $104
million;
- Divestment benefit of $93 million
related to capital gain from the sales of our women health
business;
- Tax benefit of $165 million; and
- Benefits from legal settlements of $1.3
billion mainly related to the Allergan working capital adjustments,
the Rimsa settlement and the reversal of the carvedilol judgement
against Teva.
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 operations during the first
quarter of 2018 was $1.5 billion, compared to $0.1 billion in the
first quarter of 2017. The increase was mainly due to proceeds from
the working capital adjustment with Allergan and the legal
settlement with Rimsa, compared to payments made to the SEC and DOJ
in connection with the FCPA resolution in the first quarter of
2017.
Free cash flow, excluding net capital expenditures
and beneficial interest collected in exchange for securitized trade
receivables, was $1.9 billion in the first quarter of 2018,
compared to $0.3 billion in the first quarter of 2017. The increase
was mainly due to the increase in cash flow from operations as well
as lower net capital expenditures investments and higher
securitized account receivables.
As of March 31, 2018, our total gross debt was $30.8
billion, compared to $32.5 billion as of December 31, 2017. The
decrease was mainly due to $6.5 billion in debt prepayments,
partially offset by our March 2018 issuance of an aggregate
principal amount of $4.4 billion of senior notes, as well as
exchange rate fluctuations. The portion of total debt classified as
short-term as of March 31, 2018 was 4%, compared to 11% as of
December 31, 2017.
Segment Results for the First Quarter
2018
Due to the organizational changes announced in November 2017,
our financial results are now being reported under new segments.
Our new reportable segments are:
a) North America segment, which includes the United States and
Canada.
b) Europe segment, which includes the European Union and certain
other European countries.
c) Growth Markets segment, which includes all countries other
than those in our North America and Europe segments.
In addition to these three segments, we have other activities,
primarily our API third party manufacturing business and certain
contract manufacturing services.
Segment profit is comprised of gross profit for the segment,
less R&D, S&M, G&A expenses and other income related to
each segment. Segment profit does not include amortization and
certain other items.
North America Segment
Our North America segment includes the United States and
Canada.
The following table presents revenues, expenses and profit for
our North America segment for the three months ended March 31, 2018
and 2017:
Three months ended March 31,
2018
2017 (U.S.$ in millions / % of Segment
Revenues) Revenues $ 2,531 100% $ 3,240 100% Gross
profit 1,432 57% 2,080 64% R&D expenses 188 8% 267 8% S&M
expenses 305 12% 441 14% G&A expenses 126 5% 139 4% Other
income (102) (4%) (73) (2%) Segment profit* $ 915 36%
$ 1,306 40%
* Segment profit does not include
amortization and certain other items. The data presented for prior
periods have
been conformed to reflect the changes to
our segment reporting commencing in the first quarter of 2018.
Revenues from our North America segment in the first
quarter of 2018 were $2.5 billion, a decrease of $709 million, or
22%, compared to the first quarter of 2017, mainly due to adverse
market dynamics in the U.S. generics market, a decline in COPAXONE
revenues due to generic competition and the loss of revenues from
the sale of our women’s health business, partially offset by higher
revenues from AUSTEDO, BENDEKA and TREANDA, QVAR and our
distribution business.
Revenues in the United States, our largest market, were
$2.4 billion in the first quarter of 2018, a decrease of $719
million, or 23%, compared to the first quarter of 2017.
Revenues by Major Products and Activities
The following table presents revenues for our North America
segment by major products and activities for the three months ended
March 31, 2018 and 2017:
Three months ended March 31,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in
millions) Generic products $ 1,088 $ 1,415 (23%)
COPAXONE 476 797 (40%) BENDEKA / TREANDA 181 156 16% ProAir 130 121
7% QVAR 107 84 27% AUSTEDO 30 - N/A Distribution 331 295 12%
Generic products revenues in our North America segment in
the first quarter of 2018 decreased by 23% to $1.1 billion,
compared to the first quarter of 2017, mainly due to lower volumes
and price erosion.
In the first quarter of 2018, we led the U.S. generics market in
total prescriptions and new prescriptions, with approximately 584
million total prescriptions, representing 15% of total U.S. generic
prescriptions according to IQVIA data.
COPAXONE revenues in our North America segment in the
first quarter of 2018 decreased by 40% to $476 million compared to
the first quarter of 2017, mainly due to generic competition in the
United States. COPAXONE revenues in the United States were $462
million in the first quarter of 2018.
BENDEKA® and TREANDA® combined
revenues in our North America segment in the first quarter of 2018
increased by 16% to $181 million, compared to the first quarter of
2017, mainly due to higher volumes resulting from supply
stabilization.
ProAir® revenues in our North America segment in
the first quarter of 2018 increased by 7% to $130 million, compared
to the first quarter of 2017, mainly due to higher volumes.
QVAR® revenues in our North America segment in the first
quarter of 2018 increased by 27% to $107 million, compared to the
first quarter of 2017. We launched QVAR® RediHaler™ in the first
quarter of 2018. The increase in sales in the first quarter of 2018
was mainly due to slightly higher wholesaler stocking for all QVAR
family products in connection with the launch. QVAR maintained its
second-place position in the inhaled corticosteroids category in
the United States.
AUSTEDO® revenues in our North America segment in
the first quarter of 2018 were $30 million. AUSTEDO was approved by
the FDA for the treatment of chorea associated with Huntington
disease and was launched in the United States in April 2017. In
August 2017, the FDA approved AUSTEDO for the treatment of tardive
dyskinesia.
Distribution revenues in our North America segment which
are generated by Anda increased by 12% to $331 million in the first
quarter of 2018, compared to the first quarter of 2017, mainly due
to the severe cold, cough and influenza season in the first quarter
of 2018, which increased demand for certain medicines.
North America Gross Profit
Gross profit from our North America segment in the first quarter
of 2018 was $1.4 billion, a decrease of 31% compared to $2.1
billion in the first quarter of 2017. The decrease was mainly due
to lower revenues from COPAXONE and generic products.
Gross profit margin for our North America segment in the first
quarter of 2018 decreased to 56.6%, compared to 64.2% in the first
quarter of 2017. This decrease was mainly due to lower COPAXONE
revenues and continued price erosion of generic products.
North America Profit
Profit from our North America segment in the first quarter of
2018 was $915 million, a decrease of 30% compared to $1.3 billion
in the first quarter of 2017. The decrease was mainly due to lower
revenues due to generic competition for COPAXONE and continued
price erosion in the U.S. generics market, partially offset by cost
reduction and higher other income.
Europe Segment
Our Europe segment includes the European Union and certain other
European countries.
The following table presents revenues, expenses and profit for
our Europe segment for the three months ended March 31, 2018 and
2017:
Three months ended March 31, 2018 2017
(U.S.$ in millions / % of Segment Revenues)
Revenues $ 1,442 100% $ 1,341 100% Gross profit 797 55% 734 55%
R&D expenses 73 5% 106 8% S&M expenses 255 18% 279 21%
G&A expenses 91 6% 79 6% Other expenses 1 0% 2 0%
Segment profit* $ 377 26% 268 20%
* Segment profit does not include
amortization and certain other items. The data presented for prior
periods have
been conformed to reflect the changes to
our segment reporting commencing in the first quarter of 2018.
Revenues from our Europe segment in the first quarter of 2018
were $1.4 billion, an increase of $101 million or 8%, compared to
the first quarter of 2017. In local currency terms, revenues
decreased by 6%, mainly due to the loss of revenues from the
closure of our distribution business in Hungary and the sale of our
women’s health business, partially offset by new generic product
launches.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by
major products and activities for the three months ended March 31,
2018 and 2017:
Three months ended March 31,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in
millions) Generic products $ 997 $ 850 17% COPAXONE 153
152 1% Respiratory products 113 84 35%
Generic products revenues in our Europe segment in the
first quarter of 2018, including OTC products, increased by 17% to
$997 million, compared to the first quarter of 2017. In local
currency terms, revenues increased by 2%, mainly due to new product
launches and volume growth in OTC, partially offset by price
reductions.
COPAXONE revenues in our Europe segment in the first
quarter of 2018 increased by 1% to $153 million, compared to the
first quarter of 2017. In local currency terms, revenues decreased
by 13%, mainly due to price reductions resulting from the entry of
generic competition.
Respiratory products revenues in our Europe
segment in the first quarter of 2018 increased by 35% to $113
million, compared to the first quarter of 2017. In local currency
terms, revenues increased by 18%, mainly due to the launch of
BRALTUS® in 2017.
Europe Gross Profit
Gross profit from our Europe segment in the first quarter of
2018 was $797 million, an increase of 9% compared to $734 million
in the first quarter of 2017. The increase was mainly due to the
positive impact of currency fluctuations, partially offset by the
loss of revenues from the sale of our women's health business.
Gross profit margin for our Europe segment in the first quarter
of 2018 increased to 55.3%, compared to 54.7% in the first quarter
of 2017. This increase was mainly due to the closure of our
distribution business in Hungary, partially offset by other
production costs.
Europe Profit
Profit from our Europe segment in the first quarter of 2018 was
$377 million, an increase of 41% compared to $268 million in the
first quarter of 2017. The increase was mainly due to higher
revenues as well as cost reductions and efficiency measures as part
of the restructuring plan.
Growth Markets Segment
Our Growth Markets segment includes all countries other than
those in our North America and Europe segments. The key markets in
this segment are Japan, Russia and Israel.
The following table presents revenues, expenses and profit for
our Growth Markets segment for the three months ended March 31,
2018 and 2017:
Three months ended March 31, 2018 2017
(U.S.$ in millions / % of Segment Revenues)
Revenues $ 750 100% $ 718 100% Gross profit 313 42% 292 41% R&D
expenses 24 4% 47 7% S&M expenses 134 18% 158 22% G&A
expenses 41 5% 48 7% Other income (8) (1%) (1) (0%)
Segment profit* $ 122 16% $ 40 6%
* Segment profit does not include
amortization and certain other items. The data presented for prior
periods have
been conformed to reflect the changes to
our segment reporting commencing in the first quarter of 2018.
Revenues from our Growth Markets segment in the first
quarter of 2018 were $750 million, an increase of $32 million, or
4%, compared to the first quarter of 2017. In local currency terms,
revenues were flat compared to the first quarter of 2017, mainly
due to higher sales in Israel, Japan and Russia, partially offset
by the effect of the deconsolidation of our subsidiaries in
Venezuela and the loss of revenues from the sale of our women’s
health business.
Revenues by Major Products and Activities
The following table presents revenues for our Growth Markets
segment by major products and activities for the three months ended
March 31, 2018 and 2017:
Three months ended March 31,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in
millions) Generic products $ 488 $ 486 0.5% COPAXONE 16
21 (24%) Distribution 153 125 22%
Generic products revenues in our Growth Markets segment
in the first quarter of 2018, which includes OTC products, were
flat compared to the first quarter of 2017. In local currency
terms, revenues decreased by 3%, mainly due to the effect of the
deconsolidation of our subsidiaries in Venezuela.
COPAXONE revenues in our Growth Markets segment in the
first quarter of 2018 decreased by 24% to $16 million, compared to
the first quarter of 2017. In local currency terms, revenues
decreased by 20%.
Distribution revenues in our Growth Markets segment in
the first quarter of 2018 increased by 22%, compared to the first
quarter of 2017. In local currency terms, revenues increased by
13%.
Growth Markets Gross Profit
Gross profit from our Growth Markets segment in the first
quarter of 2018 was $313 million, an increase of 7% compared to
$292 million in the first quarter of 2017. The increase was mainly
due to higher revenues in Japan, including Azilect approval payment
from Takeda, and Israel, partially offset by the deconsolidation of
our subsidiaries in Venezuela and the loss of revenues from the
sale of our women’s health business.
Gross profit margin for our Growth Markets segment in the first
quarter of 2018 increased to 41.7%, compared to 40.7% in the first
quarter of 2017. This increase was mainly due to higher gross
profit in Japan, partially offset by the deconsolidation of our
subsidiaries in Venezuela.
Growth Markets Profit
Profit from our Growth Markets segment in the first quarter of
2018 was $122 million, compared to $40 million in the first quarter
of 2017. The increase was mainly due to higher revenues, as well as
cost reductions and efficiency measures as part of the
restructuring plan.
During the fourth quarter of 2017, we deconsolidated our
subsidiaries in Venezuela from our financial results. Consequently,
results of operations of our subsidiaries in Venezuela are not
included in our financial results for the first quarter of
2018.
Other Activities
We have other sources of revenues, primarily our API
manufacturing business and certain contract manufacturing services.
These other activities are not included in our North America,
Europe or Growth Markets segments.
Our revenues from other activities in the first quarter
of 2018 decreased by 2.6% to $342 million. In local currency terms,
revenues decreased by 8%, mainly due to lower API sales to third
parties.
API sales to third parties in the first quarter of 2018
decreased by 9% to $179 million. In local currency terms, revenues
decreased by 10%, mainly due to the timing of certain shipments in
the first quarter of 2018.
R&D Pipeline Update
fremanezumab - We do not expect to receive FDA approval
on our Biologics License Applications (BLA) for fremanezumab on the
mid-June PDUFA date. We are engaged in a constructive dialogue with
the FDA in close collaboration with our partner Celltrion, Inc. We
expect an FDA pre-approval inspection to take place in the coming
months and to receive FDA approval and launch before the end of
2018.
Updated 2018
Non-GAAP Results Outlook
Updated Guidance
May 2018
Original Guidance
February 2018
Revenues $18.5-19.0 billion $18.3-18.8 billion Non-GAAP Operating
Income $4.2-4.5 billion $4.0-4.3 billion EBITDA $4.9-5.2 billion
$4.7-5.0 billion Non-GAAP EPS $2.40-2.65 $2.25-2.50 Weighted
average number of shares 1,030 million 1,030 million Free cash flow
$3.0-3.2 billion $2.6-2.8 billion
These estimates reflect management's current expectations for
Teva's performance in 2018. Actual results may vary, whether as a
result of exchange rate differences, market conditions or other
factors. In addition, the non-GAAP measures exclude the
amortization of purchased intangible assets, costs related to
certain regulatory actions, inventory step-up, legal settlements
and reserves, impairments and related tax effects.
See “Non-GAAP Financial Measures” below.
Conference Call
Teva will host a conference call and live webcast along with a
slide presentation on Thursday, May 3, 2018 at 8:00 a.m. ET to
discuss its first quarter 2018 results and overall business
environment. A question & answer session will follow.
In order to participate, please dial the following numbers (at
least 15 minutes before the scheduled start time):
United States 1-866-254-0808
International 44 (0) 1452 541003
for a list of other international toll-free numbers, click
here.
Passcode: 9496209
A live webcast of the call will also be available on Teva's
website at: www.ir.tevapharm.com. Please log in at least 10 minutes
prior to the conference call in order to download the applicable
audio software.
Following the conclusion of the call, a replay of the webcast
will be available within 24 hours on Teva's website. The replay can
also be accessed until May 31, 2018, 9:00 a.m. ET by calling United
States 1-866-247-4222 or International 44(0)1452550000; passcode:
9496209.
About Teva
Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) is a
leading global pharmaceutical company that delivers high-quality,
patient-centric healthcare solutions used by millions of patients
every day. Headquartered in Israel, Teva is the world’s largest
generic medicines producer, leveraging its portfolio of more than
1,800 molecules to produce a wide range of generic products in
nearly every therapeutic area. In specialty medicines, Teva has a
world-leading position in innovative treatments for disorders of
the central nervous system, including pain, as well as a strong
portfolio of respiratory products. Teva integrates its generics and
specialty capabilities in its global research and development
division to create new ways of addressing unmet patient needs by
combining drug development capabilities with devices, services and
technologies. Teva's net revenues in 2017 were $22.4 billion. For
more information, visit www.tevapharm.com.
Non-GAAP Financial Measures
This press release contains certain financial information that
differs from what is reported under accounting principles generally
accepted in the United States ("GAAP"). These non-GAAP financial
measures, including, but not limited to, non-GAAP EPS, non-GAAP
operating income, non-GAAP gross profit, non-GAAP gross profit
margin, non-GAAP financial expenses, non-GAAP income taxes,
non-GAAP net income and non-GAAP diluted EPS are presented in order
to facilitates investors' understanding of our business. We utilize
certain non-GAAP financial measures to evaluate performance, in
conjunction with other performance metrics. The following are
examples of how we utilize the non-GAAP measures: our management
and board of directors use the non-GAAP measures to evaluate our
operational performance, to compare against work plans and budgets,
and ultimately to evaluate the performance of management; our
annual budgets are prepared on a non-GAAP basis; and senior
management’s annual compensation is derived, in part, using these
non-GAAP measures. 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
replacements for, or superior to, measures of financial performance
prepared in accordance with GAAP. We are not providing
forward-looking guidance for GAAP reported financial measures or a
quantitative reconciliation of forward-looking non-GAAP financial
measures to the most directly comparable GAAP measure because we
are unable to predict with reasonable certainty the ultimate
outcome of certain significant items without unreasonable
effort.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, which are based on management’s current beliefs and
expectations and are subject to substantial risks and
uncertainties, both known and unknown, that could cause our future
results, performance or achievements to differ significantly from
that expressed or implied by such forward-looking statements.
Important factors that could cause or contribute to such
differences include risks relating to:
- our ability to successfully compete in
the marketplace, including: that we are substantially dependent on
our generic products; competition for our specialty products,
especially COPAXONE®, our leading medicine, which faces competition
from existing and potential additional generic versions and
orally-administered alternatives; competition from companies with
greater resources and capabilities; efforts of pharmaceutical
companies to limit the use of generics including through
legislation and regulations; consolidation of our customer base and
commercial alliances among our customers; the increase in the
number of competitors targeting generic opportunities and seeking
U.S. market exclusivity for generic versions of significant
products; price erosion relating to our products, both from
competing products and increased regulation; delays in launches of
new products and our ability to achieve expected results from
investments in our product pipeline; our ability to take advantage
of high-value opportunities; the difficulty and expense of
obtaining licenses to proprietary technologies; and the
effectiveness of our patents and other measures to protect our
intellectual property rights;
- our substantially increased
indebtedness and significantly decreased cash on hand, which may
limit our ability to incur additional indebtedness, engage in
additional transactions or make new investments, and may result in
a further downgrade of our credit ratings; and our inability to
raise debt or borrow funds in amounts or on terms that are
favorable to us;
- our business and operations in general,
including: failure to effectively execute our restructuring plan
announced in December, 2017; uncertainties related to, and failure
to achieve, the potential benefits and success of our new senior
management team and organizational structure; harm to our pipeline
of future products due to the ongoing review of our R&D
programs; our ability to develop and commercialize additional
pharmaceutical products; potential additional adverse consequences
following our resolution with the U.S. government of our FCPA
investigation; compliance with sanctions and other trade control
laws; manufacturing or quality control problems, which may damage
our reputation for quality production and require costly
remediation; interruptions in our supply chain; disruptions of our
or third party information technology systems or breaches of our
data security; the failure to recruit or retain key personnel;
variations in intellectual property laws that may adversely affect
our ability to manufacture our products; challenges associated with
conducting business globally, including adverse effects of
political or economic instability, major hostilities or terrorism;
significant sales to a limited number of customers in our U.S.
market; our ability to successfully bid for suitable acquisition
targets or licensing opportunities, or to consummate and integrate
acquisitions; and our prospects and opportunities for growth if we
sell assets ;
- compliance, regulatory and litigation
matters, including: costs and delays resulting from the extensive
governmental regulation to which we are subject; the effects of
reforms in healthcare regulation and reductions in pharmaceutical
pricing, reimbursement and coverage; governmental investigations
into sales and marketing practices; potential liability for patent
infringement; product liability claims; increased government
scrutiny of our patent settlement agreements; failure to comply
with complex Medicare and Medicaid reporting and payment
obligations; and environmental risks;
- other financial and economic risks,
including: our exposure to currency fluctuations and restrictions
as well as credit risks; potential impairments of our intangible
assets; potential significant increases in tax liabilities; and the
effect on our overall effective tax rate of the termination or
expiration of governmental programs or tax benefits, or of a change
in our business;
and other factors discussed in our Annual Report on Form 10-K
for the year ended December 31, 2017, including in the section
captioned “Risk Factors,” and in our other filings with the U.S.
Securities and Exchange Commission, which are available at
www.sec.gov and www.tevapharm.com. Forward-looking statements speak
only as of the date on which they are made, and we assume no
obligation to update or revise any forward-looking statements or
other information contained herein, whether as a result of new
information, future events or otherwise. You are cautioned not to
put undue reliance on these forward-looking statements.
Consolidated Statements of
Income(Unaudited, U.S. dollars in millions, except
share and per share data) Three months ended
March 31, 2018 2017 (Unaudited)
(Unaudited) Net revenues 5,065 5,650
Cost
of sales 2,717 2,811
Gross profit 2,348 2,839
Research and development expenses 317 432
Selling and
marketing expenses 771 958
General and administrative
expenses 329 366
Other asset impairments, restructuring and
other items 707 240
Goodwill impairment 180 -
Legal
settlements and loss contingencies (1,278) 20
Other
income (203) (72)
Operating income 1,525 895
Financial expenses – net 271 207
Income before income
taxes 1,254 688
Income taxes 46 54
Share in (profits)
losses of associated companies, net 74 (7)
Net income
1,134 641
Net income (loss) attributable to non-controlling
interests 14 (4)
Net income attributable to Teva 1,120
645
Dividends on preferred shares 65 65
Net income
attributable to Teva's ordinary shareholders 1,055 580
Earnings per share attributable to
ordinary shareholders: Basic ($) 1.04 0.57
Diluted
($) 1.03 0.57
Weighted average number of shares (in
millions): Basic 1,017 1,016
Diluted 1,020 1,017
Non-GAAP net income attributable to ordinary
shareholders:* 954 1,079
Non-GAAP net income attributable to
ordinary shareholders for diluted earnings per share: 954 1,079
Non-GAAP earnings per share attributable to ordinary
shareholders:* Basic ($) 0.94 1.06
Diluted ($)
0.94 1.06
Non-GAAP average number of shares (in
millions): Basic 1,017 1,016
Diluted 1,020
1,017
Condensed Consolidated Balance
Sheets
(U.S. dollars in
millions)
(Unaudited) March
31, December 31, 2018 2017 ASSETS
Current assets: Cash and cash equivalents 1,418 963 Trade
receivables 6,289 7,128 Inventories 5,113 4,924 Prepaid expenses
1,138 1,100 Other current assets 712 701 Assets held for sale 17
566
Total current assets 14,687 15,382
Deferred income
taxes 463 574
Other non-current assets 832 932
Property, plant and equipment, net 7,420 7,673
Identifiable intangible assets, net 17,314 17,640
Goodwill 28,465 28,414
Total assets 69,181 70,615
LIABILITIES & EQUITY Current liabilities:
Short-term debt 1,302 3,646 Sales reserves and allowances 7,410
7,881 Trade payables 1,929 2,069 Employee-related obligations 607
549 Accrued expenses 2,632 3,014 Other current liabilities 876 724
Liabilities held for sale - 38
Total current liabilities
14,756 17,921
Long-term liabilities: Deferred income
taxes 2,998 3,277 Other taxes and long-term liabilities 1,875 1,843
Senior notes and loans 29,450 28,829
Total long-term
liabilities 34,323 33,949
Equity: Teva shareholders’
equity 18,621 17,359 Non-contolling interests 1,481 1,386
Total
equity 20,102 18,745
Total liabilities and equity 69,181
70,615
Condensed Consolidated Cash
Flow(U.S. Dollars in millions)
Three months ended March 31, 2018 2017
Unaudited Unaudited Operating activities:
Net income 1,134 641
Net change in operating assets and
liabilities (592) (797)
Items not involving cash flow
954 292
Net cash provided by operating
activities 1,496 136
Net cash provided by investing
activities 1,039 1,516
Net cash used in financing
activities (2,091) (1,768)
Translation adjustment on
cash and cash equivalents 11 28
Net change in
cash and cash equivalents 455 (88)
Balance of cash
and cash equivalents at beginning of period 963 988
Balance of cash and cash equivalents at end of period
1,418 900
Non GAAP reconciliation items (U.S. Dollars
in millions) Three Months
Ended
March 31,
2018 2017 (U.S. $ in millions) Gain on
divestitures, net of divestitures related costs (93) - Amortization
of purchased intangible assets 310 320 Restructuring expenses 247
130 Inventory step-up - 64 Capital loss from currency translation -
52 Equity compensation expenses 30 36 Costs related to regulatory
actions taken in facilities 1 34 Acquisition, integration and
related expenses 2 23 Other R&D expenses 22 - Contingent
consideration 8 21 Legal settlements and loss contingencies (1,278)
20 Goodwill impairment 180 - Impairment of long-lived assets 432 11
Other non-GAAP items 49 15 Financial expense (income) 68 (28)
Minority interest (8) (13) Impairments of Equity Investments 94 -
Tax effect (165) (186)
Three Months Ended March 31,
2018
Three Months Ended March 31, 2017
U.S. dollars and shares in millions
(except per share amounts)
GAAP Non-GAAP Adjustments Dividends on Preferred
Shares Non-GAAP % of Net Revenues GAAP
Non-GAAP Adjustments Dividends on Preferred Shares
Non-GAAP % of Net Revenues Gross profit (1)
2,348 303 2,651 52% 2,839 377 3,216 57% Operating income (loss)
(1)(2) 1,525 (90) 1,435 28% 895 726 1,621 29% Net income
attributable to ordinary shareholders (1)(2)(3)(4) 1,055 (101) 954
19% 580 499 1,079 19% Earnings per share attributable to ordinary
shareholders - diluted (5) 1.03 (0.09) 0.94 0.57 0.49 1.06
(1) Amortization of purchased intangible assets 264 267
Inventory step-up - 64 Costs related to regulatory actions taken in
facilities 1 34 Equity compensation expenses 6 5 Other COGS related
adjustments 32 7 Gross profit adjustments 303 377 Gain on
divestitures, net of divestitures related costs (93) - Goodwill
impairment 180 - (2) Restructuring expenses 247 130 Amortization of
purchased intangible assets 46 53 Capital loss on currency
translation - 52 Equity compensation expenses 24 31 Acquisition,
Integration and related expenses 2 23 Other R&D expenses 22 -
Contingent consideration 8 21 Legal settlements and loss
contingencies (1,278) 20 Impairment of long-lived assets 432 11
Other operating related adjustments 17 8 (393) 349
Operating income adjustments (90) 726 (3) Financial expense
(income) 68 (28) Tax effect (165) (186) Impairments of Equity
Investments 94 - Minority interest (8) (13) Net
income adjustments (101) 499 (4)
The non-GAAP diluted weighted average
number of shares was 1,020 and 1,017 million for the three months
ended March 31, 2018 and 2017,
respectively. For the three months ended
March 31, 2018, the mandatory convertible preferred shares
amounting to 64 million weighted average
shares had an anti-dilutive effect on
earnings per share and were therefore excluded from the outstanding
shares calculation. Non-GAAP earnings per
share can be reconciled with GAAP earnings
per share by dividing each of the amounts included in footnotes 1-3
above by the applicable weighted
average share number.
Segment Information
North America Europe Growth Markets Three
months ended March 31, Three months ended March 31,
Three months ended March 31, 2018 2017
2018 2017 2018 2017 (U.S. $
in millions) (U.S. $ in millions) (U.S. $ in
millions) Revenues $ 2,531 $ 3,240 $ 1,442 $ 1,341 $ 750
$ 718 Gross profit 1,432 2,080 797 734 313 292 R&D expenses 188
267 73 106 24 47 S&M expenses 305 441 255 279 134 158 G&A
expenses 126 139 91 79 41 48 Other income (102) (73)
1 2 (8) (1) Segment profit $ 915 $ 1,306 $ 377
$ 268 $ 122 $ 40
Reconciliation of our segment
profit
to consolidated income before income
taxes
Three months ended March 31, 2018
2017 (U.S.$ in millions) North
America profit $ 915 $ 1,306 Europe profit 377 268 Growth Market
profit 122 40 Total segment profit 1,414 1,614 Profit
of other activities 21 7 1,435 1,621 Amounts not
allocated to segments: Amortization 310 320 Other asset
impairments, restructuring and other items 707 240 Goodwill
impairment 180 - Gain on divestitures, net of divestitures related
costs (93) - Inventory step-up - 64 Other R&D expenses 22 -
Costs related to regulatory actions taken in facilities 1 34 Legal
settlements and loss contingencies (1,278) 20 Other unallocated
amounts 61 48 Consolidated operating
income 1,525 895 Financial expenses - net 271
207 Consolidated income before income taxes $ 1,254 $ 688
Revenues by Activity and Geographical
Area
(Unaudited)
Three months ended March 31,
Percentage
Change
2018 2017 2017-2018 U.S.$ in millions
North America segment Generics medicines $ 1,088 $
1,415 (23%) COPAXONE 476 797 (40%) Bendeka and Trenda 181 156 16%
ProAir 130 121 7% QVAR 107 84 27% AUSTEDO 30 - N/A Distribution 331
295 12%
Three months ended March 31,
Percentage
Change
2018 2017 2017-2018 U.S.$ in millions
Europe segment Generic medicines $ 997 $ 850 17% COPAXONE
153 152 1% Respiratory products 113 84 35%
Three
months ended March 31, Percentage
Change
2018 2017 2017-2018
U.S.$ in millions
Growth Market segment Generics medicines $ 488 $ 486 0.5%
COPAXONE 16 21 (24%) Distribution 153 125 22%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180503005663/en/
Teva Pharmaceutical Industries Ltd.IR Contacts
United States Kevin C. Mannix, 215- 591-8912orIsrael
Ran Meir, 972 (3) 926 7516orTomer Amitai, 972 (3) 926 7656orPR
ContactsUnited StatesDoris Saltkill, 816-
391-8881orIsraelYonatan Beker, 972 (54) 888 5898
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