- Revenues of $4.7 billion
- Free cash flow of $0.6 billion
- GAAP diluted loss per share of
$0.24
- Non-GAAP diluted EPS of $0.78
- Restructuring plan on-track to achieve
$1.5 billion of savings in 2018 and in total $3.0 billion by the
end of 2019
- Raising 2018 full year guidance:
- Non-GAAP EPS guidance raised to
$2.55-2.80 from $2.40-$2.65
- Free cash flow guidance raised to
$3.2-3.4 billion from $3.0-3.2 billion
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA)
today reported results for the quarter ended June 30, 2018.
Mr. Kåre Schultz, Teva’s President and CEO, said, "I am
satisfied with our progress in the second quarter. The
restructuring program is on schedule, we have already achieved a
significant cost base reduction towards our target for the year and
we continue to reduce our net debt. COPAXONE® maintained its market
share and AUSTEDO® continued to show solid growth. Given the second
quarter results, we have decided to raise our 2018 full year
guidance." Mr. Schultz continued, “Our PDUFA action date for
fremanezumab is set for mid-September and we are preparing to
launch this important product once approved."
Second Quarter 2018 Consolidated
Results
Revenues in the second quarter of 2018 were $4.7 billion,
a decrease of 18%, or 19% in local currency terms, compared to the
second quarter of 2017, mainly due to continued price erosion in
our U.S. generics business, generic competition to COPAXONE and
loss of revenues following the divestment of certain products and
discontinuation of certain activities.
Exchange rate differences between the second quarter of
2018 and the second quarter of 2017 positively impacted our
revenues by $92 million, our GAAP operating income by $14 million
and our non-GAAP operating income by $19 million.
GAAP gross profit was $2.1 billion in the second quarter
of 2018, a decrease of 28% compared to the second quarter of 2017.
GAAP gross profit margin was 43.8% in the second quarter of
2018, compared to 49.9% in the second quarter of 2017.
Non-GAAP gross profit was $2.4 billion in the second
quarter of 2018, a decline of 27% from the second quarter of 2017.
Non-GAAP gross profit margin was 50.4% in the second quarter
of 2018, compared to 57.0% in the second quarter of 2017. The
decrease in gross profit margin, on both a GAAP and a non-GAAP
basis, resulted primarily from price erosion in our U.S. generics
business and a decline in COPAXONE revenues due to generic
competition, as well as the loss of revenue following the sale of
our women’s health business.
Research and Development (R&D) expenses for the
second quarter of 2018 were $290 million, a decrease of 38%
compared to the second quarter of 2017. R&D expenses excluding
equity compensation expenses and other R&D expenses were $281
million, or 6.0% of quarterly revenues in the second quarter of
2018, compared to $433 million, or 7.6%, in the second quarter of
2017. The decrease in R&D expenses resulted primarily from
pipeline optimization, phase 3 studies that ended and related
headcount reduction.
Selling and Marketing (S&M) expenses in the second
quarter of 2018 were $710 million, a decrease of 25% compared to
the second quarter of 2017. S&M expenses excluding amortization
of purchased intangible assets, equity compensation expenses and
other expenses were $662 million, or 14.1% of revenues, in the
second quarter of 2018, compared to $891 million, or 15.6% of
revenues, in the second quarter of 2017. The decrease was mainly
due to cost reductions and efficiency measures as part of the
restructuring plan.
General and Administrative (G&A) expenses in the
second quarter of 2018 were $316 million, a decrease of 12.9%
compared to the second quarter of 2017. G&A expenses, excluding
equity compensation expenses and other items, were $292 million in
the second quarter of 2018, or 6.2% of quarterly revenues, compared
to $365 million, or 6.4% in the second quarter of 2017. The
decrease was mainly due to cost reductions and efficiency measures
as part of the restructuring plan.
GAAP other income in the second quarter of 2018 was $96
million compared to $24 million in the second quarter of 2017.
Non-GAAP other income in the second quarter of 2018 was $106
million, an increase of 324% compared to $25 million in the second
quarter of 2017. The increase in other income was mainly due to
legal recovery of lost profits, where U.S. patent infringement
litigation previously prevented a product’s sales.
GAAP operating loss in the second quarter of 2018 was $14
million, compared to $5.7 billion in the second quarter of 2017.
Non-GAAP operating income in the second quarter of 2018 was
$1.2 billion, a decrease of 22% compared to the second quarter of
2017. Non-GAAP operating margin was 26.3% in the second
quarter of 2018 compared to 27.9% in the second quarter of
2017.
EBITDA (non-GAAP operating income, which excludes
amortization and certain other items, as well as excluding
depreciation expenses) was $1.4 billion in the second quarter of
2018, down 20% compared to $1.7 billion in the second quarter of
2017.
GAAP financial expenses for the second quarter of 2018
were $236 million, compared to $238 million in the second quarter
of 2017. Non-GAAP financial expenses were $238 million in
the second quarter of 2018, compared to $235 million in the second
quarter of 2017. In the second quarter of 2018, we recognized a
tax benefit of $76 million, or 30%, on pre-tax loss of $250
million. In the second quarter of 2017, we recognized a tax benefit
of $22 million, on pre-tax loss of $6 billion. Non-GAAP income
taxes for the second quarter of 2018 were $127 million, or 13%,
on pre-tax non-GAAP income of $1.0 billion. Non-GAAP income taxes
in the second quarter of 2017 were $230 million, or 17%, on pre-tax
non-GAAP income of $1.4 billion. Our tax rate for the second
quarter of 2018 on both GAAP and non-GAAP basis was mainly affected
by the mix of products sold in different geographies.
We expect our annual non-GAAP tax rate for 2018 to be 15%, lower
than our previous estimates. This is due to changes in the
geographical mix of income we expect to earn this year. Our
non-GAAP tax rate for 2017 was 15%.
GAAP net loss attributable to ordinary shareholders and
GAAP diluted loss per share in the second quarter of 2018
were $241 million and $0.24, respectively, compared to $6.0 billion
and $5.94, respectively, in the second quarter of 2017.
Non-GAAP net income attributable to ordinary shareholders
and non-GAAP diluted EPS in the second quarter of 2018 were
$794 million and $0.78, respectively, compared to $1,035 million
and $1.02 in the second quarter of 2017.
For the second quarter of 2018, the weighted average
outstanding shares for the fully diluted EPS calculation on
a GAAP basis was 1,018 million, compared to 1,017 million for the
second quarter of 2017. The weighted average outstanding
shares for the fully diluted EPS calculation on a non-GAAP
basis was 1,021 million, compared to 1,017 million for the second
quarter of 2017. Additionally, no account was taken of the
potential dilution by the mandatory convertible preferred shares,
amounting to 63 million shares (including shares that may be issued
due to unpaid dividends to date) for the three months ended June
30, 2018 and 59 million shares for the three months ended June 30
2017, as well as for the convertible senior debentures for the
respective periods, since both had an anti-dilutive effect on loss
per share.
Non-GAAP information: Net non-GAAP adjustments in the
second quarter of 2018 were negative $1,035 million. Non-GAAP net
income and non-GAAP EPS for the quarter were adjusted to exclude
the following items:
- Impairment of long-lived assets and
goodwill of $668 million, comprised mainly of impairment of
intangible assets of product rights and IPR&D assets related to
the Actavis Generics acquisition, goodwill impairment related to
Mexico reporting unit and impairment related to the closure of
manufacturing sites and other fixed assets.
- Amortization of purchased intangible
assets totaling $302 million, of which $261 million is included in
cost of goods sold and the remaining $41 million in S&M
expenses;
- Restructuring expenses of $107
million;
- Equity compensation expenses of $47
million;
- Contingent consideration of $47 million
mainly related to a court decision regarding the status of
Bendeka as an exclusive orphan drug;
- Legal settlements and loss
contingencies of $20 million;
- Other non-GAAP items of $47 million;
and
- Tax benefit of $203 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 operations during the second
quarter of 2018 was $162 million, compared to $435 million in the
second quarter of 2017. The decrease was mainly due to higher
beneficial interest collected in exchange for securitized trade
receivables and higher payments related to the restructuring plan
during the second quarter of 2018.
Free cash flow, excluding net capital
expenditures, was $0.6 billion in the second quarter of 2018 flat
compared to $0.6 billion in the second quarter of 2017.
As of June 30, 2018, our debt was $30.2 billion, compared
to $30.8 billion as of March 31, 2018. The decrease was mainly due
to exchange rate fluctuations.
The portion of total debt classified as short-term as of June
30, 2018 was 4%, unchanged compared to March 31, 2018.
Segment Results for the Second Quarter
2018
Due to the organizational changes announced in November 2017, we
began reporting our financial results under a new structure in the
first quarter of 2018, consisting of the following segments:
a) North America segment, which includes the
United States and Canada.
b) Europe segment, which includes the
European Union and certain other European countries.
c) International Markets segment (previously
named “Growth Markets” segment), which includes all countries other
than those in our North America and Europe segments.
In addition to these three segments, we have other activities,
primarily the sale of API to third parties and certain contract
manufacturing services.
Segment profit is comprised of gross profit for the segment,
less R&D, S&M, G&A expenses and other income related to
each segment. Segment profit does not include amortization and
certain other items.
North America Segment
Our North America segment includes the United States and
Canada.
The following table presents revenues, expenses and profit for
our North America segment for the three months ended June 30, 2018
and 2017:
Three months ended June 30, 2018 2017
(U.S.$ in millions / % of Segment Revenues)
Revenues
$2,263
100%
$3,169
100% Gross profit 1,203 53.2% 2,058 64.9% R&D expenses 182 8.0%
280 8.8% S&M expenses 296 13.1% 392 12.3% G&A expenses 103
4.6% 144 4.5% Other income (100) (4.4%) (8) § Segment profit*
$722
31.9%
$1,250
39.4%
* 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. See
note
17 to our consolidated financial
statements for additional information.
§ Represents an amount less than 0.5%.
Revenues from our North America segment in the second
quarter of 2018 were $2.3 billion, a decrease of $906 million, or
29%, compared to the second quarter of 2017, mainly due to a
decline in revenues of COPAXONE as well as an equally significant
decline in revenues in our U.S. generics business and the loss of
revenues from the sale of our women’s health business, partially
offset by higher revenues from AUSTEDO® and our distribution
business.
Revenues in the United States, our largest market, were
$2.1 billion in the second quarter of 2018, a decrease of $899
million, or 30%, compared to the second quarter of 2017.
Revenues by Major Products and Activities
The following table presents revenues for our North America
segment by major products and activities for the three months ended
June 30, 2018 and 2017:
Three months ended June 30,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in
millions) Generic products $ 947 $ 1,331 (29%) COPAXONE
464 859 (46%) BENDEKA / TREANDA 160 163 (2%) ProAir 115 123 (7%)
QVAR 30 98 (69%) AUSTEDO 44 1 NA Distribution 320 275 16%
Generic products revenues in our North America segment in
the second quarter of 2018 decreased by 29% to $947 million,
compared to the second quarter of 2017, mainly due to continued
price erosion in our U.S. generics business, additional competition
to methylphenidate extended-release tablets (Concerta® authorized
generic) and portfolio optimization.
In the second quarter of 2018, we led the U.S. generics market
in total prescriptions and new prescriptions, with approximately
576 million total prescriptions, representing 15% of total U.S.
generic prescriptions according to IQVIA data.
COPAXONE revenues in our North America segment in the
second quarter of 2018 decreased by 46% to $464 million, of which
$448 million were generated in the United States, compared to the
second quarter of 2017, mainly due to generic competition in the
United States.
BENDEKA® and TREANDA® combined
revenues in our North America segment in the second quarter of 2018
decreased by 2% to $160 million, compared to the second quarter of
2017, mainly due to lower volumes, partially offset by a higher
pricing.
ProAir® revenues in our North America segment in
the second quarter of 2018 decreased by 7% to $115 million,
compared to the second quarter of 2017, mainly due to lower net
pricing.
QVAR® revenues in our North America segment in the second
quarter of 2018 decreased by 69% to $30 million, compared to the
second quarter of 2017. The decrease in sales was mainly due to
lower volumes in this quarter following wholesaler stocking in the
first quarter of 2018 in connection with the launch of QVAR®
RediHaler™. QVAR maintained its second-place position in the
inhaled corticosteroids category in the United States.
AUSTEDO® revenues in our North America segment in
the second quarter of 2018 were $44 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 also approved AUSTEDO for the treatment of
tardive dyskinesia.
Distribution revenues in our North America segment in the
second quarter of 2018 generated by Anda increased by 16% to $320
million, compared to the second quarter of 2017.
North America Gross Profit
Gross profit from our North America segment in the second
quarter of 2018 was $1.2 billion, a decrease of 42% compared to
$2.1 billion in the second 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 second
quarter of 2018 decreased to 53.2%, compared to 64.9% in the second
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 second quarter of
2018 was $722 million, a decrease of 42% compared to $1.3 billion
in the second quarter of 2017. The decrease was mainly due to lower
revenues from COPAXONE and generic products, partially offset by
cost reductions and efficiency measures as part of the
restructuring plan and higher other income.
Europe Segment
Our Europe segment includes the European Union and certain other
European countries.
The following table presents revenues, expenses and profit for
our Europe segment for the three months ended June 30, 2018 and
2017:
Three months ended June 30, 2018 2017
(U.S.$ in millions / % of Segment Revenues)
Revenues
$1,328
100.0%
$1,295
100% Gross profit 731 55.0% 692 53.4% R&D expenses 73 5.4% 105
8.1% S&M expenses 237
17.8%
296 22.8% G&A expenses 78 5.8% 89 6.9% Other expenses (3) §
(17) (1.3%) Segment profit*
$346
26.1% 219 16.9%
* 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. See
note
17 to our consolidated financial
statements for additional information.
§ Represents an amount less than 0.5%.
Revenues from our Europe segment in the second quarter of 2018
were $1.3 billion, an increase of $33 million or 3%, compared to
the second quarter of 2017. In local currency terms, revenues
decreased by 5%, mainly due to the loss of revenues from the
closure of our distribution business in Hungary and the sale of our
women’s health business, partially offset by new generic product
launches.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by
major products and activities for the three months ended June 30,
2018 and 2017:
Three months ended June 30,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in
millions) Generic products $ 907 $ 822 10% COPAXONE 140
138 1% Respiratory products 106 84 26%
Generic products revenues in our Europe segment in the
second quarter of 2018, including OTC products, increased by 10% to
$907 million, compared to the second quarter of 2017. In local
currency terms, revenues increased by 3%, mainly due to new product
launches, partially offset by price reductions.
COPAXONE revenues in our Europe segment in the second
quarter of 2018 increased by 1% to $140 million, compared to the
second quarter of 2017. In local currency terms, revenues decreased
by 7%, mainly due to price reductions resulting from the entry of
generic competition.
Respiratory products revenues in our Europe
segment in the second quarter of 2018 increased by 26% to $106
million, compared to the second 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 second quarter of
2018 was $731 million, an increase of 6% compared to $692 million
in the second 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 second quarter
of 2018 increased to 55.0%, compared to 53.4% in the second quarter
of 2017. This increase was mainly due to the closure of our
distribution business in Hungary.
Europe Profit
Profit from our Europe segment in the second quarter of 2018 was
$346 million, an increase of 58% compared to $219 million in the
second quarter of 2017. The increase was mainly due to cost
reductions and efficiency measures as part of the restructuring
plan.
International Markets Segment
Our International Markets segment includes all countries other
than those in our North America and Europe segments. The key
markets in this segment are Japan, Israel and Russia.
The following table presents revenues, expenses and profit for
our International Markets segment for the three months ended June
30, 2018 and 2017:
Three months ended June 30, 2018 2017
(U.S.$ in millions / % of Segment Revenues)
Revenues
$789
100.0%
$885
100% Gross profit 328 41.6% 400 45.2% R&D expenses 25 3.1% 47
5.3% S&M expenses 130 16.4% 187 21.1% G&A expenses 37 4.5%
45 5.1% Other income (3) § - § Segment profit*
$139
17.6%
$121
13.7%
* 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. See
note
17 to our consolidated financial
statements for additional information.
§ Represents an amount less than 0.5%.
Revenues from our International Markets segment in the
second quarter of 2018 were $789 million, a decrease of $96
million, or 11%, compared to the second quarter of 2017. In local
currency terms, revenues decreased 9% compared to the second
quarter of 2017, mainly due to lower sales in Japan (resulting from
the milestone payment received from Otsuka in the second quarter of
2017), lower sales in Russia, the effect of the deconsolidation of
our subsidiaries in Venezuela and the loss of revenues from the
sale of our women’s health business, partially offset by higher
sales in Israel.
Revenues by Major Products and Activities
The following table presents revenues for our International
Markets segment by major products and activities for the three
months ended June 30, 2018 and 2017:
Three months ended June 30,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
Generic products $ 537 $ 604 (11%) COPAXONE 22 26 (15%)
Distribution 154 135 14%
Generic products revenues in our International Markets
segment in the second quarter of 2018, which include OTC products,
decreased by 11% to $537 million, compared to the second quarter of
2017. In local currency terms, revenues decreased by 9%, mainly due
to lower sales in Russia and the effect of the deconsolidation of
our subsidiaries in Venezuela.
COPAXONE revenues in our International Markets segment in
the second quarter of 2018 decreased by 15% to $22 million,
compared to the second quarter of 2017. In local currency terms,
revenues decreased by 4%.
Distribution revenues in our International Markets
segment in the second quarter of 2018 increased by 14% to $154
million, compared to the second quarter of 2017. In local currency
terms, revenues increased by 14%, mainly due to higher sales in
Israel.
International Markets Gross Profit
Gross profit from our International Markets segment in the
second quarter of 2018 was $328 million, a decrease of 18% compared
to $400 million in the second quarter of 2017. This decrease was
mainly due to lower gross profit in Japan and Russia and the
deconsolidation of our subsidiaries in Venezuela, partially offset
by higher gross profit in Israel and certain Latin American
markets.
Gross profit margin for our International Markets segment in the
second quarter of 2018 decreased to 41.6%, compared to 45.2% in the
second quarter of 2017.
International Markets Profit
Profit from our International Markets segment in the second
quarter of 2018 was $139 million, compared to $121 million in the
second quarter of 2017. The increase was mainly due to cost
reductions and efficiency measures as part of the restructuring
plan.
Profit as a percentage of International Markets revenues in the
second quarter of 2018 was 18%, compared to 14% in the second
quarter of 2017. This increase was mainly due to lower operating
expenses 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 the second quarter of 2018.
Other Activities
We have other sources of revenues, primarily the sale of API to
third parties and certain contract manufacturing services. These
other activities are not included in our North America, Europe or
International Markets segments.
Our revenues from other activities in the second quarter of 2018
decreased by 13.5% to $321 million, compared to the second quarter
of 2017. In local currency terms, revenues decreased by 16%, mainly
due to lower API sales to third parties.
API sales to third parties in the second quarter of 2018
decreased by 9% to $186 million, compared to the second quarter of
2017. In local currency terms, revenues decreased by 9%.
Updated 2018 Non-GAAP Results
Outlook
Updated GuidanceAugust 2018
Guidance May 2018 Revenues $18.5-19.0
billion $18.5-19.0 billion Non-GAAP Operating Income $4.3-4.6
billion $4.2-4.5 billion EBITDA $5.0-5.3 billion $4.9-5.2 billion
Non-GAAP EPS $2.55-2.80 $2.40-2.65 Weighted average number of
shares 1,027 million 1,030 million Free cash flow $3.2-3.4 billion
$3.0-3.2 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, August 2, 2018 at 8:00 a.m. ET to
discuss its second quarter 2018 results and overall business
environment. A question & answer session will follow.
United States 1-877-391-1148
International +44 (0) 1452 580733
For a list of other international toll-free numbers, click
here.
Passcode: 6984104
A live webcast of the call will also be available on Teva's
website at: ir.tevapharm.com. Please log in at least 10 minutes
prior to the conference call in order to download the applicable
software.
Following the conclusion of the call, a replay of the webcast
will be available within 24 hours on the Company's website. The
replay can also be accessed until August 30, 2018, 9:00 a.m. ET by
calling United States 1 (866) 331-1332 or International +44 (0)
3333009785; passcode: 6984104.
About Teva
Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA)
is a global leader in generic medicines, with innovative treatments
in select areas, including CNS, pain and respiratory. We deliver
high-quality generic products and medicines in nearly every
therapeutic area to address unmet patient needs. We have an
established presence in generics, specialty, OTC and API, building
on more than a century-old legacy, with a fully integrated R&D
function, strong operational base and global infrastructure and
scale. We strive to act in a socially and environmentally
responsible way. Headquartered in Israel, with production and
research facilities around the globe, we employ 45,000
professionals, committed to improving the lives of millions of
patients. Learn more at 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, EBITDA, 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 substantial indebtedness, which may
limit our ability to incur additional indebtedness, engage in
additional transactions or make new investments, 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 the sections
thereof captioned "Risk Factors" and "Forward Looking Statements,"
and in our subsequent quarterly reports on Form 10-Q and other
filings with the 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 Six months
ended June 30, June 30, 2018
2017 2018 2017 (Unaudited)
(Unaudited) (Unaudited) (Unaudited) Net
revenues 4,701 5,720 9,766 11,370
Cost of sales 2,640
2,865 5,357 5,676
Gross profit 2,061 2,855 4,409 5,694
Research and development expenses 290 469 607 901
Selling
and marketing expenses 710 944 1,481 1,902
General and
administrative expenses 316 363 645 729
Other asset
impairments, restructuring and other items 715 419 1,422 659
Goodwill impairment 120 6,100 300 6,100
Legal settlements
and loss contingencies 20 324 (1,258) 344
Other income
(96) (24) (299) (96)
Operating income (loss) (14) (5,740)
1,511 (4,845)
Financial expenses – net 236 238 507 445
Income (loss) before income taxes (250) (5,978) 1,004
(5,290)
Income taxes (benefit)
(76) (22) (30) 32
Share in (profits) losses of associated
companies, net (8) 14 66 7
Net income (loss) (166)
(5,970) 968 (5,329)
Net income (loss) attributable to
non-controlling interests 10 - 24 (4)
Net income (loss)
attributable to Teva (176) (5,970) 944 (5,325)
Dividends on
preferred shares 65 65 130 130
Net income (loss)
attributable to Teva's ordinary shareholders (241) (6,035) 814
(5,455)
Earnings per share attributable to ordinary
shareholders: Basic ($) (0.24) (5.94) 0.80 (5.37)
Diluted ($) (0.24) (5.94) 0.80 (5.37)
Weighted average
number of shares (in millions): Basic 1,018 1,017 1,018
1,016
Diluted 1,018 1,017 1,020
1,016
Non-GAAP net income attributable to ordinary
shareholders:* 794 1,035 1,748 2,114
Non-GAAP net income
attributable to ordinary shareholders for diluted earnings per
share: 794 1,035 1,748 2,114
Non-GAAP earnings per
share attributable to ordinary shareholders:* Basic ($)
0.78 1.02 1.72 2.08
Diluted ($) 0.78 1.02 1.71 2.08
Non-GAAP average number of shares (in millions):
Basic 1,018 1,017 1,018 1,017
Diluted 1,021
1,017 1,020 1,017 * See reconciliation
attached.
Condensed Consolidated Balance Sheets
(U.S. dollars in millions)
(Unaudited) June 30, December
31, 2018 2017 ASSETS Current
assets: Cash and cash equivalents 1,861 963 Trade receivables
6,061 7,128 Inventories 4,971 4,924 Prepaid expenses 1,104 1,100
Other current assets 685 701 Assets held for sale 29 566
Total
current assets 14,711 15,382
Deferred income taxes 440
574
Other non-current assets 806 932
Property, plant and
equipment, net 7,213 7,673
Identifiable intangible assets,
net 16,212 17,640
Goodwill 27,648 28,414
Total
assets 67,030 70,615
LIABILITIES & EQUITY
Current liabilities: Short-term debt 1,272 3,646 Sales
reserves and allowances 7,138 7,881 Trade payables 1,779 2,069
Employee-related obligations 674 549 Accrued expenses 2,248 3,014
Other current liabilities 1,104 724 Liabilities held for sale - 38
Total current liabilities 14,215 17,921
Long-term
liabilities: Deferred income taxes 2,668 3,277 Other taxes and
long-term liabilities 1,814 1,843 Senior notes and loans 28,965
28,829
Total long-term liabilities 33,447 33,949
Equity: Teva shareholders’ equity 17,939 17,359
Non-controlling interests
1,429 1,386
Total equity 19,368 18,745
Total liabilities
and equity 67,030 70,615
Condensed Consolidated Cash
Flow (U.S. Dollars in millions)
Three months ended Six months ended
June 30, June 30, 2018 2017 2018
2017 Unaudited Unaudited Unaudited
Unaudited Operating activities: Net income
(166) (5,970) 968 (5,329)
Net change in operating assets and
liabilities (676) (554) (1,268) (1,351)
Items not involving
cash flow 1,004 6,959 1,958 7,251
Net cash provided by operating activities 162 435 1,658 571
Net cash provided by investing activities 406 (86)
1,445 1,430
Net cash used in financing activities
(56) (651) (2,147) (2,419)
Translation adjustment on cash
and cash equivalents (69) 1 (58) 29
Net change in cash and cash equivalents 443 (301) 898 (389)
Balance of cash and cash equivalents at beginning of
period 1,418 900 963 988
Balance
of cash and cash equivalents at end of period 1,861 599 1,861
599
Non GAAP reconciliation items (U.S. Dollars in
millions)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017 (U.S. $ in
millions) Gain on divestitures, net of divestitures
related costs 10 - (83) - Amortization of purchased intangible
assets 302 411 612 731 Restructuring expenses 107 98 354 228
Inventory step-up - 3 - 67 Equity compensation expenses 47 35 77 71
Costs related to regulatory actions taken in facilities 4 15 5 49
Acquisition, integration and related expenses 3 33 5 56 Other
R&D expenses - 21 22 26 Contingent consideration 47 140 55 161
Legal settlements and loss contingencies 20 324 (1,258) 344
Goodwill impairment 120 6,100 300 6,100 Impairment of long-lived
assets 548 145 980 156 Other non-GAAP items 44 12 93 74 Financial
expense (income) (2) 3 66 (25) Minority interest (12) (20) (20)
(33) Impairments of equity investments - 2 94 2 Tax effect (203)
(252) (368) (438)
Three Months Ended June 30, 2018
Three Months Ended June 30, 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)
2,061 306 2,367 50% 2,855 406 3,261 57% Operating income (loss)
(1)(2) (14) 1,252 1,238 26% (5,740) 7,337 1,597 28% Net income
attributable to ordinary shareholders (1)(2)(3)(4) (241) 1,035 794
17% (6,035) 7,070 1,035 18% Earnings per share attributable to
ordinary shareholders - diluted (0.24) 1.02 0.78 (5.94) 6.96 1.02
(1) Amortization of purchased intangible assets 261
367 Inventory step-up - 3 Costs related to regulatory actions taken
in facilities 4 15 Equity compensation expenses 9 7 Other COGS
related adjustments 32 14 Gross profit adjustments 306 406
(2) Gain on divestitures, net of divestitures related costs 10 -
Goodwill impairment 120 6,100 Restructuring expenses 107 98
Amortization of purchased intangible assets 41 44 Equity
compensation expenses 38 28 Acquisition, Integration and related
expenses 3 33 Other R&D expenses - 21 Contingent consideration
47 140 Legal settlements and loss contingencies 20 324 Impairment
of long-lived assets 548 145 Other operating related adjustments 12
(2) 946 6,931 Operating income adjustments 1,252
7,337 (3) Financial expense (income) (2) 3 Tax effect (203)
(252) Impairments of Equity Investments - 2 Minority interest (12)
(20) Net income adjustments 1,035 7,070 (4)
The non-GAAP diluted weighted average
number of shares was 1,021 and 1,017 million for the three months
ended June 30, 2018 and 2017, respectively.
For the three months ended June 31, 2018,
the mandatory convertible preferred shares amounting to 63 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.
Six Months Ended June 30, 2018 Six Months Ended
June 30, 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) 4,409 609 5,018 51% 5,694 783 6,477 57%
Operating income (loss) (1)(2) 1,511 1,162 2,673 27% (4,845) 8,063
3,218 28% Net income (loss) attributable to ordinary shareholders
(1)(2)(3)(4) 814 934 1,748 18% (5,455) 7,569 2,114 19% Earnings
(loss) per share attributable to ordinary shareholders - diluted
(5) 0.80 0.91 1.71 (5.37) 7.45 2.08 (1)
Amortization of purchased intangible assets 525 634 Inventory
step-up - 67 Costs related to regulatory actions taken in
facilities 5 49 Equity compensation expenses 15 12 Other COGS
related adjustments 64 21 Gross profit adjustments 609 783
(2) Gain on sales of business and long-lived assets (83) - Goodwill
impairment charge 300 6,100 Restructuring expenses 354 228
Amortization of purchased intangible assets 87 97 Equity
compensation expenses 62 59 Acquisition and related expenses 5 56
Other R&D expenses 22 26 Contingent consideration 55 161 Legal
settlements and loss contingencies (1,258) 344 Impairment of
long-lived assets 980 156 Other operating related expenses (income)
29 53 553 7,280 Operating income adjustments 1,162
8,063 (3) Financial expense 66 (25) Tax effect (368) (438)
Impairment of equity investment—net 94 2 Minority interest (20)
(33) Net income adjustments 934 7,569 (4)
For the six months ended June 30, 2018,
and 2017, no account was taken of the potential dilution of the
accrued dividend to mandatory
convertible preferred shares amounting to
$130 million, since it had an anti-dilutive effect on loss per
share.
(5)
The non-GAAP weighted average number of
shares was 1,020 and 1,017 million for the six months ended June
30, 2018 and 2017 respectively.
For the six months ended June 30, 2018,
the mandatory convertible preferred shares amounting to 60 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 1-4
above by the applicable weighted average
share number.
Segment Information
North America Europe International
Markets Three months ended June 30, Three months
ended June 30, Three months ended June 30, 2018
2017 2018 2017 2018 2017
(U.S. $ in millions) (U.S. $ in millions) (U.S. $
in millions) Revenues $ 2,263 $ 3,169 $ 1,328 $ 1,295 $
789 $ 885 Gross profit 1,203 2,058 731 692 328 400 R&D expenses
182 280 73 105 25 47 S&M expenses 296 392 237 296 130 187
G&A expenses 103 144 78 89 37 45 Other income (100)
(8) (3) (17) (3) - Segment profit $ 722
$ 1,250 $ 346 $ 219 $ 139 $ 121
Segment Information
North America
Europe International Markets Six months ended June
30, Six months ended June 30, Six months ended June
30, 2018 2017 2018 2017 2018
2017 (U.S. $ in millions) (U.S. $ in
millions) (U.S. $ in millions) Revenues $ 4,794 $
6,409 $ 2,770 $ 2,636 $ 1,539 $ 1,603 Gross profit 2,635 4,138
1,528 1,426 641 692 R&D expenses 370 547 146 211 49 94 S&M
expenses 601 833 492 575 264 345 G&A expenses 229 283 169 168
78 93 Other income (202) (81) (2) (15)
(11) (1) Segment profit $ 1,637 $ 2,556 $ 723 $ 487 $ 261 $
161
Reconciliation of our segment
profit to consolidated income before income taxes
Three months ended June 30, 2018 2017
(U.S.$ in millions) North America profit $ 722
$ 1,250 Europe profit 346 219 International Markets profit 139 121
Total segment profit 1,207 1,590 Profit of other activities 31 7
1,238 1,597 Amounts not allocated to segments: Amortization 302 411
Other asset impairments, restructuring and other items 715 419
Goodwill impairment 120 6,100 Loss from divestitures, net of
divestitures related costs 10 - Inventory step-up - 3 Other R&D
expenses - 21 Costs related to regulatory actions taken in
facilities 4 15 Legal settlements and loss contingencies 20 324
Other unallocated amounts 81 44
Consolidated operating income (14) (5,740) Financial
expenses - net 236 238 Consolidated income before
income taxes $ (250) $ (5,978)
Reconciliation of our segment
profit to consolidated income before income taxes
Six months ended June 30, 2018
2017 (U.S.$ in millions) North America
profit $ 1,637 $ 2,556 Europe profit 723 487 International Markets
profit 261 161 Total segment profit 2,621 3,204 Profit of other
activities 52 14 2,673 3,218 Amounts not allocated to segments:
Amortization 612 731 Other asset impairments, restructuring and
other items 1,422 659 Goodwill impairment 300 6,100 Gain on
divestitures, net of divestitures related costs (83) - Inventory
step-up - 67 Other R&D expenses 22 26 Costs related to
regulatory actions taken in facilities 5 49 Legal settlements and
loss contingencies (1,258) 344 Other unallocated amounts 142 87
Consolidated operating income
1,511 (4,845) Financial expenses - net 507 445
Consolidated income before income taxes $ 1,004 $ (5,290)
Revenues by Activity and Geographical Area (Unaudited)
Three months ended June
30, Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
North America segment Generics medicines $ 947 $ 1,331 (29%)
COPAXONE 464 859 (46%) Bendeka and Trenda 160 163 (2%) ProAir 115
123 (7%) QVAR 30 98 (69%) AUSTEDO 44 1 NA Distribution 320 275 16%
Three months ended June 30,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
Europe segment Generic medicines $ 907 $ 822 10% COPAXONE
140 138 1% Respiratory products 106 84 26%
Three
months ended June 30, Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
International Markets segment Generics medicines $ 537 $ 604
(11%) COPAXONE 22 26 (15%) Distribution 154 135 14%
Revenues by
Activity and Geographical Area (Unaudited)
Six
months ended June 30, Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
North America segment Generics medicines $ 2,035 2,746 (26%)
COPAXONE 940 1,656 (43%) Bendeka and Trenda 341 319 7% ProAir 245
244 § QVAR 137 181 (24%) AUSTEDO 74 1 NA Distribution 651 570 14%
Six months ended June 30,
Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
Europe segment Generic medicines $ 1,904 $ 1,672 14%
COPAXONE 293 290 1% Respiratory products 219 168 30%
Six months ended June 30, Percentage
Change
2018 2017 2017-2018 (U.S.$ in millions)
International Markets segment Generics medicines $ 1,025 $
1,090 (6%) COPAXONE 38 47 (19%) Distribution 307 260 18%
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Teva Pharmaceutical Industries Ltd.IR Contacts:Kevin C. Mannix,
215-591-8912orRan Meir, 972 (3) 926-7516orPR Contacts:United
States:Elizabeth DeLuca, 267-468-4329orIsrael:Yonatan Beker, 972
(54) 888 5898
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