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Teva Reports Third Quarter 2018 Financial Results

Teva Reports Third Quarter 2018 Financial Results

JERUSALEM--(BUSINESS WIRE)--Nov. 1, 2018-- Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA) today reported results for the quarter ended September 30, 2018.

Revenues of $4.5 billion

Free cash flow of $704 million

GAAP diluted loss per share of $0.27

Non-GAAP diluted EPS of $0.68

Spend base reduction of $1.8 billion in the first nine months of 2018; on-track to achieve $3.0 billion by the end of 2019

AJOVY™ (fremanezumab) was approved by the FDA in September 2018 and immediately launched

Raising 2018 full year guidance:

Non-GAAP EPS guidance raised to $2.80-2.95 from $2.55-2.80

Free cash flow guidance raised to $3.6-3.8 billion from $3.2-3.4 billion

Mr. Kåre Schultz, Teva’s President and CEO, said, “I am very satisfied with our progress and we are meeting all our key targets. We received FDA approval for AJOVY™ in September for the preventive treatment of migraine and we are seeing very good signs of a successful launch. We continue to see strong growth for AUSTEDO®, while COPAXONE® continues to maintain its market share. Our restructuring plan has already resulted in a significant cost reduction of $1.8 billion in the first nine months of the year and we are on track to achieve a reduction of $3.0 billion by the end of 2019, while continuing to pay down our debt. Given the solid third quarter results, we have decided to raise our 2018 full year guidance. ”

Third Quarter 2018 Consolidated Results

Revenues in the third quarter of 2018 were $4,529 million, a decrease of 19%, or 18% in local currency terms, compared to the third quarter of 2017, mainly due to generic competition to COPAXONE, price erosion in our U.S. generics business and loss of revenues following the divestment of certain products and discontinuation of certain activities.

Exchange rate differences between the third quarter of 2018 and the third quarter of 2017 negatively impacted our revenues and GAAP operating income by $80 million and $34 million, respectively. Our non-GAAP operating income was negatively impacted by $37 million.

GAAP gross profit was $2,021 million in the third quarter of 2018, a decrease of 24% compared to the third quarter of 2017. GAAP gross profit margin was 44.6% in the third quarter of 2018, compared to 47.2% in the third quarter of 2017. Non-GAAP gross profit was $2,305 million in the third quarter of 2018, a decline of 23% from the third quarter of 2017. Non-GAAP gross profit margin was 50.9% in the third quarter of 2018, compared to 53.1% in the third quarter of 2017. The decrease in gross profit margin, on both a GAAP and a non-GAAP basis, resulted primarily from a decline in COPAXONE revenues due to generic competition, price erosion in our U.S. generics business and the loss of revenue following the sale of our women’s health business.

Research and Development (R&D) expenses for the third quarter of 2018 were $311 million, a decrease of 41% compared to the third quarter of 2017. R&D expenses excluding equity compensation expenses and other expenses were $243 million, or 5.4% of quarterly revenues in the third quarter of 2018, compared to $367 million, or 6.5%, in the third quarter of 2017. The decrease in R&D expenses resulted primarily from pipeline optimization, phase 3 studies that have ended and related headcount reduction.

Selling and Marketing (S&M) expenses in the third quarter of 2018 were $743 million, a decrease of 12% compared to the third quarter of 2017. S&M expenses excluding amortization of purchased intangible assets, equity compensation expenses and other expenses were $678 million, or 15.0% of quarterly revenues, in the third quarter of 2018, compared to $788 million, or 14.0%, in the third 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 third quarter of 2018 were $309 million, a decrease of 17% compared to the third quarter of 2017. G&A expenses excluding equity compensation expenses and other expenses were $284 million in the third quarter of 2018, or 6.3% of quarterly revenues, compared to $360 million, or 6.4% in the third 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 third quarter of 2018 was $35 million compared to $4 million in the third quarter of 2017. Non-GAAP other income in the third quarter of 2018 was $4 million, same as in the third quarter of 2017.

GAAP operating income in the third quarter of 2018 was $16 million, compared to $378 million in the third quarter of 2017. Non-GAAP operating income in the third quarter of 2018 was $1,104 million, a decrease of 25% compared to the third quarter of 2017. Non-GAAP operating margin was 24.4% in the third quarter of 2018 compared to 26.2% in the third quarter of 2017.

EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,253 million in the third quarter of 2018, a decrease of 23% compared to $1,618 million in the third quarter of 2017.

GAAP financial expenses for the third quarter of 2018 were $229 million, compared to $259 million in the third quarter of 2017. Non-GAAP financial expenses were $236 million in the third quarter of 2018, compared to $229 million in the third quarter of 2017.

In the third quarter of 2018, we recognized a tax benefit of $26 million, or 12%, on pre-tax loss of $213 million. In the third quarter of 2017, we recognized a tax benefit of $494 million, on pre-tax income of $119 million. Our tax rate for the third quarter of 2018 was mainly affected by the mix of products sold in different geographies. Non-GAAP income taxes for the third quarter of 2018 were $85 million, or 10%, on pre-tax non-GAAP income of $868 million. Non-GAAP income taxes in the third quarter of 2017 were $135 million, or 11%, on pre-tax non-GAAP income of $1,241 million.

We expect our annual non-GAAP tax rate for 2018 to be 14%, which is lower than our previous projection. 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 third quarter of 2018 were $273 million and $0.27, respectively, compared to income of $530 million and $0.52 in the third quarter of 2017. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the third quarter of 2018 were $694 million and $0.68, respectively, compared to $1,012 million and $1.00 in the third quarter of 2017.

For the third 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 third quarter of 2017. The weighted average outstanding shares for the fully diluted EPS calculation on a non-GAAP basis was 1,022 million, compared to 1,017 million for the third quarter of 2017. Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 66 million shares (including shares that may be issued due to unpaid dividends to date) for the three months ended September 30, 2018 and 59 million shares for the three months ended September 30 2017, as well as for the convertible senior debentures for the respective periods, since both had an anti-dilutive effect on EPS.

As of September 30, 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,111 million.

Non-GAAP information: Net non-GAAP adjustments in the third quarter of 2018 were $967 million. Non-GAAP net income and non-GAAP EPS for the third quarter were adjusted to exclude the following items:

 

Impairment of long-lived assets of $521 million comprised mainly of impairment of intangible assets of product rights and IPR&D assets related to the Actavis Generics acquisition;

Amortization of purchased intangible assets totaling $297 million, of which $246 million is included in cost of goods sold and the remaining $51 million in S&M expenses;

Restructuring expenses of $88 million;

In Process R&D of $60 million;

Equity compensation expenses of $45 million;

Contingent consideration of $29 million;

Other non-GAAP items of $38 million; and

Tax benefit of $111 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 third quarter of 2018 was $421 million, compared to $795 million in the third quarter of 2017. The decrease was mainly due to lower net income, higher beneficial interest collected in exchange for securitized trade receivables and higher payments related to the restructuring plan during the third quarter of 2018.

Free cash flow (cash flow generated from operations net of capital expenditures and deferred purchase price cash component collected for securitized trade receivables) was $704 million in the third quarter of 2018, compared to $920 million in the third quarter of 2017. The decrease was mainly due to lower net income.

As of September 30, 2018, our debt was $29,489 million, compared to $30,237 million as of June 30, 2018. The decrease was mainly due to the $405 million debt tender offer completed in September 2018 as well as repayment at maturity of our CHF 300 million 0.125% senior notes. The portion of total debt classified as short-term as of September 30, 2018 was 9%, compared to 4% as of June 30, 2018, due to a net increase in current maturities.

 

Updated 2018 Non-GAAP Results Outlook

 

 

 

 

 

 

 

 

 
       

Updated Guidance
November 2018

     

Guidance
August 2018

Revenues

     

$18.6-19.0 billion

     

$18.5-19.0 billion

Non-GAAP Operating Income

     

$4.6-4.8 billion

     

$4.3-4.6 billion

EBITDA

     

$5.2-5.4 billion

     

$5.0-5.3 billion

Non-GAAP EPS

     

$2.80-2.95

     

$2.55-2.80

Weighted average number of shares

     

1,027 million

     

1,027 million

Free cash flow

     

$3.6-3.8 billion

     

$3.2-3.4 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.

 

 

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