On May 7, 2020 Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA) reported results for the quarter ended March 31, 2020 (Press release, Teva, MAY 7, 2020, View Source [SID1234557309]).
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Mr. Kåre Schultz, Teva’s President and CEO, said, "2020 brought an unprecedented global health crisis, affecting all nations and industries, including the pharmaceutical industry, which plays many roles in countering the epidemic. As our industry responds to the challenge, we are reminded of the importance of reliable supplies of high quality generic medicines to meet critical demand. Teva has responded to this challenge by supporting efforts of governments and health services to curb the impact of the virus. We have done this while taking robust measures to safeguard the health and well-being of our employees, who have diligently worked to ensure that all our manufacturing and distribution facilities remain open to allow the safe supply of medicines and APIs to our customers, and to millions of patients around the world."
Mr. Schultz continued, "Our very strong results during the first quarter of 2020 were impacted by greater demand in our major markets for generic and OTC products and respiratory products. Stronger revenues across these categories, along with growth in our operating and net profit, contributed to strong free cash flow and a further reduction in our net debt to $24.3 billion."
"Looking ahead, in light of the challenges and uncertainties facing our industry and society at large, we will continue to take measures to safeguard our dedicated employees, securing continued operation of our supply chain and deliveries of our broad portfolio to the 200 million patients we serve."
First Quarter 2020 Consolidated Results
Revenues in the first quarter of 2020 were $4,357 million, an increase of 5% in both U.S. dollar and local currency terms, compared to the first quarter of 2019. This increase was mainly due to higher revenues from generics and OTC sales in Europe, higher revenues from AUSTEDO and Anda in North America and higher revenues from our International Markets segment, partially offset by lower revenues from generics in the U.S. and lower revenues from QVAR and BENDEKA/TREANDA in North America.
Exchange rate differences between the first quarter of 2020 and the first quarter of 2019, net of hedging, negatively impacted our revenues by $3 million and positively impacted our GAAP and non-GAAP operating income by $27 million and $25 million, respectively.
GAAP gross profit was $2,063 million in the first quarter of 2020, an increase of 11% compared to the first quarter of 2019. GAAP gross profit margin was 47.3% in the first quarter of 2020, compared to 44.7% in the first quarter of 2019. Non-GAAP gross profit was $2,312 million in the first quarter of 2020, an increase of 8% compared to the first quarter of 2019. Non-GAAP gross profit margin was 53.1% in the first quarter of 2020, compared to 51.8% in the first quarter of 2019. The increase in gross profit as a percentage of revenues was mainly due to higher profitability in each of our three segments, mainly due to higher revenues from AUSTEDO, a favorable mix of generic products in North America, a favorable mix of generic products in Europe and International Markets and a positive impact from our hedging activity, partially offset by higher revenues from Anda, which has lower profitability.
GAAP Research and Development (R&D) expenses in the first quarter of 2020 were $221 million, a decrease of 15% compared to the first quarter of 2019. Non-GAAP R&D expenses were $221 million, or 5.1% of quarterly revenues, in the first quarter of 2020, compared to $255 million, or 6.1%, in the first quarter of 2019. The decrease in R&D expenses resulted primarily from the life cycle and stage of various projects.
GAAP Selling and Marketing (S&M) expenses in the first quarter of 2020 were $613 million, a decrease of 5% compared to the first quarter of 2019. Non-GAAP S&M expenses were $570 million, or 13.1% of quarterly revenues, in the first quarter of 2020, compared to $602 million, or 14.5%, in the first quarter of 2019. The decrease was mainly due to cost reductions and efficiency measures, as well as lower marketing and travel costs attributed to travel restrictions related to the COVID-19 pandemic.
GAAP General and Administrative (G&A) expenses in the first quarter of 2020 were $304 million, an increase of 4% compared to the first quarter of 2019. Non-GAAP G&A expenses were $290 million, or 6.7% of quarterly revenues, in the first quarter of 2020, compared to $280 million, or 6.8%, in the first quarter of 2019.
GAAP and non-GAAP other income in the first quarter of 2020 was $13 million, compared to $6 million in the first quarter of 2019.
GAAP operating income in the first quarter of 2020 was $191 million, compared to $134 million in the first quarter of 2019. Non-GAAP operating income in the first quarter of 2020 was $1,244 million, an increase of 22% compared to $1,019 million in the first quarter of 2019. This increase was mainly due to higher profit in our Europe, International Markets and North America segments and the economic hedging activities mentioned above as well as lower operating expenses, notably S&M expenses, primarily related to the COVID-19 pandemic.
EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,375 million in the first quarter of 2020, an increase of 19% compared to $1,154 million in the first quarter of 2019.
GAAP financial expenses were $224 million in the first quarter of 2020, compared to $218 million in the first quarter of 2019. Non-GAAP financial expenses were $213 million in the first quarter of 2020, compared to $220 million in the first quarter of 2019.
In the first quarter of 2020, we recognized a GAAP tax benefit of $59 million, on pre-tax loss of $33 million. In the first quarter of 2019, we recognized a tax expense of $9 million, on pre-tax loss of $84 million. Our tax rate for the first quarter of 2020 was mainly affected by impairments in jurisdictions in which tax rates are higher than Teva’s average tax rate. Non-GAAP income taxes for the first quarter of 2020 were $175 million, or 17%, on pre-tax non-GAAP income of $1,030 million. Non-GAAP income taxes in the first quarter of 2019 were $125 million, or 16%, on pre-tax non-GAAP income of $799 million. Our non-GAAP tax rate for the first quarter of 2020 was mainly affected by the mix of products sold and lower interest expense disallowance compared to the first quarter of 2019.
We expect our annual non-GAAP tax rate for 2020 to be 17-18%, unchanged from our outlook provided in February 2020.
GAAP net income attributable to ordinary shareholders and GAAP diluted EPS were $69 million and $0.06, respectively, in the first quarter of 2020, compared to GAAP net loss and GAAP diluted loss per share of $105 million and $0.10 in the first quarter of 2019. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the first quarter of 2020 were $835 million and $0.76, respectively, compared to $654 million and $0.60 in the first quarter of 2019. The increase in non-GAAP net income and EPS is mainly due to higher profit in our Europe, International Markets and North America segments and the economic hedging activities mentioned above as well as lower operating expenses, notably S&M expenses, primarily related to the COVID-19 pandemic, partially offset by higher non-GAAP taxes compared to the first quarter of 2019.
The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended March 31, 2020 and 2019 were 1,096 million and 1,090 million shares, respectively. The weighted average outstanding shares for the fully diluted EPS calculation on a non-GAAP basis for the three months ended March 31, 2020 and 2019 were 1,096 million and 1,093 million shares, respectively.
As of March 31, 2020 and 2019, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,118 million and 1,107 million, respectively.
Non-GAAP information: Net non-GAAP adjustments in the first quarter of 2020 were $766 million. Non-GAAP net income and non-GAAP EPS for the first quarter of 2020 were adjusted to exclude the following items:
Impairment of long-lived assets of $724 million, mainly comprised of $649 million in impairments of long-lived intangible assets, which were mainly attributed to the results in AUSTEDO for the treatment of Tourette syndrome, ongoing regulatory pricing reductions and generic competition in Japan and updated marketing assumptions regarding price and volumes of certain generic products in the U.S.;
Amortization of purchased intangible assets of $258 million, of which $223 million is included in cost of sales and the remaining $35 million in S&M expenses;
Restructuring expenses of $39 million;
Equity compensation expenses of $30 million;
Other items of $37 million;
Legal settlements and loss contingencies of $25 million due to a settlement of an action brought against the sellers of Auden McKenzie;
Minority income of $63 million; and
Income tax of $234 million.
Teva believes that excluding such items facilitates investors’ understanding of its business. For further information, see the tables below for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and the information under "Non-GAAP Financial Measures." Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.
Cash flow generated from operating activities during the first quarter of 2020 was $305 million, compared to $112 million in the first quarter of 2019. This increase was mainly due to higher operating profit in each of our three segments, as well as lower performance incentive payments to employees paid in the first quarter of 2020 compared to the amounts paid in the first quarter of 2019.
Free cash flow (cash flow generated from operating activities, net of cash received for capital investments and beneficial interest collected in exchange for securitized trade receivables) was $551 million in the first quarter of 2020, compared to $360 million in the first quarter of 2019. This increase was mainly due to higher cash flow generated from operating activities, including significant consumption of inventories.
As of March 31, 2020, our debt was $26,103 million, compared to $26,908 million as of December 31, 2019. The decrease was mainly due to repayment at maturity of our $700 million 2.25% senior note senior notes and exchange rate fluctuations. The portion of total debt classified as short-term as of March 31, 2020 was 6%, compared to 9% as of December 31, 2019. Our average debt maturity was approximately 6.6 years as of March 31, 2020, compared to 6.4 years as of December 31, 2019.
Segment Results for the First Quarter 2020
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, 2020 and 2019:
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than 0.5%.
Revenues from our North America segment in the first quarter of 2020 were $2,082 million, an increase of $36 million, or 2%, compared to the first quarter of 2019, mainly due to an increase in revenues of AUSTEDO and Anda as well as a milestone payment related to our anti-CGRP intellectual property, partially offset by lower revenues from QVAR, BENDEKA/TREANDA, COPAXONE and generic products.
Revenues in the United States, our largest market, were $1,940 million in the first quarter of 2020, an increase of $29 million, or 2%, compared to the first quarter of 2019.
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, 2020 and 2019:
*Does not include revenues from the ProAir authorized generic, which are included under generic products.
Generic products revenues in our North America segment (including biosimilars) in the first quarter of 2020 were $952 million a decrease of 1% compared to the first quarter of 2019. This decrease was mainly due to price erosion in our product portfolio and lower royalty income, offset by an increase in revenues from launches of new products, including TRUXIMA and from our ProAir authorized generic due to higher demand related to the COVID-19 pandemic.
In the first quarter of 2020, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 389 million total prescriptions (based on trailing twelve months), representing 10.4% of total U.S. generic prescriptions according to IQVIA data.
AJOVY revenues in our North America segment in the first quarter of 2020 were $29 million, an increase of $9 million, or 44% compared to the first quarter of 2019, mainly due to growth in volume in the first quarter of 2020. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults. On January 27, 2020, the FDA approved an auto-injector device for AJOVY in the U.S., which became commercially available in April 2020. In addition, AJOVY was approved in Canada on April 14, 2020.
AUSTEDO revenues in our North America segment in the first quarter of 2020 increased by 64% to $122 million, compared to $74 million in the first quarter of 2019. This increase was mainly due to growth in volume in the first quarter of 2020.
BENDEKA and TREANDA combined revenues in our North America segment in the first quarter of 2020 decreased by 14% to $105 million, compared to the first quarter of 2019, mainly due the emergence of alternative novel therapies and continued competition from Belrapzo (a ready-to-dilute bendamustine hydrochloride product from Eagle Pharmaceuticals, Inc.).
COPAXONE revenues in our North America segment in the first quarter of 2020 decreased by 5% to $198 million, compared to the first quarter of 2019, mainly due to generic competition in the United States.
ProAir revenues in our North America segment in the first quarter of 2020 were $59 million, flat compared to the first quarter of 2019. In January 2019, we launched our own ProAir authorized generic in the United States following the launch of a generic version of Ventolin HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in "generic products" above. ProAir is the fourth-largest short-acting beta-agonist in the market, with an exit market share of 15.5% (37.5% including our ProAir HFA authorized generic, making our overall albuterol product the largest in the market) in terms of total number of prescriptions for albuterol inhalers during the first quarter of 2020, compared to 27.6% in the first quarter of 2019.
QVAR revenues in our North America segment in the first quarter of 2020 decreased by 29% to $45 million, compared to the first quarter of 2019, mainly due to increased price competition and lower volumes. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of 20.8% in terms of total number of prescriptions during the first quarter of 2020, compared to 21.7% in the first quarter of 2019.
Anda revenues in our North America segment in the first quarter of 2020 increased by 13% to $426 million, compared to $379 million in the first quarter of 2019, mainly due to higher volume increases primarily related to the COVID-19 pandemic.
North America Gross Profit
Gross profit from our North America segment in the first quarter of 2020 was $1,062 million, an increase of 2%, compared to $1,039 million in the first quarter of 2019. This increase was mainly due to the change in mix of revenues, as discussed above.
Gross profit margin for our North America segment in the first quarter of 2020 increased to 51.0%, compared to 50.8% in the first quarter of 2019.
North America Profit
Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our North America segment in the first quarter of 2020 was $550 million, an increase of 10%, compared to $498 million in the first quarter of 2019. This increase was due to higher revenues and lower expenses as discussed above.
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, 2020 and 2019:
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than 0.5%.
Revenues from our Europe segment in the first quarter of 2020 were $1,402 million, an increase of 11% or $138 million, compared to the first quarter of 2019. In local currency terms, revenues increased by 13%, mainly due to higher demand for certain products resulting from the impact of the COVID-19 pandemic on purchasing patterns as well as continuing growth in generics and new generic product launches, partially offset by price declines for oncology products as a result of generic competition and a decline in COPAXONE revenues due to competing glatiramer acetate products.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the three months ended March 31, 2020 and 2019:
Generic products revenues in our Europe segment in the first quarter of 2020, including OTC products, increased by 12% to $1,032 million, compared to the first quarter of 2019. In local currency terms, revenues increased by 16% compared to the first quarter of 2019, mainly due to higher demand for certain products resulting from the impact of the COVID-19 pandemic on purchasing patterns as well as continuing growth in generics and new generic product launches. We estimate that the impact of the COVID-19 pandemic on advanced purchasing patterns was approximately $100 million.
COPAXONE revenues in our Europe segment in the first quarter of 2020 decreased by 4% to $109 million, compared to the first quarter of 2019. In local currency terms, revenues decreased by 1%, mainly due to price reductions and volume decline, resulting from competing glatiramer acetate products, partially offset by higher demand due to the impact of the COVID-19 pandemic on purchasing patterns.
Respiratory products revenues in our Europe segment in the first quarter of 2020 increased by 16% to $106 million, compared to the first quarter of 2019. In local currency terms, revenues increased by 20%, mainly due to higher demand attributed to the impact of the COVID-19 pandemic.
AJOVY revenues in our Europe segment in the first quarter of 2020 were $4 million. AJOVY was granted a Marketing Authorization in the European Union by the European Medicines Agency ("EMA") in a centralized process in April 2019. We commenced launching AJOVY in certain European markets in May 2019 and are moving forward with plans to launch in other European countries. In October 2019, we received approval from the EMA for AJOVY’s auto-injector submission in the European Union and we commenced launch in March 2020.
Europe Gross Profit
Gross profit from our Europe segment in the first quarter of 2020 was $823 million, an increase of 13% compared to $730 million in the first quarter of 2019. This increase was mainly due to higher revenues, as discussed above.
Gross profit margin for our Europe segment in the first quarter of 2020 increased to 58.7%, compared to 57.8% in the first quarter of 2019. The increase was mainly due to higher revenues from generic products with higher profitability and lower inventory write offs.
Europe Profit
Profit from our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our Europe segment in the first quarter of 2020 was $502 million, an increase of 25%, compared to $403 million in the first quarter of 2019. This increase was mainly due to higher revenues and lower expenses as discussed above.
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, Russia and Israel.
The following table presents revenues, expenses and profit for our International Markets segment for the three months ended March 31, 2020 and 2019:
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than 0.5%.
**The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.
Revenues from our International Markets segment in the first quarter of 2020 were $565 million, an increase of $44 million, or 8%, compared to the first quarter of 2019. In local currency terms, revenues increased 5% compared to the first quarter of 2019, mainly due to higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in Japan. The revenues in the first quarter of 2020 included $35 million from a positive hedging impact, which are included in "Other" in the table below.
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 March 31, 2020 and 2019:
*The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See note 1c to our consolidated financial statements for additional information.
Generic products revenues in our International Markets segment in the first quarter of 2020, which include OTC products, increased by 2% to $449 million, compared to the first quarter of 2019. In local currency terms, revenues increased by 6%, mainly due to higher sales in Latin America, Asia-Pacific, Ukraine and Russia, partially offset by lower sales in Japan resulting from generic competition to off-patented products.
COPAXONE revenues in our International Markets segment in the first quarter of 2020 decreased by 11% to $12 million, compared to $13 million in the first quarter of 2019. In local currency terms, revenues decreased by 1%.
International Markets Gross Profit Gross profit from our International Markets segment in the first quarter of 2020 was $305 million, an increase of 13% compared to $269 million in the first quarter of 2019.
Gross profit margin for our International Markets segment in the first quarter of 2020 increased to 54.0%, compared to 51.7% in the first quarter of 2019. This increase was mainly due to higher sales and the hedging activity discussed above.
International Markets Profit
Profit from our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our International Markets segment in the first quarter of 2020 was $156 million, an increase of 61%, compared to $97 million in the first quarter of 2019. This increase was mainly due to higher sales and the positive impact from the hedging activity discussed above.
Other Activities
We have other sources of revenue, primarily the sale of APIs to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.
Our revenues from other activities in the first quarter of 2020 were $307 million, a decrease of 3% compared to the first quarter of 2019. In local currency terms, revenues decreased by 2%.
API sales to third parties in the first quarter of 2020 were $177 million, a decrease of 5% in both U.S. dollar and local currency terms, compared to the first quarter of 2019. This decrease was mainly due to timing of certain orders and divestment of certain activities.
Conference Call
Teva will host a conference call and live webcast along with a slide presentation on May 7, 2020 at 8:00 a.m. ET to discuss its first quarter 2020 results and overall business environment. A question & answer session will follow.
United States: 1 (866) 966-1396
International: +44 (0) 2071 928000
Israel: 1 (809) 203-624
For a list of other international toll-free numbers, click here.
Passcode: 9735219.
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 required software.
Following the conclusion of the call, a replay of the webcast will be available within 24 hours on the Company’s website or by calling United States 1-866-311-1332; International +44 (0) 3333 009785; passcode: 9735219.