On November 6, 2024 Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) reported results for the quarter ended September 30, 2024 (Press release, Teva, NOV 6, 2024, View Source [SID1234647832]).
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Mr. Richard Francis, Teva’s President and CEO, said, "The third quarter of 2024 marks our seventh consecutive quarter of growth, with global revenues reaching $4.3 billion, an increase of 15% in local currency terms compared to the third quarter of 2023. Our innovative portfolio and generics business drove strong performance in the third quarter of 2024, reflecting the successful execution of our Pivot to Growth Strategy. Due to our effort and commitment, we are consistently delivering on our growth strategy, executing on our ambitious targets by following our strategic framework, as we remain laser focused on its four key pillars."
Mr. Francis continued, "I am confident that with our newly accelerated innovative pipeline, both early- and late-stage, we are well-positioned to provide meaningful access to medicines for patients who need them, while also delivering continued growth for our shareholders.
"With these strong results, we are raising our 2024 financial outlook, including on revenues, Adjusted EBITDA, and Non-GAAP EPS."
Pivot to Growth Strategy
In May 2023, we introduced our "Pivot to Growth" strategy, which is based on four key pillars: (i) delivering on our growth engines, mainly AUSTEDO, AJOVY, UZEDY and our late-stage pipeline of biosimilars; (ii) stepping up innovation through delivering on our late-stage innovative pipeline assets as well as building up our early-stage pipeline organically and potentially through business development activities; (iii) sustaining our generics medicines powerhouse with a global commercial footprint, focused portfolio, pipeline and manufacturing footprint; and (iv) focusing our business by optimizing our portfolio and global manufacturing footprint to enable strategic capital deployment to accelerate our near and long-term growth engines and reorganizing certain of our business units to a more optimal structure, while also reorganizing key business units to enhance operational efficiency.
Third Quarter 2024 Consolidated Results
The data presented in this press release with respect to operating income (loss), income (loss) before income taxes, income taxes (benefit), net income (loss) attributable to Teva and earnings (loss) per share for prior period has been revised to reflect a revision in relation to a contingent consideration and related expenses. For additional information, see note 1b to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 and note 1c to our consolidated financial statements included in our Quarterly Report on Form 10-Q for the period ended September 30, 2024.
Revenues in the third quarter of 2024 were $4,332 million, an increase of 13% in U.S. dollars or 15% in local currency terms, compared to the third quarter of 2023. This increase was mainly due to higher revenues from generic products in all our segments, from AUSTEDO in our United States segment and from sale of product rights in our Europe and International Markets segments.
Exchange rate movements during the third quarter of 2024, including hedging effects, negatively impacted revenues by $88 million, compared to the third quarter of 2023.
Gross profit in the third quarter of 2024 was $2,148 million, an increase of 16% compared to $1,851 million in the third quarter of 2023. Gross profit margin was 49.6% in the third quarter of 2024, compared to 48.1% in the third quarter of 2023. Non-GAAP gross profit was $2,327 million in in the third quarter of 2024, an increase of 13% compared to $2,060 million in the third quarter of 2023. Non-GAAP gross profit margin was 53.7% in the third quarter of 2024, compared to 53.5% in the third quarter of 2023. The increase in both gross profit margin and non-GAAP gross profit margin was mainly due to a favorable mix of products, primarily AUSTEDO, partially offset by a negative impact from foreign exchange rate movements including hedging effects.
Research and Development (R&D) expenses, net in the third quarter of 2024 were $240 million, a decrease of 5% compared to $253 million in the third quarter of 2023. Our lower R&D expenses, net in the third quarter of 2024 were largely driven by reimbursements from our strategic partnerships, reflecting a decrease related to our late-stage innovative pipeline, partially offset by an increase in R&D expenses relating to immunology projects. As we continue to execute on our Pivot to Growth strategy, we see a higher R&D spend in some of our late-stage innovative pipeline assets.
Selling and Marketing (S&M) expenses in the third quarter of 2024 were $626 million, an increase of 9% compared to the third quarter of 2023. This increase was mainly to support revenue growth in generic products, AUSTEDO and AJOVY.
General and Administrative (G&A) expenses in the third quarter of 2024 were $298 million, an increase of 11% compared to the third quarter of 2023.
Other income in the third quarter of 2024 was $21 million, compared to $9 million in the third quarter of 2023. Other income in the third quarter of 2024 included a capital gain from the sale of a business in our International Markets segment.
Operating loss in the third quarter of 2024 was $51 million, compared to an operating income of $344 million in the third quarter of 2023. Operating loss as a percentage of revenues was 1.2% in the third quarter of 2024, compared to an operating income as a percentage of revenues 8.9% in the third quarter of 2023. This decrease was mainly due to a goodwill impairment charge and higher legal settlements and loss contingencies, partially offset by higher gross profit during the third quarter of 2024. Non-GAAP operating income in the third quarter of 2024 was $1,214 million representing a non-GAAP operating margin of 28.0% compared to non-GAAP operating income of $1,020 million representing a non-GAAP operating margin of 26.5% in the third quarter of 2023. The increase in non-GAAP operating margin in the third quarter of 2024 was mainly due to lower operating expenses as a percentage of revenues.
Exchange rate movements during the third quarter of 2024, including hedging effects, negatively impacted our operating loss by $57 million and non-GAAP operating income by $58 million compared to the third quarter of 2023.
Financial expenses, net in the third quarter of 2024 were $272 million, mainly comprised of net-interest expenses of $225 million and a negative exchange rate impact driven mainly from currencies which we were unable to hedge. In the third quarter of 2023, financial expenses, net were $280 million, mainly comprised of net-interest expenses of $247 million and a negative exchange rate impact driven mainly from currencies which we were unable to hedge.
In the third quarter of 2024, we recognized a tax expense of $69 million, on a pre-tax loss of $324 million. In the third quarter of 2023, we recognized a tax benefit of $12 million, on a pre-tax income of $64 million. Our tax rate for the third quarter of 2024 was mainly impacted by impairment charges with no corresponding tax effects, an adjustment to Teva’s corporate tax rate in Israel on losses related to non-qualified tax incentive activities in Israel, legal expenses with no corresponding tax effect related to the fine issued by the European Commission in connection with its antitrust investigation into COPAXONE, and recording of valuation allowance with respect to certain carry over credits outside of Israel. Teva’s tax rate for the third quarter for 2023 was mainly affected by deferred tax benefits resulting from intellectual property related integration plans, which have been adopted, among others, in an effort of addressing the global adoption of the Organization for Economic Co-operation and Development (OECD) Pillar Two minimum effective corporate tax.
Non-GAAP tax rate in the third quarter of 2024 was 16.0%, compared to 9.0% in the third quarter of 2023. Our non-GAAP tax rate in the third quarter of 2024 was mainly impacted by the generation of profits in various jurisdictions with different tax rates, an adjustment to Teva’s corporate tax rate in Israel on losses related to non-qualified tax incentive activities in Israel, recording of valuation allowance with respect to certain carry over credits outside of Israel, as well as infrequent or non-recurring items. Our non-GAAP tax rate in the third quarter of 2023 was mainly impacted by the generation of profits in various jurisdictions with different tax rates, tax benefits, deferred tax benefits resulting from intellectual property related integration plans, as well as infrequent or non-recurring items.
We expect our annual non-GAAP tax rate for 2024 to be between 14%-17%, slightly higher than our non-GAAP tax rate for 2023, which was 13%, mainly due to a lower net tax benefit related to deferred tax assets resulting from intellectual property-related integration plans in 2023.
Net loss attributable to Teva and loss per share in the third quarter of 2024were $437 million and $0.39, respectively, compared to net income attributable to Teva and diluted earnings per share $69 million and $0.06, respectively, in the third quarter of 2023. This decrease was mainly due to the changes in operating (income) loss discussed above.
Non-GAAP net income attributable to Teva and non-GAAP diluted earnings per share in the third quarter of 2024 were $798 million and $0.69, respectively, compared to $677 million and $0.60, respectively, in the third quarter of 2023.
Adjusted EBITDA was $1,327 million in the third quarter of 2024, an increase of 17%, compared to $1,134 million in the third quarter of 2023.
As of September 30, 2024 and 2023, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,167 million shares and 1,157 million shares, respectively.
Non-GAAP information: net non-GAAP adjustments in the third quarter of 2024 were $1,235 million. Non-GAAP net income attributable to Teva and non-GAAP diluted EPS for the third quarter of 2024 were adjusted to exclude the following items:
Amortization of purchased intangible assets of $146 million, of which $136 million is included in cost of sales and the remaining $10 million in S&M expenses;
An adjustment to impairment of long-lived assets in an amount of $51 million;
Goodwill impairment charge of $600 million related to the Teva’s API reporting unit;
Legal settlements and loss contingencies of $450 million mainly related to a provision of $350 million recorded in connection with a decision by the European Commission in its antitrust investigation into COPAXONE (which we intend to appeal), and to an update to the estimated settlement provision of $121 million for the opioid cases (mainly related to the settlement agreement with the city of Baltimore and the effect of the passage of time on the net present value of the discounted payments);
Contingent consideration expenses of $34million;
Equity compensation expenses of $29 million;
Restructuring expenses of $21 million;
Financial expenses of $11 million;
Gain on sale of business of $20 million;
Other non-GAAP items of 56 million;
Items attributable to non-controlling interests of $41 million; and
Corresponding tax effects and unusual tax items of $83 million
We believe that excluding such items facilitates investors’ understanding of our business including underlying performance trends, thereby improving the comparability of our business performance results between reporting periods.
For a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and for additional information, see the tables below and the information included under "Non-GAAP Financial Measures." Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.
Cash flow generated from operating activities during the third quarter of 2024 was $693 million, compared to $5 million in the third quarter of 2023. The higher cash flow generated from operating activities in the third quarter of 2024 resulted mainly from higher profit in our United States segment, as well as changes in working capital items, including a positive impact from accounts receivables, net of SR&A, and from accounts payables and inventory levels, partially offset by higher legal payments during the third quarter of 2024.
During the third quarter of 2024, we generated free cash flow of $922 million, which we define as comprising $693 million in cash flow generated from operating activities, $339 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program), and $38 million in divestitures of businesses and other assets, partially offset by $148 million in cash used for capital investment. During the third quarter of 2023, we generated free cash flow of $229 million, which we define as comprising $5 million in cash flow generated from operating activities, $362 million in beneficial interest collected in exchange for securitized accounts receivables (under our EU securitization program), and $10 million in proceeds from divestitures of businesses and other assets, partially offset by $149 million in cash used for capital investment. The increase in the third quarter of 2024 resulted mainly from higher cash flow generated from operating activities.
As of September 30, 2024, our debt was $18,980 million, compared to $19,833 million as of December 31, 2023. This decrease was mainly due to repayment at maturity of $956 million of 6% senior notes due in 2024, partially offset by $88 million of exchange rate fluctuations. The portion of total debt classified as short-term as of September 30, 2024 was 14% compared to 8% as of December 31, 2023.
Our average debt maturity was approximately 5.5 years as of September 30, 2024, compared to 6.0 years as of December 31, 2023.
Segment Results for the Third Quarter of 2024
United States Segment
As part of a recent shift in executive management responsibilities and in line with our Pivot to Growth strategy, commencing January 1, 2024, Canada is reported as part of our International Markets segment. Prior period amounts were recast to reflect this change.
The following table presents revenues, expenses and profit for our United States segment for the three months ended September 30, 2024 and 2023:
Three months ended September 30,
2024
2023
(U.S. $ in millions / % of Segment Revenues)
Revenues
$
2,225
100%
$
1,896
100%
Gross profit
1,265
56.9%
1,060
55.9%
R&D expenses
151
6.8%
156
8.2%
S&M expenses
259
11.6%
243
12.8%
G&A expenses
107
4.8%
93
4.9%
Other loss (income)
§
§
(2)
§
Segment profit*
$
748
33.6%
$
571
30.1%
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than $0.5 million or 0.5%, as applicable.
Revenues from our United States segment in the third quarter of 2024 were $2,225 million, an increase of $329 million, or 17%, compared to the third quarter of 2023. This increase was mainly due to higher revenues from generic products, AUSTEDO and UZEDY, partially offset by lower revenues from certain innovative products, primarily COPAXONE and BENDEKA and TREANDA.
Revenues by Major Products and Activities
The following table presents revenues for our United States segment by major products and activities for the three months ended September 30, 2024 and 2023:
Three months ended
September 30,
Percentage
Change
2024
2023
2024-2023
(U.S. $ in millions)
Generic products
$
1,094
$
839
30%
AJOVY
58
56
4%
AUSTEDO
435
339
28%
BENDEKA and TREANDA
40
56
(28%)
COPAXONE
69
98
(30%)
UZEDY
35
2
N/A
Anda
380
367
3%
Other
115
140
(18%)
Total
$
2,225
$
1,896
17%
Generic products revenues in our United States segment (including biosimilars) in the third quarter of 2024 were $1,094 million, an increase of 30% compared to the third quarter of 2023, the majority of which was driven by higher revenues from lenalidomide capsules (the generic version of Revlimid), and the remaining, primarily by the launch of liraglutide injection 1.8mg (an authorized generic of Victoza) and higher revenues from epinephrine injectable solution (the generic equivalent of EpiPen and EpiPen Jr).
Among the most significant generic products we sold in the United States in the third quarter of 2024 were lenalidomide capsules (the generic version of Revlimid), epinephrine injectable solution (the generic equivalent of EpiPen and EpiPen Jr), Truxima (the biosimilar to Rituxan) and liraglutide 1.8 mg injection (an authorized generic of Victoza). In the third quarter of 2024, our total prescriptions were approximately 292 million (based on trailing twelve months), representing 7.6% of total U.S. generic prescriptions, compared to approximately 320 million (based on trailing twelve months), representing 8.4% of total U.S. generic prescriptions in the third quarter of 2023, all according to IQVIA data.
On October 1, 2024, Teva launched octreotide acetate for injectable suspension, the first generic version of Sandostatin LAR Depot. Octreotide acetate for injectable suspension is indicated for the treatment of acromegaly and severe diarrhea associated with carcinoid syndrome, and is available to patients in the U.S.
AJOVY revenues in our United States segment in the third quarter of 2024 were $58 million, an increase of 4% compared to the third quarter of 2023, mainly due to growth in volume. In the third quarter of 2024, AJOVY’s exit market share in the United States in terms of total number of prescriptions was 29.1% compared to 24.9% in the third quarter of 2023.
AUSTEDO revenues in our United States segment in the third quarter of 2024 increased by 28% to $435 million, compared to $339 million in the third quarter of 2023, mainly due to growth in volume and expanded access for patients.
AUSTEDO XR (deutetrabenazine) extended-release tablets was approved by the FDA on February 17, 2023, in three doses of 6, 12 and 24 mg, and became commercially available in the U.S. in May 2023. In May 2024, the FDA approved AUSTEDO XR as a one pill, once-daily treatment option in doses of 30, 36, 42, and 48 mg. In July 2024, the FDA approved the 18 mg dosage for AUSTEDO XR, making it a one pill, once-daily option for all available doses. AUSTEDO XR is a once-daily formulation indicated in adults for tardive dyskinesia and chorea associated with Huntington’s disease, which is additional to the currently marketed twice-daily AUSTEDO. AUSTEDO XR is protected by 11 Orange Book patents expiring between 2031 and 2041.
UZEDY (risperidone) extended-release injectable suspension revenues in our United States segment in the third quarter of 2024 were $35 million. UZEDY was approved by the FDA on April 28, 2023 for the treatment of schizophrenia in adults, and was launched in the U.S. in May 2023. UZEDY is a subcutaneous, long-acting formulation of risperidone that controls the steady release of risperidone. UZEDY is protected by nine Orange Book patents expiring between 2025 and 2033. We are moving forward with plans to launch UZEDY in other countries around the world. UZEDY faces competition from multiple other products.
BENDEKA and TREANDA combined revenues in our United States segment in the third quarter of 2024 were $40 million, a decrease of 28% compared to the third quarter of 2023, mainly due to competition from alternative therapies, as well as the entry of generic bendamustine products into the market. The orphan drug exclusivity that had attached to bendamustine products expired in December 2022.
COPAXONE revenues in our United States segment in the third quarter of 2024 were $69 million, a decrease of 30% compared to the third quarter of 2023, mainly due to market share erosion and competition.
Anda revenues from third-party products in our United States segment in the third quarter of 2024 increased by 3% to $380 million, compared to $367 million in the third quarter of 2023, mainly due to higher volumes. Anda, our distribution business in the United States, distributes generic and innovative medicines and OTC pharmaceutical products from Teva and various third-party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the distribution market by maintaining a broad portfolio of products, competitive pricing and delivery throughout the United States.
United States Gross Profit
Gross profit from our United States segment in the third quarter of 2024 was $1,265 million, an increase of 19%, compared to $1,060 million in the third quarter of 2023.
Gross profit margin for our United States segment in the third quarter of 2024 increased to 56.9%, compared to 55.9% in the third quarter of 2023. This increase was mainly due to a favorable mix of products primarily driven by higher revenues from lenalidomide capsules (the generic version of Revlimid) and AUSTEDO.
United States Profit
Profit from our United States 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 United States segment in the third quarter of 2024 was $748 million, an increase of 31% compared to $571 million in the third quarter of 2023. This increase was mainly due to higher gross profit, partially offset by higher S&M and G&A expenses, as discussed above.
Europe Segment
Our Europe segment includes the European Union, the United Kingdom and certain other European countries.
The following table presents revenues, expenses and profit for our Europe segment for the three months ended September 30, 2024 and 2023:
Three months ended September 30,
2024
2023
(U.S. $ in millions / % of Segment Revenues)
Revenues
$
1,265
100%
$
1,146
100%
Gross profit
698
55.2%
648
56.6%
R&D expenses
55
4.3%
62
5.4%
S&M expenses
203
16.0%
184
16.0%
G&A expenses
67
5.3%
66
5.7%
Other loss (income)
1
§
§
§
Segment profit*
$
373
29.5%
$
338
29.5%
___________
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than $0.5 million or 0.5%, as applicable.
Revenues from our Europe segment in the third quarter of 2024 were $1,265 million, an increase of 10%, or $119 million, compared to the third quarter of 2023. In local currency terms, revenues increased by 11% compared to the third quarter of 2023, mainly due to higher revenues from generic and OTC products as well as from AJOVY. Our higher revenues in the third quarter of 2024 were also partly driven by the sale of certain product rights.
In the third quarter of 2024, revenues were negatively impacted by exchange rate fluctuations of $6 million, net of hedging effects, compared to the third quarter of 2023. Revenues in the third quarter of 2024, included $10 million from a negative hedging impact, which is included in "Other" in the table below. Revenues in the third quarter of 2023 included $15 million from a positive hedging impact, which is included in "Other" in the table below.