- Revenues of $5.6 billion
- Cash flow from operations of $1.1
billion
- GAAP EPS of $0.52
- Non-GAAP EPS of $1.00
- Teva announces third quarter 2017
dividend of 8.5 cents
- 2017 outlook revised to non-GAAP EPS of
$3.77 - $3.87
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA)
today reported results for the quarter ended September 30,
2017.
Revenues in the third quarter of 2017 were $5.6 billion,
up 1% compared to the third quarter of 2016. Excluding the impact
of foreign exchange fluctuations, revenues increased 4%.
Exchange rate differences between the third quarter of
2017 and the third quarter of 2016 reduced revenues by $169
million, GAAP operating income by $32 million and non-GAAP
operating income by $17 million.
Adjustments of the exchange rates used for the Venezuelan
bolivar resulted in a decrease of $243 million in revenues, a
decrease of $25 million in GAAP operating income and a decrease of
$15 million in non-GAAP operating income, compared to results in
the third quarter of 2016. In light of the political and economic
conditions in Venezuela, we exclude the quarterly changes in
revenues and operating profit in Venezuela from any discussion of
local currency results.
GAAP gross profit was $2.6 billion in the third quarter
of 2017, down 6% compared to the third quarter of 2016. GAAP
gross profit margin was 47.1% in the third quarter of 2017,
compared to 50.4% in the third quarter of 2016. Non-GAAP gross
profit was $3.0 billion in the third quarter of 2017, a decline
of 12% from the third quarter of 2016. Non-GAAP gross profit
margin was 53.0% in the third quarter of 2017, compared to
61.0% in the third quarter of 2016. The decrease in gross profit
margin, on both a GAAP and a non-GAAP basis, was the result of
lower gross profit and profitability of both our generic medicines
and our specialty medicines businesses, as well as the addition of
the low-margin Anda distribution business. GAAP results were
impacted by lower inventory step-up expenses and lower amortization
expenses, which mitigated some of the decrease.
Research and Development (R&D) expenses for the third
quarter of 2017 amounted to $545 million, down 18% compared to the
third quarter of 2016 due to lower expenditure related both to
generic and specialty medicines as well as lower other R&D
expenses. R&D expenses excluding equity compensation expenses
and other R&D expenses were $381 million, or 6.8% of quarterly
revenues in the third quarter of 2017, compared to $406 million, or
7.3%, in the third quarter of 2016. R&D expenses related to our
generic medicines segment were $162 million, a decrease of 12%
compared to $185 million in the third quarter of 2016, mainly due
to portfolio optimization and various efficiency measures. R&D
expenses related to our specialty medicines segment were $217
million, a decrease of 5% compared to $228 million in the third
quarter of 2016, mainly due to portfolio optimization activities
which compensated for the increased expenses related to our
late-stage product candidates.
Selling and Marketing (S&M) expenses in the third
quarter of 2017 amounted to $860 million, a decrease of 9% compared
to the third quarter of 2016. S&M expenses excluding
amortization of purchased intangible assets and equity compensation
expenses were $805 million, or 14.3% of revenues, in the third
quarter of 2017, compared to $889 million, or 16.0% of revenues, in
the third quarter of 2016. S&M expenses related to our generic
medicines segment were $377 million, a decrease of 11% compared to
$423 million in the third quarter of 2016, mainly due to lower
expenses in Venezuela following exchange rate adjustments as well
as certain efficiency measures, partially offset by the inclusion
of the S&M expenses of the Actavis Generics business for a full
quarter. S&M expenses related to our specialty medicines
segment were $388 million, down 15% compared to $458 million in the
third quarter of 2016, mainly due to cost reduction and efficiency
measures in our commercial operations, aligning with the life cycle
of our product portfolio.
General and Administrative (G&A) expenses in the
third quarter of 2017 amounted to $330 million, compared to $310
million in the third quarter of 2016. G&A expenses excluding
equity compensation expenses were $318 million in the third quarter
of 2017, or 5.7% of quarterly revenues, compared to $304 million,
or 5.5% in the third quarter of 2016.
GAAP operating income in the third quarter of 2017 was
$378 million, compared to operating income of $765 million in the
third quarter of 2016. Non-GAAP operating income in the
third quarter of 2017 was $1.5 billion, a decrease of 18% compared
to the third quarter of 2016. Non-GAAP operating margin was
26.2% in the third quarter of 2017 compared to 32.2% in the third
quarter of 2016.
EBITDA (non-GAAP operating income, which excludes
amortization and certain other items, as well as excluding
depreciation expenses) was $1.6 billion in the third quarter of
2017, down 16% compared to $1.9 billion in the third quarter of
2016.
GAAP financial expenses for the third quarter of 2017
were $259 million, compared to $150 million in the third quarter of
2016. Non-GAAP financial expenses were $229 million in the
third quarter of 2017, compared to $151 million in the third
quarter of 2016. The increase in our non-GAAP financial expenses is
due mainly to higher expenses related to net foreign exchange
losses and financial derivatives, as well as higher interest
expenses related to the debt raised to finance the acquisition of
Actavis Generics.
GAAP income taxes for the third quarter of 2017 amounted
to a benefit of $494 million. In the third quarter of 2016, income
taxes amounted to $207 million, or 34% on pre-tax income of $615
million. Non-GAAP income taxes for the third quarter of 2017
amounted to $135 million on pre-tax non-GAAP income of $1.2
billion, for a quarterly tax rate of 11%. Non-GAAP income taxes in
the third quarter of 2016 amounted to $261 million on pre-tax
non-GAAP income of $1.6 billion, for a quarterly tax rate of
16%.
We expect our annual non-GAAP tax rate for 2017 to be 15%, lower
than our previous estimates. This is due to changes in the
geographical mix of income we expect to generate this year. Our
non-GAAP tax rate for 2016 was 17%.
GAAP net income attributable to ordinary shareholders and
GAAP diluted EPS were $530 million and $0.52, respectively,
in the third quarter of 2017, compared to $348 million and $0.35,
respectively, in the third quarter of 2016. Non-GAAP net
income attributable to ordinary shareholders for calculating
diluted EPS and non-GAAP diluted EPS were $1.0 billion and
$1.00, respectively, in the third quarter of 2017, compared to $1.4
billion and $1.31 in the third quarter of 2016.
For the third quarter of 2017, the weighted average
outstanding shares for the fully diluted earnings per share
calculation on both a GAAP and a non-GAAP basis was 1,017 million.
For the third quarter of 2016, this was 984 million shares on a
GAAP basis, and 1,044 million shares on a non-GAAP basis. For the
three months ended September 30, 2017, the mandatory convertible
preferred shares amounting to 59.4 million weighted average shares,
had an anti-dilutive effect on earnings per share and were
therefore excluded from the outstanding shares calculation.
As of September 30, 2017, the fully diluted share count for
calculating Teva's market capitalization was approximately 1,083
million shares.
Non-GAAP information: Net non-GAAP adjustments in the
third quarter of 2017 were $482 million. Non-GAAP net income and
non-GAAP EPS for the quarter were adjusted to exclude the following
items:
- Impairment of long-lived assets of $408
million, mainly an impairment of product rights and R&D assets
related to the Actavis Generics acquisition;
- Amortization of purchased intangible
assets totaling $357 million, of which $310 million is included in
cost of goods sold and the remaining $47 million in selling and
marketing expenses;
- Other R&D expenses of $150
million;
- Restructuring expenses of $72
million;
- Acquisition, integration and related
expenses, including contingent consideration, of $49 million;
- Equity compensation expenses of $32
million;
- Financial expenses of $30 million;
- Other non-GAAP items of $44
million;
- Legal settlements and loss
contingencies benefit of $20 million;
- Minority interest adjustment of
negative $11 million; and
- Tax benefit of $629 million, including
the effect of a one- time tax benefit associated with the
utilization of Actavis Generics historic capital losses.
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 from operations generated during the third
quarter of 2017 was $1.1 billion, compared to $1.5 billion in the
third quarter of 2016. The decrease was mainly due to the impact of
changes in working capital which increased by $0.3 billion.
Free cash flow, excluding net capital expenditures, was $0.9
billion, compared to $1.2 billion in the third quarter of 2016.
Total balance sheet assets amounted to $86.1 billion as
of September 30, 2017, compared to $86.4 billion as of June 30,
2017.
As of September 30, 2017, our debt was $34.7 billion,
compared to $35.1 billion at June 30, 2017. The decrease was mainly
due to $0.6 billion of debt repayments of our 5 year term loan, our
revolving credit facility and other short term loans, partially
offset by foreign exchange fluctuations of $0.2 billion. The
portion of total debt classified as short-term at September 30,
2017 was 8%.
Total shareholders’ equity was $30.3 billion as of
September 30, 2017, compared to $29.6 billion as of June 30,
2017.
Segment Results for the Third Quarter
2017
Beginning in the fourth quarter of 2016, our OTC business,
conducted primarily through PGT, is included in our generic
medicines segment. This segment also includes chemical and
therapeutic equivalents of originator medicines in a variety of
dosage forms and our API manufacturing business.
All data presented has been conformed to the new segment
structure.
Generic Medicines Segment
Three Months Ended September 30, 2017
2016 U.S. $ in millions / % of Segment Revenues
Revenues $ 3,007 100.0% $ 3,259 100.0% Gross profit
1,158 38.5% 1,590 48.8% R&D expenses 162 5.4% 185 5.7% S&M
expenses 377 12.5% 423 13.0% Segment profit* $ 619 20.6% $ 982
30.1%
__________
* Segment profit consists of gross profit for the segment, less
R&D and S&M expenses related to the segment. Segment profit
does not include G&A expenses, amortization and certain other
items.
Generic Medicines Revenues
Generic medicines revenues in the third quarter of 2017 were
$3.0 billion, a decrease of 8% compared to the third quarter of
2016.
Generic revenues consisted of:
- U.S. revenues of $1.2 billion, down 9%
compared to the third quarter of 2016, mainly due to challenging
market dynamics including pricing declines resulting from customer
consolidation into larger buying groups and accelerated FDA
approvals for additional generic versions of competing off-patent
medicines, partially offset by the inclusion of three months of
Actavis Generics revenues in this quarter, compared to two months
in the third quarter of 2016.
- European revenues of $985 million, an
increase of 6%, or 1% in local currency terms, compared to the
third quarter of 2016, mainly due to the inclusion of three months
of Actavis Generics revenues, compared to two months only in the
third quarter of 2016.
- ROW revenues of $843 million, a
decrease of 18% compared to the third quarter of 2016. In local
currency terms, revenues increased 5%, mainly due to the inclusion
of three months of Actavis Generics revenues, compared to two
months only in the third quarter of 2016.
- OTC revenues (which are included in the
market revenues above) were $306 million, down 22% compared to the
third quarter of 2016. In local currency terms, revenues increased
15%, mainly due to the inclusion of three months of Actavis
Generics revenues, compared to two months only in the third quarter
of 2016. In-market sales of our joint venture, PGT Healthcare, were
$372 million in the third quarter of 2017, down 25% compared to the
third quarter of 2016, due to the reduction of sales in
Venezuela.
- API sales to third parties (which are
included in the market revenues above) were $171 million, down 10%
compared to the third quarter of 2016.
Generic medicines revenues comprised 54% of our total revenues
in the quarter, compared to 59% in the third quarter of 2016.
Generic Medicines Gross Profit
Gross profit of our generic medicines segment in the third
quarter of 2017 was $1.2 billion, a decrease of 27% compared to the
third quarter of 2016. The lower gross profit was mainly due to
higher production expenses, market dynamics in the United States
and lower revenues in Venezuela following the currency
devaluation.
Gross profit margin for our generic medicines segment in the
third quarter of 2017 decreased to 38.5% from 48.8% in the third
quarter of 2016.
The decrease in gross profit margin was due to lower
profitability in our U.S. and ROW markets, partially offset by
improved profitability of our European markets.
Generic Medicines Profit
Our generic medicines segment generated profit of $619 million
in the third quarter of 2017, a decrease of 37% compared to the
third quarter of 2016. Generic medicines profitability as a
percentage of generic medicines revenues was 20.6% in the third
quarter of 2017, down from 30.1% in the third quarter of 2016.
Specialty Medicines Segment
Three Months Ended September 30, 2017
2016 U.S. $ in millions / % of Segment Revenues
Revenues $ 2,034 100.0% $ 2,048 100.0% Gross profit
1,757 86.4% 1,783 87.1% R&D expenses 217 10.7% 228 11.1%
S&M expenses 388 19.1% 458 22.4% Segment profit* $ 1,152 56.6%
$ 1,097 53.6%
__________
* Segment profit consists of gross profit for the segment, less
R&D and S&M expenses related to the segment. Segment profit
does not include G&A expenses, amortization and certain other
items.
Specialty Medicines Revenues
Specialty medicines revenues in the third quarter of 2017 were
$2.0 billion, down 1% compared to the third quarter of 2016. U.S.
specialty medicines revenues were $1.5 billion, down 4% compared to
the third quarter of 2016. European specialty medicines revenues
were $447 million, an increase of 10%, or 5% in local currency
terms, compared to the third quarter of 2016. ROW specialty
revenues were $94 million, up 12%, in both dollar and local
currency terms, compared to the third quarter of 2016.
Specialty medicines revenues comprised 36% of our total revenues
in the quarter, compared to 37% in the third quarter of 2016.
The decrease in specialty medicines revenues compared to the
third quarter of 2016 was primarily due to lower sales of our CNS
products, which were largely offset by higher sales in all other
therapeutic areas.
The following table presents revenues by therapeutic area and
key products for our specialty medicines segment for the three
months ended September 30, 2017 and 2016:
Three Months Ended
September 30,
Change 2017 2016 2017 - 2016
U.S. $ in millions CNS $ 1,146 $ 1,302 (12%) Copaxone® 987
1,061 (7%) Azilect® 36 101 (64%) Nuvigil® 21 21 0% Respiratory 351
270 30% ProAir® 155 118 31% QVAR® 95 96 (1%) Oncology 302 269 12%
Treanda® and Bendeka® 181 149 21% Women's Health 119 109 9% Other
Specialty 116 98 18%
Total Specialty Medicines
$ 2,034 $ 2,048 (1%)
Global revenues of Copaxone® (20 mg/mL and 40
mg/mL), the leading multiple sclerosis therapy in the U.S. and
globally, were $1.0 billion, a decrease of 7% compared to the third
quarter of 2016.
In October 2017, the FDA approved a generic version of Copaxone®
40 mg /mL and an additional generic version of Copaxone® 20 mg/mL.
A generic version of Copaxone® 40 mg /mL was launched in the U.S.
market. In the EU, a hybrid version of Copaxone® 40 mg/mL was
approved.
Copaxone® revenues in the United States, were $802 million, a
decrease of 8% compared to the third quarter of 2016, due to lower
volumes of Copaxone® 20 mg/mL, negative net pricing effects, mainly
as a result of an increase in managed care rebate accruals for
inventory in the channel following the FDA approvals for additional
generic competition, partially offset by a price increase of 7.9%
in January 2017 for both the 20 mg/mL and 40 mg/mL versions. At the
end of the third quarter of 2017, according to September 2017 IMS
data, our U.S. market shares for the Copaxone® products in terms of
new and total prescriptions were 25.6% and 28.7%, respectively.
Copaxone® 40 mg/mL accounted for over 85% of total Copaxone®
prescriptions in the U.S.
Copaxone® revenues outside the United States were $185 million,
down 1%, compared to the third quarter of 2016. Over 75% of
European Copaxone® prescriptions are now filled with the 40 mg/mL
version.
Our global Azilect® revenues were $36 million, a decrease
of 64% compared to the third quarter of 2016 following the
introduction of generic competition to Azilect® in the United
States in 2017.
Revenues of our respiratory products were $351 million,
up 30% compared to the third quarter of 2016 mainly due to higher
sales of ProAir® as well as the launches of Braltus® and
Cinqair®/Cinqaero®. ProAir® revenues in the third
quarter of 2017 were $155 million, up 31% compared to the third
quarter of 2016, mainly due to higher positive net pricing effects
and higher volumes sold. QVAR® global revenues were
$95 million in the third quarter of 2017, down 1% compared to the
third quarter of 2016.
Revenues of our oncology products were $302 million in
the third quarter of 2017, up 12% compared to the third quarter of
2016. Combined revenues of Treanda® and Bendeka® were
$181 million, up 21% compared to the third quarter of 2016, mainly
due to higher volumes sold related to timing of purchases.
During September 2017, we entered into several agreements to
sell certain non-core specialty products, including our global
women’s health business. On November 1, we announced the completion
of the Paragard® divestiture to CooperSurgical. The remaining
transactions are expected to close during the remainder of 2017 and
in 2018.
Specialty Medicines Gross Profit
Gross profit of our specialty medicines segment was $1.8
billion, a decrease of $26 million compared to the third quarter of
2016. Gross profit margin for our specialty medicines segment in
the third quarter of 2017 was 86.4%, compared to 87.1% in the third
quarter of 2016.
Specialty Medicines Profit
Our specialty medicines segment profit was $1.2 billion in the
third quarter of 2017, up 5% compared to the third quarter of
2016.
Specialty medicines profit as a percentage of segment revenues
was 56.6% in the third quarter of 2017, compared to 53.6% in the
third quarter of 2016.
The increase in profit and profitability was driven by lower
S&M and R&D expenses, partially offset by lower gross
profit.
The following tables present details of our multiple sclerosis
franchise and of our other specialty medicines for the three months
ended September 30, 2017 and 2016:
Multiple Sclerosis Three months ended September
30, 2017 2016 U.S.$ in millions / % of
MS Revenues Revenues $ 987 100.0% $ 1,061 100.0%
Gross profit 906 91.8% 982 92.6% R&D expenses 16 1.6% 20 1.9%
S&M expenses 64 6.5% 76 7.2% MS
profit $ 826 83.7% $ 886 83.5%
Other
Specialty Three months ended September 30, 2017
2016 U.S.$ in millions / % of Other Specialty
Revenues Revenues $ 1,047 100.0% $ 987 100.0% Gross
profit 851 81.3% 801 81.2% R&D expenses 201 19.2% 208 21.1%
S&M expenses 324 31.0% 382 38.7%
Other Specialty profit $ 326 31.1% $ 211 21.4%
Other Activities
Other revenues (primarily sales of third-party products
for which we act as distributor, mostly in the United States via
Anda, contract manufacturing services related to products divested
in connection with the Actavis Generics acquisition and other
miscellaneous items) were $569 million in the third quarter of
2017, compared to $256 million, in the third quarter of 2016. The
increase was mainly related to the inclusion of Anda's revenues
beginning in the fourth quarter of 2016.
Revenues from these other activities comprised 10% of our total
revenues in the quarter, compared to 5% in the third quarter of
2016.
Updated 2017 Financial
Outlook
FY 2017
Implied Q4 2017
Outlook
Revenues $22.2-22.3 billion
(previously $22.8-23.2 billion)
$5.3-5.4 billion Non-GAAP EPS $3.77-3.87
(previously $4.30-4.50)
$0.70-0.80 Cash flow from operations $3.15-3.3 billion
(previously $4.4-4.6 billion)
$0.85-1.0 billion
Our 2017 financial outlook was lowered to reflect the
following:
- An earlier than expected, at-risk
launch of a generic competitor to Copaxone® 40 mg/mL, with an
expected impact on EPS of approximately 30 cents; and
- Lower than expected contribution from
new generic launches in the U.S. We now project approximately $400
million of revenues from new product launches in the year, compared
to the previous projection of $500 million; and
- Increased price erosion and volume
declines in our U.S. Generics business including increased
competition to our largest product, the Concerta® authorized
generic; and
- Lower cash flow from operations due to
a reduction in net income and a delay in the resolution of our
working capital dispute with Allergan, which is now scheduled to
conclude in 2018.
These estimates reflect management's current expectations for
Teva's performance in 2017. 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.
Dividends
On October 31, 2017, the Board of Directors declared a cash
dividend of $0.085 per ordinary share for the third quarter of
2017. For holders of our ordinary shares that are traded on the Tel
Aviv Stock Exchange, the dividend will be converted into new
Israeli shekels based on the official exchange rate as of November
2, 2017. The record date will be November 28, 2017, and the payment
date will be December 12, 2017. Tax will be withheld at a rate of
15%.
On October 31, 2017, the Board of Directors also declared a cash
dividend of $17.50 per Mandatory Convertible Preferred Share for
the third quarter of 2017. The record date will be December 1, 2017
and the payment date will be December 15, 2017. Tax will be
withheld at a rate of 15%.
Conference Call
Teva will host a conference call and live webcast along with a
slide presentation on Thursday, November 2, 2017 at 8:00 a.m. ET to
discuss its third quarter 2017 results and overall business
environment. A question & answer session will follow.
In order to participate, please dial the following numbers (at
least 10 minutes before the scheduled start time): United States
1-866-869-2321; Canada 1-866-766-8269 or International +44(0) 203
0095710; passcode: 91932782. For a list of other international
toll-free numbers, click here.
A live webcast of the call will also be available on Teva's
website at: www.ir.tevapharm.com. Please log in at least 10 minutes
prior to the conference call in order to download the applicable
audio software.
Following the conclusion of the call, a replay of the webcast
will be available within 24 hours on the Company's website. The
replay can also be accessed until November 30, 2017, 9:00 a.m. ET
by calling United States 1-866-247-4222; Canada 1-866-878-9237 or
International +44(0) 1452550000; passcode: 91932782.
About Teva
Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) is a
leading global pharmaceutical company that delivers high-quality,
patient-centric healthcare solutions used by approximately 200
million patients in 60 markets every day. Headquartered in Israel,
Teva is the world’s largest generic medicines producer, leveraging
its portfolio of more than 1,800 molecules to produce a wide range
of generic products in nearly every therapeutic area. In specialty
medicines, Teva has the world-leading innovative treatment for
multiple sclerosis as well as late-stage development programs for
other disorders of the central nervous system, including movement
disorders, migraine, pain and neurodegenerative conditions, as well
as a broad portfolio of respiratory products. Teva is leveraging
its generics and specialty capabilities in order to seek new ways
of addressing unmet patient needs by combining drug development
with devices, services and technologies. Teva's net revenues in
2016 were $21.9 billion. For more information, visit
www.tevapharm.com.
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 generics medicines business,
including: that we are substantially more dependent on this
business, with its significant attendant risks, following our
acquisition of Allergan plc’s worldwide generic pharmaceuticals
business (“Actavis Generics”); our ability to realize the
anticipated benefits of the acquisition (and any delay in realizing
those benefits) or difficulties in integrating Actavis Generics;
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
generic products, both from competing products and as a result of
increased governmental pricing pressures; and our ability to take
advantage of high-value biosimilar opportunities;
- our specialty medicines business,
including: competition for our specialty products, especially
Copaxone®, our leading medicine, which faces competition from
existing and potential additional generic versions and
orally-administered alternatives; our ability to achieve expected
results from investments in our product pipeline; competition from
companies with greater resources and capabilities; and the
effectiveness of our patents and other measures to protect our
intellectual property rights;
- our substantially increased
indebtedness and significantly decreased cash on hand, which may
limit our ability to incur additional indebtedness, engage in
additional transactions or make new investments, and may result in
a downgrade of our credit ratings;
- our business and operations in general,
including: uncertainties relating to our recent senior management
changes; our ability to develop and commercialize additional
pharmaceutical products; manufacturing or quality control problems,
which may damage our reputation for quality production and require
costly remediation; interruptions in our supply chain, including
due to labor unrest; disruptions of our or third party information
technology systems or breaches of our data security; the failure to
recruit or retain key personnel, including those who joined us as
part of the Actavis Generics acquisition; the restructuring of our
manufacturing network, including potential related labor unrest or
workers’ strikes; the impact of continuing consolidation of our
distributors and customers; variations in patent laws that may
adversely affect our ability to manufacture our products; our
ability to consummate dispositions on terms acceptable to us;
adverse effects of political or economic instability, major
hostilities or terrorism on our significant worldwide operations;
and our ability to successfully bid for suitable acquisition
targets or licensing opportunities, or to consummate and integrate
acquisitions;
- 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; potential additional adverse
consequences following our resolution with the U.S. government of
our Foreign Corrupt Practices Act investigation; governmental
investigations into sales and marketing practices; potential
liability for sales of generic products prior to a final resolution
of outstanding patent litigation; 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; the significant increase in our intangible
assets, which may result in additional substantial impairment
charges; potentially 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 20-F
for the year ended December 31, 2016, including in the section
captioned “Risk Factors,” and in our other filings with the U.S.
Securities and Exchange Commission, which are available at
www.sec.gov and www.tevapharm.com. Forward-looking statements speak
only as of the date on which they are made, and we assume no
obligation to update or revise any forward-looking statements or
other information contained herein, whether as a result of new
information, future events or otherwise. You are cautioned not to
put undue reliance on these forward-looking statements.
Consolidated
Statements of Income
(Unaudited, U.S.
dollars in millions, except share and per share data)
Three months ended Nine
months ended September 30, September 30,
2017 2016 2017 2016 Net revenues
5,610 5,563 16,926 15,411
Cost of sales 2,967 2,762
8,643 6,942
Gross profit 2,643 2,801
8,283 8,469
Research and development expenses 545 663 1,488
1,427
Selling and marketing expenses 860 940 2,791 2,731
General and administrative expenses 330 310 838 925
Impairments, restructuring and others 550 (410 ) 1,209 421
Legal settlements and loss contingencies (20 ) 533 324 674
Goodwill impairment charge - - 6,100 -
Operating (loss) income 378 765 (4,467 ) 2,291
Financial expenses – net 259 150 704
553
Income (loss) before income taxes 119 615 (5,171
) 1,738
Income taxes (benefit) (494 ) 207 (462 ) 464
Share in (profits) losses of associated companies, net 3
(2 ) 10 (11 )
Net income (loss) 610 410 (4,719
) 1,285
Net Income (loss) attributable to non-controlling
interests 15 (2 ) 11 (17 )
Net income (loss)
attributable to Teva 595 412 (4,730 ) 1,302
Dividends on preferred shares 65 64 195
196
Net income (loss) attributable to Teva's
ordinary shareholders 530 348 (4,925 ) 1,106
Earnings (loss) per share attributable to
ordinary shareholders: Basic ($) 0.52 0.35
(4.85 ) 1.18
Diluted ($) 0.52 0.35
(4.85 ) 1.17
Weighted average number of shares (in
millions): Basic 1,017 979 1,016
935
Diluted 1,017 984 1,016 942
Non-GAAP net income attributable to
ordinary shareholders:* 1,012 1,300 3,126
3,568
Non-GAAP net income attributable to ordinary
shareholders for diluted earnings per share:** 1,012
1,364 3,126 3,764
Non-GAAP earnings
per share attributable to ordinary shareholders:* Basic
($) 1.00 1.33 3.08 3.81
Diluted
($)** 1.00 1.31 3.07 3.76
Non-GAAP average number of shares (in millions):
Basic 1,017 979 1,016 935
Diluted 1,017 1,044 1,017 1,001
* See reconciliation attached. **Dividends on the
mandatory convertible preferred shares of $196 and $64 million for
the nine months and the three months ended September 30, 2016,
respectively, are added back to non-GAAP net income attributable to
ordinary shareholders, since such preferred shares had a dilutive
effect on non-GAAP earnings per share.
Condensed
Consolidated Balance Sheets
(U.S. dollars in
millions)
(Unaudited)
September 30, December 31, 2017
2016 ASSETS Current assets: Cash and cash
equivalents 680 988 Trade receivables 7,424 7,523 Inventories 5,060
4,954 Prepaid expenses 1,203 1,629 Other current assets 581 1,293
Assets held for sale 1,278 841
Total current assets 16,226
17,228
Deferred income taxes 536 625
Other non-current
assets 1,049 1,235
Property, plant and equipment, net
8,001 8,073
Identifiable intangible assets, net 20,878
21,487
Goodwill 39,392 44,409
Total assets 86,082
93,057
LIABILITIES AND EQUITY Current
liabilities: Short-term debt 2,731 3,276 Sales reserves and
allowances 7,662 7,839 Trade payables 2,370 2,157 Employee-related
obligations 718 859 Accrued expenses 2,577 3,405 Other current
liabilities 847 836 Liabilities held for sale 38 116
Total
current liabilities 16,943 18,488
Long-term
liabilities: Deferred income taxes 4,914 5,413 Other taxes and
long-term liabilities 1,959 1,639 Senior notes and loans 31,971
32,524
Total long-term liabilities 38,844 39,576
Equity: Teva shareholders’ equity 28,671 33,337
Non-controlling interests 1,624 1,656
Total equity 30,295
34,993
Total liabilities and equity 86,082 93,057
Condensed
Consolidated Cash Flow
(Unaudited, U.S.
Dollars in millions)
Three months ended Nine
months ended September 30, September 30,
2017 2016 2017 2016 Operating
activities: Net income (loss) 610 410 (4,719 ) 1,285
Net change in operating assets and liabilities (44 ) 1,047
(755 ) 1,100
Items not involving cash flow 551 4 7,802 1,415
Net cash provided by operating
activities 1,117 1,461 2,328 3,800
Net cash provided
by (used in) investing activities (218 ) (32,301 ) 572 (34,943
)
Net cash provided by (used in) financing activities
(825 ) 25,372 (3,244 ) 25,918
Translation adjustment on
cash and cash equivalents 7 41 36 (164 )
Net change in cash and cash equivalents 81 (5,427 )
(308 ) (5,389 )
Balance of cash and cash equivalents at
beginning of period 599 6,984 988 6,946
Balance of cash and cash equivalents at end of period
680 1,557 680 1,557
Non GAAP reconciliation items
(Unaudited, U.S.
Dollars in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017 2016 (U.S. $ in
millions) Gain on sales of business and long-lived
assets - (693 ) - (693 ) Amortization of purchased intangible
assets 357 429 1,088 811 Restructuring expenses 72 115 300 154
Inventory step-up - 152 67 243 Equity compensation expenses 32 31
103 83 Costs related to regulatory actions taken in facilities (1 )
46 48 123 Acquisition, integration and related expenses 31 85 87
184 Other R&D expenses 150 252 176 262 Contingent consideration
18 34 179 85 Legal settlements and loss contingencies (20 ) 533 324
674 Goodwill impairment charge - 6,100 - Impairment of long-lived
assets 408 29 564 614 Other non-GAAP items 45 16 121 75 Financial
expense (income) 30 (1 ) 5 344 Minority interest (11 ) (22 ) (44 )
(65 ) Tax benefit (629 ) (54 ) (1,067 ) (432 )
Three Months Ended September 30, 2017 Three Months Ended
September 30, 2016
U.S. dollars and shares in millions (except per
share amounts) GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
Gross profit (1) 2,643 331 2,974 53 % 2,801 592 3,393 61 %
Operating income (loss) (1)(2) 378 1,092 1,470 26 % 765 1,029 1,794
32 % Net income attributable to ordinary shareholders
(1)(2)(3)(4) 530 482 1,012 18 % 348 952 64 1,364 25 % Earnings per
share attributable to ordinary shareholders - diluted (5) 0.52 0.48
1.00 0.35 0.96 1.31 (1) Amortization of purchased
intangible assets 310 387 Inventory step-up - 152 Costs related to
regulatory actions taken in facilities (1 ) 46 Equity compensation
expenses 6 4 Other COGS related adjustments 16 3
Gross profit adjustments 331 592 (2) Restructuring expenses
72 115 Amortization of purchased intangible assets 47 42 Equity
compensation expenses 26 27 Acquisition, Integration and related
expenses 31 85 Other R&D expenses 150 252 Contingent
consideration 18 34 Legal settlements and loss contingencies (20 )
533 Impairment of long-lived assets 408 29 Gain on sales of
business and long-lived assets - (693 ) Other operating related
adjustments 29 13 761 437 Operating
income adjustments 1,092 1,029 (3) Financial
expense (income) 30 (1 ) Tax effect (629 ) (54 ) Minority interest
(11 ) (22 ) Net income adjustments 482 952 (4)
For the three months ended September 30, 2017, no account was taken
of the potential dilution of the accrued dividend to preferred
shares amounting to $65 million, since it had an anti-dilutive
effect on loss per share. Dividends on the mandatory convertible
preferred shares of $64 million for the three months ended
September 30, 2016, are added back to non-GAAP net income
attributable to ordinary shareholders, since such preferred shares
had a dilutive effect on non-GAAP earnings per share. (5)
The non-GAAP weighted average number of shares was 1,017 and 979
million for the three months ended September 30, 2017 and 2016,
respectively. For the three months ended September 30, 2017, the
mandatory convertible preferred shares amounting to 59.4 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.
Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2016 U.S. dollars and
shares in millions (except per share amounts) GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
Gross profit (1) 8,283 1,114 9,397 56 % 8,469 1,090 9,559 62
% Operating income (loss) (1)(2) (4,467 ) 9,155 4,688 28 % 2,291
2,612 4,903 32 % Net income (loss) attributable to ordinary
shareholders (1)(2)(3)(4) (4,925 ) 8,051 3,126 18 % 1,106 2,462 196
3,764 24 % Earnings (loss) per share attributable to
ordinary shareholders - diluted (5) (4.85 ) 7.92 3.07 1.17 2.59
3.76 (1) Amortization of purchased intangible
assets 944 711 Inventory step-up 67 243 Costs related to regulatory
actions taken in facilities 48 123 Equity compensation expenses 18
10 Other COGS related adjustments 37 3 Gross profit
adjustments 1,114 1,090 (2) Legal settlements and loss
contingencies 324 674 Contingent consideration 179 85 Acquisition
and related expenses 87 184 Other R&D expenses 176 262 Equity
compensation expenses 85 73 Restructuring expenses 300 154 Goodwill
impairment charge 6,100 - Impairment of long-lived assets 564 614
Amortization of purchased intangible assets 144 100 Gain on sales
of business and long-lived assets - (693 ) Other operating related
expenses (income) 82 69 8,041 1,522
Operating income adjustments 9,155 2,612 (3)
Financial expense 5 344 Tax effect (1,067 ) (432 ) Impairment of
equity investment—net 2 3 Minority interest (44 ) (65 ) Net income
adjustments 8,051 2,462 (4) For the nine
months ended September 30, 2017, no account was taken of the
potential dilution of the accrued dividend to preferred shares
amounting to $195 million, since it had an anti-dilutive effect on
loss per share. Dividends on the mandatory convertible preferred
shares of $196 million for the nine months ended September 30, 2016
are added back to non-GAAP net income attributable to ordinary
shareholders, since such preferred shares had a dilutive effect on
non-GAAP earnings per share. (5) The non-GAAP weighted
average number of shares was 1,016 and 935 million for the nine
months ended September 30, 2017 and 2016, respectively. For the
nine months ended September 30, 2017, the mandatory convertible
preferred shares amounting to 59.4 million weighted average shares
had an anti-dilutive effect on earnings per share and were
therefore excluded from the outstanding shares calculation.
Non-GAAP earnings per share can be reconciled with GAAP earnings
per share by dividing each of the amounts included in footnotes 1-4
above by the applicable weighted average share number.
Segment Information
Generics Three months ended September 30,
Percentage Change 2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues) Revenues $ 3,007
100.0% $ 3,259 100.0% (8%) Gross Profit 1,158 38.5% 1,590 48.8%
(27%) R&D Expenses 162 5.4% 185 5.7% (12%) S&M Expenses
377 12.5% 423 13.0% (11%) Segment
Profit* $ 619 20.6% $ 982 30.1% (37%)
Specialty Three months ended September 30,
Percentage Change 2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues) Revenues $ 2,034
100.0% $ 2,048 100.0% (1%) Gross Profit 1,757 86.4% 1,783 87.1%
(1%) R&D Expenses 217 10.7% 228 11.1% (5%) S&M Expenses
388 19.1% 458 22.4% (15%) Segment
Profit* $ 1,152 56.6% $ 1,097 53.6% 5% *
Segment profit consists of gross profit for the segment, less
R&D and S&M expenses related to the segment. Segment profit
does not include G&A expenses, amortization and certain other
items. Beginning in the fourth quarter of 2016, our OTC business is
included in our generics medicines segment. The data presented have
been conformed to reflect these changes for all relevant periods.
Segment Information
Generics Nine months ended September 30,
Percentage Change 2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues) Revenues $ 9,143
100.0% $ 8,274 100.0% 11% Gross Profit 3,844 42.0% 3,861 46.7% 0%
R&D Expenses 553 6.1% 448 5.4% 23% S&M Expenses
1,202 13.1% 1,178 14.3% 2% Segment Profit* $
2,089 22.8% $ 2,235 27.0% (7%)
Specialty Nine months ended September
30, Percentage Change 2017 2016 2017 -
2016 (U.S.$ in millions / % of Segment Revenues)
Revenues $ 6,119 100.0% $ 6,471 100.0% (5%) Gross Profit 5,362
87.6% 5,632 87.0% (5%) R&D Expenses 722 11.8% 702 10.8% 3%
S&M Expenses 1,288 21.0% 1,393
21.5% (8%) Segment Profit* $ 3,352 54.8% $ 3,537
54.7% (5%) * Segment profit consists of gross profit for the
segment, less R&D and S&M expenses related to the segment.
Segment profit does not include G&A expenses, amortization and
certain other items. Beginning in the fourth quarter of 2016, our
OTC business is included in our generics medicines segment. The
data presented have been conformed to reflect these changes for all
relevant periods.
Additional information
Multiple Sclerosis Three months ended September
30, Percentage Change 2017 2016 2017 -
2016 (U.S. $ in millions / % of Segment Revenues)
Revenues $ 987 100.0% $ 1,061 100.0% (7%) Gross profit 906 91.8%
982 92.6% (8%) R&D expenses 16 1.6% 20 1.9% (20%) S&M
expenses 64 6.5% 76 7.2% (16%) Segment
profitability $ 826 83.7% $ 886 83.5% (7%)
Other Specialty Three months ended September 30,
Percentage Change 2017 2016 2017 - 2016
(U.S. $ in millions / % of Segment Revenues) Revenues
$ 1,047 100.0% $ 987 100.0% 6% Gross profit 851 81.3% 801 81.2% 6%
R&D expenses 201 19.2% 208 21.1% (3%) S&M expenses
324 31.0% 382 38.7% (15%) Segment
profitability $ 326 31.1% $ 211 21.4% 55%
Additional information
Multiple Sclerosis Nine months ended
September 30, Percentage Change 2017 2016
2017 - 2016 (U.S. $ in millions / % of MS Revenues)
Revenues $ 2,980 100.0% $ 3,208 100.0% (7%) Gross profit
2,731 91.6% 2,930 91.3% (7%) R&D expenses 58 1.9% 65 2.0% (11%)
S&M expenses 280 9.4% 246 7.7% 14%
MS profit $ 2,393 80.3% $ 2,619 81.6% (9%)
Other Specialty Nine months ended
September 30, Percentage Change 2017 2016
2017 - 2016 (U.S. $ in millions / % of Other Specialty
Revenues) Revenues $ 3,139 100.0% $ 3,263 100.0% (4%)
Gross profit 2,631 83.8% 2,702 82.8% (3%) R&D expenses 664
21.2% 637 19.5% 4% S&M expenses 1,008 32.0%
1,147 35.2% (12%) Other Specialty profit $ 959
30.6% $ 918 28.1% 4%
Reconciliation of our
segment profit to consolidated income before income
taxes Three months ended September 30,
2017 2016 (U.S. $ in
millions) Generic medicines profit $ 619 $ 982 Specialty
medicines profit 1,152 1,097 Total
segment profit 1,771 2,079 Profit of other activities 17
19 1,788 2,098 Amounts not allocated to
segments: Amortization 357 429 General and administrative expenses
330 310 Impairments, restructuring and others 550 (410 ) Inventory
step-up - 152 Other R&D expenses 150 252 Costs related to
regulatory actions taken in facilities (1 ) 46 Legal settlements
and loss contingencies (20 ) 533 Other unallocated amounts 44 21
Consolidated operating income 378
765 Financial expenses - net 259
150 Consolidated income before income taxes $ 119 $
615
Reconciliation of our segment
profit to Teva's consolidated income before income taxes
Nine months ended September 30, 2017
2016 (U.S. $ in millions)
Generic medicines profit $ 2,089 $ 2,235 Specialty medicines profit
3,352 3,537 Total segment profit 5,441
5,772 Profit of other activities 61 28
5,502 5,800 Amounts not allocated to segments: Amortization 1,088
811 General and administrative expenses 838 925 Goodwill impairment
charge 6,100 - Impairments, restructuring and others 1,209 421
Inventory step-up 67 243 Other R&D expenses 176 262 Costs
related to regulatory actions taken in facilities 48 123 Legal
settlements and loss contingencies 324 674 Other unallocated
amounts 119 50 Consolidated operating income
(loss) (4,467 ) 2,291 Financial expenses - net
704 553 Consolidated income (loss)
before income taxes $ (5,171 ) $ 1,738
Revenues by Activity and Geographical Area
(Unaudited)
Three Months EndedSeptember
30,
Percentage Change Percentage Change 2017
2016 2017 - 2016 2017 - 2016 (U.S. $ in
millions) in local currencies Generic Medicines United
States $ 1,179 $ 1,293 (9%) (9%) Europe 985 933 6% 1% Rest of the
World 843 1,033 (18%) 5% Total Generic Medicines
3,007 3,259 (8%) (2%) Specialty Medicines United States 1,493 1,558
(4%) (4%) Europe 447 406 10% 5% Rest of the World 94
84 12% 12% Total Specialty Medicines 2,034 2,048 (1%) (2%) Other
Revenues United States 317 12 n/a n/a Europe 80 71 13% 6% Rest of
the World 172 173 (1%) (6%) Total Other Revenues
569 256 122% 117% Total Revenues $ 5,610 $ 5,563 1%
4%
*In light of the political and economic
conditions in Venezuela, we exclude the quarterly changes in
revenues and operating profit in Venezuela from any discussion of
local currency results.
Revenues by Activity
and Geographical Area (Unaudited)
Nine Months EndedSeptember
30,
Percentage Change Percentage Change 2017
2016 2017 - 2016 2017 - 2016 (U.S. $ in
millions) in local currencies Generic Medicines United
States $ 3,850 $ 3,161 22% 22% Europe 2,930 2,494 17% 19% Rest of
the World 2,363 2,619 (10%) 14% Total Generic
Medicines 9,143 8,274 11% 18% Specialty Medicines United States
4,521 5,007 (10%) (10%) Europe 1,304 1,214 7% 9% Rest of the World
294 250 18% 18% Total Specialty 6,119 6,471 (5%) -5%
Other Revenues United States 941 19 n/a n/a Europe 237 176 35% 35%
Rest of the World 486 471 3% (2%) Total Other
Revenues 1,664 666 150% 146% Total Revenues $ 16,926
$ 15,411 10% 14%
*In light of the political and economic
conditions in Venezuela, we exclude the quarterly changes in
revenues and operating profit in Venezuela from any discussion of
local currency results.
Revenues by Product line (Unaudited)
Three Months EndedSeptember
30,
Percentage Change 2017 2016 2017 - 2016
(U.S. $ in millions) Generic Medicines
$ 3,007 $ 3,259 (8%) OTC 306 391
(22%) API 171 191 (10%)
Specialty Medicines 2,034
2,048 (1%) CNS 1,146 1,302 (12%) Copaxone® 987 1,061
(7%) Azilect® 36 101 (64%) Nuvigil® 21 21 0% Respiratory 351 270
30% ProAir® 155 118 31% QVAR® 95 96 (1%) Oncology 302 269 12%
Treanda® and Bendeka® 181 149 21% Women's Health 119 109 9% Other
Specialty 116 98 18%
All Others 569
256 122% Total $ 5,610 $
5,563 1% Revenues by Product
line (Unaudited)
Nine Months EndedSeptember
30,
Percentage Change 2017 2016 2017 - 2016
(U.S. $ in millions) Generic Medicines
$ 9,143 $ 8,274 11% OTC 853 949
(10%) API 572 595 (4%)
Specialty Medicines 6,119
6,471 (5%) CNS 3,442 4,040 (15%) Copaxone® 2,980
3,208 (7%) Azilect® 130 322 (60%) Nuvigil® 52 175 (70%) Respiratory
977 949 3% ProAir® 399 426 (6%) QVAR® 300 346 (13%) Oncology 852
871 (2%) Treanda® and Bendeka® 501 511 (2%) Women's Health 358 336
7% Other Specialty* 490 275 78%
All Others
1,664 666 150% Total $
16,926 $ 15,411 10% * Includes
aggregate payments of $150 million related to the Ninlaro®
transaction in the first half of 2017.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171102005626/en/
Teva Pharmaceutical Industries Ltd.IR Contacts:Kevin C.
Mannix, United States, 215-591-8912Ran Meir, United
States, 215-591-3033Tomer Amitai, Israel, 972 (3)
926-7656orPR Contacts:Iris Beck Codner, Israel, 972 (3)
926-7246Denise Bradley, United States, 215-591-8974
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