Teva Reports Record Third Quarter 2010 Results
-- Record Third Quarter Sales of $4.3 Billion and Non-GAAP EPS of $1.30 --
-- Record Quarterly Cash Flow from Operations of $1.2 Billion and Free Cash Flow of $866 Million --
JERUSALEM--(BUSINESS WIRE)--Nov 2, 2010 - Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) today reported results for the quarter ended September 30, 2010.
Third Quarter Highlights:
- Quarterly net sales of $4.3 billion, an increase of 20% over the comparable period in 2009.
- Quarterly non-GAAP net income and non-GAAP EPS of $1.2 billion and $1.30, up 47% and 46%, respectively, compared to the third quarter of 2009. Quarterly GAAP net income and EPS totaled $1.1 billion and $1.15, up 62% and 60%, respectively, compared to the third quarter of 2009.
- Quarterly non-GAAP operating income of $1.4 billion, an increase of 44% over the third quarter of 2009. Quarterly GAAP operating income totaled $1.2 billion, up 58% compared to the third quarter of 2009.
- Quarterly cash flow from operations of $1.2 billion, an increase of 16% compared to the third quarter of 2009, and free cash flow of $866 million, up 23% compared with the third quarter of 2009.
- Quarterly global in-market sales of Copaxone® reached a record of $808 million, up 4% over the third quarter of 2009. With a 30% global market share, Copaxone® continues to be the leading MS therapy in the U.S. and globally.
- Completed the acquisition of ratiopharm, whose results of operations were consolidated since August 2010.
“This was another outstanding quarter of profitable growth for Teva, with record-breaking sales across all our geographies and major businesses, leading to record-breaking results across the board,” commented Shlomo Yanai, Teva's President and Chief Executive Officer. “This was also a quarter of major strategic achievements and operational successes, particularly in the U.S. with high growth rates in our generics business, and in Europe, where we closed our acquisition of ratiopharm and are already making excellent progress on the integration--which we now expect to complete ahead of schedule.”
Mr. Yanai continued, “2010 has been an exciting year so far. We are now developing our workplans for 2011 and beyond, and we are extremely enthusiastic about the many opportunities that lie ahead for Teva as we look forward to another year of continuous profitable growth.”
Net sales for the third quarter increased 20% to $4,250 million, compared to $3,550 million in the third quarter of 2009.
Exchange rate differences negatively impacted sales in the third quarter of 2010 by approximately $122 million compared to the third quarter of 2009, while having a negligible negative impact on operating income. The impact on sales resulted from the decline in the value of certain European currencies relative to the U.S. dollar, partially offset by the strengthening of the value of other currencies relative to the U.S. dollar in the third quarter of 2010 compared with the third quarter in 2009.
Non-GAAP net income for the third quarter of 2010 totaled $1,182 million, an increase of 47% compared to the third quarter of 2009, while non-GAAP diluted earnings per share were $1.30, an increase of 46% compared to the third quarter of 2009. On a U.S. GAAP basis, net income for the third quarter totaled $1,050 million, up 62% compared to the third quarter of 2009, while diluted earnings per share were $1.15, up 60% compared to the third quarter of 2009.
Non-GAAP net income and non-GAAP EPS for the third quarter of 2010 are adjusted to exclude the following items:
- Amortization of purchased intangible assets of $144 million;
- Inventory step-up of $54 million;
- Financial income of $45 million related to hedging activity in connection with the acquisition of ratiopharm;
- Impairment of assets of $27 million;
- Acquisition and restructuring expenses of $27 million;
- Income of $1 million in connection with a provision for legal settlements; and
- Related tax benefits of $74 million.
Teva believes that excluding these items facilitates investors' understanding of the trends in the Company's underlying business. In the third quarter of 2009, non-GAAP net income and non-GAAP EPS excluded amortization of purchased intangible assets, restructuring expenses, impairment of assets, legal settlements, inventory step-up, and related tax effects. See the attached tables for a reconciliation of U.S. GAAP reported results to the adjusted non-GAAP figures.
Quarterly non-GAAP operating income (which excludes amortization of purchased intangible assets, inventory step up, acquisition and restructuring expenses, impairment of assets, partially offset by income in connection with legal settlements, as detailed above) reached $1,439 million, an increase of 44% compared with the third quarter of 2009. On a U.S. GAAP basis, operating income for the third quarter of 2010 totaled $1,188 million, up 58% compared to the third quarter of 2009.
Sales in North America in the third quarter reached $2,724 million, accounting for 64% of total sales and representing an increase of 22% compared to the third quarter of 2009. Generic sales in the U.S. were $1,627 million in the quarter, up 34% compared to the comparable quarter in 2009. The increase in quarterly sales resulted from the launch of a generic version of Effexor XR® (venlafaxine) in the reported quarter, as well as continued strong sales of generic versions of Pulmicort Respules® (budesonide), Adderall XR® (mixed amphetamine salts), Hyzaar® (losartan potassium - hydrochlorothiazide), Cozaar® (losartan potassium) and Yaz® (drospirenone and ethinyl estradiol) launched in previous quarters. The quarter's results also reflected continued strong sales of Copaxone®.
As of October 26, 2010, Teva had 203 product applications awaiting final FDA approval, including 45 tentative approvals. Collectively, the brand products covered by these applications had annual U.S. sales of over $118 billion. Of these applications, 134 were “Paragraph IV” applications challenging patents of branded products. Teva believes it is the first to file on 83 of the applications, relating to products with annual U.S. branded sales exceeding $55 billion.
Sales in Europe in the third quarter of 2010 totaled $1,001 million, accounting for 24% of total sales and representing an increase of 21% compared to the third quarter of last year. In local currency terms, sales in Europe grew 33% compared with the third quarter of 2009. The growth in sales was attributable to an increase in generic sales in Germany, Spain, Italy, and France due substantially to the first-time consolidation of ratiopharm's results.
Since the beginning of 2010, Teva has received 1,461 generic approvals in Europe relating to 174 compounds in 351 formulations, including five European Commission approvals valid in all EU member states. In addition, as of September 30, 2010, Teva had 3,706 marketing authorization applications pending approval in 30 European countries, relating to 287 compounds in 583 formulations, including nine applications pending with the EMA (European Medicines Agency).
International market sales in the third quarter of 2010 totaled $525 million, accounting for 12% of total sales and representing an increase of 7% compared to the third quarter of 2009. In local currency terms, international market sales grew 13% compared with the third quarter of 2009. The increase in sales was driven by higher sales of generic pharmaceuticals in Russia, as well as generally higher sales in Israel and Latin America. Sales also benefited from the first-time consolidation of ratiopharm's results.
Copaxone® remained the number one MS therapy in the U.S. and globally with a 30% global market share. Global in-market sales reached $808 million in the third quarter of 2010, an increase of 4% over the third quarter of 2009. In the U.S., quarterly in-market sales increased 9% to $588 million compared to the third quarter of 2009. In-market sales outside the U.S. totaled $220 million, down 6% compared to the third quarter of 2009. Despite unit growth in several countries throughout Europe and Latin America, in-market sales outside the U.S. declined as a result of the timing of tenders in certain international markets, the negative impact of exchange rates and cost containment measures in Europe. In local currency terms, in-market sales of Copaxone® outside the U.S. in the reported quarter were flat compared to the comparable quarter in 2009.
Global in-market sales of Azilect® reached $81 million in the quarter, a 28% increase over the comparable period in 2009, benefiting from an increase in sales in the U.S. and in Europe. In local currency terms, global in-market sales of Azilect® grew 35% in the third quarter of 2010.
Teva's global respiratory product sales totaled $207 million in the quarter. As compared to the third quarter of 2009, which benefited from earlier and increased seasonal purchases due to the severity of seasonal flu viruses last year, sales in the third quarter of 2010 declined 15%. Increased competition in the SABA (short acting beta agonist) market also contributed to the decline in ProAir™ sales in the quarter. Teva's respiratory product sales in the U.S. totaled $126 million in the third quarter. As of September 30, 2010, Teva maintained its leadership position with a 49% market share in the SABA market in the U.S., while Qvar® maintained its number two position in the inhaled corticosteroid category (ICS) market with a 20% market share.
Teva's women's health business sales reached $116 million in the quarter, up 13% compared to $103 million in the comparable quarter in 2009, benefiting from strong sales of Seasonique® and ParaGard® in the third quarter. On October 28, 2010, Teva announced its agreement to acquire Theïˆramex, a women's health business based in Europe. Theïˆramex's diverse product portfolio is sold primarily through a sales force in France and Italy and through third parties in approximately 50 additional countries. The acquisition, which will serve as a platform to expand Teva's women's health business globally, is expected to close by the end of 2010 or early 2011.
API sales to third parties totaled $159 million in the third quarter, up 17% compared to $136 million in the comparable quarter in 2009.
Non-GAAP gross profit margin reached 62.5% in the third quarter of 2010, compared to the 58.2% non-GAAP gross profit margin recorded in the comparable quarter of 2009. Non-GAAP gross profit margins continued to benefit from the contribution to sales of new and recently launched generic products in the U.S., improved gross margins of the U.S. generics base business as well as the contribution to sales of innovative and branded products (including Copaxone®, ProAir™, Azilect®, Qvar® and women's health products). GAAP gross profit margin reached 58.0% in the third quarter of 2010, compared to GAAP gross profit of 54.3% in the comparable quarter of 2009. The improvement in GAAP gross profit was due to the factors listed above, partially offset by an inventory step up charge recorded in the current quarter.
Net Research & Development (R&D) expenditures in the third quarter totaled $239 million, or 5.6% of sales, compared to $195 million recorded in the third quarter of 2009, or 5.5% of sales. Gross R&D in the third quarter of 2010, before reimbursement from third parties for certain R&D expenses, totaled $248 million, or 5.8% of sales, an increase of 18% compared to the comparable quarter in 2009. For the full year, net R&D expenses are expected to be approximately 6% of net sales.
Selling and Marketing expenditures (excluding amortization of purchased intangible assets) totaled $742 million, or 17.5% of sales, for the third quarter, compared to $662 million, or 18.6% of sales, in the comparable quarter of 2009. The decrease in selling and marketing expenses as percentage of sales is attributable primarily to the termination of payments to sanofi-aventis in connection with Copaxone®'s North American sales, partially offset by higher royalty payments in connection with new and recently launched generic products sold in the U.S.
General and Administrative (G&A) expenditures totaled $236 million, or 5.5% of sales, for the third quarter, compared with $212 million, or 6.0% of sales, in the comparable quarter of 2009.
The tax expense provided for the third quarter was $207 million of pre-tax non-GAAP income of $1,391 million. Teva's current estimate of the annual tax rate of non-GAAP income for 2010 is 15%, compared to a rate of 16% of pre-tax non-GAAP income for all of 2009. On a GAAP basis, the annual tax rate for 2010 is estimated to be approximately 12%.
Cash flow generated from operating activities during the third quarter of 2010 was $1,194 million, compared to $1,025 million in the comparable quarter in 2009. Free cash flow – excluding gross capital expenditures (of $175 million) and dividends (of $167 million), partially offset by sales of assets ($14 million) – reached $866 million. Cash and marketable securities as of September 30, 2010 were $1.2 billion.
Total equity as of September 30, 2010 amounted to $21.7 billion, an increase of $2.4 billion compared to $19.3 billion as of December 31, 2009. The increase in total equity is attributable primarily to GAAP net income of $2.6 billion and the positive impact of currency translations as of September 30, 2010, resulting from the strengthening of major European currencies compared to the U.S. dollar during this period, partially offset by dividends paid to shareholders.
For the third quarter of 2010, the weighted average share count for the fully diluted earnings per share calculation was 921 million shares on both a GAAP and non-GAAP basis. As of September 30, 2010, Teva's share count for the fully diluted share calculation is estimated at 921 million shares, while the share count for calculating Teva's market capitalization is approximately 899 million shares.
The Board of Directors, at its meeting on November 1, 2010, declared a cash dividend for the third quarter of 2010 of NIS 0.70 (approximately 19.3 cents according to the rate of exchange on November 1, 2010) per share.
The record date will be November 10, 2010, and the payment date will be December 2, 2010. Tax will be withheld at a rate of 9%.
Teva will host a conference call to discuss the Company's third quarter 2010 results, on Tuesday, November 2, 2010 at 8:30 a.m. ET. The call will be webcast and can be accessed through the Company's website at www.tevapharm.com. Following the conclusion of the call, a replay of the webcast will be available within 24 hours at the Company's website. A replay of the call will also be available until November 9, 2010, at 11:59 p.m. ET, by calling 858-384-5517 or 877-870-5176. The Conference ID# is 358963.
Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA) is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients. Headquartered in Israel, Teva is the world's largest generic drug maker, with a global product portfolio of more than 1,250 molecules and a direct presence in over 60 countries. Teva's branded businesses focus on neurological, respiratory and women's health therapeutic areas as well as biologics. Teva's leading innovative product, Copaxone®, is the number one prescribed treatment for multiple sclerosis. Teva employs more than 40,000 people around the world and reached $13.9 billion in net sales in 2009.
Teva's Safe Harbor Statement under the U. S. Private Securities Litigation Reform Act of 1995:
This release contains forward-looking statements, which express the current beliefs and expectations of management. Such statements are based on management's current beliefs and expectations and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to successfully develop and commercialize additional pharmaceutical products, the introduction of competing generic equivalents, the extent to which we may obtain U.S. market exclusivity for certain of our new generic products and regulatory changes that may prevent us from utilizing exclusivity periods, potential liability for sales of generic products prior to a final resolution of outstanding patent litigation, including that relating to the generic versions of Neurontin®, Lotrel®, Protonix® and Yaz®, the extent to which any manufacturing or quality control problems damage our reputation for high quality production, the effects of competition on sales of our innovative products, especially Copaxone® (including potential generic and oral competition for Copaxone®), the impact of continuing consolidation of our distributors and customers, our ability to identify, consummate and successfully integrate acquisitions (including the acquisition of ratiopharm), interruptions in our supply chain or problems with our information technology systems that adversely affect our complex manufacturing processes, intense competition in our specialty pharmaceutical businesses, any failures to comply with the complex Medicare and Medicaid reporting and payment obligations, our exposure to currency fluctuations and restrictions as well as credit risks, the effects of reforms in healthcare regulation, adverse effects of political or economical instability, major hostilities or acts of terrorism on our significant worldwide operations, increased government scrutiny in both the U.S. and Europe of our agreements with brand companies, dependence on the effectiveness of our patents and other protections for innovative products, our ability to achieve expected results through our innovative R&D efforts, the difficulty of predicting U.S. Food and Drug Administration, European Medicines Agency and other regulatory authority approvals, uncertainties surrounding the legislative and regulatory pathway for the registration and approval of biotechnology-based products, potentially significant impairments of intangible assets and goodwill, potential increases in tax liabilities resulting from challenges to our intercompany arrangements, our potential exposure to product liability claims to the extent not covered by insurance, the termination or expiration of governmental programs or tax benefits, current economic conditions, any failure to retain key personnel or to attract additional executive and managerial talent, environmental risks and other factors that are discussed in this report and in our other filings with the U.S. Securities and Exchange Commission ("SEC")
|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,|
|Cost of sales (a)||1,783||1,622||5,102||4,829|
|Research and development expenses||239||195||663||583|
|Selling and marketing expenses (b)||751||671||2,147||1,924|
|General and administrative expenses||236||212||607||605|
|Legal settlements, acquisition and restructuring expenses and impairment||53||97||78||163|
|Purchase of research and development in process||-||-||9||-|
|Financial expenses - net (c)||3||52||178||176|
|Income before income taxes||1,185||701||2,919||1,817|
|Provision for income taxes (d)||133||49||336||172|
|Share in losses of associated companies - net||*||2||17||21|
|Net income attributable to non-controlling interests||2||1||6||3|
|Net income attributable to Teva||1,050||649||2,560||1,621|
|Earnings per share attributable to Teva:||Basic ($)||1.17||0.73||2.86||1.87|
|Weighted average number of shares (in millions):||Basic||899||884||895||867|
|Non-GAAP net income attributable to Teva:**||1,182||806||2,993||2,182|
|Non-GAAP earnings per share attributable to Teva:||Basic ($)||1.32||0.91||3.34||2.52|
|Weighted average number of shares (in millions):||Basic||899||884||895||867|
|* Represents an amount of less than $0.5 million.|
|** See reconciliation attached.|
|(a) Cost of sales includes $135 million and $137 million of amortization of purchased intangible assets in the three months ended September 30, 2010 and 2009, respectively, and $54 million and $1 million of inventory step-up in the three months ended September 30, 2010 and 2009, respectively.|
|(b) Selling and marketing expenses includes $9 million of amortization of purchased intangible assets in the three months ended September 30, 2010 and 2009.|
|(c) Financial income includes $45 million resulting from hedging of the ratiopharm acquisition in the three months ended September 30, 2010.|
|(d) Provision for income taxes includes $74 million and $87 million of related tax effect of non-GAAP charges in the three months ended September 30, 2010 and 2009, respectively.|
|Condensed Balance Sheets
|(U.S. Dollars in millions)
|September 30,||December 31,|
|Cash and cash equivalents||935||1,995|
|Deferred taxes and other current assets||1,813||1,542|
|Total current assets||11,859||12,141|
|Long-term investments and receivables||680||534|
|Deferred taxes, deferred charges and other assets||819||642|
|Property, plant and equipment, net||4,228||3,766|
|Identifiable intangible assets, net||5,881||4,053|
|LIABILITIES AND EQUITY|
|Short-term debt and current maturities of long term liabilities||1,076||659|
|Convertible senior debentures - short term||1,332||642|
|Sales reserves and allowances||3,348||2,942|
|Accounts payable and accruals||2,514||2,680|
|Other current liabilities||1,053||679|
|Total current liabilities||9,323||7,602|
|Deferred income taxes||2,330||1,741|
|Other taxes and long term payables||738||727|
|Employee related obligations||199||170|
|Senior notes and loans||4,726||3,494|
|Convertible senior debentures - long term||14||817|
|Total long-term liabilities||8,007||6,949|
|Teva shareholders' equity||21,668||19,222|
|Total liabilities and equity||39,036||33,810|
|Condensed Cash Flow
|(Unaudited, U.S. Dollars in millions)
|Three months ended||Nine months ended|
|September 30,||September 30,|
|Purchase of research and development in process||-||-||9||-|
|Decrease (increase) in operating assets and liabilities||(57||)||121||(274||)||175|
|Expenses not involving cash flow and others||199|
Posted: November 2010