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Teva Reports Fourth Quarter and Full Year 2019 Financial Results

TEL AVIV, Israel–(BUSINESS WIRE)–Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported results for the year and the quarter ended December 31, 2019.


Full-Year 2019 and Q4 2019 Highlights:

 
 
 

FY 2019

 

Q4 2019

 

Revenues

 

$16.9 billion

 

$4.5 billion

 

Revenues prior to revision (*)

 

$17.5 billion

 

$4.6 billion

 

Cash flow from operating activities

 

$748 million

 

$538 million

 

Free cash flow

 

$2,053 million

 

$974 million

 

GAAP earnings (loss) per share

 

$(0.91)

 

$0.10

 

Non-GAAP EPS

 

$2.40

 

$0.62

(*)

 

Revision of prior period financial statements with respect to the distribution business in our International Markets segment, decreasing sales by $165 million in Q4 2019, and $642 million in 2019, with an offsetting decrease in cost of sales. No impact on gross profit, operating income, earnings per share or cash flows for the related periods.

  • Met all components of 2019 business outlook
  • Achieved spend base reduction target of $3 billion
  • AUSTEDO® rapid growth continues
  • AJOVY® launched in Europe; auto-injector approved in U.S. and E.U.
  • Launch of TRUXIMA®, Teva’s first U.S. biosimilar
  • 2020 business outlook:

    • Revenues are expected to be $16.6 – $17.0 billion
    • Non-GAAP EPS is expected to be $2.30 – $2.55
    • Free cash flow is expected to be $1.8 – $2.2 billion 

“In 2019, we made great strides towards positioning Teva for renewed growth by completing our two-year restructuring plan, reducing our cost base by more than $3 billion, and reducing our net debt by more than $9 billion, all while maintaining our global leadership in generics, serving around 200 million patients every day,” said Mr. Kåre Schultz, Teva’s President and CEO.

“Our key growth products met major milestones in 2019, including the launch of AJOVY® in Europe, continued strong growth for AUSTEDO®, and the successful launch of our first biosimilar TRUXIMA® in North America. In 2020, we expect to see continued growth for AJOVY®, AUSTEDO® and our biosimilars.”

Mr. Schultz continued, “Looking ahead, we will further transform our manufacturing network, improve our profitability, and generate cash, which will further reduce our debt. We will enhance our biopharmaceutical offerings, and expand our key assets with additional indications and geographies.”

Revision of Previously Reported Consolidated Financial Statements

In connection with the preparation of Teva’s consolidated financial statements for the fiscal year ended December 31, 2019, Teva determined that in the full years and interim periods of fiscal years 2017 and 2018, and the first three quarters of fiscal year 2019, it had an immaterial error in the presentation of distribution revenues from its Israeli distribution business. This business is part of the International Markets reporting segment and facilitates distribution of Teva and third party products to pharmacies, hospitals and other organizations in Israel.

Specifically, the Company concluded that it presented revenue from its Israeli distribution business on a gross basis, although it should have reported such revenue on a net basis. Because Teva has no discretion in establishing prices for any specifies goods or services, limited inventory risk and is not primarily responsible for contract fulfillment, Teva does not meet the criteria for reporting revenues from such business as a principal (on a gross basis), as opposed to as an agent (on a net basis).

The Company evaluated the cumulative impact of this item on its previously issued annual financial statements for 2017 and 2018, and the interim financial statements for 2017, 2018 and the first three quarters of 2019, and concluded that, for the reasons mentioned below, the revisions were not material, individually or in the aggregate, to any of its previously-issued interim or annual financial statements. Teva has revised its presentation of net revenue and cost of sales in the historical consolidated financial statements to reflect the change in this item, as described in more detail below.

The impact of this revision is a decrease in net revenues with an offsetting decrease in cost of sales. There is no impact on gross profit, operating income or earnings per share. In addition, there is no impact on Teva’s balance sheet or statement of cash flows for the related periods.

The following table summarizes the impact of the revision on net revenues and non-GAAP cost of sales in the consolidated statements of income in the relevant periods:

 

 

Net revenues

 

Cost of sales

 

 

As reported

 

Adjustment

 

As revised

 

As reported

 

Adjustment

 

As revised

 

 

(U.S. $ in millions)

2017

 

22,385

 

(533)

 

21,853

 

10,351

 

(533)

 

9,818

2018

 

18,854

 

(583)

 

18,271

 

9,308

 

(583)

 

8,725

Nine months ended

September 30, 2019

 

12,896

 

(477)

 

12,419

 

6,456

 

(477)

 

5,979

The following items presented in this press release have been adjusted to reflect the revision described above:

  • 2018 and 2019 annual and fourth quarter revenues
  • 2018 and 2019 annual and fourth quarter cost of sales
  • 2018 and 2019 fourth quarter International Markets segment revenues
  • 2018 and 2019 fourth quarter International Markets segment cost of sales

2019 Annual Consolidated Results

Revenues in 2019 were $16,887 million, a decrease of 8%, or 5% in local currency terms, compared to 2018, mainly due to generic competition to COPAXONE®, a decline in revenues from our U.S. generics business, BENDEKA®/TREANDA® and Japan, partially offset by higher revenues from AUSTEDO, AJOVY and QVAR® in the United States. The data presented for prior periods have been revised to reflect a revision in the presentation of net revenues and cost of sales in the consolidated financial statements. See “Revision of Previously Reported Consolidated Financial Statements” above.

Exchange rate movements between 2019 and 2018 negatively impacted our revenues by $402 million, our GAAP operating income by $135 million and our non-GAAP operating income by $154 million.

GAAP gross profit was $7,537 million in 2019, a decrease of 9% compared to 2018. GAAP gross profit margin was 44.6% in 2019, compared to 45.4% in 2018. Non-GAAP gross profit was $8,702 million in 2019, a decrease of 9% compared to 2018. Non-GAAP gross profit margin was 51.5% in 2019, compared to 52.2% in 2018. The decrease in both GAAP and non-GAAP gross profit was mainly due to lower revenues from COPAXONE in North America.

GAAP Research and Development (R&D) expenses in 2019 were $1,010 million, a decrease of 17% compared to 2018. Non-GAAP R&D expenses in 2019 were $1,004 million, or 5.9% of revenues, compared to $1,102 million, or 6.0% of revenues, in 2018. The decrease in R&D expenses resulted primarily from pipeline optimization and efficiencies realized as part of our restructuring plan.

GAAP Selling and Marketing (S&M) expenses in 2019 were $2,614 million, a decrease of 10% compared to 2018. Non-GAAP S&M expenses were $2,438 million, or 14.4% of revenues, in 2019, compared to $2,718 million, or 14.9% of revenues, in 2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

GAAP General and Administrative (G&A) expenses in 2019 were $1,192 million, a decrease of 8% compared to 2018. Non-GAAP G&A expenses were $1,145 million in 2019, or 6.8% of revenues, compared to $1,228 million, or 6.7% of revenues, in 2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

GAAP other income in 2019 was $76 million, compared to $291 million in 2018. The other income in 2019 was mainly related to the sale of activities in our International Markets segment. Non-GAAP other income in 2019 was $27 million, compared to $225 million in 2018. Non-GAAP other income in 2018 was mainly due to Section 8 recoveries from multiple cases in Canada and recovery of lost profits in cases in which U.S. patent infringement litigation had previously prevented the sale of certain products.

GAAP Operating loss was $443 million in 2019, compared to operating loss of $1,637 million in 2018. The decrease was mainly due to higher impairment charges recorded in 2018, partially offset by higher provisions in connection with legal settlements and loss contingencies in 2019, as well as lower profit in our North America segment. Non-GAAP operating income was $4,142 million, a decrease of 12% compared to $4,723 million in 2018.

Adjusted EBITDA (non-GAAP operating income, which excludes amortization and certain other items, and excluding depreciation expenses) in 2019 was $4,685 million, compared to $5,319 million in 2018.

In 2019, GAAP financial expenses were $822 million, compared to $959 million in 2018. Non-GAAP financial expenses were $824 in 2019, compared to $893 in 2018.

In 2019, we recognized a GAAP tax benefit of $278 million, or 22%, on a pre-tax loss of $1,265 million. In 2018, we recognized a tax benefit of $195 million, or 8%, on a pre-tax loss of $2,596 million. Our tax rate for 2018 was lower than in 2019 due to one-time legal settlements and divestments that had a low corresponding tax effect.

Non-GAAP income taxes for 2019 were $597 million on non-GAAP pre-tax income of $3,317 million. Non-GAAP income taxes in 2018 were $519 million on non-GAAP pre-tax income of $3,830 million. The non-GAAP tax rate for 2019 was 18%, compared to 14% in 2018. Our annual non-GAAP effective tax rate for 2019 was higher than our non-GAAP effective tax rate for 2017 and 2018 primarily due to a lower tax shield on finance expenses.

In the future, both our GAAP and non-GAAP effective tax rates are expected to remain similar to the 2019 rate.

GAAP net loss attributable to Teva’s ordinary shareholders and GAAP diluted loss per share in 2019 were $999 million and $0.91, respectively, compared to net loss of $2,399 million and diluted loss per share of $2.35 in 2018. Non-GAAP net income attributable to ordinary shareholders for calculating diluted EPS and non-GAAP diluted EPS in 2019 were $2,627 million and $2.40, respectively, compared to $2,985 million and $2.92 in 2018.

The weighted average diluted shares outstanding used for the fully diluted share calculation on a GAAP basis for 2019 and 2018 were 1,091 million and 1,021 million shares, respectively. The weighted average outstanding shares used for the fully diluted EPS calculation on a non-GAAP basis for 2019 and 2018 were 1,094 million and 1,024 million shares, respectively.

As of December 31, 2019 and 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,108 million and 1,100 million shares, respectively.

Non-GAAP information: Net non-GAAP adjustments in 2019 were $3,625 million. Non-GAAP net income and non-GAAP EPS for the year were adjusted to exclude the following items:

  • An impairment of intangible and fixed assets of 1,778 million, mainly related to the acquisition of Actavis Generics;
  • Legal settlements and loss contingencies of $1,178 million, mainly related to the reserve in connection with the opioids cases;
  • Amortization of purchased intangible assets totaling $1,113 million, of which $973 million is included in cost of goods sold and the remaining $139 million in selling and marketing expenses;
  • Restructuring expenses of $199 million;
  • Equity compensation expenses of $123 million;
  • Contingent consideration of $59 million;
  • Other non-GAAP items of $132 million;
  • Minority interest adjustment of $82; and
  • Related tax effect of $875 million.

Teva believes that excluding such items facilitates investors’ understanding of its business. For further information see the tables below for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and the information under “Non-GAAP Financial Measures.” Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.

Cash flow generated from operating activities in 2019 was $748 million, a decrease of $1,698 million, or 69%, compared to 2018. This decrease was mainly due to the working capital adjustment with Allergan and the Rimsa settlement in 2018, and lower profit in our North America segment during 2019.

Free cash flow (Cash flow generated from operating activities in 2019, net of cash used for capital investments and beneficial interest collected in exchange for securitized trade receivables) was $2,053 million in 2019, compared to $3,679 million in 2018. The decrease in 2019 resulted mainly from the lower cash flow generated from operating activities.

As of December 31, 2019, our debt was $26,908 million, compared to $28,916 million as of December 31, 2018. The decrease was mainly due to senior notes repaid at maturity or prepaid with cash generated during the year. The portion of total debt classified as short-term as of December 31, 2019 was 9%, compared to 8% as of December 31, 2018, due to a decrease in our total debt. Our average debt maturity was approximately 6.4 years as of December 31, 2019, compared to 6.8 years as of December 31, 2018.

Annual Report on Form 10-K

Teva will file its Annual Report on Form 10-K with the SEC in the coming days. The report will include a complete analysis of the financial results for 2019 and will be available on Teva’s website, http://ir.tevapharm.com, as well as on the SEC’s website: http://www.sec.gov.

Fourth Quarter 2019 Consolidated Results

Revenues in the fourth quarter of 2019 were $4,468 million, an increase of 1%, or 2% in local currency terms, compared to the fourth quarter of 2018, mainly due to an increase in sales of AUSTEDO, AJOVY and certain respiratory products, partially offset by lower revenues from COPAXONE in North America.

Exchange rate differences between the fourth quarter of 2019 and the fourth quarter of 2018 negatively impacted our revenues and GAAP operating income by $47 million and $27 million, respectively. Our non-GAAP operating income was negatively impacted by $29 million.

GAAP gross profit was $1,958 million in the fourth quarter of 2019, a decrease of 1% compared to the fourth quarter of 2018. GAAP gross profit margin was 43.8% in the fourth quarter of 2019, compared to 44.6% in the fourth quarter of 2018. Non-GAAP gross profit was $2,262 million in the fourth quarter of 2019, a decrease of 3% compared to the fourth quarter of 2018. Non-GAAP gross profit margin was 50.6% in the fourth quarter of 2019, compared to 52.7% in the fourth quarter of 2018. The decrease in non-GAAP gross profit margin in the fourth quarter of 2019 resulted primarily from a decline in revenues from COPAXONE.

GAAP Research and Development (R&D) expenses in the fourth quarter of 2019 were $232 million, a decrease of 21% compared to the fourth quarter of 2018. Non-GAAP R&D expenses were $237 million, or 5.3% of quarterly revenues, in the fourth quarter of 2019, compared to $289 million, or 6.5% of quarterly revenues, in the fourth quarter of 2018. The decrease in R&D expenses in the fourth quarter of 2019 resulted primarily from pipeline optimization and efficiencies realized as part of our restructuring plan.

GAAP Selling and Marketing (S&M) expenses in the fourth quarter of 2019 were $706 million, a decrease of 11% compared to the fourth quarter of 2018. Non-GAAP S&M expenses were $665 million, or 14.9% of quarterly revenues in the fourth quarter of 2019, compared to $768 million, or 17.4% of quarterly revenues in the fourth quarter of 2018. The decrease in S&M expenses in 2019 was mainly due to cost reduction and efficiency measures as part of the restructuring plan.

GAAP General and Administrative (G&A) expenses in the fourth quarter of 2019 were $318 million, a decrease of 7% compared to the fourth quarter of 2018. Non-GAAP G&A expenses were $309 million in the fourth quarter of 2019, or 6.9% of quarterly revenues in the fourth quarter of 2019, compared to $330 million, or 7.5% of quarterly revenues in the fourth quarter of 2018. The decrease was mainly due to cost reduction and efficiency measures as part of the restructuring plan.

GAAP other income in the fourth quarter of 2019 was $47 million, compared to other loss of $43 million in the fourth quarter of 2018. Non-GAAP other income in the fourth quarter of 2019 was $9 million, compared to $5 million in fourth quarter of 2018.

GAAP operating income in the fourth quarter of 2019 was $148 million, compared to a loss of $3,164 million in the fourth quarter of 2018. Non-GAAP operating income in the fourth quarter of 2019 was $1,061 million, an increase of 12% compared to the fourth quarter of 2018. Non-GAAP operating margin was 23.8% in the fourth quarter of 2019 compared to 21.4% in the fourth quarter of 2018.

EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,204 million in the fourth quarter of 2019, an increase of 10% compared to $1,091 million in the fourth quarter of 2018.

GAAP financial expenses for the fourth quarter of 2019 were $186, compared to $223 million in the fourth quarter of 2018. Non-GAAP financial expenses were $198 million in the fourth quarter of 2019, compared to $216 million in the fourth quarter of 2018.

In the fourth quarter of 2019, we recognized a GAAP tax benefit of $119 million on a pre-tax GAAP loss of $38 million. In the fourth quarter of 2018, we recognized a GAAP tax benefit of $139 million on a pre-tax GAAP loss of $3,387 million. Non-GAAP income taxes for the fourth quarter of 2019 were $155 million, or 18%, on pre-tax non-GAAP income of $863 million. Non-GAAP income taxes in the fourth quarter of 2018 were $96 million, or 13%, on pre-tax non-GAAP income of $730 million.

GAAP net income attributable to ordinary shareholders and GAAP diluted earnings per share in the fourth quarter of 2019 were $110 million and $0.10, respectively, compared to GAAP net loss attributable to ordinary shareholders and GAAP diluted loss per share of $2,940 million and $2.85, respectively, in the fourth quarter of 2018. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the fourth quarter of 2019 were $683 million and $0.62, respectively, compared to $543 million and $0.53, respectively, in the fourth quarter of 2018.

For the fourth quarter of 2019, the weighted average outstanding shares for the fully diluted EPS calculation on a GAAP basis was 1,094 million shares, compared to 1,031 million shares in the fourth quarter of 2018. The weighted average outstanding shares for the fully diluted EPS calculation on a non-GAAP basis was 1,094 million shares in the fourth quarter of 2019, compared to 1,034 million shares in the fourth quarter of 2018.

Non-GAAP information: Net non-GAAP adjustments in the fourth quarter of 2019 were $573 million. Non-GAAP net income and non-GAAP EPS for the fourth quarter were adjusted to exclude the following items:

  • An impairment of intangible and fixed assets of $477 million mainly related to the acquisition of Actavis Generics;
  • Amortization of purchased intangible assets totaling $290 million, of which $256 million is included in cost of goods sold and the remaining $34 million in selling and marketing expenses;
  • Restructuring expenses of $59 million;
  • Contingent consideration of $55 million;
  • Equity compensation expenses of $19 million;
  • Other non-GAAP items of $1 million;
  • Minority interest adjustment of $54 million; and
  • Related tax effect of $274 million.

Teva believes that excluding such items facilitates investors’ understanding of its business. See the attached tables for a reconciliation of the GAAP results to the adjusted non-GAAP figures. Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.

Cash flow generated from operations during the fourth quarter of 2019 was $538 million, compared to $367 million in the fourth quarter of 2018. The increase was mainly due to active management of inventory levels.

Free cash flow (Cash flow generated from operating activities, net of cash used for capital investments and beneficial interest collected in exchange for securitized trade receivables) was $974 million in the fourth quarter of 2019, compared to $522 million in the fourth quarter of 2018. The increase in 2019 resulted mainly from the higher cash flow generated from operating activities and sell of real-estate assets.

Segment Results for the Fourth Quarter of 2019

North America Segment

Our North America segment includes the United States and Canada.

The following table presents revenues, expenses and profit for our North America segment for the three months ended December 31, 2019 and 2018:

 

 

 

 

 

Three months ended December 31,

 

 

2019

 

 2018

 

 

(U.S. $ in millions / % of Segment Revenues)

Revenues             

 

$

2,373

 

 

100%

 

$

2,238

 

 

100.0%

Gross profit          

 

 

1,196

 

 

50.4%

 

 

1,201

 

 

53.7%

R&D expenses     

 

 

155

 

 

6.5%

 

 

185

 

 

8.3%

S&M expenses    

 

 

265

 

 

11.2%

 

 

341

 

 

15.2%

G&A expenses     

 

 

97

 

 

4.1%

 

 

127

 

 

5.7%

Other (income) expense   

 

 

(7

)

 

§

 

 

(3

)

 

§

Segment profit*  

 

$

686

 

 

28.9%

 

$

551

 

 

24.6%

 

 

 

 

 

 

 

 

 

 

 

* Segment profit does not include amortization and certain other items.

§ Represents an amount less than 0.5%.

Revenues from our North America segment in the fourth quarter of 2019 were $2,373 million, an increase of $135 million, or 6%, compared to the fourth quarter of 2018, mainly due to the launch of TRUXIMA (a biosimilar to Rituxan®), higher revenues from respiratory products, AUSTEDO and Anda, partially offset by lower revenues from COPAXONE.

Revenues in the United States, our largest market, were $2,218 million in the fourth quarter of 2019, an increase of $116 million, or 6%, compared to the fourth quarter of 2018.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended December 31, 2019 and 2018:

North America

 

Three months ended

December 31,

 

Percentage

Change 

 

 

2019

 

2018

 

2019-2018

 

 

(U.S. $ in millions)

 

 

 

 

 

 

 

 

 

 

 

Generic products

 

$

1,137

 

$

1,099

 

3%

COPAXONE           

 

 

264

 

 

356

 

(26%)

BENDEKA/TREANDA            

 

 

125

 

 

140

 

(11%)

ProAir* 

 

 

80

 

 

45

 

77%

QVAR     

 

 

67

 

 

9

 

604%

AJOVY    

 

 

25

 

 

3

 

NA

AUSTEDO              

 

 

136

 

 

68

 

98%

Anda      

 

 

412

 

 

363

 

13%

Other    

 

 

128

 

 

153

 

(16%)

Total      

 

$

2,373

 

$

2,238

 

6%

_________

 

 

 

 

 

 

 

 

* Does not include revenues from the ProAir authorized generic, which are included under generic products.

Generic products revenues in our North America segment in the fourth quarter of 2019 increased by 3% to $1,137 million, compared to the fourth quarter of 2018, mainly due to new generic product launches, including the launch of TRUXIMA in November 2019, partially offset by price and volume erosion due to additional competition to our product portfolio.

In the fourth quarter of 2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately 388 million total prescriptions (based on trailing twelve months), representing 10.5% of total U.S. generic prescriptions according to IQVIA data.

COPAXONE revenues in our North America segment in the fourth quarter of 2019 decreased by 26% to $264 million, compared to the fourth quarter of 2018, mainly due to generic competition in the United States.

BENDEKA and TREANDA combined revenues in our North America segment in the fourth quarter of 2019 decreased by 11% to $125 million, compared to the fourth quarter of 2018, mainly due to lower volumes resulting from Eagle Pharmaceuticals, Inc.

Contacts

IR Contacts
United States
Kevin C. Mannix

(215) 591-8912

Israel
Ran Meir

972 (3) 926-7516

PR Contacts
United States
Kelley Dougherty

(973) 832-2810

Israel
Yonatan Beker

972 (54) 888 5898

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