Results include the generic business of
Actavis, since August 2; Provides updated outlook for 2016.
Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) today reported
results for the quarter ended September 30, 2016.
Q3 2016
Revenues $5.6 billion Cash flow from operations $1.5 billion GAAP
EPS $0.35 984 million shares Non-GAAP EPS $1.31 1,044 million
shares
“This has been a year of transition for Teva, underscored this
quarter by the close of our strategic acquisition of Actavis
Generics, which had significant contribution to our results.
Actavis will continue to contribute in a meaningful way to the
future growth of our generics business through the strengthened
R&D capabilities and complementary pipeline and portfolio, and
enhance our leadership in an increasingly evolving industry,”
stated Erez Vigodman, Teva’s President and CEO. “We were also
pleased to report this quarter that we have successfully completed
the second pivotal phase three study for SD-809 for tardive
dyskinesia and plan to submit that NDA to the U.S. FDA at the end
of this year, and have also resubmitted SD-809 for Huntington
disease in response to the FDA's Complete Response Letter. Going
forward, we will focus on also growing our specialty pipeline
through in-house opportunities, including in the development and
commercialization of our key pipeline assets, most notably our
anti-CGRP product for migraine headaches and fasinumab. In the
face of the industry and company-specific challenges we have been
dealing with this year, we remain excited about the future as we
strive to create a platform that is unique to the industry, working
every day to find the delicate balance between access and
innovation and laying the foundation for Teva's continued
growth.”
Third Quarter 2016
Results
Revenues in the third quarter of 2016 were $5.6 billion,
up 15% compared to the third quarter of 2015, primarily due to the
inclusion of revenues of $887 million of the Actavis generics
business, following the closing of the acquisition on August 2.
Excluding the impact of foreign exchange fluctuations, revenues
increased 19%.
Exchange rate differences between the third quarter of
2016 and the third quarter of 2015 reduced revenues by $188
million, GAAP operating income by $83 million and non-GAAP
operating income by $65 million.
GAAP gross profit was $2.8 billion in the third quarter
of 2016, up 1% compared to the third quarter of 2015. GAAP gross
profit margin was 50.4% in the quarter, compared to 57.5% in
the third quarter of 2015. Non-GAAP gross profit was $3.4
billion in the third quarter of 2016, up 14% from the third quarter
of 2015. Non-GAAP gross profit margin was 61.0% in the third
quarter of 2016, compared to 61.8% in the third quarter of
2015.
Research and Development (R&D) expenses for the third
quarter of 2016 amounted to $663 million, an increase of 84%
compared to the third quarter of 2015 mainly due to $250 million
paid to Regeneron pursuant to our collaborative agreement to
develop and commercialize its pain medication product fasinumab.
R&D expenses excluding equity compensation expenses and
purchase of in-process R&D in the third quarter of 2016 were
$406 million, compared to $356 million in the third quarter of
2015. R&D expenses were 7.3% of revenues in the quarter,
compared to 7.4% in the third quarter of 2015. R&D expenses
related to our generic medicines segment were $184 million,
compared to $132 million in the third quarter of 2015, an increase
of 39%, mainly due to the inclusion of two months of expenses of
the Actavis generics business. R&D expenses related to our
specialty medicines segment were $228 million, an increase of 4%
compared to $220 million in the third quarter of 2015.
Selling and Marketing (S&M) expenses in the third
quarter of 2016 amounted to $940 million, an increase of 21%
compared to the third quarter of 2015. S&M expenses excluding
amortization of purchased intangible assets and equity compensation
expenses were $889 million, or 16.0% of revenues, in the third
quarter of 2016, compared to $766 million, or 15.9% of revenues, in
the third quarter of 2015. S&M expenses related to our generic
medicines segment were $415 million, an increase of 41% compared to
$295 million in the third quarter of 2015, or 51% in local currency
terms. The increase was mainly due to additional costs related to
the inclusion of two months of expenses of the Actavis generics
business and the launch of our business venture in Japan in the
second quarter of 2016. S&M expenses related to our specialty
medicines segment were $458 million, an increase of 10% compared to
$417 million in the third quarter of 2015. The increase was mainly
due to higher investments in new launches in the third quarter of
2016 and lower S&M activities in the third quarter of 2015.
General and Administrative (G&A) expenses in the
third quarter of 2016 amounted to $310 million, compared to $316
million in the third quarter of 2015. G&A expenses excluding
equity compensation expenses were $304 million in the third quarter
of 2016, or 5.5% of revenues, compared to $307 million and 6.4% in
the third quarter of 2015.
In light of advanced discussions with the U.S. Department of
Justice and the U.S. Securities and Exchange Commission to settle
our previously-disclosed FCPA investigations, we are establishing a
provision of approximately $520 million. The provision relates to
conduct in three countries, Russia, Mexico and Ukraine, during the
time period covering 2007-2013. None of the conduct in question
involved Teva's U.S. business.
Upon learning of FCPA concerns in 2012, Teva accelerated
the pace of changes to address these issues by completely
transforming its governance program and processes on every level.
This resulted in actions including, terminating problematic
business relationships with third parties, separating relevant
employees from the company, fully overhauling the management of
several subsidiaries, and ceasing operations in several countries.
The company has also restructured through a new global
organizational structure and chain of command that reduces
risks.
The compliance program that Teva has in place now is serious,
rigorous, and comprehensive and is designed to protect the company
and its subsidiaries against future violations. Today, Teva has a
culture of compliance that begins with a strong tone at the top --
including executive regional and local management -- and underpins
every single business decision.
Quarterly GAAP operating income was $0.8 billion in the
third quarter of 2016, down 24% compared to $1.0 billion in the
third quarter of 2015. Quarterly non-GAAP operating income
was $1.8 billion, up 16%, compared to $1.6 billion in the third
quarter of 2015.
Adjusted EBITDA (non-GAAP operating income, which
excludes amortization and certain other items, and excluding
depreciation expenses) was $1.9 billion, up 16% compared to $1.7
billion in the third quarter of 2015.
GAAP financial expenses for the third quarter of 2016
were $150 million, compared to $697 million in the third quarter of
2015. Expenses in the third quarter of 2015 were mainly the result
of a $623 million loss on our shares of Mylan, reflecting the price
of Mylan’s shares as of September 30, 2015, while expenses in the
current quarter were affected by the borrowings used to finance the
acquisition of the Actavis generics business. Non-GAAP financial
expenses were $151 million in the third quarter of 2016,
compared to $65 million in the third quarter of 2015.
GAAP income tax expenses for the third quarter of 2016
were $207 million, or 34% on pre-tax income of $615 million. In the
third quarter of 2015, the provision for income taxes was $193
million, or 62% on pre-tax income of $313 million. The provision
for non-GAAP income taxes for the third quarter of 2016 was
$261 million on pre-tax non-GAAP income of $1.6 billion, for a
quarterly tax rate of 16%. The provision for non-GAAP income taxes
in the third quarter of 2015 was $319 million on pre-tax non-GAAP
income of $1.5 billion, for a quarterly tax rate of 21%.
We expect our annual non-GAAP tax rate for 2016 to be 18%,
mainly due to synergies associated with the acquisition of the
Actavis generics business and nonrecurring tax benefits in
jurisdictions with higher tax rates.
GAAP net income attributable to Teva and GAAP diluted
EPS were $412 million and $0.35, respectively, in the third
quarter of 2016, compared to $103 million and $0.12, respectively,
in the third quarter of 2015. Non-GAAP net income
attributable to ordinary shareholders for calculating diluted EPS
and non-GAAP diluted EPS were $1.4 billion and $1.31,
respectively, in the third quarter of 2016, compared to $1.2
billion and $1.35 in the third quarter of 2015.
For the third quarter of 2016, the weighted average
outstanding shares for the fully diluted earnings per share
calculation was 984 million on a GAAP basis and 1,044 million on a
non-GAAP basis. The number of average weighted diluted shares
outstanding used for the fully diluted share calculation for the
third quarter of 2015 was 862 million shares, on both a GAAP and
non-GAAP basis. The increase in the number of shares resulted from
our December 2015 equity offerings and from the issuance of shares
to Allergan in August 2016 in connection with the closing of the
Actavis acquisition. The number of shares on a non-GAAP basis
includes the potential dilution resulting from our mandatory
convertible preferred shares, which had a dilutive effect on our
non-GAAP earnings per share.
As of September 30, 2016, the fully diluted share count for
calculating Teva's market capitalization was approximately 1,088
million shares.
Non-GAAP information: Net non-GAAP adjustments in the
third quarter of 2016 were $952 million. Non-GAAP net income and
non-GAAP EPS for the quarter were adjusted to exclude the following
items:
- Legal settlements and loss
contingencies of $533 million, primarily a provision of
approximately $520 million relating to the previously-mentioned
FCPA investigations;
- Amortization of purchased intangible
assets totaling $429 million, of which $387 million is included in
cost of goods sold and the remaining $42 million in selling and
marketing expenses. This includes amortization expenses of $237
million related to Actavis' intangible assets;
- Acquisition and related expenses,
including contingent consideration, of $371 million, including $250
million paid to Regeneron pursuant to our collaborative agreement
to develop and commercialize its pain medication product fasinumab
and a contingent consideration expense of $43 million related to
Bendeka™ as well as expenses related to the Actavis generics
acquisition;
- Inventory step-up of $152 million,
related mainly to the acquisition of the Actavis generics
business;
- Restructuring expenses of $115 million,
related mainly to the acquisition of the Actavis generics
business;
- Costs related to regulatory actions
taken in facilities of $46 million;
- Equity compensation expense of $31
million;
- Impairment of long-lived assets of $29
million;
- Net gain from other non-GAAP items of
$678 million, including a net gain of $693 million from the
divestments of products in connection with the acquisition of the
Actavis generics business;
- Minority interest adjustment of
negative $22 million; and
- Corresponding tax benefit of $54
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.
Cash flow from operations generated during the third
quarter of 2016 was $1.5 billion, an increase of 34% compared to
the third quarter of 2015. The increase was mainly due to lower
payments for legal settlements, partially offset by an increase in
accounts receivable, net of SR&A, and an increase in
inventories. Cash flow was affected by the inclusion of two months
of the generic business of Actavis. Free cash flow, excluding net
capital expenditures, was $1.2 billion, up 27% compared to the
third quarter of 2015.
Total balance sheet assets were $98.7 billion as of
September 30, 2016, compared to $57.9 billion as of June 30, 2016.
The increase was mainly due to an increase of $19.7 billion of
goodwill and an increase of other intangible assets of $20.3
billion, both related mainly to the Actavis acquisition.
Cash and investments at September 30, 2016 decreased to
$2.7 billion, compared to $8.2 billion at June 30, 2016.
As of September 30, 2016, our debt was $36.9 billion, an
increase of $26.0 billion compared to $10.9 billion as of June 30,
2016. The increase was mainly due to the $20.4 billion of debt
issuances and the $5.0 billion term loans borrowed to finance the
Actavis acquisition. The portion of total debt classified as
short-term as of September 30, 2016 was 10%.
Total shareholders’ equity was $37.0 billion at September
30, 2016, compared to $32.0 billion at June 30, 2016.
Segment Results for the Third Quarter
2016
Generic Medicines Segment
Three Months Ended September 30, 2016
2015 U.S.$ in millions / % of Segment Revenues
Revenues $ 2,904 100.0% $ 2,202 100.0% Gross profit
1,466 50.5% 1,005 45.6% R&D expenses 184 6.3% 132 6.0% S&M
expenses 415 14.3% 295 13.4% Segment profit* $ 867 29.9% $ 578
26.2%
* 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, inventory step-up
and certain other items.
Generic Medicines Revenues
Generic medicines revenues in the third quarter of 2016 were
$2.9 billion, an increase of 32% compared to the third quarter of
2015, reflecting the results of operations of the Actavis generics
business from August 2, 2016. In local currency terms, revenues
increased 35%.
Generic revenues consisted of:
- U.S. revenues of $1.3 billion, an
increase of 25% compared to the third quarter of 2015, mainly due
to the inclusion the generic business of Actavis with revenues of
$538 million.
- European revenues of $829 million, an
increase of 25%, or 31% in local currency terms, compared to the
third quarter of 2015, mainly due to the inclusion the generic
business of Actavis with revenues of $224 million.
- ROW revenues of $782 million, an
increase of 54%, or 60% in local currency terms, compared to the
third quarter of 2015. The increase in local currency terms was
mainly due to the results of our business venture with Takeda in
Japan which commenced operations in April 2016 and $93 million in
revenues from Actavis.
- API sales to third parties of $191
million (which is included in the market revenues above), a
decrease of 7%, compared to the third quarter of 2015, due to lower
revenues in both Europe and the United States.
Generic medicines revenues comprised 52% of our total revenues
in the quarter, compared to 46% in the third quarter of 2015.
Generic Medicines Gross Profit
Gross profit from our generic medicines segment in the third
quarter of 2016 was $1.5 billion, an increase of 46% compared to
the third quarter of 2015. The higher gross profit was mainly a
result of the first time inclusion of the generic business of
Actavis and our business venture with Takeda in Japan and higher
gross profit of our API business as well as lower expenses related
to production.
Gross profit margin for our generic medicines segment in the
third quarter of 2016 increased to 50.5%, from 45.6% in the third
quarter of 2015.
Generic Medicines Profit
Our generic medicines segment generated profit of $867 million
in the third quarter of 2016, an increase of 50% compared to the
third quarter of 2015. Generic medicines profitability as a
percentage of generic medicines revenues was 29.9% in the third
quarter of 2016, up from 26.2% in the third quarter of 2015.
Specialty Medicines Segment
Three Months Ended September 30, 2016
2015 U.S.$ in millions / % of Segment Revenues
Revenues $ 2,048 100.0% $ 2,178 100.0% Gross profit
1,783 87.1% 1,859 85.4% R&D expenses 228 11.1% 220 10.1%
S&M expenses 458 22.4% 417 19.1% Segment profit* $ 1,097 53.6%
$ 1,222 56.1%
* 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, inventory step-up
and certain other items.
Specialty Medicines Revenues
Specialty medicines revenues in the third quarter of 2016 were
$2.0 billion, a decrease of 6% compared to the third quarter of
2015. U.S. specialty medicines revenues were $1.6 billion, down 8%
compared to the third quarter of 2015. European specialty medicines
revenues were $406 million, an increase of 10%, or 12% in local
currency terms, compared to the third quarter of 2015. ROW
specialty revenues were $84 million, down 22%, or 20% in local
currency terms, compared to the third quarter of 2015.
Specialty medicines revenues comprised 37% of our total revenues
in the quarter, compared to 45% in the third quarter of 2015.
The decrease in specialty medicines revenues compared to the
third quarter of 2015 was primarily due to lower revenues in all
our core 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, 2016 and 2015:
Three Months Ended September
30,
PercentageChange
2016 2015 2016 - 2015 U.S. $ in
millions CNS $ 1,302 $ 1,366 (5%) Copaxone® 1,061 1,085 (2%)
Azilect® 101 92 10% Nuvigil® 21 97 (78%) Respiratory 270 285 (5%)
ProAir® 118 149 (21%) QVAR® 96 92 4% Oncology 269 326 (17%)
Treanda® and Bendeka™ 149 207 (28%) Women's Health 109 115 (5%)
Other Specialty 98 86 14%
Total Specialty
Medicines $ 2,048 $ 2,178
(6%)
Global revenues of Copaxone® (20 mg/mL and 40
mg/mL), the leading multiple sclerosis therapy in the U.S. and
globally, were $1.1 billion, a decrease of 2% compared to the third
quarter of 2015.
Copaxone® revenues in the United States, were $874 million, flat
compared to the third quarter of 2015, as a price increase of 7.9%
in January 2016 was offset by a decrease in volume for Copaxone® 20
mg/mL. At the end of the third quarter of 2016, according to
September 2016 IMS data, our U.S. market shares for the Copaxone®
products in terms of new and total prescriptions were 27.0% and
29.2%, respectively. Copaxone® 40 mg/mL accounted for over 83% of
total Copaxone® prescriptions in the U.S.
Copaxone® revenues outside the United States were $187 million,
a decrease of 10%, or 8% in local currency terms, compared to the
third quarter of 2015 mainly due to loss of tender orders in
Russia, partially offset by an increase in volumes in Europe.
Our global Azilect® revenues were $101 million, an
increase of 10% compared to the third quarter of 2015. Global
in-market sales decreased 22% due to generic competition in certain
European markets.
Revenues of our respiratory products were $270 million,
down 5% compared to the third quarter of 2015.
ProAir® revenues in the quarter were $118 million,
down 21% compared to the third quarter of 2015, due to lower
volumes related to changes in insurers’ preferred medicines lists.
QVAR® global revenues were $96 million in the third
quarter of 2016, up 4% compared to the third quarter of 2015,
mainly due to higher volumes sold.
Revenues of our oncology products were $269 million in
the third quarter of 2016, down 17% compared to the third quarter
of 2015. Revenues of Treanda® and Bendeka™ were $149
million, down 28% compared to the third quarter of 2015, mainly due
to lower volumes from normalization of channel inventory following
the transition from Treanda® to BendekaTM in the first half of 2016
and competition from other therapies.
Specialty Medicines Gross Profit
Gross profit from our specialty medicines segment was $1.8
billion, down $76 million compared to the third quarter of 2015.
Gross profit margin for our specialty medicines segment in the
third quarter of 2016 was 87.1%, compared to 85.4% in the third
quarter of 2015.
Specialty Medicines Profit
Our specialty medicines segment profit was $1.1 billion in the
third quarter of 2016, down 10% compared to the third quarter of
2015, due to lower gross profit as well as increases in S&M and
R&D expenses.
Specialty medicines profit as a percentage of segment revenues
was 53.6% in the third quarter of 2016, down from 56.1% in the
third quarter of 2015.
The following tables present details of our multiple sclerosis
franchise and of our other specialty medicines for the three months
ended September 30, 2016 and 2015:
Multiple Sclerosis Three months ended
September 30, 2016 2015 U.S.$ in
millions / % of MS Revenues Revenues $ 1,061
100.0% $ 1,085 100.0% Gross profit 982 92.6% 980 90.3% R&D
expenses 20 1.9% 16 1.5% S&M expenses 76 7.2%
88 8.1% MS profit $ 886 83.5% $ 876
80.7%
Other Specialty
Three months ended September 30, 2016 2015
U.S.$ in millions / % of Other Specialty Revenues
Revenues $ 987 100.0% $ 1,093 100.0% Gross profit 801 81.2%
879 80.4% R&D expenses 208 21.1% 204 18.7% S&M expenses
382 38.7% 329 30.1% Other Specialty
profit $ 211 21.4% $ 346 31.7%
Other Activities
Our OTC revenues related to PGT were $356 million, an
increase of 40% compared to $255 million in the third quarter of
2015. In local currency terms, revenues increased 83%, mainly due
to inflation in Venezuela. PGT’s in-market sales were $496 million
in the third quarter of 2016, an increase of $115 million compared
to the third quarter of 2015.
Other revenues were $255 million in the third quarter of
2016, mostly from the distribution of third-party products in
Israel and Hungary, as well as from the contract manufacturing of
products which were required to be divested in connection with the
acquisition of Actavis, compared to revenues of $188 million in the
third quarter of 2015. The increase was mainly due to revenues from
contract manufacturing services of $32 million, as noted above, as
well as to higher revenues from distribution in Israel.
Financial Outlook
- We expect revenues for full year 2016
to be $21.6-$21.9 billion; we expect revenues for the fourth
quarter of year 2016 to be $6.2-$6.5.
- Non-GAAP EPS for 2016 is expected to be
$5.10-$5.20, based on a weighted average number of shares of 1,020
million; non-GAAP EPS for the fourth quarter of 2016 is expected to
be $1.34-$1.44, based on a weighted average number of shares of
1,077 million.
- Cash flow from operating activities for
2016 is expected to be $4.8-$5.0 billion; cash flow from operating
activities for the fourth quarter of 2016 is expected to be
$1.0-$1.2 billion.
These estimates reflect management`s current expectations for
Teva's performance in 2016. Actual results may vary, whether as a
result of exchange rate differences, market conditions or other
factors. In addition, the non-GAAP figures 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 November 14, 2016, the Board of Directors declared a cash
dividend of $0.34 per ordinary share for the third quarter of 2016.
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 15,
2016. The record date will be December 5, 2016, and the payment
date will be December 20, 2016. Tax will be withheld at a rate of
15%.
On November 14, 2016, the Board of Directors also declared a
cash dividend of $17.50 per Mandatory Convertible Preferred Share
for the third quarter of 2016. The record date will be December 1,
2016, and the payment date will be December 15, 2016. 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 Tuesday, November 15, 2016 at 8:00 a.m. ET.
to discuss its third quarter 2016 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
1-866-966-1396; Canada 1-866-992-6802 or International +44(0) 2071
928000; passcode: 1843189. 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 December 15, 2016, 9:00 a.m. ET
by calling United States 1-866-247-4222; Canada 1-866-878-9237 or
International +44(0) 1452 550000; passcode: 1843189.
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 millions of patients
every day. Headquartered in Israel, Teva is the world’s largest
generic medicines producer, leveraging its portfolio of more than
1,000 molecules to produce a wide range of generic products in
nearly every therapeutic area. In specialty medicines, Teva has a
world-leading position in innovative treatments for disorders of
the central nervous system, including pain, as well as a strong
portfolio of respiratory products. Teva integrates its generics and
specialty capabilities in its global research and development
division to create new ways of addressing unmet patient needs by
combining drug development capabilities with devices, services and
technologies. Teva's net revenues in 2015 were $19.7 billion. For
more information, visit www.tevapharm.com.
Teva's Safe Harbor Statement under the U. S. Private
Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements, which
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 develop and commercialize
additional pharmaceutical products; competition for our specialty
products, especially Copaxone® (which faces competition from
orally-administered alternatives and existing and potential generic
versions); our ability to integrate Allergan plc’s worldwide
generic pharmaceuticals business (“Actavis Generics”) and to
realize the anticipated benefits of the acquisition (and the timing
of realizing such benefits); the fact that following the
consummation of the Actavis Generics acquisition, we are dependent
to a much larger extent than previously on our generic
pharmaceutical business; potential restrictions on our ability to
engage in additional transactions or incur additional indebtedness
as a result of the substantial amount of debt incurred to finance
the Actavis Generics acquisition; the fact that for a period of
time following the Actavis Generics acquisition, we will have
significantly less cash on hand than previously, which could
adversely affect our ability to grow; the possibility of material
fines, penalties and other sanctions and other adverse consequences
arising out of our ongoing FCPA investigations and related matters;
our ability to achieve expected results from investments in our
pipeline of specialty and other products; our ability to identify
and successfully bid for suitable acquisition targets or licensing
opportunities, or to consummate and integrate acquisitions; the
extent to which any manufacturing or quality control problems
damage our reputation for quality production and require costly
remediation; increased government scrutiny in both the U.S. and
Europe of our patent settlement agreements; our exposure to
currency fluctuations and restrictions as well as credit risks; the
effectiveness of our patents, confidentiality agreements and other
measures to protect the intellectual property rights of our
specialty medicines; the effects of reforms in healthcare
regulation and pharmaceutical pricing, reimbursement and coverage;
competition for our generic products, both from other
pharmaceutical companies and as a result of increased governmental
pricing pressures; governmental investigations into sales and
marketing practices, particularly for our specialty pharmaceutical
products; adverse effects of political or economic instability,
major hostilities or acts of terrorism on our significant worldwide
operations; interruptions in our supply chain or problems with
internal or third-party information technology systems that
adversely affect our complex manufacturing processes; significant
disruptions of our information technology systems or breaches of
our data security; competition for our specialty pharmaceutical
businesses from companies with greater resources and capabilities;
the impact of continuing consolidation of our distributors and
customers; decreased opportunities to obtain U.S. market
exclusivity for significant new generic products; potential
liability in the U.S., Europe and other markets for sales of
generic products prior to a final resolution of outstanding patent
litigation; our potential exposure to product liability claims that
are not covered by insurance; any failure to recruit or retain key
personnel, or to attract additional executive and managerial
talent; any failures to comply with complex Medicare and Medicaid
reporting and payment obligations; significant impairment charges
relating to intangible assets, goodwill and property, plant and
equipment; the effects of increased leverage and our resulting
reliance on access to the capital markets; potentially significant
increases in tax liabilities; 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; variations in
patent laws that may adversely affect our ability to manufacture
our products in the most efficient manner; environmental risks; and
other factors that are discussed in our Annual Report on Form 20-F
for the year ended December 31, 2015 and in our other filings with
the U.S. Securities and Exchange Commission (the "SEC").
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 advised, however, to consult any additional disclosures we
make in our reports to the SEC on Form 6-K. Also note that we
provide a cautionary discussion of risks and uncertainties under
“Risk Factors” in our Annual Report on Form 20-F for the year ended
December 31, 2015. These are factors that we believe could cause
our actual results to differ materially from expected results.
Other factors besides those listed could also adversely affect us.
This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
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,
2016 2015 2016 2015 Net revenues
5,563 4,823 15,411 14,771
Cost of sales 2,762 2,052 6,942
6,262
Gross profit 2,801 2,771 8,469 8,509
Research and
development expenses 663 361 1,427 1,079
Selling and
marketing expenses 940 780 2,731 2,562
General and
administrative expenses 310 316 925 948
Impairments,
restructuring and others (410) 384 421 968
Legal settlements
and loss contingencies 533 (80) 674 531
Operating income
765 1,010 2,291 2,421
Financial expenses – net 150 697 553
930
Income before income taxes 615 313 1,738 1,491
Income
taxes 207 193 464 385
Share in (profits) losses of
associated companies – net (2) 4 (11) 7
Net income 410
116 1,285 1,099
Net income (loss) attributable to
non-controlling interests (2) 13 (17) 11
Net income
attributable to Teva 412 103 1,302 1,088
Dividends on
preferred shares 64 - 196 -
Net income attributable to
ordinary shareholders 348 103 1,106 1,088
Earnings per share attributable to ordinary
shareholders: Basic ($) 0.35 0.12 1.18 1.28
Diluted
($) 0.35 0.12 1.17 1.26
Weighted average number of shares
(in millions): Basic 979 851 935 851
Diluted 984
862 942 860
Non-GAAP net income attributable to ordinary shareholders:*
1,300 1,165 3,568 3,560
Non-GAAP net income attributable to
ordinary shareholders for diluted earnings per share:** 1,364
1,165 3,764 3,560
Non-GAAP earnings per share
attributable to ordinary shareholders:* Basic ($) 1.33
1.37 3.81 4.18
Diluted ($)** 1.31 1.35 3.76 4.14
Non-GAAP average number of shares (in millions):
Basic 979 851 935 851
Diluted 1,044 862 1,001 860
* See reconciliation attached.
**Dividends on the mandatory convertible preferred shares of
$196 and $64 million for the nine and 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,
2016 2015 ASSETS Current assets: Cash
and cash equivalents 1,557 6,946 Accounts receivable 8,071 5,350
Inventories 5,349 3,966 Deferred income taxes - 735 Assets held for
sale 1,057 - Other current assets 1,352 1,401
Total current
assets 17,386 18,398
Deferred income taxes 1,065 250
Other non-current assets 2,064 2,341
Property, plant and
equipment, net 8,379 6,544
Identifiable intangible assets,
net 29,557 7,675
Goodwill 40,296 19,025
Total
assets 98,747 54,233
LIABILITIES AND EQUITY
Current liabilities: Short-term debt 3,676 1,585 Sales
reserves and allowances 7,797 6,601 Accounts payable and accruals
4,953 3,594 Liabilities held for sale 327 - Other current
liabilities 2,533 1,225
Total current liabilities 19,286
13,005
Long-term liabilities: Deferred income
taxes 7,862 1,748 Other taxes and long-term liabilities 1,392 1,195
Senior notes and loans 33,179 8,358
Total long-term
liabilities 42,433 11,301
Equity: Teva shareholders’
equity 35,129 29,769 Non-controlling interests 1,899 158
Total
equity 37,028 29,927
Total liabilities and equity 98,747
54,233
Condensed
Consolidated Cash Flow
(Unaudited, U.S.
Dollars in millions)
Three months ended
Nine months ended
September 30,
September 30,
2016 2015 2016 2015 Operating
activities: Net income 410 116 1,285 1,099
Net change
in operating assets and liabilities 1,047 (463) 1,100 703
Items not involving cash flow 4 1,440 1,415 2,125
Net cash provided by operating
activities 1,461 1,093 3,800 3,927
Net cash used in
investing activities (32,301) (136) (34,943) (5,272)
Net cash provided by (used in) financing activities 25,372
(1,090) 25,918 90
Translation adjustment on cash and cash
equivalents 41 (7) (164) (43)
Net change in cash and cash equivalents (5,427) (140)
(5,389) (1,298)
Balance of cash and cash equivalents at
beginning of period 6,984 1,068 6,946 2,226
Balance of cash and cash equivalents at end of
period 1,557 928 1,557 928
Non GAAP
reconciliation items
(Unaudited, U.S.
Dollars in millions)
Three months ended
Nine months ended September 30, September 30,
2016 2015 2016 2015 Gain on sales of
business and long-lived assets (693) - (693) - Legal settlements
and loss contingencies 533 (80) 674 531 Amortization of purchased
intangible assets 429 203 811 637 Acquisition and related expenses
337 61 449 218 Inventory step-up 152 - 243 - Restructuring expenses
115 70 154 121 Costs related to regulatory actions taken in
facilities 46 9 123 28 Contingent consideration 34 67 85 329 Equity
compensation expenses 31 24 83 82 Impairment of long-lived assets
29 187 614 334 Other non-GAAP items 16 (1) 19 (8) Other write-offs
associated with the impairment of Zecuity® - - 53 - Financial
expense (income) (1) 632 344 775 Minority interest (22) 16 (65) 16
Corresponding tax benefit (54) (126) (432) (591)
Reconciliation
between net income attributable to ordinary shareholders and
earnings per share
as reported under
US GAAP to non-GAAP net income attributable to ordinary
shareholders and earnings per share
Three months ended September 30, 2016 Three months
ended September 30, 2015 U.S. dollars and shares in millions
(except per share amounts) GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
GAAP
Non-GAAPAdjustments
Non-GAAP
% of NetRevenues
Gross profit (1) 2,801 592 - 3,393 61% 2,771 208 2,979 62%
Operating income (1)(2) 765 1,029 - 1,794 32% 1,010 540 1,550 32%
Net income attributable to ordinary shareholders (1)(2)(3)(4) 348
952 64 1,364 25% 103 1,062 1,165 24% Earnings per share
attributable to ordinary shareholders - diluted (5) 0.35 0.96 -
1.31 0.12 1.23 1.35 (1) Amortization of purchased
intangible assets 387 196 Costs related to regulatory actions taken
in facilities 46 9 Equity compensation expenses 4 3 Other COGS
related adjustments 155 - Gross profit adjustments 592 208 Gross
profit adjustments (2) Legal settlements and loss
contingencies 533 (80) Contingent consideration 34 67 Acquisition
and related expenses 337 61 Equity compensation expenses 27 21
Restructuring expenses 115 70 Impairment of long-lived assets 29
187 Amortization of purchased intangible assets 42 7 Gain on sales
of business and long-lived assets (693) - Other operating related
adjustments 13 (1) 437 332 Operating income adjustments 1,029 540
(3) Financial expense (income) (1) 632 Tax effect (54) (126)
Minority interest (22) 16 Net income adjustments 952 1,062
(4) 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, as described in the following
footnote. (5) The non-GAAP weighted average number of shares
was 1,044 and 862 million for the three months ended September 30,
2016 and 2015, respectively. The non-GAAP weighted average number
of shares for the three months ended September 30, 2016 takes into
account the potential dilution of the mandatory convertible
preferred shares (amounting to 59 million weighted average shares),
which had a dilutive effect on non-GAAP earnings per share.
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.
Reconciliation
between net income attributable to ordinary shareholders and
earnings per share
as reported under
US GAAP to non-GAAP net income attributable to ordinary
shareholders and earnings per share
Nine months ended September 30, 2016 Nine
months ended September 30, 2015 U.S. dollars and shares in
millions (except per share amounts) GAAP
Non-GAAPAdjustments
Dividends
onPreferredShares
Non-GAAP
% of NetRevenues
GAAP
Non-GAAPAdjustments
Non-GAAP
% of NetRevenues
Gross profit (1) 8,469 1,090 - 9,559 62% 8,509 652 9,161 62%
Operating income (1)(2) 2,291 2,612 - 4,903 32% 2,421 2,272 4,693
32% Net income attributable to ordinary shareholders (1)(2)(3)(4)
1,106 2,462 196 3,764 24% 1,088 2,472 3,560 24% Earnings per share
attributable to ordinary shareholders - diluted (5) 1.17 2.59 3.76
1.26 2.88 4.14 (1) Amortization of purchased
intangible assets 711 614 Costs related to regulatory actions taken
in facilities 123 28 Equity compensation expenses 10 8 Other COGS
related adjustments 246 2 Gross profit adjustments 1,090 652
(2) Legal settlements and loss contingencies 674 531 Contingent
consideration 85 329 Acquisition and related expenses 446 218
Equity compensation expenses 73 74 Restructuring expenses 154 121
Impairment of long-lived assets 614 334 Amortization of purchased
intangible assets 100 23 Gain on sales of business and long-lived
assets (693) - Other operating related expenses (income) 69 (10)
1,522 1,620 Operating income adjustments 2,612 2,272 (3)
Financial expense 344 775 Tax effect (432) (591) Impairment of
equity investment—net 3 - Minority interest (65) 16 Net
income adjustments 2,462 2,472 (4) Dividends on the
mandatory convertible preferred shares of $196 million for the nine
months ended September 30, 2016 are added to non-GAAP net income
attributable to ordinary shareholders, since such preferred shares
had a dilutive effect on non-GAAP earnings per share, as described
in the following footnote. (5) The non-GAAP weighted average
number of shares was 1,001 and 860 million for the nine months
ended September 30, 2016 and 2015, respectively. The non-GAAP
weighted average number of shares for the nine months ended
September 30, 2016 takes into account the potential dilution of the
mandatory convertible preferred shares (amounting to 59 million
weighted average shares), which had a dilutive effect on non-GAAP
earnings per share. Non-GAAP earnings per share can be reconciled
with GAAP earnings per share by dividing each of the amounts
included in footnotes 1-4 above by the applicable weighted average
share number.
Segment Information
Generics Three months
ended September 30, Percentage Change 2016
2015 2016 - 2015 U.S.$ in millions / % of Segment
Revenues Revenues $ 2,904 100% $ 2,202 100.0% 32% Gross
Profit 1,466 50.5% 1,005 45.6% 46% R&D Expenses 184 6.3% 132
6.0% 39% S&M Expenses 415 14.3% 295
13.4% 41% Segment Profit* $ 867 29.9% $ 578 26.2% 50%
Specialty Three months ended September 30,
Percentage Change 2016 2015 2016 - 2015
U.S.$ in millions / % of Segment Revenues Revenues $ 2,048
100% $ 2,178 100.0% (6%) Gross Profit 1,783 87.1% 1,859 85.4% (4%)
R&D Expenses 228 11.1% 220 10.1% 4% S&M Expenses 458
22.4% 417 19.2% 10% Segment Profit* $ 1,097
53.6% $ 1,222 56.1% (10%)
* Segment profit consists of gross profit, less S&M and
R&D expenses related to the segment. Segment profit does not
include G&A expenses, amortization, inventory step-up and
certain other items.
Segment Information
Generics Nine months ended September 30,
Percentage Change 2016 2015 2016 -
2015 U.S.$ in millions / % of Segment Revenues
Revenues $ 7,368 100.0% $ 7,289 100.0% 1% Gross Profit 3,537 48.0%
3,487 47.8% 1% R&D Expenses 445 6.1% 377 5.1% 18% S&M
Expenses 1,027 13.9% 1,004 13.8% 2%
Segment Profit* $ 2,065 28.0% $ 2,106 28.9% (2%)
Specialty Nine months ended September 30,
Percentage Change 2016 2015 2016 - 2015
U.S.$ in millions / % of Segment Revenues Revenues $ 6,471
100.0% $ 6,224 100.0% 4% Gross Profit 5,632 87.0% 5,345 85.9% 5%
R&D Expenses 702 10.8% 655 10.5% 7% S&M Expenses
1,393 21.5% 1,360 21.9% 2% Segment Profit* $
3,537 54.7% $ 3,330 53.5% 6%
* Segment profit consists of gross profit, less S&M and
R&D expenses related to the segment. Segment profit does not
include G&A expenses, amortization, inventory step-up and
certain other items.
Additional information
Multiple Sclerosis Three months ended
September 30, Percentage Change 2016 2015
2016 - 2015 U.S.$ in millions / % of MS Revenues
Revenues $ 1,061 100.0% $ 1,085 100.0% (2%) Gross profit 982
92.6% 980 90.3% 0% R&D expenses 20 1.9% 16 1.5% 25% S&M
expenses 76 7.2% 88 8.1% (14%) MS
profit $ 886 83.5% $ 876 80.7% 1%
Other Specialty Three months ended September
30, Percentage Change 2016 2015 2016 -
2015 U.S.$ in millions / % of Other Specialty Revenues
Revenues $ 987 100.0% $ 1,093 100.0% (10%) Gross profit 801
81.2% 879 80.4% (9%) R&D expenses 208 21.1% 204 18.6% 2%
S&M expenses 382 38.7% 329 30.1%
16% Other Specialty profit $ 211 21.4% $ 346 31.7%
(39%)
Additional information
Multiple Sclerosis Nine
months ended September 30, Percentage Change 2016
2015 2016 - 2015 U.S.$ in millions / % of MS
Revenues Revenues $ 3,208 100.0% $ 3,063 100.0% 5% Gross
profit 2,930 91.3% 2,752 89.8% 6% R&D expenses 65 2.0% 69 2.3%
(6%) S&M expenses 246 7.7% 311
10.1% (21%) MS profit $ 2,619 81.6% $ 2,372 77.4% 10%
Other Specialty Nine months
ended September 30, Percentage Change 2016
2015 2016 - 2015 U.S.$ in millions / % of Other
Specialty Revenues Revenues $ 3,263 100.0% $ 3,161
100.0% 3% Gross profit 2,702 82.8% 2,593 82.0% 4% R&D expenses
637 19.5% 586 18.5% 9% S&M expenses 1,147 35.2%
1,049 33.2% 9% Other Specialty profit $ 918
28.1% $ 958 30.3% (4%)
Reconciliation of
our segment profit to Teva's consolidated income before
income taxes Three months
ended September 30, 2016 2015 U.S.$ in
millions Generic medicines profit $ 867 $ 578 Specialty
medicines profit 1,097 1,222 Total segment profit
1,964 1,800 Profit of other activities 134 58 Total
profit 2,098 1,858 Amounts not allocated to segments: Amortization
429 203 General and administrative expenses 310 316 Impairments,
restructuring and others (410) 384 Legal settlements and loss
contingencies 533 (80) Other unallocated amounts 471 25
Consolidated operating income 765
1,010 Financial expenses - net 150 697
Consolidated income before income taxes $ 615 $ 313
Reconciliation of our segment profit to Teva's
consolidated income before income taxes
Nine months ended September 30, 2016
2015 U.S.$ in millions Generic medicines profit $
2,065 $ 2,106 Specialty medicines profit 3,537 3,330
Total segment profit 5,602 5,436 Profit of other activities
198 164 Total profit 5,800 5,600 Amounts not allocated to
segments: Amortization 811 637 General and administrative expenses
925 948 Impairments, restructuring and others 421 968 Legal
settlements and loss contingencies 674 531 Other unallocated
amounts 678 95 Consolidated operating
income 2,291 2,421 Financial expenses - net
553 930 Consolidated income before income taxes $ 1,738 $
1,491
Revenues by Activity and Geographical Area
(Unaudited)
Three Months Ended September
30,
PercentageChange
PercentageChange
2016 2015 2016 - 2015 2016 - 2015
U.S. $ in millions
in localcurrencies
Generic Medicines United States $ 1,293 $ 1,032 25% 25% Europe* 829
661 25% 31% Rest of the World 782 509 54% 60% Total
Generic Medicines 2,904 2,202 32% 35% Specialty Medicines United
States 1,558 1,701 (8%) (8%) Europe* 406 369 10% 12% Rest of the
World 84 108 (22%) (20%) Total Specialty Medicines
2,048 2,178 (6%) (6%) Other Revenues United States 12 1 1100% 1100%
Europe* 175 169 4% 4% Rest of the World 424 273 55%
95% Total Other Revenues 611 443 38% 62% Total
Revenues $ 5,563 $ 4,823 15% 19%
* All members of the European Union, Switzerland, Norway,
Albania, Iceland and the countries of former Yugoslavia.
Revenues by Activity and Geographical Area
(Unaudited)
Nine Months Ended September
30,
PercentageChange
PercentageChange
2016 2015 2016 - 2015 2016 -
2015 U.S. $ in millions
in localcurrencies
Generic Medicines United States $ 3,161 $ 3,797 (17%) (17%) Europe*
2,160 2,006 8% 10% Rest of the World 2,047 1,486 38% 47% Total
Generic Medicines 7,368 7,289 1% 4% Specialty Medicines United
States 5,007 4,802 4% 4% Europe* 1,214 1,152 5% 7% Rest of the
World 250 270 (7%) 1% Total Specialty 6,471 6,224 4% 5% Other
Revenues United States 19 8 138% 138% Europe* 510 508 0% 1% Rest of
the World 1,043 742 41% 67% Total Other Revenues 1,572 1,258
25% 41% Total Revenues $ 15,411 $ 14,771 4% 7%
* All members of the European Union, Switzerland, Norway,
Albania, Iceland and the countries of former Yugoslavia.
Revenues by Product line (Unaudited)
Three Months Ended September
30,
PercentageChange
2016 2015 2016 - 2015 U.S. $ in
millions Generic Medicines $ 2,904
$ 2,202 32% API 191 206 (7%)
Specialty
Medicines 2,048 2,178 (6%) CNS 1,302 1,366
(5%) Copaxone® 1,061 1,085 (2%) Azilect® 101 92 10% Nuvigil® 21 97
(78%) Respiratory 270 285 (5%) ProAir® 118 149 (21%) QVAR® 96 92 4%
Oncology 269 326 (17%) Treanda® and Bendeka™ 149 207 (28%) Women's
Health 109 115 (5%) Other Specialty 98 86 14%
All Others
611 443 38% OTC 356 255 40% Other Revenues
255 188 36%
Total $ 5,563
$ 4,823 15% Revenues by
Product line (Unaudited)
Nine Months EndedSeptember
30,
PercentageChange
2016 2015 2016 - 2015 U.S. $ in
millions Generic Medicines $ 7,368
$ 7,289 1% API 595 546 9%
Specialty
Medicines 6,471 6,224 4% CNS 4,040 3,939
3% Copaxone® 3,208 3,063 5% Azilect® 322 304 6% Nuvigil® 175 273
(36%) Respiratory 949 803 18% ProAir® 426 401 6% QVAR® 346 273 27%
Oncology 871 883 (1%) Treanda® and Bendeka™ 511 543 (6%) Women's
Health 336 354 (5%) Other Specialty 275 245 12%
All Others
1,572 1,258 25% OTC 906 678 34% Other Revenues
666 580 15%
Total $ 15,411
$ 14,771 4%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161115005897/en/
Teva Pharmaceutical Industries Ltd.IR:United StatesKevin C.
Mannix, 215-591-8912Ran Meir,
215-591-3033orIsraelTomer Amitai, 972 (3)
926-7656orPR:IsraelIris Beck Codner, 972 (3)
926-7246orUnited StatesDenise Bradley, 215-591-8974
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