Teva Reports Better Than Expected Sales

Sets aside $645 Million for pending law suits

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Teva, once the flagship company of the Israeli economy, has had more woes than the prophet Job. Despite its many problems, Teva still has a strong core business and hopes that by cutting enough expenses from its operations it can become profitable enough to pay down its debt, survive, and maybe someday thrive again. Teva reported its second quarter results and revenues exceeded analyst expectations. However, the company was required to set aside $645 million for its exposure to law suits; primarily those related to the US opiod crisis and Teva’s role in supplying drugs.  

The following are Teva’s 2019 Q2 results:

Revenues in the second quarter of 2019 were $4,337 million, a decrease of 8%, or 5% in local currency terms, compared to the second quarter of 2018, mainly due to generic competition to COPAXONE®, as well as declines in revenues from TREANDA®/BENDEKA®, certain other specialty products in the U.S., our Europe segment and Japan, partially offset by higher revenues from AUSTEDO®, AJOVY® and QVAR® in the United States.

Exchange rate differences between the second quarter of 2019 and the second quarter of 2018 negatively impacted our revenues and GAAP operating income by $125 million and $41 million, respectively. Our non-GAAP operating income was negatively impacted by $47 million.

GAAP gross profit was $1,893 million in the second quarter of 2019, a decrease of 7% compared to the second quarter of 2018. GAAP gross profit margin was 43.7% in the second quarter of 2019, compared to 43.2% in the second quarter of 2018. Non-GAAP gross profit was $2,188 million in the second quarter of 2019, a decline of 6% compared to the second quarter of 2018. Non-GAAP gross profit margin was 50.5% in the second quarter of 2019, compared to 49.7% in the second quarter of 2018. The increase in gross profit as a percentage of revenues was mainly due to higher profitability in Europe, partially offset by lower profitability in North America, resulting mainly from a decline in COPAXONE revenues due to generic competition.

GAAP Research and Development (R&D) expenses in the second quarter of 2019 were $276 million, a decrease of 5% compared to the second quarter of 2018. Non-GAAP R&D expenses were $271 million, or 6.2% of quarterly revenues in the second quarter of 2019, compared to $281 million, or 6.0%, in the second quarter of 2018. The decrease in R&D expenses resulted primarily from pipeline optimization and related headcount reductions.

GAAP Selling and Marketing (S&M) expenses in the second quarter of 2019 were $666 million, a decrease of 2% compared to the second quarter of 2018. Non-GAAP S&M expenses were $621 million, or 14.3% of quarterly revenues, in the second quarter of 2019, compared to $634 million, or 13.5%, in the second quarter of 2018. The decrease was mainly due to cost reduction and efficiency measures as part of the restructuring plan.

GAAP General and Administrative (G&A) expenses in the second quarter of 2019 were $296 million, a decrease of 6% compared to the second quarter of 2018. Non-GAAP G&A expenses were $286 million, or 6.6% of quarterly revenues, in the second quarter of 2019, compared to $292 million, or 6.2%, in the second 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 second quarter of 2019 was $9 million, compared to $96 million in the second quarter of 2018. We did not have Non-GAAP other income in the second quarter of 2019, compared to $106 million in the second quarter of 2018. Other income in the second quarter of 2018 was primarily the result of legal recovery of lost profits, where U.S. patent infringement litigation had previously prevented a product’s sales.

GAAP operating loss in the second quarter of 2019 was $644 million, compared to $14 million in the second quarter of 2018. Non-GAAP operating income in the second quarter of 2019 was $1,011 million, a decrease of 18% compared to $1,238 million in the second quarter of 2018. The decrease in non-GAAP operating income was mainly due to lower profits in North America resulting mainly from a decline in COPAXONE revenues due to generic competition, lower revenues of certain other specialty products in North America and the lack of other income, partially offset by cost reductions and efficiency measures as part of the restructuring plan and higher revenues of AUSTEDO.

EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as depreciation expenses) was $1,144 million in the second quarter of 2019, a decrease of 18% compared to $1,387 million in the second quarter of 2018.

GAAP financial expenses were $206 million in the second quarter of 2019, compared to $236 million in the second quarter of 2018.

Non-GAAP financial expenses were $198 million in the second quarter of 2019, compared to $238 million in the second quarter of 2018. The decrease in non-GAAP financial expenses was mainly due to gains on our hedging and derivatives activities, lower interest expenses resulting from debt prepayments during the period, as well as increased financial income derived from higher average cash balances.

In the second quarter of 2019, we recognized a tax benefit of $179 million, or 21%, on pre-tax loss of $850 million. In the second quarter of 2018, we recognized a tax benefit of $76 million, or 30%, on pre-tax loss of $250 million. Our tax rate for the second quarter of 2019 was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act. Non-GAAP income taxes for the second quarter of 2019 were $134 million, or 16%, on pre-tax non-GAAP income of $812 million. Non-GAAP income taxes in the second quarter of 2018 were $127 million, or 13%, on pre-tax non-GAAP income of $1,000 million. Our non-GAAP tax rate for the second quarter of 2019 was mainly affected by the mix of products sold in different geographies and the enactment of the U.S. Tax Cuts and Jobs Act.

Net loss attributable to ordinary shareholders was $689 million in the second quarter of 2019, compared to net loss of $241 million in the second quarter of 2018. Non-GAAP net income attributable to ordinary shareholders and non-GAAP diluted EPS in the second quarter of 2019 were $653 million and $0.60, respectively, compared to $794 million and $0.78 in the second quarter of 2018.

The weighted average diluted outstanding shares used for the fully diluted share calculation on a GAAP basis for the three months ended June 30, 2019 and 2018 were 1,092 million and 1,018 million shares, respectively. The weighted average outstanding shares for the fully diluted EPS calculation on a non-GAAP basis for the three months ended June 30, 2019 and 2018 were 1,093 million, and 1,021 million, respectively. The increase was mainly due to the conversion of the mandatory convertible preferred shares to ordinary shares on December 17, 2018.

As of June 30, 2019 and 2018, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,107 million and 1,109 million, respectively.

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