Teva Reports Fourth Quarter and Full Year 2018 Financial Results

JERUSALEM–(BUSINESS WIRE)–Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported
results for the year and the quarter ended December 31, 2018.

   

FY 2018

Q4 2018

 
Revenues $18.9 billion $4.6 billion
 
Cash flow from operations $2.4 billion $0.4 billion
 
GAAP loss per share $2.35 $2.85
 
Non-GAAP EPS $2.92 $0.53
 

2019 Business outlook:

  • Revenues are expected to be $17.0 – 17.4 billion
  • Non-GAAP EPS is expected to be $2.20-2.50

Mr. Kåre Schultz, Teva’s President and CEO, said, “2018 was the first
year of our restructuring plan and we have met or exceeded all of our
key financial targets for the year. The full year yielded a cost base
reduction of $2.2 billion, exceeding our 2018 target, and we are well on
track to deliver the total $3.0 billion reduction in 2019 as compared to
the 2017 spend base. AJOVY® is performing very well since its September
launch in the U.S. with growing demand for the first and only anti-CGRP
treatment with both quarterly and monthly dosing for the preventive
treatment of migraine in adults. We will focus our investments on
growing AJOVY® and continuing our success with AUSTEDO®, with both
franchises positioned to be important growth drivers for Teva.

“Looking ahead, we continue to expect that 2019 will be the trough for
our business, a year in which we will experience similar challenges to
those of 2018 including the continued erosion of COPAXONE in the U.S.
and Europe as well as the introduction of generics in the ProAir®
market. Throughout the year, we will continue to execute against our
restructuring plan goals, including the optimization of our global
portfolio and network, as we focus our efforts on generating cash to
reduce the company’s debt.”

2018 Annual Consolidated Results

Revenues in 2018 were $18,854 million, a decrease of 16% in both
U.S. dollar and local currency terms, compared to 2017, mainly due to
generic competition to COPAXONE®, a decline in revenues in
our U.S. generics business and loss of revenues following the divestment
of certain products and discontinuation of certain activities.

Exchange rate movements between 2018 and 2017 positively impacted
our revenues by $152 million, our GAAP operating income by $4 million
and our non-GAAP operating income by $10 million.

GAAP gross profit was $8,296 million in 2018, a decrease of 22%
compared to 2017. GAAP gross profit margin for 2018 was 44.0%,
compared to 47.4% in 2017. Non-GAAP gross profit was $9,546
million in 2018, a decrease of 21% compared to 2017. Non-GAAP gross
profit margin
was 50.6% in 2018, compared to 53.8% in 2017. The
decrease in both GAAP and non-GAAP gross profit was mainly due to lower
profitability in North America resulting from a decline in COPAXONE
revenues due to generic competition and a decline in revenues in our
U.S. generics business, partially offset by higher profitability in
Europe.

Research and Development (R&D) expenses in 2018 were $1,213
million, a decrease of 32% compared to 2017. R&D expenses excluding
equity compensation expenses and purchase of in-process R&D in 2018 were
$1,102 million, or 5.8% of revenues, compared to $1,515 million or 6.8%
in 2017. The decrease in R&D expenses resulted primarily from pipeline
optimization, phase 3 studies that have ended and related headcount
reductions.

Selling and Marketing (S&M) expenses in 2018 were $2,916
million, a decrease of 14% compared to 2017. S&M expenses excluding
amortization of purchased intangible assets and equity compensation
expenses were $2,718 million, or 14.4% of revenues, in 2018, compared to
$3,149 million, or 14.1% of revenues, in 2017. The decrease was mainly
due to cost reductions and efficiency measures as part of the
restructuring plan.

General and Administrative (G&A) expenses in 2018 were $1,298
million, a decrease of 11% compared to 2017. G&A expenses excluding
equity compensation expenses were $1,228 million in 2018, or 6.5% of
revenues, compared to $1,413 million or 6.3% of revenues in 2017. The
decrease was mainly due to cost reductions and efficiency measures as
part of the restructuring plan.

GAAP other income in 2018 was $291 million, compared to other
income of $1,199 million in 2017. The decline in GAAP other income was
primarily the result of none recurring income related to the divestment
of our women’s health business in 2017. Non-GAAP other income in
2018 was $225 million, an increase of 94% compared to $116 million in
2017, mainly due to higher 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 $1,637 million in 2018 compared to
operating loss of $17,484 million in 2017. The increase was mainly due
higher goodwill impairment charges, higher intangible assets impairments
and other asset impairments recorded in 2017. Non-GAAP operating
income
was $4,723 million, a decrease of 22% compared to $6,073
million in 2017.

Adjusted EBITDA (non-GAAP operating income, which excludes
amortization and certain other items, and excluding depreciation
expenses) in 2018 was $5,319 million, compared to $6,665 million in 2017.

In 2018, GAAP financial expenses were $959 million, compared to
$895 million in 2017. Non-GAAP financial expenses were $893 in
2018, compared to $908 in 2017.

In 2018 we recognized a GAAP tax benefit of $195 million, or 8%,
on pre-tax loss of $2,596 million. In 2017 we recognized a tax benefit
of $1,933 million, or 11%, on pre-tax loss of $18,379 million. Our tax
rate for 2018 was mainly affected by one-time legal settlements and
divestments that had a low corresponding tax effect. Additionally, in
2018 we recorded impairments, some of which did not have a corresponding
tax effect.

The non-GAAP income taxes for 2018 were $519 million on non-GAAP
pre-tax income of $3,830 million. The non-GAAP income taxes in 2017 were
$788 million on non-GAAP pre-tax income of $5,165 million. The non-GAAP
tax rate for 2018 was 14%, compared to 15% in 2017. The decrease in our
tax rate was mainly due to the reduction in the U.S. federal corporate
tax rate following the U.S. tax reform.

GAAP net loss attributable to Teva’s ordinary shareholders and
GAAP diluted loss per share in 2018 were $2,399 million and
$2.35, respectively, compared to net loss of $16,525 million and diluted
loss per share of $16.26 in 2017. Non-GAAP net income
attributable to ordinary shareholders for calculating diluted EPS and non-GAAP
diluted EPS
in 2018 were $2,985 million and $2.92, respectively,
compared to $4,075 million and $4.01 in 2017.

The weighted average diluted shares outstanding used for the
fully diluted share calculation on a GAAP basis for 2018 and 2017 were
1,021 and 1,016 million shares, respectively. The weighted average outstanding
shares
used for the fully diluted EPS calculation on a non-GAAP
basis for 2018 and 2017 were 1,024 and 1,018 million shares,
respectively.

As of December 31, 2018 and 2017, the fully diluted share count for
purposes of calculating our market capitalization
was approximately
1,100 million and 1,086 million shares, respectively.

Non-GAAP information: Net non-GAAP adjustments in 2018 were
$5,384 million. Non-GAAP net income and non-GAAP EPS for the year were
adjusted to exclude the following items:

  • A goodwill impairment of $3,027 million, mainly related to
    International Markets;
  • An impairment of intangible and fixed assets and equity investment of
    $2,594 million mainly related to the acquisition of Actavis Generics;
  • Amortization of purchased intangible assets totaling $1,166 million,
    of which $1,004 million is included in cost of goods sold and the
    remaining $162 million in selling and marketing expenses;
  • Restructuring expenses of $488 million;
  • Equity compensation expenses of $152 million;
  • In-Process R&D of $83 million;
  • Financial expenses of $66 million mainly related to early redemption
    fees;
  • Contingent consideration of $57 million;
  • Other non-GAAP items of $104 million;
  • Minority interest adjustment of $431 million mainly relate to business
    venture in International markets;
  • Related tax effect of $714 million; and
  • Benefits from legal settlements and loss contingencies of $1,208
    million, mainly related to the Allergan working capital adjustments,
    the Rimsa settlement and the reversal of the reserve recorded for the
    carvedilol judgement against Teva.

Teva believes that excluding such items facilitates investors’
understanding of its business. For further information see the below
tables 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 2018 was $2,446
million, an increase of $221 million, or 10% compared to 2017. This
increase was mainly due to the working capital adjustment with Allergan
and the Rimsa settlement in 2018, partially offset by lower profit in
our North America segment.

Free cash flow (Cash flow generated from operating activities in
2018, net of cash used for capital investments and beneficial interest
collected in exchange for securitized trade receivables) was $3,679
million, compared to $2,693 million in 2017. This increase resulted
mainly from the higher cash flow generated from operating activities,
higher beneficial interest collected in exchange for securitized trade
receivables and lower capital expenditures.

As of December 31, 2018, our debt was $28,916 million, compared
to $32,475 million as of December 31, 2017. The decrease was mainly due
to senior notes and term loans repaid at maturity or prepaid with cash
generated during the year. The portion of total debt classified as
short-term as of December 31, 2018 was 8%, compared to 11% as of
December 31, 2017, due to a decrease in current maturities. Our average
debt maturity was approximately 6.8 years as of December 31, 2018,
compared to 6.4 years as of December 31, 2017.

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 2018 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 2018 Consolidated Results

Revenues in the fourth quarter of 2018 were $4,559 million, a
decrease of 16%, or 14% in local currency terms, compared to the fourth
quarter of 2017, mainly due to generic competition to COPAXONE, a
decline in revenues in our U.S. generics business and loss of revenues
following the divestment of certain products and discontinuation of
certain activities.

Exchange rate differences between the fourth quarter of 2018 and
the fourth quarter of 2017 negatively impacted our revenues and GAAP
operating income by $100 million and $13 million, respectively. Our
non-GAAP operating income was negatively impacted by $17 million.

GAAP gross profit was $1,971 million in the fourth quarter of
2018, a decrease of 19% compared to the fourth quarter of 2017. GAAP gross
profit margin
was 43.2% in the fourth quarter of 2018, compared to
45.3% in the fourth quarter of 2017. Non-GAAP gross profit was
$2,328 million in the fourth quarter of 2018, a decline of 15% from the
fourth quarter of 2017. Non-GAAP gross profit margin was 51.1% in
the fourth quarter of 2018, compared to 50.9% in the fourth quarter of
2017. The increase in gross profit margin on a non-GAAP basis resulted
primarily from improved gross profit margin in our Europe segment.

Research and Development (R&D) expenses for the fourth
quarter of 2018 were $295 million, a decrease of 15% compared to the
fourth quarter of 2017. R&D expenses excluding equity compensation
expenses and other expenses were $289 million, or 6.3% of quarterly
revenues in the fourth quarter of 2018, compared to $295 million, or
5.5% of quarterly revenues in the fourth quarter of 2017. The decrease
in R&D expenses resulted primarily from pipeline optimization, phase 3
studies that have ended and related headcount reduction.

Selling and Marketing (S&M) expenses in the fourth quarter of
2018 were $797 million, a decrease of 3% compared to the fourth quarter
of 2017. S&M expenses excluding amortization of purchased intangible
assets, equity compensation expenses and other expenses were $768
million, or 16.8% of quarterly revenues in the fourth quarter of 2018,
compared to $749 million, or 13.9% of quarterly revenues in the fourth
quarter of 2017. The increase was mainly due to higher promotional cost
associated with the launch of AJOVY in the U.S., partially offset by
cost reduction and efficiency measures as part of the restructuring plan.

General and Administrative (G&A) expenses in the fourth
quarter of 2018 were $344 million, a decrease of 2% compared to the
fourth quarter of 2017. G&A expenses excluding equity compensation
expenses and other expenses were $330 million in the fourth quarter of
2018, or 7.2% of quarterly revenues in the fourth quarter of 2018,
compared to $335 million, or 6.2% of quarterly revenues in the fourth
quarter of 2017.

GAAP other loss in the fourth quarter of 2018 was $43 million,
compared to other income of $1,099 million in the fourth quarter of
2017. Non-GAAP other income in the fourth quarter of 2018 was $5
million, compared to $15 million in fourth quarter of 2017.

GAAP operating loss in the fourth quarter of 2018 was $3,164
million, compared to $13,017 million in the fourth quarter of 2017.
Non-GAAP operating income in the fourth quarter of 2018 was $946
million, a decrease of 32% compared to the fourth quarter of 2017.
Non-GAAP operating margin was 20.8% in the fourth quarter of 2018
compared to 25.7% in the fourth quarter of 2017.

EBITDA (non-GAAP operating income, which excludes amortization
and certain other items, as well as depreciation expenses) was $1,091
million in the fourth quarter of 2018, a decrease of 29% compared to
$1,534 million in the fourth quarter of 2017.

GAAP financial expenses for the fourth quarter of 2018 were $223,
compared to $191 million in the fourth quarter of 2017. Non-GAAP
financial expenses
were $216 million in the fourth quarter of 2018,
compared to $209 million in the fourth quarter of 2017.

In the fourth quarter of 2018, we recognized a tax benefit of
$139 million, or 4%, on pre-tax loss of $3,387 million. In the fourth
quarter of 2017, we recognized a tax benefit of $1,471 million, on
pre-tax loss of $13,208 million. Our tax rate for the fourth quarter of
2018 was mainly affected by impairments recorded, some of which did not
have a corresponding tax effect. Non-GAAP income taxes for the
fourth quarter of 2018 were $96 million, or 13%, on pre-tax non-GAAP
income of $730 million. Non-GAAP income taxes in the fourth quarter of
2017 were $183 million, or 16%, on pre-tax non-GAAP income of $1,176
million.

GAAP net loss attributable to ordinary shareholders and GAAP
diluted loss per share
in the fourth quarter of 2018 were $2,940
million and $2.85, respectively, compared to loss of $11,600 million and
$11.41 in the fourth quarter of 2017. Non-GAAP net income
attributable to ordinary shareholders and non-GAAP diluted EPS in
the fourth quarter of 2018 were $543 million and $0.53, respectively,
compared to $949 million and $0.93 in the fourth quarter of 2017.

For the fourth quarter of 2018, the weighted average outstanding
shares
for the fully diluted EPS calculation on a GAAP basis was
1,031 million shares, compared to 1,017 million shares in the fourth
quarter of 2017. The weighted average outstanding shares for the
fully diluted EPS calculation on a non-GAAP basis was 1,034 million
shares, compared to 1,018 million shares in the fourth quarter of 2017.

Non-GAAP information: Net non-GAAP adjustments in the fourth
quarter of 2018 were $3,483 million. Non-GAAP net income and non-GAAP
EPS for the fourth quarter were adjusted to exclude the following items:

  • A goodwill impairment of $2,727 million, mainly related to
    International Markets;
  • An impairment of intangible and fixed assets and equity investment of
    $990 million mainly related to the acquisition of Actavis Generics;
  • Amortization of purchased intangible assets totaling $257 million, of
    which $233 million is included in cost of goods sold and the remaining
    $24 million in selling and marketing expenses;
  • Restructuring expenses of $46 million;
  • Legal settlements and loss contingencies of $31 million;
  • Equity compensation expenses of $30 million;
  • Other non-GAAP items of $36 million;
  • Minority interest adjustment of $399 million related to business
    venture in the International markets; and
  • Related tax effect of $235 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
2018 was $367 million, compared to $859 million in the fourth quarter of
2017. The decrease was mainly due to lower profit in our North America
segment.

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 $522
million in the fourth quarter of 2018, compared to $934 million in the
fourth quarter of 2017. The increase in 2018 resulted mainly from the
higher cash flow generated from operating activities.

Segment Results for the Fourth Quarter 2018

Due to the organizational changes announced in November 2017, we began
reporting our financial results under a new structure in the first
quarter of 2018, consisting of the following segments:

a) North America segment, which includes the United States and Canada.
b)
Europe segment, which includes the European Union and certain other
European countries.
c) International Markets segment, which
includes all countries other than those in our North America and Europe
segments.

In addition to these three segments, we have other activities, primarily
the sale of API to third parties and certain contract manufacturing
services.

Segment profit is comprised of gross profit for the segment, less R&D,
S&M, G&A expenses and other income related to each segment. Segment
profit does not include amortization and certain other items.

The data presented in this press release for prior periods have been
conformed to reflect our current segment reporting, which commenced in
the first quarter of 2018.

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, 2018 and 2017:

 
Three months ended December 31,
2018   2017
(U.S.$ in millions / % of Segment Revenues)
Revenues 2,238   100 % 2,689   100.0 %
Gross profit 1,201 53.7 % 1,506 56.0 %
R&D expenses 185 8.3 % 192 7.1 %
S&M expenses 341 15.2 % 285 10.6 %
G&A expenses 127 5.7 % 101 3.8 %
Other income (3 )   §   (10 )  

§

 
Segment profit 551     24.6 % 938     34.9 %
 
__________
§ Represents an amount less than 0.5%.
 

Revenues from our North America segment in the fourth quarter of
2018 were $2,238 million, a decrease of $451 million, or 17%, compared
to the fourth quarter of 2017, mainly due to a decline in revenues of
COPAXONE, our U.S. generics business, ProAir® and QVAR®
and the loss of revenues from the sale of our women’s health business,
partially offset by higher revenues from AUSTEDO® and Anda.

Revenues in the United States, our largest market, were $2,103
million in the fourth quarter of 2018, a decrease of $434 million, or
17%, compared to the fourth quarter of 2017.

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,
2018 and 2017:

   
North America

Three months ended
December 31,

Percentage
Change

2018   2017 2017-2018
(U.S.$ in millions)
 
Generic products $ 1,099 $ 1,224 (10 %)
COPAXONE 356 641 (44 %)
BENDEKA / TREANDA 140 158 (11 %)
ProAir 45 102 (56 %)
QVAR 9 48 (81 %)
AUSTEDO 68 17 314 %
Anda 363 289 26 %
 

Generic products revenues in our North America segment in the
fourth quarter of 2018 decreased by 10% to $1,099 million, compared to
the fourth quarter of 2017, mainly due to additional competition to
methylphenidate extended-release tablets (Concerta®
authorized generic), portfolio optimization primarily as part of the
restructuring plan as well as market dynamics and price erosion in our
U.S. generics business, partially offset by new generic product launches.

In the fourth quarter of 2018, we led the U.S. generics market in total
prescriptions and new prescriptions, with approximately 504 million
total prescriptions (based on trailing twelve months), representing 13%
of total U.S. generic prescriptions according to IQVIA data.

COPAXONE revenues in our North America segment in the fourth
quarter of 2018 decreased by 44% to $356 million, of which $341 million
were generated in the United States, compared to the fourth quarter of
2017, mainly due to generic competition in the United States.

BENDEKA® and TREANDA®
combined revenues in our North America segment in the fourth quarter of
2018 decreased by 11% to $140 million, compared to the fourth quarter of
2017, mainly due to lower volumes resulting from Eagle Pharmaceuticals’
launch of a ready-to-dilute bendamustine hydrochloride in June 2018,
partially offset by higher pricing.

ProAir revenues in our North America segment in the fourth
quarter of 2018 decreased by 56% to $45 million, compared to the fourth
quarter of 2017, mainly due to higher sales reserves recorded in the
fourth quarter of 2018 in anticipation of generic competition to the
short-acting beta-agonist class of drugs, including an approved generic
version of Ventolin HFA. In the albuterol inhaler category,
approximately 40% of prescriptions are written as “generic albuterol,”
which means that the launch of any generic inhaler may cause patient
migration to such generic products. We launched our own ProAir
authorized generic in the United States in January 2019.

QVAR revenues in our North America segment in the fourth quarter
of 2018 decreased by 81% to $9 million, compared to the fourth quarter
of 2017. The decrease in sales was mainly due to lower net pricing.

AUSTEDO revenues in our North America segment in the fourth
quarter of 2018 were $68 million, compared to $17 million in the fourth
quarter of 2017.

Anda revenues in our North America segment in the fourth quarter
of 2018 increased by 26% to $363 million, compared to the fourth quarter
of 2017.

North America Gross Profit

Gross profit from our North America segment in the fourth quarter of
2018 was $1,201 million, a decrease of 20% compared to $1,506 million in
the fourth quarter of 2017. The decrease was mainly due to lower
revenues from COPAXONE and generic products.

Gross profit margin for our North America segment in the fourth quarter
of 2018 decreased to 53.7%, compared to 56.0% in the fourth quarter of
2017. This decrease was mainly due to lower COPAXONE revenues.

North America Profit

Profit from our North America segment in the fourth quarter of 2018 was
$551 million, a decrease of 41% compared to $938 million in the fourth
quarter of 2017. The decrease was mainly due to lower revenues from
COPAXONE and generic products as well as investment in the launch of
AJOVY.

Contacts

IR Contacts
Kevin C. Mannix, (215) 591-8912
or
Ran
Meir, 972 (3) 926-7516
or
PR Contacts
United States

Kelley
Dougherty, (973) 658-0237
or
Israel
Yonatan Beker,
972 (54) 888 5898

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