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February 22, 1999 10:19 a.m.
Teva Pharmaceutical Industries Ltd. Reports 1998 Year End and Fourth Quarter Financial Results
 Fourth quarter normalized net income increased by 39%, excluding one-time charges

Declares Regular Quarterly Cash Dividend


Jerusalem, Israel, February 22, 1999 -- Teva Pharmaceutical Industries Ltd., (Nasdaq: TEVIY) today reported financial results for the year and fourth quarter ended December 31, 1998.

For the year ended December 31, 1998, total consolidated sales amounted to $1.116 billion, as compared to $1.117 billion in 1997. On a normalized basis, (factoring out a number of restructuring and other special charges in both 1998 and 1997 as discussed below), net income in 1998 amounted to $97.3 million, or $1.60 per ADR, as compared to $122.5 million, or $1.98 per ADR, in 1997.

For the fourth quarter ended December 31, 1998, total consolidated sales amounted to $296.9 million, an increase of 2% over the comparable 1997 quarter. Net income on a normalized basis for the two comparative quarterly periods, amounted to $29.6 million for the fourth quarter of 1998, as compared to $21.2 million, an increase of 39%. Earnings per ADR on a normalized basis for the fourth quarter of 1998 were $0.51, as compared to $0.34 in the 1997 period.

Reported net income for the year ended 1998, amounted to $68.8 million, or $1.15 per ADR, compared to $101.5 million, or $1.65 per ADR, in 1997 (including non-recurring items in both periods).

Reported net income for the quarter amounted to $1.4 million, or $0.06 per ADR, as compared to $0.2 million, or $0.01 per ADR, in 1997 (including non-recurring items in both periods).

Presentation of normalized numbers for comparison purposes takes into account the following non recurring items:
  • Charges classified as acquisition of rights in respect to products in R&D stemming from the agreement with Biovail Corporation International (NYSE, TSE: BVF).
  • Restructuring charges from the global rationalization program initiated by Teva at the end of 1997 to improve effectiveness and efficiency of its production facilities.
  • The divestiture in 1998 of three businesses: (1) the operations of Paca Industries Limited, Teva's yeast and alcohol fermentation business divested in the first quarter of 1998, (2) the German operations of Pharmachemie, and (3) a Russian venture together with various generic drug companies.
The impact of these items on net income is reflected in the following table (in $000's):
  Fourth Quarter Fiscal Year
  1998 1997 1998 1997
E.P.S as reported $0.06 $0.01 $1.15 $1.65
Income before taxation as reported 10,635 8,435 99,718 140,220
Eliminate one time gain:        
Sale of Paca's operations     9,452  
Add back one time charges:        
Restructuring charges 11,030   15,030  
Divestiture of business & facilities 12,760   12,760  
Acquisition of rights in respect to products in R&D 8,000 21,000 13,500 21,000
Total normalized income before taxation 42,425 29,435 131,556 161,220
Taxes on normalized income 12,806 8,189 34,215 38,727
Total normalized net income 29,619 21,246 97,341 122,493
Normalized E.P.S (fully diluted) $0.51 $0.34 $1.60 $1.98


Eli Hurvitz, President and Chief Executive Officer, commented, "1998 was a year of many significant accomplishments for Teva. We greatly increased our presence in Europe and progressed with our significant global rationalization program in order to improve the effectiveness and efficiency of our production facilities. This is expected to gradually save the Company over $20 million annually, with the full benefit achieved by the year 2000."

"We are continuing to explore avenues for further growth and expansion, including joint ventures, acquisitions and mergers. In addition, Teva is examining alternative ways of financing our Innovative R&D program that will be cost effective to the Company," said Mr. Hurvitz. "Sales of Copaxone® in the U.S. and Canada increased significantly during 1998. This increase reflects the increased marketing efforts initiated earlier in the year, the increased experience of the neurologist community with the product, and the consistent sustained benefits demonstrated in the five year extended use studies of Copaxone®."

A double blind MRI clinical trial was completed during the fourth quarter of 1998 showing significant positive results. The data has been thoroughly analyzed and will be presented at the spring 1999 American Academy of Neurology meeting in Toronto, Canada.

"Copaxone® is approved in 13 markets including Australia, our most recent approval this month. The U.S. accounts for 80% of Copaxone®'s overall sales. During the second quarter of 1998, Copaxone® also began for the first time to contribute to Teva's net income. The Copaxone® sales index (based on the average monthly sales of Copaxone® by HMR in the last quarter of 1997 =100) reached 307 in December 1998 after climbing to 250 in November 1998. In January 1999 the index dropped to 192 (the same trend as experienced in January 1998). The index at year's end indicates more than 200% growth when compared to the beginning of the year," concluded Mr. Hurvitz.

Teva's position in the development of an oral formulation of Copaxone® for the treatment of multiple sclerosis has been strengthened through an agreement reached with AutoImmune, Inc., a U.S. corporation. Teva has been granted exclusive worldwide rights to AutoImmune's patents both present and future relating to the oral treatment of multiple sclerosis.

In addition to the one time events highlighted above, comparisons of the results between 1998 and 1997 should also take into account the following:
  • In 1997 Clonazepam was Teva's best selling product. In 1998 compared to 1997, although Teva increased its sales volumes of the product in the U.S., the Company sold about $96 million less of this product because of intense price competition from additional generic entrants into the market.
  • In mid 1997, Teva's relationship with Merck Sharp and Dohme (MSD) in Israel was changed, resulting in a substantial decrease in sales of MSD products by Teva in Israel. The first half of 1997 included sales of these products at their prior levels.
  • In mid 1998, Teva acquired Pharmachemie, a major Dutch generic drug manufacturer. The results of Pharmachemie were consolidated as of July 1998.
  • In the last five months of 1998, the NIS experienced a substantial devaluation relative to the U.S. dollar, significantly reducing the dollar value of the Company's sales and local expenses (mainly labor) in Israel and increasing the provision for taxes.
  • Sales by Paca Industries were included only during the first quarter of 1998, as the sale of this business occurred in March 1998.


Total pharmaceutical sales, which comprise about 78% of Teva's total sales, were $867.1 million in 1998, 1% less than in 1997. In the second half of 1998, subsequent to the Pharmachemie acquisition, 48% of these sales were made in the U.S., 29% in Europe and 19% in Israel.

Pharmaceutical sales in the U.S. totaled $434.5 million in 1998, an 11% decrease from the 1997 period. The decrease in sales predominantly reflects the lower Clonazepam sales (in value), of which about half were offset by net increased sales of other products (both price and volume), and the introduction of new products.

During the 1998 fiscal year, Teva received nine generic drug approvals from the FDA. Of these nine approvals, five are tentative and pending patent expirations. The other four were introduced during the year, with the most significant being the anti-arthritic drug Diclofenac Potassium, which was introduced in the third quarter of 1998. Teva presently has a total of 19 ANDAs pending with the FDA, including 7 of Biovail's controlled release products.

Pharmaceutical sales in Europe reached $214.8 million in 1998, as compared to $158.1 million in 1997. The increase was mainly due to the inclusion of Pharmachemie which was acquired in mid-1998.

Pharmaceutical sales in Israel were $181.7 million in 1998, down 8% from 1997. This reflects predominantly the above-mentioned change in the relationship with MSD in mid 1997, and the unusual devaluation of the Israel NIS in the second half of 1998, for which no price adjustments were authorized in Israel. However, in early 1999, a new annual contract was signed with the General Health Fund (GHF), the largest Israeli customer, which covers 1999 supplies and should compensate Teva for most of the impact of the unusual NIS devaluation experienced in 1998. In an effort to increase the effectiveness of Teva's Israeli operations during 1998, the Company's hospital supply business was consolidated into the pharmaceutical business, becoming a more effective marketing and sales organization with considerable cost savings.

Sales of the Active Pharmaceutical Ingredients (API) business to third parties reached $154 million in 1998, up 16% from 1997, and accounted for 14% of Teva's total sales. These sales represented only 60% of the API business output - the balance was used internally by the pharmaceutical business of Teva.

The consolidated gross profit margin for the year was 37.7%, as compared to 39% in 1997. However, in the fourth quarter of 1998 the gross margin reached 39.4%, compared to 36.8% in the corresponding quarter of 1997.

Total R&D expenses for the year, net of acquisition of rights in respect to products in R&D, amounted to $75.6 million, as compared to $76.6 million in 1997.

SG&A expenses in 1998 were 6% higher than in 1997. This reflects mainly the consolidation of Pharmachemie in mid-1998.

The rate of tax as applicable to the normalized income was 26% for fiscal 1998 (1997: 24%) and 30.2% for 1998's fourth quarter (1997: 27.8%). The higher rates in 1998 are the result of the unusual devaluation in Israel in the second half of the year, which increased the provision for taxes by an estimated $2 million for the third quarter and $3 million for the fourth quarter.

The Company has declared a fourth interim dividend of NIS 0.30 (about $0.07) per ADR (or a total of about $5 million). The record date for this dividend will be March 10, 1999 and the payment date March 25, 1999. Tax at the rate of 25% will be deducted at source.

Teva Pharmaceutical Industries Ltd., is Israel's largest pharmaceutical company, with more than three quarters of its sales outside Israel, mainly in the United States. The Company develops, manufactures, and markets generic and branded human pharmaceuticals, active pharmaceutical ingredients, medical disposables and veterinary products.


Safe Harbor Statement: This release contains forward looking statements which express the beliefs and expectations of management. Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the Company's 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 the impact of pharmaceutical industry regulation, the difficulty of predicting FDA and other regulatory authority approvals, the regulatory environment and changes in the health policies of various countries, acceptance and demand for new pharmaceutical products and new therapies, the impact of competitive products and pricing, the availability and pricing of ingredients used in the manufacture of pharmaceutical products, uncertainties regarding market acceptance of innovative products newly launched , currently being sold or in development , the impact of restructuring of clients , reliance on strategic alliances , fluctuations in currency, exchange and interest rates , operating results and other factors that are discussed in the Company's filings with the U.S. Securities and Exchange Commission.

Teva Pharmaceutical Industries Limited Condensed Consolidated Statements of Income (unaudited - in thousands, except earnings per ADR )

  Quarter Ended Year Ended
  December 31, December 31,
  1998 1997 1998 1997
  U.S. Dollars
sales 296,906 291,920 1,115,928 1,116,897
cost of sales 179,976 184,594 694,763 680,882
gross profit 116,930 107,326 421,165 436,015
r & d expenses:        
A Total expenses 18,414 22,493 75,581 76,573
Less grants & participations 2,559 3,263 7,511 11,417
  15,855 19,230 68,070 65,156
sg&a expenses 55,077 54,886 208,024 196,952
  45,998 33,210 145,071 173,907
acquisition of rights with respect to products in r&d 8,000 21,000 13,500 21,000
restructuring charges 11,030   15,030  
operating income 26,968 12,210 116,541 152,907
financial expenses-net 6,790 4,885 23,328 24,569
divestiture of non- strategic businesses and facilities (12,760)   (3,308)  
other income 2,907 725 8,940 11,278
income before taxes 10,325 8,050 98,845 139,616
taxes on income 9,250 8,189 30,888 38,727
  1,075 (139) 67,957 100,889
share in profits of associated companies 434 313 903 403
minority interest (124) 72 (30) 201
net income 1,385 246 68,830 101,493
earnings per adr (Fully Diluted) 0.06 0.01 1.15 1.65
earnings per adr before non-recurring items (Fully Diluted) 0.51 0.34 1.60 1.98
weighted average number of adr's 62,838 62,554 62,650 62,554


Teva Pharmaceutical Industries Limited Balance Sheet Data (unaudited - in thousands)

  December 31, December 31,
  1998 1997
  U.S. Dollars
assets    
current assets    
Cash and cash equivalents 47,074 50,942
Short - term investments 2,148 7,660
Accounts receivable:    
Trade 274,592 240,465
Other 99,182 67,212
Inventories 353,249 302,472
Total current assets 776,245 668,751
investments and non-current receivables: 32,566 20,745
property, plant and equipment    
Cost 754,638 672,416
Less accumulated depreciation 299,656 255,143
  454,982 417,273
intangible assets, net 177,226 81,616
  1,441,019 1,188,385
liabilities and shareholders' equity    
current liabilities    
Short-term credit-mainly from banks 324,534 239,829
Accounts payable and accruals:    
Trade 123,743 97,338
Other 94,389 90,399
Total current liabilities 542,666 427,566
long-term liabilities:    
Deferred income taxes 33,172 13,751
Accrued employee rights upon retirement, net of amount funded 3,895 4,414
Loans and other liabilities 201,699 129,889
Total long-term liabilities 238,766 148,054
commitments and contingencies    
Total Liabilities 781,432 575,620
minority interests 781 783
shareholders' equity 658,806 611,982
  1,441,019 1,188,385


Sales for the Quarter October-December 1998 (US $ thousands)        
Sales by Geographical Areas        
         
Sales For the Period IV/1998 IV/1997 % increase % of IV/1998
         
Israel 60,080 60,579 -0.8% 20%
North America 131,040 145,468 -9.9% 44%
Europe 86,420 70,252 23.0% 29%
Rest of the World 19,366 15,621 24.0% 7%
Total Abroad 236,826 231,341 2.4% 80%
Total 296,906 291,920 1.7% 100%


Sales by Business Units        
         
Sales For the Period IV/1998 IV/1997 % increase % of IV/1998
         
Pharmaceutical 234,850 222,455 5.6% 79%
A.P.I. 38,461 41,539 -7.4% 13%
Veterinary 7,822 7,016 11.5% 3%
Hospital Supplies 15,773 17,529 -10.0% 5%
Other   3,381 -100.0%  
Total 296,906 291,920 1.7% 100%


Pharmaceutical Sales        
         
Sales For the Period IV/1998 IV/1997 % increase % of IV/1998
         
Israel 43,952 37,953 15.8% 19%
North America 109,196 128,226 -14.8% 46%
Europe 69,291 48,314 43.4% 30%
Rest of the World 12,411 7,962 55.9% 5%
Total Abroad 190,898 184,502 3.5% 81%
Total 234,850 222,455 5.6% 100%


Sales for the year January - December 1998 (US $ thousands)        
Sales by Geographical Areas        
         
Sales For the Period 1998 1997 % increase % of total 1998
         
Israel 253,457 284,194 -10.8% 23%
North America 515,562 552,403 -6.7% 46%
Europe 286,050 219,980 30.0% 26%
Rest of the World 60,859 60,320 0.9% 5%
Total Abroad 862,471 832,703 3.6% 77%
Total 1,115,928 1,116,897 -0.1% 100%


Sales by Business Units        
         
Sales For the Period 1998 1997 % increase % of total 1998
         
Pharmaceutical 867,128 875,143 -0.9% 78%
A.P.I. 154,275 132,911 16.1% 14%
Veterinary 25,493 27,091 -5.9% 2%
Hospital Supplies 64,688 68,789 -6.0% 6%
Other 4,344 12,963 -66.5%  
Total 1,115,928 1,116,897 -0.1% 100%


Pharmaceutical Sales        
         
Sales For the Period 1998 1997 % increase % of total 1998
         
Israel 181,724 196,763 -7.6% 21%
North America 434,489 489,355 -11.2% 50%
Europe 214,849 158,109 35.9% 25%
Rest of the World 36,066 30,916 16.7% 4%
Total Abroad 685,404 678,380 1.0% 79%
Total 867,128 875,143 -0.9% 100%