View printer-friendly version
« Back
November 02, 2017 7:01 a.m.
Teva Reports Third Quarter 2017 Financial Results
Download PDF Download PDF
  • Revenues of $5.6 billion
  • Cash flow from operations of $1.1 billion
  • GAAP EPS of $0.52
  • Non-GAAP EPS of $1.00
  • Teva announces third quarter 2017 dividend of 8.5 cents
  • 2017 outlook revised to non-GAAP EPS of $3.77 - $3.87

JERUSALEM--(BUSINESS WIRE)--Nov. 2, 2017-- Teva Pharmaceutical Industries Ltd. (NYSE: TEVA, TASE: TEVA) today reported results for the quarter ended September 30, 2017.

Revenues in the third quarter of 2017 were $5.6 billion, up 1% compared to the third quarter of 2016. Excluding the impact of foreign exchange fluctuations, revenues increased 4%.

Exchange rate differences between the third quarter of 2017 and the third quarter of 2016 reduced revenues by $169 million, GAAP operating income by $32 million and non-GAAP operating income by $17 million.

Adjustments of the exchange rates used for the Venezuelan bolivar resulted in a decrease of $243 million in revenues, a decrease of $25 million in GAAP operating income and a decrease of $15 million in non-GAAP operating income, compared to results in the third quarter of 2016. In light of the political and economic conditions in Venezuela, we exclude the quarterly changes in revenues and operating profit in Venezuela from any discussion of local currency results.

GAAP gross profit was $2.6 billion in the third quarter of 2017, down 6% compared to the third quarter of 2016. GAAP gross profit margin was 47.1% in the third quarter of 2017, compared to 50.4% in the third quarter of 2016. Non-GAAP gross profit was $3.0 billion in the third quarter of 2017, a decline of 12% from the third quarter of 2016. Non-GAAP gross profit margin was 53.0% in the third quarter of 2017, compared to 61.0% in the third quarter of 2016. The decrease in gross profit margin, on both a GAAP and a non-GAAP basis, was the result of lower gross profit and profitability of both our generic medicines and our specialty medicines businesses, as well as the addition of the low-margin Anda distribution business. GAAP results were impacted by lower inventory step-up expenses and lower amortization expenses, which mitigated some of the decrease.

Research and Development (R&D) expenses for the third quarter of 2017 amounted to $545 million, down 18% compared to the third quarter of 2016 due to lower expenditure related both to generic and specialty medicines as well as lower other R&D expenses. R&D expenses excluding equity compensation expenses and other R&D expenses were $381 million, or 6.8% of quarterly revenues in the third quarter of 2017, compared to $406 million, or 7.3%, in the third quarter of 2016. R&D expenses related to our generic medicines segment were $162 million, a decrease of 12% compared to $185 million in the third quarter of 2016, mainly due to portfolio optimization and various efficiency measures. R&D expenses related to our specialty medicines segment were $217 million, a decrease of 5% compared to $228 million in the third quarter of 2016, mainly due to portfolio optimization activities which compensated for the increased expenses related to our late-stage product candidates.

Selling and Marketing (S&M) expenses in the third quarter of 2017 amounted to $860 million, a decrease of 9% compared to the third quarter of 2016. S&M expenses excluding amortization of purchased intangible assets and equity compensation expenses were $805 million, or 14.3% of revenues, in the third quarter of 2017, compared to $889 million, or 16.0% of revenues, in the third quarter of 2016. S&M expenses related to our generic medicines segment were $377 million, a decrease of 11% compared to $423 million in the third quarter of 2016, mainly due to lower expenses in Venezuela following exchange rate adjustments as well as certain efficiency measures, partially offset by the inclusion of the S&M expenses of the Actavis Generics business for a full quarter. S&M expenses related to our specialty medicines segment were $388 million, down 15% compared to $458 million in the third quarter of 2016, mainly due to cost reduction and efficiency measures in our commercial operations, aligning with the life cycle of our product portfolio.

General and Administrative (G&A) expenses in the third quarter of 2017 amounted to $330 million, compared to $310 million in the third quarter of 2016. G&A expenses excluding equity compensation expenses were $318 million in the third quarter of 2017, or 5.7% of quarterly revenues, compared to $304 million, or 5.5% in the third quarter of 2016.

GAAP operating income in the third quarter of 2017 was $378 million, compared to operating income of $765 million in the third quarter of 2016. Non-GAAP operating income in the third quarter of 2017 was $1.5 billion, a decrease of 18% compared to the third quarter of 2016. Non-GAAP operating margin was 26.2% in the third quarter of 2017 compared to 32.2% in the third quarter of 2016.

EBITDA (non-GAAP operating income, which excludes amortization and certain other items, as well as excluding depreciation expenses) was $1.6 billion in the third quarter of 2017, down 16% compared to $1.9 billion in the third quarter of 2016.

GAAP financial expenses for the third quarter of 2017 were $259 million, compared to $150 million in the third quarter of 2016. Non-GAAP financial expenses were $229 million in the third quarter of 2017, compared to $151 million in the third quarter of 2016. The increase in our non-GAAP financial expenses is due mainly to higher expenses related to net foreign exchange losses and financial derivatives, as well as higher interest expenses related to the debt raised to finance the acquisition of Actavis Generics.

GAAP income taxes for the third quarter of 2017 amounted to a benefit of $494 million. In the third quarter of 2016, income taxes amounted to $207 million, or 34% on pre-tax income of $615 million. Non-GAAP income taxes for the third quarter of 2017 amounted to $135 million on pre-tax non-GAAP income of $1.2 billion, for a quarterly tax rate of 11%. Non-GAAP income taxes in the third quarter of 2016 amounted to $261 million on pre-tax non-GAAP income of $1.6 billion, for a quarterly tax rate of 16%.

We expect our annual non-GAAP tax rate for 2017 to be 15%, lower than our previous estimates. This is due to changes in the geographical mix of income we expect to generate this year. Our non-GAAP tax rate for 2016 was 17%.

GAAP net income attributable to ordinary shareholders and GAAP diluted EPS were $530 million and $0.52, respectively, in the third quarter of 2017, compared to $348 million and $0.35, respectively, in the third quarter of 2016. Non-GAAP net income attributable to ordinary shareholders for calculating diluted EPS and non-GAAP diluted EPS were $1.0 billion and $1.00, respectively, in the third quarter of 2017, compared to $1.4 billion and $1.31 in the third quarter of 2016.

For the third quarter of 2017, the weighted average outstanding shares for the fully diluted earnings per share calculation on both a GAAP and a non-GAAP basis was 1,017 million. For the third quarter of 2016, this was 984 million shares on a GAAP basis, and 1,044 million shares on a non-GAAP basis. For the three months ended September 30, 2017, the mandatory convertible preferred shares amounting to 59.4 million weighted average shares, had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation.

As of September 30, 2017, the fully diluted share count for calculating Teva's market capitalization was approximately 1,083 million shares.

Non-GAAP information: Net non-GAAP adjustments in the third quarter of 2017 were $482 million. Non-GAAP net income and non-GAAP EPS for the quarter were adjusted to exclude the following items:

  • Impairment of long-lived assets of $408 million, mainly an impairment of product rights and R&D assets related to the Actavis Generics acquisition;
  • Amortization of purchased intangible assets totaling $357 million, of which $310 million is included in cost of goods sold and the remaining $47 million in selling and marketing expenses;
  • Other R&D expenses of $150 million;
  • Restructuring expenses of $72 million;
  • Acquisition, integration and related expenses, including contingent consideration, of $49 million;
  • Equity compensation expenses of $32 million;
  • Financial expenses of $30 million;
  • Other non-GAAP items of $44 million;
  • Legal settlements and loss contingencies benefit of $20 million;
  • Minority interest adjustment of negative $11 million; and
  • Tax benefit of $629 million, including the effect of a one- time tax benefit associated with the utilization of Actavis Generics historic capital losses.

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 from operations generated during the third quarter of 2017 was $1.1 billion, compared to $1.5 billion in the third quarter of 2016. The decrease was mainly due to the impact of changes in working capital which increased by $0.3 billion.

Free cash flow, excluding net capital expenditures, was $0.9 billion, compared to $1.2 billion in the third quarter of 2016.

Total balance sheet assets amounted to $86.1 billion as of September 30, 2017, compared to $86.4 billion as of June 30, 2017.

As of September 30, 2017, our debt was $34.7 billion, compared to $35.1 billion at June 30, 2017. The decrease was mainly due to $0.6 billion of debt repayments of our 5 year term loan, our revolving credit facility and other short term loans, partially offset by foreign exchange fluctuations of $0.2 billion. The portion of total debt classified as short-term at September 30, 2017 was 8%.

Total shareholders’ equity was $30.3 billion as of September 30, 2017, compared to $29.6 billion as of June 30, 2017.

Segment Results for the Third Quarter 2017

Beginning in the fourth quarter of 2016, our OTC business, conducted primarily through PGT, is included in our generic medicines segment. This segment also includes chemical and therapeutic equivalents of originator medicines in a variety of dosage forms and our API manufacturing business.

All data presented has been conformed to the new segment structure.

Generic Medicines Segment

 
Three Months Ended September 30,
2017   2016
U.S. $ in millions / % of Segment Revenues
   
Revenues $ 3,007 100.0% $ 3,259 100.0%
Gross profit 1,158 38.5% 1,590 48.8%
R&D expenses 162 5.4% 185 5.7%
S&M expenses 377 12.5% 423 13.0%
Segment profit* $ 619 20.6% $ 982 30.1%

__________

* 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 and certain other items.
 

Generic Medicines Revenues

Generic medicines revenues in the third quarter of 2017 were $3.0 billion, a decrease of 8% compared to the third quarter of 2016.

Generic revenues consisted of:

  • U.S. revenues of $1.2 billion, down 9% compared to the third quarter of 2016, mainly due to challenging market dynamics including pricing declines resulting from customer consolidation into larger buying groups and accelerated FDA approvals for additional generic versions of competing off-patent medicines, partially offset by the inclusion of three months of Actavis Generics revenues in this quarter, compared to two months in the third quarter of 2016.
  • European revenues of $985 million, an increase of 6%, or 1% in local currency terms, compared to the third quarter of 2016, mainly due to the inclusion of three months of Actavis Generics revenues, compared to two months only in the third quarter of 2016.
  • ROW revenues of $843 million, a decrease of 18% compared to the third quarter of 2016. In local currency terms, revenues increased 5%, mainly due to the inclusion of three months of Actavis Generics revenues, compared to two months only in the third quarter of 2016.
  • OTC revenues (which are included in the market revenues above) were $306 million, down 22% compared to the third quarter of 2016. In local currency terms, revenues increased 15%, mainly due to the inclusion of three months of Actavis Generics revenues, compared to two months only in the third quarter of 2016. In-market sales of our joint venture, PGT Healthcare, were $372 million in the third quarter of 2017, down 25% compared to the third quarter of 2016, due to the reduction of sales in Venezuela.
  • API sales to third parties (which are included in the market revenues above) were $171 million, down 10% compared to the third quarter of 2016.

Generic medicines revenues comprised 54% of our total revenues in the quarter, compared to 59% in the third quarter of 2016.

Generic Medicines Gross Profit

Gross profit of our generic medicines segment in the third quarter of 2017 was $1.2 billion, a decrease of 27% compared to the third quarter of 2016. The lower gross profit was mainly due to higher production expenses, market dynamics in the United States and lower revenues in Venezuela following the currency devaluation.

Gross profit margin for our generic medicines segment in the third quarter of 2017 decreased to 38.5% from 48.8% in the third quarter of 2016.

The decrease in gross profit margin was due to lower profitability in our U.S. and ROW markets, partially offset by improved profitability of our European markets.

Generic Medicines Profit

Our generic medicines segment generated profit of $619 million in the third quarter of 2017, a decrease of 37% compared to the third quarter of 2016. Generic medicines profitability as a percentage of generic medicines revenues was 20.6% in the third quarter of 2017, down from 30.1% in the third quarter of 2016.

Specialty Medicines Segment

 
Three Months Ended September 30,
2017   2016
U.S. $ in millions / % of Segment Revenues
   
Revenues $ 2,034 100.0% $ 2,048 100.0%
Gross profit 1,757 86.4% 1,783 87.1%
R&D expenses 217 10.7% 228 11.1%
S&M expenses 388 19.1% 458 22.4%
Segment profit* $ 1,152 56.6% $ 1,097 53.6%

__________

* 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 and certain other items.
 

Specialty Medicines Revenues

Specialty medicines revenues in the third quarter of 2017 were $2.0 billion, down 1% compared to the third quarter of 2016. U.S. specialty medicines revenues were $1.5 billion, down 4% compared to the third quarter of 2016. European specialty medicines revenues were $447 million, an increase of 10%, or 5% in local currency terms, compared to the third quarter of 2016. ROW specialty revenues were $94 million, up 12%, in both dollar and local currency terms, compared to the third quarter of 2016.

Specialty medicines revenues comprised 36% of our total revenues in the quarter, compared to 37% in the third quarter of 2016.

The decrease in specialty medicines revenues compared to the third quarter of 2016 was primarily due to lower sales of our CNS products, which were largely offset by higher sales in all other 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, 2017 and 2016:

   
Three Months Ended

September 30,

Change
2017   2016 2017 - 2016
U.S. $ in millions
CNS $ 1,146 $ 1,302 (12%)
Copaxone® 987 1,061 (7%)
Azilect® 36 101 (64%)
Nuvigil® 21 21 0%
Respiratory 351 270 30%
ProAir® 155 118 31%
QVAR® 95 96 (1%)
Oncology 302 269 12%
Treanda® and Bendeka® 181 149 21%
Women's Health 119 109 9%
Other Specialty   116   98 18%
Total Specialty Medicines $ 2,034 $ 2,048 (1%)
 

Global revenues of Copaxone® (20 mg/mL and 40 mg/mL), the leading multiple sclerosis therapy in the U.S. and globally, were $1.0 billion, a decrease of 7% compared to the third quarter of 2016.

In October 2017, the FDA approved a generic version of Copaxone® 40 mg /mL and an additional generic version of Copaxone® 20 mg/mL. A generic version of Copaxone® 40 mg /mL was launched in the U.S. market. In the EU, a hybrid version of Copaxone® 40 mg/mL was approved.

Copaxone® revenues in the United States, were $802 million, a decrease of 8% compared to the third quarter of 2016, due to lower volumes of Copaxone® 20 mg/mL, negative net pricing effects, mainly as a result of an increase in managed care rebate accruals for inventory in the channel following the FDA approvals for additional generic competition, partially offset by a price increase of 7.9% in January 2017 for both the 20 mg/mL and 40 mg/mL versions. At the end of the third quarter of 2017, according to September 2017 IMS data, our U.S. market shares for the Copaxone® products in terms of new and total prescriptions were 25.6% and 28.7%, respectively. Copaxone® 40 mg/mL accounted for over 85% of total Copaxone® prescriptions in the U.S.

Copaxone® revenues outside the United States were $185 million, down 1%, compared to the third quarter of 2016. Over 75% of European Copaxone® prescriptions are now filled with the 40 mg/mL version.

Our global Azilect® revenues were $36 million, a decrease of 64% compared to the third quarter of 2016 following the introduction of generic competition to Azilect® in the United States in 2017.

Revenues of our respiratory products were $351 million, up 30% compared to the third quarter of 2016 mainly due to higher sales of ProAir® as well as the launches of Braltus® and Cinqair®/Cinqaero®. ProAir® revenues in the third quarter of 2017 were $155 million, up 31% compared to the third quarter of 2016, mainly due to higher positive net pricing effects and higher volumes sold. QVAR® global revenues were $95 million in the third quarter of 2017, down 1% compared to the third quarter of 2016.

Revenues of our oncology products were $302 million in the third quarter of 2017, up 12% compared to the third quarter of 2016. Combined revenues of Treanda® and Bendeka® were $181 million, up 21% compared to the third quarter of 2016, mainly due to higher volumes sold related to timing of purchases.

During September 2017, we entered into several agreements to sell certain non-core specialty products, including our global women’s health business. On November 1, we announced the completion of the Paragard® divestiture to CooperSurgical. The remaining transactions are expected to close during the remainder of 2017 and in 2018.

Specialty Medicines Gross Profit

Gross profit of our specialty medicines segment was $1.8 billion, a decrease of $26 million compared to the third quarter of 2016. Gross profit margin for our specialty medicines segment in the third quarter of 2017 was 86.4%, compared to 87.1% in the third quarter of 2016.

Specialty Medicines Profit

Our specialty medicines segment profit was $1.2 billion in the third quarter of 2017, up 5% compared to the third quarter of 2016.

Specialty medicines profit as a percentage of segment revenues was 56.6% in the third quarter of 2017, compared to 53.6% in the third quarter of 2016.

The increase in profit and profitability was driven by lower S&M and R&D expenses, partially offset by lower gross profit.

The following tables present details of our multiple sclerosis franchise and of our other specialty medicines for the three months ended September 30, 2017 and 2016:

 
Multiple Sclerosis
Three months ended September 30,
2017   2016
U.S.$ in millions / % of MS Revenues
   
Revenues $ 987 100.0% $ 1,061 100.0%
Gross profit 906 91.8% 982 92.6%
R&D expenses 16 1.6% 20 1.9%
S&M expenses   64   6.5%   76   7.2%
MS profit $ 826   83.7% $ 886   83.5%
 
 
Other Specialty
Three months ended September 30,
2017 2016
U.S.$ in millions / % of Other Specialty Revenues
 
Revenues $ 1,047 100.0% $ 987 100.0%
Gross profit 851 81.3% 801 81.2%
R&D expenses 201 19.2% 208 21.1%
S&M expenses   324   31.0%   382   38.7%
Other Specialty profit $ 326   31.1% $ 211   21.4%
 

Other Activities

Other revenues (primarily sales of third-party products for which we act as distributor, mostly in the United States via Anda, contract manufacturing services related to products divested in connection with the Actavis Generics acquisition and other miscellaneous items) were $569 million in the third quarter of 2017, compared to $256 million, in the third quarter of 2016. The increase was mainly related to the inclusion of Anda's revenues beginning in the fourth quarter of 2016.

Revenues from these other activities comprised 10% of our total revenues in the quarter, compared to 5% in the third quarter of 2016.

Updated 2017 Financial Outlook

   

FY 2017

Implied Q4 2017 Outlook

Revenues $22.2-22.3 billion

(previously $22.8-23.2 billion)

$5.3-5.4 billion
Non-GAAP EPS $3.77-3.87

(previously $4.30-4.50)

$0.70-0.80
Cash flow from operations $3.15-3.3 billion

(previously $4.4-4.6 billion)

$0.85-1.0 billion
 

Our 2017 financial outlook was lowered to reflect the following:

  • An earlier than expected, at-risk launch of a generic competitor to Copaxone® 40 mg/mL, with an expected impact on EPS of approximately 30 cents; and
  • Lower than expected contribution from new generic launches in the U.S. We now project approximately $400 million of revenues from new product launches in the year, compared to the previous projection of $500 million; and
  • Increased price erosion and volume declines in our U.S. Generics business including increased competition to our largest product, the Concerta® authorized generic; and
  • Lower cash flow from operations due to a reduction in net income and a delay in the resolution of our working capital dispute with Allergan, which is now scheduled to conclude in 2018.

These estimates reflect management's current expectations for Teva's performance in 2017. Actual results may vary, whether as a result of exchange rate differences, market conditions or other factors. In addition, the non-GAAP measures 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 October 31, 2017, the Board of Directors declared a cash dividend of $0.085 per ordinary share for the third quarter of 2017. 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 2, 2017. The record date will be November 28, 2017, and the payment date will be December 12, 2017. Tax will be withheld at a rate of 15%.

On October 31, 2017, the Board of Directors also declared a cash dividend of $17.50 per Mandatory Convertible Preferred Share for the third quarter of 2017. The record date will be December 1, 2017 and the payment date will be December 15, 2017. 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 Thursday, November 2, 2017 at 8:00 a.m. ET to discuss its third quarter 2017 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 1-866-869-2321; Canada 1-866-766-8269 or International +44(0) 203 0095710; passcode: 91932782. 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 November 30, 2017, 9:00 a.m. ET by calling United States 1-866-247-4222; Canada 1-866-878-9237 or International +44(0) 1452550000; passcode: 91932782.

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 approximately 200 million patients in 60 markets every day. Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has the world-leading innovative treatment for multiple sclerosis as well as late-stage development programs for other disorders of the central nervous system, including movement disorders, migraine, pain and neurodegenerative conditions, as well as a broad portfolio of respiratory products. Teva is leveraging its generics and specialty capabilities in order to seek new ways of addressing unmet patient needs by combining drug development with devices, services and technologies. Teva's net revenues in 2016 were $21.9 billion. For more information, visit www.tevapharm.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to:

  • our generics medicines business, including: that we are substantially more dependent on this business, with its significant attendant risks, following our acquisition of Allergan plc’s worldwide generic pharmaceuticals business (“Actavis Generics”); our ability to realize the anticipated benefits of the acquisition (and any delay in realizing those benefits) or difficulties in integrating Actavis Generics; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our generic products, both from competing products and as a result of increased governmental pricing pressures; and our ability to take advantage of high-value biosimilar opportunities;
  • our specialty medicines business, including: competition for our specialty products, especially Copaxone®, our leading medicine, which faces competition from existing and potential additional generic versions and orally-administered alternatives; our ability to achieve expected results from investments in our product pipeline; competition from companies with greater resources and capabilities; and the effectiveness of our patents and other measures to protect our intellectual property rights;
  • our substantially increased indebtedness and significantly decreased cash on hand, which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, and may result in a downgrade of our credit ratings;
  • our business and operations in general, including: uncertainties relating to our recent senior management changes; our ability to develop and commercialize additional pharmaceutical products; manufacturing or quality control problems, which may damage our reputation for quality production and require costly remediation; interruptions in our supply chain, including due to labor unrest; disruptions of our or third party information technology systems or breaches of our data security; the failure to recruit or retain key personnel, including those who joined us as part of the Actavis Generics acquisition; the restructuring of our manufacturing network, including potential related labor unrest or workers’ strikes; the impact of continuing consolidation of our distributors and customers; variations in patent laws that may adversely affect our ability to manufacture our products; our ability to consummate dispositions on terms acceptable to us; adverse effects of political or economic instability, major hostilities or terrorism on our significant worldwide operations; and our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions;
  • compliance, regulatory and litigation matters, including: costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; potential additional adverse consequences following our resolution with the U.S. government of our Foreign Corrupt Practices Act investigation; governmental investigations into sales and marketing practices; potential liability for sales of generic products prior to a final resolution of outstanding patent litigation; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;
  • other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; the significant increase in our intangible assets, which may result in additional substantial impairment charges; potentially significant increases in tax liabilities; and 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;

and other factors discussed in our Annual Report on Form 20-F for the year ended December 31, 2016, including in the section captioned “Risk Factors,” and in our other filings with the U.S. Securities and Exchange Commission, which are available at www.sec.gov and www.tevapharm.com. 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 cautioned not to put undue reliance on these forward-looking statements.

 

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,
2017 2016 2017 2016
Net revenues 5,610 5,563 16,926 15,411
Cost of sales 2,967   2,762   8,643   6,942  
Gross profit 2,643 2,801 8,283 8,469
Research and development expenses 545 663 1,488 1,427
Selling and marketing expenses 860 940 2,791 2,731
General and administrative expenses 330 310 838 925
Impairments, restructuring and others 550 (410 ) 1,209 421
Legal settlements and loss contingencies (20 ) 533 324 674
Goodwill impairment charge -   -   6,100   -  
Operating (loss) income 378 765 (4,467 ) 2,291
Financial expenses – net 259   150   704   553  
Income (loss) before income taxes 119 615 (5,171 ) 1,738
Income taxes (benefit) (494 ) 207 (462 ) 464
Share in (profits) losses of associated companies, net 3   (2 ) 10   (11 )
Net income (loss) 610 410 (4,719 ) 1,285
Net Income (loss) attributable to non-controlling interests 15   (2 ) 11   (17 )
Net income (loss) attributable to Teva 595   412   (4,730 ) 1,302  
Dividends on preferred shares 65   64   195   196  
Net income (loss) attributable to Teva's ordinary shareholders 530   348   (4,925 ) 1,106  
                     
Earnings (loss) per share attributable to ordinary shareholders: Basic ($) 0.52   0.35   (4.85 ) 1.18  
Diluted ($) 0.52   0.35   (4.85 ) 1.17  
Weighted average number of shares (in millions): Basic 1,017   979   1,016   935  
Diluted 1,017   984   1,016   942  
                   
                   
Non-GAAP net income attributable to ordinary shareholders:* 1,012   1,300   3,126   3,568  
Non-GAAP net income attributable to ordinary shareholders for diluted earnings per share:** 1,012   1,364   3,126   3,764  
 
Non-GAAP earnings per share attributable to ordinary shareholders:* Basic ($) 1.00   1.33   3.08   3.81  
Diluted ($)** 1.00   1.31   3.07   3.76  
 
Non-GAAP average number of shares (in millions): Basic 1,017   979   1,016   935  
Diluted 1,017   1,044   1,017   1,001  
                     
* See reconciliation attached.
**Dividends on the mandatory convertible preferred shares of $196 and $64 million for the nine months and the 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,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents 680 988
Trade receivables 7,424 7,523
Inventories 5,060 4,954
Prepaid expenses 1,203 1,629
Other current assets 581 1,293
Assets held for sale 1,278 841
Total current assets 16,226 17,228
Deferred income taxes 536 625
Other non-current assets 1,049 1,235
Property, plant and equipment, net 8,001 8,073
Identifiable intangible assets, net 20,878 21,487
Goodwill 39,392 44,409
Total assets 86,082 93,057
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt 2,731 3,276
Sales reserves and allowances 7,662 7,839
Trade payables 2,370 2,157
Employee-related obligations 718 859
Accrued expenses 2,577 3,405
Other current liabilities 847 836
Liabilities held for sale 38 116
Total current liabilities 16,943 18,488
 
Long-term liabilities:
Deferred income taxes 4,914 5,413
Other taxes and long-term liabilities 1,959 1,639
Senior notes and loans 31,971 32,524
Total long-term liabilities 38,844 39,576
Equity:
Teva shareholders’ equity 28,671 33,337
Non-controlling interests 1,624 1,656
Total equity 30,295 34,993
Total liabilities and equity 86,082 93,057

 

Condensed Consolidated Cash Flow

(Unaudited, U.S. Dollars in millions)

       
Three months ended Nine months ended
September 30,   September 30,
2017 2016 2017 2016
Operating activities:
Net income (loss) 610 410 (4,719 ) 1,285
Net change in operating assets and liabilities (44 ) 1,047 (755 ) 1,100
Items not involving cash flow 551 4 7,802 1,415
       
Net cash provided by operating activities 1,117 1,461 2,328 3,800
 
Net cash provided by (used in) investing activities (218 ) (32,301 ) 572 (34,943 )
 
Net cash provided by (used in) financing activities (825 ) 25,372 (3,244 ) 25,918
 
Translation adjustment on cash and cash equivalents 7 41 36 (164 )
       
Net change in cash and cash equivalents 81 (5,427 ) (308 ) (5,389 )
 
Balance of cash and cash equivalents at beginning of period 599 6,984 988 6,946
       
Balance of cash and cash equivalents at end of period 680   1,557   680   1,557  

       
Non GAAP reconciliation items

(Unaudited, U.S. Dollars in millions)

 
 

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017 2016 2017 2016
(U.S. $ in millions)
 
Gain on sales of business and long-lived assets - (693 ) - (693 )
Amortization of purchased intangible assets 357 429 1,088 811
Restructuring expenses 72 115 300 154
Inventory step-up - 152 67 243
Equity compensation expenses 32 31 103 83
Costs related to regulatory actions taken in facilities (1 ) 46 48 123
Acquisition, integration and related expenses 31 85 87 184
Other R&D expenses 150 252 176 262
Contingent consideration 18 34 179 85
Legal settlements and loss contingencies (20 ) 533 324 674
Goodwill impairment charge - 6,100 -
Impairment of long-lived assets 408 29 564 614
Other non-GAAP items 45 16 121 75
Financial expense (income) 30 (1 ) 5 344
Minority interest (11 ) (22 ) (44 ) (65 )
Tax benefit (629 ) (54 ) (1,067 ) (432 )

     
Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
               
U.S. dollars and shares in millions (except per share amounts)
GAAP

Non-GAAP
Adjustments

Dividends on
Preferred
Shares

Non-GAAP

% of Net
Revenues

GAAP

Non-GAAP
Adjustments

Dividends on
Preferred
Shares

Non-GAAP

% of Net
Revenues

 
Gross profit (1) 2,643 331 2,974 53 % 2,801 592 3,393 61 %
Operating income (loss) (1)(2) 378 1,092 1,470 26 % 765 1,029 1,794 32 %
 
Net income attributable to ordinary shareholders (1)(2)(3)(4) 530 482 1,012 18 % 348 952 64 1,364 25 %
Earnings per share attributable to ordinary shareholders - diluted (5) 0.52 0.48 1.00 0.35 0.96 1.31
 
 
(1) Amortization of purchased intangible assets 310 387
Inventory step-up - 152
Costs related to regulatory actions taken in facilities (1 ) 46
Equity compensation expenses 6 4
Other COGS related adjustments 16   3  
Gross profit adjustments 331 592
 
(2) Restructuring expenses 72 115
Amortization of purchased intangible assets 47 42
Equity compensation expenses 26 27
Acquisition, Integration and related expenses 31 85
Other R&D expenses 150 252
Contingent consideration 18 34
Legal settlements and loss contingencies (20 ) 533
Impairment of long-lived assets 408 29
Gain on sales of business and long-lived assets - (693 )
Other operating related adjustments 29   13  
761   437  
Operating income adjustments 1,092   1,029  
 
(3) Financial expense (income) 30 (1 )
Tax effect (629 ) (54 )
Minority interest (11 ) (22 )
Net income adjustments 482   952  
 
(4) For the three months ended September 30, 2017, no account was taken of the potential dilution of the accrued dividend to preferred shares amounting to $65 million, since it had an anti-dilutive effect on loss per share. 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.
 
(5) The non-GAAP weighted average number of shares was 1,017 and 979 million for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017, the mandatory convertible preferred shares amounting to 59.4 million weighted average shares had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation. 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.

                     
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
U.S. dollars and shares in millions (except per share amounts)
GAAP

Non-GAAP
Adjustments

Dividends on
Preferred
Shares

  Non-GAAP

% of Net
Revenues

  GAAP

Non-GAAP
Adjustments

 

Dividends on
Preferred
Shares

  Non-GAAP  

% of Net
Revenues

 
Gross profit (1) 8,283 1,114 9,397 56 % 8,469 1,090 9,559 62 %
Operating income (loss) (1)(2) (4,467 ) 9,155 4,688 28 % 2,291 2,612 4,903 32 %
Net income (loss) attributable to ordinary shareholders (1)(2)(3)(4) (4,925 ) 8,051 3,126 18 % 1,106 2,462 196 3,764 24 %
 
Earnings (loss) per share attributable to ordinary shareholders - diluted (5) (4.85 ) 7.92 3.07 1.17 2.59 3.76
 
 
 
(1) Amortization of purchased intangible assets 944 711
Inventory step-up 67 243
Costs related to regulatory actions taken in facilities 48 123
Equity compensation expenses 18 10
Other COGS related adjustments 37   3  
Gross profit adjustments 1,114 1,090
 
(2) Legal settlements and loss contingencies 324 674
Contingent consideration 179 85
Acquisition and related expenses 87 184
Other R&D expenses 176 262
Equity compensation expenses 85 73
Restructuring expenses 300 154
Goodwill impairment charge 6,100 -
Impairment of long-lived assets 564 614
Amortization of purchased intangible assets 144 100
Gain on sales of business and long-lived assets - (693 )
Other operating related expenses (income) 82   69  
8,041   1,522  
Operating income adjustments 9,155   2,612  
 
(3) Financial expense 5 344
Tax effect (1,067 ) (432 )
Impairment of equity investment—net 2 3
Minority interest (44 ) (65 )
Net income adjustments 8,051   2,462  
 
(4) For the nine months ended September 30, 2017, no account was taken of the potential dilution of the accrued dividend to preferred shares amounting to $195 million, since it had an anti-dilutive effect on loss per share. Dividends on the mandatory convertible preferred shares of $196 million for the nine 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.
 
(5) The non-GAAP weighted average number of shares was 1,016 and 935 million for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, the mandatory convertible preferred shares amounting to 59.4 million weighted average shares had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation. 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
2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues)
 
Revenues $ 3,007 100.0% $ 3,259 100.0% (8%)
Gross Profit 1,158 38.5% 1,590 48.8% (27%)
R&D Expenses 162 5.4% 185 5.7% (12%)
S&M Expenses   377   12.5%   423   13.0% (11%)
Segment Profit* $ 619   20.6% $ 982   30.1% (37%)
 
Specialty
Three months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues)
 
Revenues $ 2,034 100.0% $ 2,048 100.0% (1%)
Gross Profit 1,757 86.4% 1,783 87.1% (1%)
R&D Expenses 217 10.7% 228 11.1% (5%)
S&M Expenses   388   19.1%   458   22.4% (15%)
Segment Profit* $ 1,152   56.6% $ 1,097   53.6% 5%
 
* 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 and certain other items. Beginning in the fourth quarter of 2016, our OTC business is included in our generics medicines segment. The data presented have been conformed to reflect these changes for all relevant periods.

       
Segment Information
 
Generics
Nine months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues)
 
Revenues $ 9,143 100.0% $ 8,274 100.0% 11%
Gross Profit 3,844 42.0% 3,861 46.7% 0%
R&D Expenses 553 6.1% 448 5.4% 23%
S&M Expenses   1,202   13.1%   1,178   14.3% 2%
Segment Profit* $ 2,089   22.8% $ 2,235   27.0% (7%)
 
Specialty    
Nine months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S.$ in millions / % of Segment Revenues)
 
Revenues $ 6,119 100.0% $ 6,471 100.0% (5%)
Gross Profit 5,362 87.6% 5,632 87.0% (5%)
R&D Expenses 722 11.8% 702 10.8% 3%
S&M Expenses   1,288   21.0%   1,393   21.5% (8%)
Segment Profit* $ 3,352   54.8% $ 3,537   54.7% (5%)
 
* 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 and certain other items. Beginning in the fourth quarter of 2016, our OTC business is included in our generics medicines segment. The data presented have been conformed to reflect these changes for all relevant periods.

         

Additional information

 
Multiple Sclerosis
Three months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions / % of Segment Revenues)
 
Revenues $ 987 100.0% $ 1,061 100.0% (7%)
Gross profit 906 91.8% 982 92.6% (8%)
R&D expenses 16 1.6% 20 1.9% (20%)
S&M expenses   64   6.5%   76   7.2% (16%)
Segment profitability $ 826   83.7% $ 886   83.5% (7%)
 
Other Specialty
Three months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions / % of Segment Revenues)
 
Revenues $ 1,047 100.0% $ 987 100.0% 6%
Gross profit 851 81.3% 801 81.2% 6%
R&D expenses 201 19.2% 208 21.1% (3%)
S&M expenses   324   31.0%   382   38.7% (15%)
Segment profitability $ 326   31.1% $ 211   21.4% 55%

         
Additional information
 
Multiple Sclerosis    
Nine months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions / % of MS Revenues)
 
Revenues $ 2,980 100.0% $ 3,208 100.0% (7%)
Gross profit 2,731 91.6% 2,930 91.3% (7%)
R&D expenses 58 1.9% 65 2.0% (11%)
S&M expenses   280   9.4%   246   7.7% 14%
MS profit $ 2,393   80.3% $ 2,619   81.6% (9%)
 
 
Other Specialty    
Nine months ended September 30, Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions / % of Other Specialty Revenues)
 
Revenues $ 3,139 100.0% $ 3,263 100.0% (4%)
Gross profit 2,631 83.8% 2,702 82.8% (3%)
R&D expenses 664 21.2% 637 19.5% 4%
S&M expenses   1,008   32.0%   1,147   35.2% (12%)
Other Specialty profit $ 959   30.6% $ 918   28.1% 4%

   
Reconciliation of our segment profit
to consolidated income before income taxes
Three months ended
September 30,
  2017     2016  
(U.S. $ in millions)
 
Generic medicines profit $ 619 $ 982
Specialty medicines profit   1,152     1,097  
Total segment profit 1,771 2,079
Profit of other activities   17     19  
1,788 2,098
Amounts not allocated to segments:
Amortization 357 429
General and administrative expenses 330 310
Impairments, restructuring and others 550 (410 )
Inventory step-up - 152
Other R&D expenses 150 252
Costs related to regulatory actions taken in facilities (1 ) 46
Legal settlements and loss contingencies (20 ) 533
Other unallocated amounts 44 21
   
Consolidated operating income   378     765  
Financial expenses - net   259     150  
Consolidated income before income taxes $ 119   $ 615  

   
Reconciliation of our segment profit
to Teva's consolidated income before income taxes
Nine months ended
September 30,
  2017     2016
(U.S. $ in millions)
 
Generic medicines profit $ 2,089 $ 2,235
Specialty medicines profit   3,352     3,537  
Total segment profit 5,441 5,772
Profit of other activities   61     28  
5,502 5,800
Amounts not allocated to segments:
Amortization 1,088 811
General and administrative expenses 838 925
Goodwill impairment charge 6,100 -
Impairments, restructuring and others 1,209 421
Inventory step-up 67 243
Other R&D expenses 176 262
Costs related to regulatory actions taken in facilities 48 123
Legal settlements and loss contingencies 324 674
Other unallocated amounts 119 50
     
Consolidated operating income (loss)   (4,467 )   2,291  
Financial expenses - net   704     553  
Consolidated income (loss) before income taxes $ (5,171 ) $ 1,738  

         
Revenues by Activity and Geographical Area
(Unaudited)
 

Three Months Ended
September 30,

Percentage Change Percentage Change
2017 2016 2017 - 2016 2017 - 2016
(U.S. $ in millions) in local currencies
Generic Medicines
United States $ 1,179 $ 1,293 (9%) (9%)
Europe 985 933 6% 1%
Rest of the World   843   1,033 (18%) 5%
Total Generic Medicines 3,007 3,259 (8%) (2%)
Specialty Medicines
United States 1,493 1,558 (4%) (4%)
Europe 447 406 10% 5%
Rest of the World   94   84 12% 12%
Total Specialty Medicines 2,034 2,048 (1%) (2%)
Other Revenues
United States 317 12 n/a n/a
Europe 80 71 13% 6%
Rest of the World   172   173 (1%) (6%)
Total Other Revenues   569   256 122% 117%
Total Revenues $ 5,610 $ 5,563 1% 4%
 

*In light of the political and economic conditions in Venezuela, we exclude the quarterly changes in revenues and operating profit in Venezuela from any discussion of local currency results.

           
Revenues by Activity and Geographical Area
(Unaudited)

Nine Months Ended
September 30,

Percentage Change Percentage Change
2017 2016 2017 - 2016 2017 - 2016
(U.S. $ in millions) in local currencies
Generic Medicines
United States $ 3,850 $ 3,161 22% 22%
Europe 2,930 2,494 17% 19%
Rest of the World   2,363   2,619 (10%) 14%
Total Generic Medicines 9,143 8,274 11% 18%
Specialty Medicines
United States 4,521 5,007 (10%) (10%)
Europe 1,304 1,214 7% 9%
Rest of the World   294   250 18% 18%
Total Specialty 6,119 6,471 (5%) -5%
Other Revenues
United States 941 19 n/a n/a
Europe 237 176 35% 35%
Rest of the World   486     471 3% (2%)
Total Other Revenues   1,664   666 150% 146%
Total Revenues $ 16,926 $ 15,411 10% 14%

*In light of the political and economic conditions in Venezuela, we exclude the quarterly changes in revenues and operating profit in Venezuela from any discussion of local currency results.

   
Revenues by Product line
(Unaudited)
   

Three Months Ended
September 30,

Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions)
 
Generic Medicines $ 3,007 $ 3,259 (8%)
OTC 306 391 (22%)
API 171 191 (10%)
Specialty Medicines 2,034 2,048 (1%)
CNS 1,146 1,302 (12%)
Copaxone® 987 1,061 (7%)
Azilect® 36 101 (64%)
Nuvigil® 21 21 0%
Respiratory 351 270 30%
ProAir® 155 118 31%
QVAR® 95 96 (1%)
Oncology 302 269 12%
Treanda® and Bendeka® 181 149 21%
Women's Health 119 109 9%
Other Specialty 116 98 18%
All Others   569   256 122%
Total $ 5,610 $ 5,563 1%

   
Revenues by Product line
(Unaudited)
   

Nine Months Ended
September 30,

Percentage Change
2017 2016 2017 - 2016
(U.S. $ in millions)
 
Generic Medicines $ 9,143 $ 8,274 11%
OTC 853 949 (10%)
API 572 595 (4%)
Specialty Medicines 6,119 6,471 (5%)
CNS 3,442 4,040 (15%)
Copaxone® 2,980 3,208 (7%)
Azilect® 130 322 (60%)
Nuvigil® 52 175 (70%)
Respiratory 977 949 3%
ProAir® 399 426 (6%)
QVAR® 300 346 (13%)
Oncology 852 871 (2%)
Treanda® and Bendeka® 501 511 (2%)
Women's Health 358 336 7%
Other Specialty* 490 275 78%
All Others   1,664   666 150%
Total $ 16,926 $ 15,411 10%
 
* Includes aggregate payments of $150 million related to the Ninlaro® transaction in the first half of 2017.

Source: Teva Pharmaceutical Industries Ltd.

Teva Pharmaceutical Industries Ltd.
IR Contacts:
Kevin C. Mannix, United States, 215-591-8912
Ran Meir, United States, 215-591-3033
Tomer Amitai, Israel, 972 (3) 926-7656
or
PR Contacts:
Iris Beck Codner, Israel, 972 (3) 926-7246
Denise Bradley, United States, 215-591-8974