JERUSALEM-- Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA) reported results for the quarter ended June 30, 2011.
Quarterly net sales of $4.2 billion, an increase of 11%.1
Quarterly non-GAAP net income and non-GAAP EPS of $984 million and $1.10, compared to $981 million and $1.08, respectively. Quarterly GAAP net income was $576 million, compared to $797 million; GAAP EPS totaled $0.64, compared to $0.88.
Strong sales growth in Europe of 82% (60% in local currencies) and 22% in EEMA, Latin America and Asia (15% in local currencies).
Strong sales growth in all branded franchises – respiratory (9%), women's health (45%), Azilect® in-market (38%), Copaxone® in-market (24%) – as well as API (12%(.
Record cash flow from operations of $1,324 million and free cash flow of $897 million.
For the first six months of 2011, sales increased by 11%, non-GAAP net income increased by 6% and non-GAAP EPS increased by 8%, compared to the first six months of 2010. On a GAAP basis, net income and EPS for the first six months of 2011 declined by 11% and 10%, respectively, compared to the comparable period in 2010.
Settled patent litigation in connection with the at-risk launches of generic Lotrel® and generic Neurontin®.
Shlomo Yanai, Teva's President and CEO, commented, "Teva’s results during the second quarter reflect the positive impact of our strategic initiatives to further diversify our business and develop new growth drivers. Contributions from across our company enabled us to offset the challenges we faced in our U.S. generics business. We anticipate increased growth in U.S. generics, as well as continued growth across all our geographies and businesses, in the second half of the year.” Sales in North America in the second quarter were $2,099 million (representing 50% of total sales), a decrease of 15%. Generic and other sales in the U.S. were $903 million in the quarter, down 40%. In contrast to last year, the current quarter lacked significant new launches and sales of key products (generic equivalents of Cozaar®, Hyzaar® Yaz®, Mirapex®, Eloxatin®, Protonix® and Lotrel®), sold in the second quarter of 2010 were absent or substantially diminished. Sales in Europe in the second quarter of 2011 were $1,478 million, up 82%, accounting for 35% of total sales. In local currencies, sales in Europe grew by 60%. Growth in sales resulted primarily from the inclusion of ratiopharm, mainly in Germany, France, Spain and Italy. Generics sales in the major European markets grew organically2 by 10%, and generics sales in Germany grew organically by 8%. Overall organic growth in generics sales in Europe totaled 4% (all in local currencies). Sales in EEMA, Latin America and Asia (International markets) in the second quarter of 2011 totaled $635 million, up 22%, accounting for 15% of total sales. In local currencies, sales in EEMA, Latin America and Asia grew by 15%. The growth in sales was attributable to higher sales in all major markets in Latin America (organic growth of 14% in generics sales in local currencies) as well as in Russia (organic growth of 11% in generics sales in local currency).
Global respiratory product sales totaled $240 million in the quarter, an increase of 9%. The increase in sales resulted primarily from growth in Europe, with strong global sales of Qvar®. Respiratory product sales in the U.S. totaled $139 million in the second quarter, a decrease of 3%. As of June 30, 2011, ProAir™ strengthened its leadership position with a 51% market share in the SABA (short acting beta agonist) market in the U.S., while Qvar® further solidified its number two position in the inhaled corticosteroid category (ICS) market with a 22% market share in the U.S., compared to 19%.
Global women's health product sales were $119 million in the quarter, up 45%. The increase in sales was driven primarily by the inclusion of sales of Theramex products in Europe, and to a lesser extent by an increase of sales in the U.S.
Global in-market sales of Azilect® reached a record $97 million in the quarter, an increase of 38%, with growth both in Europe and the U.S.
Global in-market sales of Copaxone®, the leading multiple sclerosis therapy in the U.S. and globally, reached a record $957 million in the second quarter of 2011, an increase of 24%. In the U.S., in-market sales increased 29% to $682 million, as a result of both price increases and volume growth. In-market sales outside the U.S. grew 13% to $275 million, with 9% unit growth, mostly in Spain, France, Germany, Italy and the U.K., as well as Mexico. API sales to third parties totaled $183 million in the second quarter of 2011, up 12%. Exchange rate differences had a positive impact on sales in the second quarter of 2011 of approximately $222 million, resulting primarily from the strengthening of certain currencies (primarily the euro) relative to the U.S. dollar. Foreign currency differences positively affected operating income by approximately $25 million on a GAAP basis and $40 million on a non-GAAP basis.
Non-GAAP net income and non-GAAP EPS for the second quarter of 2011 are adjusted to exclude the following items:
Legal charges of $221 million primarily in connection with settlements of our at-risk launches of generic Lotrel® and generic Neurontin®, and some propofol product liability cases;
Amortization of purchased intangible assets and an inventory step-up of $177 million;
Restructuring and acquisition expenses and impairment of assets of $51 million;
Costs related to regulatory actions taken in facilities of $45 million; and
Teva believes that excluding these items facilitates investors' understanding of the trends in the Company's underlying business. In the second quarter of 2010, non-GAAP net income and non-GAAP EPS excluded amortization of purchased intangible assets, restructuring expenses, income in connection with legal settlements, purchase of research and development in process, impairment of assets, financial expenses related to hedging activity in connection with the acquisition of ratiopharm, net of gains from the sale of marketable securities and related tax effects. See the attached tables for a reconciliation of U.S. GAAP reported results to the adjusted non-GAAP figures.
Non-GAAP gross profit margin was 57.3% in the second quarter of 2011, compared to 59.0%. Non-GAAP gross profit margin was impacted by the product mix in the U.S. – a decrease in the contribution from certain high margin generic products, partially offset by an increase in the contribution from branded products. GAAP gross profit margin was 52.2% in the second quarter of 2011, compared to 55.8%. The decrease in GAAP gross profit margin primarily reflects changes in product mix mentioned above, as well as amortization of purchased intangible assets related to the ratiopharm acquisition, costs related to regulatory actions taken in facilities and inventory step-up recorded in the current quarter. Net Research & Development (R&D) expenditures in the second quarter of 2011 totaled $243 million, or 5.8% of sales, an increase of 12%, compared to $217 million, or 5.7% of sales. The increase in R&D spending reflects greater investment in branded products. Gross R&D in the second quarter of 2011, before reimbursement from third parties for certain R&D expenses, totaled approximately $262 million, or 6.2% of sales, an increase of 6%. Selling and Marketing expenditures (excluding amortization of purchased intangible assets) were $794 million, or 18.9% of sales, for the second quarter of 2011, compared to $636 million, or 16.7% of sales. General and Administrative (G&A) expenditures totaled $284 million, or 6.7% of sales, compared with $189 million, or 5.0% of sales. The increase in G&A expenses resulted primarily from the inclusion of ratiopharm and other acquired companies and significantly higher legal expenses.
Non-GAAP net financial income in the second quarter of 2011 totaled $20 million, resulted primarily from the settlement of various financial derivatives including an interest rate swap agreement executed on certain long term senior notes, compared with non-GAAP financial expense of $25 million in the second quarter of 2010.
The non-GAAP tax provision for the second quarter was $113 million of pre-tax non- GAAP income of $1,111 million. Teva's current estimate of the annual tax rate of non- GAAP income for 2011 is 11%, compared to 13% of pre-tax non-GAAP income for
2010. The current estimate for the 2011 non-GAAP tax rate is based on a mix of products manufactured in jurisdictions where Teva benefits from tax incentives. The product mix in future years is expected to be different, resulting in a higher tax rate. On a GAAP basis, the annual projected tax rate for 2011 is 5%.
Cash flow from operations during the second quarter of 2011 was $1,324 million, compared to $954 million. Free cash flow – excluding net capital expenditures (of $224 million) and dividends (of $203 million) – reached $897 million. Cash and marketable securities on June 30, 2011 amounted to $1.4 billion.
During the quarter, share repurchases totaled approximately 2.0 million shares for an aggregate purchase price of approximately $95 million. Since the beginning of December 2010, Teva has repurchased 11.8 million shares for approximately $594 million, of a total repurchase plan of up to $1 billion authorized in December 2010. As a result of share repurchases from December 2010 to June 2011 and the redemption of certain convertible debentures, Teva's share count was reduced by approximately 27 million shares during this period. Total equity at June 30, 2011 was $23.7 billion, an increase of $1.7 billion, compared to $22.0 billion at December 31, 2010. The increase in total equity is attributable primarily to the GAAP net income of $1,337 million and positive impact of currency translations as of June 30, 2011, resulting from the strengthening of various currencies compared to the U.S. dollar (primarily the euro), partially offset by repurchases of Teva shares and dividends paid to shareholders.
For the second quarter of 2011, the weighted average share count for the fully diluted earnings per share calculation was 896 million on both a GAAP and non-GAAP basis. At June 30, 2011, the share count for calculating Teva's market capitalization was approximately 891 million. Dividend
The Board of Directors, at its meeting on July 25, 2011, declared a cash dividend for the second quarter of 2011 of NIS 0.80 (approximately 23.5 cents according to the rate of exchange on July 26, 2011) per share.
The record date will be August 3, 2011, and the payment date will be August 18, 2011. Tax will be withheld at a rate of 15%.
Consolidated Statements of Income (Unaudited, U.S. dollars in millions, except share and per share data) Three months Six months 20112010 Net sales Cost of sales (a) Gross profit Research and development expenses – net Selling and marketing expenses (b) General and administrative expenses Legal settlements, acquisition and restructuring expenses and impairment Purchase of research and development in process Operating income Financial (income) expenses – net Income before income taxes Provision for income taxes (d) Share in losses of associated companies – net Net income Net income attributable to non- controlling interests Net income attributable to Teva GAAP earnings per share Basic ($) 0.65 attributable to Teva: Weighted average number of shares (in millions): Non-GAAP net income attributable to Teva:* Non-GAAP earnings per share Basic ($) 1.10 attributable to Teva:* Weighted average number of shares (in millions):
(a) Cost of sales includes $152 million and $122 million of amortization of purchased intangible assets in the three months ended June 30, 2011 and 2010, respectively, $45
million of costs related to regulatory actions taken in facilities in the three months ended
June 30, 2011 and $15 million of inventory step-up in the three months ended June 30, 2011. (b) Selling and marketing expenses includes $10 million and $8 million of amortization
of purchased intangible assets in the three months ended June 30, 2011 and 2010,
respectively. (c) Financial expenses includes $147 million resulting from hedging of the ratiopharm
acquisition offset by $24 million gain from sale of securities in the three months ended
June 30, 2010. (d) Provision for income taxes includes $86 million and $65 million of related tax effect
of non-GAAP charges in the three months ended June 30, 2011 and 2010, respectively. Condensed Balance Sheets (U.S. dollars in millions) June 30,December 31, Current assets: Total current assets Long-term investments and receivables Deferred taxes, deferred charges and other assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Total assets LIABILITIES AND EQUITY Current liabilities:
Short-term debt and current maturities of long term liabilities 1,927
Convertible senior debentures - short term
Total current liabilities Long-term liabilities:
Convertible senior debentures - long term
Total long term liabilities Total equity Total liabilities and equity Condensed Cash Flow (Unaudited, U.S. Dollars in millions) Three months Six months Operating activities: Net income Increase (decrease) in operating assets and liabilities Expenses not involving cash flow and others 131 Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Translation adjustment on cash and cash equivalents Net change in cash and cash equivalents Balance of cash and cash equivalents at beginning of period Balance of cash and cash equivalents at end of 1,139 4,854 1,139 4,854 period Reconciliation between reported Net Income attributable to Teva and Earnings per share as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share Six months ended Six months ended June 30, 2011 June 30, 2010 Unaudited U.S. dollars in millionsUnaudited U.S. dollars in millions (except per share amounts) (except per share amounts) Effect of Effect of reconcilia reconcilia tion item tion item GAA Reconcilia GAA Reconcilia GAAP GAAP GAAP GAAP measu diluted measu diluted
s, acquisition and restructuring expenses and impairment Purchase of research
developm ent in process Operatin 1,4 g income64
taxes Net income attributa ble to Teva Earnings per share Reconciliation between reported Net Income attributable to Teva and Earnings per share as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share Three months ended Three months ended June 30, 2011 June 30, 2010 Unaudited U.S. dollars in millionsUnaudited U.S. dollars in millions (except per share amounts) (except per share amounts) Effect of Effect of reconcilia reconcilia tion item tion item GAA Reconcilia GAA Reconcilia GAAP GAAP GAAP GAAP measu diluted measu diluted
ative expenses Legal settlements, acquisition and
ng expenses and impairment Purchase of research
developm ent in process Operatin
taxes Net income attributa 576408 ble to Teva Earnings Non GAAP reconciliation items (Unaudited, U.S. Dollars in millions) Three months Six months 2011201020112010 Amortization of purchased intangible assets - under cost of sales Costs related to regulatory actions taken in facilities - under cost of sales Inventory step-up Amortization of purchased intangible assets - under selling and marketing Legal settlements and reserves Restructuring and acquisition expenses Impairment of long-lived assets Purchase of research and development in process - Financial expenses related to hedging activity of - the ratiopharm acquistion Gain from sale of marketable securities Related tax effect Sales by Geographic Area (Unaudited, U.S Dollars in millions) Three months ended 100%100%11%
* Includes EU member states, Switzerland &
Norway. Sales by Geographic Area (Unaudited, U.S Dollars in millions) Six months ended 100%100%11
* Includes EU member states, Switzerland &
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