Israelinvestor.com

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 $1,337 million and positive impact of currency translations as
of June 30, 2011, resulting from the strengthening of various currencies compared to the
U.S. dollar (primarily the euro), partially offset by repurchases of Teva shares and
dividends paid to shareholders.
For the second quarter of 2011, the weighted average share count for the fully diluted
earnings per share calculation was 896 million on both a GAAP and non-GAAP basis. At
June 30, 2011, the share count for calculating Teva's market capitalization was
approximately 891 million.
Dividend
The Board of Directors, at its meeting on July 25, 2011, declared a cash dividend for the second quarter of 2011 of NIS 0.80 (approximately 23.5 cents according to the rate of exchange on July 26, 2011) per share. The record date will be August 3, 2011, and the payment date will be August 18, 2011. Tax will be withheld at a rate of 15%. Consolidated Statements of Income
(Unaudited, U.S. dollars in millions, except share and per share data)
Three months
Six months
2011 2010
Net sales
Cost of sales (a)
Gross profit
Research and development
expenses – net
Selling and marketing expenses
(b)
General and administrative
expenses
Legal settlements, acquisition and
restructuring expenses and impairment
Purchase of research and
development in process
Operating income
Financial (income) expenses – net
Income before income taxes
Provision for income taxes (d)
Share in losses of associated
companies – net
Net income
Net income attributable to non-
controlling interests
Net income attributable to Teva
GAAP earnings per share
Basic ($) 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 millions Unaudited 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 income 64
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 millions Unaudited 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 576 408
ble to
Teva
Earnings
Non GAAP reconciliation items
(Unaudited, U.S. Dollars in millions)
Three months
Six months
2011 2010 2011 2010
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 &

Source: http://www.israelinvestor.com/archive/TEVA/TEVA-2011Q2.pdf