On April 28, 2021 Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) reported results for the quarter ended March 31, 2021 (Press release, Teva, APR 28, 2021, View Source [SID1234578650]).
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Mr. Kåre Schultz, Teva’s President and CEO, said, "As the COVID-19 pandemic continues to impact the world and our industry, our employees continue to work together to meet the needs of our customers and patients, all while we remain focused on our long-term goals and laying the foundation for future growth.
"We have improved our profitability and reduced our net debt to $23.2 billion. We have also seen solid performance from our key growth drivers: the biosimilar Truxima increased its market share to 26%, AUSTEDO continued its year-over-year growth, and AJOVY solidified its market share in the U.S. and continues to expand in Europe. Based on our results and expectations for the remainder of the year, we are reaffirming our guidance."
First Quarter 2021 Consolidated Results
Revenues in the first quarter of 2021 were $3,982 million, a decrease of 9% or 10% in local currency terms, compared to the first quarter of 2020. This decrease was mainly due to lower revenues from generic, OTC and respiratory products and from COPAXONE in our Europe segment, lower revenues from Anda, COPAXONE and BENDEKA/TREANDA in our North America segment, lower revenues from Japan resulting from the divestment of a majority of the generic and operational assets of our Japanese business venture, as well as regulatory price reductions and generic competition to off-patented products in Japan, partially offset by higher revenues from generic products and AUSTEDO in our North America segment. Revenues were also affected by changes in demand for certain products resulting from the impact of the COVID-19 pandemic.
Exchange rate movements during the first quarter of 2021, net of hedging effects, positively impacted our revenues by $74 million and negatively impacted our GAAP and non-GAAP operating income by $14 million and $10 million, respectively.
GAAP gross profit was $1,878 million in the first quarter of 2021, a decrease of 9% compared to the first quarter of 2020. GAAP gross profit margin was 47.2% in the first quarter of 2021, compared to 47.3% in the first quarter of 2020. The decrease in gross profit margin was mainly due to lower revenues from our Europe segment, partially offset by higher profitability in North America resulting from the change in mix of products. Non-GAAP gross profit was $2,144 million in the first quarter of 2021, a decrease of 7% compared to the first quarter of 2020. Non-GAAP gross profit margin was 53.8% in the first quarter of 2021, compared to 53.1% in the first quarter of 2020.
GAAP Research and Development (R&D) expenses in the first quarter of 2021 were $254 million, an increase of 15% compared to the first quarter of 2020. Non-GAAP R&D expenses were $244 million, or 6.1% of quarterly revenues, in the first quarter of 2021, compared to $221 million, or 5.1%, in the first quarter of 2020. In the first quarter of 2021, our R&D expenses related primarily to specialty product candidates in the respiratory and pain therapeutic areas, with additional activities in selected other areas and generic products including biosimilars. Our higher R&D expenses in the first quarter of 2021, compared to the first quarter of 2020, were mainly due to an increase in respiratory and biosimilar projects.
GAAP Selling and Marketing (S&M) expenses in the first quarter of 2021 were $585 million, a decrease of 5% compared to the first quarter of 2020. Non-GAAP S&M expenses were $549 million, or 13.8% of quarterly revenues, in the first quarter of 2021, compared to $570 million, or 13.1%, in the first quarter of 2020.
GAAP General and Administrative (G&A) expenses in the first quarter of 2021 were $290 million, a decrease of 5% compared to the first quarter of 2020. Non-GAAP G&A expenses were $278 million, or 7.0% of quarterly revenues, in the first quarter of 2021, compared to $290 million, or 6.7%, in the first quarter of 2020.
GAAP operating income in the first quarter of 2021 was $434 million, compared to $191 million in the first quarter of 2020. The increase was mainly due to lower intangible asset impairment charges in the first quarter of 2021, partially offset by lower profit in our Europe segment along with higher legal settlements and loss contingencies.
Non-GAAP operating income in the first quarter of 2021 was $1,077 million, a decrease of 13%, compared to $1,244 million in the first quarter of 2020. The decrease was mainly due to lower profit in our Europe segment.
EBITDA (defined as operating income, excluding depreciation and amortization expenses) was $809 million in the first quarter of 2021, an increase of 37% compared to $590 million in the first quarter of 2020. Adjusted EBITDA (defined as operating income excluding depreciation and amortization expenses and certain other items) was $1,206 million in the first quarter of 2021, a decrease of 12% compared to $1,375 million in the first quarter of 2020.
GAAP financial expenses were $290 million in the first quarter of 2021, compared to $224 million in the first quarter of 2020. Non-GAAP financial expenses were $227 million in the first quarter of 2021, compared to $213 million in the first quarter of 2020. Financial expenses in the first quarter of 2021, were mainly comprise of interest expenses of $239 million and loss on revaluation of marketable securities of $64 million. Financial expense in the first quarter of 2020 were mainly comprised of interest expenses of $241 million.
In the first quarter of 2021, we recognized a GAAP tax expense of $62 million, on pre-tax income of $144 million. In the first quarter of 2020, we recognized a tax benefit of $59 million, on pre-tax loss of $33 million. Our tax rate for the first quarter of 2021 was mainly affected by legal settlements, impairments and amortization in jurisdictions in which tax rates are lower than Teva’s average tax rate on its ongoing business operations. Non-GAAP income taxes for the first quarter of 2021 were $146 million, or 17%, on pre-tax non-GAAP income of $851 million. Non-GAAP income taxes in the first quarter of 2020 were $175 million, or 17%, on pre-tax non-GAAP income of $1,030 million. Our non-GAAP tax rate for the first quarter of 2021 was mainly affected by the mix of products we sold and interest expense disallowance.
We expect our annual non-GAAP tax rate for 2021 to be 17%-18%, unchanged from our outlook provided in February 2021.
GAAP net income attributable to Teva and GAAP EPS were $77 million and $0.07 respectively, in the first quarter of 2021, compared to $69 million and $0.06 in the first quarter of 2020. This increase was mainly due to the increase in operating income, as discussed above. Non-GAAP net income attributable to Teva and non-GAAP diluted EPS in the first quarter of 2021 were $699 million and $0.63, respectively, compared to $835 million and $0.76 in the first quarter of 2020.
The weighted average diluted shares outstanding used for the fully diluted share calculation on a GAAP and non-GAAP basis for the three months ended March 31, 2021 and 2020 was 1,107 million and 1,096 million shares, respectively.
As of March 31, 2021 and 2020, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,130 million and 1,118 million, respectively.
Non-GAAP information: Net non-GAAP adjustments in the first quarter of 2021 were $621 million. Non-GAAP net income and non-GAAP EPS for the first quarter of 2021 were adjusted to exclude the following items:
Amortization of purchased intangible assets of $242 million, of which $215 million is included in cost of sales and the remaining $27 million in S&M expenses;
Impairment of long-lived assets of $127 million, comprised mainly of impairment of intangible assets of IPR&D and product rights assets in connection with the Actavis Generics acquisition;
Legal settlements and loss contingencies of $104 million, mainly related to a provision for a potential patent setlement;
Restructuring expenses of $81 million;
Finance expense of $64 million, related to revaluation of marketable securities;
Equity compensation expenses of $31 million;
Other items of $57 million; and
Income tax of $85 million.
Teva believes that excluding such items facilitates investors’ understanding of its business. For further information, see the tables below for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and the information under "Non-GAAP Financial Measures." Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.
Cash flow used in operating activities during the first quarter of 2021 was $405 million, compared to $305 million generated in the first quarter of 2020. The decrease in the first quarter of 2021 was mainly due to changes in working capital items resulting from a decrease in sales reserves and allowances (SR&A) and an increase in inventory, as well as lower profit in our Europe segment.
Free cash flow (cash flow from operating activities, cash used for capital investments, beneficial interest collected in exchange for securitized accounts receivables and proceeds from divestitures of businesses and other assets) was $59 million in the first quarter of 2021, compared to $551 million in the first quarter of 2020. The decrease in the first quarter of 2021 resulted mainly from lower cash flow from operating activities, partially offset by higher sales of assets.
As of March 31, 2021, our debt was $24,986 million, compared to $25,919 million as of December 31, 2020. This decrease was mainly due to redemption of $491 million of our convertible senior debentures and exchange rate fluctuations. The portion of total debt classified as short-term as of March 31, 2021 was 11%, compared to 12% as of December 31, 2020. Our average debt maturity was approximately 5.6 years as of March 31, 2021, compared to 5.8 years as of December 31, 2020. Our financial leverage was 69% as of March 31, 2021, compared to 70% as of December 31, 2020.
Segment Results for the First Quarter of 2021
North America Segment
Our North America segment includes the United States and Canada.
Revenues from our North America segment in the first quarter of 2021 were $1,989 million, a decrease of $94 million, or 5%, compared to the first quarter of 2020, mainly due to a decrease in revenues from Anda, COPAXONE and BENDEKA/TREANDA, partially offset by higher revenues from generic products and AUSTEDO. Our North America segment has experienced some reductions in volume due to less physician and hospital activity during the COVID-19 pandemic, but has also experienced increase in demand for certain products related to the treatment of COVID-19 and its symptoms. In addition, the ability to promote certain specialty products, primarily AJOVY and AUSTEDO, has been impacted by less physician visits by patients and less physician interactions by our sales personnel.
Revenues in the United States, our largest market, were $1,854 million in the first quarter of 2021, a decrease of $87 million, or 4%, compared to the first quarter of 2020.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the three months ended March 31, 2021 and 2020:
Generic products revenues in our North America segment (including biosimilars) in the first quarter of 2021 were $1,053 million, an increase of 11% compared to the first quarter of 2020. This increase was mainly due to higher revenues from emtricitabine and tenofovir disoproxil fumarate tablets (the generic equivalent of Truvada), Truxima (the biosimilar to Rituxan) and ProAir authorized generic, partially offset by lower volume and pricing of other generic products.
In January 2021, we launched etonogestrel and ethinyl estradiol vaginal ring, 0.120 mg/0.015 mg per day (the generic equivalent of NuvaRing) in the U.S., which is an estrogen/progestin combination hormonal contraceptive (CHC) indicated for use by women to prevent pregnancy.
In the first quarter of 2021, our total prescriptions were approximately 322 million (based on trailing twelve months), representing 9.2% of total U.S. generic prescriptions according to IQVIA data.
AJOVY revenues in our North America segment in the first quarter of 2021 were $31 million, an increase of $2 million, or 8% compared to the first quarter of 2020, mainly due to growth in volume. AJOVY is the only anti-CGRP product indicated for quarterly treatment and in January 2021 we launched a new triple pack product offering, providing quarterly dosing.
AUSTEDO revenues in our North America segment in the first quarter of 2021 increased by 20% to $146 million, compared to $122 million in the first quarter of 2020. This increase was mainly due to growth in volume.
BENDEKA and TREANDA combined revenues in our North America segment in the first quarter of 2021 decreased by 14% to $91 million, compared to the first quarter of 2020, mainly due to availability of alternative therapies and continued competition.
COPAXONE revenues in our North America segment in the first quarter of 2021 decreased by 17% to $164 million, compared to the first quarter of 2020, mainly due to generic competition in the United States.
ProAir (HFA and RespiClick) revenues in our North America segment in the first quarter of 2021 decreased by 9% to $54 million, compared to the first quarter of 2020. In January 2019, we launched our own ProAir authorized generic in the United States, following the launch of a generic version of Ventolin HFA, another albuterol inhaler. Revenues from our ProAir authorized generic are included in "generic products" above.
Anda revenues in our North America segment in the first quarter of 2021 decreased by 32% to $289 million, compared to $426 million in the first quarter of 2020, mainly due to lower demand. In addition, revenues were higher in first quarter of 2020 as a result of significant customer stocking due to the COVID-19 pandemic.
North America Gross Profit
Gross profit from our North America segment in the first quarter of 2021 was $1,074 million, an increase of 1%, compared to $1,062 million in the first quarter of 2020.
Gross profit margin for our North America segment in the first quarter of 2021 increased to 54.0%, compared to 51.0% in the first quarter of 2020. This increase was mainly due to the change in mix of products.
North America Profit
Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our North America segment in the first quarter of 2021 was $577 million, an increase of 5% compared to $550 million in the first quarter of 2020, mainly due to higher gross profit, as discussed above, as well as lower S&M expenses.
Europe Segment
Our Europe segment includes the European Union and certain other European countries.
The following table presents revenues, expenses and profit for our Europe segment for the three months ended March 31, 2021 and 2020:
Revenues from our Europe segment in the first quarter of 2021 were $1,214 million, a decrease of 13%, or $188 million, compared to the first quarter of 2020. In local currency terms, revenues decreased by 20%, mainly due to higher revenues in first quarter of 2020 as a result of significant customer stocking due to the COVID-19 pandemic. In addition, revenues were impacted by lower demand of generic, OTC and respiratory products resulting from a decline in doctor and hospital visits by patients resulting in fewer prescriptions as well as lower sales of cough and cold products, both due to the COVID-19 pandemic. The decrease in revenues is also attributed to a decline in COPAXONE revenues due to competing glatiramer acetate products and price declines in oncology products as a result of generic competition.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the three months ended March 31, 2021 and 2020:
Generic products revenues in our Europe segment in the first quarter of 2021, including OTC products, decreased by 16% to $865 million, compared to the first quarter of 2020. In local currency terms, revenues decreased by 23% compared to the first quarter of 2020, mainly due to higher revenues in first quarter of 2020 as a result of significant customer stocking due to the COVID-19 pandemic. In addition, revenues were impacted by lower demand of generic and OTC products resulting from a decline in doctor and hospital visits by patients resulting in fewer prescriptions as well as lower sales of cough and cold products, both due to the COVID-19 pandemic.
AJOVY revenues in our Europe segment in the first quarter of 2021 were $16 million, compared to $4 million in the first quarter of 2020, mainly due to launches and reimbursements in additional European countries.
COPAXONE revenues in our Europe segment in the first quarter of 2021 decreased by 8% to $100 million, compared to the first quarter of 2020. In local currency terms, revenues decreased by 15%, due to price reductions and a decline in volume resulting from competing glatiramer acetate products.
Respiratory products revenues in our Europe segment in the first quarter of 2021 decreased by 12% to $93 million, compared to the first quarter of 2020. In local currency terms, revenues decreased by 19%, mainly due to significant customer stocking due to the COVID-19 pandemic in first quarter of 2020, as well as reduced demand resulting from COVID-19 restrictions in the first quarter of 2021.
Europe Gross Profit
Gross profit from our Europe segment in the first quarter of 2021 was $688 million, a decrease of 17% compared to $823 million in the first quarter of 2020.
Gross profit margin for our Europe segment in the first quarter of 2021 decreased to 56.6%, compared to 58.7% in the first quarter of 2020. This decrease was mainly due to lower revenues, as discussed above and increased write-offs and obsolescence provisions as a result of increased inventory levels.
Europe Profit
Profit from our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our Europe segment in the first quarter of 2021 was $338 million, a decrease of 33%, compared to $502 million in the first quarter of 2020. This decrease was mainly due to lower revenues, as discussed above.
International Markets Segment
Our International Markets segment includes all countries in which we operate other than those in our North America and Europe segments. The key markets in this segment are Japan, Russia and Israel.
On February 1, 2021, we completed the sale of the majority of the generic and operational assets of our business venture in Japan.
The following table presents revenues, expenses and profit for our International Markets segment for the three months ended March 31, 2021 and 2020:
Revenues from our International Markets segment in the first quarter of 2021 were $490 million, a decrease of $75 million, or 13%, compared to the first quarter of 2020. In local currency terms, revenues decreased by 7% compared to the first quarter of 2020, mainly due to lower revenues in Japan resulting from the divestment mentioned above, as well as regulatory price reductions and generic competition to off-patented products in Japan and lower positive impact from hedging activity.
Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the three months ended March 31, 2021 and 2020:
Generic products revenues in our International Markets segment in the first quarter of 2021, which include OTC products, decreased by 13% to $392 million, compared to the first quarter of 2020. In local currency terms, revenues decreased by 11%, mainly due to lower sales in Japan resulting from the divestment mentioned above, as well as regulatory price reductions and generic competition to off-patented products in Japan.
COPAXONE revenues in our International Markets segment in the first quarter of 2021 were $12 million, flat compared to the first quarter of 2020. In local currency terms, revenues increased by 4%.
AJOVY was launched in certain International Markets countries and we are moving forward with plans to launch in other countries.
AUSTEDO launched in China for treatment of chorea associated with Huntington disease and for the treatment of tardive dyskinesia in early 2021. We continue with additional submissions in various other countries.
International Markets Gross Profit
Gross profit from our International Markets segment in the first quarter of 2021 was $260 million, a decrease of 15% compared to $305 million in the first quarter of 2020.
Gross profit margin for our International Markets segment in the first quarter of 2021 decreased to 53.0%, compared to 54.0% in the first quarter of 2020. This decrease was mainly due to lower positive impact from hedging activity and a change in mix of products.
International Markets Profit
Profit from our International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.
Profit from our International Markets segment in the first quarter of 2021 was $122 million, a decrease of 22%, compared to $156 million in the first quarter of 2020. This decrease was mainly due to lower positive impact from hedging activity, as well as lower sales in Japan resulting from regulatory price reductions and generic competition to off-patented products, partially offset by lower S&M expenses.
Other Activities
We have other sources of revenues, primarily the sale of active pharmaceutical ingredients ("APIs") to third parties, certain contract manufacturing services and an out-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or International Markets segments described above.
Our revenues from other activities in the first quarter of 2021 were $289 million, a decrease of 6% compared to the first quarter of 2020. In local currency terms, revenues decreased by 9%.
API sales to third parties in the first quarter of 2021 were $178 million, flat in both U.S. dollar and local currency terms, compared to the first quarter of 2020.
Conference Call
Teva will host a conference call and live webcast including a slide presentation on Wednesday, April 28, 2021 at 8:00 a.m. ET to discuss its first quarter of 2021 results and overall business environment. A question & answer session will follow.
In order to participate, please dial the following numbers:
A live webcast of the call will be available on Teva’s website at: ir.tevapharm.com.
Following the conclusion of the call, a replay of the webcast will be available within 24 hours on the Company’s website or by calling United States 1-866-331-1332; International +44 (0) 3333 009785; passcode: 8347148