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Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported results for the quarter ended March 31, 2021.
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 incometaxes 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 averagediluted 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.
The following table presents revenues, expenses and profit for our North America segment for the three months ended March 31, 2021 and 2020:
Three months ended March 31,
2021
2020
(U.S. $ in millions / % of Segment Revenues)
Revenues
$
1,989
100%
$
2,082
100%
Gross profit
1,074
54.0%
1,062
51.0%
R&D expenses
160
8.0%
146
7.0%
S&M expenses
229
11.5%
251
12.1%
G&A expenses
111
5.6%
118
5.6%
Other income
(3)
§
(2)
§
Segment profit*
$
577
29.0%
$
550
26.4%
* Segment profit does not include amortization and certain other items.
§ Represents an amount less than 0.5%.
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:
Three months ended
March 31,
Percentage
Change
2021
2020
2020-2021
(U.S. $ in millions)
Generic products
$
1,053
$
952
11%
AJOVY
31
29
8%
AUSTEDO
146
122
20%
BENDEKA/TREANDA
91
105
(14%)
COPAXONE
164
198
(17%)
ProAir*
54
59
(9%)
Anda
289
426
Teva Pharmaceutical Industries Limited American Depositary Shares
Teva Pharmaceutical Industries Ltd. is an Israeli multinational pharmaceutical company with headquarters in Tel Aviv, Israel. It specializes primarily in generic drugs, but other business interests include active pharmaceutical ingredients and, to a lesser extent, proprietary pharmaceuticals.
