Teva Reports Second Quarter 2021 Financial Results

• Revenues of $3.9 billion
• GAAP diluted EPS of $0.19
• Non-GAAP diluted EPS of $0.59
• Cash flow generated from operating activities of $218 million
• Free cash flow of $625 million
• 2021 revenue outlook revised lower to reflect ongoing impact of COVID-19; all other key components reaffirmed:
  • Net revenues of $16.0 - $16.4 billion vs. previous range of $16.4 - $16.8 billion
  • Adjusted EBITDA of $4.8 - $5.1 billion
  • EPS of $2.50 - $2.70
  • Free cash flow of $2.0 - $2.3 billion

TEL AVIV, Israel--(BUSINESS WIRE)-- Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported results for the quarter ended June 30, 2021.

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Mr. Kåre Schultz, Teva's President and CEO, said, “We have performed well in the second quarter, improving our profitability and free cash flow generation. This allowed us to reduce our net debt by an additional $500 million to $22.7 billion, once again demonstrating our commitment to and confidence in our long-term goals. Among our growth drivers, AUSTEDO^® sales increased compared to the second quarter of last year, AJOVY^® net sales have grown to $70 million worldwide, and our biosimilar Truxima^® continues to increase its U.S. market share, reaching 25%.”

Mr. Schultz continued, "Throughout the pandemic we remain committed to serving patients, maintaining our operations and delivering quality affordable medicines. Due to the effects of the pandemic, we have lowered our 2021 revenue outlook, while reaffirming our earnings and cash flow guidance."

Second Quarter 2021 Consolidated Results

Revenues in the second quarter of 2021 were $3,910 million, an increase of 1% or a decrease of 2% in local currency terms, compared to the second quarter of 2020. This decrease was mainly due to lower revenues in our North America segment, mainly related to COPAXONE^® and Anda, partially offset by positive foreign currency impacts as well as higher revenues from generic products, OTC, AJOVY and COPAXONE in our Europe 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 second quarter of 2021, including hedging effects, positively impacted our revenues by $135 million and our GAAP and non-GAAP operating income by $26 million and $30 million, respectively.

GAAP gross profit was $1,873 million in the second quarter of 2021, an increase of 6% compared to the second quarter of 2020. GAAP gross profit margin was 47.9% in the second quarter of 2021, compared to 45.5% in the second quarter of 2020. The increase in gross profit margin was mainly driven by higher profitability in North America resulting from the change in mix of products and network optimization activities, partially offset by lower sales of COPAXONE. Non-GAAP gross profit was $2,084 million in the second quarter of 2021, an increase of 4% compared to the second quarter of 2020. Non-GAAP gross profit margin was 53.3% in the second quarter of 2021, compared to 52.0% in the second quarter of 2020.

GAAP Research and Development (R&D)expenses in the second quarter of 2021 were $248 million, an increase of 10% compared to the second quarter of 2020. Non-GAAP R&D expenses were $243 million, or 6.2% of quarterly revenues, in the second quarter of 2021, compared to $233 million, or 6%, in the second quarter of 2020. In the second quarter of 2021, our R&D expenses related primarily to specialty product candidates in the respiratory, migraine and headache therapeutic areas, with additional activities in selected other areas and generic products including biosimilars. Our higher R&D expenses in the second quarter of 2021, compared to the second quarter of 2020, were mainly due to an increase in respiratory and biosimilar projects as well as various generics projects.

GAAP Selling and Marketing (S&M)expenses in the second quarter of 2021 were $615 million, an increase of 3% compared to the second quarter of 2020. Non-GAAP S&M expenses were $582 million, or 14.9% of quarterly revenues, in the second quarter of 2021, compared to $559 million, or 14.4%, in the second quarter of 2020.

GAAP General and Administrative (G&A) expenses in the second quarter of 2021 were $242 million, a decrease of 8% compared to the second quarter of 2020. Non-GAAP G&A expenses were $231 million, or 5.9% of quarterly revenues, in the second quarter of 2021, compared to $245 million, or 6.3%, in the second quarter of 2020.

GAAP operating income in the second quarter of 2021 was $582 million, compared to $173 million in the second quarter of 2020. This increase was mainly due to lower other asset impairments, restructuring and other items charges and higher profit in our Europe segment, partially offset by higher intangible asset impairment charges. Non-GAAP operating income in the second quarter of 2021 was $1,034 million, an increase of 6%, compared to $979 million in the second quarter of 2020. The increase was mainly due to higher profit in our Europe segment.

EBITDA (defined as operating income, excluding amortization and depreciation expenses) was $887 million in the second quarter of 2021, an increase of 60% compared to $555 million in the second quarter of 2020. Adjusted EBITDA (defined as non-GAAP operating income excluding depreciation expenses) was $1,162 million in the second quarter of 2021, an increase of 5% compared to $1,108 million in the second quarter of 2020.

GAAP financial expenses were $274 million in the second quarter of 2021, compared to $223 million in the second quarter of 2020. Non-GAAP financial expenses were $240 million in the second quarter of 2021, compared to $229 million in the second quarter of 2020. Financial expenses in the second quarter of 2021, were mainly comprised of interest expenses of $240 million and loss on revaluation of marketable securities of $34 million. Financial expenses in the second quarter of 2020 were mainly comprised of interest expenses of $241 million.

In the second quarter of 2021, we recognized a GAAP tax expense of $98 million, on pre-tax income of $308 million. In the second quarter of 2020, we recognized a tax benefit of $104 million, on pre-tax loss of $51 million. Our tax rate for the second quarter of 2021 was mainly affected by impairments, amortization and interest expense disallowance. Non-GAAP income taxes for the second quarter of 2021 were $133 million, or 17%, on pre-tax non-GAAP income of $794 million. Non-GAAP incometaxes in the second quarter of 2020 were $128 million, or 17%, on pre-tax non-GAAP income of $751 million. Our non-GAAP tax rate for the second 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 $207 million and $0.19, respectively, in the second quarter of 2021, compared to $140 million and $0.13 in the second 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 second quarter of 2021 were $651 million and $0.59, respectively, compared to $605 million and $0.55 in the second 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 June 30, 2021 and 2020 was 1,109 million and 1,100 million shares, respectively.

As of June 30, 2021 and 2020, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,129 million and 1,119 million, respectively.

Non-GAAP information: Net non-GAAP adjustments in the second quarter of 2021 were $444 million. Non-GAAP net income and non-GAAP EPS for the second quarter of 2021 were adjusted to exclude the following items:

• Amortization of purchased intangible assets of $173 million, of which $148 million is included in cost of sales and the remaining $25 million in S&M expenses;
• Impairment of long-lived assets of $226 million, comprised mainly of impairment of intangible assets of IPR&D and product rights assets in connection with the Actavis Generics acquisition;
• Divested gain in amount of $37 million, mainly from sale of certain OTC assets;
• Contingent consideration income of $19 million, mainly related to a decrease in future royalties;
• Finance expense of $34 million, mainly related to the American Well equity holding;
• Equity compensation expenses of $29 million;
• Other items of $74 million; and
• Income tax of $36 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 generated from operating activities during the second quarter of 2021 was $218 million, compared to $273 million generated in the second quarter of 2020. The decrease in the second quarter of 2021 was mainly due to favorable collection of payments from customers in the second quarter of 2020, which resulted from increased sales in the first quarter of 2020.

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 $625 million in the second quarter of 2021, compared to $582 million in the second quarter of 2020. The increase in the second quarter of 2021 resulted mainly from higher proceeds from divestitures of businesses and other assets, partially offset by lower cash flow from operating activities.

As of June 30, 2021, our debt was $25,132 million, compared to $24,986 million as of March 31, 2021. This increase was mainly due to exchange rate fluctuations. In July 2021, we repaid $1,475 million of our 2.2% senior notes at maturity. The portion of total debt classified as short-term as of June 30, 2021 was 14%, compared to 11% as of March 31, 2021. Our average debt maturity was approximately 5.3 years as of June 30, 2021, compared to 5.6 years as of March 31, 2021. Our financial leverage was 69% as of June 30, 2021 and as of March 31, 2021.