Teva Pharmaceutical Industries Ltd (TEVA) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the IVAX Corporation third quarter earnings teleconference.

At this time all participants are in a listen only mode.

If you should require operator assistance during the call, please press zero, then star, and an operator will assist you.

As a reminder, this teleconference is being recorded.

I would now like to turn the conference over to the Chairman and Chief Executive Officer, Dr. Phillip Frost.

Please go ahead sir.

Good morning everyone, and thank you for participating in this call.

I'd like to start by introducing Howard Goldman, our Director of Financial Public Relations, who has some remarks concerning the forward-looking statements.

Good morning.

I'd like to remind you that statements in this conference call are forward looking, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involved risks and uncertainties that may affect IVAX's business and prospects, and may cause results to differ significantly from those expressed or implied in this conference call.

You should consider the economic, competitive, governmental, technological and other factors discussed in IVAX's annual report on Form 10K, and other filings with the Securities and Exchange Commission.

Thank you.

Thank you Howard.

Next I'd like to introduce our President and Vice Chairman, Neil Flanzraich.

Hello Phil, how are you?

Good morning everyone.

I'd like to just ask Tom Byer to summarize and provide a little bit more detail on the financial results, which we announced this morning, and then I'll come back and give you a little color on it.

Thank you Neil.

Today IVAX Corporation reported net income of $30.8 million or 16 cents per share for the third quarter ended September 30, 2002.

Net income for the comparable 2001 quarter was $61.5 million or 30 cents per share.

For the nine-month period ended September 30, 2002, IVAX reported net income of $86 million or 44 cents per share, compared to $189 million or 91 cents per share for the 2001 period.

A reduction of income for the third quarter and year-to-date period in 2002 compared to 2001 is mainly attributable to reduced revenues from Paclitaxel during 2002.

A substantial price erosion from 2001 to the third quarter of 2002 was the main factor for this decline.

Foreign exchange rates continue to have a negative impact on IVAX's revenue during the third quarter.

However, changes in currency exchange rates did not have a significant net effect on IVAX's third quarter earnings, owing to offsetting effects in the different countries in which IVAX does business.

Our third quarter net revenues were $319 million, a 14% increase over the $280.4 million posted during the second quarter of 2002, and in line with the $322 million reported for the year ago quarter. as I just said, the negative impact from the reduction in revenue from Paclitaxel in the 2001 quarter was mostly offset by higher sales from the remaining businesses, including revenues generated from products acquired after the third quarter of last year.

Neil will provide a breakdown of our revenues by region later.

Gross profit percent for the quarter was 44.7%, this compares with 46.6% in the previous quarter and 53.4% in 2001. the effect of lower Paclitaxel revenues was the main reason for the gross profit percent reduction from 2001. the gross profit percent decreased by 1.9% from the second quarter of 2002. however the company continues to announce new product approvals and launches that should improve gross margins in the future.

Operating expenses decreased slightly from the previous quarter, and were 11% lower than the 2001 quarter. this reduction was mainly associated with lower generic development expenses, including certain litigation costs. year-to-date operating expenses increased 7% to $282 million. this increase is mainly attributable to the Lab Chili's acquisition in July 2001.

Other income and expenses include interest income of $1.9 million, interest expense of $13 million, and other income of $7.6 million for a combined total expense of $3.4 million for the third quarter of 2002. this compares with other income of $9.6 million for the third quarter 2001 and $10.1 million in income for the second quarter of 2002. the $7.6 million of other income includes additional proceeds from the sales of Emron foreign currency gains and losses, and $4 million of gains from the buy back of convertible debt.

As previously announced in the second quarter of 2002, the company has adopted a new accounting standard, FASB145, which in part requires gains or losses from the early retirement of convertible debt to be classified as other income or losses, rather than as extraordinary income.

All financial results provided reflect this accounting treatment.

On an operating basis, income for the third quarter increased 36% over the second quarter from $35.5 million to $48.3 million, due primarily to an increase in net revenue.

As stated previously, net revenues increased 14% from $281 million in the previous quarter to $319 million in the current quarter, and the gross margin increased from $130.6 million to $142.8 million respectively.

At this time I'd like to turn it back to Neil for additional comments.

Thank you Tom.

As Tom said, the negative impact from the reduction of revenue from Paclitaxel was mostly offset by higher sales from our remaining businesses.

So let me just give you a breakdown of those.

Our Latin American revenues in the quarter amounted to $53 million compared to $58 million in the previous quarter and $79 million in the 2001 third quarter.

The decrease in revenues, both from the second quarter of '02 and from 2001 was primarily due to foreign currency exchange rate changes.

In Latin America we have strong management teams, expert managing in their challenging environments, and we anticipate that this region, which is already profitable, will become even more profitable.

Our European revenues were $123 million during the quarter, and that exceeded the $105 million in the second quarter of this year, and $104 million in 2001. sales were higher throughout all of our European operations.

Our North American revenues increased 16% to $138 million in the current quarter, compared with $119 million during 2002's second quarter, and compared to $142 million in the 2001 quarter. the impact from the reduction of revenue from Paclitaxel in 2002 compared to 2001 was substantially offset in the U.S. by a 19% increase in the rest of our U.S. generic business and the U.S. proprietary respiratory business.

Paclitaxel aside, the increase in our U.S. generic business was driven by strong growth and demand for our products.

Even though our U.S. manufacturing capacity has almost doubled in the last two years, the demand for our products has been growing even faster.

This has resulted in some back order issues, which we previously reported.

I'm happy to note that we have made significant progress in addressing these capacity related issues, and over time that should result in even stronger sales growth for our U.S. generic business.

The growth in revenues from IVAX Labs, our U.S. proprietary business, is encouraging.

We have only just begun aggressively launching our recently acquired respiratory products, Nasaro, an intranasal steroid for allergic rhinitis, and Qvar, an aerosol inhaler for asthma.

We believe these two fine products have potential for significant sales growth in future quarters now that they are receiving appropriate marketing and sales attention.

The recent discontinuance of Sheering Plow's asthma product Vansaril, which last year had sales of about $50 million, presents a major opportunity for Qvar to more rapidly attain market share critical mass.

Vansaril is a CSC inhaler containing beclomethasone, one of the best known and most prescribed asthma medicines in the world.

With Vansaril discontinued, Qvar is the only asthma inhaler with beclomethasone on the U.S. market.

Qvar is the logical choice for the 500,000 U.S.

Vansaril patients who desire continuity of care with the same active ingredient.

We believe that Qvar is equal to the best single agent cortico-steroids for asthmas on the U.S. market.

Its CFC free formulation is environmentally friendly, and its smaller particles provide better deposition in the small airways of the lungs, which is becoming recognized by experts as important in the treatment of asthma.

I can give you a little bit of an update on how Qvar is doing.

The latest weekly market share of Qvar was 1.6%, that's compared to the weekly market share before we took over Qvar, before we acquired the rights to it at the very end of July, which was then .08%, so it's doubled in that time. 13-week prescriptions, according to IMS, are up 60% in the most recent 13-week period compared to the 13-week period ended before we acquired it. that may seem like small numbers, but this is a huge market and we're just beginning.

Let me just say that IVAX Labs, our U.S. proprietary unit, will end the year with about 200 highly trained respiratory product sales reps.

We're well along in positioning IVAX Labs so that it can effectively launch IVAX's proprietary respiratory products as they are approved.

Now I'll turn it back to Phil.

Thank you Neil.

Next I'd like to bring you all up to date concerning our pipeline, and to start I'd like to introduce Dr. Steven Marcus, who's in charge of our oncology and biotech products unit.

Steve would you say a few words about some of the products that you're in charge of?

Yes, I'm going to tell you a bit about some of our neurological and cancer products that are in development, starting with Cladrobene, which is a medicine which was originally developed by the Scripps researchers as a treatment for leukemia.

Cladrobene selectively targets the white blood cells called T lymphocytes, which are generally believed to play the major role in damaging the brain and spinal cord, and producing the disabling features of multiple sclerosis.

Because of this, the Scripps Research Institute conducted clinical trials to determine the therapeutic potential of Cladrobene as a treatment for multiple sclerosis.

The most striking reported finding of these trials was the virtual elimination of lesions seen on the MRI scans of the brain, which reflect the inflammation associated with active multiple sclerosis.

In addition, the Scripps researchers reported a statistically significant effect on the frequency and severity of relapses in relapsing remitting multiple sclerosis, and a reducing progression in progressive multiple sclerosis.

A recent study of Cladrobene in a mixed population of patients followed for one year, with non-relapsing, progressive multiple sclerosis, with severe preexisting disability, confirmed the previously reported evidence of reduced brain inflammation in patients treated with Cladrobene.

This trial for the first time also demonstrated the durability of this effect with profound reduction in brain inflammation evident on MRI scans over one year after the last dose of treatment.

The patient population and the duration of clinical follow up was such that clinical worsening, evident on neurological examination was likely to be very limited.

This turned out to be the case with the placebo patients showing little, if any, evidence of worsening.

Nevertheless a clear trend toward less progression of disability was seen in the group of patients with secondary progressive multiple scleroses treated with Cladrobene.

In contrast to the beta interferon's, which are given every other day or weekly, Cladrobene can be given on intermittent schedules.

A five day course of Cladrobene given monthly for two months to six months appears to have clinical effects and MRI effects which persist for a year or longer after the last dose is given.

Cladrobene was generally very well tolerated, and at doses most recently investigated in multiple sclerosis, was quite well tolerated.

We believe that these findings strongly encourage further investigation of this promising compound.

An additional important observation is that Cladrobene is well absorbed when given by mouth.

Based upon this observation IVAX is developing a proprietary oral formulation of Cladrobene.

We're very enthusiastic about Cladrobene as a potential treatment of multiple sclerosis, as an oral well-tolerated and very convenient medication, Cladrobene may make an important contribution to the treatment of patients with multiple sclerosis.

I'd like to turn to Talampinal, which is an oral compound developed by IVAX's institute in Hungary, which targets the so called ampler receptor, which is believed to be involved in several serious neurological diseases.

Talampinal is currently in expanded Phase II trials in refractory epilepsy, as well it's in a Phase II trial in the diskynesia's or movement disorders associated with Parkinson's disease.

TP38, another compound, is our EGF receptor immuno-toxin, which is in the clinic for malignant brain tumor.

We continue to be encouraged by the early results, which will be presented in some detail at the Society for Neurooncology meeting in San Diego in late November.

Oral Paclitaxel, an oncology product, is a Cremafore free oral formulation of Paclitaxel, which may have some advantages in safety and efficacy over intravenous Paclitaxel.

We've conducted Phase II trials in lung cancer, stomach cancer and breast cancer.

The results continue to be encouraging and suggest the possibility of advantages in both safety and efficacy over the intravenous formulation of Paclitaxel.

Thank you Steve.

I'll say a few words about one or two of our other projects.

The first one I would mention is our program for soft steroids.

By soft steroids we mean a cortico-steroid, which has its clinical anti-inflammatory effect and then immediately after absorption is broken down into an entirely inactive compound, so that one can avoid the serious side effects normally associated with the use of cortico-steroids.

For starters, we are in clinical trials, Phase II, for Ileitis, this as you know is a severely debilitating disease and on rare occasion even fatal.

We all know that cortico-steroids are highly effective in treating this disease, but their prolonged use becomes contraindicated because of the secondary effects.

We're hoping that because of the diminished opportunity for developing these side effects, that our soft steroid will become an important component in the treatment of Ileitis.

Now the same drug is also an excellent candidate to be used in almost every inflammatory disease where one can reach the problem by applying the medicine in close proximity to the tissue that's effected, such as in the lung in the case of asthma, and in the nose in the case of allergic rhinitis.

So we are therefore developing this product and will start clinical trials in the near future, both for allergic rhinitis and asthma and emphysema, with two different dosage forms.

Now there are some new cortico-steroids on the market, and a couple are coming to market developed by other companies, that are purported to be soft steroids in that they claim to break down rapidly.

But our date indicates that in each case they still have the side effects of suppressing the pituitary and renal access and conceivably other side effects as well. we expect our product to be superior.

Now another product that I'll mention that is fairly unique and that is in human trials now, is a brain-targeted estrogen.

This is designed primarily for hormonal replacement therapy, but could conceivably have other uses as well. for hormonal replacement therapy it could be highly advantageous, because what it achieves is high brain levels with low peripheral levels, of the normal estrogen, estrodial.

The compound is administered through a buckle patch or a buckle tablet, is absorbed rapidly, and the compound that is given has no hormonal that has no estrogenic activity whatever.

Or any other activity for that matter.

Then when it gets to the brain it's converted to estrodial, the normal female hormone, and then exerts its effect.

Of course I think this is exactly what I think the world is waiting for, a compound that can duplicate the pre-menopausal conditions.

The problem with the present compounds that are available and the present medicines that are used, is that they do the exact opposite.

They give high peripheral levels so they cause these undesirable potential consequences, and relatively low brain levels.

So again we think this is an important development.

Of course all these compounds are protected by strong patents.

I know Steve mentioned Talampinal, the only thing I would add to that is that it also is a potential drug to be considered for brain cancer, since it blocks the effects of glutomic acid, and glutomic acid is now considered to play a possible important role in the development of various brain cancers and we have a couple of important groups that have volunteered to do the additional studies of Talampinal on brain cancer at their own expense.

So it's a drug that could have multiple beneficial effects and multiple indications as we go forward.

Now, going to a more general subject, IVAX, over the years, has had the opportunity to develop relationships with a variety of other companies, some small, some large.

And, over the years, these relationships, some of which have taken the form of licensing of our products to other companies, sale of products to other companies, have brought in revenues on a relatively regular basis.

Now, at the present time, we're enjoying the benefit of such contracts.

And, we expect this process to continue as we go forward.

This has been a significant source of revenue, but because of the incredible pipeline that we've developed, partially because we have this machine in the form of the research institute that we've established in Budapest, Hungary, with 300 scientists...and I might mention that we have approximately 700 people doing R and D for IVAX now, but because of this completely vertically integrated facility that we've developed and are managing in Budapest, we are able to turn out new compounds at a rate such that we can't possibly develop all the potential products.

So, I think one can expect, as we go forward, to see even more of this out-license activity and other types of cooperative arrangements with companies that will bring in additional income.

Now, as a matter of fact, the next product that we will out-license, is Cladrobene.

Cladrobene for multiple sclerosis is a highly specialized product, in a highly specialized area.

Since it's a little bit out of the main thrust of our efforts, it's logical that we should try to choose a strong partner for this compound, and we'll do that.

In closing, I'll just mention one thing that Neal was saying about Qvar.

And he was mentioning the tremendous increase in sales and again we all recognize that we're selling from a very small base and it's easier to get significant increases starting from a small base.

But still, I think what this is demonstrating is that we have the ability to develop a topnotch sales force.

I can't over emphasize the importance of this.

You can have the best products in the world, but if you can't sell them it's useless so far as sustaining the growth of your company is concerned.

And our goal in every area in which we operate is to have a topnotch sales force.

Not necessarily the largest, and as a matter of fact, we happen to think that size is not necessarily equivalent to quality; certainly not the quality but it's not the thing to be desired.

So what we want is a highly efficient small sales force and I think we've put in place the management.

And so far, from the people I've seen that are going out to the field, we're well on our way to having one of the hottest sales forces in the country.

We've had previous experience in doing that and I think that we're in the middle of witnessing another such development.

I think that, as time goes on, this is going to be one of the major factors contributing to the success of the company.

We've kept you perhaps a little bit longer than anticipated, but I want to thank you all very, very much for participating.

Does anyone here have anything to add?

I'm getting nods to the contrary, so I'll thank you again and say goodbye.

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