Teva Pharmaceutical Industries Ltd (TEVA) 2003 Q2 法說會逐字稿

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Ladies and gentlemen, thank you for standing by.

And welcome to the IVAX Corporation second quarter earnings conference call.

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This conference is being recorded.

I would now like to turn the conference over to Dr. Phillip Frost, Chairman and CEO, of IVAX Corporation.

Please go ahead, sir.

Good morning, everyone.

I'd like to welcome you to our conference call webcast to discuss our company's second quarter 2003 financial results, which we reported earlier today.

In the event you have not received this press release, it's available on line, through our website at www.

Ivax.com.

The format of today's call will be listen only.

Joining me this morning are Neil Flanzraich, our Vice Chairman and President, Tom Beier, Senior Vice President of Finance and Chief Financial Officer, and David Molina, Director of Investor Relations.

At this time, I'll turn the call over to David for required items and then Neil will give additional comments about the business.

After that, Tom will provide a review of our second-quarter financials and I'll close the session after Tom.

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 involve risks and uncertainties that may affect IVAX's business and prospects and 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.

Neil?

Thank you, David.

Let me give you some comments on the quarter.

Today, IVAX Corporation reported second quarter 2003 net revenues of $343 million.

A 22% increase over net revenues in the second quarter of 2002.

Net income of $41.3 million, 30% increase over net income in the second quarter of 2002, and earnings per share of 21 cents, including 11 cents per share from discontinued operations.

That's an increase of 31% over earnings per share over the second quarter of 2002.

For the first two quarters and 2003, net revenues were $660.7 million, net income $70.2 million, or 36 cents per share, increases of 20%, 27%, and 29% respectively, over comparable figures for the second quarter of 2002.

These results were driven by increased revenues in North American, European, and Latin American operations.

In Europe and North America, revenues increased by 26%, and Latin America revenues increased by 4% over revenues in the second quarter of 2002, and by 19% over revenues from the first quarter of 2003.

Our U.S. generic business continued to be strong in terms of demand and pricing.

Our U.S. proprietary asthma business showed outstanding growth.

The results of the first and second quarters of 2003 indicate continuing robust growth in our business.

I'd like to go into further detail about the Braun IVAX transaction that we discussed in our release.

In 1997, IVAX sold McGaw, Inc., an IV products company, to B Braun in return for cash and certain contingencies and payments.

There was a dispute in litigation over the contingent payments.

A number of agreements emerged from the discussions and issues rose.

One agreement settled the dispute.

Others involved the possible collaboration between B Braun and IVAX and certain other products.

During the second quarter, IVAX received the first in a series of payments under these agreements, from B Braun for certain patent and product rights and compensation for settlement of the litigation.

The net present value of these payments is $22.2 million, after the deduction of expenses, fees and taxes or, 11 cents per share.

In accordance with current accounting rules, all of this income has been accounted for in this quarter as earnings from discontinued operations, because the agreements originated from a relationship that began with the sale of a former IVAX business.

Anticipating these B Braun payments, allowed IVAX to accelerate spend to go build our business.

Of course, these expenditures decreased income from continuing operations in the quarter.

But we believe they will increase future revenues and profits.

We increased spending on IVAX's recently acquired facility to manufacture active pharmaceutical ingredients or APIs in Puerto Rico, to bring it up to IVAX's standards, as well as R&D program and marketing and sales efforts for branded products in the United States and France.

We also incurred a one-time expense for a lump sum retirement payment, Isaac Kay, former Chairman of U.K., who retired in June of 2003.

We believe that IVAX has benefited from the expenditures, and from a number of other developments during the rest of the year, and into 2004 and beyond.

IVAX has been expanding its production capacity at its generic drug manufacturing facilities in Miami, Florida, North Vail, New Jersey and Cedra, Puerto Rico.

In addition to the previously mentioned upgrading of our newly acquired API facility in Puerto Rico, we have also been increasing capacity in some of our European facilities that supply our U.S. generic market.

Increased capacity will help IVAX meet the growing demand for the company's products.

U.S. market demand for generics is expected to double by 2010.

The API plant in Puerto Rico has 174,000 square feet, and will soon be operational.

This plant and combination with our API manufacturing facility in the Czech Republic are vital to IVAX in that they enable us to lower our cost of goods and increase operating margins.

The transaction with 3M, which we announced two weeks ago, and expect to close in September, gives IVAX additional profitable, branded asthma products, and additional experienced marketing and sales infrastructure in nine European countries that will rapidly increase IVAX's market presence and profits in Europe.

In Germany, which is the third largest pharmaceutical market in the world and where IVAX previously had little activity, we now have branded products with strong market shares, together with the marketing and sales professionals who achieve that success.

In France, the world's fourth largest market, we established a company in 2002 and as we've previously explained have incurred losses as we've grown the business, and we expected to incur such losses for another year or two.

The additional products and infrastructure we've acquired from 3M will make this company profitable soon after the closing of the transaction.

In the U.K., the second largest asthma market in the world, IVAX is presently the third largest respiratory products company.

The branded products we've acquired from 3M are highly complimentary to our current product line in the U.K., and will allow us to increase our already-formidable market position.

Additionally, one of the key products in this transaction is QVAR, a formulation of the asthma drug bedomethasone dipropionate, which IVAX has had remarkable success with in the U.S.

IVAX has enhanced presence in Europe will also give it a broader platform of -- a broader perform from which to sell other products and will also increase efficiencies and provide synergies that will further increase our profitability.

While we're on the subject of Europe, IVAX also expects the European approval and launch of Paclitaxel for the drug's primary cancer indications.

Bristol-Myers is currently the sole provider of this product in Europe, and that product's current prices in Europe are considerably higher than in the U.S.

A strong business in Latin America should continue to benefit from improving economic conditions there, as well as from the launches of new products and greater operating efficiencies.

Our excellent management and Latin America continues to prove it's possible to succeed in a difficult environment.

During the first half of 2003, we've made significant progress in advancing IVAX's proprietary pipeline.

A number of our drugs have moved from Phase One to Phase Two trials and others in Phase Two appear to be progressing very well.

In fact, so many of IVAX's proprietary drug candidates are progressing well, in advance clinical development, that we feel blessed with more drugs than we can or want to develop on our own.

And in order to focus on a smaller number of projects, we have undertaken the out licensing of some of these products.

Such (inaudible) may result in milestone payments, even before the products reach market.

And later, in royalty payments.

These arrangements will also have the effect of reducing our R&D costs.

IVAX also expects to receive additional payments from certain of our collaborations on -- relating to other products, going forward in the future.

In the second quarter we already received the $6 million payment from Novartis, relating to our Airmax Multidose Dry Powder Inhaler.

And we -- the present value of all of our proprietary pipeline is very considerable and growing, and will in time be reflected in the price of IVAX's shares.

IVAX expects to file -- and I'll speak a little better -- we expect to file 10 additional generic application with the FDA before the end of the year.

Heading to a pipeline that is considered one of the strongest in the industry, with 39 generic applications pending with the FDA.

Including potential first to file applications with over $13 billion in related brand market sales.

Furthermore, IVAX anticipates significant additions to this pipeline, from both our own amazingly productive generic R&D group as well as from previously announced and new partnerships with other companies.

We expect launches of generic versions of important brand products, they're in the balance of 2003 and 2004.

Some of these have drawn particular attention because of their great potential, such as our generic equivalent of Flonase, Glaxo Smith Kline's drug for (inaudible) had over $800 million in sales in 2002.

Our ANDA for epilepsy, which had sales of over $1.9 billion, in 2002, and our ANDA for generic version of Zyprexa, Eli Lilly's anti-psychotic, which had sales of approximately $2.9 billion of the past 12 months.

Some of these will depend on the outcome of ongoing litigation, and I assure you we're working hard on those cases.

We're looking forward to reporting on the impact of these developments and the growing demand for our products on future sales and earnings.

And now I'll turn the call over to Tom Beier for further discussion of our financial results.

Thank you, Neil.

Today, IVAX as you mentioned, IVAX Corporation reported net income of $41.3 million, or 21 cents per share, for the second quarter ended June 30, 2003.

Net income for 2002 quarter water $31.7 million dollars, or 16 cents per share.

Included in the current quarter's net income was income from discontinued operations of $22.2 million, or 11 cents per share, related to payments in connection with certain agreements for (inaudible) and product rights and for settlement of litigation related to the sale of a business in 1997.

Gross profits amounted to $151 million in the quarter compared to $131 million in the comparable 2002 quarter, as revenues grew 22% and gross profit 16%, during the current quarter.

The U.S. generic business continues to be very strong in terms of both demand and pricing, and with the primary reason for the increase in revenues and margins during the current quarter.

In addition, revenues from the U.S. proprietary business grew 125% from the year-ago quarter, and was mainly attributed be (inaudible) to sales of QVAR, a respiratory product acquired in April 2002.

While gross profits were significantly higher, in the current quarter compared to the 2002 quarter, these higher profits were partially offset by increased selling and research and development expenses during the current quarter.

Our second-quarter net revenues were $343 million, 22% over the $280 million dollars posted during the second quarter of 2002, and 8% higher than the $318 million reported for the prior quarter.

A breakdown of the revenues by region is as follows: North American net revenues increased 26% to $150 million in the current quarter, compared with $119 million in the 2002 second quarter, and 5% lower than the $157 million during the first quarter of 2003.

As I mentioned above, this increase over the prior-year quarter was attributable to significant growth in the generic and proprietary businesses in the U.S..

European net revenues increased 26% to $132 million, for the current quarter, compared to $105 million in the 2002 second quarter, and was 18% higher than the $112 million in the previous quarter.

The net revenues included a $6 million milestone payment, received during the quarter, treated a license and development agreement.

In addition, strong European currencies benefited European revenues.

Sales in the European markets increased despite continued pricing pressures throughout the region.

We continue to expand our sales operations in Eastern Europe and France, and expect these markets to be important contributors to the future growth.

The recently announced agreement to acquire QVAR and other branded respiratory products in Europe will add to the future growth of revenues throughout Europe.

Latin America net revenues amounted to $61 million for the second quarter, compared to $58 million in the 2002 comparable quarter, and $51 million in the previous quarter.

The increase in net revenues during the current quarter was driven by more stable currencies and improved business conditions throughout Latin America, as well as better operating performance of our units.

Gross profit percent for the quarter was 44%.

This compares with 46.6% in the 2002 quarter, and 46% in the previous quarter.

Lower margins in Latin America and European markets contributed to reduced margins.

Sales from recently announced product acquisitions and new product launches should improve the overall margins in the future.

Operating expenses increased 20% to $114 million, for the 2002 second quarter, and 19% higher than the 2003 first quarter.

However, as previously reported, the prior quarter included a one-time credit of $6.6 million related to a litigation settlement.

Selling expense increased 20% over the prior year quarter, and 15% from the previous quarter, as the company continued to expand its U.S. proprietary sales force and its sales force in France in anticipation of launching new products.

The income from the recently announced agreement to purchase QVAR and other respiratory products in Europe will begin to reduce the impact of these higher costs.

Research and development spending also increased during the current quarter, as the company continued to make investments in its new product pipeline.

Other income expenses includes interest income of $700,000, interest expense of $11 million, and other income of $200,000, for a combined total other expenses of $10.1 million for the second quarter.

This compares with other income of $10.1 million for the second quarter of 2002, and $4.1 million dollars of other expenses in the previous quarter.

Income from continuing operations was $19.1 million in the current quarter, compared with $31.8 million in comparable 2002 quarter.

In spite of a significant increase in gross profits during the current quarter, a reduction in income from continuing operations was mainly attributable to higher selling and research and development expenses.

In addition, other income and expenses for the 2002 second quarter include a $19 million of other income, related to gains from the sale of of a product and the repurchase of convertible debentures and certain milestone payments.

As discussed earlier, the company entered into agreements with B. Braun for certain patent and product rights and settlement of litigation in connection with future payments due under the 1997 sale agreement of its IV solutions business.

Total proceeds to be received net of income taxes, interest, and related expenses amounted to $22.2 million, and have been included in income from discontinued operations.

This concludes my remarks.

At this time I'll turn it back to Dr. Frost for closing comments.

Thank you, Tom.

Neil mentioned just a minute ago the increase in present value of our R&D pipeline.

I'd like to at this point stress the importance of this point.

We have several products under the development now that I could mention as examples of contributors to this increasing present value.

First, Talampanel is a new model developed at our own institute of drug research in Budapest, Hungary, and it's in clinical trials for several different indications.

For epilepsy, it's moving along very rapidly and continuing to look extremely safe and effective, and some of our very sophisticated investigators have made comments like they think it's the most potent drug they've ever seen to treat epilepsy.

And this becomes evident because in our trials we're only treating patients who are not well controlled and all their present drugs.

In addition, it's being studied for the (inaudible) associated with Parkinson's disease.

These are the strange, uncontrollable movements that these patients experience as a result of taking other drugs to control their tremors.

Some people think that (inaudible) more troublesome to the patients than the tremors.

In any case, there is presently no good drug to treat this problem.

And we have two clinical trials ongoing now, and again, we have many patients whose (inaudible) has stopped altogether for the first time since they have developed the Parkinson's disease.

So this looks like a very important new contribution to the medical care of Parkinson's disease, and we're hopeful because of the dramatic results that we're obtaining that at some point along the line we'll be able to compress the development process timewise.

We also have another drug that we've been working on for central nervous system disorders, and that's Cladribine to treat multiple sclerosis, and that (inaudible).

That development program is moving along on schedule and is turning out to be an excellent partner in this regard.

Our respiratory projects are also moving along well, and I'll just mention a couple.

Our HFA multidose inhaler, new drug application, is pending approval at FDA, and we know that they're actively working on the review.

Our Airmax Multi-Powder Inhaler that Neil alluded to a few seconds ago, which has been licensed to the Novartis Corporation for use with two particular mole cool us, should come to market as soon as the next few months in Europe, and we have retained the rights to this product for the U.S. and product has great potential in the United States as well.

Since it's dosing accuracy is far greater than competitive products that on the market and enjoying good success.

So the thought I was leave you with is that we have our ongoing business that is creating a certain value for our shareholders and then the way I look at it, in parallel to that, we have our R&D pipeline, which is creating a separate value, which in my mind could turn out to be several-fold the value of the -- present value of our present ongoing business.

And that, I think, makes for my extreme interest, as you can imagine, in IVAX.

Thank you.

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