Teva Pharmaceutical Industries Ltd (TEVA) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the IVAX Corporation fourth-quarter 2004 year-end earnings conference call.

For this conference, all the participant lines will be in a listen-only node. (Operator Instructions).

As a reminder, today's call is being recorded.

I would now like to turn the conference over to Dr. Phillip Frost.

Please go ahead, sir.

Good morning.

I'd like to welcome you to our conference call and webcast to discuss the Company's fourth-quarter 2004 and year 2004 financial results reported earlier today.

In the event you have not received this press release, it's available online via our website at www.IVAX.com.

Please note that the format of today's conference call will be listen-only.

Joining me this morning are Neil Flanzraich, our Vice Chairman and President;

Tom Beier, our Senior Vice President of Finance and Chief Financial Officer;

Dr. Jane Hsiao, Vice Chairman of Technical Affairs; and David Malina, our Director of Investor Relations.

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

After that, Tom will provide a review of our fourth-quarter and year-end 2004 financials.

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 10-K and other filings with the Securities and Exchange Commission.

Neil?

Thank you, David, and good morning.

Let me give you some comments on our financial results in the quarter.

Earlier this morning, IVAX reported record revenues for quarter 2004 up 28 percent to $509.2 million; record revenues for year 2004 up 29 percent to $1.84 billion; income for fourth-quarter 2004 up 115 percent to 63.2 million; income for year 2004 up 63 percent to 198 million; earnings per share for fourth quarter 2004 up 100 percent to 24 cents; and EPS for the year 2004 up 53 percent to 75 cents.

In the fourth quarter 2004, gross profit margins increased to 47 percent from 45 percent in 2003.

For the full year 2004, gross profit margins increased to 46 percent from 45 percent in 2003.

IVAX's per-share earnings in the fourth quarter and year 2004 were reduced by an accounting rule change by the Emerging Issues Task Force of the Financial Accounting Standards Board regarding contingently convertible debt.

This required a significant number of additional shares to be considered outstanding during the period, reducing IVAX's per-share earnings by 1 cent in the fourth quarter and 3 cents for the full year.

The effects of that FASB change were largely reversed by IVAX in the first quarter of 2005, as a result of our exchange offer.

All major business regions contributed to fourth-quarter 2004 growth.

North American revenues were up 44 percent to $248.4 million.

European revenues were up 18 percent to 192.8 million.

Latin American revenues were up 15 percent to 82.8 million.

For the full year 2004, North American revenues were up 32 percent to 859.7 million, European revenues were up 32 percent to 704 million, and Latin American revenues were up 25 percent to 315.8 million.

This is the eighth consecutive quarter that our North American and European operations and the seventh consecutive quarter that our Latin American operations have achieved year-over-year quarterly revenue growth.

IVAX's outstanding fourth-quarter 2004 and full-year 2004 results were achieved in an environment of increasing pricing pressure for our U.S. and Western European generic businesses and increased operational costs.

In fourth quarter 2004, IVAX spent 24 percent more on marketing and sales than in 2003, and for all of 2004, 28 percent more.

New product introductions, company acquisitions and greater sales in existing units all contributed to these increases.

IVAX's R&D spending increased 12 percent for the fourth quarter 2004 and 31 percent for the full year, as we increased our U.S. generic pipeline by 36 percent and advanced our proprietary pipeline, as well.

General and administrative costs increased 34 percent in fourth quarter 2004 over fourth quarter 2003, and 33 percent for 2004 over 2003.

Professional services related to Sarbanes-Oxley compliance, due diligence associated with acquisition activity, startup costs for two production facilities, operating expenses of business acquired during 2004, and incentive compensation contributed to higher G&A costs.

As mentioned in our shareholders' letter of February 2, 2005, IVAX is engaged in an extensive global program to increase efficiency and reduce costs.

These efforts will result in restructuring charges as they are implemented.

Let me briefly review some of the drivers of our business in fourth quarter and full year 2004.

Our U.S. generics business had an exceptional fourth quarter 2004 and year 2004.

Their outstanding results are even more impressive, in light of an environment of increased competitive pricing pressures and widespread employment by brand companies of authorized generics.

IVAX's success is due to its broad line of U.S. generics, as well as the special generic opportunities in our pipeline.

In 2004, IVAX benefited from six-month exclusivity on three important generic launches -- metformin ER, glyburide/metformin, and gabapentin tablet.

According to IMS data, IVAX's U.S. generic business grew more rapidly in 2004 than any of the other top five generic companies in the U.S.

The six-month exclusivity for our non-AB-rated low-dose gabapentin tablet extended into the fourth quarter 2004.

In a recent settlement of litigation with Alpharma, Inc., which will benefit IVAX in 2005, IVAX gained early entry into the market prior to the expiration of Alpharma's period of exclusivity on the AB-rated gabapentin capsules and the AB-rated large-dose gabapentin tablet.

IVAX finished the year with 60 abbreviated new drug applications pending with the FDA, a 36 percent increase over 2003, of which 12 were potentially first-to-files, with related annual brand sales of almost $14 billion.

During 2004, we submitted 33 new generic applications to the FDA, an IVAX record.

And some of the special opportunities in IVAX's generic pipeline include Zyprexa, Eli Lilly's antipsychotic drug with present U.S. brand sales of approximately $3 billion annually;

IVAX's patent challenge trial on Zyprexa concluded February 12, 2004, and we are awaiting the judge's decision;

Flonase, GlaxoSmithKline's drug for rhinitis, with present U.S. brand sales of almost 1 billion annually;

Lexapro, Forest Labs' antidepressant, with U.S. brand sales of 1.7 billion annually and growing -- our patent challenge trial on Lexapro was scheduled to start in less than two months in early May;

Zoloft, Pfizer's antidepressant, with present U.S. brand sales of over 3 billion annually -- IVAX's settlement with Pfizer allows IVAX to launch this drug in mid-2006;

Zocor, Merck & Co., Inc.'s drug for cholesterol, with annual U.S. sales of $4.6 billion -- IVAX is confident that we will be entitled to a six-month period of marketing exclusivity for Zocor, and expects this sixth month period to start in mid-2006;

Proscar, Merck & Co., Inc.'s drug for benign prostatic hypertrophy, with annual sales of $370 million -- IVAX expects its six-month exclusivity for Proscar to start mid-2006, as well.

IVAX intends to continue its U.S. generic business with both a significant number of new generic launches and new generic applications to the FDA in 2005.

IVAX's U.S.-branded products division, IVAX Laboratories, experienced strong sales growth during 2004.

QVAR, the only CFC-free aerosol corticosteroid for asthma in the U.S. market was a strong contributor to our North American revenues.

In the most recent new prescription weekly report, QVAR had a 9 percent share of the single-agent steroid market, a more than 1,000 percent increase since we started selling QVAR in the U.S. in 2002.

QVAR's success is due in part to its delivering the smallest particle size in its category -- 1.1 microns, which allows it to enter and improve small airway lung function, and to IVAX's 250 marketing and sales professionals in the U.S., growing market share against much larger pharmaceutical companies and sales forces.

In fourth quarter 2004, IVAX received FDA approval and launched its HFA or CFC-free albuterol, in a standard metered-dose inhaler or MDI.

Albuterol is a fast-acting beta agonist used as a rescue medication to treat the symptoms of asthma attacks.

IVAX is one of only a few companies with an albuterol HFA product on the U.S. market.

IVAX estimates that 50 to 60 million albuterol inhalers are sold each year.

In the U.S., currently, 96 percent of these inhalers are CFC albuterol generic products.

However, the FDA has stated that this spring, they will issue a final rule regarding the removal of CFC albuterol from the U.S. market.

IVAX also has received an approval letter from the FDA on its New Drug Application for albuterol HFA and our patented breath-operated inhaler or BOI.

This breath-operated inhaler is known in Europe as Easi-Breathe, and it's been the number-one selling breath-activated aerosol device for four consecutive years in the United Kingdom, the world's second-largest asthma market.

We believe that our albuterol HFA MDI product -- and when approved, our albuterol HFA breath-operated inhaler product -- will be major contributors to our brand respiratory product franchise, and can have a transforming effect on the growth of our company.

We expect, over time, to obtain a growing share of the large albuterol market, because following the approval of our breath-operated inhaler, we will have a superior inhaler, and the only breath-operated inhaler in this market segment, and because the market for CFC-free albuterol will grow substantially when CFC albuterol products are removed from the U.S. market.

Along with our FDA approval for albuterol HFA MDI our approvable letter for albuterol HFA BOI, IVAX made progress in 2004 with a number of other products in our proprietary pipeline.

Respicort, one of our soft corticosteroid products, entered a Phase II trial for asthma with Airmax, our patented multidose dry-powder inhaler.

We've completed a pivotal trial for seasonal allergic rhinitis for our soft nasal corticosteroid, and are planning and preparing for regulatory submission in Europe this year.

In November 2004, IVAX reported positive results for our Phase II trial of TP-38 in brain cancer to the Society for Neuro-Oncology meeting in Toronto, and initiated a second expanded Phase II trial with that drug.

In the fourth quarter 2004, IVAX also initiated an expanded Phase II trial of Talampanel in epilepsy.

In October 2004, we in-licensed from Nippon Shinyaku HMN-214, a polo-like kinase inhibitor, for which we are planning Phase II trials in pancreatic and prostate cancer.

And from Grupo Ferrer, we in-licensed citicoline, a late-stage drug for acute stroke.

As we announced earlier, IVAX and its partner Serono plan a Phase III trial with Mylinax, a proprietary oral formulation of cladribine for multiple sclerosis, which we expect to begin in the next few weeks.

Our European operations grew revenues by 32 percent during 2004.

With Paxene, IVAX became the first company to market an injectable paclitaxel, alternative to Bristol-Myers Squibb's anti-cancer drug Paxil throughout the European Union.

We were first to market in the UK with amlodipine, the generic equivalent of Pfizer's hypertension and angina drug -- known in the U.S. as Norvasc -- and first to market in France with omeprazole, the generic equivalent to AstraZeneca's heartburn drug, known in the U.S. as Prilosec.

Our business in Central and Eastern Europe has grown rapidly, and in the fourth quarter 2004, we acquired the Polish pharmaceutical company Polfa Kutno, expanding our operations in one of Europe's fastest-growing pharmaceutical markets.

We increased our sales of QVAR throughout the year, and in fourth quarter 2004, we launched QVAR and our patented breath-operated inhaler Easi-Breathe in the UK.

We also launched Airmax, our patented multidose dry-powder inhaler in several countries in Europe.

In 2004, our worldwide respiratory product sales were $371.5 million, an 18 percent increase over our respiratory revenues in 2003, and we expect those revenues to grow even more rapidly this year and beyond.

IVAX's Latin American revenues grew 25 percent in 2004.

The keys to IVAX's continued success in Latin America have been a combination of creative marketing, aggressive product registration, and our ability to define and adapt our product portfolios to the region's different environment.

In the second quarter 2004, we acquired Medco Peru, one of the largest pharmaceutical companies in Peru, and BTL, a leading Peruvian pharmacy chain, giving IVAX a business model that includes manufacturing, distribution, and retailing, a model we believe can be very profitable in a number of Latin American markets where we currently have a presence.

In 2004, we made even stronger our dominant leadership position in Chile.

We were market leader in value and in units in Venezuela, the number-five company in market share in Argentina and the number-one company in value growth and the number-two company in unit growth in Mexico.

IVAX's DVM Pharmaceuticals, Inc., which develops and markets proprietary products in the therapeutic areas of asthma, gastrointestinal disorders, and skin conditions for dogs, cats, and horses, had an excellent 2004.

On February 15, 2005, IVAX announced that we had entered an agreement to acquire Phoenix Scientific, the industry's largest manufacturer of generic veterinary pharmaceutical formulations.

DVM and Phoenix will merge to form IVAX Animal Health Inc.

The regulated veterinary pharmaceutical market is approximately $3.2 billion per annum, and rapidly growing.

The Phoenix Scientific acquisition is expected to close in the second quarter of 2005, and we expect our new veterinary division to be an even stronger contributor to IVAX this year and beyond.

For 2005, IVAX expects to earn 76 cents to 86 cents per share.

This estimate does not include sales of generic Flonase, Zyprexa, or Lexapro.

We expect strong performance from our business units in 2005.

In particular, we believe that in the U.S. sales of generic products and our albuterol HFA in metered-dose inhaler; and when approved, our albuterol HFA breath-operated inhaler; and QVAR, and other new respiratory product worldwide, will contribute to growth in 2005.

In addition, continued expansion of our Latin American and Central and Eastern European unit and IVAX's Animal Health Group will be important contributors to higher operating income in 2005 over 2004.

However, this higher operating income will be impacted by a higher tax rate -- 27 to 30 percent; restructuring charges related to streamlining operations, particularly in Europe; integration of recent acquisitions; and launch expenses in the second half of the year for our new albuterol HFA breath-operated inhaler.

As in the past, we anticipate that earnings will not be evenly distributed throughout the year.

In 2005, we expect that earnings in the first quarter will be significantly lower, followed by higher earnings later in the year.

Although we expect solid results in 2005, we consider this a transitional year, with more significant earnings increases to come in 2006 and beyond.

At present, we anticipate 2006 earnings to be in the $1.35 to $1.55 per share range.

Again, this estimate does not include sales of generic (ph) Flonase or sales from any new product launches currently subject to patent challenges, including Zyprexa and Lexapro.

Additionally, it does not assume the removal of the CFC albuterol products from the U.S. market.

Important in our earnings guidance for 2006, our six-month period for marketing exclusivity for Zoloft, with present annual U.S. brand sales of $3.1 billion, and Proscar, with present annual U.S. brand sales of $370 million.

We are also confident that we will be granted a six-month period of exclusivity for Zocor, with present annual U.S. brand sales of $4.6 billion which would add approximately $1.45 more per share in 2006 after-tax earnings.

2004 was an excellent year for IVAX, particularly noteworthy in that our substantial growth in revenues and profitability was accomplished in a challenging environment.

We expect IVAX will have a solid 2005 and an exceptional -- even remarkable -- 2006.

For years, we have invested in R&D, international expansion and building sales forces.

These investments are now starting to show handsome returns.

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

Thank you, Neil, and good morning.

Today, IVAX Corporation reported net income of $63.2 million or 24 cents per share for the fourth quarter ended December 31st, 2004.

Net income for the comparable 2003 quarter was $29.3 million or 12 cents per share, split-adjusted.

For the 12-month period ended December 31, 2004, IVAX reported net income of $198 million or 75 cents per share, compared to $121.3 million or 49 cents per share, split-adjusted, for the 2003 period.

IVAX per-share earnings in the fourth quarter in year 2004 were reduced by a Financial Accounting Standards Board Emerging Issues Task Force accounting rule change regarding contingently convertible debt, which required a significant number of shares to be considered outstanding during the period, reducing IVAX's diluted per-share earnings by 1 cent in the fourth quarter and 3 cents for the full year.

There was no impact on the comparable 2003 quarter and the year 2003 reported diluted earnings per share.

Gross profits increased by 31 percent to $238 million in the current quarter, compared with $181 million into comparable 2003 quarter, as revenues grew 28 percent.

The improvement in our gross profit was primarily due to sales of newly-launched products in the U.S.

In addition, European sales recovered from a typically weak third quarter.

While gross profits were higher in the current quarter, compared to the comparable 2003 quarter, these higher profits were partially offset by a 21 percent increase in operating expenses, as we continued to expand our global operations through acquisitions, and invest in research and development projects.

In addition, weakness of the dollar against foreign currencies, especially the euro, continued to have an adverse impact on our foreign operational expenses.

Our fourth-quarter net revenues were $509 million, 28 percent over the $399 million reported during the fourth quarter of 2003, and 16 percent higher than the $439 million reported for the prior quarter.

A breakdown of the revenues by region is as follows -- North American net revenues increased 44 percent to $248 million in the current quarter, compared with 172 million in the 2003 fourth quarter, and were 17 percent higher than the $213 million during the third quarter of 2004.

The increase in North American net revenues compared to the prior-year quarter was primarily attributable to unit volume increases resulting from the launch of new generic products during 2004, and a higher demand for the Company's base manufactured and distributed products.

Higher sales in the current quarter, compared to the previous quarter, were primarily the result of an increase in sales volume from the newly-launched products, and a longer-than-anticipated exclusivity period for one of the products.

These higher sales occurred despite significant pricing pressures throughout the marketplace.

European net revenues increased 18 percent to $193 million at the current quarter, compared with $164 million in the 2003 fourth quarter, and were 27 percent higher than the $151 million during the third quarter of 2004.

The overall increase in European net revenues is primarily attributable to unit volume increases, sales related to new products acquired during the fourth quarter 2003, and favorable effects of currency exchange rates.

The higher sales in the current quarter compared to the previous quarter resulted from an increase in sales volume in Europe and price increases in the UK, the acquisition of Polfa Kutno in December 2004 and favorable effects of the currency exchange rates.

Latin American net revenues increased 15 percent to $83 million for the current quarter, compared to $72 million in the 2003 fourth quarter, and were consistent with the $83 million in the third quarter of 2004.

The increase in net revenues during the current quarter was driven primarily by unit volume increases throughout Latin America, as well as pricing increases in certain countries and the acquisition of two Peruvian companies, a manufacturing pharmaceutical company, and a retail pharmacy chain acquired in the second quarter of 2004.

Gross profit percent for the quarter was 46.7 percent.

This compares to the 45.4 percent in the 2003 fourth quarter and 43.4 percent in the previous quarter.

The increase in our gross profit percentage was primarily due to the launching of new products in the U.S. and increases in unit volume sales and pricing in Europe.

Operating expenses increased 21 percent to $163.4 million from the 2003 fourth quarter, and increased 12 percent from the 2004 third quarter.

Selling expenses increased 24 percent over the prior-year quarter, and increased 18 percent from the previous quarter.

General and administrative expenses increased 34 percent during the current quarter over the prior-year quarter, and increased 4 percent from the previous quarter.

Included in general and administrative expenses for the fourth quarter is a credit of $10.7 million related to the settlement of litigation in connection with our Mexican operations.

This amount was largely offset during the quarter by significant fees paid in connection with our Sarbanes-Oxley compliance work and incentive compensation expenses.

In addition, the increase in both selling and general and administrative expenses is also attributable to business acquisitions in Europe and Latin America.

Research and development spending increased 12 percent during the current quarter over the prior-year quarter, and increased 10 percent from the previous quarter.

The increase in research and development expenses compared with the prior year quarter is primarily attributable to an increase in various proprietary and generic research and development projects in North America and Europe.

Other income expenses include interest income of $1.7 million, interest expense of $12.9 million, and other income of $6.7 million, for a combined total of other expenses of $4.5 million in the fourth quarter of 2004.

This compares to total other expenses of $8.4 million for the fourth quarter 2003 and $3.1 million of other expenses in the previous quarter.

The Company's effective tax rate was 11 percent in the current quarter, compared to 22 percent in the comparable 2003 quarter.

For the year 2004, the effective tax rate was 11 percent, compared to 32 percent for 2003.

The Company's effective tax rate was favorably impacted during the 2004 year from the related merger of two of our Chilean subsidiaries, the impact of which has been discussed in prior quarters, and a net reversal of $5.8 million in tax reserves related to the resolution of certain tax issues.

Based on current information, the Company estimates its effective tax rate to be in the range of 27 to 30 percent for future periods, and is dependent on the amount of domestic versus foreign income mix and the related tax rates for each of the tax jurisdictions.

This concludes my remarks.

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

Thank you, Tom.

I think from the foregoing discussions, you can understand the reason for our positive outlook.

We think the best is yet to come.

I have no further comments now.

I do want to thank each and every one of you for participating in this discussion, and I'll sign off now.

Bye.

Ladies and gentlemen, this conference is available for replay.

It starts today, March 15th, at 1:30 PM Eastern and will last until March 22nd at midnight.

You may access the replay at any time by dialing 1-800-475-6701.

International parties, please dial 320-365-3844.

The access code is 773261.

Those numbers again, 1-800-475-6701 or 320-365-3844.

The access code, 773261.

That does conclude your conference for today.

Thank you for your participation, and you may now disconnect.