Teva Pharmaceutical Industries Ltd (TEVA) 2005 Q2 法說會逐字稿

Welcome to the IVAX Corporation second quarter 2005 earnings call. (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.

Good morning everyone.

I am Phillip Frost, Chairman and CEO of IVAX Corporation.

And I would like to welcome you to our conference call and webcast to discuss our Company's second quarter 2005 financial results reported earlier today.

In the event you have not received this press release, it is 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, and David Malina, our Director of Investor Relations.

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

After that, Tom will provide a review of our second quarter 2005 financials.

Good morning.

I would like to remind you that statements in this conference call are forward-looking and may 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 and on Form 10-K and other filings with the Securities and Exchange Commission.

Good morning.

Let me give you some brief comments on the second quarter in our business.

Net revenues for the second quarter 2005 were up 24% to 577.3 million from 464 million in the second quarter 2004.

Net income for the second quarter 2005 was 45.6 million, and our EPS was $0.17.

Net income for the second quarter 2004 was 48.1 million, and EPS was $0.18.

While we do not give guidance by quarters, our second quarter and first half results were consistent with our expectations the second quarter 2005, and above our expectations for the first half of the year.

Our income before income taxes for the second quarter of this year was $65.1 million compared to 58.2 million in the second quarter of 2004.

Our net income for this quarter was impacted by a significantly higher income tax rate of approximately 30% as compared to an approximately 17% tax rate for the comparable quarter in 2004.

Second quarter 2005 also did not benefit from two significant generic products with six months exclusivities as the second quarter of 2004 did with Metformin ER and Metformin Glimepiride.

We expect the second half of 2005 to be significantly stronger, and confirm our 2005 guidance of $0.76 to $0.86 per share.

We believe our earnings for the full year will be in the middle to upper end of this range.

We also confirm our 2006 guidance of $1.35 to $1.55 per share.

Not included in IVAX's 2006 guidance is profit from the sale of our generic version of Zocor, which we expect to launch in the middle of 2006.

We continue to believe that we should be granted a six month period of exclusivity for our generic version of Zocor, which would provide very considerable upside to our guidance.

Of course, our guidance for 2005 and 2006 must be qualified by any impact of our recently announced agreement with Teva Pharmaceuticals providing for the acquisition of IVAX by Teva.

We are currently preparing the proxy material to be filed with the SEC in order to obtain shareholder approval for this agreement.

We expect to submit the proxy material to the SEC in the next several weeks.

Dr. Frost and I, and the rest of our Board of Directors, strongly believe this transaction is in the best interest of our shareholders.

We expect this agreement will result in IVAX being merged with Teva by the end of 2005 or early 2006.

And in this context there is no continuing logic or forecast or guidance for IVAX as a stand-alone, independent Company in 2006.

From this point on we will accordingly discontinue providing guidance for 2006.

Our gross profit margins were, as expected, the same as in the first quarter of 2005, and less than the gross profit margins of the second quarter of 2004 for a number of reasons.

Including among others the margin lowering and revenue and profit enhancing effect of being appointed the authorized generic distributor of two important drugs this quarter.

And also because we did not benefit from the sales of two significant generic drugs with six months exclusivities, as we did in the second quarter of 2004.

However, we do expect that gross profit margins to improve in the second half of 2005.

IVAX achieved substantial revenue growth in all its major business regions in the second quarter of 2005 over the same period last year.

North American revenues increased 14% from 228.3 million to $261 million.

This is the tenth consecutive quarter IVAX's North American operations have achieved year-over-year quarterly revenue growth.

European revenues increased 15% from 171.6 million to 197 million.

And Latin American revenues increased 29% from 76 million to $98.4 million.

This is the ninth consecutive quarter of our Latin American operations have achieved year-over-year quarterly revenue growth, and the eighth consecutive quarter that the quarterly revenue growth has been double-digit.

Our U.S. generic business was a major contributor to the 14% North American growth during the second quarter.

We had six generic product approvals and launches, one tentative approval, and we became the authorized distributor of generic equivalent of two important products, OMJ Pharmaceuticals' Ultracet, Purdue Pharma's OxyContin.

With additional generic approvals and launches, and the possibility of additional opportunities to be the authorized distributor of generic versions of other important products, we expect our U.S. generic revenues to continue to be strong during the remainder of 2005.

This past Friday, July 29, IVAX announced that we are the authorized distributor of the generic version of Purdue Pharma's analgesic MS Contin tablet.

IVAX's generic pipeline now stands at 57 ANDAs pending with the FDA, of which 12 are potentially first to file with related annual brand sales of more than $11 billion.

Ours is generally considered the industry's second-largest pipeline.

IVAX's generic pipeline contains a number of important opportunities, some of which are publicly known.

Among these are Zoloft, Pfizer's antidepressant.

A settlement with Pfizer permits IVAX to launch in mid 2006, and we expect six months of exclusivity.

Proscar, Merck & Co.’s drug for benign prostatic hypertrophy.

IVAX expects its six months exclusivity to start in mid 2006.

Zocor, Merck & Co.'s drug for lowering cholesterol.

IVAX was the first to file a Paragraph IV patent challenge on Zocor.

And we expect to launch our generic version of Zocor in mid 2006.

Nearly three years after our filings, Merck delisted from the FDA's Orange Book, the patents we had challenged.

We do not believe that the brand company's subsequent removal of patents from the Orange Book should deny us our exclusivity period.

And we have filed a citizen's petition with the FDA stating our position.

We continue to believe that we should be granted a six month period of exclusivity for our generic version of Zocor, which would provide very considerable upside in 2006.

Lexapro, Forest Labs' antidepressant.

Our patent challenge trial on Lexapro has been postponed until December 2006.

Lexapro has never been included in our guidance.

Zyprexa, Eli Lilly’s antipsychotic drug.

IVAX was the first to challenge Zyprexa's patent.

In April of 2005 the Indiana Federal District Court upheld the Zyprexa patent.

IVAX continues to strongly believe the Zyprexa patent is invalid, and will in the next few weeks submit our appeal of the Indiana trial court's decision to the U.S.

Court of Appeals Federal circuit in Washington D.C., where we believe we will have a good chance of success.

Sales of Zyprexa have also never been included in our guidance.

Flonase, Glaxo SmithKline's drug for rhinitis.

We have nothing new to report on Flonase.

Given regulatory uncertainties, Flonase is not included in our guidance.

One of the important focuses of our U.S. brand respiratory product strategy relates to the asthma product albuterol.

Well over 90% of the albuterol inhaler products sold in the U.S. are the lower-priced CFC albuterol products.

The rest of the market is comprised of a very limited number of brand CFC-free or HFA albuterol product.

IVAX's albuterol HFA in a standard metered dose inhaler, which we launched at the end of 2004, has done very well.

And it is presently vying for the number one market share position among HFA albuterol products.

In March 2005 the FDA issued a rule providing that CFC albuterol products will be removed from the U.S. market by December 31, 2008.

Some early legislative efforts are being made to advance that date.

In June 2005 the working group of parties to the Montreal Protocol on substances that deplete the ozone layer published a draft decision to restrict European and United States allocations of CFC gasses for use in metered dose inhalers in 2006.

And starting January 1, 2007 to deny all CFC allocations the companies that have CFC-free or HFA albuterol products on the market.

If either the FDA's rules for the December 31, 2008 removal of CFC albuterol products from the U.S. market is advanced, or as a result of actions of the Montreal Protocol countries, or the EUor there is effectively an earlier conversion of the U.S. market to CFC-free albuterol.

This would be very favorable for IVAX.

Even if neither of these events occur we believe that IVAX can still obtain a meaningful share of the larger albuterol inhaler market when our breath actuated inhaler is approved.

Our breath actuated inhaler is, we believe, easier to use correctly.

And this is particularly important for a rescue medication for asthma, a life-threatening condition.

There are approximately 465,000 hospital admissions, and over 5,000 deaths each year in the U.S. from acute asthma attacks.

On May 11, 2005 IVAX acquired Phoenix Scientific, the United States' leading manufacturer of generic veterinary pharmaceutical products.

We merged this company with our highly successful veterinary subsidiary, DVM Pharmaceuticals, to form a new IVAX subsidiary, IVX Animal Health, which we expect to be an important contributor.

Our European revenues, 15% growth, came from the continued success of many of our center and Eastern European operations, with a particularly strong performance from our Russian operation, and contributions from our Polish pharmaceutical company, Polfa Kutno, acquired in the fourth quarter of 2004, continued growth of QVAR sales, and IVAX's first to file launch of Nasofan, the generic equivalent of Flonase in the United Kingdom, where it has established a 44% market share.

After the quarter we entered into an agreement with Mayne Pharma to distribute a number of Mayne's generic injectable oncology products to certain markets in central and Eastern Europe.

During the second quarter of 2005 we renegotiated our arrangement with Mayne for Paxene for certain countries in Europe.

Under the new agreement we received a payment.

And a part of this payment was recognized in the second quarter, an amount that was only marginally larger than what we would have received in that quarter under our pre-existing arrangement with Mayne.

Significantly larger amounts will be recognized in the third and fourth quarters of this year.

We will continue to receive payments under the agreement with Mayne in the future based on sales of Paxene in these countries, but at a significantly lower rate than in our previous agreement.

We continue to sell Paclitaxel in Europe, outside of the countries licensed to Mayne.

Our Latin American revenues grew 29%.

And this is the ninth consecutive quarter of IVAX's Latin American operations have achieved year-over-year quarterly revenue growth.

Our units in Venezuela, Chile, Argentina and Peru, and our Peruvian pharmacy chain, BTL, acquired in the second quarter of 2004, all made contributions to that growth.

IVAX continued to make progress on its proprietary pipeline during the second quarter of 2005.

In collaboration with our partner, Sorrento, we initiated a Phase III clinical trial of Mylinax, oral cladribine, for multiple sclerosis, which may be the first oral treatment for MS.

We initiated a Phase III trial with our soft corticosteroid, Loteprednol Etabonate, for rhinitis in children.

And in last two weeks we held a clinical planning meeting with the Northeast ALS Consortium in preparation for initiating a Phase IIb clinical trial with Calamanil (ph) for ALS, or Lou Gehrig's disease.

During the second quarter of 2005, IVAX spend 25% more in marketing and sales, and 6% more in general and administrative expenses than during the second quarter of 2004.

These increases in expenses were related to our acquisition of Medco and BTL in the second quarter of 2004; both Polfo Kutno in the fourth quarter of 2004, and Phoenix Scientific on May 11, 2005.

R&D expenditures in the second quarter of 2005 were 7% lower than in the second quarter of 2004.

I want to thank all of our shareholders for their support over the years.

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

Today IVAX Corporation reported net income of $45.6 million, or $0.17 per share, for the second quarter ended June 30, 2005.

Net income for the comparable 2004 quarter was $48.1 million, or the $0.18 per share, split adjusted.

Gross profit amounted to $236.7 million in the quarter compared with $224.6 million in the comparable 2004 quarter, as revenues grew 24% and gross profit 5% during the current quarter.

The improvement in our gross profit from the comparable 2004 quarter was primarily due to higher sales volume in the U.S. generic market, and an increased sales volume resulting from our acquisitions in Poland and Peru in 2004, and Phoenix Scientific in 2005.

Our second quarter net revenues were $577 million, 24% over the $464 million reported during the second quarter of 2004, and 17% higher than $492 million reported for the prior quarter.

A breakdown of the revenues by region is as follows.

North American net revenues increased 14% to $261 million in the current quarter compared with $228 million in the 2004 second quarter, and were 15% higher than the $228 million during the first quarter of 2005.

The increase in North American net revenues was primarily attributable to volume increases of our base manufacturing and distributed products and sales of new products.

The increase was in spite of the end of exclusivity periods for certain products launched during the 2004 period.

European net revenues increased 15% to $197 million for the current quarter compared with $172 million in the 2004 second quarter, and were 9% higher than the $180 million in the previous quarter.

The increase in European net revenues is primary attributable to higher sales in our Central and Eastern European countries, favorable effects of currency exchange rates, and sales resulting from the acquisition of Polfo Kutno in the fourth quarter of 2004.

Latin American net revenues increased 29% to $98 million for the second quarter compared to 76 million in the 2004 comparable quarter, and were 13% higher than the $87 million in the previous quarter.

The increase in net revenues during the current quarter were driven primarily by higher sales in the majority of the Latin American countries, and sales related to the acquisition of two Peruvian companies in the second quarter of 2004.

Gross profit percent for the quarter was 41%.

This compares with 48% in the 2004 second quarter, and 41% in the previous quarter.

The higher gross profit percent in the 2004 quarter included significant sales from new product launches in the U.S. that had exclusivity periods.

The current quarter included significant product sales in the U.S. related to the launching of two authorized generic products, which typically have lower gross profit margin.

Operating expenses increased 13% to $174 million from the 2004 second quarter, and increased 13% from the 2005 first quarter.

Selling expenses increased 25% over the prior quarter, and increased 10% from the previous quarter.

General and administrative expenses increased 7% during the current quarter over the prior quarter, and increased 26% from the previous quarter, which included a credit of $3.5 million related to the settlement of litigation in connection with our ATI business.

The higher cost in the current quarter compared to the 2004 second quarter was associated with costs relating to our business operations, our acquisitions in Europe and Latin America in the second and fourth quarter of 2004, and the acquisition of Phoenix Scientific in the current quarter of 2005.

Research and development spending decreased 7% during the current quarter over the prior year quarter, and increased 6% from the previous quarter.

The decrease in research and development expenses is primarily attributable to the timing of expenses related to the various research products.

Other income and expenses includes interest income of $3.7 million, interest expense of $9.3 million, and other income of $8.1 million for a combined total other income of $2.5 million in the second quarter of 2005.

This compares with total other expenses of $12.2 million for the second quarter 2004, and $3.6 million of other expenses in the previous quarter.

The Company's effective tax rate for the current quarter was 30%, compared with 17% of comparable 2004 quarter.

During 2004 certain tax planning strategies were implemented that reduced the Company's overall effective tax rate.

The Company estimates its effective tax rate for the 2005 year to be between 27 and 30%, and is dependent on the amount of domestic versus foreign income mix and the related rates for each of the tax jurisdictions.

This concludes my remarks.

At this time I will turn it back to Dr. Frost for his closing comments.

At this point I would like to make a few comments about the pending acquisition of IVAX by Teva.

As you can imagine, we firmly believe that IVAX has a terrific future as a stand-alone Company.

I have felt that way for a long time, and I continue to hold that belief today.

On the other hand, I also believe that merging our efforts with those of Teva's tremendous -- tremendously talented management team and other workers will provide even a better future for IVAX investors.

I think that this will create a company that will have promise beyond anyone's present imagination.

I have been asked whether I'm going to elect to take stock or cash, because the as you know, the price being offered is 50% in cash and 50% in stock.

And in the past -- in the recent past I have said that I am going to try to talk to my advisers about taking as much stock as possible.

And I think I have now convinced them to permit me to elect to ask for all stock, if that will be possible for me to obtain.

And this is simply a reflection of my belief that our investors are going to have a very nice ride with the Teva stock, and that these shares are going to be extremely valuable going forward.

I also wanted thank you all for your continued confidence in IVAX and our management team.

And I will end on that thought.

Thank you.

Ladies and gentlemen, this conference is available for replay.

It starts today at 2 PM Eastern, will last until August 8 at midnight.

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

International parties please dial 320-365-3844.

The access code is 791336. (OPERATOR INSTRUCTIONS).

That does conclude your conference for today.

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