Teva Pharmaceutical Industries Ltd (TEVA) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the IVAX Corporation third quarter earnings call. [OPERATOR INSTRUCTIONS].

I would like to now turn the conference over to our host, Mr. Neil Flanzraich, vice chair and president.

Sir, you may begin.

Thank you.

Good morning, everyone.

I'm Neil Flanzraich, Vice Chairman and President of IVAX corporation.

Phillip Frost, Chairman and CEO of IVAX Corporation is away on business, and so I would like to welcome you to our conference call and webcast to discuss the Company's third quarter 2005 financial results reported earlier today.

In the event have you not received this press release, it is available online via our Web site at www.IVAX.com.

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

Joining me this morning are Tom Beier, our Senior Vice President of Finance and Chief Financial Officer, and David Malina, our Vice President of Investor Relations.

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

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

And then I will follow with some closing remarks.

Good morning.

I would 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 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.

Since this may be our last quarter to report as an independent company, before giving you some brief comments on our third quarter 2005 and our business, we would like to thank all of our investors and employees for their loyalty and support throughout the years.

Revenues for the third quarter 2005 were up 41% to $617.7 million, from $439.1 million, in the third quarter 2004.

These were the highest quarterly revenues in IVAX's 18-year history.

Income for the third quarter 2005 was up 25%, to $55.4 million from 44.4 million in the third quarter 2004.

Earnings per share was up 18% in the third quarter 2005, to $0.20 from $0.17 in the third quarter 2004.

For the nine months ended September 30, 2005, revenues were $1.69 billion, and income $134.5 million, or $0.49 per share compared to revenues of $1.33 billion, and income of $134.8 million, or $0.51 per share in 2004.

To properly compare the third quarter of 2005 with the third quarter of 2004, please recall that in the third quarter 2004, we benefited from six month exclusivity for several generics which we didn't have in the third quarter 2005, but we will have again in 2006, and that our tax provision was over $27 million less in the third quarter 2004 than in the third quarter 2005.

We announced on October 24, 2005, that our third quarter earnings would decrease approximately $0.04 per share by items related to our merger with Teva Pharmaceuticals Industries Ltd.

These included approximately $10.2 million in merger-related costs for investment banking fees, retention bonuses, and legal and accounting fees, costs that are required to be expensed by acquirees, much of which is not tax deductible.

Also, there has been the dilutive effect of over 9 million additional shares now outstanding or deemed outstanding in connection with options and convertible notes because of the recent rise in IVAX's stock price.

On October 27, 2005, IVAX and Teva announced that their shareholders overwhelmingly approved the acquisition of IVAX by Teva.

An excess of 98% of both Teva shares and the IVAX shares voted, voted in favor of the transaction.

The merger with Teva is proceeding very much on track and the closing of the transaction is still expected in late 2005 or early 2006, after completion of the Hart-Scott-Rodino clearance process, obtaining other required anti-trust approval, and satisfaction of other closing conditions of the merger agreement.

We expect that the impact of merger-related items will be even more significant in the fourth quarter.

Because of that impact, and the merger-related changes, in our circumstances and activities, it no longer makes sense to provide guidance as a stand-alone company for the remainder of 2005 and beyond.

This is the 11th consecutive quarter of year-over-year increases of quarterly revenues.

And we are pleased all of our major business regions contributed to this growth.

In the third quarter 2005, North American revenues increased 39% from $213 million to $295 million.

These were the highest revenues ever for our North American operations and the 11th consecutive quarter of year-over-year quarterly revenue growth.

European revenues increased 26% from $151.2 million to $190.9 million; this increase was largely attributable to recognition in this quarter of the previously disclosed deferred revenues from our licensing agreement with Mayne Group Limited for Paxene® and revenues of Polfa Kutno, acquired in December 2004.

Latin American revenues increased 14% from $83.2 million to 94.6 million, the 10th consecutive quarter of year-over-year quarterly revenue growth.

Favorable developments during the third quarter include the continued strong performance of QVAR, our CFC-free, or HFA-aerosol corticosteroids, maintenance medicine for asthma.

IVAX's Albuterol sulfate HFA in a standard metered dose inhaler becoming the top-selling Albuterol HFA product in the U.S. market currently representing nearly 60% of all new Albuterol HFA prescriptions.

The continued success of IVAX's business in Chile, Venezuela, Argentina and Peru and most recently receiving regulatory approval for IVAX's Fluticasone nasal spray in 11 countries across Europe.

Fluticasone nasal spray is a the generic equivalent in the use of Flonase which is marked by GlaxoSmithKline for the treatment of allergies.

Our U.S. generics business is a major contributor to the record revenues achieved by our North American operation.

IVAX's generic pipeline currently consists of 59 ANDAs pending with the FDA, of which 13 are potentially first to file, with related annual grand sales of more than $11.5 billion.

Our pipeline is considered the industry's second largest, second only to Teva's.

The newest addition to our list of potential first to file generic opportunities is our generic version of Pulmicort Respules, AstraZeneca's asthma medication with annual U.S. sales of approximately $561 million.

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

Among these are Zoloft Pfizer's anti-depressant, 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-month exclusivity to start mid 2006.

Zocor, Merck & Co's drug for lowering cholesterol, IVAX was first to file a paragraph four 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 the patents we had challenged from the FDA's orange book.

We do not believe this brand company's subsequent removal of patents from the orange book should deny us our exclusivity period.

We were not surprised, however, by the FDA's recent denial of the citizens petition that we submitted on the issue.

We continue to believe we should obtain six months marketing exclusivity for our generic version of Zocor.

We strongly believe in the merits of our argument, which we have now taken to federal court, and happily, there is ample time to obtain a resolution before June, 2006.

Lexapro, Forest Lab's anti-depressant, our patent challenge trial on Lexapro recently been postponed by the federal district court district of Delaware from December 5, 2005, until March 15, 2006, in order to accommodate the expected 10-day length of our trial.

Zyprexa, Eli Lilly's antipsychotic drug, IVAX is the first to challenge Zyprexa's patent, in April of 2005 the Indiana district court upheld the Zyprexa's patent.

IVAX continues to strongly believe the Zyprexa patent is invalid and we are appealing the Indiana federal district court decision to the U.S.

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

We expect the U.S.

Court of Appeals to reach a decision in the first half of 2006.

Flonase, GlaxoSmithKline's drug for allergies, there are three citizen petitions pending with the FDA relating to generic Flonase.

We cannot predict when we will launch our generic equivalent of this drug.

We are approaching the final stages of our merger with Teva, and like our shareholders who strongly approve the merger we have great confidence in the company that will be created from this union.

The combined company will at closing have an expected annual revenue run rate of over $7 billion.

It will be the largest generic company in the world.

And it will have expected combined total prescriptions in the U.S. of about 340 million, which is 130 million more than the second largest generic company, and second by a small and narrowing margin to Pfizer, among all U.S. pharmaceutical companies.

We will have direct operations in over 50 countries and sales in many more.

This company will have excellent prospects for growth with proprietary drug offerings and key therapeutic area, such as central nervous system, respiratory, and oncology.

It will be a company with the ability to respond on a global scale to the widest range of requirements, patients, customers, and health care providers, both therapeutically and economically.

Once again, we would like to thank all of you for your support through the years.

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

Tom?

Thank you, Neil.

And good morning.

Today, IVAX corporation reported net income of $55.4 million, or $0.20 per share for the third quarter ended September 30, 2005.

Net income for the comparable 2004 quarter was $44.4 million or $0.17 per share.

Our $0.20 per share includes a $0.04 negative impact from merger-related expenses which is required to be expensed by the acquirees, and by he dilutive effect of additional shares outstanding and deemed outstanding in connection with options and convertible notes due to the rise -- the recent rise in IVAX's stock price.

Gross profit amounted to $261 million in the quarter, compared with $190.6 million in the comparable 2004 quarter, as revenues grew 41% and gross profits 37% during the current quarter.

The improvement in our gross profit for the comparable 2004 quarter was primarily due to the higher sales volume in the U.S. generics due to new product launches, and increase in sales volume resulting from our acquisitions in Poland in 2004, and Phoenix Scientific in 2005.

And an increase in other revenues attributable to recognition of the previously disclosed deferred revenues relating to our licensing agreement with Mayne for Paxene.

Our third quarter net revenues were $618 million, 41% over the $439 million reported during the third quarter of 2004, and 7% higher than the $577 million reported for the prior quarter.

A break down of revenues by region is as follows: North American net revenues increased 39% to $295 million in the current quarter, compared with $213 million in the 2004 third quarter and were 13% higher than the $261 million during the second 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.

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

European net revenues increased 26% to $191 million for the current quarter, compared with $151 million, in the 2004 third quarter, and were 3% lower than the $197 million in the previous quarter.

The increase in European net revenues is primarily attributable to higher sales in our central and eastern European countries, and sales resulting from the acquisition of Polfa Kutno in the fourth quarter of 2004.

In addition, European other revenues included payments received from the Mayne agreement.

Latin America net revenues increased 14% to $95 million for the third quarter, compared to $83 million in the 2004 comparable quarter, and were 4% lower than the $98 million in the previous quarter.

The increase in net revenues during the current quarter was driven primarily by higher sales in the majority of the Latin American countries.

Gross profit percent for the quarter was 42%.

This compares with 43% in the 2004 third 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 gross profit margin were impacted by significant product sales in the U.S. related to the launching of two authorized generic products during the second quarter which typically have lower gross profit margins.

The impact of these lower margin products were somewhat offset by higher other revenues received during the quarter.

Operating expenses increased 25% to $184 million, for the 2004 third quarter, And increased 5% from the 2005 second quarter.

Included in operating expenses during the quarter were $10.2 million of merger-related expenses.

Selling expenses increased 16% over the prior year quarter, and decreased 7% from the previous quarter.

General and administrative expenses increased 27% during the current quarter, over the prior year quarter, and increased 11% from the previous quarter.

The higher costs of -- in the current quarter compared to the 2004 third quarter were associated with costs relating to our business acquisitions in Europe during the fourth quarter of 2004, and the acquisitions of Phoenix scientific in the second quarter of 2005.

Research and development spending increased 4% during the current quarter, over the prior year quarter, and decreased 3% from the previous quarter.

The increase and/or decrease in the 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 $4.2 million, interest expense of $10.2 million other income of $7.2 million for combined total other income of $1.3 million for the third quarter of 2005.

This compares with total other expenses of $3 million for the third quarter 2004, and $2.5 million of other income in the previous quarter.

The Company's provision for taxes amounted to $23.7 million, a $27.1 million increase over the comparable 2004 quarter, which included the credit provision of $3.4 million.

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 year 2005 to be approximately 30%, and it's dependent on the amount of domestic versus foreign income tax mix, and the related rates for each of the tax jurisdictions.

This concludes my remarks.

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

Thank you, Tom.

IVAX has achieved many important business and scientific breakthroughs since it was founded in 1987.

Let me mention just a few.

IVAX was the first company to receive U.S. approval for a generic version of a sustained release drug with [thorazamil] hydrochloride for hypertension.

This was the first generic product to achieve over $100 million in revenues and put the generic industry on the map.

IVAX was the first company in the U.S. to receive approval of the generic form of an inhaled drug, Albuterol in a metered dose inhaler, and helped the FDA develop tests and standards for bio-equivalence for inhaled medicine.

IVAX was the first company in the world to receive approval for a non-CFC aerosol inhaled form of a corticosteroid for asthma, and has been an industry leader in bringing environmentally friendly CFC-free aerosol products to market.

IVAX was one of the first generic companies to develop the significant and growing presence as a proprietary pharmaceutical company, and currently has marketed drugs, or drug candidates, in such important therapeutic categories as respiratory, oncology, and central nervous system disorders.

IVAX built an important international pharmaceutical company with direct operations in about 40 countries.

IVAX has a significant presence in western Europe, and a major and growing presence in central and eastern Europe, and IVAX is one of the largest pharmaceutical companies in Latin America.

IVAX has been successful in winning first to file six-month periods of exclusivity for our generic equivalents of numerous blockbuster drugs, such as Paxil, Glucophage XR, Glucovan, Zoloft and Proscar.

And am doing so, IVAX has saved and will save American health care payers and consumers billions of dollars annually while bringing great value to our shareholders.

According to IMF data in 2004, IVAX was the fastest growing of the top five U.S. generic companies and the 11th-leading U.S. pharmaceutical company in terms of prescriptions.

It has been quite a run.

And a highly rewarding 18 years for IVAX's investors and employees.

And we believe that the best is yet to come.

Thank you for joining us this morning.

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