01—Abstract
Summary
Summary of the 20-F filed March 17, 2005. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited's Form 20-F for fiscal 2004 reports net sales of $4.80 billiona, up from $3.28 billion in 2003, driven by the January 2004 acquisition of Sicor Inc. (aggregate consideration of approximately $3.46 billion), the launch of 30 new generic products in the United States, and continued growth of Copaxone®.
Gross profit reached $2.24 billion, and operating income fell to $577.8 millionb from $877.4 million, primarily because of a $596.6 million charge for acquired in-process R&D and a $30.0 million impairment of Purinethol® product rights. Reported net income declined to $331.8 million from $691.0 million, or $0.50 diluted per ADR versus $1.16 in 2003. Excluding one-time items, which the company says is its preferred measure of underlying performance, net income rose to $964.6 million and diluted earnings per ADR were $1.42.
The balance sheet expanded materially, with total assets of $9.63 billionc and shareholders' equity of $5.39 billion at year-end 2004. Convertible senior debentures are a significant part of the capital structure: the company reports $1,513.4 million of long-term convertible debentures at December 31, 2004. Cash generated by operations was $1.25 billion.
Sales were approximately 64%d North American, 26% European and 10% rest of the world. The filing also describes pipeline items, including Azilect® (rasagiline), which received a positive EMEA opinion and European Commission marketing authorization, and laquinimod for multiple sclerosis, along with ongoing patent litigation in the United States.
02—Key points
Key Highlights
- Net sales rose to $4.80 billion in 2004 from $3.28 billion in 2003, with the company stating that more than half of the growth came from existing operations and the balance from including Sicor from January 22, 2004.
- Reported net income fell to $331.8 million ($0.50 diluted per ADR) from $691.0 million ($1.16 diluted per ADR), reflecting a $596.6 million acquired in-process R&D charge and a $30.0 million Purinethol® impairment.
- Excluding one-time items, net income was $964.6 million ($1.42 diluted per ADR), compared with $617.8 million ($1.04) in 2003, which the company presents as a non-GAAP measure.
- Gross profit margin was 46.7% in 2004 compared with 46.4% in 2003, and the company anticipates gross margins in the 45%-48% range going forward.
- Copaxone® in-market global sales reached $936 million in 2004, up 30%, and the company reported a 32.6% quarterly U.S. market share of total MS prescriptions in the fourth quarter.
- Convertible senior debentures of $1,513.4 million classified as long-term were outstanding at year-end 2004, and the company repurchased $188 million of shares during 2004.
- Operating cash flow was $1.25 billion, and the company paid $0.20 per ADR in dividends during 2004 with a higher fourth-quarter dividend declared after year-end.
03—Questions
Frequently Asked Questions
What drove the decline in reported net income in 2004?
Reported net income fell 52% to $331.8 million because of one-time items totaling about $633 million, mainly a $596.6 million acquired in-process R&D charge tied to the Sicor acquisition, along with a $30.0 million impairment of Purinethol® product rights. The filing notes that 2003 included a $100 million GSK litigation settlement gain.
How much did the Sicor acquisition cost and how was it financed?
Sicor was acquired on January 22, 2004 for an aggregate purchase price of approximately $3.46 billion, comprised of $2.0 billion in cash and $1.4 billion in Teva ADRs. Teva funded the cash portion through short-term bank borrowings of $1.13 billion, later refinanced through the issuance of convertible senior debentures with net proceeds of about $1.076 billion.
What is Teva's leading product and how is it performing?
Copaxone® is Teva's leading innovative product for relapsing-remitting multiple sclerosis. The filing reports 2004 in-market global sales of $936 million, up 30%, with U.S. sales of $625 million and non-U.S. in-market sales of $311 million, up 38%. The filing also notes competition from Avonex®, Betaseron® and Rebif®, and that Copaxone® orphan drug exclusivity in the U.S. expired on December 20, 2003.
What are the main risks highlighted in the filing?
The filing cites intense generic competition and falling prices as more competitors enter, brand-name companies' use of authorized generics and delay tactics, regulatory changes affecting 180-day exclusivity, potential liability for selling generics before final court decisions (including the generic Neurontin® launch), product liability exposure not covered by insurance, pricing reform in healthcare, and operations in Israel exposed to Middle East hostilities and terrorism. It also lists ongoing patent and antitrust litigation, including the OxyContin® patent case and the nifedipine antitrust suits.
What is the outlook for the company's effective tax rate and gross margins?
The company states that its 2004 effective tax rate was 21.7%, up from 20.8% in 2003, mainly due to Sicor's higher tax rate. For 2005 it estimates an effective tax rate of approximately 22% as a working assumption. It also anticipates that gross margins will fall within a range of 45% to 48%.
04—Continue