01—Abstract
Summary
Summary of the 20-F filed March 20, 2006. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited, filed on Form 20-F for the fiscal year ended December 31, 2005, reported net sales of $5,250.4 milliona, up 9% from $4,798.9 million in 2004.
Net income was $1,072.3 millionb, compared with $331.8 million in 2004; the filing notes that 2004 included one-time charges, and before those items 2004 net income was $964.6 million. Diluted earnings per ADR were $1.59, versus $0.50 reported in 2004. Growth was described as almost entirely organic.
Copaxone was reported as Teva's leading innovative product, with global in-market sales of $1,176 millionc in 2005, up 26%. Gross profit margin was 47.2%, and operating income was $1,312.9 million. The filing's most significant subsequent event was the acquisition of Ivax Corporation on January 26, 2006, for approximately $3.8 billion in cash and 123 million ADRs, with an accounting value of $7.9 billion.
The filing describes this as Teva's largest acquisition to date. It was financed with $1.7 billiond of Teva's own cash and bridge loans of $2.8 billion, which were refinanced with senior notes and convertible senior debentures. The filing states that Ivax's results are not included in the 2005 figures, and that financial expenses are expected to increase substantially in 2006, with annual interest and amortization of about $120 million on the $2.9 billion raised.
Management also flagged a preliminary in-process R&D charge of $1,300 million to be expensed in the first quarter of 2006. At December 31, 2005, total assets were $10,387.4 million, shareholders' equity was $6,042.3 million, and working capital was $3,245.2 million. Total long-term debt was $1,773.3 million.
Cash generated by operations was $1,370 million, and free cash flow was $901 million. The company paid dividends of $162 million and repurchased $379 million of shares during 2005.
02—Key points
Key Highlights
- Net sales rose 9% to $5.25 billion in 2005, with the filing describing nearly all of the growth as organic.
- Net income was $1,072 million in 2005, versus $331.8 million in 2004, which included one-time charges; diluted EPS per ADR was $1.59 compared with $0.50 in 2004.
- Global in-market sales of Copaxone reached a record $1,176 million in 2005, up 26%, and the filing describes Copaxone as Teva's first blockbuster drug.
- Gross profit margin was 47.2% in 2005, up from 46.7% in 2004, and operating income was $1,312.9 million.
- Teva completed its largest acquisition to date, Ivax Corporation, on January 26, 2006, for about $3.8 billion in cash and 123 million ADRs, valued at $7.9 billion for accounting purposes.
- Management expects financial expenses to rise substantially in 2006, with about $120 million in annual interest and amortization on the $2.9 billion raised for the Ivax deal.
- Shareholders' equity was $6.04 billion and total assets were $10.39 billion at year-end 2005; the company generated $1.37 billion in operating cash flow and $901 million in free cash flow.
03—Questions
Frequently Asked Questions
What drove Teva's 2005 revenue growth?
The filing attributes the 9% increase in net sales to $5,250.4 million to organic growth in both the pharmaceutical and API segments, with currency having only a negligible positive effect. Growth came from new generic launches in the U.S., Copaxone sales growth, and European generic launches. Sales in Canada also grew, driven by 13 new product launches. U.S. generic sales did not match 2004 record levels, however, because of fewer significant launch opportunities and price erosion on products launched in 2004.
Why did 2005 net income look so much higher than 2004?
The filing says 2004 reported net income of $331.8 million was reduced by one-time items, mainly a $596.6 million charge for acquired in-process R&D and a $30 million impairment of product rights. Before one-time items, 2004 net income was $964.6 million, so the reported 2005 figure of $1,072.3 million reflects a 11% increase on that basis, which the filing describes as the more meaningful comparison.
What is the Ivax acquisition and how was it financed?
On January 26, 2006, Teva acquired Ivax Corporation, a multinational generic drug company based in Miami, for approximately $3.8 billion in cash and 123 million ADRs. The cash portion was funded with $1.7 billion of Teva's own cash and $2.8 billion of bridge loans, which were then replaced with publicly issued debt: 1.75% and 0.25% convertible senior debentures due 2026 and 5.55% and 6.15% senior notes due 2016 and 2036. The filing says Ivax's results will be consolidated from February 1, 2006, and are not included in the 2005 financial statements.
What risks does the filing highlight for investors?
The filing highlights several risks, including the erosion of generic drug prices as competitors enter, consolidation among U.S. distributors and customers, and uncertainty about FDA exclusivity periods. It also flags ongoing patent litigation over products such as Allegra, Neurontin, OxyContin, and Zithromax, where Teva has launched generics at risk. Other risks include competition for Copaxone from the expected reintroduction of Tysabri, and the possible impact of the Ivax integration, including $1,300 million in preliminary in-process R&D charges and additional amortization of about $71.6 million per year.
How strong is Teva's balance sheet and cash position at the end of 2005?
At December 31, 2005, Teva reported cash and cash equivalents of $1,275.6 million and short-term investments of $935.5 million. Total long-term debt was $1,773.3 million, with convertible senior debentures of $1,313.9 million. Working capital was $3,245.2 million, and shareholders' equity was $6,042.3 million. Operating cash flow was $1,370 million, and free cash flow after capital investment and dividends was $901 million. The company also repurchased $379 million of its shares in 2005.
04—Continue