01—Abstract
Summary
Summary of the 20-F filed February 10, 2014. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited's 2013 annual report (Form 20-F, filed February 10, 2014) shows net revenues of $20.3 billiona, flat compared to 2012, as higher specialty medicines and OTC revenues offset lower generic medicines sales.
Operating income fell to $1.6 billionb from $2.2 billion, driven mainly by legal settlements and loss contingencies of $1.5 billion, primarily the pantoprazole settlement. Net income attributable to Teva declined to $1.3 billion from $2.0 billion, and diluted EPS was $1.49 versus $2.25 in 2012. Cash flow from operating activities was $3.2 billion, down $1.3 billion from 2012.
The generic medicines segment generated revenues of $9.9 billionc and profitability of $1.7 billion, down 5% and 20% respectively. The specialty medicines segment generated revenues of $8.4 billion and profitability of $4.6 billion, up 3% in revenue and down 3% in profitability. Copaxone® remains the largest specialty product at $4.3 billion, but the filing warns that generic competition in the United States may begin as early as May 2014, and that the company's strategy relies heavily on a three-times-a-week version of the product.
Management is in transition, with Erez Vigodman set to become President and CEO on February 11, 2014, and the company's cost reduction program targets $2 billiond in savings by the end of 2017. The filing also highlights significant legal and regulatory exposure, including ongoing FCPA investigations by the SEC and DOJ, antitrust litigation over patent settlements, and product liability claims. Total debt was $12.2 billion at year end, down $2.5 billion from 2012.
02—Key points
Key Highlights
- Net revenues of $20.3 billion, flat versus 2012; generic medicines revenues fell 5% to $9.9 billion while specialty medicines rose 3% to $8.4 billion.
- Operating income declined to $1.6 billion from $2.2 billion, mainly due to legal settlements and loss contingencies of $1.5 billion, including a $930 million charge for the pantoprazole patent settlement and a $495 million modafinil antitrust provision.
- Net income attributable to Teva was $1.3 billion ($1.49 diluted EPS) versus $2.0 billion ($2.25) in 2012.
- Operating cash flow was $3.2 billion, a decrease of $1.3 billion from 2012, mainly due to higher legal and Israeli tax settlement payments.
- Copaxone® generated $4.3 billion in revenue, but U.S. patents expire in May 2014 and generic competition may begin as early as that month.
- Total debt was reduced to $12.2 billion from $14.7 billion, with the company citing debt prepayments and a shift toward a shorter debt structure.
- A $2 billion cost reduction program targets half of savings by end-2014, with approximately a 10% reduction in headcount and CEO transition to Erez Vigodman effective February 11, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Teva Pharmaceutical Industries kept $0.06.
- Revenue$20.31B100.0%
- Cost of revenue−$9.61B47.3%
- Gross profit$10.71B52.7%
- Operating costs−$9.06B44.6%
- Operating income$1.65B8.1%
- Interest, other & tax−$380.0M1.9%
- Net income$1.27B6.2%
Where FY2013 revenue went
$20.31B- Cost of revenue: $9.61B, 47% of revenue
- Other operating costs: $9.05B, 45% of revenue
- Net income: $1.27B, 6.2% of revenue
- R&D: $5.0M, 0.0% of revenue
- Interest, other & tax: $380.0M, 1.9% of revenue
Kept 6.2% as net incomeNet income $1.27B · 6.2%R&D $5.0M · 0.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 10, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $20.31B$20.32B | 0.0% |
| Cost of Revenue | $9.61B$9.66B | −0.6% |
| Gross Profit | $10.71B$10.65B | +0.5% |
| R&D Expenses | $5.00M$73.00M | −93.2% |
| Operating Income | $1.65B$2.21B | −25.2% |
| Interest Expense | $314.00M$355.00M | −11.5% |
| Net Income | $1.27B$1.96B | −35.4% |
| EPS (Basic) | $1.49$2.25 | −33.8% |
| EPS (Diluted) | $1.49$2.25 | −33.8% |
| Shares Outstanding (Basic) | 849.00M872.00M | −2.6% |
| Shares Outstanding (Diluted) | 850.00M873.00M | −2.6% |
05—Questions
Frequently Asked Questions
Why did Teva's operating income and net income decline in 2013?
Operating income fell to $1.6 billion from $2.2 billion, primarily because legal settlements and loss contingencies rose to $1.5 billion from $715 million, driven mainly by the pantoprazole settlement and the modafinil antitrust provision. Net income attributable to Teva fell to $1.3 billion from $2.0 billion, reflecting these lower operating results and smaller tax benefits.
What is the risk to Copaxone®, Teva's largest specialty product?
Copaxone® generated $4.3 billion in 2013 revenue. The filing states that U.S. Orange Book patents expire in May 2014, so generic competition for the 20mg product may begin as early as May 2014, subject to FDA approval. The company also depends heavily on successfully migrating patients to its three-times-a-week 40 mg/mL version, which the FDA approved in January 2014. Oral MS therapies such as Gilenya, Tecfidera and Aubagio also compete intensely with Copaxone®.
What regulatory and legal investigations is Teva facing?
Teva disclosed ongoing FCPA investigations by the SEC and DOJ covering issues in Russia, certain Eastern European and Latin American countries, and other jurisdictions, with the internal investigation expected to continue through the end of 2014. It also faces federal investigations into U.S. marketing practices for specialty products, FTC and EU Commission scrutiny of patent settlement agreements, and a Medicaid price-reporting case in Illinois where the state seeks approximately $100 million in compensatory damages before trebling.
How is Teva's cost reduction program progressing and what does management change mean for investors?
In December 2012 Teva announced a program targeting $2 billion in cost reductions by the end of 2017, with half by the end of 2014, and a roughly 10% reduction in headcount. In October 2013 management accelerated the plan, and restructuring costs are expected to be approximately $1.1 billion, mostly incurred through 2014. Erez Vigodman is set to become President and CEO on February 11, 2014, succeeding Acting CEO Eyal Desheh, who returns to CFO. The filing notes that Vigodman is the fifth CEO since 2007, which the company identifies as a risk factor.
How has Teva's debt and liquidity position changed?
Total debt was $12.2 billion at December 31, 2013, down $2.5 billion from $14.7 billion, mainly from debt prepayments. Cash, cash equivalents and short- and long-term investments were $1.2 billion, down from $3.1 billion. The company had $2.8 billion available under its $3.0 billion syndicated credit facility at year end, and in January 2014 it entered into a $1.0 billion five-year term loan. The filing notes that the company's leverage is a risk factor that could affect its ability to refinance.
06—Continue