01—Abstract
Summary
Summary of the 20-F filed February 15, 2017. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited's 2016 Form 20-F, filed February 15, 2017, reports a year dominated by the August 2016 acquisition of Allergan plc's generic pharmaceuticals business (Actavis Generics) for approximately $33.4 billiona in cash and about 100.3 million Teva shares.
Net revenues rose to $21.9 billionb from $19.7 billion, but net income attributable to Teva fell to $329 million from $1.6 billion, and net income attributable to ordinary shareholders was $68 million, or $0.07 diluted EPS, after $261 million of accrued preferred dividends. Operating income fell to $2.2 billion from $3.4 billion, driven by a $900 million goodwill impairment tied to the Rimsa acquisition, $899 million in legal settlements and loss contingencies (including a $519 million FCPA resolution), and $383 million of inventory step-up. Total debt rose to $35.8 billion from $9.9 billion, and cash and investments fell to $1.9 billion.
The filing signals a structural shift toward generics. Generic medicines generated $12.0 billionc of revenue, or 55% of total revenues, and the company expects generics to approach two-thirds of revenues in 2017. Specialty medicines revenue was $8.7 billion, with Copaxone contributing $4.2 billion, about 19% of revenues.
In January 2017 a U.S. district court held four Copaxone 40 mg/mL patents invalid, and the company expects Copaxone sales to decline. Both S&P and Moody's moved their outlooks to negative, and Teva's ratings are BBB and Baa2. Dr. Yitzhak Peterburg became interim CEO on February 6, 2017, succeeding Erez Vigodman, and the company's management and strategy are under review.
02—Key points
Key Highlights
- Net revenues were $21.9 billion in 2016, up 11% from $19.7 billion in 2015, with five months of Actavis Generics included.
- Net income attributable to Teva fell to $329 million from $1.6 billion; diluted EPS was $0.07 versus $1.82 in 2015.
- Operating income was $2.2 billion, down 36%, including a $900 million goodwill impairment for Rimsa and $899 million of legal settlements and loss contingencies.
- Total debt increased to $35.8 billion from $9.9 billion, largely from roughly $27 billion of debt raised to finance Actavis Generics; the company had about $1 billion of cash and cash equivalents at year-end.
- Copaxone generated $4.2 billion of revenue (about 19% of total), and a January 2017 court ruling invalidated four of its 40 mg/mL patents; the company is appealing.
- Generic medicines revenue was $12.0 billion (55% of total), and the company expects generics to approach two-thirds of revenues in 2017.
- Teva resolved FCPA investigations with the SEC and DOJ for about $519 million, and Standard & Poor's and Moody's moved their outlooks to negative in February 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Teva Pharmaceutical Industries kept $0.02.
- Revenue$21.90B100.0%
- Cost of revenue−$10.25B46.8%
- Gross profit$11.65B53.2%
- Operating costs−$9.50B43.4%
- Operating income$2.15B9.8%
- Interest, other & tax−$1.82B8.3%
- Net income$329.0M1.5%
Where FY2016 revenue went
$21.90B- Cost of revenue: $10.25B, 47% of revenue
- Other operating costs: $9.08B, 41% of revenue
- Net income: $329.0M, 1.5% of revenue
- R&D: $422.0M, 1.9% of revenue
- Interest, other & tax: $1.82B, 8.3% of revenue
Kept 1.5% as net incomeNet income $329.0M · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 15, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $21.90B$19.65B | +11.5% |
| Cost of Revenue | $10.25B$8.30B | +23.6% |
| Gross Profit | $11.65B$11.36B | +2.6% |
| R&D Expenses | $422.00M$35.00M | +1105.7% |
| Operating Income | $2.15B$3.35B | −35.7% |
| Interest Expense | $546.00M$270.00M | +102.2% |
| Net Income | $329.00M$1.60B | −79.4% |
| EPS (Basic) | $0.07$1.84 | −96.2% |
| EPS (Diluted) | $0.07$1.82 | −96.2% |
| Shares Outstanding (Basic) | 955855.00M | −100.0% |
| Shares Outstanding (Diluted) | 961864.00M | −100.0% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2016?
Net income attributable to Teva dropped to $329 million from $1.6 billion, mainly due to lower operating income, higher impairments and higher financial expenses. Operating income was hit by a $900 million goodwill impairment related to Rimsa, $899 million of legal settlements and loss contingencies, $383 million of inventory step-up, and $423 million of purchased in-process R&D. Financial expenses rose to $1.3 billion, including a $746 million impairment related to Venezuela.
What is the risk from the Copaxone 40 mg/mL patent ruling?
In January 2017 the U.S. District Court for the District of Delaware held that the asserted claims of four Copaxone 40 mg/mL patents were invalid. Teva has appealed, but competitors may receive FDA approval and launch before the appeal is decided. Over 84% of U.S. Copaxone prescriptions were filled with the 40 mg/mL version, and the filing states that Copaxone sales are expected to decline as a result.
How is the company's debt position and credit rating affected?
Total debt was $35.8 billion at December 31, 2016, versus $9.9 billion a year earlier. Standard & Poor's and Moody's downgraded Teva to BBB and Baa2 after the Actavis Generics financing, and in February 2017 both changed their outlooks from stable to negative. The company also disclosed about $7.7 billion of unhedged floating-rate debt and said its ability to borrow may be constrained by the downgrades.
What leadership and strategy changes did Teva announce?
On February 6, 2017, Dr. Yitzhak Peterburg, previously Chairman, was appointed Interim President and CEO, replacing Erez Vigodman. Dr. Sol Barer succeeded Peterburg as Chairman. Peterburg said he will review the company's business and operations, including its global manufacturing footprint, key therapeutic areas, pipeline and business lines. The filing notes that management transitions create uncertainty about future strategy.
06—Continue