Teva Pharmaceutical Industries Limited — Q1 2024 Form 10-Q
Business context and reporting period
Teva is a global pharmaceutical company focused on generic medicines, innovative medicines, biosimilars and related pharmaceutical services. The unaudited report covers the three months ended March 31, 2024, compared primarily with the three months ended March 31, 2023. Teva reports through the United States, Europe and International Markets segments. Canada was reclassified from North America to International Markets beginning January 1, 2024, and prior-period segment data were recast.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenues | $3,819 million | $3,661 million | +4% reported; +5% local currency |
| Gross profit | $1,771 million | $1,582 million | +12% |
| Gross margin | 46.4% | 43.2% | +320 basis points |
| Operating income (loss) | $(218) million | $(13) million | Loss increased |
| Net income (loss) attributable to Teva | $(139) million | $(220) million | Loss narrowed |
| Diluted loss per share | $(0.12) | $(0.20) | Improved |
| Cash flow from operating activities | $(124) million | $(145) million | Improved |
| Free cash flow, as defined by Teva | $32 million | $41 million | Decreased |
- Revenue growth was driven primarily by generic products, AUSTEDO and AJOVY in Europe and International Markets. COPAXONE and Anda revenues declined.
- Segment revenues and profit were: United States $1,725 million and $350 million; Europe $1,272 million and $423 million; and International Markets $597 million and $117 million.
- AUSTEDO U.S. revenue increased 67% to $282 million. U.S. generic-product revenue increased 8% to $808 million, while COPAXONE revenue decreased 58% to $30 million.
- Research and development expense increased 4% to $242 million. Selling and marketing expense increased 11.4% to $608 million, primarily reflecting AUSTEDO and UZEDY promotional activity. General and administrative expense decreased 6% to $278 million.
- Cash and cash equivalents were $2,991 million at March 31, 2024, compared with $3,226 million at December 31, 2023.
- Debt was $19,643 million at March 31, 2024, compared with $19,833 million at year-end. Short-term debt increased to $3,060 million, including $3,037 million of current maturities. Teva repaid $956 million of 6% senior notes at maturity in April 2024.
- Total equity declined to $7,543 million from $8,126 million, primarily because of the net loss, foreign-currency translation losses and the purchase of shares from noncontrolling interests.
- Teva had no borrowings under its $1.8 billion revolving credit facility as of March 31, 2024 and expected to remain within its financial covenants for at least one year from issuance of the financial statements.
Material changes versus the prior comparable period
- Gross margin improved materially because of product mix and lower operating costs, but consolidated operating results were pressured by substantially higher other asset impairments, restructuring and other items.
- Other asset impairments, restructuring and other items increased to $673 million from $110 million. The principal item was a $577 million charge related to classifying a business in International Markets as held for sale, including expected sale losses and currency-translation reclassification.
- Intangible-asset impairments decreased to $80 million from $178 million. No goodwill impairment was recorded in either period.
- Legal settlements and loss-contingency expense decreased to $106 million from $233 million. The Q1 2024 expense primarily reflected updates to opioid and U.S. Department of Justice patient-assistance litigation provisions.
- Prior-period financial information was revised for errors involving a contingent-consideration liability and related expenses. The company identified a material weakness in internal control over financial reporting; remediation controls had been implemented but had not operated long enough to establish effectiveness as of March 31, 2024.
- Currency movements, net of hedging, reduced Q1 2024 revenue by $39 million and operating income by $11 million compared with Q1 2023.
Guidance, outlook, commentary and risks
- Management’s Pivot to Growth strategy emphasizes AUSTEDO, AJOVY, UZEDY and biosimilars; investment in innovative and biosimilar pipelines; a focused generics portfolio; and manufacturing and portfolio optimization.
- Teva plans to launch SIMLANDI, an interchangeable adalimumab biosimilar, in the United States during Q2 2024. FDA also approved SELARSDI, a ustekinumab biosimilar, in April 2024.
- Teva intends to divest its API business, with a target completion in the first half of 2025, although timing, structure and completion remain uncertain.
- The company entered into or expanded development and licensing arrangements, including collaborations involving ICS-SABA, olanzapine LAI, biosimilars and other pipeline products. Certain arrangements include potential milestone payments and royalties.
- Opioid settlement cash payments were estimated at $418 million in 2024, $364 million in 2025, $368 million in 2026, $374 million in 2027 and $393 million in 2028, subject to adjustments. Related remaining litigation includes Baltimore, third-party payer and Canadian proceedings.
- Teva remains exposed to substantial litigation and regulatory matters, including generic-drug antitrust proceedings, DOJ patient-assistance litigation, opioid claims, product-liability claims, patent litigation and competition investigations. The DOJ patient-assistance case could involve more than $1 billion in damages before potential trebling and statutory penalties, although the ultimate outcome is uncertain.
- The ongoing war in Israel could disrupt headquarters, manufacturing and research facilities, although management stated that the Q1 2024 impact was immaterial and that contingency production plans exist. The Russia-Ukraine conflict also creates currency, supply-chain and market risks.
- Approximately 50% of revenue was denominated in currencies other than the U.S. dollar, and approximately 80% of net assets were held in non-dollar currencies, creating material foreign-exchange exposure.
- Teva has not paid ordinary-share dividends since December 2017 and stated that accumulated deficit currently prevents dividends and share repurchases.
Investor verification checklist
- Verify the sustainability and durability of AUSTEDO, AJOVY, UZEDY and biosimilar growth, including the timing and commercial impact of SIMLANDI and SELARSDI launches.
- Assess debt maturities, leverage-covenant headroom, refinancing needs and the effect of the April 2024 $956 million debt repayment.
- Reconcile free cash flow to operating cash flow, securitized-receivables proceeds, capital spending and acquisitions; evaluate the sustainability of cash generation.
- Monitor the API divestiture process, held-for-sale assets and any additional impairment or restructuring charges.
- Review opioid settlement payments, DOJ patient-assistance litigation, antitrust matters and other contingencies for potential cash-flow or liability increases.
- Track remediation of the material weakness involving contingent consideration and determine whether subsequent controls operate effectively.
- Consider the effect of currency movements, pricing pressure, generic competition, supply-chain disruption and geopolitical events on margins and revenue.