Teva Pharmaceutical Industries Limited — 2022 Form 10-K Summary
Business context and reporting period
Teva is a global pharmaceutical company focused on generic medicines, innovative medicines, biosimilars, over-the-counter products, active pharmaceutical ingredients and distribution. The filing reports the fiscal year ended December 31, 2022, with comparisons primarily to 2021. Teva reports through North America, Europe and International Markets, plus other activities.
The company had 36,826 employees at year-end and approximately 1.11 billion ordinary shares outstanding. Its ADSs trade on the New York Stock Exchange under TEVA. Teva has not paid dividends since December 2017.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $14,925 million | $15,878 million | Down 6% in U.S. dollars; down 1% in local currency |
| Gross profit | $6,973 million | $7,594 million | Down 8% |
| Gross margin | 46.7% | 47.8% | Down 110 basis points |
| Operating income (loss) | $(2,099) million | $1,716 million | Shifted to loss |
| Operating margin | (14.1)% | 10.8% | Down substantially |
| Net income (loss) attributable to Teva | $(2,353) million | $417 million | Shifted to loss |
| Diluted EPS | $(2.12) | $0.38 | Shifted to loss |
| Non-GAAP net income | $2,812 million | $2,855 million | Down 2% |
| Non-GAAP diluted EPS | $2.52 | $2.58 | Down 2% |
| Operating cash flow | $1,590 million | $798 million | Up 99% |
| Free cash flow | $2,243 million | $2,196 million | Up 2% |
| Debt | $21,212 million | $23,043 million | Down $1,831 million |
| Cash and investments | $2,817 million | $2,191 million | Up $626 million |
Cash flow and free cash flow benefited from receivables securitization activity, including a new U.S. facility established in November 2022. Capital expenditures were $548 million, compared with $562 million in 2021. Working capital was negative $119 million at year-end, compared with positive $787 million in 2021.
Segment performance and material changes
| Segment | 2022 revenue | Revenue change | 2022 segment profit | Profit change |
|---|---|---|---|---|
| North America | $7,452 million | Down 5% | $1,993 million | Down 10% |
| Europe | $4,525 million | Down 7% in U.S. dollars; up 4% in local currency | $1,496 million | Flat |
| International Markets | $1,903 million | Down 6% in U.S. dollars; up 3% in local currency | $479 million | Down 9% |
| Other activities | $1,045 million | Down 9% in U.S. dollars | $172 million | Not clearly provided |
- Generic products represented $8,601 million, or 58%, of total revenue. Price erosion, increased competition and supply disruptions remained significant pressures.
- North America revenue declined because of lower generic product, COPAXONE, BENDEKA and TREANDA sales. AUSTEDO revenue increased 20% to $963 million, AJOVY increased 24% to $218 million, and Anda increased 11% to $1,471 million.
- COPAXONE revenue declined 33% in North America and 31% in Europe because of generic competition and alternative therapies. BENDEKA and TREANDA revenue declined 18% in North America.
- Europe’s local-currency growth reflected higher generic and over-the-counter demand, product launches and recovery in patient visits, but foreign exchange reduced reported revenue by $550 million.
- Currency movements, including hedging effects, reduced consolidated revenue by $780 million and operating income by $247 million.
- Teva launched the first U.S. generic version of Revlimid, lenalidomide, in March 2022, along with other generic products. Its U.S. pipeline included 171 pending applications, including 73 tentative approvals.
Unusual items, outlook and management commentary
- Teva recorded $2,045 million of goodwill impairment charges, including $979 million for International Markets and $1,066 million for the API reporting unit. The affected reporting units’ carrying values equaled fair value after the impairment tests, creating sensitivity to further adverse changes.
- Identifiable intangible asset impairments were $355 million, and other asset impairments, restructuring and other items were $414 million.
- Legal settlements and loss contingencies were $2,082 million, compared with $717 million in 2021. The increase was primarily related to updated provisions for opioid matters.
- The provision for legal settlements and loss contingencies was $4,186 million at year-end. Teva’s proposed nationwide opioid settlement could require payments of up to $4.25 billion, including previously settled cases, plus approximately $100 million for tribes, over as long as 13 years. Finalization remained contingent on sufficient participation by subdivisions and tribes.
- Management’s 2023 focus areas include growth in AUSTEDO and AJOVY, timely generic launches, biosimilar development, approval of risperidone LAI, debt reduction and further manufacturing-network optimization.
- Management expects continued pressure from generic competition, loss of exclusivity and declining COPAXONE sales, as well as macroeconomic, supply-chain, inflation and foreign-exchange effects.
- Risperidone LAI received an FDA Complete Response Letter in April 2022; Teva resubmitted the application in October 2022 and was awaiting the FDA’s response at filing.
- The company discontinued development of fasinumab for osteoarthritis pain and TEV-53275 during 2022. Alvotech’s proposed Humira biosimilar received FDA Complete Response Letters in September and December 2022.
- Teva had $21,212 million of debt, 71% financial leverage and an average debt maturity of approximately 5.8 years. The company stated that it was in compliance with applicable financial covenants and expected sufficient cash resources to meet obligations within one year.
- The $1.8 billion revolving credit facility was amended in February 2023 to update leverage-ratio thresholds. No amounts were outstanding under the facility as of December 31, 2022 or the filing date.
Principal risks and contingencies
- Substantial indebtedness, non-investment-grade credit ratings, refinancing risk and restrictive financial covenants.
- Generic price erosion, customer concentration and intense competition, particularly in the United States.
- Dependence on successful launches and commercialization of AUSTEDO, AJOVY, biosimilars and complex generics.
- Patent challenges, loss of exclusivity, product liability, regulatory approvals and manufacturing-quality requirements.
- Opioid litigation and settlement obligations, U.S. generic pricing and market-allocation litigation, DOJ criminal antitrust charges and related civil claims.
- European Commission proceedings concerning alleged anti-competitive practices involving COPAXONE and other competition matters.
- Supply-chain interruptions, inflation, energy and labor costs, foreign-exchange volatility, geopolitical conflict and operations in Russia, Ukraine and Israel.
- Potential additional impairments to goodwill and intangible assets, especially if projected revenue, margins, discount rates or market conditions deteriorate.
Important facts for investors to verify
- Whether the proposed opioid settlements obtain sufficient participation and the resulting cash and product-delivery requirements.
- The status and potential financial exposure of the DOJ criminal antitrust case, generic pricing litigation and COPAXONE-related competition proceedings.
- Progress toward reducing debt and meeting the revolving credit facility’s leverage covenants.
- Whether AUSTEDO and AJOVY growth can offset declines in COPAXONE, respiratory products and mature generic products.
- FDA decisions for risperidone LAI and Alvotech biosimilar candidates, together with the timing and economics of future launches.
- The sustainability of operating cash flow and free cash flow after separating recurring cash generation from receivables securitization and other working-capital effects.
- Potential further goodwill or intangible-asset impairments resulting from competition, foreign exchange, regulatory developments or weaker forecasts.