Teva Pharmaceutical Industries Ltd. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K; fourth-quarter figures are presented where disclosed. Teva is a global pharmaceutical company focused on generic medicines, innovative medicines and biopharmaceuticals, operating through North America, Europe and International Markets segments.
Financial Results and Key Metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenues | $15,846 million | $14,925 million | +6% reported; +7% local currency |
| Gross profit | $7,645 million | $6,973 million | +10% |
| Gross margin | 48.2% | 46.7% | +150 basis points |
| Operating income | $433 million | Operating loss of $2,197 million | Improved |
| Operating margin | 2.7% | (14.7%) | Improved |
| Net loss attributable to Teva | $559 million | $2,446 million | Loss narrowed |
| Diluted loss per share | $0.50 | $2.20 | Loss narrowed |
| Operating cash flow | $1,368 million | $1,590 million | Down $222 million |
| Free cash flow | $2,387 million | $2,243 million | Up $144 million |
| Debt | $19,833 million | $21,212 million | Down $1,379 million |
| Cash and cash equivalents | $3,226 million | $2,801 million | Up $425 million |
Free cash flow includes $1,368 million of operating cash flow, $1,477 million of beneficial interest collected through the EU receivables securitization program and $68 million of proceeds from business and asset sales, less $526 million of capital investments.
Segment Performance
| Segment | FY2023 Revenue | Revenue Change | FY2023 Profit | Profit Change |
|---|---|---|---|---|
| North America | $8,124 million | +9% | $2,396 million | +20% |
| Europe | $4,837 million | +7% reported; +5% local currency | $1,478 million | (1%) |
| International Markets | $1,958 million | +3% reported; +16% local currency | $464 million | (3%) |
| Other activities | $926 million | (11%) | Segment profit of $24 million | Down from $172 million |
- Generic medicines generated $8,734 million, or 55% of total revenue.
- AUSTEDO revenue in North America increased 27% to $1,225 million, supported by the May 2023 launch of AUSTEDO XR.
- AJOVY revenue increased 6% in North America to $230 million and 29% in Europe to $160 million.
- COPAXONE revenue declined 17% in North America and 14% in Europe because of generic competition and alternative therapies.
- BENDEKA and TREANDA revenue declined 24% to $241 million in North America following generic bendamustine entry and expiration of orphan-drug exclusivity.
- API sales to third parties declined 16% to $568 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by a $500 million upfront payment from the Sanofi collaboration for the anti-TL1A asset, growth in AUSTEDO and AJOVY, higher generic revenue in Europe and International Markets, product-rights sales in Europe and higher Anda distribution revenue.
- Gross margin improved primarily because of the anti-TL1A upfront payment, a favorable product mix and higher AUSTEDO revenue, partly offset by inflationary cost pressures and lower COPAXONE revenue.
- Goodwill impairment declined to $700 million from $2,045 million, although the 2023 charge related to the International Markets reporting unit.
- Legal settlements and loss contingencies declined to $1,043 million from $2,082 million, but remained a material expense.
- Other asset impairments, restructuring and other items increased to $718 million from $512 million, including $548 million of contingent-consideration expense.
- R&D expense increased 14% to $953 million, or 6.0% of revenue, reflecting greater investment in late-stage neuroscience, immunology and immuno-oncology programs.
- Operating cash flow decreased because of higher opioid-related settlement payments and the absence of the prior-year benefit from U.S. receivables securitization activity, while free cash flow increased due primarily to higher EU securitization proceeds.
- Teva revised previously reported 2022 and 2023 interim amounts after identifying an approximately $132 million understatement of a contingent-consideration liability and related expenses associated with estimated future royalty payments. The filing states that cash flows were not affected.
Guidance, Outlook, Risks and Unusual Items
Strategy and Outlook
- The May 2023 “Pivot to Growth” strategy prioritizes growth engines AUSTEDO, AJOVY, UZEDY and late-stage biosimilars; increased innovation; a focused generics portfolio; and portfolio and manufacturing-network optimization.
- Management identifies 2024 drivers including continued growth of AUSTEDO, AJOVY and UZEDY, successful generic and biosimilar launches, pipeline and business-development execution, disciplined cash management and debt repayment.
- Management also expects continued pressure from COPAXONE loss of exclusivity, generic pricing erosion, foreign-exchange movements, inflation, supply-chain disruptions and geopolitical tensions.
- Canada will move from North America to International Markets for reporting purposes beginning January 1, 2024.
- Teva intends to divest its API business, including related R&D, manufacturing and commercial activities, with an expected completion in the first half of 2025; completion and timing are not assured.
Liquidity, Debt and Commitments
- Debt was $19,833 million at year-end, with 60% effectively denominated in U.S. dollars, 38% in euros and 2% in Swiss francs. Approximately 8% was classified as short-term.
- The $1.8 billion revolving credit facility had no outstanding balance at year-end. The facility includes a maximum leverage covenant of 4.00x through the third quarter of 2024 and 3.50x from the fourth quarter of 2024 onward.
- Teva expects sufficient cash resources to support debt service and other financial obligations within one year from the date the financial statements were issued, and expects to remain within the revolving-credit-facility covenants based on current and forecast results.
- Contractual obligations totaled $27,370 million, including $25,847 million of long-term debt obligations including estimated interest and $1,523 million of purchase obligations.
- Teva has not paid dividends on ordinary shares or ADSs since December 2017.
Litigation, Contingencies and Controls
- Teva finalized nationwide opioid settlements with all 50 U.S. states and the Tribes. The state and subdivision settlement requires payments of up to $4.25 billion over 13 years, including up to $1.2 billion of generic Narcan supply or cash in lieu of product. Estimated opioid cash payments are $418 million in 2024, $364 million in 2025, $368 million in 2026 and $368 million in 2027.
- Remaining opioid-related claims include Baltimore, third-party payer claims and Canadian proceedings. The Baltimore trial was scheduled for September 2024, and the filing states that a reasonable upper-end loss range could not be determined for all remaining opioid cases.
- Under a three-year DOJ deferred prosecution agreement, Teva USA agreed to a $225 million fine payable over 2024–2028, a $50 million product donation and divestiture of its U.S. pravastatin business.
- The DOJ patient-assistance-program litigation presents potential exposure exceeding $1 billion before possible trebling and statutory penalties; Teva recorded a provision and is pursuing an appeal.
- Teva remains exposed to antitrust, patent, product-liability, securities, environmental and regulatory proceedings, including the European Commission’s COPAXONE investigation and U.S. generic-pricing litigation.
- The auditor issued an adverse opinion on internal control over financial reporting because of a material weakness involving controls over contingent consideration and estimated future royalty payments. Management’s remediation plan includes clearer process ownership, enhanced reconciliations and additional management review controls. The financial statements themselves received an unqualified audit opinion.
- Teva reported no material impact from cybersecurity threats through the filing date, but identified cybersecurity, data-security and operational-disruption risks as potentially material.
Most Important Facts for Investors to Verify
- Whether AUSTEDO, AUSTEDO XR, AJOVY and UZEDY can offset continued declines in COPAXONE, BENDEKA, TREANDA and mature generic products.
- The timing, proceeds, liabilities and operating implications of the proposed API divestiture.
- Actual cash requirements and accounting updates associated with opioid settlements, the DOJ deferred prosecution agreement and other litigation.
- Progress in remediating the material weakness and whether future filings contain additional revisions.
- Debt maturities, covenant compliance and the ability to reduce leverage while funding the Pivot to Growth strategy.
- Execution and regulatory timelines for late-stage innovative medicines and biosimilars, including partner manufacturing and approval risks.
- The sensitivity of goodwill and intangible-asset valuations to exchange rates, discount rates, pricing pressure, competition and changes in product forecasts.
- The effect of foreign-exchange volatility, inflation, supply-chain disruption and the wars in Israel and Ukraine on revenue, margins and cash flow.