Teva Reports Fourth Quarter and Full Year 2022 Financial Results TEL AVIV, Israel--(BUSINESS WIRE)

TEL AVIV, Israel--(BUSINESS WIRE)--February 8, 2023--Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA) today reported results for the year and the quarter ended December 31, 2022.

"It is a huge pleasure to be leading the Company through my first reporting period as CEO of Teva. The tremendous work that has been done to get the business back to a solid foundation serves as excellent grounds to transition into a new path for growth.

In 2022, Teva delivered solid results. Our key innovative brands, AUSTEDO and AJOVY , continued to drive growth, with AUSTEDO increasing 20% in the U.S. We expect continued expansion as this medicine addresses a still large unmet need for tardive dyskinesia patients.

Our generics business performed strongly in Europe and International Markets, growing 9% and 5% respectively, in local currency terms. We also continued to optimize our supply chain and manufacturing capabilities and reduced our net debt.

Looking ahead to 2023, I am especially enthusiastic about the progress of our innovative, biosimilars and generic pipelines, which include interesting and differentiated assets. As we work on an updated strategy, we are looking for opportunities to best position Teva for long-term growth and generate value to all stakeholders."

2022 Annual Consolidated Results

Revenues in 2022 were $14,925 million, a decrease of 6%, in U.S. dollars or 1% in local currency terms, compared to 2021, mainly due to lower revenues from COPAXONE and certain respiratory products in our North America and Europe segments, generic products as well as BENDEKA and TREANDA in our North America segment, partially offset by higher revenues from generic products in our Europe and International Markets segments, and from our innovative products - AUSTEDO and AJOVY, and Anda.

Exchange rate movements during 2022, including hedging effects, negatively impacted revenues by $780 million, operating income by $247 million and non-GAAP operating income by $263 million, each as compared to 2021.

Gross profit was $6,973 million in 2022, a decrease of 8% compared to 2021. Gross profit margin was 46.7% in 2022, compared to 47.8% in 2021. Non-GAAP gross profit was $8,056 million in 2022, a decrease of 6% compared to 2021. Non-GAAP gross profit margin was 54.0% in 2022, compared to 54.2% in 2021. This decrease in both GAAP and non-GAAP gross profit margin was mainly due to lower revenues from COPAXONE and certain respiratory products in our North America and Europe segments, partially offset by higher revenues from AUSTEDO in North America and a favorable mix of generic products in our Europe segment.

Research and Development (R&D) expenses in 2022 were $838 million, a decrease of 13% compared to 2021. The decrease in R&D expenses in 2022 was mainly due to a decrease in several neuroscience projects (in the pain and migraine and headache therapeutic areas) and immunology (in the respiratory therapeutic area) as well as a decline in various generics projects, and an adjustment in payments pursuant to a contract with one of our R&D partners in 2022, partially offset by higher R&D expenses related to our biosimilar products pipeline.

Selling and Marketing (S&M) expenses in 2022 were $2,265 million, a decrease of 7% compared to 2021.

General and Administrative (G&A) expenses in 2022 were $1,180 million, an increase of 7% compared to 2021. This increase was related to proceeds received from Teva's insurance carriers pursuant to a settlement reached on a derivative proceeding in the second quarter of 2021 related to the acquisition of Actavis Generics, as well as higher litigation fees in the second quarter of 2022.

Other income in 2022 was $107 million, compared to $98 million in 2021.

Operating loss was $2,099 million in 2022, compared to operating income of $1,716 million in 2021. Operating loss as a percentage of revenues was 14.1% in 2022, compared to operating income as a percentage of revenues of 10.8% in 2021. Operating loss in 2022 was mainly affected by goodwill impairment charges, and legal settlements and loss contingencies. Non-GAAP operating income was $4,139 million in 2022, or 27.7% of revenues compared to $4,401 million, or 27.7% of revenues in 2021. Non-GAAP operating margin in 2022 was mainly affected by lower gross profit margin, as discussed above, offset by lower operating expenses as a percentage of revenues.

Adjusted EBITDA was $4,598 million in 2022, compared to $4,911 million in 2021.

In 2022, financial expenses, net were $966 million, compared to $1,058 million in 2021. Financial expenses in 2022 were mainly comprised of interest expenses and other bank charges of $930 million. Financial expenses in 2021 were mainly comprised of interest expenses and other bank charges of $891 million and loss on revaluations of marketable securities of $90 million.

In 2022, we recognized a tax benefit of $638 million, or 21%, on a pre-tax loss of $3,065 million. In 2021, we recognized a tax expense of $211 million, or 32%, on a pre-tax income of $658 million. Our tax rate for 2022 was lower than in 2021 mainly due to the realization of losses related to an investment in one of our U.S. subsidiaries, partially offset by a goodwill impairment charge that did not have a corresponding tax effect.

Non-GAAP tax rate for 2022 was 12%, compared to 16% in 2021. Our non-GAAP tax rate in 2022 was mainly affected by the realization of losses related to an investment in one of our U.S. subsidiaries, the mix of products we sold, interest expense disallowances and adjustments to valuation allowances on deferred tax assets.

Net loss attributable to Teva and diluted loss per share in 2022 were $2,353 million and $2.12, respectively, compared to net income attributable to Teva of $417 million and diluted income per share of $0.38 in 2021. Net loss in 2022 was mainly affected by goodwill impairment charges and legal settlements and loss contingencies, partially offset by a tax benefit. Non-GAAP net income attributable to Teva and non-GAAP diluted earnings per share in 2022 were $2,812 million and $2.52, respectively, compared to $2,855 million and $2.58 in 2021.

As of December 31, 2022 and 2021, the fully diluted share count for purposes of calculating our market capitalization was approximately 1,143 million and 1,128 million shares, respectively.

Non-GAAP information : net non-GAAP adjustments in 2022 were $5,166 million. Non-GAAP net income attributable to Teva and non-GAAP diluted EPS for the year were adjusted to exclude the following items:

We believe that excluding such items facilitates investors' understanding of our business. Commencing the first quarter of 2022, we no longer exclude in-process research and development ("IPR&D") acquired in development arrangements from our non-GAAP financial measures. In our comparable non-GAAP financial measures for 2021 we excluded $15 million IPR&D acquired in development arrangements. We are not recasting the non-GAAP presentation for 2021 since the adjustment is not significant. We made this change to our presentation of non-GAAP financial measures to improve comparability of our non-GAAP presentation to those of other companies in the pharmaceutical industry that made a similar change to their presentations beginning in the first quarter of 2022.

For a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and for additional information, see the tables below and the information included under "Non-GAAP Financial Measures." Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.

Cash flow generated from operating activities in 2022 was $1,590 million, compared to $798 million in 2021. The increase in 2022 resulted mainly from the sale of accounts receivables under our U.S. securitization facility entered into in November 2022, and lower cash collections remitted to the owner of the receivables under our EU securitization program mainly due to exchange rate fluctuation, partially offset by an increase in inventory levels, as well as higher payments of legal settlements in connection with the opioids litigation.

Free cash flow (defined as cash flow generated from operating activities, cash used for capital investments, beneficial interest collected in exchange for securitized accounts receivables, proceeds from divestitures of businesses and other assets and cash used for acquisition of businesses, net of cash acquired) was $2,243 million in 2022, compared to $2,196 million in 2021. The increase in 2022 resulted mainly from an increase in cash flow generated from operating activities, partially offset by lower beneficial interest collected in exchange for securitized accounts receivables under our EU securitization program mainly due to exchange rate fluctuations, as well as lower proceeds from divestitures of businesses and other assets.

On November 7, 2022, Teva and a bankruptcy-remote special purpose vehicle ("SPV") entered into an accounts receivable securitization facility ("AR Facility") with PNC Bank, National Association ("PNC") with a three-year term. The AR Facility provides for purchases of accounts receivable by PNC in an amount of up to $1 billion through November 2023, and up to $500 million from November 2023 through November 2025, provided that the SPV may increase the commitment amount up to $1 billion if additional credit providers participate in the AR facility. The total balance of accounts receivables sold to PNC as of December 31, 2022 was $820 million which were derecognized by the SPV. In addition to the accounts receivables sold, an amount of $436 million of the SPV's accounts receivables is pledged to PNC by the SPV as a seller guarantee, and is included under "Accounts receivables, net", in our consolidated balance sheet as of December 31,2022. In the fourth quarter of 2022, Teva received proceeds of $820 million under the AR facility, which are included in cash from operating activities in the Consolidated Statements of Cash Flows for the year ended December 31, 2022.

As of December 31, 2022, our debt was $21,212 million, compared to $23,043 million as of December 31, 2021. This decrease was mainly due to $1,369 million of senior notes repaid at maturity and $484 million of exchange rate fluctuations. The portion of total debt classified as short-term as of December 31, 2022 was 10%, compared to 6% as of December 31, 2021, mainly due to repayment of debt, partially offset by a reclassification of upcoming maturities in 2022. Our average debt maturity was approximately 5.8 years as of December 31, 2022, compared to 6.4 years as of December 31, 2021.

Fourth Quarter 2022 Consolidated Results

Revenues in the fourth quarter of 2022 were $3,884 million, a decrease of 5% in U.S. dollars or an increase of 1% in local currency terms, compared to the fourth quarter of 2021. This increase was mainly due to higher revenues from Anda, generic products in our Europe segment, AUSTEDO and AJOVY, partially offset by lower revenues from generic products and certain respiratory products in our North America segment as well as COPAXONE.

Exchange rate differences between the fourth quarter of 2022 and the fourth quarter of 2021, including hedging effects, negatively impacted revenues by $270 million and operating income by $132 million. Non-GAAP operating income was negatively impacted by $135 million.

Gross profit was $1,770 million in the fourth quarter of 2022, a decrease of 14% compared to the fourth quarter of 2021. Gross profit margin was 45.6% in the fourth quarter of 2022, compared to 50.0% in the fourth quarter of 2021. Non-GAAP gross profit was $2,105 million in the fourth quarter of 2022, a decrease of 9% compared to the fourth quarter of 2021. Non-GAAP gross profit margin was 54.2% in the fourth quarter of 2022, compared to 56.1% in the fourth quarter of 2021. The decrease in gross profit margin in the fourth quarter of 2022 resulted mainly from an increase in revenues with lower profitability from Anda in our North America segment, partially offset by higher revenues from AUSTEDO in our North America segment and a favorable mix of generic products in our Europe segment.

Research and Development (R&D) expenses in the fourth quarter of 2022 were $210 million, a decrease of 14% compared to the fourth quarter of 2021. The decrease in R&D expenses in the fourth quarter of 2022 was mainly due to a decrease in various generics projects as well as in immunology (in the respiratory therapeutic area), partially offset by higher R&D expenses related to our biosimilar products pipeline.

Selling and Marketing (S&M) expenses in the fourth quarter of 2022 were $549 million, a decrease of 13% compared to the fourth quarter of 2021.

General and Administrative (G&A) expenses in the fourth quarter of 2022 were $289 million, an increase of 4% compared to the fourth quarter of 2021.

Other income in the fourth quarter of 2022 was $19 million, compared to $26 million in the fourth quarter of 2021.

Operating loss in the fourth quarter of 2022 was $855 million, compared to operating income of $78 million in the fourth quarter of 2021. This decrease was mainly due to goodwill impairment charges recorded in the fourth quarter of 2022, partially offset by lower legal settlements and loss contingencies. Operating loss as a percentage of revenues was 22.0% in the fourth quarter of 2022, compared to operating income as a percentage of revenues of 1.9% in the fourth quarter of 2021. The decrease in operating margin was mainly due to the effect of goodwill impairment charges as a percentage of revenues, partially offset by lower legal settlements and loss contingencies as a percentage of revenues.

Non-GAAP operating income in the fourth quarter of 2022 was $1,130 million or 29.1% of revenues compared to $1,248 million or 30.4% of revenues in the fourth quarter of 2021. Non-GAAP operating margin in the fourth quarter of 2022 was mainly affected by lower gross profit margin, as discussed above, partially offset by lower operating expenses as a percentage of revenues.

Adjusted EBITDA was $1,240 million in the fourth quarter of 2022, a decrease of 10%, compared to $1,373 million in the fourth quarter of 2021.

Financial expenses, net in the fourth quarter of 2022 were $245 million, compared to $253 million in the fourth quarter of 2021. Financial expenses, net in the fourth quarter of 2022 and 2021, were mainly comprised of interest expenses of $237 million and $225 million, respectively.

In the fourth quarter of 2022, we recognized a tax expense of $154 million on a pre-tax loss of $1,100 million, mainly due to goodwill impairment charges that did not have a corresponding tax effect. In the fourth quarter of 2021, we recognized a tax benefit of $24 million on pre-tax loss of $175 million.

Non-GAAP tax rate in the fourth quarter of 2022 was 11%, compared to 15% in the fourth quarter of 2021. Our non-GAAP tax rate in the fourth quarter of 2022 was mainly affected by the mix of products we sold, interest expense disallowances and adjustments to valuation allowances on deferred tax assets.

Net loss attributable to Teva and diluted loss per share in the fourth quarter of 2022 were $1,221 million and $1.10, respectively, compared to $159 million and $0.14, respectively, in the fourth quarter of 2021. Non-GAAP net income attributable to Teva and non-GAAP diluted earnings per share in the fourth quarter of 2022 were $791 million and $0.71, respectively, compared to $854 million and $0.77, respectively, in the fourth quarter of 2021.

Non-GAAP information : net non-GAAP adjustments in the fourth quarter of 2022 were $2,012 million. Non-GAAP net income attributable to Teva and non-GAAP diluted EPS for the fourth quarter were adjusted to exclude the following items:

We believe that excluding such items facilitates investors' understanding of our business. Commencing the first quarter of 2022, we no longer exclude IPR&D acquired in development arrangements from our non-GAAP financial measures. In our comparable non-GAAP financial measures for the fourth quarter of 2021, we excluded $10 million IPR&D acquired in development arrangements. We are not recasting the non-GAAP presentation for the fourth quarter of 2021 since the adjustment is not significant. We have made this change to our presentation of non-GAAP financial measures to improve comparability of our non-GAAP presentation to those of other companies in the pharmaceutical industry that made a similar change to their presentations beginning in the first quarter of 2022.

For further information, see the tables below for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures and the information under "Non-GAAP Financial Measures." Investors should consider non-GAAP financial measures in addition to, and not as replacement for, or superior to, measures of financial performance prepared in accordance with GAAP.

Cash flow generated from operating activities during the fourth quarter of 2022 was $973 million, compared to $456 million in the fourth quarter of 2021. The increase resulted mainly from the sale of accounts receivables under our U.S. securitization facility entered into in November 2022, partially offset by changes in working capital items, primarily an increase in accounts receivables, net of SR&A due to timing of sales cycle in the fourth quarter of 2022.

Free cash flow (defined as cash flow generated from operating activities, cash used for capital investments, beneficial interest collected in exchange for securitized accounts receivables, proceeds from divestitures of businesses and other assets and cash used for acquisition of businesses, net of cash acquired) was $1,140 million in the fourth quarter of 2022, compared to $716 million in the fourth quarter of 2021. The increase resulted mainly from higher cash flow generated from operating activities.

Segment Results for the Fourth Quarter of 2022

North America Segment

Our North America segment includes the United States and Canada.

The following table presents revenues, expenses and profit for our North America segment for the three months ended December 31, 2022 and 2021:

Revenues from our North America segment in the fourth quarter of 2022 were $2,002 million, flat, compared to the fourth quarter of 2021, mainly due to a decline in revenues from generic products, COPAXONE and BENDEKA and TREANDA, offset by higher revenues from our innovative products - AUSTEDO and AJOVY, and Anda.

Revenues in the United States , our largest market, were $1,912 million in the fourth quarter of 2022, an increase of $35 million, or 2%, compared to the fourth quarter of 2021.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended December 31, 2022 and 2021:

Generic products revenues in our North America segment in the fourth quarter of 2022 decreased by 10% to $818 million, compared to the fourth quarter of 2021, mainly due to increased competition to parts of our portfolio as well as supply disruptions including the closure of the Irvine, CA site.

In the fourth quarter of 2022, our total prescriptions were approximately 80 million representing 8.3% of total U.S. generic prescriptions according to IQVIA data.

AJOVY revenues in our North America segment in the fourth quarter of 2022 were $75 million compared to $53 million in the fourth quarter of 2021. This increase was mainly due to growth in volume and favorable net pricing.

AUSTEDO revenues in our North America segment in the fourth quarter of 2022 were $344 million, compared to $282 million in the fourth quarter of 2021. This increase was mainly due to growth in volume.

BENDEKA and TREANDA combined revenues in our North America segment in the fourth quarter of 2022 decreased by 20% to $75 million, compared to the fourth quarter of 2021, mainly due to the availability of alternative therapies and intense competition. In December 2022, the orphan drug exclusivity that had attached to bendamustine products expired. To-date we are aware of one generic TREANDA product on the market.

COPAXONE revenues in our North America segment in the fourth quarter of 2022 decreased by 22% to $101 million, compared to the fourth quarter of 2021, mainly due to generic competition in the United States and a decrease in glatiramer acetate market share due to availability of alternative biologic therapies.

Anda revenues in our North America segment in the fourth quarter of 2022 increased by 27% to $450 million, compared to the fourth quarter of 2021, mainly due to higher demand.

North America Gross Profit

Gross profit from our North America segment in the fourth quarter of 2022 was $1,085 million, a decrease of 5% compared to the fourth quarter of 2021, mainly due to lower revenues as discussed above. Gross profit margin for our North America segment in the fourth quarter of 2022 decreased to 54.2%, compared to 57.2% in the fourth quarter of 2021. This decrease was mainly due to an unfavorable mix of products.

North America Profit

Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items.

Profit from our North America segment in the fourth quarter of 2022 was $633 million, a decrease of 5% compared to $668 million in the fourth quarter of 2021. Profit decreased mainly due to lower revenues, partially offset by lower operating expenses.

Our Europe segment includes the European Union, the United Kingdom and certain other European countries.

The following table presents revenues, expenses and profit for our Europe segment for the three months ended December 31, 2022 and 2021:

Revenues from our Europe segment in the fourth quarter of 2022 were $1,129 million, a decrease of $139 million, or 11%, compared to the fourth quarter of 2021. In local currency terms, revenues increased by 4%, mainly due to higher demand for generic products resulting from new product launches as well as higher revenues from AJOVY, partially offset by lower revenues from COPAXONE and certain other respiratory products.

In the fourth quarter of 2022, revenues were negatively impacted by exchange rate fluctuations of $193 million, including hedging effects, compared to the fourth quarter of 2021. Revenues in the fourth quarter of 2022 included $46 million from a negative hedging impact, which are included in "Other" in the table below.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the three months ended December 31, 2022 and 2021:

Generic products revenues (including OTC and biosimilar products) in our Europe segment in the fourth quarter of 2022, decreased by 2% to $914 million, compared to the fourth quarter of 2021. In local currency terms, revenues increased by 10%, mainly due to higher demand for generic products resulting from new product launches.