F. Seton Staley
staley.120@osu.edu
July 22, 2014
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA)
Current Price: $54.95
Price Target: $57.12
Total Projected Return: 6.54%
Recommendation: HOLD
52 Week Price Range: $36.26 - $55.33
Market Capitalization (mm): $46,747
Diluted Shares Outstanding (mm): 852.0
Dividend Yield: 2.6%
Company Description: Teva Pharmaceutical Industries is an Israeli based manufacturer, marketer, and
distributor of generic and specialty branded drugs as well as active pharmaceutical ingredients (API). The
Company is the largest producer of generics in the world and one of the 15 largest pharmaceutical companies
globally. Teva’s branded businesses focus on CNS, oncology, pain, respiratory and women’s health. The
Company’s leading branded product, Copaxone®, is the number one prescribed treatment for Multiple Sclerosis.
With over 1,000 molecules and a direct presence in approximately sixty countries, Teva is global leader in the
pharmaceutical industry with revenues reaching $20.3 billion in 2013.
Investment Thesis
I have updated my recommendation from a BUY to a HOLD on Teva Pharmaceuticals primarily due to recent stock
performance. The recent appreciation in the stock price has been a positive development based upon the
direction established by the new CEO recently brought on board. Teva is operating in a fragmented yet highly
competitive industry that is facing favorable demographics due to the graying of several large post industrial
nations. Demand for cost effective generic pharmaceuticals continues to and is expected to increase. However,
Teva’s sales and earnings growth have slowed over the past several years as pricing pressures have provided
headwinds against its generics group, and patent issues have reduced sales of its branded products. But a new
CEO is now at the helm, with plans to streamline operations, improve profitability and restart growth. As Argus
Research noted in a recent report, the new CEO’s goals include multiple product launches as well as new operating
[2]
efficiencies that are expected to drive up to 600 basis points of margin improvement. S&P Capital IQ noted the
company's large and fast-expanding portfolio of products provides one-stop shopping and package deals, enabling
[3]
Teva to gain market share. As noted in the company’s latest 20-F annual filing, its generic pipeline, which, as of
January 24, 2014, has 133 product registrations awaiting FDA approval, including 36 tentative approvals.
Collectively, these 133 products had U.S. sales in 2013 exceeding $81 billion, and Teva believes it is first to file with
respect to 53 of these products, the branded versions of which had U.S. sales of more than $40 billion in 2013.
Additionally in 2013, Teva launched generic versions of the 21 branded products in the United States with an
aggregate market value of $10 billion. In 2013, Teva received, in addition to 17 final generic drug approvals, eight
tentative approvals with an aggregate market value of approximately $4.8 billion.
Risks to this recommendation include the following:
• Teva’s leading specialty medicine, Copaxone®,
faces increasing competition, including from
orally-administered therapies and potential
generic versions.
• Teva may not be able to reduce its operating
expenses to the extent and during the timeframe
intended by its cost reduction program.
• Governmental investigations into sales and
marketing practices, particularly for Teva’s
specialty pharmaceutical products, may result in
substantial penalties.
• Decreased opportunities to obtain U.S. market
exclusivity for generic versions of significant
products may adversely affect Teva’s revenues
and profits.
[1]
Teva - 1
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Table of Contents
Financial Highlight Recap…………..……………………….………………………………………………………………………………………………... 2
Company Overview……………………………………………………………………………………………………………………….……………………… 3
Competitive Landscape & Market Profile……………………………………………………………………………………………………………… 4
Industry Outlook……………………………………………………………………………………………………………………………………………...….. 4
Recent Events…………………………………………………………………………………………………………………………………..……………..…… 4
Fundamental Drivers & Sustainable Competitive Advantages………………………………………….…………………………………… 5
Discussion of the Business Segments…………………………………………………………………………………………………………………… 5
Financial Analysis & Projections………………………………………………………………….……………………………………………………….. 7
Discounted Cash Flow Model…………………………………………………………………………………….………………………………………… 12
Peer Ratio Analysis & Margin Trends………………..…………………………………………………………………………………………………. 12
Risks to the Stock Recommendation……………………………………………………………………………………………………………………. 13
Conclusion………………………………………………………………………………………………………………………………………………………….. 15
Appendices:
I. Segment & Product Revenues……………………………………………..……..………………………………………………………………. 16
II. Modelled Income Statement………………………………………………………………………………………………………………………. 17
III. Discounted Cash Flow Model with Sensitivity Analysis…………………………………….………………………………............. 18
IV. Peer Ratio Analysis…………………………….…………………………………………………………………………………….………………… 19
Sources……………………………………………………………………………………………………………………………………………………………….. 20
Financial Highlight Recap
Highlighting First Quarter, 2014, as noted in Teva’s first quarter press release:
• Revenues of $5.0 billion, up 2% compared to the first quarter of 2013.
• Non-GAAP net income of $1.0 billion, an increase of 8%. GAAP net income of $744 million, an increase of 18%.
• Non-GAAP diluted EPS of $1.22, an increase of 9%. GAAP diluted EPS of $0.87, an increase of 18%.
®
• Successful launch of Copaxone 40mg/mL in the U.S.; on-track to achieve 30,000 patients on therapy by the
end of May and 40,000 patients by the end of the year.
• U.S. generic medicine revenues increased by 17%. Generic medicine segment profitability increased by 31%.
• Cash flow from operations of $1.1 billion, excluding the effect of payment related to legal settlements.
• Full year 2014 revenues and EPS guidance reaffirmed.
®
However, the main uncertainty involves Copaxone , which went off patent in May, 2014. Copaxone’s sales have
®
®
slowed following the launch of Tecfidera by Biogen. But this year, Copaxone could face up to two generic rivals,
which would further impact product sales. Accordingly, management has provided two scenarios for 2014: a year
®
with competition from a generic Copaxone and a year without such competition. Without the competition, Teva
expects revenue of $19.8-$20.8 billion and non-GAAP EPS of $4.80-$5.10. With competition, it expects revenue of
$19.3-$20.3 billion and non-GAAP EPS of $4.20-$4.50. Over the first quarter, 2014 Teva shares have outperformed
the market, with a gain of 6% versus a gain of 4% for the S&P 500. Over the past year, the shares have also
outperformed, increasing 36% versus an 18% increase in the S&P 500. The shares remain 20% below their all-time
[2]
highs near $62, established in 2010.
Teva - 2
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Company Overview
[3]
Through aggressive acquisition and successful product development programs, Israel-based Teva Pharmaceutical
Industries Ltd. has grown to be the largest generic drug company in the world. In addition to a broad and diverse
®
line of generic drugs, Teva also offers noted and well recognized branded drugs, which include Copaxone (for
®
®
multiple sclerosis), Agilect /Azilect (for Parkinson's disease), and branded and generic respiratory products, as well
as bulk pharmaceutical chemicals. Generic pharmaceuticals accounted for about 48.8% of total sales in 2013 (51%
in 2012), branded drugs for 41.4% (40% in 2012), and OTC medications and other revenues for 9.9% (9% in 2012).
Sales in 2013 by geographic market broke down as follows: U.S. 51.5% (51% in 2012), Europe 29.5% (28%), and
other areas 19% (21%).
Accounting for about 1 out of every 6 U.S. prescriptions in 2013 giving it a 20% market share, Teva is also the
largest generic drug maker in the U.S. The company's generic line consists of over 400 products (in more than
1,300 dosage strengths and packaging sizes) in therapeutic categories that include antibiotics, cardiovasculars,
analgesics, gastrointestinals, fertility treatments, anticancers, central nervous system drugs, and anti-inflammatory
and respiratory agents. Canadian operations are conducted through Novopharm Ltd. With the August 2010
acquisition of Ratiopharm, Teva also ranks as the largest generic pharmaceutical producer in Europe, with direct
operations in 30 EU member states, as well as in Norway and Switzerland. In November 2011, Teva formed a
consumer health care joint venture with P&G, combining its OTC pharmaceutical businesses in all markets outside
North America. Teva manufactures products to supply the joint venture’s markets as well as P&G’s existing North
American OTC business. In October 2011, Teva acquired Cephalon for $6.5 billion in cash. Key Cephalon drugs
®
®
®
include Provigil and Nuvigil for daytime sleepiness and Treanda for leukemia and non-Hodgkin's lymphoma. In
July 2011, Teva acquired Taiyo, a leading Japanese generic drug maker, for $934 million. As of the end of 2013,
Teva had 2,131 marketing authorization applications pending approval in 30 European countries. Through its
Active Pharmaceutical Ingredients (API) division, the company produces approximately 300 different bulk
chemicals or active ingredients for use in human pharmaceuticals.
®
®
Teva's principal branded drug is Copaxone , a treatment for relapsing-remitting multiple sclerosis (MS). Copaxone
is marketed in the U.S., Canada, Europe, Latin America, Israel and Australia. Sales of this product totaled $4.3
billion in 2013, up from $4.0 billion in 2012 and $2.98 billion in 2011. Copaxone® is the leading global MS drug by
sales and the number one prescribed treatment for MS. Teva’s other important branded drugs include Provigil and
®
®
Nuvigil , with combined sales of $411 in 2013 ($764 million in 2012); Treanda , a treatment for leukemia and non®
Hodgkin's lymphoma with sales of $709 million ($608 million in 2012); and Azilect with sales of $371 million ($330
million in 2012), a drug for Parkinson's disease. Other branded drugs include respiratory treatments with sales of
$905 million ($856 million in 2012), women's health items with sales of $463 million ($448 million in 2012), and
®
oncology agents besides Treanda with sales of $273 million ($252 million in 2012).
Teva - 3
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Competitive Landscape & Market Profile
[3]
Teva is subject to intense competition in the generic drug market from other generic drug manufacturers, brandname drug companies through authorized generics, manufacturers of branded drugs that continue to produce
those drugs after patent expirations, and manufacturers of therapeutically similar drugs.
The worldwide generic drug market was estimated at about $248 billion in 2013, accounting for 25% of the global
market. Boosted by rising demand for inexpensive generics throughout the world, and benefits from a large
number of branded drugs scheduled to lose patent protection, the total global generic market is expected to
expand to the $420 - $430 billion range in 2016. Generics should represent about 35% of the total drug market in
2016. Unbranded and branded generics accounted for about 83% of all prescriptions dispensed in the U.S. in 2013,
but represented only 27% of total U.S. drug sales in dollars, which is a reflection of much lower generic prices.
Industry Outlook
[3]
The pharmaceutical sector continues to face top-line pressure from patent expirations on many top-selling drugs,
as well as from foreign exchange fluctuations. However, according to S&P Capital IQ, industry profits should hold
up relatively well, aided by expanding sales of new innovative drug therapies and margin improvements accruing
from cost restructurings and merger synergies. S&P Capital IQ also noted that EPS comparisons should also benefit
from common share repurchases. While recently implemented health care reform legislation may continue to
negatively affect industry profitability, S&P Capital IQ sees benefits accruing from significant expansion of the
market stemming from new coverage provided to about 27 million currently uninsured Americans starting in 2014.
Despite near-term effects from patent expirations and regulatory pressures on drug pricing, S&P Capital IQ
believes long-term prospects for the industry remain favorable. Pharmaceuticals, nevertheless, remains one of the
widest-margin U.S. industries, with prospects enhanced by demographic growth in the elderly (which account for
about 33% of industry sales) and new drugs stemming from discoveries in genomics and biotechnology. FDA
approvals of new molecular entities in 2013 fell to 27 from 39 approvals in 2012. S&P Capital IQ sees a pickup in
new approvals in 2014.
Year to date through June 6, 2014, the S&P Pharmaceuticals Index rose 8.9%, versus a 5.3% gain in the S&P 1500
Composite Index. Prospects for the generic/specialty drug group are expected to remain favorable. S&P Capital IQ
noted a significant number of major drugs will lose patent protection over the next few years, providing significant
opportunities for this group. However post-2015, an expected patent cliff where the number of branded drugs
with expiring patents begins to flatten out. Companies, such as Teva, with robust generic pipelines, especially with
first-to-file generics (with the potential for 180 days of marketing exclusivity) along experience in litigating complex
patent issues should perform the best out of this group.
Recent Events
In January, 2014, Teva’s board of directors appointed Mr. Erez Vigodman as Teva’s new CEO, who took over in late
February. Mr. Vigodman, who is known as a turnaround specialist, had been the CEO of MA Industries, the
world's largest generic agrochemical company, since 2010, and has also served on Teva's board of directors. Mr.
Vigodman has taken some quick, initial steps to improve performance at Teva. For example, he has announced a
new organizational structure designed to integrate operations and to sharpen the company's focus on organic
growth. Teva will now be organized into two groups, Global Specialty Medicines and Global Generic Medicines.
The new CEO also successfully recruited another key executive from a key competitor. Mr. Vigodman hired
Sigurdur Olaffson away from Actavis Pharmaceuticals to serve as president and CEO of the Global Generic
Medicines group. Mr. Olaffson joined Teva on July 1, 2014, when the new business structure became official. The
Global Specialty Medicines group will be led by Dr. Rob Koremans. CEO Vigodman's goal is to regain focus on the
generic business. Accordingly, he is assessing individual products and markets in order to terminate unprofitable
Teva - 4
F. Seton Staley
staley.120@osu.edu
July 22, 2014
products. He is also planning to close or divest 11 plants this year and is reviewing 16 others. In conjunction with
[2]
this, Mr. Vigodman is targeting at least 600 basis points of margin improvement by the end of 2017.
Said CEO Erez Vigodman in Teva’s first quarter, 2014 press release, “We are intensely focused on solidifying the
®
foundation of Teva, maintaining the Copaxone franchise, driving sustainable organic growth, and positioning Teva
for long-term value creation. During 2014, we will deliver significant savings as part of our cost reduction program,
accelerate the transformation of our operations network, strengthen our global leadership in generics and
continue to increase confidence in Teva.”
In response to patent challenges to Copaxone, which went off patent in May, 2014, Teva recently launched a 40mg version of Copaxone that is taken three times per week instead of the daily 20mg injection. Teva, so far, has
enjoyed success with this new launch, and S&P Capital IQ expects it to earn approximately $3.25 billion in 2014
from sales of 40-mg version of the drug versus $4.33 billion in 2013, a decrease of 25% (which is much better than
[3]
the more typical 50%-80% decreases in sales seen from other drugs going off patent).
Fundamental Drivers & Sustainable Competitive Advantages
As previously discussed, Teva has undergone both pricing pressures within the generics and branded products
group in the past several years which have resulted in flat revenue and negative earnings growth. The new CEO
has further expanded upon Teva’s cost reduction program with a target to improve margins by at least 600 basis
points by 2017. With proper execution, Teva should be able to capitalize on its sustainable competitive
advantages. Teva’s largest competitive advantages include its ability to achieve both economies of scale given it is
the largest generics manufacturer in world with a presence in over sixty countries and economies of scope given
the company's large and fast-expanding portfolio of products provides one-stop shopping and package deals,
enabling them to gain market share as noted by S&P Capital IQ. In addition Teva’s strong generics pipeline,
especially with first-to-file generics, with the potential for 180 days of marketing exclusivity, should provide it a
strong platform of additional products for at least the next half decade. Finally Teva’s experience in litigating
complex patent issues should further bolster its efforts to both bring new generics to market and protect its
existing product portfolios.
Discussion of the Business Segments
Please refer to Appendix I, for review of annual segment and brand financial performance and forecasts of future
segment and brand revenue.
Generic Medicines: For Q1 2014, this group’s revenues amounted to $2.4 billion, including API sales of $179
million (48% of total company sales), an increase of 3% compared to Q1 2013. Versus Q1 2013, U.S. revenues
increased 17% to $1.0 billion, while European revenues decreased 7% to $818 million, and 'rest-of-world' (ROW)
[4]
As reported by Argus
revenues decreased 9% (but was up 1% in local currency terms) to $532 million.
Research, Generic products are expected to account for $9.8-$10.5 billion of revenue this year, and the trend now
appears to be toward the upper half of the range. Within this group, the U.S. is the leading market, with expected
sales of as much as $4.5 billion. Sales in Europe could hit $3.5 billion this year, while rest-of-world sales could reach
[2]
$2.6 billion.
As noted in Teva’s 20-F filing, for the year ended 12/31/2013, revenues from generic medicines amounted to $9.9
billion, a decline of $479 million, or 5%, in 2013 compared to 2012. In local currency terms, sales decreased 3%.
The largest market for generics is the United States, with revenues of $4.2 billion, down $200 million from 2012,
represented 42% of total generics revenues in 2013. Revenues of generic medicines in Europe amounted to $3.5
billion, flat compared to 2012. In ROW markets, revenues from generic medicines in 2013 amounted to $2.2
billion, a decrease of 11% compared to 2012. In local currency terms, ROW sales decreased 1%.
Teva - 5
F. Seton Staley
staley.120@osu.edu
July 22, 2014
In 2013, Teva led the U.S. generic market in total prescriptions and new prescriptions, with total prescriptions of
approximately 523 million, representing 15.3% of total U.S. generic prescriptions. The 20-F continues to note that
Teva intends to continue its U.S. market leadership based on its ability to introduce new generic equivalents for
brand-name products on a timely basis, specifically, with a focus on complex generics and other high-barrier
products that Teva believes will create more value for patients and customers.
Further discussing the U.S. Generics segment, as mentioned above revenues during 2013 amounted to $4.2 billion,
down 5% compared to $4.4 billion in 2012. The decrease resulted mainly from a decline in sales of the generic
version of Lexapro® for which Teva had exclusive rights in the first half of 2012, the lack of royalties related to the
sales of the generic equivalent of Lipitor® under its agreement with Ranbaxy, which Teva received in the first half
of 2012, and a decline in sales of the generic version of Actos® and Actoplus met®, which were launched in the
third quarter of 2012. Among the most significant generic products Teva sold in the United States in 2013 were
generic versions of Pulmicort® (budesonide inhalation), Adderall® (mixed amphetamine salts), Niaspan® (niacin
®
ER), Adderall XR® (mixed amphetamine salts ER), Tricor (fenofibrate), Accutane® (isotretinoin, which is marketed
as Claravis™), Provigil® (modafinil) and Catapres-TTS (clonidine transdermal patch).
As noted in the company’s latest 20-F annual filing, Teva’s generic pipeline, which, as of January 24, 2014, had 133
product registrations awaiting FDA approval, including 36 tentative approvals. Collectively, these 133 products had
U.S. sales in 2013 exceeding $81 billion. Of these applications, 97 were “Paragraph IV” applications challenging
patents of branded products. Teva believes it is first to file with respect to 53 of these products, the branded
versions of which had U.S. sales of more than $40 billion in 2013. Argus Research noted seven of these are
®
expected to launch in 2014. In the R&D pipeline, compounds include Laquinimod , an oral MS drug, and
experimental proprietary treatments for Parkinson's disease, Alzheimer's disease, epilepsy, diabetes, and other
conditions. Argus further noted that Teva plans to emphasize respiratory products through 2016.
Also noted in the company’s latest 20-F annual filing, in 2013, Teva launched generic versions of the 21 branded
products in the United States with an aggregate market value of $10.0 billion. In 2013, Teva received, in addition
to 17 final generic drug approvals, eight tentative approvals with an aggregate market value of approximately $4.8
[5]
billion with the majority these patents expiring in 2014 and 2015 and one expiring in 2018.
Specialty Branded Medicines: For Q1 2014, this group’s revenues amounted to $2.1 billion, (42% of total company
sales), an increase of 3% compared to Q1 2013. Versus Q1 2013, U.S. revenues increased 3% to $1.5 billion,
European revenues increased 8% to $482 million, and 'rest-of-world' revenue decreased 18% (decreased 8% in
local currency terms) to $102 million. The leading drugs in this group are Copaxone®, for MS; Treanda®, for cancer;
Azilect®, for Parkinson's Disease; ProAir®, for respiratory disease; and Nuvigil®, for sleep disorders. Treanda® and
[4]
Nuvigil® were acquired when Teva purchased Cephalon in 2011. As previously mentioned, the major uncertainty
in 2014 will be Copaxone®. As reported by Argus Research, in Q2 2013, Copaxone's® annual run rate peaked at
more than $4 billion. But management's projections this year peak at $3.7 billion due to the launch of Tecfidera®;
the bottom of the revenue guidance range is $3.1 billion, which assumes generic competition from Mylan Inc.,
[2]
among others.
Teva recently launched a 40-mg version of Copaxone® that is taken three times per week
instead of the daily 20mg injection. This launch has been successful, and S&P Capital IQ forecasts 2014 Copaxone®
revenue of $3.25 billion. Over the long term, Teva has 15 products either submitted for regulatory approval or in
[3]
Phase III trials (including treatments for schizophrenia, asthma and migraines).
As noted in Teva’s 20-F filing, for the year ended 12/31/2013, Specialty medicines revenues in 2013 amounted to
$8.4 billion, an increase of 3% compared to 2012. In the United States, Teva’s specialty medicines revenues
amounted to $6.0 billion, an increase of 3% from 2012. Specialty medicines revenues in Europe amounted to $1.7
billion, an increase of 8% from 2012. ROW revenues were $670 million, a decrease of 7%, or 3% in local currency
terms, compared to 2012.
The specialty medicines group is comprised of four categories, Central Nervous System (CNS), Oncology,
Respiratory, and Women’s Health. The CNS specialty product line includes Copaxone®, Azilect®, Nuvigil®, Fentora®
Teva - 6
F. Seton Staley
staley.120@osu.edu
July 22, 2014
and several other medicines. In 2013, CNS sales reached $5.5 billion, an increase of 1% over 2012, primarily due to
higher Copaxone® and Azilect® revenues, partially offset by a decrease in revenues from Provigil® and Nuvigil®,
following the introduction of generic modafinil in the United States in 2012.
Teva’s oncology specialty product line includes Treanda®, Synribo®, and certain other products, as well as its
biosimilar products indicated mainly for the treatment of side effects of oncology treatments. Sales of these
products amounted to $982 million in 2013 as compared to $860 million in 2012. The increase resulted primarily
from higher sales of Treanda® as well as higher sales of biosimilar products.
Teva’s respiratory product line includes its specialty respiratory products, mainly ProAir®, Qvar® and Qnasl®.
Revenues from specialty respiratory products increased 6% in 2013 to $905 million, primarily due to higher
revenues in the United States, partially offset by lower sales in Europe.
Teva’s women’s health product line includes specialty women’s health products such as Paragard®, Plan B OneStep®, Zoely®, Enjuvia®, and the recently-launched QuartetteTM®. Revenues from Teva’s global women’s health
products amounted to $463 million in 2013, an increase of 3% from $448 million in 2012. The increase in revenues
is mainly due to higher sales of women’s health products in Europe and Latin America, as well as the launch of
Quartette™ and Plan B One-Step® OTC in the United States in the third quarter, partially offset by lower sales of
other products in the United States.
Over the Counter: Teva's third primary business segment is a joint venture with Procter & Gamble to provide OTC
generics. As noted in Teva’s 20-F, the joint venture, known as PGT Health Care, includes the branded OTC
medicines of the two companies in categories such as cough/cold and allergy, digestive wellness, vitamins,
minerals and supplements, analgesics and skin medications. The joint venture operates in markets outside North
America and its leading brands are Vicks®, Metamucil®, Pepto-Bismol®, and ratiopharm. The joint venture also
develops new brands for certain global markets. Teva owns 49% and P&G holds 51% of the joint venture. As
reported by Argus Research, this joint venture, which generated sales of $270 million in Q1 2014, had been
growing at a double-digit clip, but slumped to a 9% decline as a result of an 'exceptionally weak cough and cold
season in Europe and Russia.' It is believed this business line will be reorganized into the new Generics group. For
the year ended 12/31/2013, PGT revenues in 2013 amounted to $1.9 billion, an increase of 22% compared to
2012.
Financial Analysis & Projections
Revenues: Teva’s total consolidated revenue for the year ended 2013 amounted to $20.3 billion, flat versus the
year ended 2012. The flat revenue growth was mainly a result of factors previously discussed under the “Generic
Medicines”, “Specialty Medicines”, and “Over the Counter” sections of the business segments discussion above.
As previously mentioned, Teva’s sales and earnings growth have slowed over the past several years as pricing
pressures have provided headwinds against its generics group and patent issues have reduced sales of its branded
products. The Bloomberg consensus forecasts for revenues are $20.3 billion, $20.2 billion, and $20.1 billion for the
years ended 2014, 2015, and 2016 respectively.
Referring to Appendix I, my modelled forecasted revenues are mostly in line with Bloomberg’s for the next three
years. Further breaking down by segment and product, for Generics, I modelled 2014, 2015, and 2016 revenues of
$10.4 billion (consistent with the guidance provided by Argus), $10.6 billion, and $11.6 billion respectively. Further
examining generic product lines, for API, I modelled 2014 growth of 4.8% which is an average of the last three
years of volatile performance with this tapering down to 3% over the ten year model forecast period. For Existing
Generics, I modelled 2014 growth at -0.3% based upon the average of the last three years and long term growth
over the ten year model forecast period at -0.5% considering that pricing pressures and competition for existing
generics will further increase in future years. For New Generics Launched, as noted in Teva’s 20-F filing, Teva
launched 21 new generic brands in 2013 with an aggregate U.S annual market of $10.0 billion (which reflect
branded drug prices). Given Teva is the largest drug maker of generics, I assume Teva will charge 50% of the
Teva - 7
F. Seton Staley
staley.120@osu.edu
July 22, 2014
branded price capturing 50% of this market and by the end of the ten year model forecast period which is reflected
under the year 2023 estimate $2.5 billion. For FDA Tentative Approvals, as also noted in Teva’s 20-F filing, as of
December 31, 2013, Teva has 8 generic brands that have received "tentative approval" by the FDA with aggregate
US market of $4.786 billion (reflecting branded drug prices). Given these are tentative, I assume Teva will capture
25% of this market and charge 50% of the branded price by the end of the ten year model forecast period which is
reflected under the year 2023 estimate $598 million. For First to File, as further noted in Teva’s 20-F filing, as of
December 31, 2013, Teva was first to file on 53 products which had sales of $40 billion in 2013 (again which reflect
branded drug prices). I assume Teva will also capture 25% of this market and also charge 50% of the branded price
by the end of the ten year model forecast period which is reflected under the year 2023 estimate $5.0 billion.
For Specialty Branded products, I modelled 2014, 2015, and 2016 revenues of $7.7 billion, $7.1 billion, and $5.6
®
billion respectively. Further examining specialty product lines, under CNS for Copaxone , I modelled 2014
revenues at $3.25 billion (25% decrease) consistent with S&P Capital IQ’s forecast due to Copaxone’s patent
®
expiration. As previously mentioned Teva launched a new three-day-per-week brand of Copaxone which should
help to offset the decreases in sales from its expiring patent. I further modelled revenues to decrease by upwards
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of 50% in future years which is less severe than what is seen under Provigil . For Provigil , revenues declined by
78% in 2013 as the drug lost its patent status in 2012. I further modelled revenues to decrease by 75% in future
®
years. For Azilect , several US patents for the drug expire between 2016 and 2027, and European patents expire
in 2014. Thus I modelled slowing revenue growth from 12.4% in 2013 to 10% in 2014 tapering this down to
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modelled growth of 3% out until the end of the ten year model forecast period. For Nuvigil , I assume 2014 growth
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of 21.9% based upon the average of the last three years of performance. Nuvigil launched in 2009 and Mylan can
begin selling a generic version by 2016 which explains my 2016 modelled forecast and beyond of 75% decreases in
revenues. For Other, modelled 15% growth for 2014 based upon recent performance tapering this down to 5% by
the end of the ten year model forecast period considering Teva is focusing on developing CNS drugs.
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Under Respiratory, for ProAir , I modelled 2014 revenue growth of 5% based upon recent performance tapering
this down to 3% by the end of the ten year model forecast period as ProAir’s patents expire between 2014 and
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2028. For Qvar , I modelled 2014 revenue growth of 5% considering the drug’s patents expire between 2014 and
2015 at which point I modelled out 75% decreases in revenues. Under Other, I modelled 2014 revenue growth of
27.5% based upon the average of the last three years of performance tapering this down to 5% by the end of the
end of the ten year modelled forecast period considering Teva is also focusing on developing respiratory drugs.
Under Women’s Health, I modelled 2014 growth of 11.1% based upon the average of the last three years of
performance and assume 10% long term growth based upon recent trends.
®
Under Oncology, for Treanda , I modelled revenue growth of 15% for the next two years based upon recent
®
performance. Treanda was granted orphan drug status exclusivity until October, 2015 at which I modelled flat
and then 25% decreases in revenue at that point given orphan drugs are used to treat rarer diseases and are
therefore less inclined to experience as much competition as branded drugs experience once they lose exclusivity.
Under Other, I modelled 2014 revenue growth of 15% based recent 2013 performance tapering this down to 3% at
the end of the ten year model forecast period.
Under Other Branded, I modelled a 2014 revenue decrease 5.6% based upon the average performance over the
past three years. I further modelled revenues to decline 5% over the remainder of the model forecast period as
Teva will be focusing its R&D on the MS and respiratory categories.
For All Others (i.e. OTC and Distribution), I modelled 2014, 2015, and 2016 revenues of $2.3 billion, $2.5 billion,
and $2.8 billion respectively. Further examining All Other product lines, for Over the Counter (OTC), I modelled
2014 growth of 20% (which is lower than the average 33% growth based upon the last three years of performance
as first quarter sales in 2014 were weak) tapering this down to 5% at the end of the ten year model forecast
period. As previously mentioned, the OTC category is Teva’s joint venture with Procter and Gamble. For
Distribution/Other, I modelled 2014 growth at -0.1% based upon recent trends and modelled out 0% growth over
the ten year forecast period.
Teva - 8
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Not modelled specifically in this forecast are other branded drugs Teva is currently developing. As noted in Teva’s
20-F, Teva currently has either in stage three, “submitted”, or “reviewing” status, two CNS drugs, four respiratory
drugs, two oncology drugs, two women’s health drugs, and one cardiovascular drug. As no guidance is provided
related to potential market values with these drugs, they are not modelled into my forecasts.
Gross Profit: As noted in Teva’s 20-F, in 2013, gross profit as a percentage of revenues was 52.7% in 2013,
compared to 52.4% in 2012. Gross profit margin for Teva’s generic medicines segment in 2013 decreased to
41.3%, from 43.5% in 2012. This 2.2% decrease in gross margin was mainly a result of the change in the
composition of revenues in the United States and Canada, mainly royalties related to sales in the United States of
the generic equivalent of Lipitor® (atorvastatin) under the agreement with Ranbaxy (which decreased gross margin
by 1.6 points); higher charges related to inventories (which decreased gross margin by 1.1 points), the decrease of
API sales to third parties and lower sales of other generic medicines (which, in the aggregate, decreased gross
margin by 3.4 points); partially offset by sales of higher profitability products in the United States (which increased
gross margin by 3.9 points). Gross profit margin for Teva’s specialty medicines segment in 2013 was 87.2%
compared to 88.0% in 2012. The slight decrease in gross margin was mainly a result of the lower sales of Provigil®
(which decreased gross margin by 0.4 points) and lower sales of other specialty medicines (which decreased gross
margin by 0.6 points), partially offset by higher sales of Copaxone® (which increased gross margin by 0.2 points).
As previously mentioned, management has launched a plan to reduce costs and improve profitability. As reported
by Argus Research, the company is on track to deliver $1.5-$2.0 billion in savings from this program. CEO
Vigodman's goal is to increase margins by 600 basis points over the next three years. As noted in Bloomberg’s
consensus forecasts, gross margins jump from 52.7% in 2013 to 59.0% forecasted in 2014 (with it pulling back to
58% by 2016) which seems aggressive. Despite Bloomberg’s consensus forecast, I am more conservative with
these estimates and as seen in Appendix II, I have modelled out increasing gross margins so that they reach the
Bloomberg consensus forecast of 58% by 2017 which is more in line with what the CEO’s goal by 2017. With
respect to CEO’s goal of $1.5-$2.0 billion in cost savings, the margin improvements amount to forecasted decrease
modelled cost of sales of $454 million and $261 million for 2014 and 2015 respectively (with the remainder of the
cost savings seen below under research and development, selling and marketing expenses, and general and
administrative expenses). Taken together, versus the consensus forecasts, I am a bit more optimistic in my model
with Teva’s top line growth prospects over the longer term, considering its strong generic pipeline, and I more
conservative in my model with respect to the timing in which the margin improvements will be realized.
Research and Development: As noted in Teva’s 20-F, net research and development expenses for 2013, including
the purchase of in-process R&D, were $1.4 billion, an increase of 5% compared to 2012. As a percentage of
revenues, R&D spending was 7.0% in 2013, compared to 6.7% in 2012. Research and development expenses
relating to Teva’s generic medicines for 2013 were $494 million, an increase of 2% compared to $485 million in
2012. As a percentage of segment revenues, R&D expenses were 5.0% in 2013, compared to 4.7% in 2012. R&D
activities for the generic medicines segment include both (a) direct expenses relating to product formulation,
analytical method development, stability testing, management of bioequivalence and other clinical studies,
regulatory filings and legal expenses relating to patent review and challenges prior to obtaining tentative approval,
and (b) indirect expenses such as costs of internal administration, infrastructure and personnel involved in generic
R&D.
Research and development expenses relating to Teva’s specialty medicines in 2013 were $909 million, an increase
of 15% compared to $793 million in 2012, primarily as a result of increased investment in “New Therapeutic
Entities” (NTEs) and respiratory pipeline. As a percentage of segment revenues, R&D spending was 10.8% in 2013,
compared to 9.7% in 2012, reflecting these increased investments. Teva’s specialty R&D activities focus primarily
on product candidates in the CNS and respiratory therapeutic areas, with selective focus on oncology and other
areas that fit its strategy. Specialty R&D expenditures include upfront and milestone payments for products in the
development phase, the costs of discovery research, preclinical development, early- and late-clinical development
and drug formulation, clinical trials, product registration costs, changes in contingent consideration resulting from
acquisitions and other costs, and are reported net of contributions received from collaboration partners. Specialty
R&D spending takes place throughout the development process, from drug discovery through pre-launch
Teva - 9
F. Seton Staley
staley.120@osu.edu
July 22, 2014
marketing activities, including (a) early-stage projects in both discovery and preclinical phases; (b) middle-stage
projects in clinical programs up to phase III; and (c) late-stage projects in phase III programs, including where a new
drug application is currently pending approval, and continuing for life cycle management studies for marketed
products.
For my model, I assume part of CEO’s targeted $1.5-2.0 billion in cost savings also will come from R&D. Given Teva
has many product lines and has a presence in over sixty countries, it does not seem unreasonable to assume that
there is opportunity to streamline and consolidate its R&D operations. Teva’s R&D in 2013 amounted to 7% of its
gross income which is elevated compared to 2009-2011 it represented 5.8% - 5.9% of its revenues. In Appendix II
projected out, I modeled R&D expenses as 6.7% of 2014 revenues and 6.5% of revenues over the remaining 10
year model forecast period. Teva picks up $67 million and $41 million in modelled cost savings for 2013 and 2014
respectively.
Selling and Marketing Expenses: As noted in Teva’s 20-F, S&M expenses in 2013 amounted to $4.1 billion, an
increase of 5% over 2012. As a percentage of revenues, S&M expenses were 20.1% in 2013 compared to 19.1% in
2012. Selling and marketing expenses related to Teva’s generic medicines in 2013 amounted to $1.9 billion, a
slight decrease of 1% compared to $2.0 billion in 2012. As a percentage of segment revenues, selling and
marketing expenses increased to 19.6% in 2013 from 19.0% in 2012. The decrease was mainly due to lower
expenses in Europe, partially offset by higher royalty payments in the United States mainly related to higher sales
of generic versions of Pulmicort® (budesonide inhalation). S&M expenses related to Teva’s specialty medicines in
2013 amounted to $1.9 billion, compared to $1.7 billion in 2012. As a percentage of segment revenues, selling
and marketing expenses increased to 22.0% in 2013 from 20.7% in 2012. The increase was primarily due to higher
expenditures related to launches of new products such as Lonquex® and Granix® during 2013, as well as
preparation for additional product launches planned for 2014.
Considering the CEO’s cost reduction goals, in Appendix II, I modelled Selling and Marketing Expenses to decrease
from 20.1% of 2013 revenues to 18.0% of 2014 revenues (cost savings of $409 million) and 17.5% of revenues in
2015 going forward (cost savings of $129 million). Again it does not seem unreasonable to assume that in
accordance with the CEO’s cost savings plans that there is opportunity to streamline and consolidate Teva’s sales &
marketing operations.
General and Administrative Expenses: As noted in Teva’s 20-F, G&A expenses in 2013 amounted to $1.2 billion,
similar to 2012. As a percentage of revenues, G&A expenses maintained a level of 6.1% in 2013, the same as in
2012. Considering the CEO’s cost reduction goals, in Appendix II, I modelled G&A expenses to decrease from 6.1%
of 2013 revenues to 5.0% of 2014 revenues (cost savings of $221 million) and 5.0% of revenues going forward.
Again it does not seem unreasonable to assume that in accordance with CEO’s cost savings plans that there is also
opportunity to streamline and consolidate Teva’s general & administrative operations. Total modeled cost savings
from reduced cost of sales, R&D, selling and marketing, and G&A amount to $1.151 billion for 2014 and $432
million for 2015 totaling $1.583 billion which is at the conservative end of the CEO’s range of the cost savings goal.
Legal Settlements, Impairments, and Restructurings: As noted in Teva’s 20-F, Legal settlements and loss
contingencies for 2013 amounted to $1.5 billion, compared to $715 million in 2012. The 2013 expenses are
comprised mainly of an additional charge of $930 million relating to the settlement of the pantoprazole patent
litigation and a charge of $495 million relating to the modafinil antitrust litigation.
Expenses for impairments, restructuring and others amounted to $788 million in 2013, compared to $1.3 billion for
2012. Impairment of long-lived assets for 2013 amounted to $524 million in 2013, comprised of the following: (1)
Identifiable intangible assets—$393 million: Product rights impairment of $227 million ($112 million impairment
based on current market conditions and supply chain challenges in Japan, product rights impairment of $41 million
of multiple products in Europe, and a $23 million impairment of product rights for Cenestin® related to API
constraints). Impairments of product rights in 2012 were $233 million. In-process R&D impairments amounted to
$166 million. (2) Non-current investments—$70 million. In 2012, non-current investments impairment was $23
million. (3) Property, plant and equipment—$61 million, based on management decisions regarding their expected
Teva - 10
F. Seton Staley
staley.120@osu.edu
July 22, 2014
use, which triggered a reassessment of fair value. In 2012, property, plant and equipment impairment was $190
million.
In 2013, Teva recorded $201 million of restructuring expenses, compared to $221 million in 2012. In October
2013, management announced the acceleration of its company-wide cost-savings plan, which includes several
initiatives, including a reduction in the number of employees. Expenses for the corporate restructuring program
are estimated to be approximately $1.1 billion. Most costs are likely to be incurred throughout 2014, as the details
of the plan are finalized.
An expense of $36 million was recorded against contingent consideration recorded in 2013, mainly in connection
with the Cephalon acquisition. In 2012, a $40 million contingent consideration benefit was recorded as a result of
impairing long-lived assets that decreased associated milestone payment liabilities, previously recorded in
connection with the Cephalon acquisition.
Legal settlements, restructuring costs, and impairments are typically difficult to forecast. In this case, Teva reports
that it expects to incur approximately $1 billion in restructuring in 2014 (5.0% of revenues), which has been
modelled into my forecast in Appendix II. Given we can expect the CEO to further streamline operations and
reorganize post 2014 and the fact Teva has a history of recurring restructuring charges, it seems appropriate to
further model in restructuring charges after 2014. I modelled in restructuring charges of 2.5% over 2015 and 2016
with this tapering down to 0.5% of revenues by the end of the ten year model forecast period. For litigation and
settlements, 2013 was abnormally high due to a large $930 million patent settlement as previously discussed. It
®
is noted the U.S. government has launched an investigation into the Company’s marketing of its Copaxone and
®
Azilect brands (CNS drugs), which has the potential to continue on for years. As such, I have modelled legal
settlements and loss contingencies at an elevated 5% of revenues for the next five years reducing it to 3% after
that which is more consistent with prior periods. It is tempting to model out impairments, except that we must
remember asset impairments are non-cash expenses that for all intents and purposes do not provide any benefit
of providing a tax shield (they are not deductible for tax purposes like depreciation). Thus, asset impairments are
excluded from the model.
Financial Expenses: As noted in Teva’s 20-F, in 2013, financial expenses amounted to $399 million, compared to
$386 million in 2012. The increase is mainly due to financial expenses in connection with early redemption of
senior notes, partially offset by lower interest expense. Also included for 2013 was a non-recurring $100 million
hedging loss related to the Ratiopharm acquisition. Forecasted out, interest rates are still near all-time lows at the
current time, and I believe it is naïve to assume interest rates will remain this low over the ten year forecast
period. Additionally, as Teva grows, it will incur more debt to maintain a stable debt to capital ratio. Accordingly
after 2016, in Appendix II, I modelled increasing interest expense as percentage of revenue bringing this up to 2.5%
of revenues by the end of the ten year forecast period.
Income Tax Rate: As noted in Teva’s 20-F, in 2013, Teva booked a tax benefit of $43 million, or 3% of pre-tax
income of $1.3 billion. In 2012, the tax benefit amounted to $137 million, or 8% of pre-tax income of $1.8 billion.
The effective tax rate is the result of the geographic mix and type of products sold during the year, and a variety of
factors, including different effective tax rates applicable to non-Israeli subsidiaries that have tax rates above Teva’s
average tax rates (including the impact of impairment, restructuring and legal settlement charges on such
subsidiaries). In addition, the mergers between subsidiaries and incentives programs to which Teva’s subsidiaries
are entitled further contributed to the tax benefit for 2013.
The statutory Israeli corporate tax rate, which was 25% in 2013, was increased to 26.5% in 2014. However, Teva’s
effective consolidated tax rates have historically been, and continue to be this year, considerably lower than the
statutory rate because of tax incentives Teva benefits from in Israel and other countries. Teva further notes in its
20-F that most of its investments in Israel were granted Approved Enterprise status, which confers certain tax
benefits. These benefits included a long-term tax exemption for undistributed income generated by such projects,
effective until 2013, and lower tax rates on dividends distributed from other projects. Teva also benefits from
other investment-related and R&D-related tax incentives in many of its facilities around the world.
Teva - 11
F. Seton Staley
staley.120@osu.edu
July 22, 2014
In the future, Teva’s effective tax rate is expected to fluctuate as a result of various factors, including changes in
the product mix and geographical distribution of its income, the effect of mergers and acquisitions, and the effects
of statutes of limitations and legal settlements which may affect provisions for uncertain tax positions. Teva
expects that the tax rate in future years will be significantly higher than this year, as a result of the product mix
projected for these years and the expiration of the Israeli incentives regime that it currently benefits from.
Teva’s tax situation is extremely complex. With this in mind, I utilized Bloomberg consensus forecasts for the rate
upon which to apply an estimated income tax provision for the next year. Given the lack of clarity regarding
quantification of benefits Teva expects to incur from future tax benefits, I modelled longer term future tax rates at
the Israeli full 26.5% for conservatism in Appendix II.
Discounted Cash Flow Model
For the DCF model in Appendix III, summarized modelled income statement line items flow in from the modelled
income statement. Other items to note include the discount rate utilized of 9.75%. Given Teva’s, 5 year beta per
S&P Cap IQ of 0.68, during a relatively more stable period for U.S. health care providers before the Affordable Care
Act was passed, and Teva’s more recent beta of 0.77 per the June, 2014 Student Investment Management holdings
report, Teva exhibits less systematic risk than the market. Assuming a market discount rate of 10% which was the
proxy used in our Student Investment Management Course, it seems appropriate to use a discount rate less than
the market rate. However, as mentioned, Teva has undergone some recent challenges related to pricing pressures
on its generics and branded drugs with the expiration of the patent of its blockbuster drug. Teva is also executing
a cost reduction and reorganization effort. Considering this as well, this increases Teva’s risk. Thus, I decided to
use only a slightly lower than market discount rate of 9.75%.
For Teva’s long term growth rate, the recent performance of the stock indicates the market’s beliefs that the new
CEO does increase Teva’s growth prospects and Teva should be able to capitalize on growing demand for generic
drugs with its rich generic pipeline. However, over the long term, Teva is subject to intense competition in the
generic drug market from other generic drug manufacturers and brand-name drug companies through authorized
generics. Therefore, I am using a long term growth rate of 3.50% (somewhat higher than average US inflation of
2.5% - 2.7% over the past two decades and 3% over the long term). This results in a long term P/E multiple
estimate of 14.8 which is in line with Teva’s P/E multiple over the past three years (before the announcement of
Teva’s cost reduction effort and rumors of the new CEO) along with next year’s S&P Capital IQ estimated leading
P/E of 11.6.
Finally for investments in working capital, as part of the cost reduction efforts, Teva in 2013 began reducing its
working capital by primarily tightening its inventory cycles. Over the longer term, as Teva swings back into growth
mode, it will have to reinvest in working capital. Therefore I forecast out growing investments in working capital
up to 2% of sales by the end of the ten year forecast period which is more consistent with prior years.
Peer Ratio Analysis & Margin Trends
The peer analysis in Appendix IV pulled from S&P Capital IQ data (with Bloomberg and Morningstar supplemented
as noted) displays multiple metrics for Teva and its peer groups. Teva’s core peer group which includes other
pharmaceuticals with generics and/or over the counter products is bolded: Actavis, Mylan, and Perrigo. The other
non-bolded peers are pharmaceuticals with primarily branded drugs. Examining the performance metrics, Teva’s
return on equity of 6.06% is second to Mylan at 20.93% which has had recent impressive financial performance.
Note Teva’s ROE is lower than many of the branded pharmaceutical peers. Teva’s dividend yield of 2.6% is the
highest among its core peer group but also at the low end of range for its branded counterparts. A visual
inspection of Teva’s last twelve months of diluted EPS of $1.62 versus Capital IQ’s forecasted next twelve months
of $4.73 reaffirms analysts’ expectations of a successful Teva cost reduction effort resulting in margin
Teva - 12
F. Seton Staley
staley.120@osu.edu
July 22, 2014
improvements. However it is interesting to note that Capital IQ’s forecasted long term EPS growth rate for Teva at
1.4% is among the lowest in the peer group.
Moving to valuation metrics, it can be seen Teva trades at a discount compared to both its core peer group and
branded pharmaceutical counterparts. Note that Teva’s trailing P/E at 33.9x and trailing PEG ratio at 4.4 is on the
higher end of the peer range while its forward P/E of 11.6x is on the lower end. Again this indicates the market’s
expectation of a successful Teva cost reduction effort which will boost its EPS.
Next, looking at the margin analysis, it is apparent that Teva’s gross, EBITDA, and EBIT margins of 53.0%, 28.1%,
and 20.0% respectively are at the top of its core peer group and at the lower end of its branded counterparts.
Considering that Teva’s margins are at the top of its core peer group, it is interesting to note that the market is
pricing yet further margin improvement. As Teva is the largest generic drug maker in the world and can better
realize both scale and scope economies, then perhaps this is not unreasonable. Examining Bloomberg’s financial
analysis, Teva has maintained relatively stable gross margins of 52%-53% over the past five years with a high of
56.2% achieved in 2010. Teva’s EBITDA margins also have remained stable over the past five years at 28%-29%
with a high of 32.7% achieved in 2010. Teva’s net income margins however have steadily deteriorated from a high
of 20.7% achieved in 2010 down to 6.2% in 2013. A large part of this is due to $1.6 billion in legal settlements and
$524 in impairment charges Teva incurred in 2013. Note that Teva in its U.S. GAAP compliant 20-F from which the
modelled income statement in Appendix II is derived, classifies legal settlements, restructuring costs, and
impairments as operating income but Bloomberg classifies these below EBITDA and above net income.
Finally, with a debt to capital ratio of 33.9%, Teva has a moderate amount of debt in its capital structure versus its
core peer group and branded counterparts. Teva also has a relatively strong A- S&P debt rating and exhibits less
volatility than the market with 0.68 beta.
Risks to the Stock Recommendation
Teva faces risks both more general to the pharmaceutical industry and more unique to Teva. Risks unique to Teva,
as noted in its 20-F, include the following:
Teva’s leading specialty medicine, Copaxone®, faces increasing competition, including from orally-administered
therapies and potential generic versions. As previously discussed, Teva’s blockbuster drug Copaxone® faces
increasing competition and patent challenges in 2014. Although Copaxone® remains the leading therapy for
multiple sclerosis, it faces intense competition from other existing injectable products, such as Avonex® ,
Betaseron® , Extavia® , Rebif® and Tysabri ® , and from oral treatments, such as Gilenya® , which was introduced in
2010 by Novartis, Genzyme’s Aubagio® , which was introduced in 2012, and Biogen’s Tecfidera® , which was
introduced in 2013. These new oral treatments provide especially intense competition in light of their substantial
®
convenience in comparison to injectables such as Copaxone . Teva’s patents on Copaxone® have been challenged,
and as a result it is starting to face generic competition in the United States from Mylan Pharmaceuticals as of May
2014. In addition, as discussed, Teva’s business strategy for Copaxone® relies heavily on the successful
introduction of a three-times-a-week product and the migration of a substantial percentage of current daily
Copaxone® patients to this new version. The failure to achieve its objectives for the new version would likely have
a material adverse effect on Teva’s financial results and cash flow.
Teva may not be able to reduce its operating expenses to the extent and during the timeframe intended by its
cost reduction program. In December 2012, Teva announced a cost reduction program intended to result in $2
billion in cost reductions by the end of 2017, with half of that targeted by the end of 2014. As part of this program,
Teva plans to reduce its employee headcount by approximately 10%. This program, the first of its magnitude in
Teva’s history, is a significant part of its strategy, with much of the expected savings targeted for reinvestment in
its business. The announced plan for headcount reductions has generated intense governmental and union
opposition in Israel and may generate similar opposition in European countries and other locations where Teva has
significant numbers of unionized employees. If such opposition limits Teva’s ability to carry out workforce-related
Teva - 13
F. Seton Staley
staley.120@osu.edu
July 22, 2014
aspects of its cost savings program or causes Teva to grant significant financial concessions, Teva’s ability to
achieve planned cost reductions will be further impacted. If Teva is unable to achieve its cost reduction targets
during the expected timeframes, Teva’s results of operations will be negatively affected and Teva’s ability to
execute other aspects of its strategy may be slowed or undermined.
Governmental investigations into sales and marketing practices, particularly for Teva’s specialty pharmaceutical
products, may result in substantial penalties. Teva operates in an industry around the world in complex legal and
regulatory environments, and any failure to comply with applicable laws, rules and regulations may result in civil
and/or criminal legal proceedings. In the United States, Teva is currently responding to federal investigations into
its marketing practices with regard to several of its specialty pharmaceutical products, which could result in civil
litigation brought on behalf of the federal government. Responding to such investigations is costly and involves a
significant diversion of management’s attention. Such proceedings are unpredictable and may develop over
lengthy periods of time. Future settlements may involve large cash penalties. In addition, government authorities
have significant leverage to persuade pharmaceutical companies to enter into corporate integrity agreements,
®
®
which can be expensive and disruptive to operations. A noted case involves Copaxone and Azilect . In January,
2014, Teva received a civil investigative demand from the United States Attorney for the Southern District of New
York seeking documents and information from January 1, 2006 to the present related to sales, marketing and
promotion of Copaxone® and Azilect® . The demand states that the government is investigating possible civil
violations of the federal False Claims Act. Teva is in the process of complying with the subpoena.
Decreased opportunities to obtain U.S. market exclusivity for generic versions of significant products may
adversely affect Teva’s revenues and profits. Teva’s ability to achieve continued growth and profitability through
sales of generic pharmaceuticals is dependent on its success in challenging patents, developing non-infringing
products or developing products with increased complexity to provide opportunities with U.S. market exclusivity or
limited competition. The failure to continue to develop such opportunities could adversely affect its sales and
profitability. To the extent that Teva continues to succeed in being the first to market a generic version of a
significant product, and particularly if Teva is the only company authorized to sell during the 180-day period of
exclusivity in the U.S. market, as provided under the Hatch-Waxman Act, its sales, profits and profitability can be
substantially increased in the period following the introduction of such product and prior to a competitor’s
introduction of an equivalent product. Even after the exclusivity period ends, there is often continuing benefit
from being the first generic product in the market. However, the number of significant new generic products for
which Hatch-Waxman exclusivity is available, and the size of those product opportunities, has decreased in recent
years, and patent challenges have become more difficult. Additionally, increasingly Teva shares the 180-day
exclusivity period with other generic competitors, which diminishes the commercial value of the exclusivity. As
indicated by Argus research, although the generics industry is currently benefiting from the 'patent cliff' at Big
Pharma companies, the number of branded drugs with expiring patents flattens out in 2015.
Other risks more unique to Teva include:
• Teva’s patent settlement agreements, which are important to its business, are facing increased government
scrutiny in both the U.S. and Europe, and may expose Teva to significant damages.
• Because Teva has substantial international operations, its sales and profits may be adversely affected by
currency fluctuations and restrictions as well as credit risks.
• Teva has significant operations in countries that may be adversely affected by political or economic instability,
major hostilities or acts of terrorism.
• Teva’s revenues and profits from generic pharmaceutical products typically decline as a result of competition,
both from other pharmaceutical companies and as a result of increased governmental pricing pressure.
• Teva’s specialty pharmaceuticals business faces intense competition from companies that have greater
resources and capabilities.
• Teva has sold and may in the future elect to sell generic products prior to the final resolution of outstanding
patent litigation, and, as a result, Teva could be subject to liability for damages in the U.S., Europe and other
markets where it does business.
Teva - 14
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Other risks Teva faces more general to the pharmaceutical industry include the following:
• Research and development efforts invested in Teva’s pipeline of specialty and other products may not achieve
expected results.
• The success of Teva’s specialty medicines depends on the effectiveness of its patents, confidentiality agreements
and other measures to protect Teva’s intellectual property rights.
• Healthcare reforms and related reductions in pharmaceutical pricing, reimbursement and coverage, by
governmental authorities and third-party payers may adversely affect Teva’s business.
• Sales of Teva’s products may be adversely affected by the continuing consolidation of Teva’s customer base.
Finally, the target price is derived from modelled inputs based upon assumptions and best estimates, and I, of
course, have imperfect information. Actual results can vary, possibly dramatically, from modelled results.
Conclusion
Due to recent stock performance, based upon the direction established by the new CEO recently brought on
board, I now recommend Teva as a HOLD. Demand for cost effective generic pharmaceuticals continues to and is
expected to increase due to favorable demographics in several large post industrial nations. Teva’s sales and
earnings growth have slowed over the past several years as pricing pressures have provided headwinds against its
generics group and patent issues have reduced sales of its branded products. But with the new CEO who has plans
to streamline operations, improve profitability and restart growth, Teva’s stock price has appreciated considerably
over the past year and is nearing my target price. The new CEO’s goals include multiple product launches as well
as new operating efficiencies that are expected to drive up to 600 basis points of margin improvement. In addition
Teva has a rich generic pipeline which should help to offset future lost revenues due to the patent expiration of
Teva’s blockbuster drug, Copaxone. Teva appears to be on the road to be well positioned to take advantage of its
future growth prospects. Based upon Teva’s current price of $54.95 as of July 22, 2014, my target price of $57.12,
Teva’s most recent dividend yield of 2.6%, my forecasted total return is 6.54% which is less than my modelled
discount rate of 9.75% and further supports my HOLD recommendation.
Teva - 15
23-Est
growth
Group total
27,483
Generics total (incl. API)
Year Total Y/Y Est
22-Est
growth
3.8%
26,466
17,862
3.7%
1,018
3.0%
Existing Generics
8,745
-0.5%
New Generics Launched
2,500
7.5%
of which API
21-Est
growth
5.3%
25,144
17,217
6.2%
989
3.0%
8,789
-0.5%
2,325
10.0%
Year Total Y/Y Est
20-Est
growth
6.5%
23,606
16,212
7.8%
960
3.0%
8,833
-0.5%
2,114
12.5%
Year Total Y/Y Est
19-Est
growth
5.8%
22,307
15,032
7.4%
932
3.0%
8,878
-0.5%
1,879
15.0%
Year Total Y/Y Est
18-Est
growth
5.6%
21,125
13,996
7.1%
905
3.0%
8,922
-0.5%
1,634
20.0%
Year Total Y/Y Est
17-Est
growth
3.6%
20,383
13,067
6.1%
879
3.0%
8,967
-0.5%
1,362
24.0%
Year Total Y/Y Est
16-Est
growth
1.7%
20,033
12,318
6.2%
853
3.0%
9,012
-0.5%
1,098
40.8%
Year Total Y/Y Est
15-Est
growth
-0.9%
20,213
11,596
9.4%
828
4.0%
9,057
-0.5%
780
160.0%
Year Total Y/Y Est
14-Est
growth
Year Total
Y/Y
13-Act
growth
0.2%
20,314
10,411
5.1%
9,902
-4.7%
762
4.8%
727
-8.7%
-0.5%
9,149
-0.3%
9,175
-4.3%
33.3%
225
-0.7%
20,358
10,599
1.8%
796
4.5%
9,103
300
0.0%
598
5.0%
570
10.0%
518
20.0%
431
25.0%
345
30.2%
265
32.5%
200
33.3%
150
50.0%
100
100.0%
50
5,000
10.0%
4,545
20.0%
3,787
30.0%
2,912
33.0%
2,190
37.4%
1,594
38.0%
1,155
48.1%
780
160.0%
300
33.3%
225
Branded Products
5,344
4.1%
5,134
3.2%
4,972
2.9%
4,830
1.3%
4,768
0.2%
4,760
-4.6%
4,989
-11.7%
5,651
-20.2%
7,079
-8.0%
7,692
-8.3%
8,388
2.9%
CNS
1,641
4.3%
1,574
3.1%
1,527
1.8%
1,499
-0.7%
1,510
-3.0%
1,557
-11.8%
1,764
-23.9%
2,317
-36.6%
3,652
-20.0%
4,567
-17.6%
5,545
1.5%
17
0.0%
17
-50.0%
34
-50.0%
68
-50.0%
136
-50.0%
272
-50.0%
544
-50.0%
1,087
-50.0%
2,175
-33.0%
3,246
-25.0%
4,328
8.3%
Provigil
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
1
-75.0%
6
-75.0%
23
-75.0%
91
-78.2%
Azilect
553
3.0%
537
3.0%
522
3.0%
506
3.0%
492
3.0%
477
3.0%
463
3.0%
450
5.0%
429
5.0%
408
10.0%
371
12.4%
Nuvigil
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
2
-75.0%
7
-75.0%
29
-75.0%
117
-75.0%
468
20.0%
390
21.9%
320
-7.8%
1,070
5.0%
1,019
5.0%
971
5.0%
925
5.0%
881
10.0%
801
10.0%
728
10.0%
662
15.0%
575
15.0%
500
15.0%
435
16.3%
Respiratory
1,438
4.2%
1,380
4.1%
1,325
6.9%
1,240
6.7%
1,162
8.7%
1,069
7.0%
999
3.0%
969
-15.5%
1,147
8.4%
1,059
9.8%
964
12.6%
ProAir
599
3.0%
582
3.0%
565
3.0%
548
3.0%
532
3.0%
517
3.0%
502
3.0%
487
3.0%
473
5.0%
450
5.0%
429
5.7%
0
-75.0%
0
-75.0%
0
-75.0%
0
-75.0%
1
-75.0%
5
-75.0%
22
-75.0%
86
-75.0%
344
0.0%
344
5.0%
328
10.4%
838
5.0%
798
5.0%
760
10.0%
691
10.0%
628
15.0%
546
15.0%
475
20.0%
396
20.0%
330
25.0%
264
27.5%
207
35.3%
1,336
10.0%
1,214
10.0%
1,104
10.0%
1,004
10.0%
912
10.0%
829
10.0%
754
10.0%
685
10.0%
623
10.0%
566
11.1%
510
13.8%
First to File
Copaxone
Teva - 16
Other
Qvar
Other
Women's Health
Oncology
713
-3.3%
738
-5.0%
777
-7.0%
835
-9.1%
918
-10.4%
1,025
-12.9%
1,177
-14.0%
1,368
2.9%
1,329
15.0%
1,156
15.0%
1,005
16.9%
Treanda
125
-25.0%
167
-25.0%
223
-25.0%
297
-25.0%
396
-25.0%
527
-25.0%
703
-25.0%
938
0.0%
938
15.0%
815
15.0%
709
16.6%
Other
588
3.0%
571
3.0%
554
3.0%
538
3.0%
522
5.0%
497
5.0%
474
10.0%
431
10.0%
391
15.0%
340
15.0%
296
17.5%
Other Branded
217
-5.0%
228
-5.0%
240
-5.0%
253
-5.0%
266
-5.0%
280
-5.0%
295
-5.0%
310
-5.0%
327
-5.0%
344
-5.6%
364
-30.3%
All Others
4,278
4.0%
4,115
3.9%
3,960
5.8%
3,744
5.7%
3,542
7.4%
3,298
7.2%
3,076
10.4%
2,787
9.9%
2,535
12.4%
2,256
11.4%
2,024
13.6%
OTC
3,420
5.0%
3,257
5.0%
3,102
7.5%
2,886
7.5%
2,685
10.0%
2,440
10.0%
2,219
15.0%
1,929
15.0%
1,678
20.0%
1,398
20.0%
1,165
24.5%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
0.0%
858
-0.1%
859
1.5%
Distr. / other
APPENDIX I - Segment & Product Revenues
FDA Tentative Approvals
Year Total Y/Y Est
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Year Total Y/Y Est
$ million
F. Seton Staley
staley.120@osu.edu
July 22, 2014
2023 Est
2022 Est
2021 Est
2020 Est
2019 Est
$ 27,483
11,548
15,935
3.8%
42.0%
58.0%
$ 26,466
11,106
15,360
5.3%
42.0%
58.0%
$ 25,144
10,557
14,587
6.5%
42.0%
58.0%
$ 23,606
9,913
13,693
5.8%
42.0%
58.0%
$ 22,307
9,367
12,940
5.6%
42.0%
58.0%
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Acquisition of R&D in Process
Legal settlements and loss contingencies
Restructuring Costs
Impairments
Acquisition costs and others
Total Impair., loss cont., restructuring (note 17)
Operating income
Financial expenses – net (note 16)
Income before income taxes
Income taxes
Share in losses of associated companies – net
Net income
Net loss attributable to non-controlling interests
Net income attributable to Teva
1,790
4,804
1,374
824
137
962
7,005
687
6,318
1,674
63
4,581
27
$ 4,554
6.5%
17.5%
5.0%
0.0%
3.0%
0.5%
0.0%
0.0%
3.5%
25.5%
2.5%
23.0%
26.5%
0.2%
16.7%
0.1%
16.6%
1,722
4,625
1,323
794
132
926
6,764
635
6,129
1,624
60
4,444
26
$ 4,418
6.5%
17.5%
5.0%
0.0%
3.0%
0.5%
0.0%
0.0%
3.5%
25.6%
2.4%
23.2%
26.5%
0.2%
16.8%
0.1%
16.7%
1,628
4,401
1,257
754
126
880
6,421
578
5,843
1,548
57
4,237
25
$ 4,212
6.5%
17.5%
5.0%
0.0%
3.0%
0.5%
0.0%
0.0%
3.5%
25.5%
2.3%
23.2%
26.5%
0.2%
16.9%
0.1%
16.8%
1,527
4,130
1,180
708
118
826
6,029
519
5,510
1,460
54
3,996
24
$ 3,972
6.5%
17.5%
5.0%
0.0%
3.0%
0.5%
0.0%
0.0%
3.5%
25.5%
2.2%
23.3%
26.5%
0.2%
16.9%
0.1%
16.8%
1,444
3,902
1,115
669
112
781
5,697
468
5,229
1,386
51
3,792
22
$ 3,770
6.5%
17.5%
5.0%
0.0%
3.0%
0.5%
0.0%
0.0%
3.5%
25.5%
2.1%
23.4%
26.5%
0.2%
17.0%
0.1%
16.9%
1,366
3,705
1,056
1,056
211
1,267
4,848
422
4,425
1,173
48
3,204
21
$ 3,183
Teva - 17
Consensus
Net Earnings per Share
Basic
Diluted
Consensus GAAP
6.5%
17.5%
5.0%
0.0%
5.0%
1.0%
0.0%
0.0%
6.0%
22.9%
2.0%
20.9%
26.5%
0.2%
15.2%
0.1%
15.1%
2017 Est
$ 20,172
$ 20,383
1.7%
8,564
42.0%
11,819
58.0%
2016 Est
$ 20,068
$ 20,033
-0.9%
8,621 43.0%
11,412 57.0%
2015 Est
$ 20,225
$ 20,213 -0.7%
8,891 44.0%
11,322 56.0%
2014 Est
$ 20,347
$ 20,358
0.2%
9,153 45.0%
11,206 55.0%
1,321
3,558
1,019
1,019
204
1,223
4,698
357
4,341
1,150
47
3,144
20
$ 3,124
1,295
3,498
1,002
1,002
501
1,502
4,114
300
3,814
1,011
46
2,757
20
$ 2,737
1,319
3,542
1,011
1,011
505
1,516
3,934
303
3,631
962
46
2,623
20
$ 2,602
1,360
3,671
1,018
1,018
1,018
2,036
3,121
305
2,815
563
47
2,206
20
$ 2,185
6.5%
17.5%
5.0%
0.0%
5.0%
1.0%
0.0%
0.0%
6.0%
23.0%
1.8%
21.3%
26.5%
0.2%
15.4%
0.1%
15.3%
6.5%
17.5%
5.0%
0.0%
5.0%
2.5%
0.0%
0.0%
7.5%
20.5%
1.5%
19.0%
26.5%
0.2%
13.8%
0.1%
13.7%
$ 2,779
3.94
3.93
4.00 per Bloomberg
$ 2,853
6.5%
17.5%
5.0%
0.0%
5.0%
2.5%
0.0%
0.0%
7.5%
19.5%
1.5%
18.0%
26.5%
0.2%
13.0%
0.1%
12.9%
6.7%
18.0%
5.0%
0.0%
5.0%
5.0%
0.0%
0.0%
10.0%
15.3%
1.5%
13.8%
20.0%
0.2%
10.8%
0.1%
10.7%
2013
$ 20,314
9,607
10,707
0.0%
47.3%
52.7%
1,427
4,080
1,239
7.0%
20.1%
6.1%
0.0%
7.7%
1.0%
2.6%
0.1%
11.4%
8.1%
2.0%
6.2%
-3.4%
0.2%
6.2%
-0.1%
6.2%
1,560
201
524
27
2,312
1,649
399
1,250
(43)
40
1,253
(16)
$ 1,269
$ 2,981
3.37
3.37
3.70 per Bloomberg
2.38
2.38
3.25 per Bloomberg
1.49
1.49
APPENDIX II - Modelled Income Statement
Net revenues
Cost of sales
Gross profit
2018 Est
$ 20,925
$ 21,125
3.6%
8,883
42.0%
12,242
58.0%
Consensus
F. Seton Staley
staley.120@osu.edu
July 22, 2014
APPENDIX III - Discounted Cash Flow Model with Sensitivity Analysis
Teva Pharmaceuticals (TEVA)
(000,000s)
Year
Terminal Discount Rate =
Terminal FCF Growth =
2013 Actual
2014E
2015E
2016E
2017E
v
20,314
Revenue
20,358
20,213
0.2%
% Grow th
1,649
Operating Income
Interest Exp
Interest % of Sales
Sh. In Losses of Assoc. Co.'s/
Net Loss Attr. Non-Cntrl Int.
Net Income
23,606
25,144
26,466
27,483
4,114
4,698
4,848
5,697
6,029
6,421
6,764
7,005
20.5%
23.0%
22.9%
25.5%
25.4%
25.5%
25.6%
25.5%
4,114
4,698
4,848
5,697
6,029
6,421
6,764
7,005
422
468
519
578
635
687
2.0%
2.1%
2.2%
2.3%
2.4%
2.5%
357
422
468
519
578
635
687
1,011
1,150
1,173
1,386
1,460
1,548
1,624
1,674
563
962
20.0%
26.5%
26.5%
26.5%
26.5%
26.5%
26.5%
26.5%
26.5%
26.5%
1,011
1,150
1,173
1,386
1,460
1,548
1,624
1,674
24
67
66
66
66
70
74
78
83
87
90
0.1%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
66
67
69
73
78
83
87
90
2,737
3,124
3,183
3,770
3,972
4,212
4,418
4,554
2,504
% Grow th
2,185
$
2,185
1,566
7.7%
2,602
2,602
1,328
6.6%
5.2%
$
2,737
1,217
14.1%
$
3,124
1,223
6.1%
6.0%
1.9%
$
3,183
1,204
5.7%
18.4%
$
3,770
5.4%
$
1,227
3,972
6.0%
$
1,298
5.5%
1,333
5.5%
5.3%
Terminal
FCF Growth
$
$
5.3%
4,554
1,374
5.0%
(76)
(102)
(148)
(223)
(307)
(377)
(450)
(550)
-0.5%
-0.7%
-1.0%
-1.3%
-1.5%
-1.7%
-2.0%
1,052
5.2%
2,658
44%
56%
100%
1,044
5.2%
2,815
5.9%
2,448
1,035
1,053
5.2%
2,843
5.2%
3,192
1.0%
2,253
12.3%
2,305
1,092
5.2%
3,147
-1.4%
2,071
1,138
1,204
5.1%
1,282
5.1%
3,636
5.1%
3,760
15.5%
3,885
3.4%
2,180
3.3%
2,054
1,934
1,323
5.0%
4,047
4.2%
21.4
22.3
12.3
12.7
18.0
18.7
11.0
11.3
9.00%
58.46
61.36
64.78
68.89
73.91
Terminal Discount Rate
9.50%
9.75% 10.00% 10.50%
$ 54.29 $ 52.42 $ 50.67 $ 47.51
$ 56.68 $ 54.60 $ 52.67 $ 49.19
$ 59.46 $ 57.12 $ 54.96 $ 51.10
$ 62.76 $ 60.09 $ 57.64 $ 53.31
$ 66.71 $ 63.62 $ 60.81 $ 55.89
Teva - 18
$
$
$
$
$
1,374
5.0%
4,004
-1.1%
1,835
1,654
Terminal Value
66,306
Free Cash Yield
6.04%
Terminal P/E
14.6
Terminal EV/EBITDA
9.2
54.95
57.12
3.95%
$
$
$
$
$
1,403
3.1%
$
-0.4%
21,271
27,397
48,669
5.35%
2.50%
3.00%
3.50%
4.00%
4.50%
4,418
(71)
852 per 1st qtr. press release
Current Price
Implied equity value/share
Upside/(Downside) to DCF
4.9%
$
-0.3%
2,538
Shares Outstanding
4,212
(41)
2,504
36.9
38.4
17.5
18.1
19.1%
$
-0.2%
6.2%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
22,307
357
5.1%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
21,125
1.8%
1,031
Free Cash Flow (Disc. for TVM)
20,383
300
624
Free Cash Flow
3.8%
20,033
300
3.1%
Capex % of sales
27,483
5.3%
1.5%
8.1%
% of Sales
6.5%
303
1,642
Subtract Cap Ex
5.8%
2023E
d
26,466
1.5%
72.2%
Plus/(minus) Changes WC
5.6%
2022E
g
25,144
305
1,269
% of Sales
3.6%
2021E
j
23,606
1.5%
% Grow th
Add Depreciation/Amort
1.7%
2020E
m
22,307
399
1,269
$
2019E
p
21,125
2.0%
-3.4%
Tax Rate
19.5%
2018E
s
20,383
-0.9%
3,934
15.3%
(43)
Taxes
-0.7%
3,121
8.1%
Operating Margin
20,033
9.75%
3.50%
11.00%
44.72
46.15
47.76
49.60
51.73
Bristol-Myers Squibb Company (NYSE:BMY)
Actavis plc (NYSE:ACT)
Sun Pharmaceutical Industries Limited (BSE:524715)
Eli Lilly and Company (NYSE:LLY)
Mylan, Inc. (NasdaqGS:MYL)
Perrigo Company Public Limited Company (NYSE:PRGO)
AstraZeneca PLC (LSE:AZN)
AbbVie Inc. (NYSE:ABBV)
Teva Pharmaceutical Industries Limited (NYSE:TEVA)
"NTM": Next Twelve Months
Shares
Outstanding
Latest
1,657.2
264.8
2,071.1
1,066.8
373.7
133.8
1,262.6
1,592.2
Market
Capitalization
Latest
$
$
$
$
$
$
$
$
850.7 $
TEV/EBITDA
LTM - Latest
81,400.5
57,296.1
25,813.0
67,976.2
19,456.4
20,783.2
95,303.3
86,061.1
LTM Total
Revenue
$
$
$
$
$
$
$
$
46,746.0 $
16,365.0
9,437.2
2,661.2
22,194.2
6,993.2
3,883.8
25,742.0
19,024.0
LTM Diluted EPS
Excl. Extra Items
$
$
$
$
$
$
$
$
20,414.0 $
1.73
(3.60)
0.26
3.58
1.60
1.82
1.63
2.57
NTM Revenue
(Capital IQ)
$
$
$
$
$
$
$
$
1.62 $
15,542.25
12,699.71
3,067.57
20,037.24
8,010.80
4,383.22
25,339.23
19,712.09
NTM EPS (Capital
IQ)
NTM LT EPS
Growth Rate
(Capital IQ)
Return on Equity
(Bloomberg)
$
$
$
$
$
$
$
$
1.89
13.91
0.47
2.88
3.58
7.08
4.23
3.25
11.9%
18.9%
21.4%
8.2%
13.6%
14.5%
(6.2%)
10.5%
18.10%
(8.33%)
18.97%
23.22%
20.93%
3.56%
9.37%
108.18%
2.90%
N.A.
0.33%
3.07%
0.00%
0.24%
3.76%
3.05%
20,307.14 $
4.73
1.4%
6.06%
2.60%
TEV/EBIT LTM P/Diluted EPS
P/Book
P/FCF (Bloomberg) NTM TEV/Forward NTM Forward P/E
Latest
Before Extra LTM - (Bloomberg)
(Morningstar for EBITDA (Capital IQ)
(Capital IQ)
Latest
(Morningstar for
Teva)
Teva)
PEG Ratio
(Bloomberg)
Teva - 19
Bristol-Myers Squibb Company (NYSE:BMY)
Actavis plc (NYSE:ACT)
Sun Pharmaceutical Industries Limited (BSE:524715)
Eli Lilly and Company (NYSE:LLY)
Mylan, Inc. (NasdaqGS:MYL)
Perrigo Company Public Limited Company (NYSE:PRGO)
AstraZeneca PLC (LSE:AZN)
AbbVie Inc. (NYSE:ABBV)
18.7x
26.5x
21.1x
10.7x
14.9x
23.4x
11.3x
12.8x
25.2x
54.7x
22.1x
13.7x
20.9x
32.6x
16.0x
14.5x
28.4x
NM
48.4x
17.8x
32.5x
85.2x
45.2x
21.0x
5.3x
3.9x
8.3x
3.9x
6.1x
2.4x
4.4x
18.0x
22.7x
28.4x
56.9x
15.1x
21.1x
39.6x
13.9x
16.4x
21.3x
14.8x
18.9x
13.7x
11.5x
18.8x
12.3x
11.7x
26.0x
15.5x
26.6x
22.2x
14.5x
21.4x
17.9x
16.6x
1.95
1.18
1.50
5.68
1.36
1.75
Teva Pharmaceutical Industries Limited (NYSE:TEVA)
10.1x
14.3x
33.9x
2.0x
15.2x
9.5x
11.6x
4.41
Company Comp Set
Company Name
LTM Gross
Margin %
LTM EBITDA
Margin %
LTM EBIT Margin LTM Net Income
%
Margin %
Div Yield
(Bloomberg)
LTM Total
Revenues, 1 Yr
Growth %
LTM Net Income, 1
Yr Growth %
LTM Total
Debt/Capital %
APPENDIX IV - Peer Ratio Analysis
Company Comp Set
Company Name
F. Seton Staley
staley.120@osu.edu
July 22, 2014
"LTM": Last Twelve Months
Company Comp Set
Company Name
N.A.
3.22
S&P Rating
(Bloomberg)
5 Year Beta
71.2%
52.1%
82.6%
77.6%
45.0%
35.8%
79.3%
76.2%
25.8%
26.2%
44.5%
28.8%
26.7%
25.8%
33.8%
37.8%
18.9%
12.6%
42.4%
22.4%
19.2%
18.5%
23.8%
33.2%
17.7%
(5.8%)
20.0%
17.4%
9.1%
4.9%
8.0%
21.8%
1.0%
50.1%
41.6%
(1.8%)
2.2%
14.1%
(4.7%)
2.6%
96.9%
7.4%
(16.5%)
2.3%
(56.3%)
(63.6%)
(22.8%)
33.0%
47.5%
10.7%
22.3%
71.9%
27.7%
32.5%
75.9%
A+
BBBN.A.
AABBBBBB
AAA
0.44
0.31
0.58
0.41
1.15
0.30
0.25
-
Teva Pharmaceutical Industries Limited (NYSE:TEVA)
53.0%
28.1%
20.0%
6.8%
1.5%
(20.2%)
33.9%
A-
0.68
[6]
Bristol-Myers Squibb Company (NYSE:BMY)
Actavis plc (NYSE:ACT)
Sun Pharmaceutical Industries Limited (BSE:524715)
Eli Lilly and Company (NYSE:LLY)
Mylan, Inc. (NasdaqGS:MYL)
Perrigo Company Public Limited Company (NYSE:PRGO)
AstraZeneca PLC (LSE:AZN)
AbbVie Inc. (NYSE:ABBV)
F. Seton Staley
staley.120@osu.edu
July 22, 2014
Sources
[1] Bloomberg
[2] Argus Research Teva Pharmaceuticals research report by John Eade, June 5, 2014
[3] S&P Capital IQ Teva Pharmaceuticals research report by Jeffery Loo, CFA, July 12, 2014
st
[4] Teva 1 quarter, 2014 press release
[5] Teva December 31, 2013 Form 20-F
[6] S&P Capital IQ
Teva - 20