Teva Pharmaceutical Industries (TEVA) Earnings Report: Q4 ¢  Teva

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  • Company Name: Teva Pharmaceut ical Industries Ltd Company Ticker: TEVA Sector: Health Care

    Industry: Drugs Event Description: Q4 2014 Earnings Call

    © 2014 TheStreet, Inc. All Rights Reserved Page 1 of 21

    Teva Pharmaceutical Industries (TEVA) Earnings Report: Q4 2014 Conference Call Transcript The following Teva Pharmaceutical Industries conference call took place on February 5, 2015, 08:00 AM ET. This is a transcript of that earnings call:

    Company Part icipants

    Kevin Mannix; Teva Pharmaceutical Industries; VP & Head of Global IR Erez Vigodman; Teva Pharmaceutical Industries; CEO Eyal Desheh; Teva Pharmaceutical Industries; CFO Michael Hayden; Teva Pharmaceutical Industries; Head of R&D & Chief Scientific Officer Rob Koremans; Teva Pharmaceutical Industries Ltd; Gobal Specialty Medicines

    Other Part icipants

    Shibani Malhotra; Sterne, Agee & Leach; Analyst Andrew Finkelstein; Susquehanna Financial Group; Analyst Siggi Olafsson; Teva Pharmaceutical Industries; Global Generic Medicines Liav Abraham; Citigroup; Analyst Carlo De Notaristefani; Teva Pharmaceutical Industries; Global Operations Sumant Kulkami; BofA Merrill Lynch; Analyst David Maris; BMO Capital Markets; Analyst Gregg Gilbert; Deutsche Bank; Analyst Louise Chen; Guggenheim Securities; Analyst Manoj Garg; Healthco; Analyst Ken Cacciatore; Cowen and Company; Analyst Chris Schott; JPMorgan; Analyst Ronny Gal; Sanford C. Bernstein & Company; Analyst Randall Stanicky; RBC Capital Markets; Analyst Umer Raffat; Evercore ISI; Analyst Marc Goodman; UBS; Analyst David Steinberg; Jefferies; Analyst Jason Gerberry; Leerink Partners; Analyst Tim Chiang; CRT Capital Group; Analyst



    Ladies and gentlemen, thank you for standing by and welcome to the Senior Vice President's Investor Relations call. (Operator Instructions). I must advise you that the call is being recorded today, Thursday, the 5th of February, 2015.

    I now shall now hand over to your first speaker today, Kevin Mannix. Please go ahead, sir.

    Kevin Mannix (VP & Head of Global IR):

    Thank you, operator. Good morning and good afternoon, everyone. Thank you for joining us today to discuss Teva's fourth quarter and full-year 2014 financial results. On the call with me today are Erez Vigodman, Chief

  • Company Name: Teva Pharmaceut ical Industries Ltd Company Ticker: TEVA Sector: Health Care

    Industry: Drugs Event Description: Q4 2014 Earnings Call

    © 2014 TheStreet, Inc. All Rights Reserved Page 2 of 21

    Executive Officer; Eyal Desheh, Chief Financial Officer; Siggi Olafsson, Global Generic Medicines; Dr. Rob Koremans, Global Specialty Medicines; Dr. Michael Hayden, Head of R&D Chief Scientific Officer; Dr. Carlo De Notaristefani, Global Operations; and David Stark, General Counsel for Global Markets.

    We will start the call with Erez and Eyal, who will present for approximately 20 minutes before opening the call up for questions and answers. A copy of the slides, as well as this morning's earnings press release, can be found on our website,, under the Investor Relations section.

    During this call we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this conference call, and in the risk factors section of our Form 20-F, Form 6-K and other reports and filings with the Securities and Exchange Commission.

    Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures, to the most directly comparable GAAP financial measures, can be found in this morning's press release and the back-up section of the side presentation. With that, I will now turn the call over to our CEO, Erez Vigodman.

    Erez Vigodman (CEO):

    Thank you, Kevin. Good morning and good afternoon. In 2014 we embarked on a journey to transform Teva, solidifying the foundation first, unlocking significant value from our existing business. Then, re-energizing our business around core capabilities, calculating growth engines and establishing a stable underlying base from which we could grow organically and inorganically in the coming years.

    In 2014 we delivered $600 million in net cost reductions. We significantly improved cash flow from operations, from $3.2 billion to $5.1 billion and free cash flow from $2.3 billion to $4.3 billion. Substantially elevated quality and generated significant achievements. And we are on track to develop the most competitive operational network in terms of quality standards, scale, capability and efficiency.

    In our generic business, we improved operating profit before G&A by 510 basis points, from 16.8% in 2013 to 21.9% in 2014. We launched 19 products in the US, 29 in Europe, 87 in the rest of the world, delivering $1 billion in revenues in 2014.

    In our specialty business, Copaxone 40 mg has gained 19.6% market share of the MS space. And it accounts today for 63% of our total franchise, holding strong versus oral competition.

    We launched successfully four new products with net revenues of $200 million. We narrowed our therapeutic areas focus on those we have established strength in and are positioned to claim for market leadership.

    And most importantly, we delivered on all our promises and rewarded our shareholders. We created a platform to support continued margin improvement. $5 EPS floor and grow revenues and earnings organically from 2017 onward.

    We delivered on the high end of our guidance, achieving or exceeding all key metrics of our 2014 financial guidance, despite significant FX headwinds and higher share count. We returned $1.65 billion of cash to shareholders, including estimated Q4 dividend payments. We generated total shareholder returns of 47% in 2014.

    Today we are strongly committed to drive further the transformation of Teva in 2015 and these are our key priorities for this year, generating $500 million in net cost reductions; continue solidifying the generics

  • Company Name: Teva Pharmaceut ical Industries Ltd Company Ticker: TEVA Sector: Health Care

    Industry: Drugs Event Description: Q4 2014 Earnings Call

    © 2014 TheStreet, Inc. All Rights Reserved Page 3 of 21

    business, improve its profitability by additional 400 basis points and drive organic growth; continue enhancing the competitiveness of our operational network and elevating further the quality bar; further maintain the Copaxone franchise and manage the life cycle of key specialty products; deliver on the promise in our specialty pipeline; strong focus on business development and; continue the transformation of the Company to create its new future.

    2015 is an important year for our specialty franchise. We target four approvals: extended release of abuse- deterrent hydrocodone in the US; ProAir MDPI for asthma in the US; Copaxone 40 mg three times a week in Europe and; Seasonique for contraception in Europe.

    We'll witness four key clinical milestones that can demonstrate the potential in our specialty products pipeline. Submission of Reslizumab for asthma; also extended release of abuse-deterrent hydrocodone that might possess a technology validation platform for us; LBR-101 for chronic and episodic migraine, phase II clinical results by the end of Q1, 2015; the Pridopidine in Huntington's Disease, phase II, III clinical results.

    And we plan seven launches that should generate for us $400 million of net revenues: QNASL Pediatric; ProAir MDPI for asthma; Zecuity; extended-release hydrocodone in the US; Copaxone 40 mg; DuoResp Spiromax and Lonquex in the EU and other international markets.

    Our transformation is not confined to just prolonging the past. Over time, Teva will adjust its business model in order to claim for a unique space in the industry, developing a new differentiated narrative. We started to evolve our business model in 2014 and we will accelerate the pace of the transformation during 2015.

    In 2015 we will also shift the orientation towards inorganic moves that support our business model evolution, focusing on complex hard-to-produce generics, growth markets, in-market or close-to-market specialty assets in core TAs, attractive specialty pipeline assets or portfolios in core TAs. And we might also look at unique health solution technologies and services. I would like now to hand over to Eyal Desheh.

    Eyal Desheh (CFO):

    Thank you very much, Erez. Good morning and good afternoon, everyone. I am happy to provide the details on the business and financial results for the fourth quarter of 2014, as well as the full year. As always, we are presenting most of our results on a non-GAAP basis, while our GAAP results appear in our quarterly press release, as well as in the 20-S Form which will be filed next week.

    So, let's begin with the Q4 review. As you can see from these highlights, our revenue decreased by 5% due to the impact of foreign exchange and due to the divestment of our US OTC plants. However, operating income increased by 10% and nearly 400 basis points year over year. Also, positive for the quarter and the year was our strong cash flow generation, more than double what we saw in Q4 last year.

    Foreign exchange fluctuation had a negative impact of $227 million on our revenues and $55 million on operating income. Most of the impact