Generic Drug Giant Teva Reports Massive Q4 and Full-Year 2022 Loss Amid Goodwill Impairments and Opioid Settlement Costs

Recently, Teva, the generic drug giant, announced its Q4 and full-year performance for 2022. In 2022, revenue reached $14.925 billion, a year-on-year decrease of 6%. The cost of sales was $7.952 billion, with a gross profit margin of 46.72%, which is a 1% decline compared to last year but remains relatively stable.

R&D investment was $838 million, accounting for 5.61% of total revenue, a decrease of 0.4% compared to last year, with almost no significant change.

Sales and marketing expenses amounted to $2.265 billion, accounting for 15.18% of total revenue, which was basically consistent with the same period last year. Administrative expenses were $1.180 billion, accounting for 7.91% of total revenue, representing a 1.0% increase compared to the same period last year, and showing an upward trend compared to previous years. There may be issues with Teva's business adjustments.

From the above data, Teva's operations are still profitable. However, the company has to settle more than 3,500 U.S. opioid lawsuits, and the loss was expected.

Teva Set Aside $2.71 Billion Last Year as a Reserve for Settlement Costs, but Fortunately, the Actual Expenditure Was Lower Than Expected at Only $2.082 Billion. However, Unexpectedly, Teva Recorded a Goodwill Impairment of $2.045 Billion and an Intangible Asset Impairment of $355 Million, Resulting in a Net Loss of $2.406 Billion.

According to Teva's annual report, $979 million of the goodwill impairment came from its international market operations, with the remainder from its API business. The goodwill impairment was undoubtedly adding insult to injury for Teva. The company had already reversed its losses and returned to profitability in 2021, and even after paying substantial settlement fees in 2022, it was nearly breaking even. However, the goodwill impairment reared its head again...

According to Teva's explanation, the impairment of goodwill is mainly due to the increase in discount rates for assets in certain regions, particularly those affected by the Russia-Ukraine conflict. Additionally, Teva underwent a leadership change at the end of last year, which might have led to all potential losses being accounted for in 2022 to reduce the burden in 2023. Since the leadership change, Teva's stock price has risen by 30%-40%.

Changes in Teva's Profitability

Due to net losses, Teva's total assets have decreased from $47.7 billion to $44 billion, and its net assets have fallen from $11.2 billion to $8.7 billion. However, its foreign debt has dropped by $1.8 billion compared to the same period last year, leaving $21.2 billion remaining, with total debt at $35.3 billion. The debt-to-asset ratio is 80%, indicating that leverage remains extremely high.

In terms of business revenue, Teva's North American business revenue was $3.549 billion, a year-on-year decrease of 6%, European business revenue was $3.466 billion, a year-on-year decrease of 7%, and international market revenue was $1.903 billion, a year-on-year decrease of 6%.

Among them, the revenue from generic drugs was $8.601 billion, a decrease of 4.3% compared to the same period last year. The revenue from the new migraine drug Ajovy (Fremanezumab) was $377 million, an increase of 20% year-on-year. The revenue from glatiramer acetate was $691 million, a decrease of 31% compared to the same period last year. The revenue from the new drug Austedo (deutetrabenazine) for chorea was $963 million, an increase of 20% year-on-year. The sales of Bendeka (bendamustine hydrochloride) were $318 million, a decrease of 18% year-on-year.

Setting aside debt and litigation, Teva is a company with extremely strong business profitability. To date, Teva has shed all its burdens and is expected to return to a profitable track in 2023. In addition to generic drugs, several of Teva's biosimilars have been approved or entered the final stage of clinical development. Perhaps after 2023, Teva's stock price will stop falling and rebound.