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Teva Pharmaceutical Industries 20-F 2011 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F
OR
For the fiscal year ended December 31, 2010 OR
Commission File number: 0-16174 OR
TEVA PHARMACEUTICAL INDUSTRIES LIMITED (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Registrant’s name into English) ISRAEL (Jurisdiction of incorporation or organization) 5 Basel Street P.O. Box 3190 Petach Tikva 49131, Israel (Address of principal executive offices) Eyal Desheh Chief Financial Officer Teva Pharmaceutical Industries Limited 5 Basel Street P.O. Box 3190 Petach Tikva 49131, Israel Tel: 972-3-914-8171 Fax: 972-3-914-8678 (Name, telephone, e-mail and/or facsimile number and address of Company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None (Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 937,499,245 Ordinary Shares 703,806,530 American Depositary Shares Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Table of ContentsINDEX
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Table of Contents
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Table of ContentsINTRODUCTION AND USE OF CERTAIN TERMS Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries. References to “U.S. dollars,” “U.S.$” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to New Israeli shekels. Market share data is based on information provided by IMS Health Inc., a provider of market research to the pharmaceutical industry (“IMS”), unless otherwise stated. FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements, which express management’s current beliefs or expectations with regard to future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these statements relate to, among other things:
The forward-looking statements contained herein involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. You should understand that many important factors, in addition to those discussed or incorporated by reference in this report, could cause our results to differ materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this report, those described under “Item 3—Key Information—Risk Factors.” These are factors that we think could cause our actual results to differ materially from expected results. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements or other information contained in this report, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”). Please also see the cautionary discussion of risks and uncertainties under “Item 3: Key Information—Risk Factors” starting on page 5 of this report. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
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Table of ContentsPART I
SELECTED FINANCIAL DATA The Israeli Securities Law allows Israeli companies, such as Teva, whose securities are listed both on the Tel Aviv Stock Exchange and on certain stock exchanges in the U.S. (including NASDAQ), to report exclusively under the rules of the SEC and generally accepted accounting principles in the United States (“U.S. GAAP”). Except as otherwise indicated, all financial statements and other financial information included in this annual report are presented solely under U.S. GAAP. The following selected operating data for each of the years in the three-year period ended December 31, 2010 and selected balance sheet data at December 31, 2010 and 2009 are derived from our audited consolidated financial statements set forth elsewhere in this report, which have been prepared in accordance with U.S. GAAP. The selected operating data for each of the years in the two-year period ended December 31, 2007 and selected balance sheet data at December 31, 2008, 2007 and 2006 are derived from our audited financial statements not appearing in this report, which have also been prepared in accordance with U.S. GAAP. The selected financial data should be read in conjunction with the financial statements, related notes and other financial information included in this report. The currency of the primary economic environment in which our operations in Israel and the United States are conducted is the U.S. dollar. The functional currency of most of our other subsidiaries (principally operating in Western Europe, Central and Eastern Europe, Latin America and Canada) is the respective local currency.
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Table of ContentsOperating Data
Balance Sheet Data
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Table of ContentsDividends We have paid dividends on a regular quarterly basis since 1986. Future dividend policy will be reviewed by the Board of Directors based upon conditions then existing, including our earnings, financial condition, capital requirements and other factors. Our ability to pay cash dividends may be restricted by instruments governing our debt obligations. Dividends are declared and paid in NIS. Dividends are converted into U.S. dollars and paid by the depositary of our American Depositary Shares (“ADSs”) for the benefit of owners of ADSs, and are subject to exchange rate fluctuations between the NIS and the U.S. dollar between the declaration date and the date of actual payment. Dividends paid by an Israeli company to shareholders residing outside Israel are generally subject to withholding of Israeli income tax at a rate of up to 20%. Such tax rates apply unless a lower rate is provided in a treaty between Israel and the shareholder’s country of residence. In our case, the applicable withholding tax rate will depend on the particular Israeli production facilities that have generated the earnings that are the source of the specific dividend and, accordingly, the applicable rate may change from time to time. No tax will be withheld on the dividend declared for the fourth quarter of 2010. The following table sets forth the amounts of the dividends declared in respect of each period indicated prior to deductions for applicable Israeli withholding taxes (in cents per share).
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Table of ContentsRISK FACTORS Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Forward-Looking Statements” on page 1. Our success depends on our ability to develop and commercialize additional pharmaceutical products. Our financial results depend, to a significant degree, upon our ability to commercialize additional generic and innovative pharmaceutical products, as well as active pharmaceutical ingredients. Commercialization requires that we successfully develop, test and manufacture both generic and innovative products. All of our products must meet, and continue to comply with, regulatory and safety standards as well as receive regulatory approval; if health or safety concerns arise with respect to a product, we may be forced to withdraw it from the market. The development and commercialization process, particularly with respect to innovative products, is both time-consuming and costly and involves a high degree of business risk. Our products currently under development, if and when fully developed and tested, may not perform as we expect. Necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to produce and market such products successfully and profitably. Delays in any part of the process or our inability to obtain regulatory approval of our products could adversely affect our operating results by restricting or delaying our introduction of new products. Our ability to introduce and benefit from new generic products also depends upon our success in challenging patent rights held by third parties or in developing non-infringing products. Due to the emergence and development of competing products over time, our overall profitability depends on, among other things, our ability to introduce new products in a timely manner, to continue to manufacture products cost-efficiently and to manage the life cycle of our product portfolio. Our revenues and profits from generic pharmaceutical products typically decline as a result of competition from both brand and generic pharmaceutical companies and due to increased governmental pricing pressure. Our generic pharmaceutical products face intense competition from brand pharmaceutical companies, which continue to take aggressive steps to thwart competition from generic companies. In particular, brand companies sell or license their own generic versions of their products, either directly or through other generic pharmaceutical companies (so-called “authorized generics”). No significant regulatory approvals are required for authorized generics, and brand companies do not face any other significant barriers to entry into such market. Brand companies also seek to delay introductions of generic equivalents, and to decrease the impact of generic competition, by:
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These actions may increase the costs and risks associated with our efforts to introduce generic products and may delay or prevent such introduction altogether. In addition, prices of generic drugs typically decline, often dramatically, especially as additional generic pharmaceutical companies, both domestic and foreign, receive approvals and enter the market for a given product and competition intensifies. Our ability to sustain our sales and profitability on any product over time is affected by the number of new companies selling such product and the timing of their approvals. In recent years, the rise of low-cost generic pharmaceutical producers based in China and India has increased the level of competition we face. The intense pressure of government authorities, particularly in highly regulated European markets, to lower health care budgets has resulted in lower pharmaceutical pricing, causing lower revenues and profits. Sales of our innovative products, especially Copaxone®, could be adversely affected by competition, including potential generic versions. Our innovative products face or may face intense competition from competitors’ products, which may adversely affect our sales and profitability. Copaxone®, our leading innovative product, was responsible for approximately 18% of our net sales in 2010 and contributed disproportionately to our profits and cash flows. To date, we have been successful in our efforts to establish Copaxone® as the leading therapy for multiple sclerosis and have increased our global market share among the currently available major therapies for multiple sclerosis. However, Copaxone® faces intense competition from existing injectable products, such as Avonex®, Betaseron®, Rebif®, Extavia® and Tysabri®. In addition, competition from the rapidly developing market segment of oral treatments, such as Gilenya®, which was recently introduced by Novartis, is expected to be especially intense in light of the substantial convenience afforded by oral products in comparison to injectables such as Copaxone®. Our patents on Copaxone® have been challenged, and we may face generic competition prior to 2014, when the U.S. Orange Book patents covering Copaxone® would otherwise expire. We also recently received notification of several challenges to our patents covering Azilect®. Thus, we may face generic competition prior to the expiration of the Orange Book patents for these products. The success of Copaxone®, Azilect® and our other innovative products depends substantially on our ability to enforce the patents covering these products. Any substantial decrease in the profits derived from our innovative products would have an adverse effect on our results of operations. We have sold and may elect to sell in the future generic products prior to the final resolution of outstanding patent litigation, and, as a result, we could be subject to liability for damages in the U.S., Europe and other markets where we do business. Our ability to introduce new products depends in large part upon the success of our challenges to patent rights held by brand companies or our ability to develop non-infringing products. Based upon a variety of legal
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Table of Contentsand commercial factors, we may elect to sell a generic product even though patent litigation is still pending, whether before any court decision is rendered or while an appeal of a lower court decision is pending. The outcome of such patent litigation could, in certain cases, materially adversely affect our business. For example, we launched, and continue to sell, generic versions of Neurontin® (gabapentin), Lotrel® (amlodipine benazepril), and Protonix® (pantoprazole), despite the fact that litigation with the companies that sell the brand versions of these products is still pending. Although the case remains on appeal, we received an adverse decision in the pantoprazole litigation in 2010. If we sell products prior to a final court decision either in the U.S. Europe or elsewhere, and such decision is adverse to us, we could be required to cease selling the infringing products, causing us to lose future sales revenue from such products and to face substantial liabilities for patent infringement, in the form of either payment for the innovator’s lost profits or a royalty on our sales of the infringing products. These damages may be significant, and could materially adversely affect our business. In the event of a finding of willful infringement, the damages may be up to three times the profits lost by the patent owner. Because of the discount pricing typically involved with generic pharmaceutical products, patented brand products generally realize a significantly higher profit margin than generic pharmaceutical products. In addition, even if we do not suffer damages, we may incur significant legal and related expenses in the course of successfully defending against infringement claims. Our revenues and profits are closely tied to our ability to obtain U.S. market exclusivity for generic versions of significant products. Our ability to achieve continued sales growth and profitability is dependent on our success in challenging patents, developing non-infringing products or developing products with increased complexity to provide launch opportunities with U.S. market exclusivity or limited competition. The failure to continue to develop such opportunities could have a material adverse effect on our sales and profitability. To the extent that we succeed in being the first to market a generic version of a significant product, and particularly if we are the only company authorized to sell during the 180-day period of exclusivity in the U.S. market provided under the Hatch-Waxman Act, our 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. For example, our 2010 operating results included contributions from products launched with U.S. market exclusivity, or with otherwise limited competition, such as venlafaxine, losartan and amlodipine benazepril. Even after the exclusivity period ends, we frequently benefit from the continuing effect of being the first generic in the market. The number of significant new generic products for which Hatch-Waxman exclusivity is available, and the size of those product opportunities, vary significantly from year to year, or even from quarter to quarter, and is expected to decrease over the next several years in comparison to those available in the past. Additionally we increasingly share the 180-day exclusivity period with other generic competitors, which diminishes the commercial value of the exclusivity. The 180-day market exclusivity period is triggered by commercial marketing of the generic product or, in certain cases, can be triggered by a final court decision that is no longer subject to appeal holding the applicable patents to be invalid, unenforceable or not infringed. However, the exclusivity period can be forfeited by our failure to launch a product following such a court decision. The Hatch-Waxman Act also contains other forfeiture provisions that may deprive the first “Paragraph IV” filer of exclusivity if certain conditions are met, some of which may be outside our control. Accordingly, we may face the risk that our exclusivity period is triggered or forfeited before we are able to commercialize a product and therefore may not be able to exploit a given exclusivity period for specific products.
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Table of ContentsManufacturing or quality control problems may damage our reputation for high quality production, demand costly remedial activities and negatively impact our financial results. We must register our facilities, whether located in the U.S. or elsewhere, with the FDA and similar regulators and our products must be made in a manner consistent with current good manufacturing practices (“cGMP”), or similar standards in each territory in which we manufacture. In addition, the FDA and other agencies periodically inspect our manufacturing facilities. Following an inspection, an agency may issue a notice listing conditions that are believed to violate cGMP or other regulations, or a warning letter for violations of “regulatory significance” that may result in enforcement action if not promptly and adequately corrected. Recently, there has been increasing regulatory scrutiny of pharmaceutical manufacturers, resulting in product recalls, plant shutdowns and other required remedial actions. Our U.S. injectable products facility and animal health facilities have been the subject of recent regulatory action, requiring substantial expenditures of resources to ensure compliance with more stringently applied production and quality control regulations. In addition, we recently received a warning letter from the FDA relating to our oral solid dose facility in Jerusalem. If any regulatory body were to require one or more of our significant manufacturing facilities, such as the Jerusalem site, to cease or limit production, our business could be adversely affected. In addition, because regulatory approval to manufacture a drug is site-specific, the delay and cost of remedial actions, or obtaining approval to manufacture at a different facility also could have a material adverse effect on our business, financial position and results of operations. We may not be able to find or successfully bid for suitable acquisition targets, or consummate and integrate future acquisitions. A core part of our strategy has been, and remains, growth through acquisitions. For example, we acquired the ratiopharm-Merckle Group in August 2010, Barr Pharmaceuticals, Inc. in December 2008, IVAX Corporation in January 2006 and Sicor Inc. in January 2004, among others. We continue to be engaged in various stages of evaluating or pursuing potential acquisitions and may in the future acquire other pharmaceutical businesses and seek to integrate them into our own operations. As part of our strategy, we also seek to enter into joint ventures with third parties. We cannot assure you that we will be successful in entering into these joint ventures or that they will achieve the expected results. Our reliance on acquisitions as a means of growth involves risks that could adversely affect our future revenues and operating results. For example:
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Research and development efforts invested in our innovative pipeline may not achieve expected results. We invest increasingly greater resources to develop our innovative pipeline, both through our own efforts and through collaborations, in-licensing and acquisition of products from or with third parties. The development of innovative drugs involves different processes and expertise than we have historically relied upon in the development of generic drugs, which increases the risks of failure that we face. For example, the time from discovery to a possible commercial launch of an innovative product is substantial and involves multiple stages during which the product may be abandoned as a result of such factors as serious developmental problems, the inability to achieve our clinical goals, the inability to obtain necessary regulatory approvals in a timely manner, if at all, and the inability to produce and market such innovative products successfully and profitably. Because of the amounts required to be invested in augmenting our innovative pipeline, we are increasingly reliant on partnerships and joint ventures with third parties, and consequently face the risk that some of these third parties may fail to perform their obligations, or fail to reach the levels of success that we are relying on to meet our revenue and profit goals. There is a trend in the innovative pharmaceutical industry of seeking to effectively “outsource” drug development by acquiring companies with promising drug candidates, and we face substantial competition from historically innovative companies for such acquisition targets. Accordingly, our investment in research and development of innovative products can involve significant costs with no assurances of future revenues or profits. The success of our innovative products depends on the effectiveness of our patents, confidentiality agreements and other measures to protect our intellectual property rights. The success of our innovative products depends, in part, on our ability to obtain patents and to defend our intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market products identical or similar to ours. We have been issued numerous patents covering our innovative products, and have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may be challenged or circumvented by competitors. In addition, such patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products, especially Copaxone®, our leading innovative product, which, as described above, is currently facing patent challenges. We also rely on trade secrets, unpatented proprietary know-how, trademarks, data exclusivity and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. If these agreements are breached, it is possible that we will not have adequate remedies. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors or we may not be able to maintain the confidentiality of information relating to such products. Our specialty pharmaceuticals businesses face intense competition from companies that have greater resources and capabilities. As our business continues to evolve beyond generic pharmaceuticals, we face intense competition in our respiratory and women’s health specialty businesses, which contributed significantly to our revenues and profits in 2010 and which we have targeted for significant growth by 2015. Our competitors in these product categories typically have substantially greater experience in the marketing and sale of branded, innovative and consumer-oriented products. They may be able to respond more quickly to new or emerging market preferences or to
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Table of Contentsdevote greater resources to the development and marketing of new products and/or technologies than we can. As a result, any products and/or innovations that we develop may become obsolete or noncompetitive before we can recover the expenses incurred in connection with their development. In addition, for these product categories we must demonstrate to physicians, patients and third-party payors the benefits of our products relative to competing products that are often more familiar or otherwise more well-established. If competitors introduce new products or new variations on their existing products, our marketed products, even those protected by patents, may be replaced in the marketplace or we may be required to lower our prices. In addition, our increasing focus on innovative and specialty pharmaceuticals requires much greater use of a direct sales force than does our core generic business. Our ability to realize significant revenues from direct marketing and sales activities depends on our ability to attract and retain qualified sales personnel. Competition for qualified sales personnel is intense. We may also need to enter into co-promotion, contract sales force or other such arrangements with third parties, for example, where our own direct sales force is not large enough or sufficiently well-aligned to achieve maximum penetration in the market. Any failure to attract or retain qualified sales personnel or to enter into third-party arrangements on favorable terms could prevent us from successfully maintaining current sales levels or commercializing new innovative and specialty products. Regulations to permit the sale of biotechnology-based products as biosimilar drugs, primarily in the U.S., may be delayed, or may otherwise jeopardize our investment in such products. We have made, and expect to continue to make, substantial investments in our ability to develop and produce biotechnology-based products, which require significantly greater early-stage financial commitments than “small-molecule” generic product development. Although some of these products may be sold as innovative products, one of our key strategic goals in making these investments is to position Teva at the forefront of the development of biosimilar generic versions of currently marketed biotechnology products. To date, in many markets, there does not yet exist a legislative or regulatory pathway for the registration and approval of such “biogeneric” products. Significant delays in the development of such pathways, or significant impediments that may be built into such pathways, could diminish the value of the investments that we have made and will continue to make in our biotechnology capabilities. For example, in the healthcare reform legislation recently adopted in the U.S., biosimilar products may not be approved for twelve years following approval of the branded biotechnology product. As a result, generic competition may be delayed significantly, adversely affecting our ability to develop a successful biosimilars business. The FDA is in the process of establishing regulations relating to biosimilars to implement the new healthcare legislation. These regulations, when ultimately adopted, could further complicate the process of bringing biosimilar products to market on a timely basis and could thus adversely affect our ability to develop a successful biosimilars business. We may be susceptible to product liability claims that are not covered by insurance. Our business inherently exposes us to claims for injuries allegedly resulting from the use of our products. As we continue to expand our portfolio of available products (including products sold by companies we have acquired), we have experienced a significant increase in both the number of product liability claims asserted against us and the number of products attracting personal injury claims, and we expect that trend to continue. In 2010, a jury awarded damages in excess of $500 million against us and our distributor in a case involving our propofol product. While we are appealing the ruling, we have been required to post a bond of over $580 million to stay execution of the judgment pending the appeal, which has added to our financing costs. In the event of additional judgments of similar magnitude, our financial results, financial condition and access to sources of liquidity could be materially adversely affected. Moreover, we sell, and will continue to sell, certain pharmaceutical products that are not covered by insurance. In addition, products for which we currently have coverage may be excluded from coverage in the future. Certain claims may be subject to our self-insured retention, exceed our policy limits or relate to damages that are not covered by our policy. Because of the nature of these claims, we are generally not permitted under
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Table of ContentsU.S. GAAP to establish reserves in our accounts for such contingencies. Product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain and, as a result, we may not be able to obtain the type and amount of coverage we desire or to maintain our current coverage. Any failure to comply with the complex reporting and payment obligations under the Medicare and Medicaid programs may result in further litigation or sanctions, in addition to the lawsuits that we have previously announced. The U.S. laws and regulations regarding reporting and payment obligations with respect to Medicare and/or Medicaid reimbursement and rebates and other governmental programs are complex. Some of the applicable laws may impose liability even in the absence of specific intent to defraud. The subjective decisions and complex methodologies used in making calculations under these programs are subject to review and challenge by the government, and it is possible that such reviews could result in material changes. A number of state attorneys general, as well as state and federal government agencies, have filed lawsuits alleging that we and other pharmaceutical companies reported inflated average wholesale prices, leading to excessive payments by Medicare and/or Medicaid for prescription drugs. Such allegations could, if proven or settled, result in civil and/or criminal sanctions, including treble damages, civil monetary penalties and possible exclusion from Medicare, Medicaid and other programs. In addition, we are notified from time to time of government investigations regarding drug reimbursement or pricing issues. Although we have recorded reserves related to certain lawsuits based on our estimates of probable future costs, there is no guarantee that such lawsuits will not result in substantial further costs. Because we have substantial international operations, our sales and profits may be adversely affected by currency fluctuations and restrictions as well as credit risks. Over 35% of our revenues comes from sales outside of the U.S., a percentage we expect to increase as we expand our non-U.S. operations. As a result, we are subject to significant foreign currency risks, including repatriation restrictions in certain countries. An increasing amount of our sales, particularly in Latin America and Central and Eastern European countries, is recorded in local currencies, which exposes us to the direct risk of devaluations, hyperinflation or exchange rate fluctuations. We may also be exposed to credit risks in some of these markets. The imposition of price controls or restrictions on the conversion of foreign currencies could also have a material adverse effect on our financial results. In particular, although the majority of our net sales and operating costs is recorded in, or linked to, the U.S. dollar, our reporting currency, in 2010 we recorded sales and expenses in over 30 other currencies. Approximately 60% of our operating costs in 2010 was incurred in currencies other than the U.S. dollar, particularly in euros, Israeli shekels, Hungarian forints, Canadian dollars and the British pound. As a result, fluctuations in exchange rates between the currencies in which such costs are incurred and the U.S. dollar may have a material adverse effect on our results of operations, the value of balance sheet items denominated in foreign currencies and our financial condition. We use derivative financial instruments to manage some of our net exposure to currency exchange rate fluctuations in the major foreign currencies in which we operate. We do not use derivative financial instruments or other “hedging” techniques to cover all of our potential exposure, and some elements of our financial statements, such as our equity position or operating profit, are not fully protected against foreign currency exposures. Therefore, we cannot assure you that we will be able to limit all of our exposure to exchange rate fluctuations that could affect our financial results. Reforms in healthcare regulation and the uncertainty associated with pharmaceutical pricing, reimbursement and related matters could adversely affect the marketing, pricing and demand for our products. Increasing expenditures for healthcare have been the subject of considerable public attention almost everywhere we conduct business, particularly as government revenues have decreased in recent years. Both
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Table of Contentsprivate and governmental entities are seeking ways to reduce or contain healthcare costs. In many countries and regions where we operate, including the U.S., Western Europe, Israel, Russia, certain countries in Central and Eastern Europe and several countries in Latin America, pharmaceutical prices are subject to new government policies. These changes may cause delays in market entry or adversely affect pricing and profitability. We cannot predict which measures may be adopted or their impact on the marketing, pricing and demand for our products. A number of markets in which we operate have implemented “tender systems” for generic pharmaceuticals in an effort to lower prices. Under such tender systems, manufacturers submit bids which establish prices for generic pharmaceutical products. The measure is impacting marketing practices and reimbursement of drugs and may further increase pressure on competition and reimbursement margins. Certain other countries may consider the implementation of a tender system. Failing to win tenders, or the implementation of similar systems in other markets leading to further price declines, could have a material adverse affect on our business, financial position and results of operations. We have significant operations in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism. We are a global pharmaceutical company with worldwide operations. Although over 85% of our sales are in North America and Western Europe, we expect to derive an increasing portion of our sales and future growth from other regions such as Latin America and Central and Eastern Europe, which may be more susceptible to political or economic instability. Significant portions of our operations are conducted outside the markets in which our products are sold, and accordingly we often import a substantial number of products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability to ship products from any of our sites as a result of a closing of the borders of the countries in which we sell our products, or in which our operations are located, due to economic, legislative, political and military conditions, including hostilities and acts of terror, in such countries. Our executive offices and a substantial percentage of our manufacturing capabilities are located in Israel. Our Israeli operations are dependent upon materials imported from outside Israel. We also export significant amounts of products from Israel. Accordingly, our operations could be materially and adversely affected by acts of terrorism or if major hostilities were to occur in the Middle East or trade between Israel and its present trading partners were curtailed, including as a result of acts of terrorism in the U.S. or elsewhere. Our agreements with brand pharmaceutical companies, which are important to our business, are facing increased government scrutiny in both the U.S. and Europe. We are involved in numerous patent litigations in which we challenge the validity or enforceability of innovator companies’ listed patents and/or their applicability to our products, and therefore settling patent litigations has been and is likely to continue to be an important part of our business. Parties to such settlement agreements in the U.S., including us, are required by law to file them with the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) for review. The FTC has publicly stated that, in its view, some of the brand—generic settlement agreements violate the antitrust laws and has brought actions against some brand and generic companies that have entered into such agreements. Accordingly, we may receive formal or informal requests from the FTC for information about a particular settlement agreement, and there is a risk that the FTC may commence an action against us alleging violation of the antitrust laws. Similarly, the EU Commission has recently placed our European operations, as well as those of several brand and generic companies, under intense scrutiny in connection with its inquiry into possible anticompetitive conditions in the European pharmaceutical sector. Beginning in January 2008 and continuing through 2010, for example, the EU Commission has conducted high-profile, unannounced raids on our European offices and those
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Table of Contentsof many of our brand and generic competitors. In its July 2009 report, the EU Commission found that between 2000 and 2007, generic medicines did not reach the market on average until seven months after expiration of the relevant patent, and it has asserted that the delays were due to settlement agreements with generic companies that delayed entry of generic competition. The EU Commission is currently reviewing over 200 such settlement agreements for evidence of anticompetitive practices, including several agreements to which we are a party. There is a risk that the increased scrutiny of the European pharmaceutical sector may lead to changes in the regulation of our business that would have an adverse impact on our results of operations in Europe. The manufacture of our products is highly complex, and an interruption in our supply chain or problems with internal or third party information technology systems could adversely affect our results of operations. Our products are either manufactured at our own facilities or obtained through supply agreements with third parties. Many of our products are the result of complex manufacturing processes, and some require highly specialized raw materials. For some of our key raw materials, we have only a single, external source of supply, and alternate sources of supply may not be readily available. For example, we purchase raw materials for most of our oral contraceptive products, which make up a substantial portion of our women’s health business, exclusively or primarily from the same external source. If our supply of certain raw materials or finished products is interrupted from time to time, or proves insufficient to meet demand, our results of operations could be adversely impacted. We also rely on complex shipping arrangements throughout the various facilities of our supply chain spectrum. Customs clearance and shipping by land, air or sea routes rely on and may be affected by factors that are not in our full control or are hard to predict. In addition, we rely on complex information technology systems, including Internet-based systems, to support our supply-chain processes as well as internal and external communications. The size and complexity of our systems make them potentially vulnerable to breakdown or interruption, whether due to computer viruses or other causes that may result in the loss of key information or the impairment of production and other supply chain processes. Such disruptions and breaches of security could adversely affect our business. Sales of our products may be adversely affected by the continuing consolidation of our customer base. A significant proportion of our sales is made to relatively few U.S. retail drug chains, wholesalers, managed care purchasing organizations, mail order distributors and hospitals. These customers are continuing to undergo significant consolidation. Net sales to one such customer in 2010 accounted for 16% of our total consolidated sales. Such consolidation has provided and may continue to provide them with additional purchasing leverage, and consequently may increase the pricing pressures that we face. Additionally, the emergence of large buying groups representing independent retail pharmacies, and the prevalence and influence of managed care organizations and similar institutions, enable those groups to extract price discounts on our products. Our net sales and quarterly growth comparisons may also be affected by fluctuations in the buying patterns of retail chains, major distributors and other trade buyers, whether resulting from seasonality, pricing, wholesaler buying decisions or other factors. In addition, since such a significant portion of our U.S. revenues is derived from relatively few customers, any financial difficulties experienced by a single customer, or any delay in receiving payments from a single customer, could have a material adverse effect on our business, financial condition and results of operations. We are subject to government regulation that increases our costs and could prevent us from marketing or selling our products. The pharmaceutical industry is subject to regulation by various governmental authorities. For instance, we must comply with requirements of the FDA and other national healthcare regulators with respect to the manufacture, labeling, sale, distribution, marketing, advertising, promotion and development of pharmaceutical
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Table of Contentsproducts. Failure to comply with these requirements may lead to financial penalties, compliance expenditures, the recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the applicable regulator’s review of our submissions, enforcement actions, injunctions and criminal prosecution. Heightened regulatory scrutiny in recent years has resulted in substantial additional compliance costs. Under certain circumstances, regulators may also have the authority to revoke previously granted drug approvals. Although we have internal regulatory compliance programs and policies and have had a generally favorable compliance history, there is no guarantee that these programs, as currently designed, will meet regulatory agency standards in the future. Additionally, despite our efforts at compliance, there is no guarantee that we may not be deemed to be noncompliant in some respect in the future. If we were deemed to be significantly noncompliant, our business, financial position and results of operations could be materially affected. We are subject to legislation in Israel relating to patents and data exclusivity, among other things. Modifications of such legislation or court decisions regarding this legislation may adversely affect us and may impact our ability to export Israeli-manufactured products in a timely fashion. Additionally, the existence of third-party patents in Israel, with the attendant risk of litigation, may cause us to move production outside of Israel or otherwise adversely affect our ability to export certain products from Israel. Exports from Europe may similarly be affected by legislation relating to patents and data exclusivity and also by the risk of patent litigation. Currently pending Israeli legislation may effect the duration of data exclusivity provisions as well as patent term extension provisions. The increased amount of intangible assets and goodwill recorded on our balance sheet may lead to significant impairment charges in the future. We regularly review our long-lived assets, including identifiable intangible assets and goodwill, for impairment. Goodwill, trade names and acquired product and marketing rights are subject to impairment review at least annually. In process research and development and other long-lived assets are reviewed when there is an indication that an impairment may have occurred. The amount of goodwill and other intangible assets on our consolidated balance sheet has increased significantly in recent years to $16.7 billion as a result of our recent acquisitions, and may increase further following future acquisitions as a result of changes in U.S. accounting rules regarding the treatment of in-process research and development. Impairment testing under U.S. GAAP may lead to further impairment charges in the future. In addition, we may from time to time sell assets that we determine are not critical to our strategy or execution. Future events or decisions may lead to asset impairments and/or related charges. Certain non-cash impairments may result from a change in our strategic goals, business direction or other factors relating to the overall business environment. Any significant impairment charges could have a material adverse effect on our results of operations. If our intercompany arrangements are challenged and determined to be inappropriate, our tax liabilities could increase. We have potential tax exposures resulting from the varying application of statutes, regulations and interpretations, including exposures with respect to manufacturing, research and development, marketing, sales and distribution functions. Although our arrangements are based on accepted tax standards, tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in such jurisdictions, which may increase our tax liabilities and could have a material adverse effect on the results of our operations. Termination or expiration of governmental programs or tax benefits could adversely affect our overall effective tax rate. Our tax expenses and the resulting effective tax rate reflected in our financial statements are likely to increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the various countries in which we operate or changes in the mix of countries where we generate profit. We have benefited or currently benefit from a variety of Israeli and other government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain such benefits.
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Table of ContentsIf we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received. Additionally, some of these programs and the related tax benefits are available to us for a limited number of years, and these benefits expire from time to time. Any of the following could have a material effect on our overall effective tax rate:
The failure to recruit or retain key personnel, or to attract additional executive and managerial talent, could adversely affect our business. Given the increasing size, complexity and global reach of our business and our multiple areas of focus, each of which would be a significant stand-alone company, we are especially reliant upon our ability to recruit and retain highly qualified management and other employees. In addition, the success of our research and development activities depends on our ability to attract and retain sufficient numbers of skilled scientific personnel. Any loss of service of key members of our organization, or any diminution in our ability to continue to attract high-quality employees, may delay or prevent the achievement of major business objectives. Our failure to comply with applicable environmental laws and regulations worldwide could adversely impact our business and results of operations. We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, storage, use and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, we are exposed to risks relating to possible releases of hazardous substances into the environment, which could cause environmental or property damage or personal injuries, and which could require remediation of contaminated soil and groundwater. Under certain laws, we may be required to remediate contamination at certain of our properties, regardless of whether the contamination was caused by us or by previous occupants of the property.
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Introduction Teva Pharmaceutical Industries Limited (“Teva”) is a global pharmaceutical company that develops, produces and markets generic drugs in all major therapeutic categories. We are the leading generic drug company in the world – with the leading position in the U.S. (in terms of both value and volume) as well as in Europe (in terms of value). While our core business is generic pharmaceuticals, approximately 30% of our sales are generated from innovative and branded drugs, which include Copaxone® for multiple sclerosis and Azilect® for Parkinson’s disease as well as biosimilars, respiratory and women’s health products. Our active pharmaceutical ingredient (“API”) manufacturing capabilities enable our own pharmaceutical production to be significantly vertically integrated. Our global presence ranges from North and Latin America to Europe and Asia. We currently have direct operations in approximately 60 countries including 40 finished dosage pharmaceutical manufacturing sites in 19 countries, 28 pharmaceutical R&D centers and 21 API manufacturing sites. In 2010, we generated approximately 60% of our sales in North America, approximately 25% in Europe (which for the purpose of this report includes all European Union (“EU”) member states and other Western European countries) and approximately 15% in other regions (primarily Latin America, Israel, Russia and other Eastern European countries that are not members of the EU). For a three-year breakdown of our sales by product line and by geography, see “Item 5: Operating and Financial Review and Prospects—Results of Operations—Sales.” Teva was incorporated in Israel on February 13, 1944, and is the successor to a number of Israeli corporations, the oldest of which was established in 1901. Our executive offices are located at 5 Basel Street, P.O. Box 3190, Petach Tikva 49131, Israel, and our telephone number is +972-3-926-7267. Our website is www.tevapharm.com. Strategy In January 2010, we announced our goals of generating revenues of $31 billion and non-GAAP net income of $6.8 billion by 2015. The core elements of our strategy to reach those goals include:
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Our strategy is designed to reinforce our balanced business model by diversifying our sources of revenue so that we are not dependent on any single market or product. While we expect generic pharmaceuticals to remain our main business, we continue to seek greater geographical diversity, with European and international markets comprising a greater portion of our revenues, as well as to increase the number of marketed products in our branded portfolio. During the past year and in early 2011, among the important steps we took to advance our long-term goals were the acquisitions of ratiopharm, Théramex and Corporación Infarmasa. In August 2010, we completed the acquisition of ratiopharm, Germany’s second-largest generic pharmaceutical producer and the sixth-largest generic drug company worldwide. As a result, we became the number two generic pharmaceutical company in Germany, the world’s second largest generic drug market. We also became the leading generic pharmaceutical company in Europe, significantly expanding our European footprint by achieving or holding the leading market position in such key countries as the U.K., Hungary, Italy, Spain, Portugal and the Netherlands, as well as a top three ranking in seven additional countries, including Germany, Poland, France and the Czech Republic. In addition, the acquisition significantly increased our sales in Canada. With ratiopharm, we also gained valuable know-how in biosimilars, including a number of products in advanced stages of development, and a well-established sales and marketing team. In an effort to expand our proprietary portfolio in the field of women’s health, we acquired Laboratoire Théramex from Merck KGaA. The acquisition was announced in October 2010 and was completed in January 2011. Theramex’s product portfolio includes a wide variety of women’s health products sold in over 50 countries, including gynecology, osteoporosis, peri-menopause, menopause and contraceptive products. The acquisition provides us with a strong platform to expand our women’s health product offerings into Europe, as approximately 70% of Theramex’s revenues are derived from direct sales in France and Italy. As part of the acquisition, Teva also acquired the distribution rights of Théramex’s products in important growth markets such as Spain and Brazil. In January 2011, we acquired Corporación Infarmasa, a top ten pharmaceutical company in Peru, which develops, manufactures and commercializes over 500 branded and unbranded generic drugs. Following the acquisition, we became one of the top two pharmaceutical companies in Peru and substantially enhanced our product offerings, especially in the area of antibiotics.
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Table of ContentsGeneric pharmaceuticals are the chemical and therapeutic equivalents of originator pharmaceuticals and are typically sold at prices substantially below those of the originator’s product. Generics are required to meet similar governmental regulations as their brand-name equivalents offered or sold by the originator and must receive regulatory approval prior to their sale in any given country. For example, in the U.S., the world’s largest generic market, generic pharmaceuticals may be manufactured and marketed if relevant patents on their brand-name equivalents (and any additional government-mandated market exclusivity periods) have expired or have been challenged and invalidated or otherwise legally circumvented. In markets such as the U.S., the U.K., the Netherlands and Israel, generic pharmaceuticals are prescribed under their active ingredients or INN (International Nonproprietary Names) and are typically substituted by the pharmacist with their generic equivalent. In these so called “pure generic” markets, physicians or patients have little control or say over the choice of generic manufacturer; generic drugs are not actively marketed or promoted to physicians and the relationship between the generic manufacturer and the pharmacy chains and/or distributors is critical. In markets such as Poland, Austria and Hungary as well as some Latin American countries, generics are sold under brand names, alongside the originator brand. In these markets, pharmacists typically dispense only the specific pharmaceutical product prescribed by the physician and substitution between originator brand and/or generic manufacturers is not permitted without the physician’s consent. In these markets, generic products are actively promoted and the existence of a sales force is necessary. Germany, France, Italy and Spain are hybrid markets with elements of both approaches. Sales of generic pharmaceuticals have benefited from increasing awareness and acceptance on the part of healthcare insurers and institutions, consumers, physicians and pharmacists globally. Factors contributing to this increased awareness are the passage of legislation permitting or encouraging substitution and the publication by regulatory authorities of lists of equivalent pharmaceuticals, which provide physicians and pharmacists with generic alternatives. In addition, various government agencies and many private managed care or insurance programs encourage the substitution of generics for brand-name pharmaceuticals as a cost-savings measure in the purchase of, or reimbursement for, prescription pharmaceuticals. We believe that these factors, together with an aging population and an increased focus on decreasing healthcare costs, as well as the large number of branded products losing patent protection over the coming years, should lead to continued expansion of the generic pharmaceuticals market. Through coordinated global research and development activities, we constantly seek to expand our range of generic products, with an emphasis on high-value products, including those with high barriers to entry. Our generic product development strategy is two-fold: to be first to introduce generic products to market and to achieve market introduction at the earliest possible date, which may involve attempting to invalidate or otherwise legally circumvent existing patents. We actively review pharmaceutical patents and seek opportunities to challenge those patents that we believe are either invalid or would not be infringed by a generic version. In furtherance of this strategy, we also seek to enter into alliances to acquire rights to products we do not have or to otherwise share development costs or litigation risks, or to resolve patent barriers to entry. We manufacture and sell generic pharmaceutical products in a variety of dosage forms, including tablets, capsules, ointments, creams, liquids, injectables and inhalants. We also continue to focus on sales of generic injectable products to hospitals, clinics and other institutional channels, mostly in the U.S. and Europe, but also in Latin America and Eastern Europe. Our competencies in the development and manufacturing of sterile products and our efficient global supply chain permit us to offer a wide range of oncology products, with different therapeutic mechanisms, in both parenteral and solid dosage forms.
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Table of ContentsBelow is a summary of our activities in North American, European and international generic markets: North America United States. We are the leading generic drug company in the U.S. We market over 400 generic products in more than 1,300 dosage strengths and packaging sizes. We also have the capability to formulate, fill, label and package finished dosage forms of injectable pharmaceutical products. We believe that the breadth of our product offerings has been and will continue to be of strategic significance as the generics industry grows and as consolidation continues among purchasers, including large drugstore chains, wholesaling organizations, buying groups and managed care providers. In 2010, we enhanced our position as the U.S. generic market leader in total prescriptions and new prescriptions, with total prescriptions increasing from approximately 599 million in 2009 to approximately 611 million in 2010, representing 21.1% of total U.S. generic prescriptions. We expect that our U.S. market leadership will continue to increase as a result of our ability to introduce new generic equivalents for brand-name products on a timely basis, emphasis on customer service, the breadth of our product line, our commitment to regulatory compliance and our cost-effective production. Products. In 2010, we launched 18 generic versions of the following branded products in the U.S. (listed by date of launch):
The FDA requires companies to submit abbreviated new drug applications (ANDAs) for approval to manufacture and market generic forms of brand-name drugs. In most instances, FDA approval is granted upon the expiration of the underlying patents. However, companies may be rewarded with a 180-day period of marketing exclusivity, as provided by law, for being the first generic applicant to successfully challenge these patents. As part of our strategy, we actively review pharmaceutical patents and seek opportunities to challenge
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Table of Contentspatents that we believe are either invalid or not infringed by our generic version. In addition to the commercial benefit of obtaining marketing exclusivity, we believe that our patent challenges ultimately improve healthcare by allowing consumers earlier access to more affordable, high-quality medications. In 2010 we received, in addition to 21 final generic drug approvals, 14 tentative approvals. A “tentative approval” letter indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a 30-month regulatory stay lapses or a 180-day exclusivity period awarded to another manufacturer either expires or is forfeited. The 14 tentative approvals received were for generic equivalents of the following products:
We expect that our revenue stream in North America will continue to be fueled by our strong U.S. generic pipeline, which, as of February 5, 2011, had 206 product registrations awaiting FDA approval (including some products through strategic partnerships), including 44 tentative approvals. Collectively, the branded versions of these 206 products had U.S. sales in 2010 exceeding $121 billion. Of these applications, 134 were “Paragraph IV” applications challenging patents of branded products. We believe we are the first to file with respect to 80 of these products, the branded versions of which had U.S. sales of more than $55 billion in 2010. IMS reported brand sales are one of the many indicators of future potential value of a launch, but equally important are the mix and timing of competition, as well as cost effectiveness. However, potential advantages of being the first filer with respect to some of these products may be subject to forfeiture and or shared exclusivity. Patent Litigation Settlements. From time to time we enter into agreements settling patent litigation with brand companies. We believe that these agreements benefit both U.S. consumers, by accelerating the introduction and increasing the availability of our lower cost generic products, and us, by removing uncertainty regarding possible litigation risks. We will continue to evaluate any potential future settlements on a case-by-case basis. Collaborations. As part of our strategy to bring generic versions to market as early as possible, we seek to enter into alliances with partners to acquire rights to products we do not have, to share development costs or litigation risks, and/or to resolve patent barriers to entry. Described below are certain alliances that provide significant current contributions to our generic product offerings. In 1997, we entered into a marketing and product development agreement with Biovail Corporation that provided us with exclusive U.S. marketing rights for certain of Biovail’s pipeline of controlled-release generic versions of successful brands. Under this agreement, which expires in 2011, we currently market generic versions of Cardizem® CD (diltiazem HCl), Adalat® CC (nifedipine) and Procardia XL® (nifedipine XL) in the U.S. We have also entered into a long-term supply agreement under which Biovail purchases active pharmaceutical ingredients from us.
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Table of ContentsIn 2001, we entered into a strategic alliance agreement for twelve controlled-release generic pharmaceutical products with Impax Laboratories, Inc. The agreement grants us exclusive U.S. marketing rights and an option to acquire exclusive marketing rights in the rest of North America, Latin America, Europe and Israel. In 2002, we exercised our option with respect to certain products in Canada. Under this agreement, we currently market generic versions of Wellbutrin SR® (bupropion) tablets, Zyban® (bupropion) tablets, Ditropan XL® (oxybutynin), and Wellbutrin XL® (bupropion XL) tablets. Marketing and Sales. In 2010, our generics sales in the U.S. by channel were as follows:
Our sales organization consists of the Teva Generics group and the Teva Health Systems group. The Teva Generics sales force calls on purchasing agents for chain drug stores, drug wholesalers, health maintenance organizations, mail order pharmacies, pharmacy buying groups and nursing homes. The Health Systems group handles unit dose products and finished-dosage injectable pharmaceutical products that are used primarily in institutional settings. It focuses on the injectable pharmaceutical market and key institutional accounts, including hospitals and clinics for critical care, government systems, hospital group purchasing organizations, managed care groups and other large healthcare purchasing organizations. In the U.S., our wholesale selling efforts are supported by professional journal advertising and exhibitions at key medical and pharmaceutical conventions. From time to time, we also bid for U.S. government-tendered contracts. Competitive Landscape. In the U.S. we are subject to intense competition in the generic drug market from other domestic and foreign generic drug manufacturers, brand-name pharmaceutical companies through authorized generics, existing brand equivalents and manufacturers of therapeutically similar drugs. We believe that our primary competitive advantages are our ability to continually introduce new generic equivalents for brand-name drug products on a timely basis, quality and cost-effective production, our customer service and the breadth of our product line. A significant proportion of our U.S. generic sales are made to a relatively small number of retail drug chains and drug wholesalers. These customers have undergone and continue to undergo significant consolidation, which has resulted in customers gaining more purchasing power. Consequently, there is heightened competition among generic drug producers for the business in this smaller and more selective customer base. On the other hand, this trend provides a competitive advantage to large suppliers that are capable of providing quality, cost efficient quantities of products. Price competition from additional generic versions of the same product typically results in significant reductions in sales and margins over time. To compete on the basis of price and remain profitable, a generic drug manufacturer must manufacture its products in a cost-efficient manner. In addition, our competitors may develop their products more rapidly or complete the regulatory approval process sooner, and therefore market their products earlier, thereby gain a first mover advantage in establishing market share. New drugs and future developments in improved and/or advanced drug delivery technologies or other therapeutic techniques may provide therapeutic or cost advantages to competing products.
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Table of ContentsMany brand competitors try to prevent or delay approval of generic equivalents through several tactics, including legislative initiatives (e.g., pediatric exclusivity), extending patent protection, changing dosage form or dosing regimens prior to the expiration of a patent, regulatory processes, including citizens’ petitions, negative public relations campaigns and alliances with managed care companies and insurers to reduce prices and economic incentives to purchase generic pharmaceuticals. In addition, brand companies sometimes launch, either through an affiliate or through licensing arrangements with another company, an authorized generic concurrent with the first generic launch, so that the patent challenger no longer has the full exclusivity granted by the Hatch-Waxman Act. Canada. Through Teva Canada Limited (formerly known as Novopharm Limited), our Canadian subsidiary, we manufacture and market generic prescription pharmaceuticals in Canada. With the acquisition of ratiopharm, we are now the leading generic pharmaceutical company in Canada in terms of value. Our generic product portfolio includes 290 generic products in 1,100 dosage forms and packaging sizes. In 2010, we launched generic equivalents of the following branded products: Concerta™ ER, Actonel®, Zyprex®, Zydis®, Proscar®, Femara®, Lipitor® and Xatral®. The Therapeutic Products Directorate of Health Canada requires companies to make an abbreviated new drug submission in order to receive approval to manufacture and market generic pharmaceuticals. In Canada, as of December 31, 2010, we had 73 product registrations awaiting approval by the Therapeutic Products Directorate of Health Canada. Collectively, the branded versions of these products had Canadian sales in 2010 of approximately U.S. $3.5 billion. Our sales force in Canada markets generic products to retail chains, retail buying groups and independent pharmacies—reaching approximately 8,200 outlets. Canada continues to see consolidation of independent retail pharmacies and increased expansion of retail chains and buying groups: the top five retail chain customers in Canada represent approximately half the market (in terms of value). Competitive Landscape. In Canada, the competitive landscape continues to intensify with the increasing presence of foreign competitors. Four major generic drug manufacturers (including Teva Canada), all of which are subsidiaries or divisions of global manufacturers, satisfy approximately 80% of the Canadian demand for generic pharmaceuticals. The customer base for Teva Canada continues to change as the number of independent community pharmacies decreases at the expense of chain drug and aligned store groups, which work closely with selected suppliers for specific products as well as increased government regulation on pricing. These larger customers look to generic suppliers to timely launch cost-effective generic products, maintain high levels of product availability and provide increased levels of overall customer value and service. Europe With our 2010 acquisition of ratiopharm, we are now the leading generic pharmaceutical company in Europe, which includes Germany, the world’s second largest market for generic drugs, and growing generic markets such as France, Italy and Spain. The ratiopharm acquisition also expanded our product portfolio and manufacturing capabilities across the region. We have direct operations in 27 EU member states as well as in Norway and in Switzerland. We are the leading generic pharmaceutical company in 10 European countries, including the U.K., Italy, Spain, the Netherlands, Portugal and Hungary, and are in the top three in seven other countries, including Germany, France, Poland and the Czech Republic. Our primary strategic objective in Europe is to extend and secure our leadership position. We expect to continue to register a broad portfolio of generic products, expand our customer base, capitalize on pro-generic governmental reforms and, where appropriate, pursue strategic acquisitions and alliances.
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Table of ContentsThe European generic market is diverse. Regulatory regimes, pricing and reimbursement policies, competitive conditions and generic penetration vary substantially from country to country. Some European countries, such as Germany, the U.K., the Netherlands, Poland and the Czech Republic, are characterized by relatively high generic penetration of over 50% in volume. Other major markets like France, Italy, Spain and Austria have low generic penetration of 25% or less in volume. Measures introduced in several countries such as Spain and Portugal have increased generic penetration considerably. In certain European countries, there is a market for both branded generic products as well as products sold under their generic chemical names, while in others there is a market for branded generics only. Some countries, such as the U.K. and the Netherlands (so-called “pure generic” markets), permit substitution by pharmacists of the pharmaceutical product prescribed by the physician with its generic equivalent, while other countries, such as Poland, Austria and Hungary, permit pharmacists to dispense only the specific pharmaceutical product prescribed by doctors. In Germany, France, Italy, Spain and Portugal, as in certain Central and Eastern European countries, the market is a hybrid, with elements of both approaches. In markets such as Germany and the Netherlands, national health insurance funds play an increasingly important role in decision making. In these markets, the health insurance funds determine through tenders the products that are to be preferred for the patients that are insured at the specific fund. In Germany, the retail market covers approximately half of the total German generic market, half of which is subject to tenders issued by health insurance funds. There are also countries with complex systems with more than one decision maker or markets like Spain where the decision mechanisms vary across the different regions within the country. Another difference among the various European markets is the pricing and reimbursement schemes. In many markets such as Spain, Germany, Italy and Finland, pricing systems that define the reimbursement level for prescription pharmaceuticals based on a reference price of comparable pharmaceutical products are in place. Other markets like France and Austria require that the price of a new generic product be a certain percentage lower than the originator brand. In the U.K. the price is set by a scheme based on the pharmacy purchase profit. In Europe, while marketing authorizations for generic products may be obtained through a decentralized mutual recognition procedure, a centralized procedure involving the European Medicines Agency (“EMA”) may also be used, which results in an approval valid in all EU member states. In 2010, we launched 24 generic versions of the following branded products in Europe (listed in order of launch): Hycamtin® (topotecan HCl), Bipreterax® (perindopril/ indapamide), Lercadip® (lercanidipine), Co-Diovan® (valsartan/hydrochlorothiazide), Rebetol® (ribavirin), Cibacen® (benazepril HCl), Cibadrex® (benazepril HCl/HCTZ), Temodal® (temozolomide), Viagra® (sildenafil/ABC), Palladone® (hydromorphone hydrochloride), Merrem® (meropenem), Xalatan® (latanoprost), Cipralex® (escitalopram), Crestor® (rosuvastatin calcium), Art® (diacerein), Nexium® (esomeprazole magnesium dihydrate), Trusopt® (dorzolamide), Taxotere® (docetaxel), Normix® (rifaximin), Differine® (adapalene), Aromasin® (exemestane), Yasmin® (ethinyl estradiol/drospirenone), Toplexil® (oxomemazine) and erythropoietin (marketed by Teva as Eporatio®). As of December 31, 2010, we received 1,846 generic approvals in Europe relating to 196 compounds in 400 formulations, including eight EMA approvals valid in all EU member states. In addition, we have approximately 3,568 marketing authorization applications pending approval in 30 European countries, relating to 290 compounds in 586 formulations, including nine applications pending with the EMA. Our European pipeline includes generic versions of branded products with approximately $94 billion of total annual branded market sales in 2010. Below is a summary of our operations in selected European countries (listed in order of size in terms of market size, largest market first): In Germany, the largest European generic market, we are the second largest generic pharmaceutical company in terms of sales, with a product portfolio that includes 393 generic products sold in approximately 6,170 dosage forms and packaging sizes.
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Table of ContentsThe generic market in Germany consists of different segments: retail, OTC, hospital and off-patent original innovator products. The retail market covers approximately half of the total German generic market, half of which is subject to tenders issued by health insurance funds, which exert downward pressure on generic pricing. Price levels for pharmaceuticals in Germany were negatively impacted by reforms in 2010. For the off patent market, including generic pharmaceuticals, the reimbursement levels were lowered on two occasions to the market average. For innovative brands a mandatory rebate of 16% (which was increased from 6%) was introduced. In addition, a price moratorium for innovative brands was implemented, which rolled back price increases that were made after August 2009. With the addition of ratiopharm, we now have a more diverse portfolio of activities in all segments, and expect to have a stronger position as participants in health insurance tenders. In 2010, we launched 42 new products or new dosage forms, including the generic versions of Hyzaar® (losartan potassium/HCTZ), Palladon® (hydromorphone hydrochloride), Sifrol® (pramipexole dihydrochloride), Actonel® (risedronat), Taxotere® (docetaxel), Nexium® (esomeprazole), Temodal® (temozolomid) and erythropoietin (marketed by Teva as Eporatio®). In France, we are the third largest generic pharmaceutical company in terms of sales, with a portfolio of approximately 230 generic products sold in approximately 580 dosage forms and packaging sizes. The market for generic pharmaceuticals has increased significantly in France in recent years due to legislation adopted by the French government. As a result of the acquisition of ratiopharm, we have the broadest portfolio of generic products in the French generic market. France has become Teva’s second largest generic market in Europe. In 2010, we launched 143 new products or new dosage forms, including the generic versions of Voltaren® (diclofenac), Verboril® (diacerein), Temodal® (temozolomide), Nebilet® (nebivolol), Neupogen® (filgrastim) and erythropoietin (marketed by Teva as Eporatio®). In the United Kingdom, we are the leading generic pharmaceutical company in terms of sales and units, and we are the largest supplier to the National Health Service, which is the sole national insurer. We have a portfolio of more than 750 generic products and maintain the largest sales force in the generic industry, focusing on independent retail pharmacies. The U.K. pharmaceutical market is characterized by a high generic penetration of greater than 60% in terms of volume. The current pricing mechanism for generic products, also known as the ‘category M’ system, has been extended over a period of four years, to end at the end of 2013. The category M system is a complex reimbursement price mechanism for generic items that is reviewed quarterly by the U.K. Department of Health. The reimbursement price is based on ex-factory prices collected from generic manufacturers (with a mark-up applied by a formula that allows the Department of Health to control the pharmacy purchase profit). In 2010, we launched 33 new products or new dosage forms, including the generic versions of Cozaar® (losartan), Temodal® (temozolomide), Cellcept® (mycophenolate mofetil) and Zanidip® (lercanidipine). We also launched a range of OTC medicines. In Italy, following the acquisition of ratiopharm, we significantly enhanced our position as the leading generic pharmaceutical company in terms of units and sales, with a portfolio of 137 products in 376 dosage forms and packaging sizes. After the significant legislative changes in 2009 that reduced prices and introduced a maximum discount level, the market for generic pharmaceuticals grew over 10% in value in 2010, despite additional governmental price cuts introduced in June 2010 that led to a price decrease of 12.5% for most generic pharmaceuticals.
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Table of ContentsIn 2010, we launched 20 new products or new dosage forms, including the generic versions of Plavix® (clopidogrel), Hyzaar® (losartan hydrochlorothiazide), Nebilet® (nebivolol), Xalatan® (latanoprost), Neupogen® (filgrastim) and erythropoietin (marketed by Teva as Eporatio®). In Spain, following the acquisition of ratiopharm, we became the leading generic pharmaceutical company in terms of sales and the second largest generic pharmaceutical company in terms of units with a portfolio of 204 products, selling in approximately 558 dosage forms and 820 packaging sizes. In 2010, major legislative changes were approved by the national and regional governments which were aimed to increase generic penetration. These changes reduced gross generic prices on average by 25% and lowered maximum discounts to 10%. We expect generic penetration to further increase as a result of these measures. In 2010, we launched 97 new products or new dosage forms, including the generic versions of Lipitor® (atovastatin), Cipralex® (escitalopram), CoAprovel® (irbesartan hydrochlorothiazide) and Hyzaar® (losartan hydrochlorothiazide). In Poland, we are the third largest generic pharmaceutical company in the market in terms of sales and units, with a portfolio of 124 generic products in 355 dosage forms and packaging sizes. The Polish pharmaceutical retail market is characterized by generic penetration of approximately 60% in terms of value and 84% in terms of volume. The vast majority of generics are branded and actively promoted. In 2010, we launched 20 new products or new dosage forms, including the generic versions of Plavix® (clopidogrel), Taxotere® (docetaxel), Neupogen® (filgrastim), Temodal® (temozolomide) and Norvasc® (amlodipine). Competitive Landscape. In Europe, we compete with other generic companies and brand drug companies that continue to sell or license branded pharmaceutical products after patent expirations. The generic market in Europe is very competitive, with the main competitive factors being price, time to market, reputation, customer service and breadth of product line. In addition, as in the U.S., the generic market also faces competition from brand pharmaceutical companies who try to prevent or delay approval of generic equivalents through several tactics. In Germany, there is a high rate of generic penetration with a relatively high number of competitors of varying sizes and capabilities. Price levels for pharmaceuticals in Germany are impacted by healthcare reforms and tenders issued by the health insurance funds. In France, there is an increasingly competitive landscape with pricing pressure largely due to the existence of large pharmacist buying groups and to the French government’s efforts to control healthcare costs by imposing significant price decreases. The United Kingdom is a “pure” generic market that results in very low barriers to entry. Significant vertical integration exists between wholesalers and retailers, ensuring low prices as long as there are several suppliers. Although there has been some consolidation of generic suppliers in the U.K. in recent years, there has also been a steady stream of new suppliers entering the market, mostly from Europe and India. In Italy, there is a relatively low rate of generic penetration with retail level competition. The market is increasingly categorized by independent pharmacies that have the ability to dispense products from different companies, which has resulted in increased competition among generic companies. In Spain, the generic pharmaceutical market is largely represented by local companies. Regulations in the seventeen local regions have varying policies regarding generic substitution. However, following the reduction of gross generic prices and lower maximum discounts, we expect generic penetration to increase.
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Table of ContentsIn Poland, there is a high rate of generic penetration. The pharmaceutical industry has experienced significant structural changes in recent years. Most of the state-owned companies have been privatized and foreign firms account for a high proportion of sales. The competitive landscape, which is dominated by several very strong local and regional competitors, continues to be challenging, with hundreds of manufacturers. International Markets Our International Markets include countries other than those included under North America and Europe. In general, the larger of these markets are characterized by rapid growth and relatively high sales of branded generic and OTC products. Below is a summary of our operations in selected International Markets: We market a broad portfolio of products in Latin America. We distribute our products in most Latin American countries. In most cases, these products are manufactured in our facilities in Mexico, Chile, Argentina and Peru. Brazil, Mexico, Venezuela, Colombia and Argentina are the largest pharmaceutical markets in the region, with substantial local manufacturing and, due to the historical absence of effective patent protections for innovative drugs, a history of reliance on generic and branded generic products. Total pharmaceutical retail sales in the region exceeded $37 billion in 2010 and, according to IMS forecasts, the Latin American pharmaceutical market is expected to grow at an average annual rate of approximately 13% through 2013. We intend to expand our operations in Latin America, taking advantage of the expected increases in spending on healthcare (and on pharmaceuticals in particular), stronger regional economic performance and growing populations, leveraging our strong local presence, global product portfolio and manufacturing expertise. In Argentina, we manufacture and sell approximately 170 branded generic and OTC products in a market that is predominately branded generic. We are the third largest pharmaceutical company in terms of sales. Sales are made primarily to distributors and wholesalers, with the remainder directly to healthcare institutions. In Chile, we are the largest pharmaceutical company in terms of sales and prescriptions for both branded generics and “pure” generics. We market our products to retail and institutional (hospitals and clinics) customers and export to 13 other countries within the region. Branded generics account for approximately three-quarters of our sales in dollar terms, with the remainder consisting of generics and OTC products. In Mexico, our operations include two pharmaceutical manufacturing sites, which primarily supply the domestic market, but also supply markets such as Latin America, Europe and Canada. Domestic sales are made primarily to the public sector through government tenders and institutional sales. In Peru, following the acquisition of Corporación Infarmasa, we are one of the top two largest pharmaceutical companies in terms of sales, with the leading antibiotics brand. The vast majority of our sales is made to pharmacy chains, distributors and wholesalers. Competitive Landscape. In Latin America, the pharmaceutical market is generally fragmented, with no single company enjoying market dominance in the region. Local generic companies predominate, especially in Brazil, Argentina and Chile. These local companies, as well as multinational brand companies, compete with our local operations in all of the markets. Our strengths in the region include our comprehensive range of products,
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Table of Contentswhich cover a wide range of therapeutic categories, strong sales forces and the opportunity to leverage our global product portfolio. Israel. We are the leading provider of professional healthcare products and services in the Israeli market. In addition to innovative, generic and OTC pharmaceutical products, we sell and distribute a wide range of healthcare products and services, including consumer healthcare products, hospital supplies, dialysis equipment and disposables, diagnostics and home care services. Our Israeli product portfolio also includes products sold under licensing arrangements. Our distribution company, Salomon Levin and Elstein Ltd., provides logistical support for the selling and distribution activities of Teva in Israel, which include distribution of products of third parties, including several multinational pharmaceutical companies. A new logistics center currently under construction is expected to significantly increase our technological and logistical capabilities in Israel when it is completed in 2011. Prices for our products in Israel are significantly affected by pricing regulations and governmental policies. Competitive Landscape. Our products compete with those of other local manufacturers, as well as with imported products. Generic competition has increased in recent years in Israel, and this trend is expected to continue, with additional pressure on prices coming from the healthcare funds and other institutional buyers. The introduction of private labels into the retail market has increased competition in the OTC market, a trend that is expected to increase in the future. Russia. We are the second largest generic company and one of the top ten pharmaceutical companies by value in Russia, with a strong focus on antibiotics, cardiovascular, respiratory, gastro-intestinal, oncology as well as OTC pharmaceutical products. Teva provides approximately 130 products to the Russian market, selling to both retail and hospital channels. Russia is substantially a branded generic, out-of-pocket, cash-pay market, although selected government-funded products included for reimbursement are procured using a tender process. The regulatory environment in Russia is characterized by continuing government-imposed cost containment measures for life-saving products that are included in the reimbursement list. The government seeks to encourage generic products in order to enable access to lower cost pharmaceuticals. Russian pharmaceutical law is currently under review, with a focus on increasing access and controlling pricing of products. Competitive Landscape. The Russian market is comprised of large local manufacturers as well as international generic and innovative pharmaceutical companies. With Russia being a primarily branded generic market, all competitors provide product education to physicians via medical representatives. As part of Russia’s 2020 pharmaceutical strategy, companies with a local manufacturing presence will gain favorable commercial conditions. Japan is the second largest pharmaceutical market worldwide, estimated at approximately $87 billion in 2010. Generic penetration is estimated at 19% of volume and 7% of value. In 2007, the Japanese government set an ambitious objective to double generic usage and reach 30% market share in terms of volume by 2012. In 2008, we established a joint venture with Kowa Company Ltd., a Japanese pharmaceutical company. The joint venture, Teva-Kowa Pharma Co., Ltd., seeks to leverage the marketing, research and development, manufacturing and distribution capabilities of each partner to become a broad-based supplier of high quality generic pharmaceutical products for the Japanese market. In December 2009, Teva-Kowa Pharma acquired a majority interest in Taisho Pharmaceutical Industries Ltd., a Japanese generics company with over 200 products and sales exceeding $130 million for the twelve months ended September 30, 2009. In October 2010, Teva-Kowa acquired the remainder of Taisho. As a result of the acquisition of Taisho Pharma, Teva-Kowa Pharma is the fifth-largest generic pharmaceutical company in Japan.
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Table of ContentsCompetitive Landscape. The Japanese pharmaceutical market is relatively fragmented but polarized—the leading four pharmaceutical companies capture approximately 50% of the Japanese market. Significant changes are expected with the entrance of global pharmaceutical companies which may require subscale companies to exit the market. Branded Products Our branded product offerings include our multiple sclerosis and neurology products: Copaxone®, for the treatment of multiple sclerosis, Azilect®, for the treatment of Parkinson’s disease; as well as respiratory products, women’s health products and biopharmaceuticals, primarily biosimilars. Copaxone® Copaxone® (glatiramer acetate injection, or GA), our largest product and first major innovative drug, is the leading multiple sclerosis therapy in the U.S. and globally and is approved in over 50 countries worldwide, including the U.S., Canada, all European countries, Russia, major Latin American markets, Australia and Israel. It is indicated for reduction of the frequency of relapses in patients with relapsing-remitting multiple sclerosis. Copaxone® is also indicated for the treatment of patients who have experienced clinically isolated syndrome and are determined to be at high risk of developing clinically definite multiple sclerosis. We have Orange Book-listed patents relating to Copaxone® with terms expiring in May 2014 in the U.S. and in May 2015 in most of the rest of the world. We also hold additional patents protecting various aspects of the process of preparing Copaxone® and methods of analyzing this product which expire between 2019 and 2024. Multiple sclerosis is the most common disabling neurological disease among young adults, mostly women diagnosed between the ages of 20-40, and affects over 2.5 million people worldwide. The first clinical event of almost all patients eventually diagnosed with multiple sclerosis is an acute episode (relapse), known as clinically isolated syndrome, of neurological deficits leading to clinical symptoms that suggest a lesion in the central nervous system. However, not all patients with this syndrome develop multiple sclerosis, and of those who do, the prognosis is highly variable. In the majority of patients, the disease is of the relapsing-remitting form, which is manifested by relapses followed by recovery (remission). Recovery may be incomplete at times, resulting in a disability progression which is measured by the Expanded Disability Status Scale (EDSS). Clinical evidence and MRI testing suggest that early treatment can prevent or delay accumulation of irreversible neuronal damage and the progression of multiple sclerosis. Copaxone® is the first non-interferon immunomodulator approved for the treatment of relapsing-remitting multiple sclerosis. The research to date suggests that it has a dual mechanism of action both outside and within the central nervous system that regulates inflammation at the site of brain lesions. In addition, it has been demonstrated that Copaxone® controls neurodegeneration and enhances repair. Copaxone® reduces the number of brain lesions that evolve into permanent black holes, slows brain shrinkage and increases the production of factors that enhance neuronal repair. Three confirmatory clinical studies with relapsing-remitting multiple sclerosis patients have demonstrated that daily subcutaneous injection of Copaxone® significantly reduces the relapse rate as well as the level of disease activity and burden as measured by magnetic resonance imaging. Furthermore, three other studies (the BECOME, BEYOND and REGARD studies) conducted by our competitors, which involved over 3,000 patients treated with both high-dose beta-interferon and Copaxone®, failed to demonstrate any superiority of high-dose beta-interferon products over Copaxone® in any of the primary endpoints. Moreover, the REGARD study comparing Copaxone® and Rebif® 44mcg showed that Copaxone® was superior to Rebif® 44mcg in slowing the rate of brain shrinkage.
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Table of ContentsResults from the U.S. pivotal study of Copaxone®, which was extended as an open-label trial to 15 years—making it the longest continuous study ever of patients with relapsing-remitting multiple sclerosis—demonstrated that the number of attacks was reduced to an average of one every five years and that more than 80 percent of patients, with an average disease duration of 22 years, were able to walk unassisted following 15 years of treatment. Additional studies conducted provide evidence that long-term benefits of Copaxone® may be, in part, due to remyelination. Findings demonstrate that treatment with Copaxone® may offer sustained protection from neuronal/axonal injury as reflected biologically by a significant increase in N-acetylaspartate, a specific marker of neuronal mitochondrial function, in treated versus untreated relapsing-remitting multiple sclerosis patients. The PreCISe study, a Phase III, randomized, placebo-controlled, double-blind study in which 481 patients with clinically isolated syndrome were monitored over periods of up to 36 months, showed that patients treated early with Copaxone® had a 45% reduction in the risk of developing clinically definite multiple sclerosis. Of the patients who developed clinically definite multiple sclerosis, the time to clinically definite multiple sclerosis more than doubled, from 336 days for patients given a placebo to 722 days for patients treated with Copaxone®. Copaxone® was also shown to be well tolerated in the PreCISe study. The results of this study were published in Lancet in October 2009. In October 2010, we presented data from the five year long-term open-label follow up of the PreCISe study that showed that early initiation of treatment with Copaxone® reduces the risk of developing multiple sclerosis by 41% and that Copaxone® delayed time to conversion to clinically definitive multiple sclerosis by almost three years. Based on the results of the PreCISe study, in March 2009, the FDA approved an expanded indication for Copaxone® to include the treatment of patients who have experienced a first clinical episode and have magnetic resonance imaging features consistent with multiple sclerosis. The FDA’s approval followed a similar decision by the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MHPR) in February 2009 to expand the label for Copaxone® to include the treatment of patients with clinically isolated syndrome suggestive of multiple sclerosis. This approval also includes 24 European countries that take part in the EU mutual recognition procedure. Approval for an expanded label for Copaxone® was also granted in 15 additional countries worldwide. The SONG study, a Phase IIIb, randomized, open-label, crossover study, was designed to examine whether a decrease in the volume of the Copaxone® dosage formulation (20 mg/0.5 mL versus 20 mg/1.0 mL) would decrease injection pain and increase tolerability for patients. The study, in which approximately 130 patients participated, showed positive results. Based on these results, Teva submitted to the FDA a supplemental New Drug Application (sNDA) for a lower-volume (0.5mL) injection of glatiramer acetate. In December 2010, Teva received a complete response letter from the FDA stating that the FDA could not approve the application as submitted. The FDA noted that because the mechanism of action of Copaxone® is not fully understood, even a formulation change could impact clinical outcomes, and therefore an adequate and well controlled efficacy study is needed to support efficacy of the 20 mg/0.5 mL formulation. We are currently evaluating our next steps. In April 2008, Teva assumed the U.S. and Canadian distribution of Copaxone® from Sanofi-Aventis. Under the terms of the agreements, Sanofi-Aventis was entitled to payment by Teva of previously agreed-upon termination consideration of 25% of the in-market sales of Copaxone® in the U.S. and Canada for an additional two-year period, which ended on April 1, 2010. As of that date, Teva records all in-market sales and profits of Copaxone® for the U.S. and Canada. We have an additional collaborative agreement with Sanofi-Aventis for the marketing of Copaxone® in Europe and other markets. Copaxone® is co-promoted with Sanofi-Aventis in Germany, France, Spain, the Netherlands and Belgium, and is marketed solely by Sanofi-Aventis in the rest of the European markets, Australia and New Zealand. In 2010, we assumed the distribution and marketing responsibilities for Copaxone® in the U.K., the Czech Republic and Poland. By 2012, we expect to assume the marketing responsibilities for Copaxone® in all European countries. Sanofi-Aventis is entitled for a period of two years to 6% of the in-market sales of Copaxone® in the applicable countries. Although we expect to record higher revenues as a result of this change, we will also become responsible for certain marketing and administrative expenses, which are no longer shared with Sanofi-Aventis.
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Table of ContentsCompetitive Landscape. There are four formulations of beta-interferon which primarily compete with Copaxone®: Avonex®, Betaseron®, Extavia© and Rebif®. Another therapy, Tysabri®, was reintroduced in the U.S. in June 2006 with a “black box” label, which includes the most critical information about Tysabri®, such as indications and warnings, and with an indication for patients who have had an inadequate response to, or are unable to tolerate, alternate multiple sclerosis therapies. In July 2006, Tysabri® was launched in the EU with a restricted indication for patients who have failed beta interferons or for highly active patients. An additional change in labeling was implemented in early 2010 by both the EMA and the FDA suggesting that the risk of PML—a fatal brain infection—increases with the number of Tysabri® infusions. We expect that in the next few years, the multiple sclerosis treatment landscape will change with the expected launch of additional products, some of which are orally administered. The first orally administered disease-modifying therapy, fingolimod (Gilenya®), which competes with Copaxone®, was approved by the FDA in September 2010. This once-daily drug was approved for the treatment of relapsing remitting multiple sclerosis patients and included a risk evaluation and mitigation strategies (REMS) program to inform healthcare providers about the serious risks of fingolimod, including bradyarrhythmia and atrioventricular block at treatment initiation, infections, macular edema, respiratory effects, hepatic effects, and fetal risk. In January 2011, fingolimod received a positive opinion from the EU Committee for Medicinal Products for Human Use (CHMP) of the EMA for approval as a second line MS treatment. Oral cladribine was submitted by Merck KGaA during 2009 to both the FDA and the EMA. It received a negative recommendation from the CHMP in Europe in November 2010, and is still being reviewed by the FDA with a decision expected by spring 2011. This follows the issuance in November 2009 of a “refuse to file letter” by the FDA due to an incomplete NDA submission. In July 2008, we learned that Sandoz Inc., the U.S. generic drug division of Novartis AG, in conjunction with Momenta Pharmaceuticals, Inc., filed an ANDA with the FDA for a generic version of Copaxone® containing Paragraph IV certifications to each of our patents listed in the FDA’s Orange Book for the product. In August 2008, we filed a complaint against Sandoz, Inc., Sandoz International GmbH, Novartis AG and Momenta Pharmaceuticals, Inc. in the U.S. District Court for the Southern District of New York, alleging infringement of four Orange Book patents. The patents, which expire on May 24, 2014, cover the composition of Copaxone®, pharmaceutical compositions containing it, and methods of using it. The lawsuit has triggered a stay of any FDA approval of the Sandoz ANDA, which expired in January 2011. Sandoz filed its answers to our complaint in November 2008. The answers include declaratory judgment counterclaims of non-infringement, invalidity, and unenforceability of all seven Orange Book listed patents, as well as two process patents, including a process patent that does not expire until September 2015. Our response maintaining the validity and enforceability of all of the patents-in-suit was filed in December 2008. A hearing was held in January 2010 to determine, among other claim terms, the meaning of certain terms used in the claims of Teva’s Orange Book patents. Discovery is now complete. In September 2010, the Court denied Sandoz’s motion for summary judgment of indefiniteness. In September 2009, Teva learned that the FDA had accepted the filing of a second ANDA for glatiramer acetate by Mylan Inc. in collaboration with Natco Pharma Ltd. The Mylan filing alleged invalidity and non-infringement of all Orange Book patents. In October, 2009, we filed a complaint in the U.S. Court for the Southern District of NY against Mylan Pharmaceuticals, Inc., Mylan Inc. and Natco Pharma Ltd. alleging infringement of all seven Orange Book patents. Mylan’s response contained declaratory judgment counterclaims of non-infringement, invalidity, and unenforceability of all seven Orange Book listed patents, as well as two process patents, including a process patent that does not expire until September 2015. We filed a response maintaining the validity and enforceability of all of the patents-in-suit. Discovery is now completed. Mylan has filed a summary judgment motion similar to that submitted by Sandoz and Momenta, which is currently pending before the court. Recently, the Sandoz and Momenta and the Mylan and Natco patent litigations were consolidated so the cases will be tried together in the Southern District of New York. We do not yet have a trial date, but anticipate the Court will set one after it has ruled on all summary judgment motions.
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Table of ContentsIn December 2009, we filed a separate patent infringement suit against Sandoz and Momenta in the Southern District of New York regarding Teva’s patents covering our proprietary set of molecular weight markers (the “marker patents”). The latest of these patents is set to expire in February 2020. This case has been assigned to the same judge as in the case described above. Then in September 2010, we filed a complaint against Mylan for infringement of our four marker patents. Both ANDA applicants have moved to dismiss the case, and we opposed. The matter is still pending before the Court. In addition, we have filed three citizen’s petitions with the FDA noting that even minor modifications in the composition of glatiramer acetate can lead to potentially significant differences in safety and efficacy. Since it is impossible to fully characterize the active components in Copaxone®, we believe that no generic version should be deemed its therapeutic equivalent without a demonstration of sameness. Additionally, we believe that any purported generic version of Copaxone® should undergo full clinical testing in humans. Azilect ® Azilect® (rasagiline tablets), indicated for the treatment of Parkinson’s disease as initial monotherapy and as an adjunct to levodopa, is our second innovative drug to be in the market. Parkinson’s disease is the second most common neurodegenerative disorder, which typically occurs at an advance age, affecting approximately 1-2% of the population over the age of 65 and increasing to 3-5% in people over the age of 85. Although many symptomatic therapies are available, there is still a high level of dissatisfaction with many of these treatments, in terms of efficacy, safety and tolerability, and the major unmet need for Parkinson’s disease is to slow the clinical progression of the disease. Azilect® is a potent, second-generation, irreversible monoamine oxidase type B (MAO-B) inhibitor, indicated for treating the signs and symptoms of Parkinson’s disease in both early stage and in moderate to advanced stages of the disease, with a favorable tolerability and safety profile. Azilect® has also demonstrated neuroprotective and neurorestorative activities in various in vitro and in vivo models. Azilect®1mg/day is the only Parkinson’s drug that has clinical data consistent with a possibility of disease modifying effect as demonstrated by slowing down the clinical progression of the disease, in addition to its symptomatic efficacy. Azilect® was launched in its first market, Israel, in March 2005, followed by a rolling launch in various European markets, and became available in the U.S. in 2006. Currently, Azilect® is approved for marketing in 45 countries and is expected to enter Australian and Asian markets over the next several years. The development of Azilect® is part of a long-term strategic alliance with Lundbeck, which includes the global co-development and marketing of Azilect®, mainly in Europe, for the treatment of Parkinson’s disease. Under the agreement, we jointly market the product with Lundbeck in certain key European countries. Lundbeck exclusively markets Azilect® in the remaining European countries and certain other international markets. In North America, Azilect® is marketed by Teva’s wholly-owned subsidiary Teva Neuroscience. During the development program, Azilect® has demonstrated efficacy and safety in four major studies that included over 2,700 patients with Parkinson’s disease at different stages of the disease. Two Phase III studies (PRESTO and LARGO) demonstrated Azilect®’s efficacy as adjunctive therapy to levodopa in moderate-advanced patients. The LARGO study also showed effects comparable to the COMT inhibitor, entacapone. The TEMPO and ADAGIO studies were done in early-stage patients. In TEMPO, Azilect® demonstrated efficacy and safety as monotherapy treatment at six months, and suggested a possible effect on disease progression based on the 12-month results. An extension study showed that benefits of early treatment with Azilect® were maintained over time, for up to 6.5 years. The ADAGIO study, one of the largest studies ever conducted in Parkinson’s disease, which employed a delayed-start design and novel statistical endpoints to assess the effect of Azilect® on slowing the clinical progression of the disease in early untreated Parkinson’s patients. The study results show that early treatment with Azilect® 1mg/day may be consistent with a disease modifying effect by slowing down the clinical
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Table of Contentsprogression of the disease. These results were published in the New England Journal of Medicine in September 2009. In December 2010, based on these results, we submitted to the FDA a sNDA for the slowing of clinical progression of Parkinson’s disease. In November 2008, we announced the results of a study in which Azilect® demonstrated selective MAO-B inhibition at the approved dose of 1 mg. Non-selective MAO inhibitors may have some contra-indications with foods that contain large amounts of tyramine and certain drugs. These limitations are not associated with selective MAO inhibitors and therefore such treatments can be more broadly prescribed. Based on this study, in December 2009 the FDA approved revised prescribing information for Azilect®, reducing medication and food restrictions. Azilect® is protected in the U.S. by several patents that will expire between 2012 and 2027. In addition, Azilect® is entitled to new chemical entity exclusivity for a period of five years from its 2006 approval date. We hold several European patents covering Azilect® that will expire between 2011 and 2014. Supplementary Protection Certificates have been granted in a number of European countries with respect to the patent expiring in 2014, thereby extending its term to 2019. Azilect® is also protected by data exclusivity protection in EU countries until 2015. Competitive Landscape. Azilect®’s competitors include the newer non-ergot dopamine agonists class, including Mirapex® /Sifrol® (pramipexole), Requip® (ropinirole) and Neupro® (rotigotine), which are indicated for all stages of Parkinson’s, as well as Comtan®, a COMT inhibitor, indicated only for adjunct therapy in moderate to advanced stages of the disease. In 2009 it was reported that the dopamine agonist Mirapex® failed to demonstrate a disease-modifying effect in a clinical trial with a design similar to the ADAGIO trial. In October 2010, Teva filed a complaint against Watson Pharmaceuticals, Mylan and other defendants concerning their ANDAs containing Paragraph IV certifications filed with the FDA for generic versions of Azilect®. The Teva complaint alleged infringement of Orange Book listed U.S. Patent No. 5,453,446. No trial date has been scheduled. The lawsuit has triggered a stay of any FDA approval of the ANDAs until November 2013 or a district court decision in the defendants’ favor. Specialty Respiratory Products We are committed to delivering a range of respiratory products for asthma, chronic obstructive pulmonary disease (COPD) and allergic rhinitis. Our global respiratory product strategy is to extract value from both the branded and generic spheres; accordingly, our portfolio includes both branded products that utilize specific proprietary devices and pure generic products. Our principal branded respiratory products in the U.S. include ProAir® (albuterol HFA), a short-acting beta-agonist for treatment of bronchial spasms linked to asthma or COPD and exercise-induced bronchospasm, and Qvar® (beclomethasone diproprionate HFA), an inhaled corticosteroid for long-term control of chronic bronchial asthma. Qvar® is manufactured by 3M. These products are marketed directly to physicians, pharmacies, hospitals, managed healthcare organizations and government agencies. In 2010, ProAir® maintained its position as the leading rescue inhaler in the U.S., and Qvar® further advanced its second-place position in terms of new and total prescriptions in the inhaled corticosteroid market. In Europe, our principal markets for respiratory products are the U.K., France, Germany and the Netherlands. Our main brands in these markets include Qvar®, and Airomir® (salbutamol HFA), in metered dose inhalers (MDI), as well as in breath-actuated inhalers, such as Easi-Breathe® and Autohaler®, and salbutamol HFA MDI. For patients of varying ages and disease severity who use nebulizers, we have a full range of molecules for asthma and COPD via our patented protected advanced sterile formulations Steri-Neb® (single dose plastic vial).
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Table of ContentsIn the short term, we believe our current portfolio of respiratory products is well positioned to capture opportunities globally. In recent years, we have continued to build upon our experience in the development, manufacture and marketing of inhaled respiratory drugs delivered by metered-dose and dry powder inhalers, primarily for bronchial asthma and COPD. At the core of our efforts to grow our respiratory franchise globally is a continued investment in high quality manufacturing capability for press and breathe metered-dose inhalers, nasal sprays and Steri-Neb®, allowing us to play an important role in all major markets and to address all of the major areas of therapeutic need. Over the longer term, we expect to utilize our research and development capabilities, both internal and through alliances, to develop additional products based on our proprietary delivery systems, including Easi- Breathe®, an advanced breath-activated inhaler (BAI), Spiromax® /Airmax®, a multi-dose dry powder inhaler, and Steri-Neb®, the advanced sterile formulations for nebulizers. This strategy is intended to result in “device consistency”, allowing physicians to choose which device matches a patient’s needs both in terms of ease of use and effectiveness of delivery of the prescribed molecule for the therapeutic need. We intend to submit ten products, six of which are new brands, for approval in the U.S. and Europe by 2015. Competitive Landscape. There are a several established global competitors who supply most of the demand to this market. There are four major MDI/DPI (dry powder inhaler) global brands competing with Qvar® for the mono inhaled corticosteroid segment: Flixotide/Flovent® (fluticasone) by GlaxoSmithKline, Pulmicort® (budesonide) by AstraZeneca, Asmanex® (mometasone) by Merck and Alvesco® (ciclesonide) by Nycomed, as well as four major brands that compete with ProAir® in the U.S. market for the short acting beta agonist segment: Ventolin® (salbutamol) by GlaxoSmithKline, Proventil® (salbutamol) by Merck, Xopenex® (levsalbutamol) by Sunovion and Maxair® (pirbuterol) by Graceway. Women’s Health Our women’s health unit manufactures and markets proprietary pharmaceutical products in the U.S. and Canada. In 2010, our women’s health franchise concentrated its efforts on expanding its existing portfolio and pipeline product offerings globally, which included conducting clinical research and commercial activities for markets other than the U.S. and Canada. The current portfolio of actively promoted products in North America includes:
Seasonique® and LoSeasonique® represent our next-generation extended regimen oral contraceptive products. Both provide continuous hormonal support in the form of a low dose of estrogen in place of the usual seven placebo pills. Under the Seasonique® extended-cycle regimen, women take tablets of 0.15 mg levonorgestrel/0.03 mg of ethinyl estradiol for 84 consecutive days, followed by seven days of low-dose estrogen alone instead of placebo (0.01 mg of ethinyl estradiol). LoSeasonique® provides the option of a lower estrogen dose in the combination tablets and contains 0.10mg levonorgestrel/0.02mg of ethinyl estradiol to be taken for 84 consecutive days followed by seven days of estrogen alone instead of placebo (0.01mg of ethinyl estradiol).
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Table of ContentsPlan B® One-Step was approved in the U.S. in July 2009 and consists of a single tablet dose of levonorgestrel for emergency contraception. It is intended to prevent pregnancy when taken within 72 hours after unprotected intercourse or contraceptive failure. Plan B® One-Step is available over-the-counter for consumers 17 years of age and older and by prescription for women under 17. ParaGard® intrauterine copper contraceptive provides women with a highly effective, long-term, reversible, non-hormonal contraceptive option. It is the only intrauterine contraceptive approved for up to 10 years of continuous use and is more than 99% effective at preventing pregnancy. Enjuvia® is approved for the treatment of moderate-to-severe vasomotor symptoms associated with menopause and was the first oral estrogen to be approved by the FDA to treat moderate-to-severe vaginal dryness and pain with intercourse, symptoms of vulvar and vaginal atrophy associated with menopause. Enjuvia® uses a unique delivery system to provide slow release of estrogens over several hours. Our women’s health product development activities are focused on several categories, including oral contraceptives, intrauterine contraception, hormone therapy treatments for menopause/perimenopause, and therapies for use in infertility and urinary incontinence. Research and development is also focused on products that utilize our vaginal ring delivery platform. In January 2011, Teva completed the acquisition of Théramex Labratories, a Monaco-based pharmaceutical company specializing in women’s health and gynecology, as part of our efforts to expand our women’s health business into key growth markets in Europe. Key products sold by Théramex include: Orocal®, a calcium supplement for the treatment of osteoporosis; Colpotrophine®, for the treatment of vaginal infections; Lutenyl®, for menopause; Monazol®, for fungal dermatitis; Estreva®, for estrogen deficiencies; Antadys®, for dysmenorrhea; and Leeloo Gé®, an oral contraceptive. In addition, Théramex has developed (in partnership with Merck & Co.) a combined oral contraceptive containing nomegestrol acetate and 17 beta-estradiol, a novel combination of an estrogen identical to the natural estrogen and a selective progestin, currently in registration in Europe. Competitive Landscape. Our oral contraceptive products, Seasonique® and LoSeasonique® compete with Lybrel®, an oral contraceptive product based on a 365 day regimen, and generic presentations of Seasonale® that, like Seasonale®, are based on a 91 day regimen. Plan B®, our one-step emergency oral contraception product, faces competition from a generic 2-dose emergency contraception product. In December 2010, Watson launched ella®, an emergency contraceptive containing ulipristal acetate that is available only by prescription and may be taken within five days after unprotected intercourse. Biopharmaceuticals and Biosimilars We have identified biopharmaceuticals—in particular, biosimilars—as an important long-term growth opportunity. Unlike chemical (non-biological) compounds, which are produced synthetically, biopharmaceutical production involves the use of living organisms. These products, which are used to substitute disease or therapy induced deficiencies of endogenous factors, like erythropoietin or GCSF or to treat diseases like cancer, arthritis, and rare genetic disorders, make up one of the fastest-growing segments of the global pharmaceutical market and are a major contributor to increasing prescription pharmaceutical costs. According to IMS, the biopharmaceuticals market reached total global sales of over $100 billion in 2010. During the next decade, over 85% of current biopharmaceutical sales are expected to face competition from generic versions known as biosimilars, which are biological products that approximate the structure and activity of an already marketed biological entity (the “reference product”), with a target site and/or mechanism of action, if known, as described in the innovator’s documentation for such reference product. In furtherance of our plans to take a leading role in the biosimilars field, we have established a dedicated research, development and manufacturing infrastructure. Our biopharmaceutical R&D facilities specialize in different technologies. Finished
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Table of Contentsdosage biopharmaceutical manufacturing is carried out in our existing sterile manufacturing facilities. Our joint venture with Switzerland-based Lonza Group Ltd. provides us with access to the expertise and infrastructure of the world’s largest producer of biological API. Our proprietary albumin fusion technology can be used to create long-acting biological products. In addition, as a result of the glycopegylation technology acquired through ratiopharm, we now have a second technology platform for the creation of long-acting products. We currently market the following biosimilar products:
We are also developing several additional biosimilar products, including:
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Table of ContentsTeva Animal Health manufactures generic animal pharmaceuticals and markets proprietary dermatological and nutraceutical veterinary products in the U.S. Teva Animal Health’s headquarters, primary manufacturing, distribution, research and development, sales and marketing facilities are located in St. Joseph, Missouri. On July 31, 2009, Teva and the FDA entered into a consent decree under which operations were temporarily ceased pending the resolution of certain compliance issues. As part of the consent decree, Teva Animal Health agreed to recall all of its products and dispose of all finished goods inventory. The facility in Fort Dodge was shut down in 2010. The FDA approved the resale of certain products supplied by third parties in late 2010, and we expect to continue remediation of the remaining production facilities during 2011. We have research and development activities supporting all business activities – generic pharmaceuticals, innovative pharmaceuticals (in areas such as of neurology, oncology and autoimmune diseases), respiratory, women’s health, biopharmaceuticals and biosimilars, and API. We supplement our branded pipeline by in-licensing products in both the clinical and pre-clinical stage. Our Global Generic R&D is in charge of developing products, covering all therapeutic areas, which are equivalent to innovative pharmaceutical products. Our emphasis is on developing high-value products, including those with high barriers to entry. The activities of Global Generic R&D include product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies, registration and approval of numerous generic drugs for all of the markets where we operate. Global Generic R&D has expanded its capabilities beyond tablets, capsules, liquids, ointments and creams to other dosage forms and delivery systems, such as matrix systems, special coating systems for sustained release products, orally disintegrating systems, sterile systems such as vials, syringes and blow-fill-seal systems, drug device combinations and nasal delivery systems for generic drugs. The division operates from development centers located in the U.S., Israel, India, Mexico, Europe, Latin America and Canada. Global Branded R&D activities focus primarily on strengthening our MS franchise as well as building niche specialty areas such as neurological disorders, autoimmune diseases, oncology, respiratory, women’s health and wound care. In building our pipeline, we focus on products with meaningful differentiation from existing products in terms of clinical attributes, expected commercial value and benefit to patients and health insurers. In addition, we incorporate new technologies, such as biomarkers, early in the development process to reduce the risk at a more advanced stages of R&D. Our branded pipeline is strengthened by the activities of our Innovative Ventures unit, which focuses on early identification and evaluation of potential proprietary compounds, primarily in the above niche areas, and invests directly in companies with promising products and technologies. In conducting our research and development, we seek to manage our resources effectively and to limit our risk exposure. At the drug discovery phase, we utilize our relationships with the Israeli and foreign academic community and start-up companies to gain early access to potential projects. Once these projects progress into the more costly clinical study phase, we explore corporate partnering options where needed, through which we can share financial and other risks.
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Table of ContentsWe have branded projects in various stages of development (both clinical and pre-clinical). While multiple sclerosis remains an important focus of our development efforts, as we continue to investigate potential improvement of Copaxone® and explore other molecules as future therapies for multiple sclerosis, we also have active projects in the areas of Crohn’s disease, lupus/lupus nephritis, oncology, respiratory and women’s health. Below is a table listing selected pipeline products in clinical development:
(1) Laquinimod is a novel once-daily, orally administered immunomodulatory compound that is being developed as a disease-modifying treatment for relapsing-remitting multiple sclerosis. In June 2004, we acquired from Active Biotech the exclusive rights to develop, register, manufacture and commercialize laquinimod worldwide, with the exception of the Nordic and Baltic countries, and in February 2010, we amended the agreement to include the distribution and marketing rights for laquinimod in the Nordic and Baltic regions. Under the agreement, we made an upfront payment to Active Biotech and will be required to make additional payments upon the achievement of various sales targets and other milestones, with maximum payments of $92 million. Active Biotech will also receive tiered double-digit royalties on sales of the product.
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Table of ContentsA Phase IIb study in 306 patients demonstrated that an oral 0.6 mg dose of laquinimod, administered daily, significantly reduced MRI disease activity by a median of 60 percent versus placebo in relapsing-remitting multiple sclerosis patients. In addition, the study showed favorable effects on the reduction of annual relapse rates and the number of relapse-free patients compared with placebo. Treatment was well-tolerated, with only some transient and dose-dependent increases in liver enzymes reported. Over 1,000 multiple sclerosis patients have received laquinimod in various clinical trials. Study results were published in June 2008. Following the results of this study, and after discussions with the FDA and the EMA, we initiated a Phase III clinical program which included the ALLEGRO and the BRAVO studies. Laquinimod received “fast track” designation from the FDA in February 2009, which may allow this product to enter the market by 2012. In December 2010, we announced the initial results of the ALLEGRO study, a pivotal, placebo-controlled global, 24-month, double-blind, Phase III study which was designed to evaluate the efficacy, safety and tolerability of laquinimod versus placebo in relapsing-remitting multiple sclerosis patients. The results demonstrated that relapsing-remitting multiple sclerosis patients treated with 0.6 mg daily oral laquinimod experienced a statistically significant reduction in annualized relapse rate compared to placebo. Additional clinical endpoints, including significant reduction in disability progression, as measured by EDSS, were also achieved. Additional analyses of the ALLEGRO study data are ongoing, and detailed results are expected to be submitted for presentation in April 2011. BRAVO, the second Phase III study, is a pivotal, placebo-controlled, global, 24-month, double-blind, Phase III study, designed to evaluate the efficacy, safety and tolerability of laquinimod versus placebo and to provide risk-benefit data for laquinimod versus interferon beta-1a IM (Avonex®) in relapsing-remitting multiple sclerosis patients. Enrollment was completed in June 2009, after more than 1,200 patients were recruited at 156 sites in the U.S., Europe, Israel and South Africa. The trial is currently ongoing, and results are expected in third quarter of 2011. Assuming a successful outcome of this trial, we would file for regulatory approval in the U.S. and the EU. Laquinimod has demonstrated potent therapeutic efficacy in preclinical models of other autoimmune diseases such as rheumatoid arthritis, insulin-dependent diabetes mellitus, Guillain-Barré syndrome, lupus and inflammatory bowel disease. The broad profile of efficacy in animal models of inflammatory diseases suggests that laquinimod affects a specific pathway of autoimmunity. Laquinimod is currently in Phase II development for Crohn’s disease, and clinical development for lupus was initiated during 2010 with two Phase I/II studies – one for lupus nephritis and additional one for lupus arthritis. (2) Custirsen/TV-1011 (OGX-011). In December 2009, Teva and OncoGenex entered into a global license and collaboration agreement to develop and commercialize custirsen/TV-1011/OGX-011. Custirsen is an antisense drug developed by Isis Pharmaceuticals Inc. and licensed to OncoGenex, which is designed to inhibit the production of clusterin, a protein that is associated with cancer treatment resistance. Clusterin is over-produced in several types of cancer and in response to many cancer treatments, including hormone ablation therapy, chemotherapy and radiation therapy. Custirsen was developed to increase the efficacy of chemotherapeutic drugs and may have broader market potential to treat many cancer indications and disease stages. (3) Albuterol Spiromax is a dry-powder inhaler formulation of Albuterol in our novel Spiromax® device that is designed to be comparable to ProAir® HFA. Results of two recent safety and efficacy studies indicated that the safety, efficacy, pharmacokinetic and pharmacodynamic profile of Albuterol Spiromax® was comparable to that of the marketed product, ProAir® HFA MDI. (4) QNAZETM is a nasal aerosol corticosteroid in development for the treatment of perennial allergic rhinitis (PAR) and seasonal allergic rhinitis (SAR). Results of SAR, a Phase III study, demonstrated significantly greater symptom relief compared with placebo. The results were presented at the 2010 Annual Meeting of the American College of Allergy, Asthma & Immunology (ACAAI). In addition recent results of PAR, a Phase III study, demonstrated significantly greater relief of nasal symptoms, including runny nose, nasal congestion, nasal itching and sneezing, compared with placebo.
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Table of Contents(5) Budesonide Formeterol Spiromax® is designed to be comparable to Symbicort Turbohaler, delivered through Spiromax®—our novel inhalation-driven multi-dose dry powder inhaler technology. (6) Progesterone vaginal ring (DR-201) is a silicone-based, flexible ring designed to be dosed once a week for luteal supplementation of progesterone in women undergoing assisted reproductive technology treatments. (7) Oxybutynin vaginal ring (DR-3001) is a silicone-based, flexible ring designed to be dosed once a month to treat overactive bladder (OAB). This new and innovative delivery system for the intravaginal delivery of oxybutynin has been developed to minimize the presystemic first-pass metabolism that occurs with orally administered oxybutynin. A Phase III trial which enrolled 1,104 patients with symptoms of OAB has recently been completed. Preliminary results demonstrate statistically significant reductions for active treatment relative to placebo in total weekly incontinence episodes and average daily urinary frequency. Analysis of the results and evaluation of long-term safety information from women using the vaginal ring for up to one year is ongoing, with final results expected in 2011. Teva Innovative Ventures Teva Innovative Ventures seeks to increase and enhance our innovative pipeline through sourcing pre-clinical products from both academia and early stage companies as well as investing, directly and/or through investment companies, in early stage companies that we believe have promising technologies or products. In some cases, in tandem with such investments, we will obtain strategic rights in a company or product. Examples of such rights received include an option to buy the entire company under certain circumstances at pre-negotiated prices/terms and/or an option to license a product or create a joint venture with the company on a particular product based on pre-negotiated terms. Typically, our collaborations are directed towards achieving certain milestones based on an agreed budget and development plan created with our assistance. Once a pre-defined milestone is achieved, we will determine whether to exercise our option to buy the entire company, to license the product or to create a joint venture with the company. If so, we will become much more actively involved in the company and the product development process, and the product will enter our pipeline. Below is a table listing selected projects in which we have an interest:
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(1) We entered into a joint venture agreement with Gamida Cell Ltd. to develop and commercialize StemEx®, a novel cell therapy product containing expanded cord blood stem/progenitor cells for the treatment of hematological malignancies in patients who cannot find a matched donor. A Phase III pivotal study, which will enroll 100 patients in the U.S., Europe and Israel, was initiated in October 2007 with enrollment scheduled to be completed in late 2011. (2) We invested in CureTech Ltd. to support two Phase II clinical trials, one focused on a hematological indication, and the other on colorectal cancer. (3) NexoBridN® is an innovative product developed by MediWound for the enzymatic removal of burn-injured tissue (eschar). NexoBrid® may present an alternative to surgery and lengthy non-surgical procedures. Another benefit of NexoBrid® is its selective activity, which removes only the eschar without harming viable tissue. This minimizes the need for additional skin grafting surgery and increases the potential for spontaneous healing of the burn wound. The product met the “early stopping rules” in its Phase III clinical study in the EU. A marketing authorization application was submitted to the EMA in October 2010. (4) We have a license agreement with respect to Diapep-277, which is currently in two Phase III clinical studies for Type I diabetes. (5) We invested in Multi Gene Vascular Systems Ltd. to support development of MGA for the treatment of critical limb ischemia. MGA is a combined cell/gene product of autologous endothelial and smooth muscle cells, which support the growth of new arteries. (6) We have a license agreement with respect to PolyHeal’s product for the treatment of chronic and “hard-to-heal” wounds. PolyHeal already received a CE Mark and the product has been launched in Israel and is expected to be launched in Europe in the near future. We believe that our global generic product infrastructure provides us with the following advantages:
These capabilities provide us the means to respond on a global scale to a wide range of requirements (both therapeutic and commercial) of patients, customers and healthcare providers. Pharmaceutical Production We operate 40 finished dosage pharmaceutical plants, including in North America, Europe, Latin America, Asia and Israel. The plants manufacture solid dosage forms, injectables (sterile), liquids, semi-solids, inhalers and medical devices. In 2010, Teva produced approximately 63 billion tablets and capsules and over 494 million sterile units. Our two primary manufacturing technologies, solid dosage forms and injectables, are all available in North America, Latin America, Europe and Israel. The main manufacturing site for respiratory inhaler products is located in Ireland. The manufacturing sites located in Israel, Germany and in Hungary make up a significant percentage of our production capacity.
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Table of ContentsWe maintain a uniform quality standard throughout our production facilities. Twenty four of our plants are FDA approved and twenty two of our plants have EMA approval. Achieving and maintaining quality standards in compliance with current Good Manufacturing Practices (cGMP) regulations, as established by the FDA and other regulatory agencies worldwide, requires sustained effort and expenditures, and we have spent significant funds and dedicated substantial resources for this purpose. We strive to optimize our manufacturing network, in order to maintain our goal of supplying high quality, cost-competitive products on a timely basis to all of our customers globally. In addition, we also use several external contract manufacturers to achieve operational and cost benefits. Following the acquisition of ratiopharm, ratiopharm manufacturing facilities in Germany, Canada and India were integrated into our network. During 2010, we expanded our facilities in Opava, the Czech Republic, Jerusalem, Israel and Debrecen, Hungary, for manufacturing and packaging of solid dosage forms, and in Godollo, Hungary, for sterile products manufacturing. Our policy is to maintain multiple supply sources for our strategic products and APIs to the extent possible, so that we are not dependent on a single supply source. However, our ability to do so may be limited by regulatory or other requirements. Our principal pharmaceutical manufacturing facilities in terms of size and number of employees are listed below:
Raw Materials for Pharmaceutical Production We source most of our active pharmaceutical ingredients from our own API manufacturing facilities. Additional API materials are purchased from suppliers located in Europe, Asia and the U.S. We have implemented a supplier audit program to ensure that our suppliers meet our high standards, and take a global approach to managing our commercial relations with these suppliers. We have 21 API production facilities located in Israel, Hungary, Italy, the U.S., the Czech Republic, India, Mexico, Puerto Rico, Monaco, China and Croatia. We produce approximately 300 APIs covering a wide range of products, including respiratory, cardiovascular, anti-cholesterol, central nervous system, dermatological, hormones, anti-inflammatory, oncology, immunosuppressants and muscle relaxants. Our API intellectual property portfolio includes over 1,200 granted patents and pending applications worldwide.
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Table of ContentsWe have expertise in a variety of production technologies, including chemical synthesis, semi-synthetic fermentation, enzymatic synthesis, high potent manufacturing, plant extract technology, synthetic peptides, vitamin D derivatives and prostaglandins. Our advanced technology and expertise in the field of solid state particle technology enable us to meet specifications for particle size distribution, bulk density, specific surface area, polymorphism, as well as other characteristics. Our API facilities meet all applicable current Good Manufacturing Practices (cGMP) requirements under U.S., European, Japanese, and other applicable quality standards. Our API plants are regularly inspected by the FDA, the EMEA or other authorities as applicable. During 2010, all inspections of our API facilities worldwide found our manufacturing practices at all sites to be in compliance. In some of our products that are sold in the U.S., we utilize controlled substances and therefore must meet the requirements of the Controlled Substances Act and the related regulations administered by the Drug Enforcement Administration. These regulations include quotas on procurement of controlled substances and stringent requirements for manufacturing controls and security to prevent pilferage of or unauthorized access to the drugs in each stage of the production and distribution process. Quotas for controlled substances may from time to time limit our ability to meet demand for these products in the short run. Our API R&D focuses on the development of processes for the manufacturing of API, including intermediates, chemical and biological (fermentation), which are of interest to the generic drug industry, as well as for our proprietary drugs. Our facilities include a large center in Israel (synthetic products and peptides), a large center in Hungary (fermentation and semi-synthetic products), and a facility in India and additional sites in Italy, Croatia, Mexico and the Czech Republic (development of high potency API). Our substantial investment in API R&D generates a steady flow of API products, enabling the timely introduction of generic products to market. The API R&D division also seeks methods to continuously reduce API production costs, enabling us to improve our cost structure. We also sell API to third parties, and are a leading global supplier of API to both generic and brand customers. In selling our API products, we compete globally with other specialty chemical producers. Our competitive advantages include quality, cost effective manufacturing costs, a wide portfolio of products, an understanding of patents globally, a high level of customer service, and an understanding of global regulatory requirements. Many of our customers market their products globally and thus would prefer to buy APIs from one vendor rather than multiple vendors. Our numerous facilities enable us to provide our customers flexibility in sourcing from multiple sites from one vendor, while our extensive portfolio, service level and compliance record, combined with the creation of intellectual property rights and our financial resources, strengthen our position as an industry leader. Environment As part of our overall corporate responsibility, we pride ourselves on our commitment to environmental, health and safety matters in all aspects of our business. As a vertically integrated pharmaceutical company with worldwide operations, we believe that our adherence to applicable laws and regulations, together with proactive management beyond mere compliance, enhances our manufacturing competitive advantage, minimizes business and operational risks and helps us to avoid adverse environmental effects in the communities where we operate. We believe that we are in substantial compliance with all applicable environmental, health and safety requirements. Among our environmental activities in 2010 were (i) further implementation of projects aimed at reducing the usage of energy resources; (ii) expansion of our waste recycling projects; (iii) further implementation of ISO 14001, an environmental management standard; and (iv) increased attention to the principles of green construction.
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Table of ContentsUnited States Food and Drug Administration and the Drug Enforcement Administration All pharmaceutical manufacturers selling products in the U.S. are subject to extensive regulation by the U.S. federal government, principally by the FDA and the Drug Enforcement Administration, and, to a lesser extent, by state and local governments. The federal Food, Drug, and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations govern or influence the development, manufacture, testing, safety, efficacy, labeling, approval, storage, distribution, recordkeeping, advertising, promotion and sale of our products. Our major facilities and products are periodically inspected by the FDA, which has extensive enforcement powers over the activities of pharmaceutical manufacturers. Noncompliance with applicable requirements may result in fines, criminal penalties, civil injunction against shipment of products, recall and seizure of products, total or partial suspension of production, sale or import of products, refusal of the government to enter into supply contracts or to approve new drug applications and criminal prosecution. The FDA also has the authority to deny or revoke approvals of drug active ingredients and dosage forms and the power to halt the operations of non-complying manufacturers. Any failure to comply with applicable FDA policies and regulations could have a material adverse effect on our operations. FDA approval is required before any “new drug” (including generic versions of previously approved drugs) may be marketed, including new strengths, dosage forms and formulations of previously approved drugs. Applications for FDA approval must contain information relating to bioequivalence (for generics), safety, toxicity and efficacy (for new drugs), product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. FDA procedures generally require that commercial manufacturing equipment be used to produce test batches for FDA approval. The FDA also requires validation of manufacturing processes before a company may market new products. The FDA conducts pre-approval and post-approval reviews and plant inspections to implement these requirements. Generally the generic drug development and the ANDA review process can take three to five years. The Hatch-Waxman Act established the procedures for obtaining FDA approval for generic forms of brand-name drugs. This Act also provides market exclusivity provisions that can delay the submission and/or the approval of ANDAs. One such provision allows a five-year data exclusivity period for new drug applications (NDAs) involving new chemical entities and a three-year data exclusivity period for NDAs (including different dosage forms) containing new clinical trial data essential to the approval of the application. The Orphan Drug Act of 1983 grants seven years of exclusive marketing rights to a specific drug for a specific orphan indication. The term “orphan drug” refers to a product that treats a rare disease affecting fewer than 200,000 Americans. Market exclusivity provisions are distinct from patent protections and apply equally to patented and non-patented drug products. Another provision of the Hatch-Waxman Act extends certain patents for up to five years as compensation for the reduction of effective life of the patent which resulted from time spent in clinical trials and time spent by the FDA reviewing a drug application. Under the Hatch-Waxman Act, a generic applicant must make certain certifications with respect to the patent status of the drug for which it is seeking approval. In the event that such applicant plans to challenge the validity or enforceability of an existing listed patent or asserts that the proposed product does not infringe an existing listed patent, it files a so-called “Paragraph IV” certification. As originally enacted, the Hatch-Waxman Act provides for a potential 180-day period of generic exclusivity for the first company to submit an ANDA with a Paragraph IV certification. This filing triggers a regulatory process in which the FDA is required to delay the final approval of subsequently filed ANDAs containing Paragraph IV certifications 180 days after the first commercial marketing of the drug by the first applicant. Submission of an ANDA with a Paragraph IV certification can result in protracted and expensive patent litigation. When this occurs, the FDA generally may not approve the ANDA until the earlier of thirty months or a court decision finding the patent invalid, not infringed or unenforceable.
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Table of ContentsThe Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Modernization Act”) of 2003 modified certain provisions of the Hatch-Waxman Act. Under the Medicare Modernization Act, final ANDA approval for a product subject to Paragraph IV patent litigation may be obtained upon the earlier of a favorable district court decision or 30 months from notification to the patent holder of the Paragraph IV filing, as was the case previously. However, exclusivity rights may be forfeited pursuant to the Medicare Modernization Act if the product is not marketed within 75 days of the final approval or if tentative approval is not received within 30 months of submission and under other specified circumstances. With the growing backlog of applications, and the resulting increase in the median time to approval of ANDAs, the number of forfeitures of exclusivity is likely to increase unless additional resources are provided within the FDA’s Office of Generic Drugs. The FDA is currently preparing to meet with stakeholders with regard to the implementation of a user fee program to ease the backlog of pending applications and to improve the review process for new applications. The Best Pharmaceuticals for Children Act, signed into law in 2002, continues the so-called “pediatric exclusivity” program begun in the FDA Modernization Act of 1997. This pediatric exclusivity program provides a six-month extension both to listed patents and to regulatory exclusivities for all formulations of an active ingredient, if the sponsor performs and submits adequate pediatric studies on any one single dosage form. The effect of this program has been to delay the launch of numerous generic products by an additional six months. The Generic Drug Enforcement Act of 1992 established penalties for wrongdoing in connection with the development or submission of an ANDA by authorizing the FDA to permanently or temporarily debar such companies or individuals from submitting or assisting in the submission of an ANDA, and to temporarily deny approval and suspend applications to market generic drugs. The FDA may suspend the distribution of all drugs approved or developed in connection with wrongful conduct and also has authority to withdraw approval of an ANDA under certain circumstances. The FDA may also significantly delay the approval of a pending NDA or ANDA under its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Policy.” Manufacturers of generic drugs must also comply with the FDA’s current Good Manufacturing Practices (cGMP) standards or risk sanctions such as the suspension of manufacturing or the seizure of drug products and the FDA’s refusal to approve additional ANDAs. Products manufactured outside the U.S. and marketed in the U.S. are subject to all of the above regulations, as well as to FDA and U.S. customs regulations at the port of entry. Products marketed outside the U.S. that are manufactured in the U.S. are additionally subject to various export statutes and regulations, as well as regulation by the country in which the products are to be sold. Our products also include biopharmaceutical products that are comparable to brand-name drugs. Of this portfolio, only one, Tev-Tropin®, is sold in the U.S., while others are distributed outside of the U.S. We plan to introduce additional products into the U.S. marketplace, and in 2009 filed our first BLA for our GCSF product. In 2010 Congress passed the Biologics Price Competition and Innovation Act (BPCIA) which provided an abbreviated pathway for the submission, review and approval of biosimilar products. In addition, in 2010, the FDA solicited input from industry players with respect to the regulation of biosimilars under the statute. As yet no formal regulations have been issued by FDA. Government Reimbursement Programs In early 2010, the U.S. government approved a comprehensive plan to decrease health care costs while improving the quality of patient care. These bills sought to reduce the federal deficit and the rate of growth in health care spending through, among other things, stronger prevention and wellness measures, increased access to primary care, changes in health care delivery systems and the creation of health insurance exchanges. In addition, the plan requires the pharmaceutical industry to share in the costs of reform, by increasing Medicaid rebates, narrowing sales definitions for average manufacturer price purposes and expanding Medicaid rebates to cover Medicaid managed care programs. Other components of healthcare reform include funding of pharmaceutical costs for patients in the “donut hole”. After a Medicare patient surpasses the prescription drug
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Table of Contentscoverage limit, the patient is financially responsible for the entire cost of prescription drugs until the expense reaches the catastrophic coverage threshold. Under the new legislation, certain pharmaceutical companies are now obligated to fund 50% of the patient obligation in the “donut hole”. Additionally, commencing in 2011, an excise tax will be levied against certain branded pharmaceutical products. The tax is specified by statute to be approximately $2.5 billion in 2011, $3 billion in 2012-16, $3.5 billion in 2017, $4.2 billion in 2018, and $2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical companies across the industry based on an allocation of their governmental programs as a portion of total pharmaceutical government programs. The Center for Medicare and Medicaid Services is responsible for enforcing legal requirements governing rebate agreements between the federal government and pharmaceutical manufacturers. Drug manufacturers’ agreements with the Center provide that the drug manufacturer will remit to each state Medicaid agency, on a quarterly basis, the following rebates: for generic drugs marketed under ANDAs covered by a state Medicaid program, manufacturers are required to rebate 13% (previously 11%) of the average manufacturer price; for products marketed under NDAs, manufacturers are required to rebate the greater of 23.1% (previously 15.1%) of the average manufacturer price or the difference between such price and the best price during a specified period. An additional rebate for products marketed under NDAs is payable if the average manufacturer price increases at a rate higher than inflation. We have such a rebate agreement in effect with the U.S. federal government. In addition, the Affordable Care Act of 2010 mandated a newer regulation for Medicaid reimbursement, which became effective in part on October 1, 2010, which further modified the calculation of the “average manufacturer price.” The federal upper limit is now calculated as 175 percent of Center for Medicare and Medicaid Services’ calculated weighted average (based on units) of the monthly average manufacturer prices submitted by pharmaceutical companies with equivalent multiple source drugs. Various state Medicaid programs have in recent years adopted supplemental drug rebate programs that are intended to provide the individual states with additional manufacturer rebates that cover patient populations that are not otherwise included in the traditional Medicaid drug benefit coverage. These supplemental rebate programs are generally designed to mimic the federal drug rebate program in terms of how the manufacturer rebates are calculated, e.g., as a percentage of average manufacturer price. While some of these supplemental rebate programs are significant in size, they are dwarfed, even in the aggregate, by comparison to our quarterly Medicaid drug rebate obligations. Canada The Canadian federal government, under the Food and Drugs Act and the Controlled Drug and Substances Act, regulates the therapeutic products that may be sold in Canada and the applicable level of control. The Therapeutic Products Directorate is the national authority that evaluates and monitors the safety, effectiveness and quality of drugs, medical devices and other therapeutic products. The issuance of a market authorization or “Notice of Compliance” is subject to the Food and Drug Regulations, which provide, among other things, up to eight and one-half years of data exclusivity on new chemical entities. The regulations prohibit generic companies from filing a generic submission using a new chemical entity as the Canadian reference or comparator product for six years following the receipt by a brand company of a Notice of Compliance for such new chemical entity. The Canadian generic industry trade association has opposed the application of these regulations in the courts. The trade association’s application to the courts was dismissed by the lower court and is currently under appeal. Issuance of a Notice of Compliance for generic drug products is also subject to the Patented Medicines (Notice of Compliance) Regulations under the Patent Act. The Therapeutic Products Directorate will not issue a Notice of Compliance if there are any patents relevant to the drug product listed in the Patent Register maintained by Health Canada. Generic pharmaceutical manufacturers can either wait for the patents to expire or serve a
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Table of Contentsnotice of allegation upon the brand company. If, as is frequently the case, litigation is commenced by the brand company in response to the notice of allegation, a Notice of Compliance will not be issued until the earlier of the expiration of a 24-month stay or resolution of the litigation in the generic company’s favor. Every province in Canada offers a comprehensive public drug program. The provinces control the reimbursement price of drugs listed on their formularies. Several large provinces have implemented price reforms aimed at reducing reimbursement of generic products over a phased in period of approximately two years. Ontario and Quebec regulations (representing 60% of the Canadian market) also include certain limitations related to trade incentives paid to trade customers. Several smaller provinces are expected to introduce new price reforms in 2011. European Union The medicines legislation of the European Union (EU) requires that medicinal products, including generic versions of previously approved products and new strengths, dosage forms and formulations of previously approved products, receive a marketing authorization before they are placed on the market in the EU. Authorizations are granted after a favorable assessment of quality, safety and efficacy by the respective health authorities. In order to obtain authorization, application must be made to the competent authority of the member state concerned. Besides various formal requirements, the application must contain the results of pharmaceutical (physico-chemical, biological or microbiological) tests, pre-clinical (toxicological and pharmacological) tests and clinical trials. All of these tests must have been conducted in accordance with relevant European regulations and must allow the reviewer to evaluate the quality, safety and efficacy of the medicinal product. During 2010, we continued to register products in the EU, using both the mutual recognition procedure (submission of applications in other member states following approval by a so-called reference member state) and the decentralized procedure (simultaneous submission of applications to chosen member states). We continue to use the centralized procedure to register our generic equivalent version of reference products that originally used this procedure. In 2005, a legal pathway was established to allow approval of Similar Biological Medicinal Products (“biosimilars”) using abbreviated marketing applications. Appropriate tests for demonstration of safety and efficacy include preclinical or clinical testing or both. The reference product for this testing is the brand-name drug, and the scientific principles and regulatory requirements for comparability are followed. Guidelines have been issued providing a more detailed interpretation of the data requirements for specific products, and further guidance is being developed by the respective authorities in conjunction with the pharmaceutical industry. In order to control expenditures on pharmaceuticals, most member states of the EU regulate the pricing of such products and in some cases limit the range of different forms of a drug available for prescription by national health services. These controls can result in considerable price differences among member states. In addition to patent protection, exclusivity provisions in the EU may prevent companies from applying for marketing approval for a generic product for either six or ten years (the period is selected by each country) from the date of the first market authorization of the original product in the EU. 2005 legislation, applicable to all members of the EU, changes and harmonizes the exclusivity period for new products where the application for marketing approval was submitted after November 2005. The period before marketing approval for a generic product can be pursued (known as data exclusivity) is eight years (from either six or ten years before) following approval of the reference product in the EU. Further, the generic product will be barred from market entry (marketing exclusivity) for a further two years, with the possibility of extending the market exclusivity by one additional year under certain circumstances for novel indications. Given that reference products submitted after November 2005 will take at least one year to be assessed and approved, the 2005 exclusivity provisions of ‘8+2+1’ years will affect only generic submissions for marketing approval lodged in late 2014 onwards.
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Table of ContentsThe term of certain pharmaceutical patents may be extended in the EU by up to five years upon grant of Supplementary Patent Certificates (SPC). The justification for this extension is to increase effective patent life (i.e. the period between grant of a marketing authorization and patent expiry) to fifteen years. Previously, longer extensions had been available; for example, French and Italian patents granted before the current SPC legislation came into force were extended by up to eight and eighteen years, respectively. Subject to the respective pediatric regulation, the holder of a SPC may obtain a further patent term extension of up to six months under certain conditions. This six month period cannot be claimed if the license holder claims a one-year extension of the period of marketing exclusivity based on the grounds that a new pediatric indication brings a significant clinical benefit in comparison with other existing therapies. Orphan designated products, which receive, under certain conditions, a blanket period of ten years data exclusivity, may receive an additional two years of data exclusivity instead of an extension of the SPC if the requirements of the pediatric regulation are met. The legislation also allows for research and development work during the patent term for the purpose of developing and submitting registration dossiers. Historically in Latin America, local governments did not distinguish between innovative pharmaceuticals, OTC and generic drug products, and many pharmaceutical companies in the region engaged in the production of drugs still under patent in their countries of origin or off-patent drugs sold under a local brand-name, in accordance with local laws that may not have required bioequivalence testing. In recent years, however, the Latin America region has seen increased enforcement of intellectual property and data protection rights. The market has also been characterized by an increased demand for high-quality pharmaceutical products as the major markets in the region have adopted more stringent regulations governing pharmaceutical product safety and quality. Nevertheless, pricing pressures for pharmaceutical products, which are subject to direct or indirect price controls in many countries in Latin America, are expected to continue to exert political and budgetary constraints that may foster the continued growth of generics but may have a negative impact on pricing. With respect to biosimilars or follow-on biologics, new regulatory pathways for approval have either been approved or are in development throughout the region. The Israeli Ministry of Health requires pharmaceutical companies to conform to internationally recognized standards. Other legal requirements prohibit the manufacturing, importation and marketing of any medicinal product unless it is duly approved in accordance with these requirements. In 2005, the Israeli parliament (Knesset) enacted new patent legislation that ensures that a patent term extension in Israel will terminate upon the earliest of the parallel patent term extension expiration dates in the U.S., Europe and several other countries. The Knesset also ratified legislation that provides for data exclusivity provisions, which may prevent the marketing of a generic product for a period of five and a half years measured from the first registration of the innovative drug product in any one of a number of specified Western countries. In February 2010, the Government of Israel signed an agreement with the United States Trade Representative which will result in new legislation modifying both the patent term extension provisions and the data exclusivity provisions. When the legislation is approved, it may prevent the marketing of a generic product for a period of six and a half years measured from the first registration of the innovative drug product in any one of a number of specified Western countries.
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Table of ContentsIsraeli pricing regulations mandate that the retail prices of pharmaceuticals in Israel should not exceed the lower of the average price in four European markets (as opposed to eight reference European countries in 2009) or the price in the Netherlands. The four reference European markets are France, Belgium, Spain and Hungary. The reduction of number of reference markets was made in order to further reduce the prices of pharmaceuticals in Israel. Russia The Russian government is implementing its 2020 pharmaceutical sector strategy, which emphasizes localization of production and aims to harmonize Russian pharmaceutical regulations with international principles and standards. Russia’s new pricing regulations, which came into effect in 2010, impose price restrictions on pharmaceuticals listed on the new Essential Drug List (EDL). In accordance with this new legislation, as of January 1, 2010, EDL manufacturers must perform annual registrations of the maximum factory price calculated according to the methodology of Ministry of Health. The law does not regulate prices for medicines that are not essential medicines. The new legislation also includes safety measures, to be implemented by January 1, 2014, with the goal of ensuring production of high-quality pharmaceuticals. Miscellaneous Regulatory Matters We are subject to various national, regional and local laws of general applicability, such as laws regulating working conditions. In addition, we are subject to various national, regional and local environmental protection laws and regulations, including those governing the discharge of material into the environment. As discussed above, data exclusivity provisions exist in many countries worldwide and may be introduced in additional countries in the future, although their application is not uniform. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of the brand-name product in that country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the submission of generic drug applications for some products even after the patent protection has expired. Organizational Structure Our worldwide operations are conducted through a network of global subsidiaries primarily located in North America, Europe, Latin America, Asia and Israel. We have direct operations in approximately 60 countries, as well as 40 finished dosage pharmaceutical manufacturing sites in 19 countries and pharmaceutical R&D centers in 18 countries. The following sets forth, as of December 31, 2010, our principal operating subsidiaries in terms of sales to third parties. In North America—United States: Teva Pharmaceuticals USA, Inc and Plantex USA, Inc.; Canada: Teva Canada Ltd. (formerly known as Novopharm Limited). In Europe—Hungary: TEVA Hungary Pharmaceutical Marketing Private Limited Company; United Kingdom: Teva UK Limited; The Netherlands: Teva Pharmaceuticals Europe B.V., Pharmachemie B.V., Plantex Chemicals B.V.; France: Teva Santé SAS, Laboratoire ratiopharm S.A.; Croatia: Pliva Hrvatska d.o.o.; Germany: AWD.Pharma GmbH & Co. KG , Teva GmBH, CT Arzneimittel GMBH, ratiopharm GmbH; Poland: Teva Pharmaceuticals Polska sp. z o.o.; Italy: Teva Italia S.r.l., ratiopharm Italia S.r.l.; Spain: Teva pharma S.L.U.; Czech Republic: Teva Czech Industries s.r.o., Teva Pharmaceuticals CR, s.r.o.; Russia: Teva Limited Liability Company. In Latin America: Chile: Laboratorio Chile S.A.; Mexico: Lemery S.A. de C.V.; Argentina: IVAX Argentina S.A., Teva-Tuteur S.A.
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Table of ContentsIn Israel—Assia Chemical Industries Ltd. and Salomon, Levin and Elstein Ltd. In addition to the subsidiaries listed above, we have operations in various strategic and important locations, including China, India, Turkey, Japan and other emerging and smaller markets. Properties and Facilities Listed below are our principal facilities and properties in various regions of the world and their size in square feet as of December 31, 2010:
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We lease certain of our facilities. In Israel, our principal executive offices and corporate headquarters in Petach Tikva are leased until December 2012. In North America, our principal leased properties are the facilities in North Wales, Pennsylvania, the initial term of which expires in 2016, and a new warehouse in New Britain, Pennsylvania, the initial term of which expires in 2013. We own and lease various other facilities worldwide.
None
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Introduction We are a global pharmaceutical company that develops, produces and markets generic drugs covering all major treatment categories. We are the leading generic pharmaceutical company in the world, as well as in the U.S., in terms of both total and new prescriptions. We also have a significant and growing branded pharmaceutical product line, including Copaxone® for multiple sclerosis and Azilect® for Parkinson’s disease, respiratory products and women’s health products. The generic pharmaceutical industry as a whole, and therefore our own operations, are affected by demographic trends such as an aging population and a corresponding increase in healthcare costs, governmental budget constraints and spending decisions of healthcare organizations, as well as broad economic trends. In each of our markets around the globe, governments as well as private insurers are working to control growing healthcare costs, and there is an increasing recognition of the importance of generics in providing access to affordable pharmaceuticals, although these conditions also enhance pressure on generic pricing. In addition, the generic pharmaceutical industry, particularly in the U.S., has been significantly affected by consolidation among managed care providers, large pharmacy chains, wholesaling organizations and other buyer groups. Generic pharmaceutical companies also face intense competition from brand-name pharmaceutical companies seeking to counter generic products. We believe that our broad pipeline and balanced business model, combining generic as well as branded generic, innovative, respiratory, women’s health and biosimilar pharmaceutical products as well as API, coupled with our geographic diversity, are key strategic assets in addressing these trends. Highlights In 2010, our net sales grew to $16.1 billion, an increase of approximately $2.2 billion, or 16%, over our net sales in 2009. Our sales growth in 2010 was driven by the consolidation of ratiopharm’s sales beginning in August and strong performance in all of our geographic regions, including higher generic sales in the U.S. and continued strong sales of Copaxone®. Net income attributable to Teva in 2010 reached a record $3.3 billion, compared to $2.0 billion in 2009. Among the significant highlights of 2010 were:
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Acquisitions Ratiopharm On August 10, 2010, we acquired the Merckle ratiopharm Group (“ratiopharm”), a global pharmaceutical company with operations in more than 20 countries, for a total cash consideration of $5.2 billion. Ratiopharm’s results of operations were included in our consolidated financial statements commencing August 2010. With the closing of the acquisition, we are now the leading generic pharmaceutical company in Europe, with the number two position in Germany and leading market positions in other key European markets and in Canada. Laboratoire Théramex On January 5, 2011, we acquired Laboratoire Théramex for €269 million paid at closing (approximately $360 million at current exchange rates) and certain limited performance-based milestone payments. Théramex offers a wide variety of women’s health products, and expands our women’s health business into important growth markets in Europe and the rest of the world. Corporación Infarmasa On January 26, 2011, we acquired Corporación Infarmasa (“Infarmasa”), a top ten pharmaceutical company in Peru. Infarmasa’s product offerings significantly enhance our portfolio in the market, especially in the area of antibiotics, where Infarmasa has the leading brand in Peru. The combination of Corporación Medco (our existing operation in Peru) and Infarmasa will be one of the top two pharmaceutical companies in the country. Results of Operations The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements, presented as percentages of net sales, and the percentage change for each item as compared to the previous year.
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Table of ContentsSales by Geographic Area
In 2010, our sales in North America amounted to $9,988 million, an increase of 16% over 2009. The growth in sales was mainly attributable to higher sales of generic pharmaceuticals in the U.S. and in Canada (where sales increased primarily as a result of the ratiopharm acquisition) and an increase in sales of Copaxone®. These increases were offset in part by the loss of sales of injectable products produced in our Irvine, California facility and lower sales of ProAirTM and Plan B®. The growth in sales of generics in the U.S. was the result of, among other things, the following:
The increase in sales of generic products in the U.S. was offset in part by decreased sales of certain products, primarily our generic versions of Lotrel® (amlodipine benazapril), Protonix® (pantoprazole) and Adderall XR® (mixed amphetamine salts ER), as well as Yasmin® (drospirenone, which we market as Ocella™), the decrease in which was related to an overall decline in the market for this product. In addition, in 2010 there were no sales of our generic versions of Ortho Tri-Cyclen Lo® (norgestimate and ethinyl estradiol, which we marketed as Tri-Lo Sprintec™) which we launched in the third quarter of 2009 and, under a settlement agreement, agreed to exit the market shortly after the launch. Our generic version of Eloxatin® (oxaliplatin injection), which was also launched in the third quarter of 2009, was sold only through the second quarter of 2010 pursuant to a settlement with Sanofi-Aventis. Other factors affecting sales in North America include:
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Table of ContentsAmong the most significant generic products we sold in the U.S. in 2010 were generic versions of Effexor XR® (venlafaxine HCl ER), Pulmicort® (budesonide inhalation), Adderall XR® (mixed amphetamine salts ER), Yaz® (drospirenone and ethinyl estradiol, which we market as Gianvi™), Cozaar® (losartan potassium), Mirapex® (pramipexole dihydrochloride), Accutane® (isotretinoin, which we market as Claravis™), Yasmin® (drospirenone, which we market as Ocella™), Protonix® (pantoprazole), Lotrel® (amlodipine/benazapril) and Hyzaar® (losartan potassium—hydrochlorothiazide). During 2010, we launched 18 new products in the U.S.: generic versions of Effexor XR® (venlafaxine ER capsules), Yaz® (drospirenone and ethinyl estradiol, which we market as Gianvi™), Cozaar® (losartan potassium), Hyzaar® (losartan potassium HCTZ), Mirapex® (pramipexole dihydrochloride), Amerge® (naratriptan), Catapres-TTS® (clonidine), Diastat® AcuDial TM (diazepam), Trusopt® (dorzolamide HCI), Flomax® (tamulosin HCI), Activella® (estradiol & norethindrone), Valtrex® (valacyclovir), Subutex® (buprenorphine HCl), Differin® (adapalene gel), Arimidex® (anastrazole), Prozac® Weekly™ (fluoxetine DR), Previcid® SoluTab™ (lansoprazole OD) and Aricept® (donepezil OD). We expect that our revenue stream in North America will continue to be fueled by our strong U.S. generic pipeline, which, as of February 5, 2011, had 206 product registrations awaiting FDA approval (including some products through strategic partnerships), including 44 tentative approvals. Collectively, the branded versions of these 206 products had U.S. sales in 2010 exceeding $121 billion. Of these applications, 134 were “Paragraph IV” applications challenging patents of branded products. We believe we are the first to file with respect to 80 of these products, the branded versions of which had U.S. sales of more than $55 billion in 2010. IMS reported branded product sales are one of the many indicators of the potential future value of a launch, but equally important is the mix and timing of competition, as well as cost-effectiveness. The potential advantages of being the first filer with respect to some of these products may be subject to shared exclusivity and/or forfeiture. In Canada, sales in 2010 increased primarily due to the consolidation of ratiopharm’s sales commencing August 1, 2010 and new product launches. In Canada, as of December 31, 2010, we had 73 product registrations awaiting approval by the Therapeutic Products Directorate of Health Canada. Collectively, the branded versions of these products had Canadian sales in 2010 of approximately $3.5 billion. In December 2009, the FDA issued a warning letter relating to our Irvine, California injectable products manufacturing facility. We voluntarily ceased production at the facility in the second quarter of 2010, resulting in the loss of $230 milllion in sales during the remainder of 2010, and are executing a remediation plan required by the FDA. We expect that manufacturing activity will begin to resume in 2011, with limited production earlier in the year, gradually increasing to full production by year-end. During 2010, the Company incurred uncapitalized production costs, consulting expenses and write-offs of inventory of $131 million. Additionally, as a result of both the extensive time required to remediate and our decisions to restructure the facility and realign the scale of manufacturing, we incurred restructuring and other impairment charges of $106 million. If we are unable to resume the production and sale of injectable products within the timeframe currently expected, or if we further change our plans as to the scale of operations or products at the Irvine facility, additional expenses are likely to be incurred and there may be further impairments of tangible and intangible assets. At December 31, 2010, we had approximately $56 million of intangible assets and approximately $240 million of fixed assets and inventory relating to products produced at the Irvine facility. These assets are monitored periodically for impairment. In July 2009, Teva and the FDA entered into a consent decree with respect to the operations of Teva Animal Health. In the consent decree, the FDA mandated that all Teva Animal Health products be recalled and all finished goods inventory be disposed of. Such actions resulted in a write-off of $82 million during 2009, consisting primarily of inventory and recall reserves, as well as an impairment of certain fixed assets and intangibles related to the closure of the Fort Dodge, Iowa facility. In October 2010, Teva Animal Health resumed selling certain third party manufactured products. Remediation of the remaining facilities is expected to continue in 2011. The Company incurred uncapitalized production costs, consulting expenses and write-offs of inventory related to remediation of $48 million and $94 million in 2010 and 2009, respectively. In addition, in 2009, restructuring and impairment costs were $13 million. As of December 31, 2010 we had $109 million of
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Table of Contentsintangible assets and fixed assets relating to acquired product rights of Teva’s U.S. Animal Health products line. Due to the inherent uncertainties relating to the future ability of Teva Animal Health to produce and sell its products, these assets are monitored periodically for impairment. In 2009, our sales in North America amounted to $8,585 million, representing an increase of 34% over 2008. The increase in sales was attributable to:
Sales in Europe in 2010 amounted to $3,947 million, an increase of 21% compared to 2009, despite negative currency effects. In local currency terms, sales grew by 26%. The main contributors to this increase were the inclusion, commencing August 2010, of sales of ratiopharm, (mainly in Germany, France, Spain and Italy), higher sales of generic pharmaceuticals and higher sales of APIs as well as increased sales of Copaxone® and Azilect®. During 2010, the main European currencies affecting our sales (euro, British pound and Hungarian forint) declined in value against the U.S. dollar (on an annual average compared to annual average basis). During 2010, we received 1,846 generic approvals in Europe relating to 196 compounds in 400 formulations, including eight European Commission approvals valid in all EU member states. In addition, we believe that we have the broadest generic pipeline in Europe with approximately 3,568 marketing authorization applications pending approval in 30 European countries, relating to 290 compounds in 586 formulations, including nine applications pending with the EMA. During 2010, we continued to register products in the EU, using both the mutual recognition procedure (submission of applications in other member states following approval by a so-called reference member state) and the decentralized procedure (simultaneous submission of
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Table of Contentsapplications to chosen member states). We continue to use the centralized procedure to register our generic equivalent version of reference products that originally used this procedure. During 2010, the European Commission (EC) adopted the opinion of the Committee for Medicinal Products for Human Use (CHMP) and granted us EU-wide marketing authorizations for raloxifene, clopidogrel hydrochloride (two applications), telmisartan, ibandronate (once daily and once monthly formulations), docetaxel and temozolamide. In addition, the CHMP adopted positive opinions (subject to ratification by the EC) recommending the grant of EU-wide marketing authorizations for leflunomide, clopidogrel hydrobromide, lamivudine + zidovudine and entacapone. With the inclusion of ratiopharm, we became the leading generic pharmaceutical company in Europe and improved our market position significantly in certain key European countries . In 2010, our sales increased in all of the major European countries. Highlights for 2010 in Europe included:
Total sales in Europe in 2009 amounted to $3,271 million, an increase of 10% compared to 2008. In local currency terms, we increased our sales by 22%. The main contributors to this increase were the first time inclusion of Barr’s European subsidiary, Pliva (mainly in Germany, Poland and the Czech Republic), a full year of generic sales in Spain (following our acquisition of Bentley in July 2008), strong sales in France and an increase in the sales of Copaxone® and Azilect®. In 2009:
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International Markets Our International Markets include all countries other than the U.S., Canada, EU member states, Switzerland and Norway. Our sales in these countries reached an aggregate of $2,186 million in 2010, an increase of 7% as compared to 2009. In local currency terms, sales grew by 11%. Approximately 33% of our International sales were generated in Latin America, 28% in Russia and other Eastern European markets, 26% in Israel and 13% in all other markets. In most international markets, our products are marketed and sold as branded generics. Sales of branded generic products usually generate higher gross margins but also involve considerably higher marketing expenditures than do non-branded generic products (such as those sold in the U.S. and certain Western European countries). In Latin America, sales grew by 10% in local currency terms, primarily driven by strong performances in Argentina and Mexico as well as increased sales of Copaxone®. We continued to maintain our market share except for Brazil, where we slightly increased our share of the MS market. Our sales in Eastern Europe in 2010 of both generic and innovative products grew by 17% in local currency terms compared to 2009. The growth is mainly attributable to strong sales of Copaxone® in Russia, which were achieved despite pricing regulations that restricted prices on “essential drugs,” including Copaxone®. These regulations will continue to apply pressure on pharmaceutical companies. The growth in sales in Eastern Europe was also attributable to the inclusion of ratiopharm’s sales in Russia, Kazakhstan and Ukraine commencing August 2010. In 2010, our market shares in most major countries in Eastern Europe increased or remained level compared to 2009. Following the ratiopharm acquisition, we became the second-largest generic pharmaceutical company in Russia, the second-largest in Kazakhstan and the fifth-largest in Ukraine. The pharmaceutical markets in Croatia and the former Yugoslav republics were negatively impacted in 2010 by government pricing pressures, which, together with reduced consumer spending, contributed to flat to declining sales. Copaxone® was launched in Croatia with government reimbursement in 2010. Sales in Israel in 2010 increased by 10% in local currency terms as compared to 2009, primarily driven by distribution revenues and sales of medical products. Azilect® was included in the Israeli national list of registered drugs for the first time in 2010.
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Table of ContentsSales in our International market during 2009 amounted to $2,043 million, an increase of 20% compared to 2008. In local currency terms, sales grew by 32%. Approximately 37% of our International sales were generated in Latin America, 25% in Russia and other Eastern European markets, 24% in Israel and 14% in all other markets. Sales by Product Line
Generics and Other Sales of generics and other products grew by $1,577 million, or 17%, in 2010 over 2009. Our largest market for generics is the U.S., accounting for approximately 53% of the total generics and other sales in 2010, or $5,813 million, and growing by approximately $813 million, or 16%, over 2009. U.S. sales benefited from approximately $1,471 million of products sold in 2010 that were not sold in 2009, as discussed above under “Sales by Geographic Area—North America.” In addition, the Company benefited from a full year sales of Pulmicort® (budesonide), which was relaunched in December 2009, pursuant to a settlement agreement with Astra Zeneca. These increases were partially offset by declines in sales of previously launched products, primarily those where we had exclusive or semi-exclusive rights in 2009, such as the generic versions of Lotrel® (amlodipine benazapril), Yasmin® (drospirenone, marketed as Ocella™), Protonix® (pantoprazole) and Adderall XR® (mixed amphetamine salts ER), as well as the loss of sales of injectable products manufactured in our Irvine, California facility and the absence of sales of animal health products. In addition, we had no sales in 2010 of our generic versions of Ortho Tri-Cyclen Lo® (norgestimate and ethinyl estradiol, marketed as Tri-Lo Sprintec™), which we launched in July 2009 and, under a settlement agreement with Ortho-McNeil Janssen Pharmaceuticals, Inc., we exited the market shortly after launch. Generics and other products from non-U.S. markets grew by $764 million, or 18%, in 2010 over 2009. This growth was enhanced by the inclusion of ratiopharm’s sales and was partially offset by the impact of foreign currency exchange differences. In local currency terms, sales of generics and other products from non-U.S. markets grew by approximately 22%. In 2009, sales of generics and other products grew by $1,621 million, or 21%, over 2008. This growth was mainly due to higher sales in the U.S., our largest market for generics, growing by $1,003 million, or 25%, over 2008. U.S. sales benefited from products sold in 2009 that were not sold in 2008, primarily due to sales of products contributed from the Barr portfolio and new product launches, partially offset by declines in both the volume and price of sales of previously existing products, primarily those products for which we had exclusive or semi-exclusive rights in 2008, such as Lamictal® (lamotrigine), Wellbutrin XL® (buproprion 150mg) and Risperdal® (risperidone), as well as lower sales of animal health products. Generics and other products from non-U.S. markets grew by $618 million, or 17%, in 2009 over 2008, primarily driven by the addition of Barr’s European subsidiary, Pliva, and the full year impact of the acquisition of Bentley in 2008. This growth was partially offset by the impact of foreign currency exchange differences of approximately $490 million.
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Table of ContentsOn January 31, 2011, we received a warning letter from the FDA relating to our oral solid dose manufacturing facility in Jerusalem. The letter cites cGMP deficiencies related to laboratory reporting and systems. We believe that we have addressed the FDA’s observations and we are working diligently to resolve any outstanding FDA concerns. The letter does not restrict production or shipment of the products from our facility. However, unless and until we are able to correct outstanding issues to the FDA’s satisfaction, the FDA may withhold approval of pending drug applications listing the Jerusalem facility. The FDA may also withhold permission to export products manufactured at the facility to the U.S. Teva’s sales of Copaxone® and Azilect® amounted to $3,202 million this year, an increase of 20% over 2009. Total global in-market sales of Copaxone® and Azilect® this year were $3,634 million, an increase of 18% over 2009. Copaxone®. In 2010, Copaxone® (glatiramer acetate injection) continued to be the leading multiple sclerosis therapy in the U.S. and globally. Global in-market sales grew by 17% over 2009, reaching $3,316 million. Price increases, partially offset by negative currency effects, accounted for less than half of the increase, and unit growth accounted for the remainder. U.S. in-market Copaxone® sales increased 19% to $2,287 million, and non-U.S. in-market sales increased by 13% to $1,029 million, compared to 2009. Growth in U.S. sales of Copaxone® was driven by price increases in January and May, of 9.9% each, and, to a lesser extent, by increases in unit sales. In January 2011, there was an additional 14.9% increase in the price of Copaxone® in the U.S. The increase in sales outside the U.S. was driven primarily by unit growth, partially offset by adverse currency effects and cost-containment measures by governments. In local currency terms, in-market sales outside the U.S. grew by 14%. Markets outside the U.S. with substantial unit growth included U.K., Italy, Germany, Spain and Russia. U.S. in market sales accounted for 69% of global Copaxone® sales in 2010, compared with 68% in 2009. The first quarter of 2010 was the last quarter in which we made payments to Sanofi-Aventis of 25% of in-market sales in the U.S. and Canada. These payments were recorded as selling and marketing expenses. With the termination of this obligation, our selling and marketing expenses in North America after April 1, 2010 decreased accordingly. We have an additional collaborative agreement with Sanofi-Aventis for the marketing of Copaxone® in Europe and other markets. Under the terms of this agreement, Copaxone® is co-promoted with Sanofi-Aventis in Germany, the U.K., France, Spain, the Netherlands and Belgium and is marketed solely by Sanofi-Aventis in the rest of the European markets, Australia and New Zealand. Commencing in 2009 and to a greater extent by 2012, we are gradually assuming marketing responsibilities for Copaxone® in territories covered under this additional agreement. During 2010, Teva successfully took over marketing responsibilities for Copaxone® in the U.K., the Czech Republic and Poland. Sanofi-Aventis is entitled for a period of two years to 6% of the in market sales of Copaxone® in the applicable countries. Sanofi-Aventis will also cease sharing our Copaxone® selling and marketing expenses in these markets. This change will eventually result in increases in net sales, gross profit and gross profit margin for Copaxone®; however, the effect on operating income in 2011 will be minimal. To date, Copaxone® has been approved for marketing in 52 countries worldwide, including the U.S., Canada, Israel and all EU countries. U.S. market shares in terms of new and total prescriptions were 37.1% and 40.4% respectively, according to December 2010 IMS data. In 2009, in-market global sales of Copaxone® amounted to $2.8 billion, an increase of 25% over 2008. U.S. sales in 2009 accounted for 68% of global sales of Copaxone®. The growth of in-market sales of Copaxone® in the U.S. in 2009 also reflected the impact of two price increases of 9.9% each.
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Table of ContentsAzilect®. Our once-daily treatment for Parkinson’s disease, Azilect® (rasagiline tablets), continued to establish itself in the U.S. and Europe. Global in-market sales in 2010 reached $318 million compared to $243 million in 2009, an increase of 31%. The increase in sales is attributable primarily to volume growth worldwide and to a lesser extent due to price increases in the U.S. Outside the U.S., sales of Azilect® increased mainly in France, Spain, Italy and Germany. In local currency terms, in-market sales of Azilect® grew 34%. Azilect® is now approved for marketing in 45 countries. According to December 2010 IMS data for the U.S. market, Azilect® reached a record market share of 4.7% for total and for new prescriptions. Specialty Respiratory Products Sales of our specialty respiratory products decreased 3% in 2010 to $875 million. Not included in this figure are our sales in the U.S. of budesonide, which were reported as part of our generic drug sales. Sales in the U.S. were $556 million, a 2% decline compared to 2009. ProAir™ (albuterol HFA) sales in the U.S. decreased by 13% from prior year, reflecting increased competition in the short-acting beta agonist (SABA) market, primarily from GlaxoSmithKline’s Ventolin® HFA product. ProAir™ maintained its leadership in the SABA market in the U.S., with an average market share of 47.6% in terms of total number of prescriptions during the fourth quarter of 2010. Qvar® sales in the U.S. increased by 41% from prior year, with an average market share of 20.6% during the fourth quarter in terms of total prescriptions in the inhaled corticosteroid category (an increase of more than 25%). In Europe, reduced sales of respiratory products in local currency terms in France and in the U.K. were partially offset by an increase in Germany due to the addition of ratiopharm’s sales, as well as increased sales in other European countries. Sales of Qvar® increased in the principal markets in Europe as well, most notably in the U.K and Germany. Active Pharmaceutical Ingredient (API) API sales to third parties in 2010 amounted to $641 million, an increase of 13% over 2009. This growth occurred in all of our principal geographical markets: North America, Europe and International. Sales to third parties in 2009 amounted to $565 million, a decrease of 6% compared to 2008. The decrease in sales in 2009 occurred mainly in Europe and North America, and partially offset by higher sales to third parties in our International markets. Women’s Health Products Our women’s health products in the U.S. reached sales of $374 million, an increase of 5% from $357 million sold in 2009. These sales figures represent proprietary women’s health products only and do not include revenues from women’s health products that are sold in the U.S. as generic drugs (e.g., drospirenone and ethinyl estradiol, which we market as Gianvi™). Sales of ParaGard® and Seasonique® / Seasonique Lo® increased by 18% and 63% during 2010. During the third quarter of 2009, our original two-pill dosage emergency contraception product, Plan B®, encountered generic competition and as a result its sales in 2010 declined by 32% compared to 2009. We have since refocused our marketing efforts on Plan B One-Step®, a single pill version. Plan B One Step® is currently available over-the-counter for women over the age of 17. We expect to file for full OTC status for this product in early 2011. In 2009, sales reached $357 million, an increase of 12% from $319 million sold by Barr in 2008. Sales of all promoted products increased in 2009. These sales figures include different products than the sales reported by Barr as its overall proprietary sales. Biosimilars During 2010, sales of biosimilar pharmaceuticals reached $112 million, as compared with $74 million in 2009 and $63 million in 2008. The increase in sales this year was mainly driven by the inclusion of ratiopharm’s
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Table of Contentssales and the continued launch of our biosimilar granulocyte colony stimulating factor (GCSF) in Europe, as well as higher sales of Tev-tropin® (human growth hormone) in the U.S. More than three-quarters of the sales in 2010 were from products sold in U.S. and European markets (which beginning August 2010, also included sales of ratiopharm’s products), compared to less than two-thirds in 2009. We intend to launch additional, biopharmaceutical products over the next several years in the U.S. and in the European and International markets. During 2010 we continued launching our biosimilar GCSF under the brand name TevaGrastim in several European countries, including France, Italy, Spain, Poland and the Netherlands. In December 2009, we submitted a biologic license application for this product to the U.S. FDA. In September 2010, the U.S. FDA issued a complete response letter requesting additional information required for approval. Through the ratiopharm acquisition we added another biosimilar GCSF product, marketed as ratiograstim as well as an Epoetin theta product, sold as Eporatio, which was launched in 2010 in several European countries including Germany, France, Italy, Spain and the U.K. Other Income Statement Line Items In 2010, gross profit amounted to $9,065 million, an increase of 23%, or $1,698 million compared to 2009. The higher gross profit was mainly a result of our higher overall sales as well as lower inventory step-up charges. Amortization of ratiopharm’s intangible assets will commence in the first quarter of 2011. Gross profit margins were 56.2% in 2010, compared with 53.0% in 2009 and 53.8% in 2008. The increase in gross margins primarily reflects the product mix in the U.S., which included a number of high-margin products, including the generic versions of Effexor XR®, Pulmicort®, Cozaar® and Hyzaar® as well as other products and the higher contribution from our innovative products which have high gross margins. Gross profit increased in 2009 to $7,367 million from $5,968 million in 2008, an increase of 23%. Gross profit margins were 53.0% in 2009, compared to 53.8% in 2008. Research and Development (R&D) Expenses Net R&D spending for 2010 grew by 16% over 2009 and reached $933 million. As a percentage of sales, R&D spending reached 5.8% in 2010, the same as in 2009. In 2010, we increased R&D spending in our innovative and branded R&D activities, including research and development of biosimilar, respiratory and women’s health products as clinical activities progressed and ratiopharm’s R&D activities were integrated. Slightly more than half of our 2010 R&D expenditures was for generic R&D, and the balance was for our innovative, respiratory, women’s health and biosimilar products. The Teva-Lonza joint venture commenced activities in 2009, and we were reimbursed $21 million for related R&D efforts incurred as part of the joint venture. This reimbursement has been recorded as a reduction in research and development expenses. Our share in the joint venture’s expenses—approximately $24 million—is reflected in the income statement under “share in losses of associated companies—net.” In 2010, expenses recovered from third parties that were recorded as a reduction to R&D significantly declined as compared to 2009. These were mainly due to reimbursements associated with the Teva-Lonza joint venture as well as other third party reimbursements. Research and development expenses increased in 2009 to $802 million from $786 million in 2008, an increase of 2%.
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Table of ContentsResearch and Development In-Process (IPR&D) IPR&D expenses in 2010 were $18 million, attributable to several R&D license agreements that supplemented our innovative and branded pipeline. IPR&D expenses in 2009 were $23 million and were attributable to the OncoGenex collaboration and a related agreement to develop and commercialize OGX-011, a cancer therapy designed to inhibit cancer treatment resistance. Under applicable accounting rules that took effect in 2009, only IPR&D purchased in an asset deal that has not reached technological feasibility and has no alternative future use may be expensed immediately. S&M expenses in 2010 amounted to $2,968 million, an increase of 11% over 2009. As a percentage of sales, S&M expenses were 18.4% in 2010 compared to 19.3% in 2009. The increase in dollar terms was primarily due to higher royalty payments made on generic products in the U.S. (mainly to generic versions of Pulmicort®, Effexor XR®, Yaz®, Mirapex® and Famvir®) as well as to the consolidation of ratiopharm. The increase was partially offset by the termination of our obligation to pay Sanofi-Aventis 25% of the in-market sales of Copaxone® in U.S. and Canada, as described below, as well as changes in currency exchange rates. Beginning January 1, 2011, our royalty obligations on our U.S. sales of generic Effexor XR® increased significantly and will remain at such level as long as we are the sole generic seller. In April 2008, we assumed the distribution of Copaxone® in the U.S. and Canada from our former partner, Sanofi-Aventis. Under the terms of our agreements with Sanofi-Aventis, we paid Sanofi-Aventis 25% of the in-market sales of Copaxone® in the U.S. and Canada through March 31, 2010, which we recorded as a selling and marketing expense. As a result, in 2010 we had only one quarter of payments to Sanofi-Aventis while in 2009 we had a full year of payments. S&M expenses in 2009 amounted to $2,676 million, an increase of 45% over 2008, and as a percentage of sales, S&M expenses increased to 19.3% for 2009 from 16.6% for 2008. General and Administrative Expenses (G&A) G&A expenses in 2010 amounted to $865 million compared with $823 million in 2009, an increase of 5% over 2009. As a percentage of sales, G&A expenses decreased to 5.4% for 2010 from 5.9% for 2009. The increase in G&A expenses in dollar terms resulted primarily from the inclusion of ratiopharm, and was partially offset by higher cost synergies from the Barr acquisition. G&A expenses in 2009 amounted to $823 million, an increase of 23% over 2008, and as a percentage of sales, G&A expenses decreased to 5.9% for 2009 from 6% for 2008. Legal Settlements, Acquisition, Restructuring and Other Expenses and Impairment Legal settlement expenses were primarily related to intellectual property litigation, and were offset by income from legal settlements, which resulted in a decrease in these expenses. Our 2010 results include restructuring expenses of $260 million, which included severance costs of $187 million, primarily in connection with the ratiopharm acquisition, costs related to regulatory actions taken in facilities of $47 million, contract termination costs of $17 million, and shut-down and other costs of $9 million. These expenses relate mainly to integration of new businesses under the new accounting rules, which in previous business combinations were included in the purchase price allocation. Our cost reduction initiatives, which were undertaken to meet the challenges of our business environment and future opportunities, include the closure of certain manufacturing and R&D facilities and related streamlining of staff functions and work force. Acquisition expenses in 2010 in the amount of $24 million were primarily related to the ratiopharm acquisition.
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Table of ContentsImpairment of long lived assets of $124 million in 2010, includes mainly impairments of intangible assets and fixed assets as a result of the decisions to restructure the Irvine facility. Impairment of long lived assets of $110 million for 2009 included mainly impairment of fixed assets. In February 2010, we announced that we had reached a settlement in principle to resolve claims brought by Ven-A-Care of the Florida Keys, Inc. on behalf of the United States, Texas, Florida, and California under federal and state False Claims Acts. The settlement, which received court approval in December 2010, resolved a lawsuit relating to federal contributions to all state Medicaid programs and claims of Texas, Florida, and California relating to their Medicaid programs, and eliminated the majority of the alleged damages asserted against us in the various drug pricing litigations. We recorded a charge of approximately $315 million in our fourth quarter 2009 results. This charge includes both the settlement in principle and a reserve for the remaining drug pricing lawsuits to which we are a party. Operating income reached $3,871 million in 2010, compared to $2,405 million in 2009. As a percentage of sales, operating margin was 24.0% compared to 17.3% in 2009. The increase in operating income was mainly a result of higher sales and a more profitable mix of products, the termination of our obligation to pay royalties to Sanofi-Aventis on sales of Copaxone® in the U.S. and Canada, lower legal settlement expenses and decreased inventory step-up charges. The increase in operating income was partially offset by higher royalty payments (recorded within selling and marketing expenses), restructuring costs and higher R&D expenses. Operating income in 2009 amounted to $2,405 million, an increase of 110% over 2008, and as a percentage of sales, operating income increased to 17.3% for 2009 from 10.3% for 2008. In 2010, financial expenses amounted to $225 million, compared to $202 million in 2009. The $23 million increase is primarily attributable to hedging costs in connection with the ratiopharm acquisition, partially offset by lower interest expenses and gains from the sale of marketable securities and auction rate securities. In 2010, interest expenses were lower as a result of both a decrease in the debt level and the lower interest rate of the new debt. In 2009, financial expenses amounted to $202 million, compared to $345 million in 2008. The 41% decrease is primarily attributable to net impairment of financial assets booked in 2008, partially offset by higher interest expenses and lower financial income. Our financing of the Barr acquisition increased our outstanding debt and reduced cash levels, thereby increasing interest charges and reducing financial income. The provision for taxes amounted to $283 million, or 8% of pre-tax income of $3,646 million in 2010. In 2009, the provision for taxes amounted to $166 million, or 8% of pre-tax income of $2,203 million. In 2008, the provision for taxes amounted to $184 million, or 23% of pre-tax income of $800 million. The effective tax rate for 2010 is primarily the result of the geographic mix and type of products sold in the second half of 2010. In general, we benefit more from tax incentives on products for which we also produce the API. The effective tax rate in 2009 was influenced by 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 legal settlements, restructuring and impairment charges on such subsidiaries), tax benefits arising from reduced tax rates under benefit programs and changes in uncertain tax positions. The unusually high tax rate in 2008 was mainly the result of a non-tax deductible write-off of research and development in process related to the acquisitions of Barr and CoGenesys that reduced Teva’s pre-tax income that year. Excluding the impact of this write-off, the effective tax rate for 2008 would have been 8.4% comparable to our 2009 and 2010 rates.
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Table of ContentsThe statutory Israeli corporate tax rate was 25% in 2010, compared to 26% in 2009 and 27% in 2008. This rate is currently scheduled to decrease as follows: to 24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016. However, these decreases are expected to have a relatively small impact on our provision for taxes, as our effective consolidated tax rates have historically been considerably lower, because a major portion of our income is derived from “approved enterprises” in Israel (as more fully described in “Item 10: Additional Information—Israeli Taxation” below). In addition, in certain locations outside of Israel we have been enjoying lower tax rates. Most of our investments in Israel were granted approved enterprise status, which confers certain tax benefits. These benefits include a long-term tax exemption for undistributed income generated by such projects, and lower rates of tax on dividends distributed from other projects, the source of which is approved enterprise income, for the periods set forth in the law, as described in “Item 10: Additional Information—Israeli Taxation.” Concurrently, we enjoy investment-related and R&D-related tax incentives in many of our facilities around the world. In the future, the effective tax rate is expected to fluctuate as a result of various factors, including changes in the products and geographical distribution of our income, the effect of any mergers and acquisitions, the effects of statutes of limitations and legal settlements which may affect provisions for uncertain tax positions. Net income attributable to Teva in 2010 was $3,331 million compared to $2,000 million in 2009. Diluted earnings per share reached $3.67 in 2010, an increase of 65% compared to diluted earnings per share of $2.23 in 2009. Net income attributable to Teva in 2008 totaled $609 million, a year in which we recorded research and development in-process write-offs of $1,402 million as a result of the Barr, Bentley and CoGenesys acquisitions, and diluted earnings per share amounted to $0.75. During 2010, we repurchased approximately 1.9 million shares at an average price of $51.05 per share, for an aggregate purchase price of $99 million, pursuant to an authorization in December 2010 by the board of directors to spend up to $1 billion over the following twelve months to repurchase our shares. The share count used for the fully diluted calculation for 2010, 2009 and 2008 was 921 million, 896 million and 820 million shares, respectively.
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Table of ContentsSupplemental Non-GAAP Income Data The tables below present supplemental non-GAAP data, in U.S. dollar terms, as a percentage of sales and the change by item as a percentage of the amount for the comparable period, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts:
The data so presented—after these exclusions—are the results used by management and our board of directors to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management. For example, each year we prepare detailed “work plans” for the next three succeeding fiscal years. These work plans are used to manage the business and are the plans against which management’s performance is measured. All of such plans are prepared on a basis comparable to the presentation below, in that none of the plans take into account those elements that are factored out in our non-GAAP presentations. In addition, at quarterly meetings of the Board at which management provides financial updates to the Board, presentations are made comparing the current fiscal quarterly results against: (a) the comparable quarter of the prior year, (b) the immediately preceding fiscal quarter and (c) the work plan. Such presentations are based upon the non-GAAP approach reflected in the table below. Moreover, while there are always qualitative factors and elements of judgment involved in the granting of annual cash bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, and thus tied to the same non-GAAP presentation as is set forth below. In arriving at our non-GAAP presentation, we have in the past factored out items, and would expect in the future to continue to factor out items, that either have a non-recurring impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. While not all inclusive, examples of these items include: legal settlements, including principally settlements in connection with intellectual property lawsuits, purchase accounting adjustments related to acquisitions, including adjustments for write-offs of R&D in-process, amortization of intangible assets and inventory “step-ups” following acquisitions; financial hedging expenses in connection with the ratiopharm acquisition, restructuring and other expenses related to efforts to rationalize and integrate operations on a global basis; material tax and other awards or settlements—both in terms of amounts paid or amounts received; impairment charges related to intangible and other assets such as intellectual property, product rights or goodwill; and the income tax effects of the foregoing types of items when they occur. Included in restructuring and other expenses are severance, shut down costs, contract termination costs and other costs as well as costs related to regulatory actions taken in facilities (such as
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Table of Contentsuncapitalized production costs, consulting expenses or write offs of inventory related to remediation) that we believe are sufficiently large that their exclusion is important to understanding trends in our financial results. This data are non-GAAP financial measures and should not be considered replacements for GAAP results. We provide such non-GAAP data because management believes that such data provide useful information to investors which add meaningful comparisons of Teva figures over time. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period, such as the effects of acquisition, merger-related, restructuring and other expenses, and may not provide a comparable view of our performance to other companies in the pharmaceutical industry. Investors should consider non-GAAP financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.
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