Teva Pharmaceutical Industries Limited · TASE:TEVA

Teva Pharmaceutical Industries — Q3 2014 Earnings Presentation

50 slides from Teva Pharmaceutical Industries's earnings presentation, Oct 30, 2014

1. Slide 1: Third Quarter Results 2014

   Third Quarter Results 2014 October 30, 2014

2. Slide 2: Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995

   2 Safe Harbor Statement under the U.S. Private Securities 2 Litigation Reform Act of 1995: This presentation contains forward-looking statements, which are based on management’s current beliefs and expectations. Such statements involve a number of known and unknown risks and uncertainties that could

3. Slide 3: Third Quarter 2014 Results

   3 3 Third Quarter 2014 Results Erez Vigodman President & CEO

4. Slide 4: Q3 2014 – A Solid Quarter for Teva

   4 Q3 2014 – A Solid Quarter for Teva 4 All components of Teva’s 2014 “Must Wins” are manifested in Q3 2014 results  Significant improvement in all profit margins  Generics profitability improved substantially  Robust cash flow from operations and free cash flow  Copaxone® 40mg switch on track fo

5. Slide 5: Q3 2014 – A Solid Quarter for Teva

   5 5 Q3 2014 – A Solid Quarter for Teva Q3 2014* Q3 2013* Change Revenues $m 5,058** 5,059 § Operating Income 1,504 1,330 +13% $m (29.7%) (26.3%) Net Income 1,134 1,072 +6% $m (22.4%) (21.2%) EPS 1.32 1.27 +4% $ Cash flow from Operations 1,424 444 +221% $m Free Cash Flow*** 924 (34) n/a $m *Net incom

6. Slide 6: 2014 YTD – Strong Results, Consistent with the Quarter

   6 6 2014 YTD – Strong Results, Consistent with the Quarter 2014 YTD* 2013 YTD* Change Revenues $m 15,104** 14,884 +1% Operating Income 4,236 3,840 +10% $m (28.0%) (25.8%) Net Income 3,226 3,050 +6% $m (21.4%) (20.5%) EPS 3.77 3.58 +5% $ Cash flow from Operations 3,375 2,421 +39% $m Free Cash Flow***

7. Slide 7: Solidify the Foundation - Progress YTD

   7 7 Solidify the Foundation - Progress YTD  Fully executing our cost reduction program  Significantly improving our operational network to drive efficiency and optimize capacity  Strong focus on cash and cash flow generation  Quality as a competitive advantage • Strengthening our global leadersh

8. Slide 8: Fully Executing the Cost Reduction Program

   8 8 Fully Executing the Cost Reduction Program We are on-track to deliver $650 million of net cost reductions during 2014 - substantially increasing efficiency, reducing costs and reducing the level of reinvestment $ million 2013 2014E 2013+2014E Gross Cost Savings (430) (930) (1,360) Reinvestment i

9. Slide 9: Fully Executing the Cost Reduction Program

   9 9 Fully Executing the Cost Reduction Program Net cost reductions in 2014 are spread across all our expense line items We are generating efficiency in all parts of the organization $ million, estimated Gross Cost Savings Reinvestment Net Cost Savings COGS (450) 150 (300) R&D (100) 70 (30) SG&A (380

10. Slide 10: Significantly Improving Our Operational Network

    10 10 Significantly Improving Our Operational Network  Optimizing network footprint continues as planned  Operational Excellence  10 plants included already, yielding significantly higher efficiency and reduced cost and Capex  Strong focus on Procurement & Supply chain Optimization  Product por

11. Slide 11: Strong Focus on Cash and Cash Flow

    11 11 Strong Focus on Cash and Cash Flow $ million 5,244 5,053 4,976 4,940 Solid cash flow from Cash from operations 4,591 operations and free Free cash flow 1424 cash flow achieved Total inventory through reduction of Capex net 1053 inventory, capital 924 expenditure 898 816 containment, and 583 ot

12. Slide 12: Quality as a Core Competitive Competency

    12 12 Quality as a Core Competitive Competency Significant achievements YTD in 2014:  35 regulatory agencies conducted 76 inspections at 52 Teva sites with no critical observations  Zero sites with repeat regulatory inspection observations  71% (10 of 14) of FDA inspections concluded without any

13. Slide 13: Strengthening our Global Leadership in Generics

    13 13 Strengthening our Global Leadership in Generics Solidifying the foundation  Global Generics Medicines (‘GGM’) prioritization:  Where to play geographically / technologically  Focus on efficiency targets  Refocus R&D  GGM organization established and all key positions filled  Global Portf

14. Slide 14: Strengthening our Global Leadership in Generics

    14 14 Strengthening our Global Leadership in Generics Starting to drive organic growth  Solid quarter for global generics:  Operating profit before G&A up 40% YoY  Strong profitability in most countries  Sales and profit impacted negatively by FX change  Efficiencies targets delivered  Signifi

15. Slide 15: Maintaining the Copaxone Franchise

    15 15 Maintaining the Copaxone® Franchise Deliver on the promise in our pipeline

16. Slide 16: Copaxone Highlights

    16 16 Copaxone® Highlights  Introduction of 40mg has re-energized the U.S. Copaxone® family reversing TRx weekly trend from decline to stabilization  Copaxone® 40mg launched in Argentina and Israel, approved in Chile, pending in EMA, Russia, and Brazil Copaxone® Total Rx in the quarter Copaxone® T

17. Slide 17: 40mg Switch – on track to 65%

    17 17 40mg Switch – on track to 65%  57.4% of Copaxone® family TRx is 40mg, as of Oct 17th  40mg New-to-brand Rxs are now at 80% of Copaxone® franchise  85% of Shared Solutions Enrollments are 40mg  National Plans with unrestricted access to 40mg since January 2014 launch have an 80% switch  As

18. Slide 18: Drive organic Growth

    18 18 Drive organic Position Teva for long- term value creation Growth Drive organic growth Maintain COPAXONE® franchise Solidify the foundation

19. Slide 19: Drive Organic Growth in Generics

    19 19 Drive Organic Growth in Generics  Focus on patent challenges - both in U.S. and International markets  Capture pricing opportunities  Optimize Products Portfolio (better products selection, strong focus on generic R&D, better products portfolio management, superior supply delivery system) 

20. Slide 20: Driving Organic Growth in Specialty

    20 20 Driving Organic Growth in Specialty  Rigorously defend all potential loss of exclusivities  Successfully execute all our near-term launches  Focus our therapeutic areas  Deliver on the promise in our pipeline  Develop unique patient-centric strategy in selected TAs/diseases

21. Slide 21: Successfully Execute all Near-Term Launches

    21 Successfully Execute all Near-Term Launches 21 Significant achievements YTD in 2014: Launched YTD Performance Market Share US • 40% over plan >75% market share (Q3 2013) • #1 Emergency Contraceptive (incl. Take Action value brand) in the US US • 20% over plan >10% market share of the short (Q4 20

22. Slide 22: Strategic Review of Core Specialty Therapeutic Areas

    22 22 Strategic Review of Core Specialty Therapeutic Areas  Teva conducted a comprehensive review of therapeutic areas, using broad assessment criteria, based on:  Our presence and capabilities  Unmet patient needs  Competitive landscape  Barriers to entry  Profitability  Purpose of the revie

23. Slide 23: Strategic review of core specialty therapeutic areas

    23 Strategic review of core specialty therapeutic areas 23 Results  Our core specialty therapeutic areas:  Central Nervous System (including multiple sclerosis, neurodegenerative diseases and pain)  Respiratory (including asthma and chronic obstructive pulmonary diseases)  Sustain commercial fra

24. Slide 24: Non-Core Assets Divested/Deprioritized - Highlights

    24 Non-Core Assets Divested/Deprioritized - Highlights 24 Assets Approach  5 exciting small molecule assets  Spinouts Early stage oncology  Providing first or best in class opportunities  Potential utility across multiple cancer types  2 assets, including a first in class  Seeking partners Ear

25. Slide 25: Focused pipeline expected to deliver 25 launches by 2019

    Our focused pipeline is expected to deliver 30 launches by 25 25 2019, with a total of $4B in new revenue Phase 1 Phase 2 Phase 3 Registration Laquinimod Laquinimod CEP-33237 ER Hydrocodone TV-46763 (abuse deterrent) Multiple Sclerosis (Progressive Multiple Sclerosis (abuse deterrent) US Pain forms)

26. Slide 26: Upcoming Specialty Pipeline Milestones - 2015 Pivotal Year

    26 Upcoming Specialty Pipeline Milestones - 2015 Pivotal Year 26 Clinical results Target submissions Target approvals CEP-33237 Extended Release By year NDA abuse deterrent Hydrocodone MAA Seasonique® contraceptive for pain end sNDA Qnasl® (Pediatric) TEV-48125 for chronic and CEP-33237 Extended Rel

27. Slide 27: Capital Allocation – Improved Financial Resources

    27 Capital Allocation – Improved Financial Resources 27 Cash Flow From 444 816 898 1,053 1,424 Operations ($m) Debt 12.6 12.2 11.8 11.2 10.6 ($b) Equity 22.4 22.6 23.0 23.6 23.7 ($b) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Leverage 36% 35% 34% 32% 31% Debt/EBITDA 2.24 2.16 2.04 1.90 1.76

28. Slide 28: Focus Our Therapeutic Areas to Deliver Significant Value

    28 28 Focus Our Therapeutic Areas to Deliver Significant Value Through a unique patient-centric integrated strategy, we believe we can turn our respiratory and CNS/pain core therapeutic areas into $2.5 and $2 billion franchises, respectively, by 2019, from a combined franchise of $1.2 billion today

29. Slide 29: Capital Allocation – Focus Moving Forward

    29 Capital Allocation – Focus Moving Forward 29  Teva is constantly evaluating its capital allocation alternatives looking to maximize long-term shareholder value creation  Teva’s Board of Directors has approved to resume and increase our existing share repurchase program so that $3 billion are no

30. Slide 30: Transform our Business Model

    30 Transform our Business Model 30 Value Horizon 3 Created Create true long-term value from integration Horizon 2 Capture Synergies Horizon 1 Solidify the foundation Position Teva for long- & drive organic growth term value creation Drive organic growth Maintain Copaxone® franchise Generics Specialt

31. Slide 31: Review of Third Quarter 2014 Results

    31 31 Review of Third Quarter 2014 Results Eyal Desheh Chief Financial Officer

32. Slide 32: Q3 2014 – A very good quarter

    32 Q3 2014 – A very good quarter 32 Q3 2014* Q3 2013* Change Revenues $m 5,058 5,059 § Operating Income 1,504 1,330 +13% $m Net Income 1,134 1,072 +6% $m EPS 1.32 1.27 +4% $ Cash flow from Operations 1,424 444 +221% $m *Net income, operating income and EPS are non GAAP results. § Less than 0.5%.

33. Slide 33: Q3 2014 – Foreign exchange impact

    33 Q3 2014 – Foreign exchange impact 33 Q3 2014 Q3 2013 Change ($ M) Fx Effect ( $M) Real Change Revenues 5,058 5,059 (1) (57) +1% $M Operating income 1,504 1,330 174 (26) +15% $M

34. Slide 34: Q3 2014 YTD – Strong results, consistent with the quarter

    34 Q3 2014 YTD – Strong results, consistent with the quarter 34 Q3 2014* Q3 2013* Change Revenues $m 15,104 14,884 +1% Operating Income 4,236 3,840 +10% $m Net Income 3,226 3,050 +6% $m EPS 3.77 3.58 +5% $ Cash flow from Operations 3,375 2,421 +39% $m *Net income, operating income and EPS are non GA

35. Slide 35: Raising 2014 Guidance

    35 Raising 2014 Guidance 35 Original Guidance Updated Guidance Updated Exclusive Copaxone® December 2013 July 2014 Scenario* Net Revenues ($B) 19.9 – 20.8 20.0—20.3 Gross Profit (%) 58 %– 60% 59% – 60.5% R&D ($B) 1.3 – 1.45 1.4 S&M ($B) 4.0 – 4.1 3.7 – 3.8 G&A ($B) 1.2 1.2 Operating Income ($B) 5.35

36. Slide 36: Fully Executing the Cost Reduction Program

    36 36 Fully Executing the Cost Reduction Program Net cost reductions in 2014 are spread across all our expense line items We are generating efficiency in all parts of the organization $ million, estimated Gross Cost Savings Reinvestment Net Cost Savings COGS (450) 150 (300) R&D (100) 70 (30) SG&A (3

37. Slide 37: Q3 2014 – Non-GAAP income data

    37 Q3 2014 – Non-GAAP income data 37 $ million Q3 2014 Q3 2013 Change Except EPS Revenues 5,058 5,059 § COGS 1,994 2,123 (6%) Gross Profit 3,064 2,936 4% R&D 360 348 3% S&M 907 961 (6%) G&A 293 297 (1%) Operating Income 1,504 1,330 13% Finance exp. 77 71 8% Tax 301 185 63% Ass. & minority (8) 2 NA N

38. Slide 38: Q3 2014 – GAAP income statement

    38 Q3 2014 – GAAP income statement 38 $ million Q3 2014 Q3 2013 Change Except EPS Revenues 5,058 5,059 § COGS 2,249 2,429 (7%) Gross Profit 2,809 2,630 7% R&D 412 348 18% S&M 950 971 (2%) G&A 293 297 (1%) Restructuring, legal settlement, acquisition 42 213 (80%) and impairment Operating Income 1,112

39. Slide 39: Q3 2014 – Non-GAAP reconciliation

    39 Q3 2014 – Non-GAAP reconciliation 39 $ million Q3 2014 Q3 2013 Except EPS non-GAAP EPS ($) 1.32 1.27 non-GAAP net income 1,134 1,072 Amortization 242 300 Impairment of long-lived assets 151 131 Legal settlements and loss contingencies (122) 47 Costs associated with cancellation of R&D projects 52

40. Slide 40: Revenue bridging

    40 Revenue bridging 40 $ million Revenues increased $120 million, excluding the effect of U.S. OTC plants sale and Fx 62 50 29 64 57 5,059 21 5,058 Q3 2013 Generics MS Specialty OTC & Other US OTC* Fx Q3 2014 ex-MS All data, except Fx, are net of the impact of foreign exchange fluctuations. *In July

41. Slide 41: Copaxone sales

    41 Copaxone® sales 41 $ million 1,052 1,142 1,070 939 1,107 1,200 1,000 337 254 254 307 800 277 600 EU & RoW US 400 798 805 816 800 662 200 - Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014

42. Slide 42: Revenues breakdown by segment

    42 Revenues breakdown by segment 42 $ million Revenues increased $120 million, excluding the effect of U.S. OTC plant sale and Fx 5,059 5,058 % 64 Change 435 450 +3% 1,019 1,069 Divestment +5% OTC & Other 1,052 1,107 Specialty ex-MS +5% MS Generics 2,489 2,432 -2% Q3 13 Q3 14 We changed the classifi

43. Slide 43: Revenues breakdown by market

    43 Revenues breakdown by market 43 $ million % 5,059 5,058 Change 910 990 +9% 1,438 1,408 ROW -2% Europe US 2,711 2,660 -2% Q3 13 Q3 14 § Less than 0.5%.

44. Slide 44: Profitability breakdown by segment

    44 Profitability* breakdown by segment 44 $ million % Change 1,627 1,797 +10% +2% 47 63 +2% 46 330 324 Unallocated Profitability +8% OTC & Other 864 Specialty ex-MS 798 MS Generics +40% 396 556 Q3 13 Q3 14 • * Profitability consists of gross profit, less S&M and R&D expenses related to the segment.

45. Slide 45: Segment Profitability Evolution

    45 Segment Profitability Evolution 45 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Generics 2,489 2,680 2,398 2,515 2,432 $M Gross Profit 984 1,155 1,042 1,046 1,078 Gross Profit Margin 39.5% 43.1% 43.5% 41.6% 44.3% Profitability 396 514 499 532 556 Profitability Margin 15.9% 19.2% 20.8% 21.2% 22.9% Q3 2

46. Slide 46: Generics Segment Profitability Evolution

    46 Generics Segment Profitability Evolution 46 50.0% 43.5% 44.3% 43.1% 41.6% 39.5% Gross Profit Margin 40.0% 30.0% 22.9% 20.8% 21.2% 19.2% 20.0% 15.9% Profitability* 10.0% Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment

47. Slide 47: Cash flow trends

    47 Cash flow trends 47 $ million 1,424 206 1,053 294 898 171 816 Cash From Operations 225 299 304 444 Asset Purchase, Net 291 924 214 276 Dividend 583 382 264 236 Free Cash Flow* -34 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 * Free cash flow excludes dividends and capex

48. Slide 48: Capital Allocation – Improved Financial Resources

    48 Capital Allocation – Improved Financial Resources 48 Debt 12.6 12.2 11.8 11.2 10.6 ($b) Equity 22.4 22.6 23.0 23.6 23.7 ($b) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Leverage 36% 35% 34% 32% 31% Debt/EBITDA 2.24 2.16 2.04 1.90 1.76

49. Slide 49: Teva's dividend history

    49 49 Teva’s dividend history 350 1.50 1.21 300 1.15 1.20 250 1.00 0.80 0.90 200 0.70 0.60 150 291 299 294 281 268 276 275 0.60 264 230 237 203 203 204 214 100 190 165 164 167 172 174 127 134 141 0.30 126 50 0 0.00 Total Dividend ($m) NIS per Share Total Dividends represent payment of the dividend d

50. Slide 50: Q&A

    Q&A

Teva Pharmaceutical Industries — Q3 2014 Earnings Presentation on 6ix