UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 20-F

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 Or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Or For the transition period from to Commission File number: TEVA PHARMACEUTICAL INDUSTRIES LIMITED (Exact name of Registrant as specified in its charter) N/A ISRAEL (Translation of Registrant s name into English) 5 Basel Street P.O. Box 3190 Petach Tikva 49131, Israel (Address of principal executive offices) (Jurisdiction of incorporation or organization) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered or to be registered pursuant to Section 12(g) of the Act: American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Ordinary Share (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

2 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. 626,867,703 Ordinary Shares 446,708,715 American Depositary Shares 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 No Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18

3 Table of Contents Introduction and Use of Certain Terms 2 Forward-Looking Statements 3 Part I Item 1 Identity of Directors, Senior Management and Advisers Not applicable Item 2 Offer Statistics and Expected Timetable Not applicable Item 3 Key Information 4 Selected Financial Data 4 Risk Factors 9 Item 4 Information on the Company 15 Item 5 Operating and Financial Review and Prospects 42 Introduction 42 Economic Environment 42 Highlights 42 Results of Operations 44 Impact of Currency Fluctuation and Inflation 54 Critical Accounting Policies 55 Recent Accounting Pronouncements 61 Liquidity and Capital Resources 62 Research and Development, Patents and Licenses 64 Trend Information 65 Off-Balance Sheet Arrangements 65 Aggregate Contractual Obligations 65 Item 6 Directors, Senior Management and Employees 66 Directors and Senior Management 66 Compensation 73 Board Practices 73 Statutory Independent Directors 74 Committees of the Board 74 Employees 76 Share Ownership 77 Item 7 Major Shareholders and Related Party Transactions 78 Item 8 Financial Information 79 Consolidated Statements and Other Financial Information 79 Legal Proceedings 79 Significant Changes 83 Item 9 The Offer and Listing 84 ADRS 84 Ordinary Shares 85 Item 10 Additional Information 86 Memorandum and Articles of Association 86 Foreign Exchange Regulations 88 U.S. Federal Income Tax Considerations 89 Israeli Taxation 91 Documents on Display 94 Item 11 Quantitative and Qualitative Disclosures about Market Risk 95 Item 12 Description of Securities Other than Equity Securities Not applicable 1 Page

4 Part II Item 13 Defaults, Dividends Arrearages and Delinquencies Not applicable Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable Item 15 Controls and Procedures 99 Item 16 [Reserved] 99 Item 16A Audit Committee Financial Expert 99 Item 16B Code of Ethics 99 Item 16C Principal Accountant Fees and Services 99 Item 16D Exemptions from the Listing Standards for Audit Committees Not applicable Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers 101 Part III Item 17 Financial Statements Not applicable Item 18 Financial Statements 102 Item 19 Exhibits 102 INTRODUCTION 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. 2

5 FORWARD-LOOKING STATEMENTS Our disclosure and analysis in this report contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of 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 include, among other things, statements relating to: our business strategy; the development of our products; our projected capital expenditures; and our liquidity. This report contains forward-looking statements which express the beliefs and expectations of management. Such statements are based on management s current beliefs and expectations and 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. Important factors that could cause or contribute to such differences include our ability to successfully develop and commercialize additional pharmaceutical products, the introduction of competing generic products, the impact of competition from brand-name companies that sell or license their own brand products under generic trade dress and at generic prices (so-called authorized generics ) or seek to delay the introduction of generic products, regulatory changes that may prevent us from exploiting exclusivity periods, potential liability for sales of generic products prior to a final court decision, including that relating to the generic version of Neurontin, the effects of competition on Copaxone sales, the impact of pharmaceutical industry regulation and pending legislation that could affect the pharmaceutical industry, the difficulty of predicting U.S. Food and Drug Administration ( FDA ), European Medicines Agency ( EMEA ) and other regulatory authority approvals, the regulatory environment and changes in the health policies and structures of various countries, our ability to successfully identify, consummate and integrate acquisitions, our potential exposure to product liability claims, our dependence on patent and other protections for innovative products, the fact that we have significant operations outside the United States that may be adversely affected by terrorism or major hostilities, fluctuations in currency, exchange and interest rates, operating results and other factors that are discussed in this report and in our other filings made with the U.S. Securities and Exchange Commission ( SEC ). We undertake no obligation to publicly 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 6-K reports to the SEC. Also note that we provide a cautionary discussion of risks and uncertainties under Risk Factors on page 9 of this report. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of

6 PART I ITEM 3: KEY INFORMATION 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 United States (including NASDAQ), to report exclusively under SEC rules and accounting principles generally accepted in the United States ( US GAAP ). All financial statements included in this report and all financial information released in Israel are presented solely under US GAAP. The following selected financial data for each of the years in the three-year period ended December 31, 2004 and at December 31, 2004 and 2003 are derived from Teva s audited consolidated financial statements set forth elsewhere in this report, which have been prepared in accordance with US GAAP. The selected financial data for each of the years in the two-year period ended December 31, 2001 and at December 31, 2002, 2001 and 2000 are derived from other audited financial statements not appearing in this report, which have been prepared in accordance with US 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 the operations of Teva and its subsidiaries in Israel and in the United States are conducted is the U.S. dollar. The functional currency of Teva s other subsidiaries (principally operating in Europe and Canada) is their respective local currency. 4

7 Operating Data For the year ended December U.S. dollars in millions (except per ADR amounts) Net sales 4, , , , ,749.9 Cost of sales 2, , , , ,058.0 Gross profit 2, , , Research and development expenses: Total expenses Less participations and grants Research and development net Selling, general and administrative expenses Acquisition of in-process research and development Income from GSK litigation settlement Impairment of product rights 30.0 Restructuring expenses Operating income Financial income (expenses) net 25.9 (5.0) (24.6) (26.0) (42.2) Income before income taxes Income taxes Share in profits (losses) of associated companies - net (1.2) 1.5 (2.7) Minority interests in (profits) losses of subsidiaries net (3.5) (1.4) (1.6) 0.7 (0.8) Net income Earnings per ADR (1) (2) - Basic ($) Diluted ($) Weighted average number of ADRs (in millions) - Basic Diluted Before one-time items (3) Operating income 1, Net income Earnings per ADR (1) - Basic ($) Earnings per ADR (1) (2) - Diluted ($) (1) Historical figures have been adjusted to reflect the two for one stock splits effected in June 2004, December 2002 and February Each ADR represents one ordinary share. (2) Diluted EPS for the years 2003, 2002 and 2001 has been restated to reflect the potential dilution of convertible senior debentures, pursuant to the adoption of EITF No. 04-8, which requires that the shares issuable upon conversion of such debentures be included in the computation of diluted EPS, regardless of the contingent features included in the instrument. (3) See the reconciliation on the following page. 5

8 Teva believes that excluding the following one-time items, which primarily relate to purchase accounting adjustments in connection with the Sicor acquisition (mainly in-process R&D) and to certain product rights acquired as part of a litigation settlement, from its results of operations represents a better indicator of the underlying trends in its business. The results, after these exclusions and inclusions, are the primary results used by management and Teva s board of directors to evaluate the operational performance of the Company, to compare against the Company s annual work plans and budgets, and ultimately to evaluate the performance of management. 6 For the year ended December (U.S. dollars in millions) Total income before taxes as reported * Deduct gain: Income from GSK litigation settlement Add back charges: Sicor purchase accounting adjustments: In-process R&D Acquired inventory step up 13.9 Acquisition of in-process R&D Impairment of product rights 30.0 Restructuring expenses Total normalized income before taxes 1, Taxes on normalized income Net normalized income Net income as reported * Includes share of profits (losses) of associated companies-net and minority interest in losses (profits) of subsidiaries-net.

9 Balance Sheet Data As at December U.S. dollars in millions Working capital 1, , , , Total assets 9, , , , ,855.6 Short-term credit, including current maturities: Convertible senior debentures (short-term) Other Total short-term debt Long-term debt, net of current maturities: Convertible senior debentures 1, Other Total long-term debt 1, , , Minority interests Shareholders equity 5, , , , ,

10 Dividends For over 30 years Teva has paid dividends, with dividends paid on a regular quarterly basis since Future dividend policy will be reviewed by the board of directors based upon conditions then existing, including Teva s earnings, financial condition, capital requirements and other factors. Dividends are declared and paid in New Israeli Shekels. Dividends are converted into dollars and paid by the depositary of the ADRs for the benefit of owners of ADRs. Dividends paid by an Israeli company to shareholders residing outside Israel are currently subject to withholding of Israeli income tax at a rate of up to 25%. In Teva s 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 dividend and, accordingly, the applicable rate will change from time to time. The rate of tax withheld on the dividend declared for the fourth quarter of 2004 was 18.5%. The following table sets forth the amounts of the dividends paid in respect of each period indicated prior to deductions for applicable Israeli withholding taxes (in cents per ADR). All the figures have been adjusted to reflect the 2:1 stock splits effected in June 2004, December 2002 and February Actual dividends paid in U.S. dollars are subject to some deviation reflecting exchange rate fluctuations between the NIS (the currency in which dividends are declared) and the U.S. dollar between the declaration date and the date of actual payment st interim nd interim rd interim th interim

11 RISK FACTORS Our business faces significant risks. You should carefully consider all of the information set forth in this Form 20-F 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 Form 20-F 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 due to the risks described below and elsewhere in this Form 20-F. See Forward-Looking Statements on page 3. Our success depends on our ability to successfully develop and commercialize pharmaceutical products. Our future results of operations depend, to a significant degree, upon our ability to successfully commercialize additional generic and innovative branded pharmaceutical products. We must develop, test and manufacture generic products as well as prove that our generic products are the bio-equivalent of their branded counterparts. All of our products must meet and continue to comply with regulatory and safety standards and receive regulatory approvals; we may be forced to withdraw a product from the market if health or safety concerns arise with respect to such product. 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 successfully and profitably produce and market such products. Delays in any part of the process or our inability to obtain regulatory approval of our products (including the products filed by Andrx Corporation, IMPAX Laboratories Inc. and Biovail Corporation, for which we have exclusive marketing rights) could adversely affect our operating results by restricting or delaying our introduction of new products. The continuous introduction of new generic products is critical to our business. Our revenues and profits from any particular generic pharmaceutical products decline as our competitors introduce their own generic equivalents. Selling prices of generic drugs typically decline, sometimes dramatically, as additional companies receive approvals for a given product and competition intensifies. To the extent that we succeed in being the first to market a generic version of a significant product, and particularly if we obtain the 180-day period of market exclusivity provided under the Hatch-Waxman Act, our sales, profit and profitability can be substantially increased in the period following the introduction of such product and prior to a competitor s introduction of the equivalent product or the launch of an authorized generic. Our ability to sustain our sales and profitability on any product over time is dependent on both the number of new competitors for such product and the timing of their approvals. Our overall profitability depends, among other things, on our ability to continuously and timely introduce new products. Our generic pharmaceutical products face intense competition from brand-name companies that sell or license their own generic products or seek to delay the introduction of generic products. Brand-name pharmaceutical companies have taken aggressive steps to thwart competition from generic companies. In particular, brand-name companies continue to sell or license their products directly or through licensing arrangements or strategic alliances with generic pharmaceutical companies (so-called authorized generics ). No significant regulatory approvals are required for a brand-name 9

12 manufacturer to sell directly or through a third party to the generic market. Brand-name manufacturers do not face any other significant barriers to entry into such market. In addition, such companies continually seek new ways to delay generic introduction and decrease the impact of generic competition, such as filing new patents on drugs whose original patent protection is about to expire; filing an increasing number of patents that are more complex and costly to challenge; filing suits for patent infringement that automatically delay FDA approval; developing patented controlled-release or other next-generation products, which often reduces demand for the generic version of the existing product for which we are seeking approval; changing product claims and product labeling; or developing and marketing as over-the-counter products those branded products which are about to face generic competition. These strategies may increase the costs and risks associated with our efforts to introduce generic products and may delay or prevent such introduction altogether. Changes in the regulatory environment may prevent us from utilizing the exclusivity periods that are important to the success of our generic products. The FDA s policy regarding the award of 180-days market exclusivity to generic manufacturers who challenge patents relating to specific products continues to be the subject of extensive litigation in the United States. The FDA s current interpretation of the Hatch-Waxman Act is to award 180 days of exclusivity to the first generic manufacturer who files a Paragraph IV certification under the Act challenging the patent of the branded product, regardless of whether the manufacturer was sued for patent infringement. Although the FDA s interpretation may benefit some of the products in our pipeline, it may adversely affect others. The Medicare Prescription Drug Act provides that the 180-day market exclusivity period provided under the Hatch- Waxman Act is only triggered by the commercial marketing of the product. However, the Medicare Act also contains forfeiture provisions which, if met, will deprive the first Paragraph IV filer of exclusivity. As a result, under certain circumstances, we may not be able to exploit our 180-day exclusivity period since it may be forfeited prior to our being able to market the product. In addition, legal and administrative battles over triggering dates and shared exclusivities may also prevent us from fully utilizing the exclusivity periods. If we elect to sell a generic product prior to any court decision or prior to the completion of all appellate level patent litigation, we could be subject to liabilities for damages. At times we or our partners seek approval to market generic products before the expiration of patents for those products, based upon our belief that such patents are invalid, unenforceable, or would not be infringed by our products. As a result, we face significant patent litigation. Depending upon a complex analysis of a variety of legal and commercial factors, we may, in certain circumstances, elect to market a generic product even though litigation is still pending. This could be before any court decision is rendered or while an appeal of a lower court decision is pending. To the extent we elect to proceed in this manner, we could face substantial liability for patent infringement if the final court decision is adverse to us. For example, in 2004 we launched oxycodone and generic versions of Neurontin tablets and capsules despite the fact that litigation with the branded companies was still pending. Our ability to introduce new products may depend on our ability to successfully challenge patent rights held by branded companies. 10

13 Our sales of Copaxone could be adversely affected by competition. Copaxone is our leading innovative product, from which we derive substantial revenues and profits. To date, we and our marketing partners have been successful in our efforts to establish Copaxone as a 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 products, such as Avonex, Betaseron and Rebif. We may also face competition from additional products in development. In addition, the exclusivity protections afforded us in the United States through orphan drug status for Copaxone expired on December 20, If our patents on Copaxone are successfully challenged, we may also face generic competition for this product. We are subject to government regulation that increases our costs and could prevent us from marketing or selling our products. We are subject to extensive pharmaceutical industry regulations in the United States, Canada, the European Union, and its member states including England, Hungary, The Netherlands, France and Italy, in Israel and in other jurisdictions. We cannot predict the extent to which we may be affected by legislative and other regulatory developments concerning our products. We are also subject to various environmental laws and regulations in the jurisdictions where we have operations. We are dependent on obtaining timely approvals before marketing most of our products. In the United States, any manufacturer failing to comply with FDA or other applicable regulatory agency requirements may be unable to obtain approvals for the introduction of new products and, even after approval, initial product shipments may be delayed. The FDA also has the authority to revoke drug approvals previously granted and remove from the market previously approved drug products containing ingredients no longer approved by the FDA. Our major facilities, both in the United States and outside the United States, and our products are periodically inspected by the FDA, which has extensive enforcement powers over the activities of pharmaceutical manufacturers, including the power to seize, force to recall and prohibit the sale or import of non-complying products, and halt operations of and criminally prosecute non-complying manufacturers. In Europe and Israel, the manufacture and sale of pharmaceutical products is regulated in a manner similar in many respects to that in the United States. Legal requirements generally prohibit the handling, manufacture, marketing and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain medical data related to product efficacy and safety, including results of clinical testing and references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel the registration of a product if it is found to be harmful or ineffective or manufactured and marketed other than in accordance with registration conditions. Data exclusivity provisions exist in many countries worldwide, including in the European Union, where they were recently extended, although their application is not uniform. Similar provisions may be adopted by additional countries, including Israel, where legislation has been proposed. 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. 11

14 We may not be able to successfully identify, consummate and integrate future acquisitions. In the past, we have grown, in part, through a number of significant acquisitions, including our recent acquisition of Sicor Inc. We continue to be engaged in various stages of evaluating or pursuing potential acquisitions and may in the future acquire other pharmaceutical and active pharmaceutical ingredients businesses and seek to integrate them into our own operations. Future acquisitions involve known and unknown risks that could adversely affect our future revenues and operating results. For example: We compete with others to acquire companies. We believe that this competition has intensified and may result in decreased availability or increased prices for suitable acquisition candidates. We may not be able to obtain the necessary regulatory approvals, including the approval of anti-competition regulatory bodies, in any countries in which we may seek to consummate potential acquisitions. We may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company. We may fail to successfully integrate our acquisitions in accordance with our business strategy. Potential acquisitions may divert management s attention away from our primary product offerings, resulting in the loss of key customers and/or personnel and expose us to unanticipated liabilities. We may not be able to retain the skilled employees and experienced management that may be necessary to operate the businesses we may acquire and, if we cannot retain such personnel, we may not be able to locate or hire new skilled employees and experienced management to replace them. We may purchase a company that has contingent liabilities that include, among others, known or unknown patent or product liability claims. As a pharmaceutical company, we are susceptible to product liability claims that may not be covered by insurance, including potential claims relating to products that we previously sold or currently sell and that are not covered by insurance. Our business inherently exposes us to claims relating to the use of our products. We sell, and will continue to sell, pharmaceutical products for which product liability insurance coverage is not available, and accordingly, we may be subject to claims that are not covered by insurance as well as claims that exceed our policy limits. Additional products for which we currently have coverage may be excluded in the future. In addition, product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, we may not be able to obtain the type and amount of coverage we desire. Because of the nature of these claims, we are generally not permitted under US GAAP to establish reserves in our accounts for such contingencies. 12

15 Reforms in the health care industry 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 health care have been the subject of considerable public attention in Israel, North America and many European countries. Both private and governmental entities are seeking ways to reduce or contain health care costs. In many countries in which we currently operate, including Israel, pharmaceutical prices are subject to regulation. In the United States, numerous proposals that would effect changes in the United States health care system have been introduced or proposed in Congress and in some state legislatures, including the enactment in December 2003 of expanded Medicare coverage for drugs. Similar activities are taking place throughout Europe and Israel. We cannot predict the nature of the measures that may be adopted or their impact on the marketing, pricing and demand for our products. The success of our innovative products depends on the effectiveness of our patents and other measures we take to protect our intellectual property rights. Our success with our innovative products depends, in part, on our ability to protect our current and future innovative products and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have been issued 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 even be challenged, invalidated 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. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached and we will not have adequate remedies for any such breach. 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, if patents are not issued with respect to products arising from research, we may not be able to maintain the confidentiality of information relating to such products. We have significant international operations, including in Israel, which may be adversely affected by acts of terrorism, major hostilities or adverse legislation or litigation. Significant portions of our operations are conducted outside of the United States, and we import a substantial number of products into the United States. We may, therefore, be directly affected and denied access to our customers by a closure of the borders of the United States for any reason or other economic, political and military conditions in the countries in which our businesses are located. We may also be affected by currency exchange rate fluctuations and the exchange control regulations of such countries or other political crisis or disturbances, which impede access to our suppliers. Our executive offices and a substantial number of our manufacturing facilities are located in Israel. Teva s Israeli operations are dependent upon materials imported from outside of Israel. We also export significant amounts of products from Israel. Accordingly, our operations could be materially and 13

16 adversely affected by acts of terrorism or if major hostilities should occur in the Middle East or trade between Israel and its present trading partners should be curtailed, including as a result of acts of terrorism in the United States. Any such effects may not be covered by insurance. We may be subject to legislation in Israel, primarily relating to the protection of patents and data exclusivity provisions, that would prevent us from exporting Israeli-manufactured products in a timely fashion. Additionally, the existence of third party patents in Israel, with the attendant risk of litigation, may cause Teva to move production outside of Israel or otherwise adversely affect our ability to export certain products from Israel. Although legislation addressing these problems has been proposed, we can not assure you that it will be enacted. 14

17 ITEM 4: INFORMATION ON THE COMPANY Teva Pharmaceutical Industries Limited is a global pharmaceutical company producing drugs in all major treatment categories. Teva is one of the world s largest generic drug companies and has the leading position in the U.S. generic market. Teva has successfully utilized its production and research capabilities to establish a global pharmaceutical operation focused on supplying the growing demand for generic drugs and on opportunities for proprietary branded products for specific niche categories, with its leading branded drug being Copaxone for multiple sclerosis. Teva s active pharmaceutical ingredients ( API ) business provides both significant revenues and profits from sales to third party manufacturers and strategic benefits to Teva s own pharmaceutical production through its timely delivery of significant raw materials. Teva s operations are conducted directly and through subsidiaries in Israel, Europe, North America and several other jurisdictions. During 2004, Teva generated approximately 64% of its sales in North America, 26% in Europe and 10% in the rest of the world, predominantly in Israel. For a breakdown of Teva s sales by business segment and by geographic market for the past three years, see Item 5: Operating and Financial Review and Prospects Results of Operations Sales General. 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 Its executive offices are located at 5 Basel Street, P.O. Box 3190, Petach Tikva Israel, telephone number Acquisitions. Teva s significant growth during the past decade is in large part attributable to numerous acquisitions it has made in North America and Europe. In January 2004, Teva completed its acquisition of Sicor Inc., a generic pharmaceutical company based in California, with facilities in Mexico, Italy and Lithuania, for approximately $3.46 billion in cash and Teva shares. This acquisition, Teva s largest acquisition to date, combined Teva s oral dose generic drugs franchise with Sicor s generic injectables business, with Sicor s API business complementing Teva s global API offerings. The Sicor acquisition further provided Teva with new capabilities for the development and production of biological products. Integration of Sicor s businesses into Teva s operations was substantially completed during In addition, in December 2004, Teva acquired Dorom S.r.l., one of the largest suppliers of generic pharmaceuticals to the Italian retail market, for approximately $93 million in cash. Pharmaceutical Products Generic Products Teva is one of the largest generic drug companies in the world. Generic drugs are the chemical and therapeutic equivalents of brand-name drugs, typically sold under their generic chemical names at prices below those of their brand-name equivalents. These drugs are required to meet similar governmental regulations as their brand-name equivalents and must receive regulatory approval prior to their sale in any given country. Generic drugs may be manufactured and marketed only if relevant patents on their brandname equivalents (and any additional government-mandated market exclusivity periods) have expired, been challenged and invalidated, or otherwise validly circumvented. Global generic pharmaceutical sales have been positively impacted in recent years by the increased awareness and acceptance among consumers, physicians and pharmacists that generic drugs are the equivalents of brand-name drugs. Among the factors contributing to this increased awareness are the passage of legislation permitting or encouraging substitution and the publication by regulatory authorities 15

18 of lists of equivalent drugs, which provide physicians and pharmacists with generic drug alternatives. In addition, various government agencies and many private managed care or insurance programs encourage the substitution of generic drugs for brand-name pharmaceuticals as a cost-savings measure in the purchase of, or reimbursement for, prescription drugs. Teva believes that these factors, together with demographic trends, including an aging population and a corresponding increase in health care costs, as well as the large volume of branded products losing patent protection over the coming years, should lead to continued expansion of the generic pharmaceuticals market. Through the coordinated efforts of research and development staff in Israel, Europe and North America, and through alliances with other companies, Teva seeks to constantly expand its range of generic products. Teva s product development strategy emphasizes not only introducing its generic products upon the patent expiration date of the equivalent brand-name pharmaceutical but also the goal of market introduction at the earliest possible date, which may involve attempting to invalidate or otherwise validly circumvent such patents. Teva is able to differentiate itself from its competitors in its major markets by offering a range of capabilities that it believes ultimately adds value for its customers and enhances Teva s business: global research and development facilities that have provided Teva with both the broadest product line and the most extensive generic pipeline in the U.S. and a leading generic pipeline globally; manufacturing facilities inspected by the FDA and other regulatory authorities and located in a variety of countries around the world, which provide Teva with a broad array of production technologies and with the ability to concentrate production to achieve economies of scale; and its own active pharmaceutical ingredient business that offers stability of supply as well as vertical integration efficiencies. North America Teva Pharmaceuticals USA, Inc. ( Teva USA ), Teva s principal subsidiary, is the leading generic drug company in the United States. Teva USA markets approximately 220 generic products representing approximately 600 dosage strengths and packaging sizes, which are distributed and sold in the United States. In addition, through Sicor, Teva USA has the capability to formulate, fill, label and package finished dosage forms of injectable pharmaceutical products, which are principally sold in the United States. Teva believes that a broad line of products has been and will continue to be of strategic significance as the generics industry continues to grow and as it experiences the effects of consolidation among purchasers, including large drugstore chains, wholesaling organizations, buying groups and managed care providers. Through Novopharm Limited, Teva manufactures and markets generic prescription drugs in Canada. Novopharm is the second largest generic drug company in Canada in terms of prescriptions, with a product portfolio covering approximately 80% of the Canadian generic market sales requirements. Novopharm s portfolio includes 170 generic products representing over 700 dosage forms and packaging sizes. Products. Teva USA manufactures or imports all types of generic pharmaceutical products in a variety of dosage forms, including tablets, capsules, ointments, creams and liquids, and 16

19 through its recent acquisition of Sicor, injectables. During 2004, Teva sold the generic versions of the following branded products in the United States that were not sold during 2003 (listed in the order of their launch during the year): Floxin, Lotensin, Wellbutrin SR, Buspar, Zaroxolyn, Oxycontin (80 mg.), Ortho Cyclen -28, Ortho Tri-Cyclen, Zebeta, Fludara, Zyban, Cipro, Adenocard, Glucophage XR, Brethine, Paraplatin, Diflucan, Prilosec, Depo-Provera, Augmentin ES, Betapace AF, Rebetol, Neurontin, Romazicon, Pletal, Ceftin and Accupril. The FDA requires companies to submit abbreviated new drug applications ( ANDAs ) for approval to manufacture and market generic forms of brand-name drugs. During 2004, Teva received in the United States 28 final generic drug approvals and 12 tentative approvals. The 12 tentative approvals received were for generic equivalents of the following products: Propecia, Zyrtec, Coreg, Levaquin, Ifex, Tricor, Pepcid RPD, Avandia, Glucophage XR, Oxycontin (10, 20, 40 mg) Topamax and Cerebyx. 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 or the 30 month stay elapses. Teva s potential for revenue growth of generic products in the United States is closely related to its pipeline of pending ANDAs with the FDA, as well as tentative approvals already granted. As of February 8, 2005, Teva had 140 product registrations awaiting FDA approval (including some from strategic partnerships), including 18 tentative approvals. Collectively, the brand-name versions of these products had corresponding U.S sales exceeding $82 billion. Branded product market size is a commonly used measurement of the relative significance of a potential generic product. Generic equivalents of any given product are typically sold at prices below the branded price, and in those instances where there are multiple generic producers of the same product, substantially below the branded price. In most instances, FDA approval is granted on the expiration of the underlying patents. However, companies are rewarded with marketing exclusivities, as provided by law, by challenging or circumventing these patents. As part of its strategy, Teva actively reviews pharmaceutical patents and seeks opportunities to challenge those patents where it believes that such patents are either invalid or are not infringed by the generic version. Aside from the financial benefits of marketing exclusivities, Teva believes that these activities improve health care by allowing consumers faster access to more affordable medications. As of February 8, 2005, Teva s product registrations included 122 applications which are pending FDA approval and 18 which have been tentatively approved. Of these applications, 76 were Paragraph IV applications i.e., applications that challenge patents of branded products. Teva believes it is the first to file on 26 of these applications, with aggregate annual U.S. branded sales of more than $21 billion. In Canada, the Therapeutic Products Directorate of Health Canada requires companies to make an Abbreviated New Drug Submission ( ANDS ) in order to receive approval to manufacture and market generic pharmaceuticals. During 2004, Novopharm launched 16 generic equivalents of the following brand products: Zocor, Cipro, Imovane, Zantac Oral Solution, Mobicox, Remeron, Levaquin, Arava, Paxil, Lamictal, Clavulin, Floxin, Celexa, Elavil, Tofranil and Valium. In 2004, Novopharm submitted applications for 31 products to the Therapeutic Products Directorate that are still awaiting approval. Collectively, the brand name versions of these products had annual Canadian sales in 2004 exceeding U.S. $2.5 billion. 17

20 Joint Ventures. As part of its strategy to reach the market with generic versions as early as possible, Teva seeks to enter into alliances with partners to acquire rights to products it does not have and/or to otherwise share development costs or litigation risks. Teva s most significant joint ventures are described below: In 1997, Teva and Biovail Corporation International entered, through subsidiaries, into a ten year marketing and product development agreement which provided Teva with exclusive U.S. marketing rights for Biovail s pipeline of eight controlled-release generic versions of successful brands. These products included generic versions of Cardizem SR, Cardizem CD, Trental, Verelan, Adalat CC, Procardia XL, Dilacor XR and Voltaren XR. Biovail was responsible for the regulatory filing and approval process as well as the manufacturing of the products. To date, five of these eight products are being marketed by Teva USA (Trental, Cardizem CD, Adalat CC, Procardia XL and Voltaren XR). During 2004, this agreement with Biovail was extended by an additional four year period and also granted Teva an option to market an additional generic product currently under development by Biovail. Furthermore, under the 2004 amendment, Biovail transferred all development and intellectual property rights for two additional extended release generic products, which Teva will have the right to independently develop and ultimately manufacture. In consideration for these agreements Teva has made up front payments and has committed to certain milestone payments. As part of the 2004 amendment, the gross margin percentage shared with Biovail was modestly increased for the remaining extended term. Teva and Biovail have also entered into a long-term API supply agreement under which Biovail will increase its purchases of raw material from Teva s API division. In September 1999, Teva entered into a strategic alliance with Savient Pharmaceuticals Inc. (formerly, Bio-Technology General Corp.) for the development and worldwide commercialization of generic equivalents of biotechnology products. In addition to granting Teva U.S. exclusive marketing rights for Savient s human growth hormone, Savient agreed to develop and produce certain biogenerics which would be sold by Teva. Teva had intended to launch Savient s human growth hormone product in However, just prior to launch, Novo Nordisk Pharmaceuticals, Inc. and Novo Nordisk A/S sued Teva USA and Savient for patent infringement and obtained a preliminary injunction, which prevented the launch of the product. In August 2004, the patents were ruled invalid and unenforceable and subsequently, Teva and Savient partially settled their dispute with Novo Nordisk. As a result, Teva launched the product in February In June 2001, Teva entered into a strategic alliance agreement for twelve controlled release generic pharmaceutical products with Impax Laboratories, Inc. The agreement grants Teva exclusive U.S. marketing rights and an option to acquire exclusive marketing rights in the rest of North America, South America, the European Union and Israel. Teva subsequently exercised its option with respect to the marketing rights of certain products in Canada. The products subject to the agreement include the following products as to which Impax had pending ANDAs at the FDA and has now received final or tentative approval: generic versions of Claritin D12, Claritin D24, Claritin Reditabs, Wellbutrin SR tablets, Zyban tablets and Prilosec capsules. During 2004, generic versions of Wellbutrin SR tablets, Zyban tablets and Prilosec capsules were launched. In July 2003, Teva entered into an exclusivity transfer agreement with Andrx Corporation and Impax relating to pending ANDAs for bioequivalent versions of Wellbutrin SR and Zyban (bupropion hydrochloride) 100 mg and 150 mg Extended Release Tablets filed by Andrx, as well as by Impax. Pursuant to Teva s strategic alliance agreement with Impax, Teva has U.S. marketing rights to Impax s versions of these products. Under the exclusivity transfer agreement, Andrx enabled Impax to launch its own product through Teva, with the parties sharing certain payments with Andrx relating to the sale of the product for the 180-day market exclusivity period. 18