Teva Pharmaceutical Industries Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 13 speakers on the call.

Operator

And welcome to the Q3 2023 Teva Pharmaceutical Industries Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. I'll now hand it over to your host, Ran Mir, SVP of Investor Relations. Please go ahead.

Speaker 1

Thank you, Alex. Thank you, everyone, for joining us today.

Speaker 2

We hope you have an opportunity

Speaker 1

to review our press release, which was issued earlier this morning. A copy of this press release as well as a copy of the slides being presented on This call can be found on our website at terafarm.com. Please review our forward looking statements on Slide number 2. Additional information regarding these statements and our non GAAP financial measures is available on our earnings release and in our SEC Form 10 ks and 10 Q. To begin today's call, Lisa Francis, Teva's CEO, will provide an overview of Teva's Q3 results and business performance, Recent events and our priorities going forward.

Speaker 1

Then Doctor. Eric Hughes, our Head of R and D and Chief Medical Officer, will discuss progress on our Innovative pipeline. Our CFO, Eric Halit, will follow-up by reviewing the financial results in more detail, including our 2023 financial outlook. Joining Richard, Eric and Elio on the call today is Van Bittles, Devon's Head of North America Business, who will be available during the question and answer session That will follow the presentation. Please note that today's call will run approximately 1 hour.

Speaker 1

And with that, I will now turn the call over to Richard. Richard?

Speaker 3

Thank you, Rand, and thank you everybody for joining us today. I'd like to begin by saying that we are deeply saddened by the terror attacks in Israel on October 7. Since that day Teva's Board, leadership team and I have made the safety And well-being of our Israeli colleagues, our utmost priority. I visited and met employees at the facilities in Israel immediately after the attack. Many of them have families and friends who have perished or been kidnapped.

Speaker 3

What really stood out and inspired me was that despite all the difficulties, They are running together to bring medicines to the patients who need them, especially now. I am personally humbled by their incredible resilience, Care and sense of purpose. Now we have increased support of our emergency supply of medicines to hospitals, pharmacies and patients, And we have partnered with our long standing partners to donate products and provide other humanitarian aid. Through it all, our production remains largely unaffected And gratefully, none of our sites have incurred direct damage as a result of the war. We continue to secure contingency plans To be certain, we can maintain our business continuity, while most importantly, taking care to ensure that our colleagues are safe and well in these difficult times.

Speaker 3

Now moving on to Slide 5. I'd like to update you on the strong performance in Q3 as we continue to execute our Pivot to Growth strategy. Now our strong performance of our growth was delivered by our growth engines, AUSTEDO, AJOVY and our generics business. Revenues were up 7% in U. S.

Speaker 3

And in local currency. Our gross margin continues to improve. We saw it increase by 50 basis points versus Q3 2022. We're pleased to announce an exciting partnership with Sanofi in Q3, a deal to really maximize our Tier 1A asset. Because of these results, I'm pleased to announce we're going to increase our outlook of revenue to $15,100,000,000 to $15,500,000,000 for 2023.

Speaker 3

Now to move on to the next slide, to continue to maybe update you on our Pivot to Growth strategy. As you all remember, this was based on 4 pillars: deliver on our growth engines, step up innovation, Sustainer Genetics powerhouse and Focus Our Business. So I'm just going to touch on some of the progress we've made in Q3. As I just mentioned, AUSTEDO is performing well and is on track to hit $1,200,000,000 for 2023, and we remain committed and confident of hitting the target of $2,500,000,000 in 2027. You said it was launched earlier in the year.

Speaker 3

I'll give you an update on that. And we're pleased to announce with our partner, Alvatech, And we're doing an FDA inspection in early Q1 in 2024. It raises the opportunity that we may be able to launch HUMIRA next year. With regard to innovation, I'm joined on this call by Eric Hughes, who will go into more detail. But a couple of highlights are obviously around Olanzapine, Our lung acting treatment for schizophrenia in Phase III study, this is progressing really well and ahead of schedule.

Speaker 3

So we're confident we'll be able to report results in that in the second half of next year. To create a generic spa house, we made good progress. As you'll see, we have growth across all of our regions. And then finally, on Pillar 4, focus our business, We continue to do the work to create a stand alone business unit for TAPI. I'm pleased to announce the appointment of our CEO for that business That allows them to compete in the global market.

Speaker 3

And moving on to the next slide. Just to touch upon one of The news we had in Q3 of the exciting collaboration with Sanofi. I'm pleased with this collaboration because it really strengthens our pivot to growth strategy. It allows us to partner with a global leader in immunology, both from an R and D and commercial perspective, while retaining 50% of the economics going forward, Which is important as we want to drive long term growth for Teva. We see this asset as an asset that can drive Long term growth because of the size of the market we'll be operating in.

Speaker 3

I'll come to that a bit later on. Now back to performance on the next slide. As I said, we had strong performance in Q3. Revenue was $3,900,000,000 up 7%. That was driven by both our innovative business as well as our generics business.

Speaker 3

ASCEDO continued its impressive growth, up 30%, while AJOVY continues to grow well at 22%. Pleased to show that we saw growth across all of our regions with particularly strong performance in the U. S. And international markets. Now to double click and dive a bit deeper, I'd like to move on to AUSTEDO.

Speaker 3

AUSTEDO, Once again, we confirm that we're committed to the $1,200,000,000 target for 2023. Revenue was up The $339,000,000 in Q3, up 30% and supported and underpinned by good strong TRx growth of 29%. Now on the next slide, I want to reiterate our commitment to the $2,500,000,000 target for 2027. We're doing this by investing in our brand and building capability in the company. As we mentioned earlier in the year, we have increased our sales force.

Speaker 3

We have invested in improving our patient support services as well as looking to launch this brand into the European market by 2026. Now we see the opportunity not only because we're investing in building capability, but there's a significant unmet medical need when it comes to Patients suffering from tardive dyskinesia. And tragically, there's a lot of patients who still need to benefit from AUSTEDO, so we have work to do there Now moving on to the next slide, AJOVY. We're on track to reach or even exceed the $400,000,000 for 2023, with good growth In Q3, revenues of $114,000,000 As I said, revenue sorry, as I said, growth was 22%. What I like about AJOVY is not the fact that we're just growing it in all of our regions, but we remain very competitive in what is a Competitive sector and segment of the market, highlighting our sales and marketing and medical and commercial capabilities.

Speaker 3

Now moving on to the next slide. The newest member of our innovative family is UCEDDY, a long acting treatment for risperidone Launched in May of this year. Now we're pleased with the launch. And as you can see, UCEDD is capturing over 55% of all NBRx in the risperidone long acting And this is driven by the strong feedback we're receiving from physicians and patients. Patients obviously appreciate the subcutaneous injection versus intramuscular.

Speaker 3

I think the physicians find The fact that Yuceti can reach therapeutic doses within 6 to 24 hours is being really helpful when they're treating patients who have a relapse. This market is an attractive market. It's a $4,000,000,000 market, and we think Yuceli will have a real path to play in that market. Now as I've said before, 2023 is a setup year for 2024. We need to make sure we get access Formally inclusions in our hospitals, and we're making very good progress on that.

Speaker 3

So look forward to updating you on Yucedi as we near the end of the year. Now moving away from our innovative portfolio to our generics business. And as I said earlier, I'm pleased to show that we're growing our generics business across all of our regions, U. S. Included.

Speaker 3

And as you can see, strong growth in the U. S. Of 15%, Solid growth in Europe and good growth in emerging markets and local currencies of 17%. Now To move on to our pipeline, which is obviously a key pillar of our strategy, our pivot to growth strategy and step up innovation, Just to look at the late stage assets we have, I've talked about Olanzapine and how encouraged we are with the recruitment of our patients into that Phase III trial, And we look to be announcing or Eric and his team will look to be announcing those results in the second half of next year. Once again, to reiterate, this is a significant market.

Speaker 3

And with Olanzapine, there really isn't a satisfactory long acting version of this product, this molecule in the market. So we're excited about this and the help we can bring to this patient population. Moving on to ICS Saba, another product that entered Phase III clinical trials in Q3. We Sorry to acute patients already, and this is a significant opportunity. As I mentioned on previous calls, Based on the guidelines in the U.

Speaker 3

S, there are 10,000,000 patients who should be on an ICSLABA combination. And so if you just take 30% of these, the market is still Significant at $2,500,000,000 So a real opportunity to continue to drive growth for Teva in our innovative business. And then finally, on anti TL1a, I've spoken a bit about it, and I'm sure Eric will touch upon this as well. But just to highlight the size of the opportunity in UC and CD, which we see as around $28,000,000,000 for what we think we have a best in class product. And then on my final slide, I'd just like to close out with our recent progress on our ESG strategy and initiatives.

Speaker 3

In Q3, we made good progress in executing our ESG strategy, and we made good progress against some of our ESG targets. And I'm pleased to announce on behalf of the team that the company received some awards. We were winner of the Best Company for ESG Reporting in the Health Care Sector And also, in 2023, best corporate social responsibility initiative. So really highlighting the work and the progress we've made on our ESG strategy. Now with that, I would like to hand over to my colleague, I have a few who will walk you through some of our pipeline news.

Speaker 4

Thank you, Richard.

Speaker 2

Can I have the next slide?

Speaker 4

So as Richard mentioned, we're excited by the

Speaker 3

improved sales of AUSTEDO, Which

Speaker 4

is a testament to AUSTEDO's safety and efficacy. To build upon what we've already achieved with AUSTEDO, we I want to make sure that the flexibility and the convenience of AUSTEDO is improved with our patients, and we're happy to present this data from our real world studies called START. This study was a real world study to look at how our 4 week titration pack is used. What we see in this study is that 78% of the subjects completed the study, 97% We're adherent to the medication, 76 reached the optimal dose and 95% reached a dose greater than 24 milligrams But why is this important? Well, the important thing is to get patients on the right dose that's optimal for them, Use the flexibility of AUSTEDO and maintain patients on effective treatment.

Speaker 4

And you can see that in this study, We had actually a very good response rate in the abnormal involuntary movement scale of about 4.8, which is actually numerically better than our pivotal So we believe with the titration pack, the flexibility of the dosing and these adherence rates that we see In our START study, we will maximize the ability of patients to receive and obtain the proper dose and stay on treatment.

Speaker 2

Go to the next slide.

Speaker 4

As Richard mentioned, we're also excited to see the improvement improved sales of AJOVY. AJOVY is a program that we have for migraine, and we can recapitulate our Phase II Phase III studies And its effect on the monthly migraine days that we improved. So in this study called UNITE, it was a prospective study, but the uniqueness of this study was We looked at patients with migraine who also had depressive symptoms. And this is important because depression is a comorbidity With migraine, it leads to chronic migraine increasing, increased disabilities and decreases in quality of life. So we designed Unite to prospectively look at both the effects on monthly migraine treatment And as well as depressive symptoms.

Speaker 4

And we're pleased to show that the primary endpoint was achieved and recapitulated our good results And the monthly migraine rates, but also in the secondary endpoint on depressive symptoms. So this is the first Study to show, in fact, that we have a significant effect not only on monthly migraine but also on depressive symptoms And CGRP, either subcutaneous or oral. So very excited to see this. I think there's a great benefit to patients. Joe, next slide.

Speaker 4

Now we're also excited to present more data on UZETI from our pivotal studies in the sub analysis. In the RISE study, our pivotal study, we looked at the disease duration across all the patients that we enrolled. Here you can see that we had patients that were less than 5 years all the way up to greater than 20 years. And why is this sub analysis important? Well, there is the thought that after many years, greater than 20 years, the treatment of Schizophrenia becomes slightly resistant to treatment.

Speaker 4

But here we can see that clearly, there's no impact on disease duration On the effectiveness of UZETI. So greater than 20 years is a very good population to have shown treatment effect then. Equally as important is those patients that are less than 5 years' duration of their treatment. Here again, even in this population, which has A higher relapse rate early in treatment, we also had a great effect, which is important because in LAIs, this is a continuing Thank you. Next slide, please.

Speaker 4

Now Richard mentioned the olanzapine LAI study. It's going very well. We've enrolled over 5 50 patients to date. And I just want to review quickly what the study design is for our Phase III program. We do have 3 doses against placebo for 8 weeks To the primary endpoint, and then we'll roll those subjects over into 3 doses again for an up to 48 weeks to build our safety data This study is enrolled very quickly, and I'll go over time lines of the readout, but we're excited to see that A study enrolls quickly.

Speaker 4

This is obviously a testament to the capabilities of the R and D organization as well as The desire of investigators to use an injectable olanzapine. On the next slide. Finally, I just want to touch base on our TL1A program. Richard mentioned that we had a deal Signed with Sanofi to advance this very important product forward. As I've mentioned many times in the past, this is a very important underserved market.

Speaker 4

There's over 4,000,000 patients diagnosed, about 2,700,000 are treated. However, The treatments are have good effect that only last for so long. People frequently cycle through And many of these patients actually end up still getting surgery as their disease progresses. So more treatments are important in this disease area. We believe we have the best in class potential for TL1As.

Speaker 4

We have a potent compound with great selectivity. We've shown good safety in our asthma study, and we've shown low antidrug antibodies today. The collaboration with Sanofi is going to Capitalize on the potential of this target. This target has the potential to go across many different disease indications. It's a pleiotropic cytokine that affects many different pathways, so the possibilities are large for this group.

Speaker 4

As I've mentioned, we're going to we've accelerated the program, and we're putting all our effort on getting our interim analysis readout in 2024. So looking forward to more in collaboration with Sanofi. And just to review our milestones in development. So I mentioned Q1A, we're moving forward as we're putting resources and investment in making sure that we achieve our interim analysis in the second half of twenty twenty four. I have been talking about Olanzapine LAI and its acceleration.

Speaker 4

We have been reporting that we were going to report the results out in 1st half of twenty twenty five, but I'm happy to say we've accelerated that to the second half of twenty twenty four. We've enrolled patients in our anti IL-fifteen POC study For celiac disease, we will have our PK from our SAD and MAD studies coming out in the second half of twenty twenty four. We are well on our path to have our first patient dosed in our anti PE-one IL-two program in the first half of twenty twenty four when we submit our IND. And as Richard mentioned, ICS Saba has now launched into our Phase III program, and we're looking for results in the first half of or second half of twenty twenty six. So lots of things going on.

Speaker 4

I'm glad to see that we're accelerating our programs and keeping to our time lines. And with that, I'm going to pass it off to Alex.

Speaker 2

Thank you, Eric, and good morning and good afternoon to everyone. I'll begin my review of our Q3 2023 financial results with Slide 25, Starting with our GAAP performance. Revenues in the Q3 of 2023 were 3,900,000,000 representing an increase of 7% compared to Q3 2022, both in reported terms and in local currency. To provide you some color on our revenue performance by region. In North America, we had overall strong performance with 11 percent growth in Q3 2023 compared to Q3 last year.

Speaker 2

This growth was mainly driven by higher revenue from generics product, AUSTEDO and AJOVY, partially offset by lower revenue from Bendeka and Treanda. As Richard mentioned, Revenue in our generics business in North America increased by 15% in Q3 2023, mainly due to revenues from generics revenue, partially offset by competition to other generics products. Revenues in our Europe segment were flat in local currency terms. We continue to see strong growth in AJOVY and a solid growth in our generics business in the Q3. This was, however, largely offset by lower revenues from our legacy brands, including Copaxone.

Speaker 2

Revenues from our International Markets segment increased by 20% in local currency terms. This was mainly driven by higher revenue from our generics product, Largely coming from price increases as measured to offset higher costs due to inflationary pressures. This increase was partially offset by regulatory price reduction and generic competition to off patent products in Japan. GAAP operating income was 3 $5,000,000 in the Q3 of 2023 compared to an operating income of $419,000,000 in the Q3 of 2022. The lower operating income in the Q3 of 20.53 was mainly due to higher legal settlements and loss contingencies, Higher R and D and S and M expenses, partially offset by higher gross profit.

Speaker 2

Our higher R and D expenses in the Q3 of 2023 compared to the Q3 of 2022 were mainly due to an increase To support our late stage innovation pipeline, as Richard and Eric mentioned earlier, in line with our Pivot to Growth strategy. In addition, last year, in Q3 of 2022, our R and D expenses were lower due to an adjustment in payments related to a contract with 1 of our R and D Partners. We also saw an increase in our S and M expenses compared to the Q3 last year, mainly due to promotional activities related to AUSTEDO and Newseli as well as exchange rate fluctuations in our Europe segment. We had a GAAP income of $80,000,000 compared to the net income of $56,000,000 in Q3 2022 And a GAAP earnings per share of $0.07 compared to GAAP earnings per share of $0.05 in the same period a year ago. The higher net income in the Q3 of 2023 was mainly due to reduced tax expenses in 2023 Compared to Q3 2022, our tax rate in Q3 2023 was mainly affected by increased deferred tax assets resulting IP related integration plans.

Speaker 2

Such integration plans have been adopted, among others, in an effort of addressing the global adoption of OECD pillar to minimum effective corporate tax commencing in 2024. The increase in our net income was partially offset by lower operating income as discussed above. Foreign exchange rate movement during the Q3 of 2023 net of hedging effects negatively impacted our revenues and GAAP operating income By $9,000,000 $53,000,000 respectively, compared to the Q3 of 2022. This was primarily a result Of the impact of the stronger U. S.

Speaker 2

Dollars against currencies of certain international markets in which we operate, Partially offset by the benefits from euro appreciation, approximately 46% of our revenue in Q3 2023 Turning to Slide 26. You can see that the total non GAAP adjustments in the Q3 of 2023 were approximately 598,000,000 Compared to $602,000,000 in Q3 2022. Notable GAAP adjustments this quarter include legal settlements, Loss continuances of $314,000,000 mainly related to estimated provisions recorded in connection with certain litigation cases in U. S. Additional notable adjustments included amortization of purchased intangible assets of $145,000,000 The majority of which is included in cost of sales.

Speaker 2

Now moving to Slide 27 for a review of our NAND GAAP performance. As I mentioned, our Q3 revenue were totaled approximately $3,900,000,000 represented growth of 7% compared to the Q3 of 2022. Now let's move down to the P and L, starting with the gross profit margin. Our non GAAP gross profit margin was 53.5% in the Q3 of 2023 compared to 53% in Q3 2022. This improvement in non GAAP gross profit margin was mainly driven By favorable mix of products, including higher revenue from AUSTEDO in our North America segment, partially offset by higher costs due to inflationary and other macroeconomic pressures.

Speaker 2

As I mentioned last quarter and as expected, this was an approximate 130 basis points sequential improvement in our non GAAP gross profit margin in Q3 2023 Compared to the Q2 of 2023, this sequential improvement in gross margin was driven By continued shift towards a more normalized portfolio mix, mainly driven by strong growth in AUSTEDO, continued growth in AJOVY as well Improvement in our cost of goods sold due to the expected easing of the inflationary pressures and other measures we are taking Our non GAAP operating margin in Q3 2053 was 26.5% versus 27.2% in Q3 2022. This decrease in operating margin was mainly due to an increase in R and D expenses, partially offset by higher gross profit margins, as I just mentioned, as well as lower G and A expenses. We ended the Q3 with a non GAAP earnings per share of $0.60 compared to $0.59 in Q3 2022, mainly due to a higher non GAAP operating income, partially offset by higher financial expenses in Q3 2023. Now let's take a look at our spend base on Slide 28. As you can see, Our quarterly spend base increased by $213,000,000 or $171,000,000 on a local currency basis.

Speaker 2

This increase was due to a higher cost of goods sold related to higher revenue compared to the Q3 of 2022 As well as higher operating expenses related to higher R and D and S and M that I just mentioned earlier, partially offset by efficiencies in our G and A expenses. As we move forward, we expect our operating expenses to be approximately From $1,000,000,000 to $1,050,000,000 in the 4th quarter, including a quarterly run rate of R and D expenses to be in the range of $230,000,000 to $250,000,000 as we continue to progress our pipeline, including the late stage and innovative assets. This is in line with our pivot to growth strategy to position the business for long term growth and success. Turning to free cash flow on Slide 29. In the 1st 3 quarters Of 2023, we generated $900,000,000 of free cash flow versus $1,100,000,000 during the same period last year, A decrease of $200,000,000 This resulted mainly from changes in working capital items, including on average higher inventory levels As well as lower net income as a result of lower gross profit and higher operating and finance expenses.

Speaker 2

Today, we are reframing our 2023 free cash flow guidance. Our 2023 free cash flow is expected to be in the range Of $1,700,000,000 to $2,100,000,000 our 4th quarter free cash flow expectation includes a sequential ramp up in our revenue And profitability with a meaningful contribution from AUSTEDO. In addition, we continue to drive working capital improvement, Including significant inventory efficiencies and continuation of the positive impact from accounts payable as a result of expansion in our vendor Payment program, which we launched earlier this year. This free cash flow outlook range does not include The first upfront milestone payment is stable to us under the exclusive collaboration with Sanofi for our anti TL1A, which we announced in October. Turning to Slide 30.

Speaker 2

Our net debt at the end of Q3 2023 was $17,700,000,000 compared to $18,400,000,000 at the end of 2022. Our gross debt was $20,000,000,000 compared to $21,200,000,000 at the end of 2022. The decrease in our gross debt It was mainly due to $1,600,000,000 tender notes repaid at maturity and $54,000,000 of exchange rate fluctuation, partially offset by $500,000,000 outstanding under the revolving credit facility as of December 30, 2023. As I mentioned last quarter, in July 2023, we withdrew a total amount of $700,000,000 Under our $1,800,000,000 revolving credit facility, the proceeds of which were used to repay $1,000,000,000 of our senior notes at maturity in July. In September 2023, we repaid $200,000,000 And as of today, $500,000,000 is outstanding under the revolving credit facility.

Speaker 2

Our net debt to EBITDA improved Compared to Q2 2023, coming now at 4.03x for Q3 2023 Due to foreign exchange rate movement as well as free cash flow generation in the Q3. As part of our Capital allocation strategy. Debt reduction continues to be our focus, and we expect to continue to work towards our long term financial target of being 2x net debt to EBITDA by end of 2027. Turning to Slide 31, Which presents our upcoming debt maturities. As I mentioned, we have already repaid $1,000,000,000 of our 2.8% standard notes at maturity in July 2023, so there are currently no additional maturity payments due in 2023.

Speaker 2

Following our successful refinancing of approximately $2,500,000 of our debt through a sustainability linked In your note, during the Q1 of 2023, we have aligned our near term debt maturities with our annual free cash flow guidance for this year. We believe we are well positioned to continue to serve our debt and meet these upcoming maturities over the next couple of years with our ongoing cash flow generation. Now turning to our 2023 non GAAP outlook on Slide 32. As Richard highlighted earlier, we had a solid Q3 year to date performance in terms of our revenues This includes continued strong momentum in our key growth engines, especially AUSTEDO, continued growth in AJOVY as well as solid performance in our core generic business globally. In addition,

Speaker 3

we

Speaker 2

are seeing relatively Higher revenue from Copaxone compared to our initial expectation, which we now expect it to be approximately $550,000,000 for the full year. To reflect this revenue performance in the 1st 9 months, along with the expected development in the Q4, we are increasing Our full year revenue guidance range by $100,000,000 We're now expected our revenue to be between $16,100,000,000 to $15,500,000,000 for in the full year of 2023. We also continue to expect sequential improvement in our margins In the Q4, as previously communicated, we are driving and continued the shift in our portfolio mix, mainly driven by Strong growth in AUSTEDO as well as further improvement in our cost of goods sold. To reflect our year to date tax performance That I referred earlier, we are now expecting our annual non GAAP tax rate for the full year 2023 to be in the range of 12% to 15%. And we expect our fully diluted share count to be approximately 1,132,000,000 Today, we are also reaffirming our 2023 non GAAP outlook for operating income, EBITDA, earnings per share and free cash flow as provided in February.

Speaker 2

I want to reiterate that our full year revenue, Operating income, adjusted EBITDA, diluted EPS and free cash flow outlook ranges do not include The first upfront milestone payment is payable to us under the exclusive collaboration with Sanofi for anti TL1A, which we announced in October. With that, this concludes my review of Teva's results for the Q3 of 2023. And now I will hand it back to Richard for a summary.

Speaker 3

Thank you, Ellie, and thank you, Eric. So in summary, strong Q3 performance driven by Stedto, the launch of Yesedi and AJOVY and good performance across our generics business in all three regions. As you heard from Ellie, we're increasing our guidance for revenues this year. And I'm pleased to show that the pivot to growth strategy is starting to get traction. As I've highlighted with AUSTEDO, the collaboration of Till Ia, with the capability build that Eric and his team have done that's allowed us to accelerate elansapine, Our long acting product in Phase III studies as well as the Teva API, the recruitment of our CEO.

Speaker 3

With that, I'll hand it over

Operator

Our first question for today comes from Umer Raffat of Evercore ISI. Your line is now open. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking my question. I noticed a dose level C was dropped in your TL1A trial. I'm assuming that was the highest dose. So I have a 2 part question.

Speaker 5

One, can you confirm that among the dose level A and B that was kept, you have at least a 500 milligram dose in there? And secondly, I understand that the decision to drop the dose level C was informed by optimizing evolving biomarker data. Could you please elaborate on that as well? Thank you.

Speaker 3

Hi, Umer. Thanks for the call and thanks for the question. Eric, I'll hand that one to you.

Speaker 4

Thank you, Umer. So yes, we amended our study design and we dropped the dose. This was driven largely in part by our comparative in vitro data. As I mentioned, our potency of the compound is, we believe is best in class. We I think the selectivity drives a lot of our potential biomarker movement.

Speaker 4

We are looking at free TL1A levels, which I think are important in dose selection. And we use this in combination with RPK and what we've observed in other development programs when we look at Exposures and the programs. So we took advantage of this, and we optimized the study by dropping a dose and increasing actually the size slightly in the So we're happy with the changes. I think that makes the program more efficient and more useful data that will come out of it. And I can't comment on dosing or which dose was removed

Speaker 6

Thank you.

Operator

Thank you. Our next question comes from Balaji Prasad from Specialty Pharma Equity Research. Your line is now open. Please go ahead.

Speaker 7

Hi, good morning. This is Balaji from Barclays. A couple of questions from me. Richard, just want to get your sense if you think that Teva has reached a Spot where you're comfortable or actively seeking to expand your pipeline and portfolio, either with BD or in licensing. Secondly, on the guidance, I still see a $400,000,000 spread so late into the year, which is rather interesting.

Speaker 7

Is it fair to assume that you are still expecting some large one offs so late in the year that can still impact to the extent of a few $100,000,000 of abroad? Thank you.

Speaker 3

Thanks, Rajee. Thanks for the call and the question. I appreciate that. So on the BD, To answer that question, yes, we are actively looking to do BDN in license. We started that and we've been doing that actively.

Speaker 3

I think We are excited by the products we have in innovation within the market and in our pipeline. That said, As we committed in the pivot to growth, we want to build on that. We think we have capacity to add products both in our pipeline and also commercially. So we are actively doing that, but we want to be very selective, make sure it fits to our portfolio, our TA strategy. So that does take some time.

Speaker 3

With regard to the guidance, I think the question was the 15.1% to the 15.5%, bit of a range there. Do we expect a one off to drive that? I'll let Eli answer that. So over to you, Eli.

Speaker 2

Yes. Thanks, Balaji, for the call for the question, sorry. And basically, we are actually keeping the guidance for AUSTEDO, so you can actually look on the 1st three quarters and understand the growth there year over year Q4 just on AUSTEDO. But namely, in terms of the other elements and the underlying on the revenue, there is nothing there in specific That's going to be a change versus

Speaker 4

current trend

Speaker 2

considering the seasonality of Q4 that we have each year.

Speaker 3

Thanks for the question.

Operator

Thank you. Our next question comes from Jason Gerberry of Bank of America. Your line is now open. Please go ahead.

Speaker 6

Hey guys. Thank you for taking my questions. I guess, firstly, just on the TL1A Partnership, I actually had a follow-up question regarding the $600,000,000 milestone for starting Phase 3. Is that contingent just on showing something STAT SIG as a benefit or do you actually need to generate data that are Competitive with the more advanced TL1A programs, just wondering how much risk there is to kind of Capturing that $600,000,000 milestone and moving forward. And then my second question, just on your EBITDA guide for the year, I guess to get to the midpoint or the high end of the range, it's a pretty substantial sequential step up.

Speaker 6

I get that there's going to be more brand revenue, Better mix, better margin in the Q4, but you presumably won't have the generic Revlimid contribution. So how should we think about OpEx Swings here in Q4 versus sort of the run rate in the 3 quarters leading into 4Q, like would we expect to step down in OpEx? Or Is there some other factor that can drive this big sequential uptick?

Speaker 3

Okay, Jason. Thanks for the question. I'll start And answering them, and I'll let my colleagues contribute. So on the Tier 1a, the Phase III, There were no conditions around the Phase III. The Phase III is about completing the Phase II and having an FDA approval to move into So Phase 2, complete the Phase 2 and FDA approval to move into the Phase 3.

Speaker 3

So that's what the deal is on. There's no criteria around that. So I think that's very clear. With regard to the EBITDA and the range I think it was and a bit about OpEx, So maybe I'll start this and then Ellie can contribute. So you have seen and Ellie talk about our OpEx going up, but This is in line with our strategy.

Speaker 3

This is in line with what we plan to execute. We're driving AUSTEDO and making sure that brand is supported appropriately, The same for Yuceti product we just launched, Schizophrenia. And obviously, Eric and his team have started to hit the ground running, Particularly on olanzapine and also Tier 1M recruiting, faster than we expected. So obviously, incurs costs, but I think that's a good thing, Particularly, that's part of our Pivot to Growth strategy. So those are the reasons why the OpEx is probably has gone up.

Speaker 3

There's a reason why it's gone up, but we're pleased with them because it's in line with what we want to do. Now obviously, going forward, just to A bit of flavor for the OpEx on the R and D, obviously, Tier 1A in partnership with Sanofi will have a 50% of that cost taken by Sanofi. So as we move into next year and possibly depending where it closes this year, we'll have a contribution from Sanofi. So I think that We've thought about that. That allows us to manage our pipeline and to be very thoughtful, but also think big about what Want to do a TL18, now we have this collaboration.

Speaker 3

So and then the final part I'll say is, As we commented before, REVLIMID was a contributor in Q3. We see that as a significantly less contributor in Q4, a very, very small part So you take that into account. But Kelly, maybe you like to add a bit more flavor to that as well. Yes.

Speaker 2

So thanks, Jason. So Overall, the way we need to think about it, we will end up, according to the guidance, with higher revenue versus last year. But we will trend the OpEx at the level of close to 26% of our revenue. And that's the way to think about it. Another point For you to consider, we're still looking for the 53% gross margin for the year end, which means there is a step up In Q4, which is mostly related to a favorable mix that we'll have in that quarter, and that will drive our ability to

Speaker 3

Thank you, Jason.

Operator

Thank you. Our next question comes from Nathan Rich of Goldman Sachs. Your line is now open. Please go ahead.

Speaker 8

Great. Good morning, and thanks for the questions. You mentioned the higher R and D expense in the quarter. I think you kind of expect maybe a bit of a step down in the Q4. But I guess going forward, what's the right way to think about R and D expense as a percent of sales, just given the investments you're kind of making In the pipeline, does that move up a bit over time?

Speaker 8

And then on Newsteady, you mentioned the positive feedback I was wondering if you could just elaborate a little bit on that and how that's kind of informed your view on the pace of uptake and How we should be thinking about the revenue contribution from this product as we go into next year?

Speaker 3

Thanks for the questions, Nathan. So just to and I'll hand to Ivan, just to sort of comment on the R and D expense. No, We don't expect a step down in Q4 because this is part of our strategy and the strategy is to aggressively move our And as I said, we have ICSLABA entered Phase III. We have elanspin at full tilt in Phase III and obviously TL1A in Phase II, which we're moving Very aggressively. So I think that's on purpose and that will continue.

Speaker 3

I'll let Ellie talk a bit about where we will be percentage on sales. But obviously, one thing to always consider, which may be slightly new with TAVRIS, Our sales, we have shown that we've grown ourselves for the Q2 in a row, and we are moving the business back to growth. So, obviously, that does allow us some flexibility. Well, I want to assure you our focus on expenses is maniacal. So that's just something worth But, Alex, do you want to give a bit more flavor?

Speaker 2

Yes. So overall, the way to think about R and D, we're actually looking The trend just a bit above 6% for the year end, which means that Q4 We'll also have a step up. And as I mentioned in my prepared remarks, we're actually providing kind of a more Currency here between 2.30 to 2.50 and that will be by itself very close to, I would say to the 6% that we see in the quarter and for the year. The way to think about it going forward, Of course, we will provide our guidance for 24% on the back of Q4 on February. By the way to think about it, it will be a range between 6% to 6.5% of our revenue going forward according to our strategy.

Speaker 2

And this is mostly And related to the mix inside the innovative field in the R and D.

Speaker 3

Thanks, Ali. And then moving on to Yuceti, and we talked a bit, I think, the question is around The positivity we have and then the next year. So I'll hand that to Sven, Head of North America, and give some flavor for the excitement in the market.

Speaker 9

Yes. Thank you, Richard. So we have a very good uptake. Our launch plan is full on track. We are of course now working towards market access.

Speaker 9

In hospital access, listing on hospital formularies, we arrived on plan. Medicaid and Medicare, we are also in discussions here. We have secured On par access with the Bega Sustena in a couple of states, and we are working towards this goal With all the remaining states, but also with the Medicare plans, so that we are quite confident that we will have a very good market access position going into 2024. What is very encouraging for us is that the product profile that we hope for will find a good reception with physicians actually plays out As planned, we've generated so far about 4,000 prescriptions. Please keep in mind that we have a large Number of free samples in the market to get patients started.

Speaker 9

So when we move forward and have utilized these samples, we will see more Paid for prescriptions. But we get to so today, the majority of our patients from switches from oral therapies To USETI and then from within the category of switches from other NAIs To you, Setti, we have here sources of revenues that come primarily, of course, from the risperidone market from PERSERIS and CONSTA, And also from the other LAIs, so we believe what we always hope for or aim for that this becomes A new standard of care in LAI in the LAI segment will actually materialize. And for that reason, we believe that Yuceti will be then a material contributor

Speaker 3

Thank you, Sven. Thank you, Kelly. Thank you for the question. Question later.

Operator

Thank you. Our next question comes from Ash Verma of UBS. Your line is now open. Please go ahead.

Speaker 10

Hi. This is Sisi asking question on behalf of Ash. Thanks for taking our questions. So I have 2. The first one is on AUSTEDO.

Speaker 10

Can you give us some color on where the XR is taking share from? So now run rate is at around like 10% of total molecule. So we just want to understand, is it taking shares from regular AUSTEDO, Generics or INGREZZA. The second question is on ANSYS. Can you give us a rough Thanks for what's the EBITDA margin for the standalone business?

Speaker 10

Also curious how that margin profile has been trending for the last few years? Thank you.

Speaker 3

Well, thank you. Appreciate it, Mr. Nate, but thank you for asking the question. I'll Hand over the Aesthedo question to Sven, who can give a bit more detail on that.

Speaker 9

Yes. Thanks for the question. So if our uptake is strong, We have a higher share actually in the total business than the 10% that you mentioned. So far, we Yes, one third of our new patient starts on AUSTEDO XR and the other 2 thirds on BID. Of course, that's an annualized Figure it's now ramping up that XR becomes much, much more prominent in new patient starts.

Speaker 9

And the sources of patients In itself, all these patient starts are roundabout half of them are naive patients that start new on therapy for VIMA2 Inhibitor and the other half come either from BID switches, so from AUSTEDO BID or from INGREZZA or tetravalacine. So here what is encouraging for us is that we have a significant number of new prescribers that have never prescribed AUSTEDO before And now start prescribing AUSTEDO XR because they value the convenience of a once daily formulation. And I think that's very good for us because that is a market segment That we could not access before in the absence of a once daily formulation. So for that reason here, I think we are right on track In making AUSTEDO a continuous growth driver for our innovative business.

Speaker 3

Thank you, Sven. And to your second question about TAPI Guidance on EBITDA for past and present and future, we are not giving any level of detail on EBITDA for TAVR at this moment. Thank you.

Operator

Thank you. Our next question comes from Glenn Santangelo from Jefferies. Your line is now open. Please go ahead.

Speaker 11

Yes. Thanks for taking my questions. Just two quick ones for me. Obviously, with so much focus on the innovative pipeline, generic Often get overlooked. I mean, Richard, it seems like the generics business had a great quarter, particularly in North America.

Speaker 11

The trend seems to be getting a little bit stronger. I was wondering if you could just sort of comment on the competitive and pricing dynamics that may be driving that trend. And then secondly, as it relates to the Alvatech partnership, The company made an additional investment there in the wake of a number of CRLs, right, more recently on Solara. Could you give us an update On that relationship and the biosimilar pipeline as it relates to that Alvatech partnership? Thanks.

Speaker 3

Thanks, Glenn. Thanks for the question. So we are pleased about the performance of our generics business. I think this is A journey in our strategy to make sure our generics business is a sustainable powerhouse. And within North America, we've You've seen a strong quarter there.

Speaker 3

I think Ellie did highlight that a big contributor to that was Revlimid. What I would say About your sort of more general market conditions around more favorability, and I've been consistent on this. I think to be The market conditions will change based on supply demand and competition and that will be constant. And so as more people come into a market, The prices will go down because the competition will drive that. I don't see those dynamics changing.

Speaker 3

There will be quarters where the pricing pressure is less and there will be I think for our strategy to make sure we could be in control of that, we focused Our R and D engine under Eric Hughes are making sure we deliver our generics, our complex generics on time and first to the market more than we have done in the past. And that's where we'll drive value creation and we'll ensure ourselves against this volatility So I think that's how we think about market going forward and how we think about making sure we stay competitive and have a sustainable business. With regard to Alvotech and the partnership, the relationship is actually very good. I mean, one of the things we did when we invested again into this Partnership is, and I've said this before as well, ALVOTEK is very good when it comes to developing biosimilar. The R and D capability, I think we will have The best product in the market, if we launch Humira, both from a device point of view, from a product profile interchangeability, they're very good at that.

Speaker 3

What we're doing is working even more closely with them to ensure that from a manufacturing capability, we can help them not only get through the FDA inspection, but also Be able to be able to deliver the volumes that we see will be necessary. And that's something which we're very capable of because we have 53 sites. We have roughly 30 FDA inspections a year, so we do know what we're doing. But I think what maybe to conclude, the relationship is very strong. Our pipeline, we've expanded with them because we see their capability.

Speaker 3

We continue to build out our pipeline through partnerships. And so you'll see some announcements on that hopefully In the future, because we do believe our strategy is to have a broad portfolio predominantly through partnerships, and that allows us to go to the market with a portfolio play So, hopefully that answers your question, Glenn, and I appreciate the call.

Speaker 11

Yes. Thank you.

Operator

Thank you. Our next question comes from David Amsellem of Piper Sandler. Your line is now open. Please go ahead.

Speaker 4

Hey, thanks. So a couple of high level questions just on overall strategy. So with the upfront payment in hand from Sanofi, So you have a little more wiggle room here, I should say. And with that in mind, are you focused On assets in neuropsychiatry where you can leverage your commercial infrastructure that you have in place, Is that the top priority there? And then secondly, as it relates to BioSins, just coming back to Beatrice Getting out of that business, how do you think about your role in BioSims going forward?

Speaker 4

I know what you're saying in your comments, but Is that something you could be opportunistic about going forward in terms of monetizing that business? Thank you.

Speaker 3

Thanks for the question, David. So starting with the I think, basically, you said because Our financial situation improves with the Tier 1 deal and the $500,000,000 upfront. How do we think about PD? So as I said, We are thinking about BD Interactive. You're looking we've hired Angus Grant, a seasoned professional, dare I say, legend in the industry who's worked at Innovative Medicines all his life.

Speaker 3

And so we really have stepped up that and our capability around that and our focus on that. Now, Yes. We are targeting CNS immunology and within CNS, obviously psychiatry And urology because we see the synergy play there with the leaner capability. In fact, in psychiatry, I think we're seen as one of the leaders in psychiatry now. So I think It makes sense to look there.

Speaker 3

That said, as opportunities come along, which may be in a broader seat, CNS will look at them. But right now, we're ensuring we stay focused to make sure we allocate our capital in a way that will be synergistic to our P and L and maximize our OpEx. With With regards to the biosimilar question, I think our strategy is really clear. I think biosimilars is a massive opportunity to generate revenue. I've seen that in Europe.

Speaker 3

I believe that's going to happen in the United States. It will be a bit bumpy in the United States as we've seen in the past. We've also seen with troxima of

Speaker 2

rituximab,

Speaker 3

it's a great revenue generator. So the way we address maybe some of that uncertainty is to ensure that we don't allocate huge amount of capital to it by doing that through partnerships. We've got

Speaker 2

a broad

Speaker 3

portfolio. So when some assets come to the market in a timely manner or some assets Overachieve and other assets underachieve on what net peak sales could look like. We're balancing that out because we have a portfolio approach. But we feel very Clear on our strategy and committed to our strategy, we think it's the right strategy for a company like Teva. Thanks for your question, David.

Operator

Thank you. Our final question for today comes from Chris Schott of JPMorgan. Your line is now open. Please go ahead.

Speaker 12

Hey, this is Ekaterina on for Chris. Thank you so much for taking our questions. So first on gross margins, I know you're not giving guidance for next year, but as we think about Margin trajectory from here and the trends we saw in Q3 and what we're going to see in Q4, is that kind of the correct starting point as we think about gross margin next year? Are there any other pushes and pulls we should keep in mind there? And I think second question is just on AUSTEDO.

Speaker 12

It seems like the product has had a very strong quarter. Just a little thinking around kind of investing behind that product and support for the asset. How are you thinking about balancing costs versus kind of maximizing The revenue opportunity hasn't thinking evolved at all and any implications as we think about SG and A spend next year? Thank you so much.

Speaker 3

Thank you, Carina. I'll take a go at both of those and then also allow my colleagues, Sven and Ellie, to contribute. So When we think about margin, when I think about margin going forward, it's aligned to our strategy. So when you think about our Pivot to Growth strategy, it was to make the company get back to Growth has grown in an areas where it will drive profitability at the top and the bottom line. Now obviously, I think Elias just highlighted and I highlighted in my comments that we Gross margin by 50 basis points.

Speaker 3

The way we did that primarily is our portfolio mix. So as we drive As we drive AJOVY, as we drive Yuceti, as we bring cilantepine to the market, ICSLABA to the market, those products have a very different gross margin profile than our generics business. So that, by definition, will raise our gross margin. So that's sort of the big picture on it. I'll let Ali give a bit more flavor if you want to, Ali.

Speaker 2

Yes. So just you know, we are still actually aligned with our long term financial targets by 2027 to reach the 30% on OP, Which means if you look on our trajectory in OpEx and as we are very, very cautious on even that we're actually dollar higher, but you're turning it always versus revenue this year and last year. And we believe that between 26% to 27% OpEx going forward, which means that those gross margin of 55% to 67% on the long term

Speaker 3

And then moving on to AUSTEDO. For AUSTEDO, we think we have a very important Asset here and because of that we ensure that that is funded in the appropriate way. And obviously we have a big cost base at Teva. And so for us it's about prioritization. And Aestheta is one of the top priorities we have in this company.

Speaker 3

And so when it comes to getting resources, we Obviously, there's a process to do that. It's not quite an open checkbook for Sven and his team, but it's very much this is an asset we want to maximize. Let's understand what that takes. And then obviously manage that to other aspects of the business cost structure to make sure we can offset that as much as we can to once again Stay very on top of our spend. As our revenue grows, we want to make sure our profitability grows with it.

Speaker 3

But Sven, do you have anything else to add to that?

Speaker 9

Yes. I think what the in the budget that we have is, of course, that we can make synergistic investment between AUSTEDO and YUSETI because some of the prescribers We target prescribed both of the brands, so we have leverage and we can create some scale effects. We have this year stepped up our sales force. We have increased our long term care team. We have made investments in specialty pharmacy programs to increase our fill rates, And we are also working on adherence.

Speaker 9

And I believe the fact that the prescriber base increases As more and more physicians start prescribing bemater2 inhibitors, it naturally leads you to an opportunity to invest more behind Sales and patient activation, and that's what we also plan to do for 2024. But as Richard said, of course, we are quite disciplined In analyzing where we want to invest a lot on us.

Speaker 3

Thank you, Sven. And I'd like to thank everybody for taking the time to Listening to our call and to answer the questions. We do appreciate the interest in Teva, and I wish everybody A good day or a good evening. Thank you.

Operator

Thank you for joining today's call. You may now disconnect your lines.

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Earnings Conference Call
Teva Pharmaceutical Industries Q3 2023
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