Teva Pharmaceutical Industries Q4 2024 Earnings Report

Teva Pharmaceutical Industries EPS Results

• Actual EPS: $0.70
• Consensus EPS: $0.69
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Teva Pharmaceutical Industries Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $4.10 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Teva Pharmaceutical Industries Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 8:00AM ET

Teva Pharmaceutical Industries (NYSE:TEVA) develops, manufactures, markets, and distributes generic medicines, specialty medicines, and biopharmaceutical products in North America, Europe, Israel, and internationally. It offers generic medicines in various dosage forms, such as tablets, capsules, injectables, inhalants, liquids, transdermal patches, ointments, and creams; sterile products, hormones, high-potency drugs, and cytotoxic substances in parenteral and solid dosage forms; and generic products with medical devices and combination products. The company focuses on the central nervous system (CNS), respiratory, and oncology areas. It provides active pharmaceutical ingredients, as well as contract manufacturing services; and operates an out-licensing platform that offers a portfolio of products to other pharmaceutical companies. The company also offers BENDEKA and TREANDA injections for the treatment of chronic lymphocytic leukemia and indolent b-cell non-hodgkin's lymphoma; GRANIX; TRISENOX; LONQUEX; and TEVAGRASTIM/RATIOGRASTIM. In addition, it provides COPAXONE for the treatment of relapsing forms of multiple sclerosis; AJOVY for the preventive treatment of migraine in adults; AUSTEDO for the treatment of neurodegenerative and movement disorders associated with Huntington's disease and tardive dyskinesia; UZEDY for the treatment of schizophrenia; ProAir RespiClick inhalation powder; QVAR for treatment for asthma; BRALTUS, a long-acting muscarinic antagonist; CINQAIR/CINQAERO injection; DuoResp Spiromax, an inhaled corticosteroid and long-acting beta-agonist bronchodilator; and AirDuo RespiClick fluticasone propionate and salmeterol inhalation powder. The company offers its OTC products under SUDOCREM, NasenDuo, DICLOX FORTE, OLFEN Max, and FLEGAMINA brand names. It has collaboration agreements with MedinCell; Sanofi; Alvotech; and Biolojic Design Ltd., as well as license agreement with MODAG GmbH. The company was founded in 1901 and is based in Tel Aviv, Israel.

Teva Pharmaceutical Industries Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, and welcome to the 4th Quarter and Full Year 20 24 Teva Pharmaceutical Industries Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. And I'll hand it over to your host, Chris Stivo, SVP, Investor Relations. Please go ahead.

[Christopher Stevo, SVP - Head of IR at Teva Pharmaceutical Industries]

Thank you, Alex. Good morning and good afternoon, everyone. I'd like to remind you briefly that we're going to be making forward looking statements on this call. Any statements we make are as of today only, and we undertake no obligation to update these statements afterwards. If you have any questions about forward looking statements or other risk disclosures, please see our SEC filings under Forms 10 ks and 10 Q.

[Christopher Stevo, SVP - Head of IR at Teva Pharmaceutical Industries]

And with that, let me turn it over to Richard.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thank you, Chris. And good morning, good afternoon, everybody. Thank you for dialing in for the call. Really excited to talk to you today about the 2024 performance of Teva and the lookout for 2025. So as usual, I'm going to go back to the strategy, the Pivot to Growth strategy, what we set out in 2023 and what we accomplished of this strategy in 2024.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

As you remember, it's based on 4 pillars: deliver on our growth engines, step up innovation, create a sustainable generics powerhouse and focus of the business. And I'm really pleased to say that we've made really good progress across 2024 on all of these pillars. As you'll see, STAADHA had another great year, up 34%. You said he had a very strong year, beating his target of $100,000,000 at $117,000,000 And AJOVY grew at 18% and reached the $500,000,000 number. And Step Up Innovation, great progress there by Eric and his team.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Obviously, we saw the results of DIVIKI-two at the end of last year, but we think we have best in class and best by design. And olanzapine, we have the full safety data set. So we now know we don't have a PDS any PDSS in this patient population in this trial. And Dari, we've really moved fast into the clinic with our ICS Saba and 91% of sites are recruited. On the generics business, all regions are growing for the 2nd year straight, which is good and our product launches have shown good performance to drive that growth.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then on Focus the Business, it was good to see external endorsement of the improvement of Teva with all the credit ratings improving their outlook for the company. And it's good to see that our TAPI business is back to growth, 4 quarters of growth and full year growth. So really good start and really good progress on the Pivot to Growth strategy. And how does this translate into growth? Well, as you see, 8 quarters of growth we've had now after a number of years of decline.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So there's a consistency here, which really pleases me and congratulations to the team. Just like to highlight here, just for transparency, we have highlighted that one off payment we got from Sanofi in Q4 2023. But this performance puts us on track to hit our 5% CAGR that we committed to in 2027. Now to give you a bit of detail on this and the numbers what drove the 9% in revenue, I'll go into that in a bit of detail, but let's start at the high level P and L. CHF 16,500,000,000 of revenue, up 9% to the high end of our outlook.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Our adjusted EBITDA was CHF 4,800,000,000 also up 9% and our non GAAP EPS CHF 2.49 dollars up 10%. Free cash flow up 10% also at CHF 2,100,000,000 And it's good to see that our net debt to EBITDA is now close to touching CHF 3. And I remind you all that we did give a guidance up twice throughout the year. So I think this performance is a strong performance and one we're very proud of. But let me now go into a bit of detail as to what's behind this.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So all three of our businesses grew, our Innovative business, our Generics business and our API business. As you see led by AUSTEDO up 36%, close to CHF 1,700,000,000 really strong performance again there. AJOVY up 18%, as I said, just over €500,000,000 and you said €117,000,000 The generics business close to €9,500,000,000 up 11% and API at 3%. So across all of our businesses, we've driven this 9% growth. Now let's go into the Innovative business first.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So on the STEDO, I want to be clear, we are on target to hit our CHF 2,500,000,000 in 2027. And you'll see why, why we're confident about that. It's because the U. S. Revenues of CHF 1,642,000,000 is a 34% growth and we got strong TRx growth of 34% also.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

I'd like to point out it's nice contribution from the rest of the world now starting to kick in with CHF 46,000,000 dollars And because of this confidence, we have our outlook of $1,900,000,000 to just over $2,000,000,000 for 2025, I think shows the strong belief we have in this product. I'd like to remind everybody there's still a huge unmet medical need. Of the 800,000 patients who suffer from tardive dyskinesia, only 6% are on treatment. So we see a long runway for this product. Now moving on to Uceti.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Uceti, really pleased with what the team has done here. I think it goes to show what a really good differentiated product we have and what a world class team we have out in the field. We did $117,000,000 for the full year. So we beat our guidance of 100,000,000 and we're planning to do CHF 160,000,000 in 2025. So another growth contributor going into this year.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

As we move on to AJOVY, I'm very proud of AJOVY. It's an interesting product. And when I came here, I think people weren't sure what this could do going forward. But I think the company and the team have shown what they can do even in a very competitive market across all of our regions. The 18% growth, I think, shows the ability for our teams with whether it's in Europe, U.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

S. A. Or international markets to take market share. And we've grown market share across all of our regions here. So congratulations to the team.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Because of that, we're giving guidance of CHF 600,000,000 for 2025. So really good strong contribution from our innovative business and a good strong growth going forward into 2025. Now moving on to the 2nd pillar, which is step up innovation, which Eric will go into a lot more detail. But I can't help talk about it because I'm so excited about it. So if you look at our late stage products here, Olanzapine, ICS Sabodari and Dubikituk, these are all products which are coming to markets which have significant unmet medical need.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And we come into the market in the near term. Olanzapine will be in 26. ICSDOW and DARE will be in 27 around about that and Dubikituk will be towards a year or 2 later. So really excited about this. And we're entering Phase 3 with Dubikituk this year and we'll be talking about some indications as well.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Now early stage pipeline is also exciting. I'd remind people that the anti IL-fifteen and the anti PD-one IL-two were developed and created by the same team who created what we believe is best in class TL1A DUBEKTUG. So very excited about this pipeline and Eric will go into a bit more detail. Now moving on to the 3rd pillar, which is our Crayta sustainable generics powerhouse starting with our biosimilars. Our strategy was to build a broad portfolio and we're up to 18 assets now and you saw us do a couple of partnerships, a few partnerships last year to build out this portfolio even further.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But I think what is exciting to see is in between now this year 202527, we will launch seven assets into the United States and we'll launch 4 biosimilar assets into Europe. So this is really starting to build momentum and acceleration for our biosimilar business and that will also help us drive growth on the top and bottom line towards our 2027 targets. Now going into the core generics business, another strong year and as I said across all regions. And this was where we just started to tighten our capability and our focus operationally. We've improved our ability to launch our new products across all regions on time more often.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

We've improved our supply chain making sure we can supply the market on time more often. And we're also doing some work that we did some work in 2024 and this will continue to make sure we improve that efficiency within our supply chain, so we can reduce our COGS and become even more competitive over the long term. But this Terex business grew 11%, so very strong. Now let me give you a bit of detail on what the regions did. And I think all the regions stepped up to drive this 11%.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Another year of strong growth by the U. S. Team, so congratulations to them. And Europe, 6%. As you know, this is a very big business and we've seen mid single digit growth from Europe now consistently.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So another strong year for the team. And International Markets at 15% consistently deliver double digit growth. Now moving on to the final pillar, which is focus the business and this is where TAPI comes in. I'm really pleased with the work the TAPI team have done. We've taken this business from decline to growth and the momentum is increasing And we have confidence that we can continue this growth into mid to high single digits.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

The 3rd party business and the pipeline is growing significantly in 2024. We continue to see that happen in 2025. And we continue with the divestment process. Now talking about the 4th pillar, we always talk about capital allocation. We're very much focused on this at Teva.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And just to remind everybody, when as we generate more cash, more capital, we'll put that to pay down our debt. That's the number one priority. But then we'll invest in the growth engines. As you see, we get a good return on that investment with AUSTEDO, AJOVY and YUSEDI. And then with this exciting pipeline, Eric also will get the capital to make sure that we can maximize that, obviously, because some of this pipeline will have the opportunity to go into a number of indications.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then we'll do we'll supplement all of this with business development. So that's what we've done in 2025 from a business point of view. Now I'll hand over to Eric, who's going to talk you through that pipeline that we're so excited about.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

Thank you, Richard. I first wanted

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

to start off by saying

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

we were very excited by the announcement of our top line results for our DUBA keto program last month. The data speaks for itself, great dose response in both ulcerative colitis and Crohn's disease and these treatment effects are the highest reported for this MOA. So great work by the team and we're very excited to show these results. This was a validation of what we've been saying about the fundamentals of this program. DUBEKTOG has high potency in vitro, has high selectivity for the DR3 receptor, has low antidrug antibodies.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

It shows a rapid, profound and prolonged suppression of the free TL1A levels in the serum. And we've consistently shown a favorable safety and tolerability profile to date. So very excited by the data, and we're very pleased that this will be presented as late breakers for both ulcerative colitis and Crohn's disease at the ECHO conference on February 22 in Berlin. So great work by the team. Now this next slide, I could also say it speaks for itself, but I don't want to say that today.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

I want to really walk through this because this is a very important slide when it comes to our duvet ketone program. TL1a is produced by a variety of cells, mucosal cells and immune cells and the stimulus for the release of free TL1a is both microbial and non microbial signals. But TL1A acts as a key amplifying signal. It binds to a variety of different cells in the immune system. This secrete a variety of different cytokines and trigger different signaling pathways.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

It also binds to fibrotic cells and has an impact on fibrosis and the maturation of fibrotic matrix. Now, what does this mean? Well, it means that you can envision many different indications that this program could go into from Crohn's disease all the way down to idiopathic pulmonary fibrosis. And to really put this in context, we've listed a number of marketed products as you all know very well. We know the impact that all these programs and these products have on patients worldwide.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

But it's important to remember these programs and products only hit specific subsets of these signaling pathways. So it's really exciting to think about the prospect of what a compound like Duveque could do when hitting this amplification signal of a variety of different cellular pathways. So it really is a portfolio and a product and the future I believe is very bright for the birth of this new class of MOA. Moving on to our dual action rescue inhaler program, very exciting program, very big program for Teva. It's important to remember there's 11,000,000 people in the U.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

S. Today who are still using a single albuterol like a SABA single agent for their asthma exacerbation. So, it's a large population. But we already know that GINA guidelines actually recommend using a dual action rescue inhaler. You should be getting a beta agonist plus a steroid when you have an asthma exacerbation.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

So, HEBA is very proud to be bringing forward an easy to use dual action rescue inhaler dry powder inhaler device. And to give a little bit more color as to why the dry powder inhaler device is important, it's the difference between what's available now, a metered dose inhaler, which is the old in spray type inhaler device compared to our dry powder. And the difference is, our product doesn't require any priming. It doesn't require any shaking. No hand breath coordination is needed.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

No spacers are needed. And it's not complicated by cleaning. It's simply open, inhale and close. So, it's an easy to use product both by pediatrics and adults. And just to remind you what our Phase 3 program looks like, it's a 3 arm study.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

It's a large study of over 2,000 patients that we use 2 different doses compared to albuterol alone. It's exciting that we're including patients all the way down to the age of 4 through adulthood. It's a primary endpoint looking at asthma exacerbations and it's an event driven study. So, our focus this year is enrolling it. We've got over 91% of our sites up and running at this point and this is going to be a very big focus for us in R and D this year.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

And last but not least, our olanzapine LIA program is right on schedule. Our last patient last visit will be imminently at the end of this month. We're looking to present the full safety database in the Q2 of this year at a conference and we're looking for the NDA submission in the second half of this year. Very excited about this program. I think it's going to be an important product for patients with schizophrenia.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

And last, I just wanted to point out and pause for a minute and say, how far we've come in the innovative programs at Teva over the last 2 years. I'm proud to say that all these programs now have dosed or are dosing in all these different indications at this point. As I mentioned, Olanzby and LAI, we're looking for the submission this year after the presentation of the last data in the safety. The DARE program, as I mentioned, is our biggest Phase 3 study to date at Teva and we really got a good head start on our site initiations. Nuvukitog was a great end of the year presentation with the data and we're excited to be working with Sanofi to get the Phase 3 started this year.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

Emer Solomon is dosing a high unmet medical need for multiple system atrophy. Anti IL-fifteen is now in celiac and vitiligo. And last but not least, we're now dosing patients in our anti PD-one IL-two program in oncology. So it's been a great 2 years. I'm looking for more this year.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

And with that, I'm going to pass it

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

off to Eli.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Thank you, Eric, and good morning and good afternoon to everyone. I will begin my review of our 2024 financial results, focusing on our Q4 performance. I will follow-up this one with the introduction of our non GAAP outlook for 2025 and some of its important assumptions to help you to better understand our financial guidance for this year. Beginning on Slide 27, I would like to remind everyone that in the Q4 of 2023, Teva entered to exclusive collaboration with Sanofi to develop and commercialize Teva's anti TL1a assets, DUBAKETO.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

As we communicated previously, per the terms of the collaboration agreements, Teva received an upfront payment of $500,000,000 in the Q4 of 2023, which we recognized as revenue. This payment positively contributed $500,000,000 both our revenue and free cash flow and had a positive contribution to our adjusted EBITDA of approximately 430,000,000 dollars During the presentation, I will discuss certain results including revenue, profits and free cash flow for the quarter and for the full year of 2024 excluding the impact of this upfront milestone payment in 2023 to also provide you a like to like comparison of our financial results. Now starting with our Q4 GAAP performance. Revenue in the Q4 of 2024 were $4,200,000,000 a decrease of 5% in both U. S.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Dollars and local currency terms compared to the Q4 of 2023. Excluding the Sanofi payment, revenue increased 7% in both U. S. Dollars and local currency terms compared to the Q4 of 2023. This increase was mainly driven by strong growth from our key innovative products, AUSTEDO, QZETI and AJOVY, growth from our generics products across all our segments globally as well as from sell of certain product rights.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

In Q4 2024, we recorded a GAAP operating loss of $29,000,000 compared to a GAAP operating income of $755,000,000 in the same quarter of last year. The main driver of the decrease was the Sanofi approval payment as well as a goodwill impairment charge in Q4 2024 related to our API reporting unit. Our GAAP net loss and net loss per share were $217,000,000 $0.19 respectively, which were primarily driven by the decline in operating income that I just explained. Turning to Slide 28. You can see that the total non GAAP adjustment in the Q4 of 2024 were $1,330,000,000 This included impairment of a long lived asset of $517,000,000 mainly related to the classification of our business ventures in the plan and our API business as a held for sale as well as a $280,000,000 goodwill impairment charge also related to that same business.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Now moving to Slide 29. We will review our non GAAP performance. As I already mentioned, our 4th quarter revenue were approximately $4,200,000,000 Our R and R revenue in 2024 were $16,500,000,000 an increase of 8% in U. S. Dollars and a 9% in local currency terms compared to 2023, excluding the contribution from the Sanofi upfront payment.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Next, let's move down to P and L, starting with the gross profit margin. Our non GAAP gross profit margin was 54.8% compared to 58.2% in Q4 2023. Excluding the upfront payment in 2023, our gross profit margins improved by approximately 150 basis points year over year. This improvement was driven by ongoing improvement in our portfolio mix, mainly coming from AUSTEDO as well as the sale of certain product rights. As we have communicated previously, sale of these legacy brands and generics product rights is in line with our strategy to constantly optimize our product portfolio with a focus on a long term profitability.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Overall, we saw a gradual and sustainable improvement in our gross profit margin. This was despite significant FX headwinds, which negatively impacted our revenue by approximately $257,000,000 and a gross profit by $187,000,000 mainly as a result of a stronger U. S. Dollar against the currencies of certain of our international markets. Non GAAP operating margin was 27.6 percent in Q4 2024, slightly below the Q4 of 2023 excluding the upfront payment last year, mainly due to a higher operating expenses as a percentage of revenue, reflecting our deliberate investment in R and D and sales marketing to drive growth in both of our key innovative products as well as a further acceleration of our pipeline.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Turning to EPS. We ended the quarter with a non GAAP earnings per share of $0.71 compared to $0.69 in Q4 2023, excluding the upfront payment, mainly driven by higher absolute levels of operating income. Now moving to Slide 30. This slide highlights our focused and balanced approach to drive steady improvements in profit and cash flow as we continue to invest in our business for short and long term growth. As I mentioned earlier, excluding the upfront payment last year, our gross profit and free cash flow improved in 2024 driven by our portfolio mix with a strong growth coming from our key innovative products.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

This allow us to reinvest a portion of that gross profit into the sales, marketing and R and D to support our growing innovative portfolio and progressing our key pipeline assets, leading to high operating expenses. We believe this balanced cost allocation is important for us in the short term to create a business with both long term growth and profitability with a growth of a mix in higher margin innovative portfolio. Our free cash flow in 2024 was just over $2,000,000,000 at the point at the end of the point of our guidance range, increasing by approximately 10% versus 2023, excluding the upfront payment from Sanofi, driven by higher net profit and our ongoing efforts to improve our working capital management, partially offset by higher legal payments. As a reminder, our free cash flow in 2024 included $522,000,000 litigation payments, which was increase of $57,000,000 compared to 2023. These payments include a settlement related to legacy litigation that we have put behind us to focus on our growth strategy.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Moving to the next slide. I want to remind everyone of our commitment to continue to deleverage as we remain focused on executing the next phase of our Pivot to Growth journey. Throughout 2024, we continued to reduce our net debt, which was approximately $14,500,000,000 at the end of the year. Our gross debt was $17,800,000,000 compared to $19,800,000,000 at the end of 2023, mainly reflecting the repayment of approximately $1,600,000,000 of our senior notes at maturity. We also improved our net debt to EBITDA ratio, which is now approximately 3 times and on track to our 20 27 targets of 2 times leverage.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

As you can see on this slide, the execution of our Pivot to Growth strategy along with our disciplined capital allocation policy over the last several quarters has been recognized by the leading credit ratings agencies. All 3 major agencies have upgraded Teva credit ratings and outlook in the last 6 months to reflect our improved growth prospects and continue strengthening our balance sheet. These upgrades are testament of our focused execution and we remain committed to achieving an investment grade rating in line to our 2027 financial targets. Of the 70 global biopharma companies rated by S and P, Teva is one of only 2 with a positive credit outlook. A positive outlook indicates that an issuer's credit metrics are expected to improve.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Now let's turn our attention to the 2025 non GAAP outlook. As Richard and Eric talked about and as reflected in our financial results of 2024, that was a very strong year with our progress in our Pivot to Growth strategy. We delivered solid revenue growth, improved margin and cash flow and invested in our key growth drivers and our promising pipeline, while navigating the impact of the macro headwinds such as foreign exchange movement. As a reminder, in 2024, approximately 47% of our revenue were denominated in currencies other than U. S.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Dollars. In general, an increase in the U. S. Dollars versus other currencies in which we operated subjected to our hedging strategy has an impact on our revenue, profit and cash flow. In 2025, we remain focused on executing the next phase of our strategy.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

We're also mindful of the industry dynamics, including the effect of the inflation Reduction Act in the U. S. Markets, our financial guidance considering this evolving dynamics as well as the headwinds from foreign exchange movement. Now before I talk about the specific, I thought it will be helpful to lay out our financial guidance to make comparison as simple as possible in light of the ongoing divestiture process of the Teva API in Japan generics business. The guidance range we are providing today assumes full year contribution from these assets in order to allow like to like comparison.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

We plan on revisiting our guidance to include only their actual pre divestiture financial results upon closing. The guidance also excludes any contribution from potential development milestone payments from our partner Sanofi for the Phase 3 initiation of our anti TL1a program, duva keto. We will revise our guidance to include these milestone payments when they are earned. With this in mind, we expect 2025 revenue of $16,800,000,000 to $17,400,000,000 This represents a growth of 2% to 5% compared to 2024, driven by the continued strong momentum in our innovative portfolio, including AUSTEDO, AJOVY and Newzetti, along with a generics business that will grow, although more slowly than 2024. We expect gross margin in 2025 to be stable and consistent with 2024 level, approximately in the range of 53% to 54%.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

As I mentioned earlier, our gross margin in 2024 benefited partially from the sale of certain product rights consistent with our strategy. Our gross margin performance in 2025 is driven by continued improvements in our portfolio mix, driven by strong growth in our innovative portfolio and the cost optimization program offsetting the adverse effects of the foreign exchange movements I just mentioned. Coming to our non GAAP operating profit. As I mentioned earlier, our focused investment in our key growth assets and our pipeline will continue, consistent with our strategy to drive both the short and long term growth of the company. With that in mind, we expect our operating expenses to be approximately 27% to 28% of revenue for the full year, representing both higher R and D expenses and sales marketing expenses compared to 2024.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

As a result, our non GAAP operating income is expected to be between $4,100,000,000 to $4,600,000,000 and our non GAAP adjusted EBITDA is expected to be between $4,500,000,000 and $5,000,000,000 dollars both consistent with the 2024 levels at the midpoint of our guidance range. We expect finance expenses to be approximately $900,000,000 in 2025, lower than 2024, reflecting a lower start of the year debt level and additional net reduction forecast over the course of 2025. We expect our non GAAP tax rate to be in the range of 15% to 18%. This brings us to expected non GAAP earnings per share in the range of $2.35 to $2.65 We expect our 2024 free cash flow to be in the range of 1.6 $1,000,000,000 to $1,900,000,000 This represented a slight decrease compared to 2024, mainly due to our deliberate efforts to streamline our accounts receivable securitization program as well as to take into account higher legal settlement outflows in 2025 aligned with what I mentioned earlier. Lastly, as you know, we do not provide quarterly guidance, but I thought I would like to be helpful to provide you some insights regarding the expected quarterly progression.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Currently, with expected revenue, we are expecting gradual increase over the course of the year with the revenue in the second half of twenty twenty five slightly higher than the first half. Our non GAAP margins are also expected to gradually ramp up over the course of the year, in line with the revenue trajectory as well as improvement in our cost optimization programs we have initiated. With that, this concludes my review. And now I will hand it back to Richard for a summary.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thank you, Eli.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So to conclude, if we go on

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

to the next slide, please. Thank you. The journey of the Pivot to Growth continues. And in 2025, these are the things we're going to focus on with our 4 pillars. So for Aestheto, it's aiming towards this target we have of 1,900,000,000 to 2,000,000,000 euros You said it's 160,000,000 and AJOVY over 600,000,000 So this is about driving these and delivering on these growth engines.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Step up innovation, I think, Eric's talked about that, getting the Phase 3 started is a clear focus and then finalizing the indications, filing olanzapine and completing the pediatric recruitment for DARE ICS Saba. So some really big milestones I think we have there for step up innovation. And then for the generics business, it's about making sure we continue to do the good work we started in 2024, which is making sure we launch these complex generics that we have 16 over 24, say 25 to 26 on time, making sure we launch our biosimilars that we have, the 7 in the U. S. And the 4 in Europe on time over 2526.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then making sure we improve the efficiency of our business to make sure we have a good supply chain that's cost effective. And then on Focus of Business, it's doing what Eli said and what I said earlier, it's making sure we're allocating capital to the right areas of this business to drive short and long term growth of this company. And then if I go on to the next slide, just to remind everybody, this pivot to growth is a journey. We've sort of completed the first part, which was return to growth and then it's all about making sure we can continue this growth and driving this through our innovative portfolio. And I think we have really good reasons to stay very positive and optimistic because of the pipeline that's coming through now, because of the biosimilars that are coming through, the fact that we've returned our generics business to growth across all of our regions and the fact that we have plans put in place to drive margin expansion.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

From a portfolio point of view on the top line, but also from a cost of goods and efficiency point of view on the bottom line. So a lot of reason to be optimistic about the future. And with that, I'll close and hand it over to the group for questions, please.

[Operator]

Thank you. Our first question for today comes from Yoon Choi of Evercore ISI. Your line is now open. Please go ahead.

[Umer Raffat, Analyst at Evercore]

Hi guys. This is Omar filling in for Eun Choi. I had a couple of questions if I may. First, maybe just big picture. As it relates to the EBITDA trajectory going forward, I know there's clearly investments that will be made on the TL1A program.

[Umer Raffat, Analyst at Evercore]

Just curious how the spend will break out for Teva versus Sanofi as it relates to the new indications as well as as it relates to the Phase 3 program. But then also there's some AUSTEDO headwinds coming as well from an IRA perspective. So how do you think about EBITDA trajectory going forward in general? And secondly, on API business, I noticed in the reconciliation slides, there's some goodwill impairment as well as intangible impairment. Just trying to understand have your expectations on API business pulled back in from a valuation perspective?

[Umer Raffat, Analyst at Evercore]

Thank you.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks, Umer. Thanks for the call. I think we'll tag team on this. I'll start with a bit and then, Eli can chime in and then maybe even Eric a bit. So firstly, on the broader question of costs and EBITDA.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Obviously, the partnership we have is about sharing both the upside and the cost to get there for Duvequito. So it will be a fifty-fifty share of the OpEx going forward. And obviously, I think your question relates to as we move not only into Phase 3 for IBD, but what Eric talked about the multiple indications we're going to be thinking about going into. I think from that point of view, it goes back to capital allocation and making sure we're focusing the capital on the right areas and do the key to it is definitely a priority. As we think about it just generally over the course of the business to 2027, What Eli has also highlighted is we have a lot of good things to invest in.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

I think we've shown when we invest, we get a very good return as in the investments we did in our innovative portfolio. The market is steady. AJOVY and Youssefedi have really delivered strong growth. And also the investments we did in the pipeline have created real value creation in the short term, but definitely in the long term. So I think for us, we're aiming to grow our EBITDA.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

We want to grow it obviously for that 27 target, but we want to make sure we're investing in the short term to allow us to not really just hit the 27 target, but to make sure we're really accelerating this business beyond that. Would you like to add anything else to that, Eric?

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

I think that the only thing I'd add is that the structure and the reason we did the deal with Sanofi and why it was so important. I mean, it was a strategic way of making it possible to achieve the full potential of what a Devacoot Heat Took program could achieve and having a partner like Sanofi cost sharing is a really good way to have walked and loaded this for the future.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks. And then maybe with Tapi. Eli, do you want

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

to take that?

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Yes. Omar, just on the spend to come back on the R and D, just kind of high level from 23 to 24 average, if you're looking about 45 to 55 generics innovative, we're looking now to kind of a third and 2 third in between the mix of generics Innovative in terms of how we're actually allocating cost into the R and D. And yes, if in 'twenty three, 'twenty four, where an average is like below 6%, we're going to be above 6% in R and D over revenue for the coming years, of course, also for 2025. And as far as related to the API business, on December 31, we classified the API business as a held for sale.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

That's actually putting the 3 elements, which is the R and D related to that business, the manufacturing and the commercial and into assets held for sale, which classifying the net assets. And before you do that kind of an element, you need to kind of do kind of some analysis related to the expected deal structure and that before integrated kind of the goodwill assessment and after that impairment of assets that those that you now collapse into that classification. We're not providing any information related to valuation because I mentioned it in the past, we really would like to respect the process and working with our advisor on that perspective. But I will mention that pretty much nothing changed from what I said before in terms of the trajectory in the process on selling the API business.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for the question, Umer.

[Umer Raffat, Analyst at Evercore]

Thank you.

[Operator]

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

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Hi, Jason.

[Jason Gerberry, Analyst at Bank of America]

Hey, guys. Thanks for taking my questions. Hey, I just have a couple on the guide. I'm just wanting to understand a little bit, at your midpoint, you're growing sales, I think $600,000,000 of which about $300,000,000 of that's AUSTEDO, but yet there's like no operating leverage driving through the P and L. So maybe, can you just help us understand that a little bit more?

[Jason Gerberry, Analyst at Bank of America]

And then on AZEDI, in the second half of last year, you averaged I mean, you summed up to about $80,000,000 in sales. That's about $160,000,000 run rate. So I'm just kind of curious as we look to 2025, are you just being conservative on the outlook for that product? Or are there some Part D redesign considerations that may be an impediment to growth? So those are my questions.

[Jason Gerberry, Analyst at Bank of America]

Thanks.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks, Jason. Thanks for the questions. So I'll start actually in reverse. So with regard to you said, firstly, I'm glad you noticed strong performance of the team. So thank you for that.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

It was a good year in 2024. I do just want to point out that you said it does fall into now the Medicare Part D redesign immediately. And so we take that hit straight away on Jan 1. So that is the thing that I think may be the disconnect. We still see the opportunity to drive strong growth of the product from a prescription point of view, but we have to let that play out.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then from an OP guide, which I think was a bit similar to the question that was prior, but I think a bit more detail you want. I think what we have also in and I'll start this, Ellie, and then you can chime in. We have a few things. Firstly, this IRA redesign doesn't just touch. You said it actually hits AUSTEDO.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Now although we got the phase in with AUSTEDO, it still hits us. And I think that's just something for people to start to understand. And obviously, AUSTEDO is a big product now because of the success once again that was driven by the team in 2024. So that's part of it. We do have our legacy Innovative plans still declining.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then we have a big FX here as well. So I think those are the things that sort of contribute a bit to that. And then the thing we at least highlighted around, we are probably going to be investing a bit more to make sure the opportunities that we got in front of us, which I think everybody sees are really clear. We don't not invest enough in those to make sure we can create the long term success that we planned in Pivot to Growth. But maybe Elyse, I'll let you add to that.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Yes. So Jason, thanks for the question. Just to kind of a level set, right? If we end up the year with 50.3% on gross margin, if you actually back out the impact of $190,000,000 on FX, this company is running about 54.5%. I know the market is now looking on more or less the same gross margin, but we are from the fact that we have the majority part of our revenue is non dominated U.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

S. Dollars with the FX fluctuation what we saw in the last few months and mostly on euro dollars, we actually remained focused on how to guide and we're actually baking in some impact on FX. And this is why you see kind of the guidance with 53% to 54%. And on top of what Richard mentioned, we will see some acceleration on cost, as we mentioned, in terms of R and D and few other elements related to that one. But as a percentage of revenue, we are actually improving our investment in our OpEx.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

And therefore, we don't see much flow through to the EBITDA just because of the fact that we're able to grow the business and we're able to show it in the last 2 years.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks, Harry. Thanks for the question, Jason.

[Operator]

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

[David Amsellem, Sr. Research Analyst at Piper Sandler Companies]

Thanks. So I know you're getting a lot of questions on Revlimid and what the business looks like in 2026 with Revlimid eroding. But can you just give us a more detailed roadmap on how you're thinking about newer products that could make up for the impact of losing sales on Revlimid? Is it going to be mostly biosimilars weighted or complex small molecule weighted? Can you just talk about what specific products and what kind of products you think are going to make up for that shortfall for next year?

[David Amsellem, Sr. Research Analyst at Piper Sandler Companies]

And then secondly, I know you probably can't give too much in the way of detail on this, but regarding the lawsuit versus CMS, any color on just sort of timing for arguments and how we should think about next steps there? Thank you.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks, David. Thanks for the questions. So on the Revlimid, yes, let me see if I can answer that to your satisfaction. So once again, great performance that we've seen by the team in the U. S.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

To drive the success of Levenlid, but that does create a headwind potentially in the future if not too careful. So how do we deal with that? So firstly, I sort of want to take it to a macro level. So firstly, because of the way the company is structured now and the growth rates we have in our innovative business and our ex U. S.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Business, I think from an overall growth rate of the company, I think we're in a position to weather the if you want to call it loss of exclusivity, which sounds a bit strange with the generics, but that cliff, than we ever would in the past. So I think that's important. But if you break it down a bit more specifically, because I think that's where your question was, From a generics business, remember that 2 thirds of our business is not in generics. And as you saw, that's growing very strongly and that's very profitable. So that's something that balances it.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Then going in even clicking double clicking to go deeper into the U. S, which is I think specifically what your question is. We have 16 complex launches that we're going to do in 2025 and 2026. So one of the things we have to do is maximize those and launch those on time and maximize those. The other is we have a number of biosimilars that are coming out in 2025 and some in 26 in the U.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

S. And so we need to maximize those as well as we've had some biosimilars that have launched slowly in the market, but we see those have an opportunity to contribute in 2026. So you have all of those things going together. And our aim and our ambition is to manage that drop off, which by the way we planned for it being a cliff. So we haven't anticipated any soft landing.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

That's how we plan to deal with it. And if I take it right back to the beginning again, but on a macro level, don't forget we have AUSTEDO accelerating, we have Yuceti accelerating, we have AJOVY accelerating, we have Olanzapine launched in 2026, We'll have ICS7 not far behind that. And so we have a lot of things to continue the trajectory of growth. Now I know the focus will be on 2026 and we'll look to manage that as best we can. But if you look at 2027, 2028 and beyond, I think the direction of travel for the revenue and the bottom line is clear based on all of those assets we have coming through.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But I hope that helped, David.

[David Amsellem, Sr. Research Analyst at Piper Sandler Companies]

Yes, that's helpful. Thank you. And then CMS lawsuit question?

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Sorry. Forget about that lawsuit. So yes, so you're right. Unfortunately, I can't say too much about it because obviously we're in litigation. But I think so as we get more clarity on that, we'll let you know from a timing point of view.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

We may have something that we can talk about later in the year. But obviously, this is not something where we're necessarily in control of the timelines.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

your questions, David.

[David Amsellem, Sr. Research Analyst at Piper Sandler Companies]

Thanks.

[Operator]

Thank you. Our next question comes from Balaji Prasad of Barclays. Your line is now open. Please go ahead.

[Balaji Prasad, Analyst at Barclays Capital]

Hi, good morning and thanks for the questions. Couple for me for Eli and Richard. Firstly, on the free cash flow decline this year in guidance, nearly $200,000,000 to $500,000,000 of decline. Can you quantify the impact of those accounts receivable securitization programs? Is this a one off?

[Balaji Prasad, Analyst at Barclays Capital]

Or is this purely a timing issue? And should we expect a normalized curve into 2026? That's 1. And 2, probing further on the EBITDA guidance, I'm trying to understand, if we set aside generic revenue impact, is there any reason to think that the complex generics and biosimilars segment will be dilutive to EBITDA relative to their own profitability in 2024 with the new launches coming in? Thanks.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So thanks Balaji. Good to hear you. I'll hand over the free cash flow to Ali who can explain that.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Yes. So Balaji, we were very transparent and we mentioned that we are looking to reduce the program on the securitization. To quantify the numbers, it's between $100,000,000 to $200,000,000 Of course, it depends on the mix of the receivable as we move forward with the year in terms of timing, but that's kind of the element. And of course, as I mentioned in my prepared remarks, we're going to have kind of a legacy of settlement payments that actually get kind of a timing now in 2025 versus 2024.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then do you want to take a bit of the EBITDA guidance?

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Yes. So our EBITDA, let's say, our guidance on the top level is including growth in generics, that is including growth in biosimilars, right, which mean it's actually contributing to our margin with flow through to the EBITDA. We just need to remember that, as I mentioned, if you look actually on the higher range of the revenue and the higher range of the OP, which is resulting with a higher EBITDA, you can see that we're actually around the 27.5% OpEx. If you go to the midpoint, we're kind of above the 28%. And the reasons for that one is because of the mix of the revenue and the contribution from the top line to the bottom line, which means for growing from the midpoint to the higher point, we're not actually spending more on OpEx.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

And this is just about how we view the element in the mix in terms of FX and our ability to grow mostly on the innovative part.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Yes. And I think

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

the thing I'd add to that, Elie, and it's important because I think we've been very focused on how we allocate capital within Teva to drive what has been a significant turnaround at this company in 2 years. We've been able to actually drive the top line while managing the bottom line. But it's worth noting that the tremendous growth we've seen over 8 quarters and the change in direction of AUSTEDO and our innovative products and our pipeline is creating significant value, I think, going forward in the short and mid term and definitely long term. And I think we've got to be good custodians of our capital to make sure we are driving these opportunities because these opportunities, I think we've shown over the last 2 years, do create significant value for the company and for the shareholders. So that's one of the things we're always trying to do and manage and hopefully you've seen us do that.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for the question, Balaji.

[Operator]

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

[Ashwani Verma, Executive Director at UBS Group]

Yes. Thanks for taking my question. So I wanted to go back to the operating margin guidance one more time. So this year, you're seeing 100 bps margin compression, which is in the opposite direction compared to where you're trying to get to 30% by 2027. So are you still confident in the long term outlook given that you will have more headwinds like revenue step down in 2026 and AUSTEDO IRA impact in 2027?

[Ashwani Verma, Executive Director at UBS Group]

And then I have a follow-up that I'll come back to.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Okay. Good to hear you, Ash. So yes, in short, yes, absolutely. And it comes down to primarily our innovative portfolio. And let me explain.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So as you've seen, the momentum we have with our innovative portfolio is clear. And that's going to keep driving the top line, but it changes our gross margin significantly, which just flows down through the P and L. So the biggest thing we do is we improve our portfolio mix. And I think people when we think about how are the sales of this company are going to be made up in 20 27 versus now, that'd be very different. There'd be a lot of innovative sales there.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So that drives a very different trajectory. And I am very confident about AUSTEDO. And I remind everybody despite the great growth and you have 34% growth, 34% TRx growth, there's only 6% of the 800 patients 800,000 patients who have targeted dyskinesia on treatment. And I remind people that we are confident we're going to hit the €2,500,000,000 in 27,000,000, but the €2,500,000,000 is not the peak sales of AUSTEDA. And so it's this is primarily driven by revenue.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But then we have other factors going to be contributing to the EBITDA, which is we have put together a value acceleration program in our TGO cost base, which is huge, to improve our efficiency within tech ops. And that will drive improvement in our gross margin for our generics business, which is still significant, as well as improvement in our bottom line. And so those things coupled with the fact that we'll be launching also more new product launches and biosimilars which drive growth, which once again, I think when we looked at 20 27 back in 2023 and I remember you were there at that meeting, there was a lot of pessimism as to whether we could grow this generics business and whether we could actually bring the biosimilars to the market. Think we've shown we can. So those are the factors why we believe we will hit the 30%.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So it is a bit of hockey stick. I think I've been consistent and saying it is going to be a hockey stick. But it's based on some good fundamentals of growth on the top line supported by thoughtful capital allocation and efficiencies we're driving through the business. Is there anything you want to add

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

to that, Ali?

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

No.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Okay.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

So maybe a second question.

[Ashwani Verma, Executive Director at UBS Group]

Yes, just on the PL-1A, so just looking at these echo conference abstract, so it seems like the 900 mg dose as opposed to 450 is the one that is pretty convincingly beating the placebo, both in the naive and biologics experienced patients. So higher dose seems pretty much very good here. So what I wanted to ask was like what was the rationale for you to discontinue your 3rd dose earlier, which was the highest? And is there any potential to bring that back?

[Ashwani Verma, Executive Director at UBS Group]

Thanks.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

Yes. Thanks for the question, Ash. So, yes, we're excited to be presenting the duva keto data at the ECHO conference. And when it comes to the dose response, it's always good in a dose ranging Phase 2 study to have a dose response. That really makes the modeling and simulation of your dose going forward much more robust.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

So, we're in the middle of doing that work right now with our partner Sanofi. We removed that dose early on because our biomarkers, as you can see across our program that we really do suppress the free TL1A very well at all the doses we've been looking at. One of the other reasons we removed that higher dose is because we want to actually have more power in these arms. And I think that was a really good decision because it gave us a great data set for both the ulcerative colitis and the Crohn's disease. Remember, this is the first well controlled blinded study for Crohn's disease of this MOA.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

So the data is robust. The way that we redesign the study is actually good, and we'll see what the modeling simulation is. But it's nice to see that we have this very safe, high therapeutic index right now and we have a lot of places

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

we can go with it.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for the questions, Ash.

[Operator]

Thank you. Our next question comes from Yifeng Lu of HSBC. Your line is now open. Please go ahead.

[Yifeng Liu, Analyst at HSBC]

Thanks for taking my question.

[Yifeng Liu, Analyst at HSBC]

I've got 2, please.

[Yifeng Liu, Analyst at HSBC]

So one on capital allocation. Now you talk about business development opportunities, given that you are already quite established in neuroscience and potentially in the future immunology. Are there any other therapeutic areas or spaces you are interested in branching out? And the second question is on and dovetiketok. And just wonder if you could check any other colors that you could on the upcoming Phase 3 development plan?

[Yifeng Liu, Analyst at HSBC]

Thanks.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Hi, Yifeng. Thanks for the question. So other capital allocation business development are the TAs. So firstly, immunology and neurology or CNS offers a huge variety of diseases, conditions and indications. So I think that's a pretty big playing field.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But where we a couple of things to think about is we believe we have a CNS capability and infrastructure that we want to leverage both from an R and D and a commercial capability. So we're really focused on that. Immunology, yes. That said, as Eric's talked about with DIVA KE2 having multiple indications and also one of our other products in the pipeline IL 15, anti IL-fifty having multiple indications. We feel we have a lot of immunology already in our pipeline, which I don't think people necessarily fully appreciate.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But we still look there. And then outside of that, we do believe that rare disease creates an opportunity for Teva. Now that would primarily be once again, if possible, aligned to our therapeutic areas of CNS and immunology, which there is a large potential out there. So that's how we think about business development. And on Dubikitog, I'll hand that over to Eric.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

Thank you, Rich, and thanks for

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

the question. Yes, so we're focused on the Phase 3 program with our partner Sanofi. We're working diligently. The pathway forward is fortunately clear in this disease area. We know what the endpoint should be.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

We know what the requirements are and we are going to be consistent with what the FDA guidance is. So that's one of the great things about these disease areas. It's what we have to do is clear. Right now, we just have to put the final touches on our plan for the Phase III study design itself, which is really based on the modeling and simulation that we'll use from this first study. Beyond that, I think that we're excited about other indications in the future.

[Eric Hughes, Executive VP of Global R&D and Chief Medical Officer at Teva Pharmaceutical Industries]

We're thinking about that very hard. We're keeping it close to our chest. But I think I want to focus back on that slide about the potential of what Duvety could bring to patients in a very broad way with many different indications. That's going to be the exciting next step. But thanks for the interest.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for the question, I Fang.

[Operator]

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

[Glen Santangelo, Managing Director at Jefferies Financial Group]

Yes. Thanks for taking my question. Hey, Eli, I hate to come back to the EBITDA guidance, but I did have a follow-up question. When you look at 2024, it looks like your operating expenses increased 9%. And if I'm doing my math right, most of it looks like it was an increase in sales and marketing versus R and D and G and A.

[Glen Santangelo, Managing Director at Jefferies Financial Group]

And so I'm kind of curious embedded within that 25 guidance, could you give us a sense for how much of an operating expense increase you're assuming this year versus last year? And will it be more weighted towards sales and marketing or R and D? And then maybe as a part of that, could you talk about the impact that FX had in the top line and the operating profit guidance that you've given?

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Okay. Thank you very much for the question. So first of all, in terms of the dynamics in the OpEx, we are pretty much kind of aligned with our G and A. The movement on growing the sales and marketing, which is growing versus last year. But we need to understand that inside our R and D with what we call and what we we actually introduced those financing programs that allowing us to finance the R and D.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Those one actually supporting our Olanzapine, our ICS Saba and of course the share cost that we have with Sanofi on the TL1A. As we move forward, we are as you know about to in 2025 to submit dolanzapine, which means that the cost on the Phase 3 is actually getting down. What we will see now more support on the rest of other programs. So in some way, there is kind of a shift of those funding that happened in 2024 to less funding that's happening in 2025 on certain programs, which mean that if we end up 5.9% on the R and D, we're growing above 6%. So that's kind of the main change.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

And our midpoint is taking above 28% and on the OpEx and our higher point is taking less than 28%. As far as related to the FX, look, last year, we saw kind of SEK 190,000,000, it's kind of a 1.2%. You will assume that that's more or less the range that we are considering in the spread in the current revenue trajectory guidance.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Thanks for the question, Gleb.

[Operator]

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

[Chris Schott, Managing Director at JP Morgan]

Great. Thanks so much. Just two questions for me. Can you talk a little bit more about the Q4 U. S.

[Chris Schott, Managing Director at JP Morgan]

Generic business? I know the 1st 3 quarters saw very healthy growth and this quarter was a little bit less. I'm just trying to understand is that just timing or something we should be kind of watching there? And my second question was coming back to the 2027, 30% operating margin target. Just tell me a little bit how much what type of gross margins should we be thinking about for Teva in that timeframe?

[Chris Schott, Managing Director at JP Morgan]

I think we're also trying to kind of bridge with what seems like a pipeline that really deserves investments, launching a bunch of important products. It seems like gross margins is kind of one of the levers there. And I'm just trying to get a sense of like how big of a step up we should be anticipating versus the targets for this year? Thank you.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Hi, Chris. Thanks for the questions. So I'll tag in a bit with Eli on that. So with regard to U. S.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Generics, you're right. I think you said the 4th quarter, you felt was a bit light, I think that was the question, with U. S. Generics. I'd just like to remind you that Revlimid is allocated the majority of sales allocated in quarter 2 and quarter 3.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And so that's where you see that sort of quarterly fluctuation in the U. S. That said, I'd like to point out that we did have a few good launches last year that helped minimize that, which I think is important. So we had obviously Victoza, we had Okutide, just to name a couple, which I think is sort of less than that. But there is that seasonality, which you've always had in with regards to the Revlimid allocation, that's Q2 and Q3.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And then on the gross margin, I'll sort of start it. And I think your question was in 2 parts. I think it's what is the gross margin going to be when we think about 27% and Elie you can take that. Then I think there was a more sort of high level question, which is how do you aspire to hit your OP and your gross margin and make sure you don't under invest in the pipeline, which I think is also a very good question. So the way we think about it goes back to capital allocation and a big part is making sure we do invest.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

And I think you've seen over the last 2 years, we've actually invested we've been all in, in our pipeline. We've accelerated Tier 1a when we didn't have snowflip, we've accelerated Olanzapine and we've accelerated ICSLABA and we've moved some other products into the clinic. So I think we look after the pipeline really carefully, but we look after capital at the same time. So I think it's a balance that we always think carefully about. And as we move forward, I think as the pipeline matures, we'll continue to show that due diligence.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

But what we need to keep doing and we believe we will be keep doing is driving the top line revenue, particularly from our innovative because that changes the gross margin and it changes the profitability, which allows us to do that without really breaking investment sort of guidance. That's the balance we have to manage. But I like that challenge, because it's all focused on driving long term growth and long term value creation, because we have such an exciting pipeline. But one we watch carefully. But maybe over to you, Elyse, specifically on the gross margin.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

Yes. Hi, Chris. Thanks for the question. So look, we are looking on keep investing our OpEx of revenue, which the trend around 27% will move in the next, I would say, in 26% to 27% in average because we have kind of, I would say, more acceleration on R and D this year. So this is why I mentioned that we end up we may end up with even 28% this year.

[Eli Kalif, Chief Financial Officer at Teva Pharmaceutical Industries]

But if we think about it on that trajectory on 27 percent OpEx and our view on 30% OP, it gives you kind of a range of 56% to 57%. That said that it will not most likely will be linear because it's really related to our mix on the innovative portfolio in terms of are able to grow that business and also related to what Richard mentioned in our acceleration programs that we're working on across our global operations. So you can say in average, see a 70 to 100 basis point increase year over year up to a range of 56% to 57% by end of 2027.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Hope that answers your questions, Chris. Thanks for your questions.

[Operator]

Thank you. At this time, we'll take no further questions. So I'll hand back to the speaker team for any further remarks.

[Richard Francis, President & CEO at Teva Pharmaceutical Industries]

Once again, I'd just like to thank everybody for dialing into the Teva call. Thank you for your interest and your questions. And we look forward to giving you an update in a few months on Q1 of 2025. Have a good day.

Participants

Executives

• Christopher Stevo, SVP - Head of IR
• Richard Francis, President & CEO
• Eric Hughes, Executive VP of Global R&D and Chief Medical Officer
• Eli Kalif, Chief Financial Officer

Analysts

• Umer Raffat, Analyst at Evercore
• Jason Gerberry, Analyst at Bank of America
• David Amsellem, Sr. Research Analyst at Piper Sandler Companies
• Balaji Prasad, Analyst at Barclays Capital
• Ashwani Verma, Executive Director at UBS Group
• Yifeng Liu, Analyst at HSBC
• Glen Santangelo, Managing Director at Jefferies Financial Group
• Chris Schott, Managing Director at JP Morgan