Teva Pharmaceutical Industries Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 2, 2023

There are 13 speakers on the call.

Operator

And welcome to the Q2 2023 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. I'll now hand it over to I'll now hand it over to your host, Ran Amir, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, Alex. Thank you, everyone, for joining us today. We hope you have had an opportunity 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 therapharm.com. Let's review our forward looking statements on Slide number 2.

Speaker 1

Additional information regarding these statements And our non GAAP financial measures is available on our earnings release and in our SEC Forms 10 ks and 10 Q. To begin today's call, Richard Francis, Teva's CEO, will provide an overview of Teva's Q2 2023 results and business performance as well as recent trends and our priorities going forward. 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.

Speaker 1

Joining Richard, Eric and Elio on the call today is Van Ditlets, DevOps Head of North America Business, who will be available during the question and answer session Please note that today's call will run approximately 1 hour. And with that, I will now turn the call over to Richard. Richard, if you would, please?

Speaker 2

Thank you, Ram, and thank you, everybody, for joining our call. I'm very pleased to update you on our Q2 performance And the progress we are making on executing our pivot to growth strategy. It's been an exciting quarter with the launch of Aestheto XR, our once a day formulation And the launch of Yucedi, our long acting treatment for schizophrenia. Now moving to Slide 4. Let's start with our results.

Speaker 2

Revenue was up 4% in local currencies to $3,900,000,000 and non GAAP gross margin was at 52.2%, Up 3.1 percent versus Q1. Adjusted EBITDA was at 1,100,000,000 Based on this, we are increasing our revenues outlook for 2023 to $15,000,000,000 to 15,400,000,000 I'm also pleased to highlight that we've got good momentum on our Pivot to Growth strategy with good execution across the 4 pillars Driving this growth, and I'll give you an update on those in the presentation as well. Now digging down a bit into this Performance in this 4% on the next slide. This was driven by our growth engines. And as you can see here, There's a 51% increase in revenue for AUSTEDO, strong performance there.

Speaker 2

AJOVY continues to perform and in North America grew 16% and in Europe, 32%. We continue to see good growth in our international markets at 13% for our generics business, and Europe came in at +2%. Now maybe to dig a bit deeper on Astellas' performance on the next slide. I believe we're on track to hit the $1,200,000,000 target we set 2023. As you can see, revenues for Q2 were $308,000,000 and that was a 51% increase, Strong continued TRx growth.

Speaker 2

I'd like to point out we did launch our once a day formulation in this quarter in May, which we're very pleased to bring this to patients But this obviously required us to put some stock in the channel. So if you allow for this, the revenue growth was Probably around about 35% to 40%. So still strong growth. And we can continue to believe And the potential of AUSTEDO, if you move to the next slide, I talked about back in May at our strategy launch, The $2,500,000,000 that we will achieve in 2027, and we're reaffirming this. And this is based on 2 Particular points.

Speaker 2

One is the unmet medical need that's out there, the undertreated population. As you can see from this slide on the right, There's 785,000 patients suffering from tardive dyskinesia, and only 120,000 are actually diagnosed, And only a small amount of those are treated. So there's a significant unmet medical need. So obviously, we at TABA here We put a lot of focus around this data, both in resources and in managerial focus. And this is allowing us to increase our sales force, Increase the support we're putting around patients.

Speaker 2

We've launched the once a day, and we continue to raise awareness so we can get some of these patients who are not on treatment into the physician's office So we reaffirm our belief that we can hit $2,500,000,000 by 2027. Moving on to the next slide, and another member of our innovative family is AJOVY. Now AJOVY continues to grow 17% versus Q2 2022. And I think this highlights the capability that we have here at Teva We will hit our guidance of $400,000,000 for 2023, And we continue to see that we either hold or grow market share across many of our markets. Now moving on to Slide 9 and the newest member of our innovative family, Yucetic, risperidone, our long acting treatment for schizophrenia.

Speaker 2

Now to remind everybody, this is a $4,000,000,000 market. We only just launched Yuceti, but we're very pleased with the feedback we're getting from health care professionals. And they're confirming that the product profile that we have with Yuceti is unique and advantageous. Now we're seeing this The fact that our NBRx is 40%. So already, we're getting 40% of the risperto long acting market.

Speaker 2

We're also seeing hospitals look to use our free samples and free trial requests, and we're having good discussions with our payers. So once again, I think the excitement around Yuceti is early days, but initial feedback is very positive. And if I move on to Slide 10, to give you probably a reason why we're getting this feedback, we already have reports that show the product profile that we put forward, the subcutaneous needle, the lack of need for refrigeration, pre filled syringe It's allowed us to have a product that patients, 9 out of 10 patients are very satisfied with. And obviously, when it comes to physician, we have the same 9 out of 10. And what we have found already that's particularly advantageous is the fact that we don't need a loaded dose and there are no oral supplements needed.

Speaker 2

One injection And the patient will get to the therapeutic dose within 24 hours. Now clearly, that's advantageous when it comes to a patient having a relapse And needing to get that efficacy quickly. So good patient profile, good product profile and physicians' Excitement for you, you said, continues to grow. Now moving on to our generics business on Slide 11. Good growth in international, up 13% continued growth in Europe, a bit softer than The prior quarter, this is down to a couple of factors.

Speaker 2

One is we did have a strong prior year, and there is some seasonality in our business, and that's impacted. That said, H1 will still show a 7% growth versus H1 2022. And I remain confident in this business going forward based on our portfolio, its scale, our pipeline and our commercial expertise. Moving on to Slide 12 on our biosimilar, I'd like to update you on the progress we're making on our Pivot to Growth strategy. Now if you remember, the focus here was about having a broad biosimilar portfolio, And we've made some progress here.

Speaker 2

We have expanded our partnership with Alphatec. We are for you by a similar candidate. We've also strengthened our operational relationship with Alphatec, helping them on manufacturing and quality, where they can really leverage the scale and expertise we have We'll continue to seek to expand our portfolio. And as we do this, engaging more relationships, we'll update you as and when they happen. Now moving on to Slide 13.

Speaker 2

Eric will obviously go into some detail on our pipeline, which we're very excited about. We continue to make good progress, but I really wanted to highlight the fact that the 3 late stage assets we have have favorable product profiles of the markets they're entering into, but also these are significant markets. So with eladzepine, I've already highlighted The fact that it's a $4,000,000,000 market, but if we do manage to bring this to the market with a favorable safety profile, I think we have a real Opportunity to have a significant product on our hands here. ICS Saba, it's a $2,500,000,000 market and then obviously anti TL1a This will be well discussed, and this is a significant market which could help drive long term growth for Teva. Now moving on to the next slide on our ESG.

Speaker 2

We remain very committed to our ESG strategy, and we've made good progress across a number of goals. Just to highlight a few. I'm pleased that we've donated nearly up to 70,000,000 doses Our medicines improved access. We've also seen on our environmental goals a 24% reduction in our greenhouse gas emissions. And actually, in quarter 2, we recently signed an agreement with an energy supplier in Israel to make sure that 100% of our Electricity is from renewable sources, and that includes all our manufacturing sites as well.

Speaker 2

Moving on to Slide 15, our final slide before I hand over to Eric. This just highlights the growth the progress we're making on our Pivot to Growth strategy, which we launched back in May. It's based on 4 pillars. On our first pillar to deliver on our growth engine, as I've highlighted, AUSTEDO It's performing well, and we're confident about it in €2,500,000,000 Eric will talk to you a bit about the progress we're making in the clinic on our late stage assets, He's put together a world class leadership team to help make sure we can drive our complex generics business as well as our innovative pipeline. When it comes to creating a sustainable generics powerhouse, we're making good progress on focusing on our R and D portfolio and our portfolio And manufacturing setup to make sure we can drive efficiencies there.

Speaker 2

And finally, TAPI, We've made the decision and the move to move that business to a stand alone unit, and that is progressing very well. With that, I'm going to hand over to Eric, to walk us through some of those assets I've touched upon. Look at you, Eric.

Speaker 3

Thank you, Richard.

Speaker 4

First, on to AUSTEDO We were very happy to see the efficacy of AUSTEDO at the time of our Phase III approval. We're very excited to see The long term data recently presented at the American Academy of Neurology. You can see in this slide that over this 3 year period, There is a durability of response. And in fact, there's a slight improvement over those 3 years, irrespective of the psychiatric underlying Now our goal now is to make these responses, this durability convenient for all patients. So with our approval of AUSTEDO XR this year, we're excited to bring a lower pill burden and the convenience of once a day dosing to patients.

Speaker 4

And We will continue to provide AUSTEDO and AUSTEDO XR to our HCPs to provide as much flexibility And our treatment is possible. Come next one. As Richard noted, the product profile of UZETI It's very attractive to our HCPs. The subcutaneous injection is a small needle, no loading dose, no supplemental oral therapy And it's provided in a prefilled syringe. But it's also important to note the efficacy.

Speaker 4

We've shown a 30% and 80% reduction And the risk of relapse and a significantly longer time to relapse. But when we talk about our data to our experts, One of the things that we note is that after the stabilization of patients on oral respiredone in the study, We actually saw a slight improvement on the long acting injectable of AZEDI in our study. So these are early days, but this is very encouraging to see such activity and improvement with the long acting injection. So we have now a portfolio of products throughout the life cycle of drug development. We're excited to be bringing our anti PD-one IL-two program into the clinic early next year in oncology.

Speaker 4

We're advancing our anti IL-fifteen program in celiac disease through our Phase I studies, and we have initiated a proof of mechanism study this year. We're excited to be in our Phase IIb study of TO1a in IBD. And we're Already started our Olanzapine LAI study, which is actually enrolling very well, and we'll be starting our ICSLABA Phase 3 program next month. Now a little bit more on olanzapine LAI. We're very excited by this olanzapine as an oral agent accounts for 20% of the patients being treated today, But only less than 1% of patients on the long acting form are being using that product, and that's primarily because of the safety profile.

Speaker 4

Long acting injectable olanzapine will not have PDSS. Unlike, ZYPTREXZA, ROLFEWA, Our product is a subcutaneous injection, which avoids deep penetration as an intramuscular injection of Xyprexa Rhopid. And that will prevent, in general, a lack of spikes in the PK exposure of the drug. In addition, our formulation rapidly aggregates into a slow release formulation. And to add to our confidence, we did this In vitro study, here you see in the graph.

Speaker 4

And this is the worst case scenario. We took human serum. We injected zyprexa, relpiv directly into the serum, and we could show a rapid dissolution and measurement of olanzapine in the serum. However, when we directly injected our formulation, which rapidly aggregates and forms a slow release Formulation, even in this worst case scenario, we have only a slow release and a clear differentiation From the XIPREX or RELPROG. So very encouraging results in vitro, and we're excited to have our Phase III study ongoing right now.

Speaker 5

And the next one.

Speaker 4

So moving on to anti TiO1a. IVD remains a Large underserved patient population. There are over 400,000,000 patients diagnosed. Of those, about 2,700,000 patients are These patients frequently receive oral therapies as well. And in the biologics that they have, they frequently cycle through those biologics due to lack of response.

Speaker 4

We're excited by our anti TL1A program. We believe we have a best in class preclinical profile. We have well characterized the safety of our product, and we have also noted a low antidrug antibody profile. We're accelerating our program in anti TiO1a and IBD. We're allocating more resources and capital on this program.

Speaker 4

We're excited to see in 2024 our interim results. This will drive our decision to start Phase 3 in 2025. Excellent. So just to review why we believe we have a best in class compound. These in vitro assays here that you see on the screen are directly comparing our antibody to comparator reagents that we created that represent other clinical candidates in development.

Speaker 4

You can see that we have a greater selectivity of the DR3 receptor, which is the inflammatory receptor, while maintaining the decoy receptor, providing a clear differentiated biology of our antibody. We also demonstrate that we have greater potency Compared to the other two clinical candidates. And the last one. So just to summarize, Our key pipeline assets are on track and progressing quickly. Our anti PD-one IL-two will enroll its 1st patient at the beginning of 2020 Our anti TL1A program will read out its interim analysis in the second half of twenty twenty form.

Speaker 4

And as I noted, our anti IL-fifteen program is moving rapidly through Phase 1, and we've initiated a proof of mechanism study this year in celiac patients. Our olanzapine Phase 3 study, as I noted, is actually enrolling very quickly, and we hope to see that data readout in the first half of twenty twenty five. And finally, we're initiating our ICS Saba Phase 3 program next month with a readout focused on the second half of twenty twenty six. And with that, I'll hand it over to Alex Collis. Thank you, Eric, and

Speaker 6

good morning and good afternoon to everyone. I'll begin my review of our Q2 2023 financial results with Slide 25, starting with our GAAP performance. Revenue in the Q2 of 2023 were $3,900,000,000 representing an increase of 2% Compared to Q2 2022, in local currency terms, revenue increased by 4%. To provide you some color on our revenue performance by region. In North America, we had overall strong performance with 5% growth in Q2 2020 Compared to the Q2 last year, this growth was mainly driven by higher revenue from certain innovative products, Primarily, AUSTEDO and AJOVY as well as ANDA, our distribution business, which benefited from higher demand In secondary wholesale market, it was partially offset by lower revenue from our generic products and Copaxone, Bendeka and Treanda.

Speaker 6

Revenues in our generics business in North America decreased by 6% in Q2 2023, mainly due to increasing competition parts of our portfolio. The overall pricing environment in North America Generics remained stable. Revenues in Europe segment Reflect in local currency terms. We continue to see solid growth in our generics business and from AJOVY in the 2nd quarter. This was, however, largely offset by lower revenue from our legacy brands, including Copaxone.

Speaker 6

And Revenues from our international market segment increased by 13% in local currency terms. This was mainly driven by higher revenue from generics products Coming from price increases largely as a result of rising costs due to inflationary pressures, this increase was partially offset by regulatory reduction and generate competition to off patent products in Japan. GAAP operating loss was $646,000,000 in the Q2 of 2023 compared to an operating loss of 949,000,000 in the Q2 of 2022. The lower operating loss in the Q2 of 2023 was mainly due to higher legal settlement And goodwill impairment charges in the Q2 of 2023. We had net loss of 863,000,000 Compared to the net loss of $232,000,000 in Q2 2022 and a GAAP loss per share of $0.77 Compared to a GAAP loss per share of $0.21 in the same period a year ago.

Speaker 6

The higher net loss In the Q2 of 2023, mainly due to a lower tax benefit in Q2 2023 compared to Q2 2022 Due to effect of a portion of realization of losses related to an investment in one of our U. S. Subsidiaries last year, partially offset by lower operating loss as discussed above. Foreign exchange rate movement during the Q2 of 2023, Including hedging effect negatively impacted our revenue and GAAP operating income by $51,000,000 $38,000,000 respectively, compared to the Q2 of 2022. This was primarily result of an impact of a stronger U.

Speaker 6

S. Dollar against the currencies Of certain international markets in which we operate, partially offset by the benefit of Europe appreciation, approximately 46% of our revenue in Q2 2023 came from sales denominated in non U. S. Dollar currency. Turning to Slide 26.

Speaker 6

You can see that the total non GAAP adjustments in the Q2 of 2023 were approximately $1,500,000,000 compared to $986,000,000 in Q2 2022. Notable non GAAP adjustments included The goodwill impairment charges of $700,000,000 related to our international markets reporting unit, mainly due to an increase In the discount rate, due to higher risk associated with several countries as well as legal settlement and loss contingencies expenses of 4 $2,000,000 mainly related to estimated provisions recorded in connection with certain litigation cases in the U. S, including a $200,000,000 provision related to the U. S. DOJ criminal price fixing case based on advanced settlement discussions with the DOJ.

Speaker 6

Other notable adjustments include amortization of purchase intangible assets of 162,000,000 The majority of which is included in cost of sales. Now moving to Slide 27. For our review of our non GAAP performance, as I mentioned, our 2nd quarter revenue were totaled approximately dollars 3,900,000,000 represented a growth of 4% in local currency terms compared to the Q2 of 2022. Now let's move down to P and L, starting with the gross profit margin. Our non GAAP gross profit margin was 52.2% In the Q2 of 2023 compared to 54.4 percent in Q2 2022.

Speaker 6

This decrease In non GAAP gross profit, margin was mainly driven by higher cost of fuel with higher cost of due to inflationary pressures, FX and other macroeconomic And increasing revenues with lower profitability from ANDA in our North America segment and lower revenues From Copaxone, partially offset by higher revenues from AUSTEDO. As I mentioned last quarter and as expected, This was an approximately 300 basis point sequential improvement in our non GAAP gross profit margin in Q2 2023 Compared to the Q1 of 2023, this improvement was driven by an anticipated shift towards more balanced and normalized portfolio mix, Mainly driven by strong growth in AUSTEDO, growth in AJOVY as well as sequential improvement in our cost of goods sold due to the expected easing of the inflationary pressures and other measures that we are taking to drive our productivity in our supply chain. Our non GAAP operating margin in Q2 2023 was 26.1% versus 20 6.9% in Q2 2022. This decrease was mainly driven by lower gross profit margin, as I just mentioned, partially offset by a decrease in operating expenses. We ended the quarter with a non GAAP earnings per share of $0.56 Compared to $0.68 in Q2 2022, mainly due to higher financial expenses in Q2 2023 As well as the lower taxes in Q2 2022 due to the effect of higher tax benefits last year, as I mentioned earlier.

Speaker 6

Now let's take a look at our spend base on Slide 28. As you can see, Our quarterly spend base increased by $100,000,000 or $116,000,000 on a local currency basis. Most of this increase It was due to higher cost of goods sold related to higher revenues and the factors that I just described earlier, partially offset by lower operating expenses. As I highlighted last quarter, we continue to transform our global manufacturing and operating footprint. We have made significant progress over the last 5 years To consolidate our site to get more efficient going from 80 manufacturing sites down to 51 sites today And there are 2 additional sites planned for closure for divestitures by the end of 2023.

Speaker 6

Moving forward, we expect This optimization efforts to continue enrich a normalized site count between 40 to 44 sites over the near medium term To help drive efficiencies in our operations and improve margins. Turning to free cash flow on Slide 29. Prioritically, as part of our cash flow commercial relationship management activities, we make decisions in our commercial and supply chain activities, Which may drive an acceleration of receivable payments from customers or a deceleration of payments to vendors. In our efforts to continually seek to improve The efficiencies of our working capital management, we obtained more favorable payment terms of many of our vendors, which are expected to continue in future periods. Our free cash flow in the Q2 of 2023 was $632,000,000 compared to $301,000,000 in Q2 2022.

Speaker 6

The increase in free cash flow in the Q2 of 2023 resulted mainly from changes in working capital items, including positive impact from accounts receivable, Net of sRNA and from inventory levels partially offset by negative impact of accounts payable as well as higher proceeds From sales of business and long lived assets. Today, we are reaffirming our 2023 free cash flow guidance, which we provided in February. Our 2023 free cash flow is expected to be in the range of $1,700,000,000 to $2,100,000,000 We expect our free cash flow to continue to progress In the second half of this year, as we have a gradual ramp up in our profitability and continue to drive working capital improvement. Turning to Slide 30. Our net debt at the end of Q2 2023 was $18,000,000,000 Compared to $18,400,000,000 at the end of 2022, our gross debt was $20,700,000,000 compared to $21,200,000,000 at the end of 2022.

Speaker 6

The decrease in our gross debt was mainly due to SEK646,000,000 note repaid at maturity that was due on March 31, partially offset by exchange rate fluctuations of $156,000,000 Subsequent to the 2nd quarter close, 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 on July 21. Our net debt EBITDA improved Compared to Q1 2023, coming in at 4.14x for Q2 2023, mainly due to a free cash flow generation The Q2, partially offset by movement in foreign exchange rates. Debt reduction continues to be our focus, And we expect to continue to work towards our long term financial target of being 2x net to EBITDA by end of 2027. Turning to Slide 31, which represents our upcoming debt maturity. If you recall, we successfully refinanced $2,500,000,000 of our debt through the stability linked senior notes during the Q1 of 2023 with an objective to align our near term debt maturities with our free cash flow guidance for this year.

Speaker 6

With our ongoing cash flow generation, we believe we are well positioned to continue to service our debt and meet these upcoming maturities. As I mentioned earlier, in July 2023, we repaid $1,000,000,000 of our 2.8 percent SIRO note At maturity, so there is no additional maturity payment due in 2023. Now turning to our 2023 non GAAP outlook on Slide 32. As Richard highlighted earlier and as I reflected in the first half of this as we reflected in the first half of this year, We have made a solid progress in terms of our revenues, while we continue to navigate gradual improvement in our margin. This includes solid momentum in our key growth engines, especially AUSTEDO, the launch of Yuzedi, Continued growth in AJOVY and a solid performance in our generics business, especially in Europe and international markets.

Speaker 6

In addition, since we provided our initial guidance range in February this year, we're seeing relatively higher demand in certain businesses, In closing, our distribution business in Anda, which benefited in the first half of this year from higher demand in the secondary oyster market, The generics business in our Europe and International market segment and as well as relatively favorable foreign exchange rate environment. Therefore, to reflect our revenue performance in the first half, along with expected continued development in the second half of twenty twenty three, We're increasing the lower end of our full year revenue guidance range by $200,000,000 We now Expected our revenue to be between $16,000,000,000 $15,400,000,000 for the full year of 2023. We are also reaffirming our 2023 non GAAP outlook for operating income, EBITDA, earnings per share And free cash flow, as provided in February, as I mentioned, during the Q1 earnings call and In line with the subsequent improvement that we actually saw in the Q2 of 2023, we We continue to expect a gradual improvement in our margin in the second half of the year. We believe this will be driven by further improvement in our cost of goods sold as As we navigated the impact of the inflationary pressures that we saw in the second half of the year and drive improvements in our operating expenses, as well And by changes in our portfolio mix with a further ramp up in revenue from our key growth drivers, including AUSTEDO.

Speaker 6

With that, This concludes my review of Teva's results for Q2 of 2023. And now I will hand it back to Richard for a summary.

Speaker 2

Thank you, Ellie, and thank you, Eric. So in summary, as I said earlier, a solid Q2 Performance wise, driven by our growth drivers of Aesthetics. You said in AJOVY, good stable business from our generics portfolio. Elyse talked about upping the guidance, which we're pleased about, and we made tangible progress in our pivot to growth strategy to get us back to long term growth. So with that, I'll hand it back to the floor to take some questions.

Speaker 2

Thank you for your time.

Operator

Thank you. Our first question for today It comes from Jason Gerberry of Bank of America. Jason, your line is now open. Please go ahead.

Speaker 7

Hey, guys. Thanks for taking my questions. I guess, just curious with AUSTEDO and the growth ambitions that you I'm wondering if you could identify like sort of the singular biggest driver to this under treatment dynamic. Do you think that these patients are sitting in psychiatrist office and just haven't been made aware or just choosing not to get treatment? Or do you think that maybe the population is more dispersed and it's just going to require more of a larger field force to get the word out around these therapies.

Speaker 7

And then maybe Richard, just curious, there's a lot of media reports about API and the TL1A Assets being explored as potential divestiture candidates. Wondering if you could add any color to that topic and willingness to part ways with either of those. Thanks.

Speaker 2

Thanks, Jason. Thanks for your question. I'll answer both, but also give maybe Sven an opportunity to comment. On the patients, the untreated patients for thyroid dyskinesia, it's a bit of all of what you said actually. There are Patients sitting in the office that don't get diagnosed from the psychiatrist.

Speaker 2

And some of that can be quite simple that The symptoms of tibial dystonia that they aren't visible to the physician, and the physician has to explore them. That's one. Another part is they actually don't make their way to the physician's office to seek actual treatment. And we see that because when we do Direct to consumer programs, we see a significant influx of patients into physicians' office. So I think what Our process going forward is to make sure we constantly educate physicians about identifying these patients and asking them the right questions.

Speaker 2

I I think we're seeing a good traction on that. And the second is to make sure patients actually enter the physician's office to ask questions about some of the symptoms they have. So then yes, it's a journey. I think we're making good progress. Now moving on to API and Tier 1a.

Speaker 2

Look, as we said with regard to our TAPI business, we set it up as a standalone business because we see if we focus this business, we have ability to drive Top line growth, which will help us on our Pivot to Growth strategy. We started to progress on that, and that's going very well. And we remain committed to that. I think the attraction there and the discussion that's been talked about outside, I think, nearly highlights how I think attractive this business is And how the right focus it can perform. When it comes to the TL1A, as I've said on a number of We are committed to this asset.

Speaker 2

We fully funded it through its clinical development. Very excited about it. We do, as Eric highlighted, We have a differentiated best in class. But obviously, it's a hot topic. So everybody's talking about Tier 1As.

Speaker 2

And in particular, I think ours gets bought a lot. But our aim is to, once again, develop that asset and use that as another lever to get ourselves back to growth. It'll be one of those things that drive growth in 'twenty eight and beyond. So thanks for the question. Do you like that?

Speaker 2

Anything else, Sven, to that?

Speaker 6

No, I

Speaker 8

think you covered it well. What I may want to add is that we already saw in the last years a significant expansion of the prescriber base for tardive dyskinesia. Please keep in mind that these patients have multiple diseases that have a mental health condition that is already difficult to treat. And target dyskinesia then needs to be recognized by physicians. It is, of course, with the bema-two inhibitors very well treatable.

Speaker 8

And we have seen that physicians that started treating Tylenol islamnesia also are able to identify more patients. For that reason, we believe we can tap into this Enormous patient potential and help even more patients in the future. And then other factors that Contributing to our growth is, of course, now the availability of the once daily formulation because we couldn't participate in the market which is very much focused also on patient convenience, and we are quite happy now that we can address that market segment as well. So it will contribute To our growth in particular. Thanks, Chad.

Speaker 8

Thank you, guys.

Speaker 6

Thank you.

Operator

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

Speaker 9

Hi, guys. Thanks for taking my question. I think 2026 was a date you mentioned on slides regarding a possible EU entry that you're investigating. My question is, considering the U. S.

Speaker 9

Approval was on a 505 Two basis, there has to be an additional trial. And I'm curious what specific feedback or any early feedback EMA is sharing on that note. Secondly, it looks like EBITDA for the full year, as much as it's tracking out of consensus so far, It's not quite annualizing at what the low end of the full year guidance is. And even versus first half last year, it's slightly lower partially because of the gross margin Q1. But to get to above 4.5% last year in EBITDA, There was a one time charge called other non GAAP of $200,000,000 which kind of enabled the full year to get to just above $4,500,000 And I'm curious, are you modeling some sort of Are there non GAAP charge to enable getting to above 4.5 EBITDA this year?

Speaker 9

Thank you.

Speaker 2

Thank you, Humbert. Thanks for the questions. So yes, we've made a lot of progress on AUSTEDO and Making sure type of dyskinesia and Huntington disease patients can benefit from that in Europe. And on the particular timings in the past, I'll hand that over to Eric.

Speaker 4

Thank you, Umer. So we are working on the package for the EU with AUSTEDO. The requirements are, we believe, Sufficient with the data we have to date, that's an ongoing discussion with the health authorities. I'll be working on that through the following year.

Speaker 2

Thanks, Alex. And then Alex, do you want to touch on the questions on the EBITDA?

Speaker 6

Yes, for sure. Omar, thank you for the question. I think, first, we're not considering any non GAAP adjustment for the second half In order to make sure that we are actually lending the €4,500,000,000 €4,600,000,000 EBITDA that we are expecting. And what I will mention that the second half will be more accretive in terms of gross margin that will flow to the EBITDA line. And this is mostly due to the mix and the fact that we actually now narrow And as you guided on the top line, that gets us kind of at least to be at the midpoint just for the modeling of 15.2%.

Speaker 6

And Other than that, we are also not banking on too much on FX. They're rebounding. We're using the same average of FX for

Speaker 2

the first half. Thanks, Ali. Thanks for your questions, Umer.

Operator

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

Speaker 10

Hi, everyone. This is Mikaela on for Balaji. Thanks for taking our questions. Just 2 for me. What does Teva aim to achieve with more control on the biosimilar facility?

Speaker 10

And if you could just provide some more color on what you've seen till now? And then my other one is just on the pricing stabilization that you mentioned, was generic pricing in the U. S. Stable quarter over quarter or year over year? Thank you

Speaker 11

so much.

Speaker 2

Thank you. So look, I'll start on those, and I'll hand over to Sven. I think look, on the Alvatech partnership, I think what we mean by operational involvement is that it means that when it comes to the manufacturing and the quality Thanks. Obviously, with Teva with 50 plus sites, we have a wealth of experience in this area. And so we're actually having people on the ground working with AlbaTeq To help them obviously in the areas that have been identified by the FDA.

Speaker 2

So that is something which we set up and we even have a Committee is set up, so it's formalized to JSC. So I think that's well structured, and Albertec are very excited about the help they're getting from us. When it comes to the generic pricing, I'll hand it to Sven to talk about that from quarter to yearly.

Speaker 8

Yes. Thank you for the question. So the U. S. Generics price decline has indeed slowed down over the last quarters.

Speaker 8

If you look at the pure core generics Business that Teva has in the U. S, we actually had 6 very stable quarters now, which was also supported by the slowdown price decline. It's not driven by a change in price bidding on the side of wholesalers or on the side of buying groups. That did not change in the last quarters. What we've seen is that, of course, generics are built on supply and demand.

Speaker 8

And since we've seen more supply chain disruptions Supply discontinuities also on behalf of our competitors, it helps slow down the price erosion. And what we also noticed is that not only Teva, but also other companies are looking into portfolio consolidation. And if you do that, Typically, it supports the price decline slowdown. And then we've seen not too many large Generic launches, which is the 3rd factor, typically the pricing influencing price decline. And for that reason, we overall see a stable situation at the moment, and we have to see if this continues over the next quarter.

Speaker 8

So far, we have no indication for a change.

Speaker 2

Thanks, Matt. Thanks for your question.

Operator

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

Speaker 11

Hey, thanks for taking my questions. I have 2. So on Costerum, so XR is a nice step to kind of minimize the Yes, between you and the other key competitor, is titration something that you can simplify as well in the near term and that can minimize that gap further? And then second one, just on generic Symbicort, I think there was settlement that you had with AstraZeneca on that. And can Aviatris Launch trigger actualization of your market entry as per your settlement terms?

Speaker 11

Thanks.

Speaker 2

Thanks, Ash. Thanks for your questions. So I'll start with AUSTEDO, and then I'll hand over to Sven for a simple call. So You're right to highlight that titration is important for AUSTEDO as to make sure the patients end up on the efficacious dose. What we have done, and actually it's occurred this month in August, is we have continued to approve our titration offering With a titration path that can be prescribed by the physician.

Speaker 2

So it just makes it simple. It doesn't rely on the sample having to be left in the physician's office. So I think that's going to help the patients Move through that titration to end up on the optimal dose for them from an efficacy point of view. So we just see that as another one of the offerings that we're laying on to AUSTEDO that go with many others, Which is going back to what I said about the investment we're putting into Aestheta is across multi channel, different areas. That's why we have confidence in hitting the $2,500,000,000 in 2027.

Speaker 2

But on the simple call, if I can hand that to you, sir.

Speaker 8

Yes. Maybe, Alain, also to Azeeto that we eliminated the 6 milligram filtration step. So that has already been It's simplified and we are working on a more simplified titration schedule. Also what we do this month, so in August, we launched a titration package, a A blister package that can be prescribed by physicians to initiate patients, so that will also help with effective titration. On generic Symbicore, we are working on this complex development.

Speaker 8

It's an inhaler. It's a combination inhaler. The FDA, of course, has high Hurdles to get these products approved for that reason, our expectation is that this launch will be more driven by approvability of the product It's off and any other considerations.

Speaker 2

Thank you, Sven. Thank you, Ash. Thanks for your question.

Operator

Thank you. Our next question comes from Thibault Buterin of Morgan Stanley. Your line is now open. Please go ahead.

Speaker 5

Hello. Thank you for taking my questions. I had some technical difficulties, so I apologize if it has already been asked. But my first question is on biosimilar, HUMIRA. It now seems that you will enter the market most likely in 2024 after most of your competitors have already launched.

Speaker 5

So what opportunity do you believe The device industry represents, could it still be a meaningful contributor to your revenues next year? Should we be conservative and assume that it will be challenging to compete in this market with a late entry? And if you do think that it's a meaningful opportunity, if you could I'll highlight the factors that would enable you to compete despite being a little bit late to the market. 2nd question on UZD. Just if you could Give us an update on coverage in the U.

Speaker 5

S. And the position of Formulary as compared to your key competitors in the injectable schizophrenia field? Thank you.

Speaker 2

Okay. I'll hand both those questions to Sven. I think before I do, when we think about HUMIRA, Just to sort of outline, I think this is an evolving market. So I think it's going to be interesting to see how 2023 plays out. It's important to also understand the product profile that we have.

Speaker 2

The final Alvotech is highly differentiated based on its Changeability of the quality of our water jet. But maybe Sven, you can add a bit more depth to that. Yes.

Speaker 8

Of course, we have seen now that on July 1, we had the market formation for biosimilars in the U. S. With several companies entering the market So far, but it's very early. There's only been a slow uptake of biosimilars versus the originator, Epi. What we expect is that we have in 2024 more decisions coming up on the side of PBMs about formulary changes Or eventually also hard changes to the formulary taking the originator out of the programs.

Speaker 8

So we have to work with Alvotech now on the FDA approval for our drug. That's the prerequisite for us to enter the market. But we believe there's still an opportunity to be captured also in 2024 because we always said there is a 2 phase Market formation, now one in July and one coming more with the natural formulary changes in January 2024. And then we will see how our very comprehensive product profile will work out. But overall, currently, our focus is on the And I think you asked the second question about Yuceti and the market coverage.

Speaker 8

So we are working, of course, with the target on parity position in all the payer plans. The majority of physicians patients, sorry, comes from Medicare and Medicaid. They have longer decision time lines than in the commercial Segment, but we are making very good progress here in our market access discussions. We are actually Right on plan or slightly ahead of our market access strategy targets. And we are very happy with the launch, how it's progressing.

Speaker 8

You've seen so far if you get a prescription for Yuceti, about 80% are filled also. And we have very high interest on the Hospital sites for the free sampling program, that's an important segment for us as well because many patients are initiated on that side. So overall, I I would say our launch is right on target and progressing well.

Speaker 5

Thank you very much.

Speaker 2

Thanks for your questions, Steve.

Operator

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

Speaker 3

Hey, thanks. So, I had a couple of high level questions about the neuropsychiatry Business, can you talk about your willingness or the wherewithal to bring in pipeline assets or even Smaller scale commercial stage assets where you can leverage the commercial infrastructure that you have in place for AUSTEDO. So just talk about your psychiatry focus in terms of BD M and A and what you can and can't do. And then secondly, just a broader strategic question. Do you think that there is A possibility or does it make sense to potentially explore a separation of the neuropsych business Into a standalone business as a means of unlocking value, just given where AUSTEDO is and how the broader markets think of businesses with Novel CNS assets.

Speaker 3

Thank you.

Speaker 2

Thank you. Thank you for those questions, David. So In answer to your first question, yes. I think we've started to build a real franchise with the psychiatric community. And actually, when we're at the Conference, American Conference of Psychiatry.

Speaker 2

B. Washi said you are now the company in this area. Obviously, they see that with AUSTEDO. They see that with Yuceti and obviously Olanzapine that Eric spoke about. So yes, and we are actively out there Looking at BDM opportunities, some of those are about in licensing, and some of these are constrained a bit by our balance sheet and where we are Right now, but the advantage we have is we have an infrastructure that we can bring and plug and play products into.

Speaker 2

So I think for us, it is beneficial and it can be cost effective. And for potential partners, they see that Leverage that we have with the community and the relationships we have. So I think that's something which we are active in, but obviously, we need to find the right asset At the right price or the right company even. Now moving on to your second question around the separation of the neuroscience business. No, that's not a consideration, just to be very clear about that.

Speaker 2

I think Teva really benefits from putting Teva as a complete Teva. We are fueling a lot of our growth in our Innovative business from the support of our generics business And our other businesses. And so there's a lot of synergies that are at play here. And even in R and D, the work that's been done on the complex generics, The support they get from the innovative part of our business here is very helpful. So right now, I think where Teva is, It will actually stay as it is, and we'll continue to grow as Teva has won.

Speaker 2

Thank you for your question.

Operator

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

Speaker 12

Great. Thanks. Just two questions for me. First, can you just elaborate a little bit more on gross margin progression as we think about the second half of the year? I'm sure I get a sense of what's a good number to think about as we kind of think about this, obviously, nice improvement relative to 1Q, but just how much of a normalization should we think about in the second half?

Speaker 12

And then my second question was just a follow-up on Newzetti. Given some of the payer dynamics and this process taking a little bit longer, When can we think about revenue ramping for this product? Is that something we could see in 2023? Or is that more 2024 before you expect the coverage to come into place? Thank you.

Speaker 2

So thanks for those questions. Before I hand over the gross margin to Elliot, I just want to sort of layer how people should I have to think about our gross margin as our company evolves. So one of the things about gross margin, as Ellie has highlighted already, it's driven by obviously our Cost of goods and our COGS, but also our portfolio mix. And one of the things that I think is important to people to start to think about as we grow our innovative business, Our portfolio will change and with that change is our profitability and our gross margin from that innovative business. And so obviously, growing AUSTEDO, growing YUSEDI, Great.

Speaker 2

AJOVY, which is still happening, more Gilatomy, that will continue to move gross margin in the right direction. The second thing, which is Important to understand in 2023 is H2 will have a higher revenue based on what Elise just said than H1. So if you take Together, it leads us to improving gross margin. But I'll give I'll hand over to Eli to give you maybe some more specific numbers.

Speaker 6

So thanks, Chris. And Richard, I will continue what you mentioned. So first, there are a few dynamics there if you look on the second half of the year.

Speaker 2

First of all, in terms of

Speaker 6

the mix of the revenue, we're stepping up with the CEDO as we're heading into the second half. And the majority of the increase in revenue that came from the distribution And that happened already in the first half, which means that mix actually going to change In the second half for the second half in the distribution business in

Speaker 2

'twenty three, it will be

Speaker 6

the same that in 'twenty two. So that increase actually already happened in the first half and will not keep Diluting the gross margin. With that said, there is other activities that we're doing in terms of our COGS element, and we see some also, And I would say a gradual decrease in the inflationary pressures mostly related to costs like logistics rate And energy as well, other elements related to direct material pressures we got in the second half of the year, Last year on procurement from for our inventory. Now the numbers to think about it, we're actually yielding to the 53% for the year, Which means that gradually, we will see Q3 and Q4 increasing, most likely close to 53.5 Range in Q3 and very close to the $54,000,000 in Q4.

Speaker 2

Thanks, Alex. And Chris, to ask your last question, you said And updating, is it 2023 or 2024? Thanks for that question. 2023 is more of the setting up of You said it getting access to payers, but also on to formery committees at hospitals, go to D and T committees and And making sure people are aware of the product. So I think don't think of 2023 as the growth driver from a revenue point of view.

Speaker 2

It's more as we enter 2024. That's when as those things get in place, payers, the hospitals, Then we see that's when the real revenue growth will start. But really pleased with the physician. And actually, Sven highlighted the amount of sampling that the hospitals are using And the physician's interest in uptake now. That obviously helps us get through those formally committees because the support of the physician is really important.

Speaker 2

So those early signs are very encouraging. But Think about modeling it in 2024. But thanks for the question, Chris. I think that concludes all the questions we have today. So I'd like to thank everybody again for taking the time to call in, people to ask the questions.

Speaker 2

Hopefully, you found this informative, and we look forward to updating you later in the year on quarter 3. 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 Q2 2023
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