Teva Pharmaceutical Industries Limited (TEVA) Earnings Call Transcript & Summary

Hello, and welcome to the Teva announces collaboration with Sanofi for anti-TL1A Therapy Conference Call. My name is Alex. I'll be coordinating on the call today. [Operator Instructions]. Now I hand it over to your host, Ran Meir, Head of Investor Relations. Please go ahead.

Thank you, Alex. Welcome, everyone, to Teva's investor call where we'll discuss our recent collaboration with Sanofi focusing on Teva's anti-TL1A Assets TEV '574. Please take a moment to review our forward-looking statements on Slide 2. You can find more details on these statements in our PR and Form 8-K released this morning as well as in our SEC Form 10-K and 10-Q. Today's agenda, feature Richard Francis, Teva's CEO, who will present an overview and the strategic significance of our collaboration. It will be followed by Dr. Eric Hughes, Teva's Head of R&D and Chief Medical Officer; who will be diving into the clinical program. Afterwards, Eli Kalif, our CFO, will elaborate on the transaction details and provide the financial summary. We will conclude with a Q&A session. And with that, I will now turn the call over to Richard. Richard, if you would, please?

Thank you, Ran, and good morning, good afternoon, everybody. Thank you for joining the call. So excited today about the collaboration. But before I dive into some details of that, I just would like to remind everybody this decision has been made because it's in line with our pivot to growth strategy. As you know, we announced back in May, the Pivots growth strategy, which was based on 4 key pillars: One was deliver on our growth engines, which is about taking AUSTEDO to $2.5 billion by 2027, launching UZEDY and continue to grow AJOVY. The second pillar was step up innovation which was to make sure we accelerate our pipeline and bring our innovative pipeline forward to the market. The third pillar was to sustain a generics powerhouse. And the final one was to focus our business specifically about creating a stand-alone business for the TAPI API. Now within that strategic announcement, we talked about returning Teva to growth in its first phase, then accelerating growth and then continuing that growth. And this deal is very much and this partnership is very much about ensuring that, that happens. So if you move to Slide 6, then we believe we're in a position of returning to growth now, and that is primarily driven by innovative products on the market AUSTEDO and UZEDY. But with regards to the announcement of the anti-TL1A, we believe this allows us to not only accelerate that growth in the midterm, but for the long term to make sure we can sustain that growth going forward. And so we're excited by this collaboration because it allows us to optimize the TL1A Asset, which we believe is best in class, and it allows us to use the considerable capability that we believe Sanofi has in immunology to help us do that. Now I've said that we believe it's best-in-class. We do when it comes down to potency, selectivity and immunogenicity. We believe that. But obviously, that's something which we need to prove with our Phase II and Phase III clinical studies. If you move on to Slide 7. Let's talk about this what we call a transformative collaboration. I think we're very pleased that we've partnered with Sanofi. When we looked at a partner with regard to TL1A Asset, it was all about finding somebody who could really optimize this asset. And I think with Sanofi's deep heritage in immunology, both in R&D and in commercialization, I think we have found the perfect partner. And because of that, we think we can take this potential best-in-class to the market and have a very successful product. Now as you can see on Slide 7, the deal is up to $1.5 billion. And importantly, for us to ensure that we continue on this pivot to growth in the medium to long term, it's a 50-50 profit share. So for us, it was important that we had this joint commercialization. So we have a partnership in research and development, and we have a 50-50 partnership in commercialization. And as you can see from the detail here, Teva will lead commercial efforts in Europe and Israel being the major market, and Sanofi will lead commercialization in North America and Japan to focus on the major ones. So I think this gives us an opportunity Teva to really continue to show our commercial capabilities as we've started to share with our innovative portfolio, once again, driving the organization back to growth. If we now move to Slide 8. I think what TL1A does is draw spot line again on our pipeline and highlights that this is an incredibly exciting asset within our pipeline that we're happy to talk about today, but this slide just really reemphasizes that we do have 2 assets in Phase III inhibitive, Olanzapine long-acting for schizophrenia and ICS/SABA for asthma. And we believe these will add to our growth in the medium to long term, but as I've said before, with anti-TL1A, we really think this can drive long-term growth. And if you go on to the next slide, Slide 9. This is -- I think this really anchors my belief. The market, it's a large market, the IBD market, around $28 billion, it's largely underserved. I think it's well documented that there's significant unmet medical need. And so there's great potential here. And that really goes without talking about some of the other potential autoimmune areas we could go into fibrotic indications, for example, that have often been discussed around this particular target. So the market size is significant. We think -- we believe we have a best-in-class asset here because of its competitive profile. We also believe that we have some good characteristics already for the documented. Our asthma study gives us great belief in the safety of this molecule moving forward. So as we move this into clinical development, we've indicated in the past, we're in Phase II. We expect our interim results in the second half of next year. And then subject to FDA approval, the aim is to move into Phase III in 2025. If we go on to Slide 10. It goes back to the reason why we believe this collaboration is a great collaboration. It allows us to really optimize this asset, optimize it when it comes to driving innovation forward, using a partner who has great depth in immunology, both in innovation and R&D as well as the commercialization of it. We do think this is a significant asset of often being described as a pipeline in a product, that has to be determined over time. But already with the 2 indications that we're going for in UC and CD, we see significant opportunity. So with this partnership, I think this really underpins our ability to deliver on our pivot to growth strategy and it also highlights the quality of our pipeline that somebody with the depth of knowledge that Sanofi has, has evaluated our TL1A Asset and seen that to be an asset that they would like to bring into their organization. And obviously, because of that and what I've just described, I do think we have an opportunity to really optimize this asset long term from a value creation point of view. But now I want to hand over to my colleague, Eric Hughes, who's going to go into a bit more detail as to why we've always believed in TL1A, the asset we have, but also know why our partner Sanofi also feels the same way. So over to you, Eric.

Thank you, Richard. On the next slide, #12. So let me just quickly review why this is such an exciting mechanism of action. TL1A is a pleiotropic cytokine. It has an effect on many different pathways and inflammation. It acts as an amplification of these pathways and blocking it has a potential impact on many different indications. In addition to this effect on inflammation, it also has a potential added benefit of affecting fibroblast directly. This is very important since fibrosis is usually the end result in many indications from the inflammation. Important to also remember is that the body has a natural mechanism of counting down this inflammatory signal, which has been decoy receptor or DcR3. So you want to block the DR3 pathway, but maintain the DcR3 pathway. So an important potential mechanism of action with potential broad implications for the future. Go to the next slide, #13. So why is TEV ’574 unique? Well, I mentioned that the DR3 receptor is the important inflammatory signal to block while the DcR3, decoy receptor, is a natural way in which we can turn down the signal. So you'd want to block the inflammatory signal while maintaining the decoy receptor. So TEV ’574 was carefully designed by our scientists to be potent, it has sub-nanomolar affinity for TL1A. It has a unique binding site to TL1A, and this unique binding site is what blocks the DR3 receptor while maintaining the decoy receptor, DcR3. We think this is a unique biology for our antibody and it's one that we've worked on for many years now. Turn on the next slide, #14. Now let me dive into a little bit more of why we believe TEV ’574 has the potential to be the best in class. So starting from the left and going to the right. On the left, you can see in this in vitro assay and a competitive assay, we show here that TEV ’574 is, in fact, more selective for the DR3 receptor over the decoy receptor. In fact, it's about 117-fold more selective for the important receptor of inflammation DR3. Now we've created comparator antibodies from publicly available information from other clinical candidates in development. And you can see in that first comparator, TL1A, number one, you can see the selectivity really is not there. There's about a threefold difference between the decoy receptor and the DR3 receptor. So we're about 40-fold more selective than this comparator. And you can also see in these 2 graphs that the potency of the TEV ’574 is approximately 60x more potent than this TL1A comparator. Now on the right graph, you can see the second comparator agent that were more potent and directly in comparison in this inhibition assay. You can see that the TEV ’574 is about 84x more potent than the second comparator. So in summary, this in vitro data really makes us have the belief that we have the potential best-in-class based on greater potency and greater selectivity. Come to the next slide, #15. So it's great that we've now also looked at nonhuman primate models using our antibody to show that, in fact, we have rapid and prolonged suppression of free TL1A. So here, I'm showing an experiment for nonhuman primates given a single dose of TEV ’574 and importantly, I'm showing you the free TL1A in the serum, that is the biologically active cytokine. And you can see a very rapid robust suppression of levels below the baseline, and that's maintained for about 14 days. So our design, our potency is clearly shown in this nonhuman primate on the free TL1A levels. Next slide number #16. So in summary, we believe TEV ’574 has the best-in-class profile. We have greater potency and selectivity compared to comparative reagents. We maintain the decoy receptor, and we've already shown in animal models that we can decrease fibrosis. We're happy to see a favorable safety profile in our asthma study, and we've seen less than 10% antidrug antibodies, which is critically important for long-term efficacy in the future. And we're focused on maintaining and having a subcutaneous auto-injector single shot in our Phase III studies. So the next one. So just in summary, and I want to make sure that everyone knows that we have more than just TL1A at Teva. We're focused -- we're hyper focused on making sure that we have our Phase II interim analysis in the second half of 2024 in our TL1A program. But we're happy to see our Phase III program and olanzapine LAI enrolling very quickly, and we're anticipating results next year 2025. I'm happy to say that we've dosed our first celiac patients with anti-IL15, and our Phase I program is moving very quickly with TEV '408. Our anti-PD1-IL2 program in oncology is moving very quickly for our first-in-human studies next year. And importantly, we've also now enrolled our first patient in our Phase III program of ICS/SABA. So many things are going on in the innovative side of Teva, and we're excited to have this collaboration with Sanofi on our TL1A program. And with that, I'm going to pass it off to Eli Kalif.

Thank you, Eric. We move to Slide 19. Hello, everyone. I will briefly discuss key collaboration terms and financial impact. We run an extensive process involving a number of parties and ultimately decided on a 50-50 worldwide partnership with Sanofi as the optimal path for Teva. We didn't want to sell the assets, but rather to keep it in-house, optimize it and get the most of it. This collaboration allows Teva to achieve our strategic objectives and participate in what we expect will be a very significant economics for the long term. Opportunity to build on the joint capabilities, expertise and resources of Teva and Sanofi to maximize the value of the asset. This structure is very similar to other collaborations, which resulted in a highly successful multibillion-dollar asset. Now looking on the key details of the deal structure. First, it gives us a significant cash upfront, $500 million and up to $1 billion additional proceeds based on milestones. The majority of which are expected in the near term when we are moving the assets into a Phase III. Our cash flow profile also sees improvement to a shared development cost with Sanofi, which is meaningful given the expected size and duration of Phase III studies that will be needed. We will be able to put all the required resources behind the assets to optimize development and launch while unlocking material savings for Teva through 50-50 cost and profit share. This collaboration will maximize the economics to Teva and have a material impact on our cash flow and bottom line, helping Teva achieve its strategic goals and financial objectives. We are expecting transactions to become effective after customary closing conditions before year-end. Turning to Slide 20. While we introduced our pivot to growth strategy, we are very clear about our capital allocation strategy. We established a very comprehensive capital allocation strategy, in order to make sure that we are able to fuel our growth and innovation and balance with our financial commitments. We think about our capital allocation in the following order. First, keep deleveraging, keep reducing the debt and making sure that we have a strong balance sheet. Keep investing in our existing growth drivers, AUSTEDO, AJOVY and UZEDY and also support new launches in order to keep our competitive advantage and prioritization of investment in R&D to support the pipeline, fostering innovation and advancing our product offering. And lastly, we plan to execute our future growth strategy also through disciplined strategic business development opportunities, including partnership in license deal and focus M&A that's aligned with our core business and growth strategy. And with that, I would like to turn it back to Richard for a summary before we open up the call for Q&A.

Thank you, Eli. Thank you, Eric. So yes, on Slide 21, I think it summarizes a lot of what my colleagues have said. I think the deal and the structure of the deal with the partner we wanted, so the 50-50 joint collaboration with a probably the leader in immunology, I think it was important to us. The economics are important to us as we drive our pivot to growth strategy. And so as Eli pointed out, the cash payments and the significant milestones are important, but I think very important for our long-term growth is the 50-50 split on the economics and on the profit going forward. And I think it goes to add, as we consider partnering is to find a partner that really we thought were synergistic both culturally and somebody from a capability and with Sanofi, because of their immunology heritage in R&D as well as in commercial, we believe we found the ideal partner. If you go to the final slide, final 22. Then I would like to just remind everybody that this is merely a part of the plan of executing our pivot to growth strategy. It's an exciting part and we're very pleased with whether I meant there are still many aspects of the strategy that we're executing continuously. And this I believe we'll start to give people confidence that the pivot to growth strategy is one that can be executed because it is being executed, and we will be able to deliver across these 4 pillars as we go forward. But obviously, that is for us to show and to prove, but I think this is one of those steps on that journey, which hopefully starts to give people some confidence and belief that, that can be done. So with that, I'd like to finish and open the call to some questions. Thank you.

[Operator Instructions] Our first question for today comes from Jason Gerberry from Bank of America. Jason, your line is now open. Please go ahead.

So I guess, firstly, how do you think about this deal accelerating development efforts for '574? Do you think that with the partnership that you can move more quickly into Phase II studies for other indications? Or will you wait for the IBD data before advancing '574 clinically? And then my second question, so you've got 3 undisclosed doses in your Phase II for IBD. Do you agree with competitor assertions that '574 is going to require a large volume subcu loading dose followed by 2 weekly subcu infusion as opposed to subcu injection. So just curious if you can comment on those aspects of the profile.

Thanks, Jason. Thanks for joining the call, and thanks for your question. So Eric, I'll hand that one to you.

Sure. Thank you, Richard. So we're excited to be working with Sanofi on this. The capability of Sanofi and their heritage in immunology is a perfect match for our R&D team at Teva. I think that with the combined capabilities, that will not only accelerate the development of the compound and the IBD indications, but we'll be able to collaborate and focus on other indications in the future as you appreciate from what I discussed before, the potential is broad for the anti-TL1A program. So that is a good reason and not to mention the cultural fit between the teams they get along very well. With regards to the questions around the study design and the dose, so we're focused on creating an auto-injector with a single shot to maintain the convenience for the patients. And that's what we're going to be including in Phase III. So a very competitive auto-injector is planned.

Our next question comes from Umer Raffat of Evercore ISI.

Maybe a couple here, if I may. First, I got to believe Sanofi would have gone through your prior asthma data as well as your subcu, just wanted to confirm that. Also, I know you've discussed your potency versus other TL1As from the preclinical experiments. But I do want to ask, knowing that you have 3 different doses in your ongoing UC Crohn study, is at least one of your dose levels getting to at least 500 milligrams like your competitors? And is Sanofi fully comfortable with the doses you have chosen? And then finally, your partners had at in indications beyond UC Crohn for example, asthma, et cetera?

So just I'm going to hand that to Eric to answer. But I would just say with regards to the data. As you'd imagine, the due diligence was significant and thorough by Sanofi, and we showed them everything. So I'll just start before I hand over to Eric by saying that, that they got to see everything and with their knowledge in immunology. The fact that they wanted to partner with us, I think it gives us a lot of credibility around our science and our antibody engineering capability. But with that, I'll hand it specifically to Eric.

So I'll just reiterate. The review with Sanofi has been thorough. We've reviewed all the asthma data. We renewed all data with Sanofi and it's been a very collaborative back and forth in review with the scientists of the entire program. More specifically, when it comes to the asthma data, we will be submitting that data this year for presentation. We're targeting a presentation in February of next year after we submitted the data this year.

Our next question comes from Nathan Rich of Goldman Sachs.

Great. I just wanted to get kind of confirmation on time line. I think, Richard, you had talked about maybe a potential to accelerate. Are you still thinking the decision on the Phase III trials will be made in the back half of next year after the interim results? And are you still targeting to bring the drug to market around 2028? And then, can you talk about how decisions around future indications might be made under this partnership as you think about potential to expand?