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

Good morning, everybody. I'm Chris Schott from JPMorgan and it's my pleasure to be introducing Teva today at the JPMorgan Healthcare Conference. From the company, we have the CEO, Richard Francis. Richard joined Teva, I guess, about 2 years ago and it's been a very productive couple of years, great stock performance and looking forward to hearing from Richard in terms of Teva going forward and the outlook from here. So that, over to Richard.

Thank you, Chris. Great to be here at JPMorgan. Thank you for hosting us, Chris. Looking forward to the questions afterwards. I'm going to take a bit of time just to go through some slides, maybe to help the discussion later. But I think what I want to start with is, maybe highlight the fact that when I came here 2 years ago, it was a very different discussion and narrative around Teva. And I want to say that I'm particularly proud of all the Teva employees around the world who have really focused on our strategy, our Pivot to Growth strategy and have driven tremendous change within the company. And I think everybody has seen that change and seen the direction and obviously seen the financials. But first and foremost, I wanted to highlight that. Now just to sort of coordinate everybody, because I think it's important, Teva is a global, profitable biopharmaceutical company. And I say that on purpose. We have a growing and exciting innovative business, as we'll talk about with AUSTEDO, AJOVY and UZEDY. We have a world-class generic business of $9 billion. And we have a very exciting pipeline. Obviously, people saw the date on duvakitug at the end of last year but we've got some good data on olanzapine and we got some exciting programs with ICS/SABA. So there's a lot about this company to be excited about. And obviously that drives the confidence we have in our revenue and in our forecasting and our ability to drive decent profitability and good cash flow. So I just want to make sure we're coordinated on that because I think people are still thinking of Teva as a pure generics company. It is not. It's a global biopharmaceutical company. Now 2 years ago, when I came here, I sort of -- Chris highlighted, it was a different story. We had, had sales decline for multiple years. We hadn't focused on our growth assets, particularly our innovative assets. We hadn't spent time focusing on our pipeline. We were -- had a lot of debt to cope with and I think our capital allocation strategy needed improving. So where have we come in, in less than 2 years? I think we've come a long way, 7 quarters of consistent good growth and that's been driven by allocating resources to our innovative portfolio, particularly where you've seen AUSTEDO take off. UZEDY, our new product that we launched in schizophrenia having great traction. And AJOVY also driving good growth. And then the pipeline, which I'm really proud of, and I think Eric Hughes, the Head of R&D is here today, he should be very proud of it. When we came in, we looked at the pipeline together and we said there's some real jewels in here, let's put some money behind it. And not only if you put money but it's about capability and attitude and we really moved that quickly through the clinic. And then deleverage. We delevered very successfully, paid off a lot of debt. And now we're focusing capital in the right areas of the business to drive the right returns. And we achieved all of this because we have a very clear strategy, Pivot to Growth. It is all we talk about at Teva and it's what I talk about externally because as with any good strategy, it drives decision-making and direction. And so we have our 4 pillars. Deliver on our growth engines is about investing behind things that are going to drive growth on the top and the bottom line. This is about AUSTEDO. This is about UZEDY, this is about AJOVY, soon to be partnered with olanzapine and in not-too-distant future ICS/SABA. So deliver on those growth engines. And I think I'll show you the tremendous job that the team have done. Step up innovation is about that pipeline. We've got an innovative pipeline, let's execute on it, put capital behind it, resources behind it, build capability and execute and then sustained generics powerhouse. We were predominantly known for -- as a generics company. We're proud of that and we have a $9 billion business. And we returned that to growth. We were growing in Europe and in the international markets but we returned to growth in the U.S. and we've stabilized that and then focus the business. It's all about capital allocation. In Teva, we talk about capital allocation all the time. Where we apply capital, does it give us a good return? Does it give shareholders a good return? So this is not about budgeting and resource allocation without that in mind. Now when I did present with my team, the strategy, we had these 3 stages. Return to growth, accelerate growth and maintain growth. And then the fundamentals below each one of these that was going to drive that. And clearly, deliver on our growth engines and the return to growth is all about investing in AUSTEDO, UZEDY and AJOVY. Now this is what we set out to do. This is what we promised in May of 2023. But what did we actually do? One of the things I've been really keen on doing at Teva has been super transparent, setting clear goals of what we're going to do, so shareholders could hold us accountable and then making sure we work hard to deliver on them. So this is what we said we're going to do. So what did we actually do? Well, we accelerated AUSTEDO considerably. Chris Fox, who is here, is the head of the U.S. and her team. It's not just about resources, it's about capability and attitude and ambition. And I think AUSTEDO has shown, those -- when those are put together, what you can achieve. Then obviously, AJOVY has continued to grow across all of our markets, steal market share. And then we have the launch of UZEDY. So we did those but I think we surprised everybody with the actual ability to do those so quickly and to drive such a competitive level of performance. We've accelerated our biosimilar portfolio as well and we're bringing some of those to the market and I'll talk a bit about that later. But maybe 2 other things we did over and above the scorecard we set ourselves was, we actually accelerated the pipeline. And we did it in difficult areas. And I think having a Phase III study in schizophrenia, having one in UC, a Phase II in UC and CD and now one in [indiscernible] are not easy studies. I mean if you could pick TA areas that are easy, I think we would have picked easier ones, Eric, yes. But we didn't. Those are the ones we had. Now you can apply money but money doesn't drive clinical studies faster. You have to manage them and operationalize them. And I think we've shown in Teva, despite the skepticism that we could drive clinical development, I think we've outperformed in all of those TAs against companies that were considered to be the best. And that just goes down to our maniacal focus on excellence in execution. And then obviously, the generics business. The aim was to stabilize that. We've probably overachieved a bit on that because we've returned it to growth in the U.S. We always had good growth in EU and the emerging markets but we've returned the U.S. to growth. So I think where we are to date is, I'm really pleased about where we are and I constantly thank my employees for the hard effort because to change the direction of a company in such a short space of time, requires everybody to walk in the same direction. So let me go into a bit of detail about some of these. So AUSTEDO on track to hit $1.6 billion this year and looking forward to hitting $2.5 billion in 2027.Now just to remind you, when we launched the strategy, peak sales by a lot of people, not you Chris, peak sales by a lot of people were $1.4 billion and we're on track to do $1.6 billion this year. Once again, focused, excellent capability, good execution by the team, big ambition. UZEDY, difficult market to launch a long-acting product in schizophrenia, no question. We have a great differentiated product, gets to therapeutic levels within 24 hours, subcutaneous prefilled syringe. But it's a tough market. It's a managed area now but the team has done a tremendous job and we're on track to hit $100 million this year. So we're going to beat the forecast. And AJOVY, an older product but we continue to show we can deliver on this. So when you look at our growth engines in innovation, if anybody has ever doubted Teva can commercialize innovative products, I'd like to think the last 18 months have shown we can do it. And I think we can actually do it better than most people. But now let's go to the pipeline because innovation is good but you've got to replenish it. And I think on the pipeline, particularly pleased. Obviously, with regard to duvakitug, the TL1A treatment for UC and CD, the announcement we had at the end of last year was tremendous. I'd like to remind everybody that this product -- I will go into more detail, came from the discovery at Teva. The antibody engineering team at Teva, we've been talking about being world class. I think people doubted it but now once again, we've shown we've got a great capability within the company. Olanzapine, we accelerated that study by 9 months, been able to actually file that this year and bring it to the market next. And ICS/SABA or DARI as we're calling it now. We're up to -- I'll talk to you about where we are in the clinical recruitment. But look at this pipeline, this is a pipeline, I think, any innovative company would be proud to have because of its quality and it's -- I think, relatively high degree -- high probability of success. So let me go into duvakitug because we're sort of super excited about it. And I'm going to -- we just are, right? And I've got to say this. People kept asking me last year, do you have a real TL1A? Yes, we have a real TL1A and I think it's actually the best in class TL1A. So maybe that question can be asked of other people now. And with our partner, Sanofi, who have been a tremendous partner, we're really excited about moving this into Phase III this year. And I think, once again, it underscores our capability to develop complex targeted antibodies with our team. But let me show you the results because I think these were the ones that impressed everybody as we released them. So as you can see, what I like about this is, obviously, we have a clear dose response as well. But the level of efficacy in UC and CD is not something that I think we have to debate. I remind everybody, we were supposed to have an interim analysis in the mid of next year. Because of the work we did to accelerate the Phase II study, we did a full analysis at the end. And I'll remind everybody that the Crohn's disease study is the first randomized placebo-controlled study of a TL1A in Crohn's. So not only is that data impressive, it's high-quality data. So why do we think we have a best-in-class? Because that's obviously what we think and what we've been saying. Well, because we've designed it to be best-in-class. So it's -- it is by design. High potency, high selectivity, low-drug antibodies, which are important in these disease areas because obviously, you do cycle through therapies and knowing you have options after therapies is important. And a rapid, profound and prolonged suppression of free TL1A. And our safety profile is good because, obviously, we've had other studies. We had a study in asthma before. So we have good data on this. So very proud of what we've achieved in duvakitug and now it's been moved into Phase III and also looking at other indications because we know that TL1A can be involved in many different diseases, including fibrotic diseases. So listen and more to come in the future. But another one of our pipeline is olanzapine. And the study completed, so we have a good efficacy readout and we have no PDSS. To remind everybody, there is no long-acting olanzapine used of any size or volume in the market because of PDSS. And this is a side effect, which gives a black box warning. Now long-actings are used in schizophrenia for the obvious reasons they help compliance, which is really important. But there hasn't been the ability to use that for olanzapine, which is the #1 molecule that's used to treat schizophrenia. And as you can see, the market size is significant. Just for people on schizophrenia, just below 4 million and the long-acting. But I think that long-acting has been suppressed because there hasn't been a long-acting olanzapine. So really excited about this. We are going to -- Eric's team are going to be filing this, this year, we'll be able to launch it next year. And what I would say, the tremendous work that Christine and her team have done in the U.S. on UZEDY, which is our long-acting respirator, means when it comes to go to market, we're just going to layer that on top. So that level of expertise -- forget the synergies in our P&L, the level of know-how, expertise, the physicians, the key opinion makers, the reimburses, the people in the hospitals doing the D&T committees and the formularies, we've spent 2 years working with them. So that excites me that we're going to have a good launch. Now moving on to DARI, our dual action asthma rescue inhaler. Now, took a while for Eric and I to get excited about this because we have some any exciting things in the pipeline. But then we realized, actually, the probability of success is super high on this, very high, because we know these 2 compounds. The demand is high because the guidelines say, 10 million Americans should be on this type of inhaler. And we know we have a differentiated inhaler. In fact, because one is, we are doing a pediatric study. So 25% of the population is pediatrics and we will be the only one with a pediatric indication. And the other one. And I go back to my selling days here, is we have a very simple device. So this is a device you just open and you just inhale. Now when that's -- you're treating children, that's really important. But if we are going to compete against the product that is in the market now, I think this is another differentiator. And we've been making devices for 25 years. So we know how to make these. So I think we have a market that's been formed by a company that's already in there. And as we come in, we'll clearly be differentiated based on our patient population and our device. So another thing that's going to drive growth around about '27. Olanzapine is coming in '26 and DARI will come in '27. Now looking at generics because obviously, we are -- we have a $9 billion generics business and we're proud of that. I think 1 in 10 medicines in the United States is a Teva medicine. And as I said, we've returned this to growth. The importance of this, obviously, is it drives the company forward. But also it helps throw off cash, which allows us in the short term to pay down our debt. But in the longer term and medium term to fuel our innovation and our pipeline. Now how have we done this? Well, Europe and the international have always grown and grown well. But the U.S. has been one where we probably haven't launched enough products on time and had the best supply. We've started to turn that around. And we have an incredible pipeline in our U.S. business and so we're starting to improve the performance of bringing those to market on time more often. And now we've targeted a productivity program throughout particularly our manufacturing network, where we have 54 sites. And the aim of doing this is to understand it to be world-class in generics, you have to have a good pipeline, you have a good go-to-market model. And then you have to have a good ability to drive efficiencies year-on-year because you want to be reducing your COGS year-on-year. If you do that, you can offset some or all of the price erosion and it keeps you competitive. So those are things we're really starting to lean in on. Now another part of our business, which we're excited about is our biosimilar business. Now our biosimilar business is something that we've strategically decided to do more partnering of because obviously, when it comes to capital allocation, which is the fourth pillar of our strategy, you need to allocate capital to where you're going to get the best return and drive long-term top line growth and bottom line growth and shareholder value. And clearly, in our innovative pipeline, that's where that is. But we believe with biosimilars, it's about having a broad portfolio. So we're up to 18 now. You've seen a few deals, one deal on Friday, another deal today. And so the aim is to be launching roughly 5 or 6 in the next 1 year to 2 and that will continue to happen regularly year-on-year. So I think we've got ourselves a good strategy, good capital allocation. We have a good commercial footprint. And this will start to drive growth over the next few years. And the last part of our Pivot to Growth strategy is focus the business. We decided to separate TAPI, our API business from Teva. We're going to close that in the first half of this year. Because although it's a great world-class business, I think the second largest API business in the world, from a capital allocation, you've got to be disciplined. And the reality is, if we kept TAPI, we probably undercapitalize it and we probably undercapitalize other parts of our business. So we knew that. So we were strict and we said, as good as it is, it has a better home somewhere else and then we can direct our capital to the things that we know are going to drive growth, which nicely leads me on to capital allocation. Obviously, as we pay down our debt, as we sell some assets, as we drive increased margin, we could end up with more cash, more capital, what do we do with it? Well, we're going to continue to pay down debt. Then we're going to start to invest in the growth drivers, the AUSTEDO, the UZEDY, the AJOVY, soon to be olanzapine, soon to be ICS/SABA and midterm TL1A. And then we're going to start to continue to invest in our pipeline. We have a drug, emrusolmin for MSA. We have an anti-IL15. We have an anti-PD1-IL2. And then obviously, we're looking at BD, more licensing-in. With a pipeline like this, I don't think we need to be too adventurous and take too much risk. I think we worked hard to get our credibility back at Teva. And so if we do in-licensing, it will be things that fit in, synergistic and fit into our wheelhouse. The targets we gave, in 2027, we stick with. We are going to hit these targets, mid-single-digit revenue growth, 30% OP, net debt to EBITDA of 2x and 80% cash conversion, on track to do that. We modeled this. We know what we have to do each year to achieve this. We have these things in place. And then maybe to close, going back to our strategy. Everything comes back to our strategy. We look at this every month in exec committee. We have a KPI. We have work streams. This is not something we put on a shelf. It has a tagline. This drives every decision and what we do all the time. That is how we've delivered 7 quarters of growth. And we've consistently delivered on what we said we're going to do, because we're very transparent on what we're going to do and then we just make sure it happens. And so now we're in the phase of '25 to '27. We want to keep the momentum we've got. How do we do that? Well, we keep driving AUSTEDO, UZEDY and AJOVY and we keep making sure we have the resources to do that and the capability. We keep accelerating our pipeline so we can bring olanzapine to the market in '26 and we bring ICS/SABA to the market in '27. And then aggressively focus on the Phase III study of TL1A duvakitug, to make sure we can bring that to the market as soon as possible because clearly, there's a big unmet need there. And then we're going to focus on those parts of the generics business, as I said, so that can be a growth driver for us and also grow the top line and bottom line because we're very committed to that margin expansion. We do this on the '25 to '27, which I've no doubt we'll do it, plus or minus. Then I think we'll hit our targets and put ourselves in a very healthy position for the next phase, which is to sustain that growth in '28 and beyond, which I'll remind you is when TL1A duvakitug will kick in, IL-15 will kick in. The emrusolmin will kick in and maybe anti-PD1-IL2. So with that, I feel like I've talked quite quickly but there's a lot to talk about Teva. And I know Chris has a lot of questions, so I thought I'd respect Chris's time. Thank you for your time and attention and I'll hand over to you, Chris.

Great. Appreciate that. And I was thinking Eric is going to join us on stage here as well for the Q&A. Maybe one, I'll just kick off the Q&A is -- we're obviously fresh off the TL1A data. It was obviously very strong, very impressive data. Just as you reflect on what you saw from that, what were the biggest surprises or learnings as you've had a chance to dig through both the UC and particularly the Crohn's data?

I've been talking enough. You go ahead.

Sure. So yes, we were very excited to see the data in December. The dose response is one thing that jumps out when we first looked at the data. But also with Crohn's disease, it was really exciting to see such a first controlled study, as Richard said, in Crohn's disease for this MOA and really a very strong response. So we're digging into the data now in greater depth. And I did want to comment on what, 2 things Richard said. It really was a validation of the fact that the scientists at Teva are very strategic and thorough in their drug discovery and I'm really proud of the team because the execution of the study was paramount. And that's -- we were able to accelerate it and do it with great robust dataset. So it's all good right now. We'll dig into the data now, look at how we're going to choose our doses, do our modeling and simulation. And we've had a whole year to get set up with Sanofi at this point. So we're all ready to go at this point.

Great. Can you just talk a little bit about the path forward from here? So I know you've talked about 2025 starting the Phase III. But just what are the decisions and kind of this -- the sticking points here in terms of just getting that move forward? And how quickly can we think about a program progressing once it launches?

Right now, it's all the mechanisms of drug development. So we have to really dig into the data, really make sure that we do the modeling and simulation to choose -- find out where we are on the dose response, that having a nice dose response in the study makes that a more robust analysis. We'll choose that. I think we all have a good idea but there's a totality of the data we have to look at with our partners. So having that preparation, having our regulatory interactions but in parallel, getting the entire machinery of 2 large studies going targeting this year. So that's what we're working on. The other most important thing that I think in the -- when you see the birth of a pleiotropic antibody that can really affect potentially multiple different cytokine pathways, that's where you have to start thinking about what are your other indications is? How do you work with a big partner like Sanofi to really capture the true value of something like that? So we talk about this a lot, it has an effect potentially on amplifying many different pathways and potentially a direct antifibrotic effect. So it really is a very exciting moment for a molecule like this.

Maybe just to elaborate on that in terms of the additional directions you can go with this. What comes -- what's top of mind for you as you consider beyond UC and Crohn's? I know 2 small indications to start.

I'm not going to get into specifics of where we're choosing to go right now. But I would like to kind of frame the potential. So if you look at a Humira, Stelara, a Cosentyx, they're all targeting single pathways. The science of TL1A is it's an amplifier of all these different pathways. So the potential effect is across multiple different mega programs, with the additional potential added benefit of having a direct antifibrotic effect. I've been on many programs, where we're always treating the inflammation and hoping we have an effect on the fibrosis. Here you might have best of both worlds. So the potential is really great.

And I think the one thing I'll add is, one of the reasons why I think the partnership with Sanofi is so good is because obviously, their experience with DUPIXENT and multiple indications and understanding what it takes to have a pipeline and a product, not many companies have those. So I think we have a partner who has that experience and has that appetite and ambition. So I think that's another thing that I think has played out well.

Great. Maybe just one last one on this, just more broadly, I know some of these immunology categories have -- the payer piece is maybe sometimes challenging at times. How do you see TL1A maybe more broadly fitting in the treatment paradigm in UC and Crohn's, just given what we've been seeing with the IL-23s, et cetera? Just help me a little bit about where this fits in.

Do you want to start, Eric?

Yes, I can start. Well, it's very competitive. The numbers that we just put out. When you look across the treatment paradigm for UC and Crohn's, it really is at par or better than most of those options you have out there. So there's something to always remember in inflammatory bowel disease. Currently, there are treatments out there but there -- the bar is not -- it has not extended too greatly and these folks cycle through these therapies. You got to remember that, also Chris, 20% to 30% of those people still go on to surgery and about 70% of the people on Crohn's disease still go on to surgery. So we have -- we're not winning yet. And so if you can develop a drug that has good efficacy and it's durable, that's going to be super important for the folks who have the disease.

And I think also the safety. I mean, we just, we talked about efficacy, so because it's so impressive. But the safety, if you look at the category and the other MOAs that are here, safety isn't -- and it's chronic. So you've got to be on a long time. So the clean -- what looks like a very clean profile that we have with duvakitug, I think is also something that's going to play out well.

And just latest thinking in terms of importance of biomarker here? Is that something that -- how focused are you guys on that?

So yes. So the biomarkers are evolving at this point. So I always like to say, like for a baseline biomarker, we're looking at all the genomics, proteomics, serum biomarkers, and fecal biomarkers and I hope to discover someday a great biomarker for choosing a population. We actually have a relatively novel biomarker. We also look at free TL1A in our program and we'll continue to generate data for that and we have a great assay for that. So the future, hopefully, we'll find something that really drives decision-making and treatment response. But at the beginning, I'd like to say, we're going to treat all comers at this point because you don't want to disabuse someone who's cycled through a bunch of therapies already and failed and not give them another chance of a new MOA. So that's where our thinking is, someday, I think with our novel biomarkers, we might get something that will help KOLs make decisions.

But the lead-in sounds like it's more just a...

It will take time to get done. You need more data for that.

Okay. Maybe pivoting over to schizophrenia. UZEDY has been off to a great start here as we go through. Just what do you think has enabled the performance you've seen? I think when you launched that, I think there was some skepticism in the market that how do you differentiate. You've obviously proven a lot of folks wrong on that but what do you think enabled that?