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

Good morning, everyone. My name is Balaji Prasad. I'm the Senior Analyst for the Specialty Pharmaceuticals sector for Barclays. It is my privilege to kick off our spec pharma track with Teva Pharmaceuticals. And I have the privilege of hosting Richard here on stage with me, CEO of Teva. I also, do want to call out Eli Kalif, CFO of Teva, not on stage, but on the front row. And Chris and Dave and Sanjeev from the Teva team. Thank you all for joining us. And to all our investors, thank you for joining us here in Miami. So starting with Teva, it's been a great call for us over the last couple of years. The turnaround has been exceptional. And recently, the company also reported its Q4 and gave over its 2025 outlook. It saw a bit of selloff post this. But in terms of the pipeline progress, in terms of the execution and true stabilization of the business, it has been a phenomenally impressive one. So I'd hand it over to Richard to start with some opening remarks with your recent Q4 earnings and your '25 outlook and then dig into some questions.

Great. Well, Balaji. Thank you for hosting. I always appreciate it, and thank you, people for coming in or tuning in. So -- and thank you for your opening remarks. I mean, I think we probably don't think about it as an impressive turnaround in Teva. We just set out a strategy in 2023. It was a really clear, pivot to growth, and we've been executing that relentlessly. And what I think is I'm really pleased with, and I think it's got traction is the fact that we have our strategy and our 4 pillars: deliver on our growth engines, step up innovation, create generics powerhouse house, and focus of the business. I think everything you and I will talk about today or I'll be talking with investors today relates back to one of those pillars, clearly. So what we've achieved over 2 years in taking the company from 5, 6 years of revenue decline to 8 quarters of growth to growing the revenue and our innovative to accelerating the pipeline, we're -- obviously, the headlines of duvakitug, but olanzapine with no PDSS, bringing UZEDY to the market, ICS/SABA now in the clinic and going well with acceleration there. Reframing what AUSTEDO can do from -- I think when we started this pivot to growth, I think some of your colleagues had it as $1.4 billion peak. And obviously, we have a range and a higher range this year of $2 billion. So I think what we've shown is the strategy, we're focused on it and we execute it, and we deliver. And our generics business, we've moved from decline to stabilizing to growth now and then focus the business. Capital allocation, we're very, very thoughtful about capital allocation. And obviously, the TAPI divestment shows that we take action when we think about where should we apply capital to make sure we get the best return for investors over the long term. So I think we've executed a lot. There's a lot more to come. So I think part of talking to you today is about reemphasizing why we have a lot of confidence, not just in '25, but in the future as well.

Thank you, Richard. So a lot more to come. So I'll pick on the last point. And as we look at 2 months into 2025, I'm already in March. But as we think about the year now, what are the key priorities for you? And as you gave the 2025 guidance, what were all the pushes and pulls that you're thinking about in the guidance that you gave, fairly healthy top line. I think it was the EBITDA, which wasn't a matter of concern for investors, but lay that out for us.

Yes. No. So look, excited about '25 because we're going to keep executing what we've executed for 24 months, which -- when -- I don't think of necessarily as a turnaround, but when you're reinvigorating a company, you need to have 36,000 people clear about what they have to do. And so when it comes to '25, it is we do what we did in '23 and '24, and we just do it even better. It is quite -- it's hard, but it's as simple as that. And so for me, the pushes and pulls of '25. So AUSTEDO, I think we've continued to show that we are world-class commercializing innovative products. And I think people doubted us in '23, and we've just shown, I think now we're really good. And we have a range of up to $2 billion with the status. So I'm excited about what we can do there. UZEDY, I think we've also shown in a very difficult area in schizophrenia, long-acting that we can launch a product into a crowded area and we get real traction as you saw with us ending last year at $170 million. And so we're excited about driving UZEDY. And so I think on the top line, and then you throw in that -- AJOVY, which was people forgotten about, we did $0.5 billion. Now we're going to do $600 million. And then you think about submitting olanzapine to launch in '26. I think we have a lot to do that I'm excited about duvakitug hit in Phase III in IBD this year. I'm excited about announcing some more indications this year, which really reemphasizes we are a biopharma company but not just a generics company. We're very proud of that. So I think there's a lot of things that we're excited about '25. I think one of the interesting challenges and in a way, as much as it's a tiny bit frustrating. I'm sort of pleased. In our guidance, people expected more from Teva. And in a way, it's been a long time since people expected more from Teva. And so as you see, our top line is pretty healthy. We're growing on a 9% and a 6% after 5, 6 years of decline. So okay, people expect more. I appreciate that. On the EBITDA, then we could talk a bit more about that. But I think the pushes and pulls on the top line are around, are we going to hit the high end of AUSTEDO? Are we going to hit the high end of our innovative products? Are our new product launches going to come on time because we risk adjust our new product launches and generics because of timing uncertainty. And obviously, around the biosimilar uptake and what that could be. So I think we have a lot of belief in our top line, but that's one we have to keep executing. I would also -- it's important to reemphasize is when you look at Teva, it's important how you think about how we phase a year because our H2 is always bigger than our H1, and that's been consistent in the 2 years I've been here. I think it's probably for eternity, but definitely since I've been here, Q1 is a -- reflects that is, I suppose, a slower start to the year. And I just always remind people to take into account what's happened in '23 and '24. We have strong years, but H2 and H1. And I'd also maybe emphasize that when people think about gross margin, that they also think about that is the gross margin grows throughout the year. And even just to be specific on that, there's 150 to 250 basis points difference in Q1 versus other quarters going forward towards the end of the year. And it's important to do that when modeling. But the direction of travel for '25, as you see on the top line, I'm very pleased about confident of, because it goes down to execution again.

Got it. Maybe just looking beyond 2025 and continuing on the EBITDA part of the question, I think the other thing which is weighing on the mind of investors is generic Revlimid in 2026 and where that leaves you for your 2027 EBITDA guidance?

Yes. So look, I mean, let me -- and I'll take a bit on the last question and this one, Balaji. So in '25, we've got those pushes and pulls on the top line, we could get us to the higher end, and I think that's going to impact the EBITDA as well. And so I think we -- as much as people are focused on that midpoint, I think there's good opportunity for us to move towards the higher end of our guidance if we execute well. But the one everybody is now thinking about what does '26 have to look like with Revlimid, generics cliff, which is a bit of an oxymoron, I suppose, but and then '27. So there's 3 reasons why I and the team have a high degree of confidence in '27 and why we have high degree of confidence in '26. First, I'll start by saying, in '26, we will grow OP as percentage, and we will grow EBITDA Okay. So '26, we will grow EBITDA. And obviously, we'll grow EBITDA in '27, and we'll grow that as a percentage. So now how and why do we have confidence in that? It's based on 3 factors. One is revenue. Revenue of our innovative products gaining traction. So AUSTEDO, as you can see, we've consistently executed that. It finished in the low 30% growth. So we continue to show we can drive momentum. We have UZEDY, we have AJOVY now with momentum, and we'll be launching olanzapine. So all of those, I believe, will continue to drive as well as our generic product launches as well as our biosimilars. So that helps us drive good revenue. And those are all good margins because the new product launches in generics and biosimilars as well as innovative. The second one is our value-added program -- value acceleration program, sorry. And this is around our manufacturing base, which is still significant, 50-plus sites. And this is where Teva we've never driven an efficiency program. We've closed sites, but we haven't driven efficiency in a site. And when you think about what drives down cost of goods, it's running a site very efficiently. And so we put that program in place midyear of last year, and that's going to play out to '27, probably more to hit late '26 and '27 just because of the -- what it takes to drive efficiency in manufacturing. So that's a big chunk of cost improvement. And then the final thing is an organizational effectiveness program, which we launched at the start of this year, which is about understanding that Teva has been an accumulation of many companies over the years, but it's never been set up to be a biopharmaceutical company. And where do we want to invest capital? We want to invest capital in innovation. And so what -- where choices do we need to make and how do we need to think about driving efficiencies. So that's going to create a not insignificant cost saving. So I come back to answer your question, why am I confident about growing EBITDA in '26 and '27? Well, the revenue, we have a clear line of sight on even taking out Revlimid, and we can debate maybe plus or minus on that. The COGS improvement program, and I've done that before. I know how to deliver that, we will deliver that. And the cost -- the organizational effectiveness program we know how to deliver. And those are things -- those last two we absolutely control because we make decisions on investment or not investing. So when you put those three together, that's what gives me clarity that we can grow the EBITDA in '26 and '27. Now final thing I'll say on that, hopefully that's of interest to people, is we'll give more detail on that in Q1. [indiscernible] go through break that down to make people understand there's more of the specificity around that. But that's why I think people can think about the EBITDA growing year-on-year to '27 and being still a hockey stick, which I've always said, because of those big factors, but not being something that should be unknown.

Okay. Great. I'm sure many investors will be happy to hear about the EBITDA trajectory in 2026 and probably take that out as a positive from here, at least the slope of the hockey stick is going to be more gradual than the steep spike that we expected to see in 2027.

Yes. I mean, look, hopefully, Balaji, what it shows is people, the 3 elements. The last 2 we control. And I think one thing people have learned of Teva in the last years is we execute, we can execute. So if we're going to do thing, we'll execute. And so I think I'd like to think that gives people confidence in how they can model and how they can forecast.

Got it. So the other thing, which is more near term, and I think more market is definitely looking forward to is the potential news around divestment of TAPI and when we expect to hear that. So where do you stand currently as it relates to buyers and time lines? And if you can give any kind of comments around the valuations around this business at all?

Yes. So the aim is to close this still in the first half of this year. So around valuations, obviously, because we're deep in that, that's not [indiscernible] we can go into too much, but I'll give you some framing to help. I think about this as sort of driving a few areas to think about the value of TAPI. One is the absolute number that we get and the cash and how that can be deployed and the benefit of that. But there's a second one, which is -- and there's another 2, which are not insignificant and very important for us, which is the improvement in net working capital we have as TAPI gets divested, net working capital is one. And then also the CapEx avoidance, which is also significant for TAPI. So you think about those and you go back to that fourth pillar of our Pivot to Growth strategy, which is focused capital allocation. The value of TAPI, which is a great business of divesting it, it allows it to grow and really achieve some good market share in this $87 billion API market. But for us, it allows us to really focus on being a biopharma company and making sure when it comes to net working capital, CapEx, general capital allocation. We keep applying it to the aesthetics, the olanzapine to duvakitug, the IL-15s, the [indiscernible], which is going to drive mid- to long-term value over and above what we can achieve by keeping TAPI. So the value proposition, what I'm saying is bigger than just the sticker price. As much as that's still important for us from a driving investment in the company and reducing debt, there is a longer-term capital allocation advantage for the divestment.

Got it. Maybe shifting towards the business and the business side of things with AUSTEDO, I think your turnaround, especially on that has been remarkable. The focus on it and driving it to growth. But one thing which weighs on it definitely is, of course, the IRA price negotiation and what the trajectory of the product is going to be post 2027 and the margin profile, especially. So how should investors think about this product post 2027?

So isn't that great you're asking that question? Because I mean, probably -- at least I think it's great that people are saying, okay, so [ 5 billion ] you're not even asking about $2.5 billion in '27, which probably means you think we can still hit it with IRA, which I think is the right assumption because if you think about where we could end this year, the guidance could get us to $2 billion. What does that mean we have to do in '26 if we keep our trajectory, which we seem to be executing very well, [indiscernible] '27 you've almost now discounted the $2.5 billion, which when we met 2 years ago, I wish I can replay that conversation back to you. But anyway, what is it going to be post '27? It's going to keep growing. And let me tell you why even with the impact of the IRA, whatever that turns out to be is because there's only 15% of this market is being penetrated. Of the 800,000 people with tardive dyskinesia, hardly any of them are on treatment. So the opportunity to keep growing this product into the years way beyond '27 is significant. That's one. The other part is the opportunity to make sure patients get on the right dose and stay on it and adhere and comply, there's still a big opportunity. And we've just started executing as people excited about what we've done in 2 years. When I think about what we can achieve improving our programs, improving our patient support, improving the compliance as well as getting more patients in the market, educating more physicians to diagnose patients when they arrive in their clinics. I think this product goes way beyond '27.

Got it. And maybe staying on the special side of things about UZEDY, it's been off to a great start. And maybe kind of dissect for us what has enabled this performance that we have seen. And as we think about going further and in your comments, you said that this is a crowded market, and that's something that we are all cognizant of when we model the product. So how should we think about the uptake over the medium to longer term, too?

Yes. So look, I think this is another great example of when UZEDY was launched, I think there were 2 reasons to doubt it. One, Teva can they really launch a product into schizophrenia crowded market innovation; and two, it's a crowded market, can it survive in that against some big players. I think what we've shown is, once again, going back to our commercial muscle, we are really good. We've got a really highly capable team who's dissected what is a very complex market from a patient flow. Second thing is, UZEDY is a fantastic product. The differentiation of the product is clear. One of the -- whether it be a prefilled syringe, whether it's subcutaneous, doesn't have be kept in the fridge. But probably the biggest is you can inject it and within 8 to 24 hours, you get to therapeutic levels. No other long-acting has that. So when a physician sees a patient with an episode, you have to think, well, I need to either inject you, watch you or being as an inpatient and then give you the oral supplements. They don't have that. So the product profile with our commercial execution has meant we have -- we've navigated what is complex, and we've got real traction and real excitement around this product. Now what I would say, you asked about what does that mean for UZEDY. I think it means it has a very bright future, but what it means for olanzapine. We're calling on exactly the same physicians with exactly the same technology, with a product that is clearly differentiated from risperidone because those products are used in different patient types. So we know the payers, we know the hospital formularies. We know the decision makers. We know the physicians. We know the nurse practitioners. So our ability to not only drive UZEDY, but also to have a good uptake of olanzapine, I think is something to rethink about because that muscle can be applied to olanzapine and it will be stronger and stronger as we go in this year with UZEDY. So I feel it just shows, once again, we can execute launches really well. We can drive innovation. And we understand complex markets, and we can navigate those very well.

Great. So let me bring olanzapine into the discussion then. I mean, again, we saw the data again, very compelling data. I think the key question seems to be really around the label now, what's the label going to be? And is there going to be a observation clause in the label? And so how do you think about this and I mean, extrapolate this to commercial success?

Yes. So look, obviously, we did talk to the FDA before we did our study. And so they agreed on the criteria needed to evaluate whether you had PDSS or not. So we think we've obviously -- there's no PDSS. So we think we've aligned what the FDA wants. Eric Hughes, my head of R&D always said, you still don't know what the FDA will do in the last minute, but we think we have a very clean product. We have a good safety and tolerability profile. We have a good set of data. So we are submitting that to the FDA this year. So I think we have a high degree of confidence that we fulfilled all the criteria. So but we'll have to wait and see because ultimately, that's their decision. But what I can say, the physician excitement is high because obviously, we call on these physicians with UZEDY. They've seen the data, and so they're excited about olanzapine coming to the market because that is their favorite #1 molecule to treat moderate to severe. So I think we're very optimistic about it, but we'll have to see what the FDA say.

Understood. And depending upon what the FDA say is, can you lay out the scenario analysis, maybe what could be a realistic range for it in terms of market opportunity assuming label being either way?

Yes. Look, I think there is no long-acting olanzapine that's use of any volume. So I think the more we speak to physicians with UZEDY, the value of long-acting in schizophrenia is huge because as people are aware, is if you have an episode with schizophrenia when you're on medication, that medication becomes less efficacious every episode you have. So you want to stop having episodes, episodes primarily are driven by lack of compliance. So you want to be on a long acting. And so what we think with olanzapine, because it's used for the most severe schizophrenic patients. The need to have compliance is even higher. So our belief is there's a real rationale to say, on those patients, you would adopt even more long-acting patients. Now in the standard market, it's 13% of the schizophrenia market has moved 13%, 14% has moved to long acting. One could model that for olanzapine, I think that's a significant market. One could also argue it could be higher based on the fact that these are severe patients who need to be compliant. We're working through that, but we think it's a significant product. We're obviously in research now with payers and physicians to understand really where this product could be placed. And we're seeing a high degree of positivity around it because there's a huge unmet need. These are the worst patients who need to be treated and need to be maintained. So long-acting is really needed.

Got it. Maybe one quick question on duvakitug. I think we have discussed that a lot recently. So you're looking to initiate Phase III in 2H '23 -- 2H '25. Are there any kind of steridation factors and points that influence the initiation of the clinical trials for Phase III? And maybe beyond that, so how do you see the TL1A categories fitting in the treatment paradigm of IBDs?

Yes. So we will initiate the Phase III this year in IBD. So that will happen. We will also be announcing other indications for duvakitug with our partner Sanofi. So then to your final question, I think this is an exciting one. How does TL1A, -- how does duvakitug fit into IBD? The more I look at this category, the more I think duvakitug can play a really significant role, primarily for 2 reasons, and they're pretty basic reasons. It's going to show, I believe, a high degree of efficacy and its safety and tolerability profile is excellent. And if you look at this category, there's not really a product that has that combination. Some of them have efficacy, some of them don't have efficacy. Some of them have black box, some of them have monitoring issues and certain thing. I think we have a very good, safe and tolerable product. And you can see that from the asthma study we did. You can see that from the study we've just completed already. So the data is significant. And I think throughout my time in the industry, efficacy with safety and tolerability together is really rare. And in IBD, it's really needed because the cycling through because of lack of efficacy or tolerability or side effects is significant. So I think duvakitug can become a real cornerstone in the treatment of IBD. Now we've got to wait to see what the Phase III looks like, but I think we're very positive and confident about what that could be.

Got it. I want to spend a quick minute on the biosimilar side of things. Again, probably something where we are not seeing as much information as a market would like to. But help us understand both the ramp of SIMLANDI in 2025. What are the dynamics here between the 3 entities involved? And then beyond SIMLANDI, also SELARSDI, having recently launched this. How should we factor this into our thoughts? And what is the cadence going to be for 2025 and beyond?

Yes. Look, I think I've often said, I think this is going to be a longer game in the U.S. not necessarily Europe, it's quick. You get great penetration, you get good prices. And so for the U.S., it's still evolving as a market. So I think it's going to be slower. That said, I think you highlighted there's different segments of the market. There is the private label, there is the pharmacy channel, there is the buy and bill. And I think they all have slightly different dynamics and slightly different uptake. So I think we -- the one thing we're focused on is driving that business profitably. So we're not looking to drive big market share at low prices. We're trying to build what we have already with our biosimilar businesses, sustainable business that helps drive our top line but also our bottom line. I think we're making good progress. I think it's steady but sure, but we're not looking to create an inflection point by sacrificing price. Because I think for us, it's about value creation in the medium to long term. But I see that evolving. I think there's opportunities based both with the launch of Stelara, but also with the potential launch of [ Simponi ], the potential launch for [ Prolia ]. So we have multiple launches this year, depending on the time lines. where they're a slightly different dynamic. There's a slightly different brand. There's a slightly different channel. And I think that gives us opportunity to start to see how this could really play out. But as I always say, we're in this for the long term. It's a portfolio play. It's not any particular one. But that's why I said some of the things that can move us to the high end of our guidance could be there's a slightly higher uptake of some of our biosimilars.

Got it. I know we just ran out of time, but I'll put in one final question. I think one of the things that I'm flagging into investors clearly as investors look for safety stocks in times of -- in volatile times like what we have seen in the last couple of weeks. I think Teva is one that I've been flagging as one where the business is intact, really not exposed to any of these volatilities. And the question that I do get is around tariffs. And what if -- like if we see more tariffs on the pharmaceutical side of things with China, and then even Mexico, probably less for you and potentially India, how insulated is the business from tariffs and any impact on supply chain?

Yes. So I mean, it's obviously a topical question right now. I think what I would say is 1 in 14 scripts in the United States is a Teva script. We are a massive supplier pharmaceutical medicines. And one would argue very, very cost-effective pharmaceutical medicines to the U.S. market, which helps underpin the health care system. Of that, around 40%, 45% are actually manufactured in the U.S. So we have a significant manufacturing and volume presence in the United States. Outside of that, it tends to be manufactured in Europe. But once again, these are cost-effective medicines. So I think a real volume, which adds real value to, I think, the U.S. health care system. So I think to do the volume we have, and we supply, I think that's a pretty good balance. And obviously, we do supply not insignificant amount from Israel as well. So for us, I think just because of the value proposition we bring to the U.S. health care system, I think that would be taken into account in any discussions and the fact that we have such a big footprint and a big amount of volume is manufactured already in the U.S. But we're sort of watching that closely to understand what that could look like.

Okay. Great. That's a good point to leave the discussion out. Richard, thank you so much for joining us and for sharing your thoughts. And I wish you and your team a very productive conference. Thank you so much.

Thanks for having me.