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

Welcome to the Jefferies London Healthcare Conference. My name is Dennis Ding, biotech and spec pharma analyst here at Jefferies. And I have the wonderful pleasure of having Richard Francis here, CEO of Teva. Welcome.

Thank you. Thank you very much for having me.

So obviously, you guys have made a lot of progress this year and just over the last several years. So, can you just give us a brief overview of where we are on this pivot to growth journey that you guys are on?

Yes. No, thank you. Thank you for the question. So, there are three stages to the pivot to growth strategy. The first stage was to return to growth, and we've obviously done that 11 quarters of consecutive growth. So really pleased with that. And then, the next phase was accelerate growth, and that's predominantly around our innovative business to continue to accelerate that growth. And then after that, it's maintain growth. So, we're in the middle of the, I suppose, the book, the middle chapter, very pleased where we're at, but I think there's a lot more to come based on where our innovative products are and where our pipeline is.

Okay. And kind of big picture speaking, like as you think about 2026, what are the pushes and pulls in terms of the guidance? And I know you're not going to give revenue guidance today, obviously. But how are you thinking about that?

Yes. So, you're right. I'm not going to give guidance today. So I suppose, in a way, it's a bit of more of the same. And what I mean is the transformation of Teva in the last 3 years has been, I think, extraordinary. And I talk about that from a mathematical point of view, a financial point of view. And so, if you look at where the growth is driven across the P&L, and you'll see that the innovative business has grown. I mean Q3 was 33%, over $800 million now of sales of our innovative business. Now, the reason why I specify that and the importance of that is that fundamentally changes our gross margin, which changes our ability to generate growth in our EBITDA, which changes our ability to grow EPS. And that's so important because obviously, to continue to return value to shareholders, we've got to keep growing our EBITDA and keep growing our EPS. But to do that, we need to keep growing our gross margin, and we have the ability to do that with our innovative portfolio. So, I think, we've shown tremendous progress in '25. So, your question was '26. So without giving guidance, it's a bit more of the same. In our innovative business, we expect AUSTEDO to keep growing strongly, UZEDY is on a good trajectory, AJOVY, going to keep growing strong as well. But don't forget, these products grew at 38%, 24% and 19% in Q3. So, good growth rates. And then, we're hoping that we'll be adding our long-acting olanzapine in around about October to Q4 of next year when we launch that in the U.S. which we see as another big opportunity in schizophrenia. And so, as we go into '26, it will be -- the innovative portfolio continues to get a bigger aspect of our revenue, a bigger contributor to our gross margin, a bigger contributor to our EBITDA and thus helping continue to grow EPS. So, I think that's what I would say is probably the highlights. The other thing that's worth mentioning, which I don't think I would have said when I was here 3 years ago is our pipeline, where we would have completed our recruitment for DARI: Dual-Action Rescue Inhaler in Asthma. We will enter two new indications duvakitug for TL1A. We'll have a data readout of our Anti IL-15 in vitiligo and celiac disease. And we may have some data in oncology and PD1-IL2. And we will have a futility analysis, emrusolmin, our treatment for MSA. Now, I said all those because I just really like saying those, because that's a huge innovative pipeline. And once again, to show the transformation of Teva to have such a late-stage pipeline with readouts, I think shows the work we've done in the last 3 years.

Yes. Okay. Do you think about 2026 as sort of a clinical transitional year in terms of the overall top line? Because Revlimid is going away and the innovative portfolio is growing. So, how should we think about revenue in 2026? Should we be expecting kind of flattish year-over-year growth on revenue? And then what about on EBITDA, should we expect continued margin expansion there?

Well, I have to say, I do admire your persistence, get guidance out of me. So, how do I answer that question without actually answering it? So, I suppose I'll start with we're going to grow our innovative business continuously, as I said. I think we're losing about $1 billion of Revlimid, our generic Revlimid. That's a huge chunk of revenue. But we have said we're going to grow EBITDA. So I will answer that question. We're growing EBITDA. And I think that is worth pausing on. So, we are going to lose $1 billion of revenue in a company that has $16.8 billion of sales, and we're going to grow our EBITDA next year. So how do you do that? You do that, because you know it's going to happen, and you plan for it and you set your revenue on a trajectory from an innovative point of view. I mean, your innovative business grows. It grows at a different margin, which throws a different level of EBITDA profitability. And if you keep a disciplined approach to OpEx, then you have a chance to -- you'll grow EBITDA. And you'll grow EBITDA also, because when we knew Revlimid was going to end in '26, which we knew some time ago, we put into place an organizational effectiveness plan which means we're going to save $700 million by '27 and 2/3 of that $700 million will be saved by the end of '26. And one thing I hope we've become known for Teva is, is we do what we say we're going to do. And if we say we're going to do 2/3 by the end of '26, we will do 2/3 by the end of '26. So, you combine our innovative portfolio with our operational excellence, organizational effectiveness program as well as we'll still be growing in other parts of our business, ex Revlimid, then we can grow our EBITDA. So that's probably the most you're going to get out of me on guidance type question.

Thank you, Richard. We are very persistent here at Jefferies. Maybe we can double-click on the innovative portfolio, just AUSTEDO, right? You guys reiterated your 2027 guidance of $2.5 billion -- of at least $2.5 billion. Talk about the underlying drivers of that growth and how you guys will get there?

No, I'm very proud of what we've done with AUSTEDO, as a company. It's been a real change in trajectory since 2023. And obviously, we had the IRA negotiations this year and we announced in our earnings that those have concluded and they haven't changed our forecast for '27, which is $2.5 billion. We also haven't changed our peak sales, which we think will be over $3 billion. Now there's two things, I think, worth noting in that, is when we started on the journey with AUSTEDO in '23, we said it was going to do $2.5 billion in '27. Nobody believed us. Like, nobody believed us. And I think every analyst had us down at $1.4 billion peak sales or $1.5 billion. We're going to do over -- we're going to do $2 billion. I think I've given our guidance on that this year. And so -- and then when we gave that $2.5 billion, I said that will take into account IRA. Now what's quite interesting is people said, well, you won't be an IRA, because you're only going to do $1.4 billion in peak sales. So, why are you worrying about IRA, when you're not ever going to be in it? So I tell you that because I think it shows the level of detail and analysis we put around something and we thought, okay, if we do to get $2.5 billion, which we believe we will. We will be an IRA. If we're going to be an IRA, then we need to take out -- take into account the discount we're going to have to make that $2.5 billion and then how do we build back. So, I tell you that because I just think that shows a level of discipline and thoughtfulness to how we forecast. So then answer your question about how do we get to $2.5 billion and beyond, the opportunity in the tragedy in AUSTEDO is the opportunity is 85% of patients with tardive dyskinesia are not treated, which is the opportunity and the tragedy at the same time. And so, we believe we can continue to educate physicians and patients and caregivers to make sure those people seek treatment. And when they seek treatment, we can get them on AUSTEDO. But I think there's many other opportunities to grow the brand. The adherence and compliance in this disease can be improved dramatically, and we work very hard on that as well as making sure patients end up on the right dose. We launched XR AUSTEDO over a year ago and the ability for patients to end up on a more optimal dose is definitely happening with XR. And so, all those things combined, more patients coming in, more patients are being compliant and adherent, more patients on a more optimal dose for them therapeutically allows us to be confident about the $2.5 billion, but also confident about the $3 billion post 2030.

Got it. So, your competitor did recently highlight that they're going to take a fairly more aggressive approach in 2026 in terms of access. And maybe talk a little bit about that and your priorities in 2026, in terms of formulary positioning, access and et cetera.

Yes. So consistent, I never talk about competition. So I want to talk about competition. What I would say is, we're very much focused on the $2.5 billion and what we needed to achieve that. I think in a space where you have 85% of patients aren't treated and you have two players. In my experience over 30 years, it's about the patients. That said, the market, I do but I think, it becomes more challenging. And I think what we have to do at Teva, we do very well because we're very disciplined is balance access and value. And I think access and value are really important to create long-term value. And I think that we are very focused on that. And I think we've shown that not just with AUSTEDO, but we've also shown it with UZEDY. UZEDY is a great example of long-active treatment for schizophrenia, which I think has surprised people of how well it's done, hasn't surprised us, by the way, but it surprised people. And I think it surprised me, because it's a very competitive area. It's genericized and how we've done so well. Part of it was making sure that we didn't sacrifice value for access. Access is only valuable if it's valuable, if it adds -- if you maintain a certain price. And so, I think when it comes to AUSTEDO, what I think is that market is getting more managed, managed care is getting tighter. We know that, we forecast that, and that still makes me very confident about what we can achieve in '26, and that sets us up for achieving our $2.5 billion in '27.

Got it. So, now with sort of line of sight to that $2.5 billion in 2027, maybe remind us of your commercial footprint for AUSTEDO? And if you're happy with that, is that optimized already? Or can you see opportunity there to expand to be a little bit more aggressive?

Yes, I can give you some flavor on that. So, I think a lot of this goes back to how we think about capital allocation at Teva. So, we always talk about capital. We don't talk about resources. We talk about capital being deployed in a way that will give a return. I very much think my role is to create with my executive team, a company that is of sustainability over the long term, and it creates shareholder value. That is, is what we're here to do, that is what we paid to do. So, to answer your question, which I know was very specific about AUSTEDO. Just to give you an example, when I arrived, AUSTEDO was not getting them the resources, the capital or had the ambition to do what it should do. So, we reallocated resources really aggressively, really quickly. And I'll tell you that because if you look at our OpEx expenditure as a percentage of sales, it doesn't really change. And I believe that's really important. Our discipline around the percentage we spend on OpEx as a percentage of sales, we believe should remain constant, because I think that discipline allows us as we grow our revenue, as we grow our margins to really create a more valuable company and give return to shareholders. Because if we break that discipline, then I think we start spending more, because we just think we can. And so, going back to the question on AUSTEDO, we gave AUSTEDO all the resources it needed. We always give AUSTEDO resources it need. It's a priority. And because it's a priority, it means other things are not a priority, and we take resources from other parts of the company, but we reallocate, we don't add. And we have -- that's the way the organizational effect in this program of $700 million of savings is after we've allocated more resources to our pipeline and to our innovative portfolio. So, I think you were trying to maybe push around as to, once again, go back to the competition and how they actually allocate resources. AUSTEDO always get what it needs. UZEDY will always get what it needs. Olanzapine, when we launch, it will get what it needs, to maximize the value of those assets, while maintaining the discipline on the P&L. And we do that by taking assets, resources, capital, should I say, from other parts of the business. And I think we've become very agile at doing that.

Yes. Perfect. If we can switch over to UZEDY and olanzapine LAI. Maybe talk a little bit first about UZEDY and just the progress since the launch, the opportunity there and how the learnings from UZEDY informs you of your olanzapine launch in late '26?

Yes. No, thanks. I love this question because I think UZEDY is an example of how good Teva can be. And I'm English, I don't -- I'm not used to saying things like that, because it's a bit bold. But just to set the scene for those who don't know it, so long-acting risperidone. This long-acting market has a big Goliath who dominates this market. It is genericized. It has generic long-acting products, one of them we actually launched. So, if you're going to launch a product into a competitive environment, this is the one you do not pick. This is the toughest. To then launch into that and be successful, you have to have great product, great go-to-market capability and a great ability to change prescribing habits and maintain value in the tougher scenario. And I think we've done that. And we forecast to do the $200 million this year. And we think this is part of our franchise, which can do $1.5 billion to $2 billion. So I think you said, I talked about that with so much enthusiasm, because the discipline we had on the value and access, the ability to generate awareness and usage without access, I think shows the capability we have. Now if you apply that to a long-acting olanzapine, which will come next year, where it's not genericized, there is no long-acting incumbent that's used. So, it's completely different. It's a far better environment to launch into, yet we built the muscle, the capability, that level of competency with UZEDY. And that team, be it in payers, the managed markets, be it the hospital formularies, be it the physicians, be it the patient associations will be the same team that launches olanzapine. So, I think we've set ourselves up for a really good opportunity to launch olanzapine incredibly well, a lot better than UZEDY, despite I think, the tremendous work we've done in UZEDY. So -- and these are complementary. The other thing I'll say is UZEDY and olanzapine or long-acting olanzapine, we can treat 80% of people with schizophrenia. UZEDY is used for people with mild to moderate, and olanzapine is used for people with moderate to severe. And these are both long-acting. So, the same technology we use. So, I think the ability to turn this into a franchise of $1.5 billion to $2 billion is truly possible, because we have the right products, and we have the right go-to-market model and with the right capabilities.

Got it. And for the long-acting olanzapine, I believe you guys will be submitting the NDA very shortly.

Correct.

Setting up for late '26 launch. But is there an opportunity to accelerate that to pull that forward with the priority -- with the national priority review voucher?

There is a possibility. That said, we're looking at it across all of our portfolio, all the drugs we have, both in innovative and in generics and biosimilars. So, we look across all of that. Obviously, this is right at the -- we're, as you say, about to submit. And so, the ability to expedite that has to be thoughtful and how many months we would say versus allocate into other one of our pipeline. So, we just got to think about that, but it's a nice optionality. But either way, we plan to 10 months later, be in the U.S. market with olanzapine, which I think really helps us get a good start in '26 and then in 27, start to really see some of that revenue come through, which once again goes back to the '27 targets of mid-single CAGR growth of our revenue, but a 30% operating margin. When we started this journey 3 years ago, I think people really struggled to understand how could we get to 30% operating margin. And now I think people see a really clear line of sight to that and olanzapine plays a part in that in '27, but more going onwards to '28, '29, '30. I think that's when our revenue innovative portfolio gets bigger and bigger. And hence, the reason why I say it will be a $5 billion plus innovative portfolio by 2030.

Got it. And then if we can talk about the pipeline and the 2026 catalyst flow, which ones are most important to you and to the company?

Yes, that's a great question and I love answering this question again, because it's about our pipeline, which I think is an extraordinary pipeline. One, because it's very late, which is nice because it's value creation coming through. And I think it's derisked. And obviously, that's a subjective view. But I think it's derisked based on the view that, these are targets that are well known. MOAs are well understood. So that's how I define that. What are the things I'm excited about? I'll just tell you the more, because I don't know how to really prioritize them. But we're going to have the data on for Anti-IL-15 in vitiligo and celiac, some proof-of-concept, which would be really interesting. We move that quickly through the clinic. We will have a futility analysis on emrusolmin, treatment for MSA. We will have going to two Phase II indications with duvakitug, TL1A, which is currently in Phase III started in UC and CD. We will probably have some data on our PD-1 IL-2 in oncology. And we will have fully recruited our DARI: Dual-Action Rescue Inhaler by the end of this year. And so, we will potentially have a data readout on our asthma product next year, depending on how many exacerbations we have because it's dependent on that. So, I'm excited by them all, because that's the transformation of Teva. We will have all of these readouts, some very, very important milestones, others just on the journey to becoming a world-class biopharma company based on the fact that we have this late-stage pipeline. And I sort of remind people that we'll launch olanzapine in '26, we'll launch DARI in '27, we'll launch emrusolmin in '28. We'll launch duvakitug in two indications in '29. While we're still growing AUSTEDO, we're still growing UZEDY, still growing AJOVY. And so, we had this company that people are understanding is an innovative company, but all of our products are still on a growth trajectory, and we're adding new products to it. And then after that, we'll have obviously the IL-15s in vitiligo and the celiac disease, and we'll have the two indications, which I'm not going to tell you what they are until the duvakitug come to the market post 2030. So there's just lots of growth opportunity, which is why that pipeline, I think, is incredibly exciting.

Yes. Which ones do you think are the most underappreciated by investors?

All of them.

Maybe, it's all of them.

Yes. All of them. No, I mean, all of them. All of them, because none of them have got any valuation, which clearly, I am drinking the Kool-Aid, I'm a bit obsessed with the company, but I just don't get that. Olanzapine should be valued. DARI should be valued and duvakitug should be valued, at least a bit. if there's anybody out there, just give us a bit. But I think it should be. I mean, duvakitug the Phase II results, I think, were phenomenal. The Dual-Action Rescue Inhaler, we know is going to work, right? Olanzapine, we've seen all the data at all the conferences. So the fact that these are not valued, I think, is maybe a slight lag on the understanding of where Teva is heading. But hey, I don't really mean this, but I can wait. And then at some point, it will happen, and it will be valued. There's always a time delay, it seems. It's like a satellite link delay, whatever. You say something and somebody hears it. But we're in it for the long game. This is about creating a sustainable long-term company that's going to be here forever as it's already been here for 126 years. And that's what I'm focused on. That's what the executive management are focused on. And hopefully, investors and people start to realize that pipeline and value it a bit more. I think it's coming, but we'll see.

And if I can ask a little bit about TL1A. Just when you look at the landscape across the industry and some of the competitors, it seems like it's being explored in many, many different indications, right? So like what approach are you and your partner, Sanofi, taking to this target? Would you take a similarly broad approach? Or would you kind of do things in a staggered fashion in terms of running Phase II proof-of-concept studies and then seeing how that plays out, et cetera? I'm just trying to gauge just the level of, I guess, like how big do you think this class could be? And like how quickly can you actually move on that?

Well, that's a very exciting question. So I think it can be very, very big. And let me explain why. So look, a couple of things is we knew this was going to be a massive opportunity, which is why we partnered, because we knew this could go into so many different indications that my belief, I've never had a product like duvakitug. I've never in my career had a product which can go to so many indications. And so, what I've seen in being an observer in other companies, if you have one of those, go at it, go at it with ambition, go at it fast and do everything you can do. Now the constraining factor there is capability, capital and just can you do it. And that's why picking a company like Sanofi as a partner was so important because, one, they have experience with Dupixent. Two, they have the ambition and they have the wherewithal. And also they have the necessity, Dupixent will come off patent in the not-too-distant future. And so, they need to replace that with assets, which have multiple indications. So, we both -- having a partner had that same ambition was really important to me. They have that ambition, and we've worked through all the indications. And by the way, it's a long, long list. And what is really exciting about duvakitug is, this is an efficacious product, but it has a very clean profile. And that's really important when you go into multiple indications, because you need to have that as sort of the #1 criteria. And then after that, it's about discussing where you go, what's the likelihood of success, what's the commercial opportunity, what's the speed to market. And once again, working with a capable and experienced part like Sanofi, we really get that insight. And so, I'd like to think this is a product that can keep on giving. But I remind people that even if, which it won't happen, we just stayed in UC and CD, it's a game changer for Teva, a game changer. But we won't. We'll have two more indications next year, and I think it will keep going and keep expanding. So, then it's just transformative from our point of view without all the other products I mentioned. And by the way, anti-IL15 will be in multiple indications and the other drugs. So, super excited about the opportunity around duvakitug. We want to maximize it. We have the right partner to maximize it to help us financially and from a capability. We both have the same ambition. So, I think we're in a good place. Now it's just about execution.

Perfect. And I think that's all the time that we have, but thank you so much, Richard, and we really looking forward to 2026.

Thank you, Dennis.