Teva Pharmaceutical Industries Limited ($TEVA)

Okay. Welcome back. We're ready for our next session. Thank you very much for joining us. I'm Marc Goodman, one of the biopharma analysts at Leerink. And we're lucky enough to have the CEO of Teva Pharmaceuticals, Richard Francis. Thank you very much for joining us.

Obviously, one of the key things that you've been focused on since you've gotten there is this Pivot to Growth strategy. Just give us a sense of where we are in that process? I think that will be helpful to kind of kick things off.

Well, thanks, Marc, and thanks for having us. We appreciate it. So yes, the Pivot to Growth strategy was started 3 years ago with the aim of getting the company back to growth after many years of decline. And where are we in that journey? Well, we have 3 phases. One was return to growth, and then the next one is accelerate, where we're in that phase now of accelerating growth. And that's all about accelerating the transformation from Teva from a pure-play generics company to a world-class biopharma company. And I think we're really in the thick of that. I think we've shown, if you remember, the Pivot to Growth strategy was based on 4 pillars: deliver on our growth engine, which was all about selling more of our innovative products; step up innovation, which is about bringing our products to the market, innovative products through the clinic quicker; create generics powerhouse and focus the business, which is about capital allocation. And I think this phase we're in now and you say, is there more to come, more to come is actually, it's a really exciting time for Teva because we obviously got AUSTEDO. We got through the IRA. We're on a really good growth trajectory. We've got UZEDY, which is on a good growth trajectory. AJOVY, we've reinvigorated, we say that's going to do $1 billion peak sales. And this year, we have 7 milestones, and they are all milestones really from our innovative side. So we have the maintenance data of duvakitug that came out. We have the anti-IL-15 vitiligo data in Q2. We have the futility analysis of emrusolmin in Q3. In Q3, we have the celiac disease data of anti-IL-15. And then we have the data readout of DARI, our dual-action rescue inhaler in asthma. And we launch olanzapine in Q4, and then we have PD-1 IL-2 in Q4 at the end of the year, first-in-human data. Now that's a lot to say. But when you ask me what's more to come -- so we've not stabilized the business. We've grown the business the last 3 years through growing both our generics business and our innovative business. The innovative business now is going to start to really accelerate because of the assets we're bringing to market. So I think we're entering a really exciting [indiscernible].

[indiscernible] innovative business, just give us an update. So where is the generics business today? What should we be expecting for this year?

Yes. We're very proactive in it. So the third part of that strategy [indiscernible] How do we do that? Well, we make sure that when we start the Pivot to Growth strategy, we've reduced our coverage of products losing patent from 100% to around 65%. We did that because when we look at the data, the majority of [indiscernible] is from those 65%. So we're covering everything [indiscernible]. So we focus [indiscernible] So we have 10% [ of the market ], [indiscernible], we launch [indiscernible] and another 10 after that, and we keep [indiscernible]. So we have now [ almost a standing start ], the second largest biosimilar portfolio in the world, and we can keep adding to that. So that will drive significant opportunity in our generics business. And the final thing is we rationalize the manufacturing network to drive more efficiency, more COGS reduction, which will help our gross margin. So you put all that together, a very -- so scale generics and biosimilar business that will be run efficiently. What we've said to people is model that 1% to 2% going forward as a CAGR forever. Now obviously, we've overachieved that in the past. And so I'm not going to get drawn to is that the right number. That's what we model so people can model it, and that's [indiscernible] performance as to how that can help us [indiscernible] innovation. So [indiscernible]

[indiscernible] U.S., OUS?

That's an interesting question because when I arrived here, I realized everything is about U.S., obviously understand. But as we probably talked about it this year, we lose our generic [indiscernible] completely. And so the U.S. business as a percentage of overall generic business is now less than 25%. It doesn't mean it's not a great business, and we'll be adding more biosimilars to it. But I always want to just make sure people understand that ratio. So the majority of our generics business is Europe, and then international, and then the U.S. And I think that also should give people confidence about that CAGR going forward. Now there could be reasons -- because we launched a lot of biosimilars now in the U.S. -- that the U.S. may overperform that CAGR in certain years. But I remind people that launches of biosimilars and generics are a bit like London buses. You can wait a long time and nothing comes along, and then suddenly, you have 3 or 4 buses. And that's just timing of patent cliffs. You can't -- I'd love to plan [indiscernible]. That's why I say think of it as a CAGR because our job is to grow the business, both top and bottom line over time, not to try and do it every specific year because it's almost impossible to do.

And maybe a quick question on just the macro environment and what's happening. Obviously, Teva is an Israeli-based company, so it's a sensitive time. Maybe you can just give people a sense of just exposure and how you're dealing with it?

Yes. Obviously, it is. It's definitely a time that, that part of the world, there is a lot going on, to say the least. But just to give a context of numbers, less than 2% of our revenue is based in Israel and less than 8% of our manufacturing. So from a business continuity point of view, I think we're very well placed. And obviously, for the last 2.5 years, unfortunately, we've been dealing with conflict. And so how we manage our supply chains, our inventory and things like that, we're well skilled in that. I think probably the most important thing is how we look after our colleagues and our employees to make sure they are being looked after. We run a global business that's fast paced. And at the same time, we've got to make sure that we're looking after them in what is a difficult time, I mean, as you've seen by the news. But I think if there's one thing I say about Teva since I've been in 3 years is we've transformed the company in 3 years despite some of that [indiscernible] conflict and that tragedy in that country. And I says more about the quality of Teva, [indiscernible] the quality of our people, which I find [indiscernible] to be part of.

Let's flip gears to AUSTEDO. So relatively good outcome on the IRA negotiations. Congrats on that, that would be great. You've reiterated your '27 target of $2.5 billion. That kind of feels like it's an easy target now, just given what you're [indiscernible] looking for this year. So how are you thinking about that? And also just give us a sense of the guidance for this year, volume and pricing dynamics that drive that guidance for this year?

Yes. Okay. There's a lot in that question.

I'll let you run.

Yes, give me a bit of a -- so it's interesting. So forgive me, I smiled when you said it looks like that '27 of $2.5 billion...

Yes. No one would have believed that 2 years ago.

Two years ago, when we said that, everybody just said, "Look, he has no idea what he's talking about." So I'm sort of in a way, pleased that what happened when you asked that question. Look, there's a lot that we still need to do. There's a lot of opportunity for AUSTEDO, a lot of untreated patients, 85% of patients are still not treated. So we've talked about this being bigger than $3 billion. Now yes, we're confident we're going to hit $2.5 billion in '27. Could it be better? Could it be $2.5 billion or not? I don't get drawn into that because we've got to get through '26. And to your point, '26 has had some puts and takes. We've got the IRA coming up in '27. How does that impact how people want to think about us this year? Will Q4 be a year where they draw down inventory because they're waiting for the new price in Q1 '27? What I focus on is how many patients are coming in, how many of those patients are getting XR, how are we looking for compliance and adherence. And all those programs we've had in place are getting better every single year. So I feel we're in a good place. And forgive me, but we'll give guidance on '27 at the time when that's due in Q1 '27. But our aim is to maximize it. Within our guidance for AUSTEDO, we obviously have $2.55 billion. So we could hit it a year early. But we do have a bit of a range there because of the things I've said. You didn't ask, but I'm going to take the -- because you talked about the pricing dynamics. And right now, we've entered this year focused very much on value and access. So it has become more competitive. We see value and access have to go hand in hand. And so we're mindful of that. I think we've shown we're very good at value and access. We did it with UZEDY. We've done it with AUSTEDO. We've done it with AJOVY, understanding that access isn't everything without value. And I think we manage that very closely. And I think we're well positioned for '26, but there's still a lot to execute.

But the growth rate of -- I mean, if you hit $2.5 billion this year, so that would be what growth rate?

Well, that would put us in the mid-teens.

Mid-teens?

Yes.

So was this -- is there any pricing that's helped or negative in that number? It's all volume?

It's -- most of that's been driven by volume because obviously, we have to renegotiate on access. So it goes back to that previous question. This is about driving more patients in. But it's also about the use of the once-a-day AUSTEDO, [indiscernible] more going on to the once-a-day. That's easier to titrate -- they titrate better, which means they end up on a more optimal dose. Also, the compliance and adherence programs which we started 18 months ago are getting better because you have the breadth of those compliance programs. I know it sounds quite boring, but those are really important. You have somebody comply and adhere, the value that can add to the brand is pretty significant. And although that's sort of meat and potatoes, we weren't doing that particularly well 3 years ago. And every year, we're getting better at that.

What percent of the patients have migrated to the once-a-day now?

So roughly about all the new starts, over 60% now are starting on XR. So that's a wash through. I don't know what that's the...

But what are the other 40% doing? I don't understand. Why do they want it twice a day?

Well, sometimes that's -- I mean, that's about physician choice, sometimes maybe patient choice. Sometimes it's habit. You got to get to all these physicians and explain to them, and sometimes, it's is habitual. I think that will diminish over time. So yes.

Yes, it just seems a little strange. And okay. So AUSTEDO post-IRA, like how do we think about that?

Well, we said over $3 billion in peak sales. I keep getting asked, "What exactly," "Can you put a number out there?" And I'm not. We put out a lot of numbers 3 years ago, which -- it's a good thing to do to help people refocus on what Teva could be, really give them clarity on what we're looking at. But I don't see the urgency to do that above the -- we said above $3 billion. If at some point, we think it's going to help people understand the opportunity, we could do that. But right now, just think of it as above $3 billion. And I'll remind people, if you put AUSTEDO above $3 billion, you put UZEDY and olanzapine, we're going to launch this year at $1.5 billion to $2 billion, you put AJOVY at $1 billion, but the company has just been transformed. Just absolutely transformed. And then we're going to talk about the pipeline in a bit, and you can layer that on. So I think -- I always remind people, whether you think it could be more or you agree with us, it's still a good place we're going to end up.

Well, it's a good segue to the LAI franchise. I mean, UZEDY has been great, and you have another product coming. Just give people a sense of the differentiation of this olanzapine product that's supposed to be approved later in the year?

Yes. I mean -- so olanzapine, we're going to hopefully have approved around about Q4 this year. We launched UZEDY a couple of [indiscernible], a long-acting risperidone. The great thing about this, it shows our -- the product we brought to the market is what the physicians need. Subcu, get to therapeutic levels within 8 to 24 hours. It's -- you don't have to be reconstitute it, so it's pre-filled syringe. And that -- when UZEDY was launched, nobody gave it any potential because there's a big brand there, there's a few brands there. It's genericized. In fact, Teva launched a generic risperidone long-acting in the year we launched UZEDY. So you could probably pick not a worse market to launch in. And I think the team have done a phenomenal job, and everybody is now looking at UZEDY hitting the $280 million potential this year. So what I say all of that is when it comes to olanzapine, we are calling on these physicians. We are calling on these hospitals. We know who the formulary committee members are. We know who the payers are. We know where we have to go because we're in those places every single day with UZEDY. So that means the expectations around olanzapine should be high because I'd argue there is no long-acting olanzapine that's used because the one in the market has a side effect that stops people using it. So the unmet need is huge, and we've shown that we know what to do. We've shown we've got credibility. And then we'll bring 2 products to the physician, where one is for mild to moderate and one is for moderate to severe. So the position is easy. It's the same technology. They know us. I think we've built a lot of credibility. So that's why we say $1.5 billion to $2 billion for that franchise. And we can debate whether that's high enough, but let's just get to $1.5 billion, $2 billion, then we can argue.

So why are people using UZEDY? Like, what's the hook?

So here's interesting. So we have -- they use UZEDY for a couple of things which I thought were important, but didn't realize how important. So one is -- and I'll go in sort of order -- particular order. So subcutaneous. That's a nice to have, surely. No. For a schizophrenia patient to have an intramuscular injection means they have to often drop their trousers or something. They don't want to do that. So that makes them less adherent, less want to have a long-acting. Second thing is you get to therapeutic dose with UZEDY in 8 to 24 hours. The others, it can take a week, and you have to give them additional oral medication to supplement that. So you've got to balance that. You injected them now or -- that's just difficult to manage. UZEDY, you inject it, subcu. Within 8 to 24 hours, you're at therapeutic levels. Physicians really like that. And the other thing, it's pre-filled. You don't have to reconstitute. It can be kept outside the fridge. And these are patients who have had an episode. They've come in with an episode, so they need to be controlled quickly. And that's why the physicians have -- see the real value of that product. And here's an interesting thing, which I think -- because that could be my sales pitch.

That was a good one.

It's a good one, isn't it? But here's the crux of it. We do not have very good coverage with Medicare, yet we have good sales growth. So the reason that happens is because the physicians are phoning up saying, I need to use UZEDY. And they say, well, it's not listed. They say, why? They say because I get to therapeutic levels of 8 to 24 hours, I can discharge the patient, it's subcu the patient. So all the attributes come through. A physician will only do that because he needs the product. And I think that's a testament to the quality of that product. And then we have a great team. I mean, look, I'm English. I'm a bit sort of -- I don't talk us up too much, but I'll say one thing. Our commercial team, not just in the U.S., across the globe, particularly in the U.S., is excellent. And what we've done with UZEDY shows it's excellent. What we've done with AUSTEDO shows it's excellent. What we've done with AJOVY shows it's excellent. So we've done great things with UZEDY because of a great team. And by the way, not doing -- not contracting with the Medicare is not an easy thing to do when you're launching because you have people like me saying you got to perform better, you've got to perform better. I don't give me access an issue. I need to perform better, but we have a great team who said, look, this is about seeing the value over time. It's not about the first 3 or 4 quarters of a launch. Which is why I remind everybody, as of being launched, look at it on the leading indicators, the scripts, the sampling, the breadth of usage, the depth of usage rather than the revenue because we're not going to discount our way to access. We want to hold the line as to get the right value for access. And that probably mean revenue, there's probably not going to be any particular revenue in '26. And in '27, it will be more towards the end of the year as we drive it through because this is about creating a $1.5 billion to $2 billion franchise. It's not about having a great first year because then, you just discount your future.

And so I guess the first question that someone asks on olanzapine, okay, great drug, but boy, sure has gained a lot of weight on that. So how does that work? Do you think that will be a pushback?

No, because we're not asking physicians to use olanzapine. We're saying where you use olanzapine oral. So you already have that.

You're already comfortable with the molecule.

You've already used it. You already had that discussion with the patient, but you clearly need efficacy because it's most efficacious. Now put them on a longer-acting. And a longer-acting for a severe schizophrenic patient is really important because they've got to be compliant.

Yes. Let's go through some of the pipeline things you mentioned. So what's the next pipeline you made a point to read out?

So we've got olanzapine launches this year. Then we have DARI, our dual-action rescue inhaler in asthma. That will have a Phase III readout in Q4.

So just tell us about that product just for a second. So the hook for that product and why it's going to be important.

So this product is a -- so the guidelines in the U.S. are that 10 million Americans suffering from asthma should be on a dual-acting rescue inhaler. There hasn't been one. Astra launched one about 18 months ago. So they're creating the market. They're creating awareness of the guidelines and saying you should use theirs. We'll come 3 years, 3.5 years after them. One would argue not an ideal situation, normal. But as we've got to create the market, I'd rather have Astra, who's got quite a pedigree in respiratory to create that market. We come in, and what's our differentiation? We will have a broad indication, but we will uniquely be the ones with a pediatric indication. So we'll only have a -- we are the only ones with the pediatric. And that means 25% of the market is pediatric. So we're not competing because they can't actually -- they don't have an indication for pediatrics. So we have that. And the other one is our device is very, very simple. Theirs is more complex. So I think there will be a spillover into people who just struggle to use the Astra device. But let's just say it gets divided. We take pediatrics, they take 75% of the market. That's still a $1 billion product for us.

Did they not want to go after pediatrics? Did it not work?

Well, I mean, they -- no. When you go after an indication, you tend to start with adults, adolescents, and then you've got a big market. As with all of us, pediatrics is super, super hard to do the study. It's hard to get kids into a study. So we went after that. We've got all. We've got all -- so our Phase III will have all patients in it. We just knew pediatrics was going to be an important part for us to differentiate, so we went after it. Will they in time? They may well do. I'm not sure that would be a priority for them because they have 75% of the market. So it's like we -- all of us when we develop products, pediatrics tends to come last.

Definitely. And that product is -- how big is that product for Astra right now?

I don't know. They're still sort of creating the market. So I think I haven't looked at their latest...

That's okay. That's just one. It's probably a couple of hundred million dollars or something. Okay. So okay, what's next?

So then we have that -- then we have -- as I said, there's a futility analysis on emrusolmin, a treatment for multiple system atrophy, a rare disease. So if that is successful, there's a potential that -- and I say if because that has a low POS, I'll agree.

Yes. So what will we see there?

So we'll just see whether the study continues or not. So if the study continues, that means it passed the futility. Right? But that means it could theoretically launch in '28 because it's obviously a disease that people die within -- average within 5 years. And that would be a significant product. That said, I'm not counting on that because the probability is relatively low. The capital deployment to make that happen, that study is low as well. And then after that, in '29, we'll launch duvakitug in UC, ulcerative colitis and Crohn's disease. And then 2030, probably a gap year. And then 2031, vitiligo anti-IL-15. And then we go into Crohn's disease, and then we'll launch 2 more indications in duvakitug this year. So those 2 indications will probably start to come through in the early '30s. So the theme building here, hopefully, in people's minds is this. So coming like Teva, we'll be launching an innovative product roughly every 18 months, sort of right through the '30s, at least towards the end of the '30s. And then if you layer that on to thinking about so what does that mean for Teva? Well, because of our base -- because of our business right now is we are at about a 55% gross margin. Everything we launch on top of that pulls up our gross margin. And if we keep focused on our operating expenditure management, which we're very good at, we'll grow our EBITDA, we'll grow our free cash flow and we'll grow EPS.

Talk about the vitiligo program a little bit. I think that's probably a little bit underappreciated.

Well, look, underappreciate -- everything is underappreciated at Teva, right? Now I know I always say that, but I really think our pipeline has no value placed on it.

There's not a lot of people going after vitiligo. So maybe you can talk about it.

Well, okay. So look, a couple of data points on vitiligo. So firstly, there is a twice-a-day topical in the market that generates upwards of $800 million of revenue, twice-a-day topical vitiligo. So that regulatory path is very clear for us. The second thing is we did a financing deal with Royalty Pharma. So Royalty Pharma, this is the earliest investment they've made, as in earliest in the life cycle of a product. So they've seen something that they find attractive to fund it. And ours will be a subcutaneous injection every quarter. So you think going from a twice-a-day topical to every quarter injection. And look, what I think and we've started to realize is vitiligo is -- is this the psoriasis ischemia, atopic dermatitis of 15 years ago where we all said it's going to be tiny, biologic?

I remember, yes.

You remember. We're both old enough to remember that. I don't know, but I'd go back to -- I think it really could be pretty significant. But let's say it's not and it just does $1 billion, it's a game changer for Teva. So we're really excited because it's another in-house antibody. So duvakitug was antibody, TL1A, IL-15 is antibody, and then we can talk about PD-1 IL-2, which is another in-house because we have great antibody engineering. So we know our IL-15 is a good IL-15. So we're excited. The data will come out in Q2, as in first-in-human. Forgive the pun, but I think we will see.

So they've not seen first-in-human data yet, but they did the deal with Royalty Pharma?

They've seen everything we have, right?

So the data is not there yet?

But we -- the data for those -- I think it's -- I don't know exactly, the number of patients involved will only come out in Q2. But they've seen enough. And I believe Pablo and his team, I think, do 350 due diligences a year, he told me. And I think they do less than 10 deals. So that makes me feel like...

Yes, yes, yes. Well, I see the differentiation. Clearly, the market is there. I agree with you, it could be the next take a topical and turn it into an injectable and grow the market exponentially. So it does make sense. That's probably what they see. But as far as data, they haven't really seen that much?

Well, there's a lot of -- I mean, we're in the clinic, we're in humans. There's a lot of data before that. You don't get to go into the clinic. So I think they've seen enough. But that's probably -- you want to ask Pablo next time you have them on stage.

Right. Okay. Fair enough. Fair enough. The TL1A, so just give us a quick update there, what we're going to see in this?

So TL1A, we had the maintenance data come out in Q1. So we had really good induction data of our Phase II, which I think was seen as best-in-class, maybe best in disease. The maintenance data came out, reinforce that. So I think we're the best TL1A. And now we -- people are talking about whether we could be the best in disease. And now the Phase III has been up and running since Q4 last year. Good study design. So the aim is to keep recruiting as fast as possible and get to the endpoint. This year, we're going to announce 2 more indications with our partner, Sanofi. And then the important thing is to make sure they're in the clinic and we move those fast. And yes, another thing. If you think about Teva, so TL1A and anti-IL-15 are multiple indications in one product, right? So...

Which is why you needed help.

Which is why we needed help, but it also means a TL1A that could go to 4, 5, 6, 7, 8 indications for any company is crazy good. For Teva, it's amazing. IL-15, celiac disease, vitiligo, alopecia, maybe atopic dermatitis, we've got 4 in one product there. Those are really rare to find those. I mean, I haven't had one in my career, now I've got 2. So good things to come to those who wait.

Yes, very interesting. So you did a deal with Blackstone. Tell us about this deal, how did this originate and what's the...

So we have a principle, a philosophy at Teva when we did the Pivot to Growth strategy where we saw the innovative pipeline, we had the potential. It was a very simple principle, which is a pipeline is only really valuable if you bring it to market as fast as possible. So for us, it's about bring as many indications as fast as possible to market. That's the goal. How do we do that? It's about building capability and obviously having the financing capability to do it. So duvakitug is about bringing multiple indications to the market as quickly as possible. I think of these big products, pipeline is in a product. And I think when I talk to those CEOs, I ask them, is there anything they wish they would have done differently? They'll say, if I'd known, I wish I start all the indications at the same time. So for me, it's about how do you maximize these products. And obviously, having Blackstone as a partner helps us finance those, be very ambitious. But another area of due diligence to them to look at the asset and say, what value does this have over what period of time? What's the data in what is still, one could argue, a competitive market, UC and CD.

Yes. So I mean, a very interesting pipeline, a lot going on. Is your business development team even working, I mean, given how busy you've got your own pipeline?

Yes. So business development is. In fact, we've been actively trying to bring in-licensed products to Teva. The challenge we have there is that we have opportunity cost. I mean, we have capital to deploy, and we have a lot of organic opportunity. And so to find something, it needs to be the right price, synergistic, and we want to take no risk. So these will all be either the Phase III readouts happen or they will be commercialized because we don't want to take on -- we don't need to take on any more risk. We don't need to deploy capital at risk.

So is the goal maybe even a commercialized asset, or that's a...

Yes. I mean, we've been looking actively for the last 2 years, but it's finding the right asset at the right price and those two.

I mean, I don't know whether you looked at -- I assume you looked at Avadel, whether you cared about it or not. I'm just -- is that the type of thing that may have been of interest? Like...

Anything that...

Just because it's on the market, it's not really necessary?

Yes. Exactly. I think anything like that, that we can bring in that we think we're synergistic. We think we can sell any product better than anybody else too.

Yes. Interesting. Good. Thank you.