Teva Pharmaceutical Industries Limited ($TEVA)

All right. Good morning, everybody. Why don't we get started for our first presentation? We're very excited to host Richard Francis. He's the President and CEO of Teva Pharmaceuticals and we do have Eli Kalif, they are the front row. If you just want to raise your hand and show everybody. And we got Chris Stevo and Sanjeev Sharma representing the IR team. So we're happy that everyone could sort of join us. Well, it was -- 2025 was a gigantic year for Teva, not only financially, I mean, a lot of accomplishments in the pipeline. So maybe as a good place to start, Richard -- I'm sorry, before I should have did that. Before we do that, I probably should introduce myself. Sorry, this is the first presentation of the conference, so I'm just warming up. I'm Glen Santangelo. I'm the analyst at Barclays that covers the stock. So please feel free to follow up. If anyone has any interest in the name afterwards, we'd be happy to spend some time with you.

So Richard, thank you for joining us. We're excited that you guys could kick it off. Maybe as a good place to sort of level set the conversation, maybe you can sort of walk through some of those 2025 highlights, not only financially, but you had a lot of key pipeline updates. So maybe that's a good place to start talking about some of the accomplishments of last year, and then we can sort of dive right in?

Absolutely, yes. So thank you for hosting us. I always appreciate it. Good to talk to you. So '25 was a very important year. We've started the transition of Teva from a pure-play generics company to a biopharma company. We started that in 2023, the pivot to growth strategy. And I think we really gained momentum. And I think the way that's best exemplified is probably in this idea that transition to an innovative company sounds great on paper, and it sounds a great way to drive long-term value creation, but it's about the math, does it play out that way. And last year, our innovative portfolio was over $3 billion, and it grew at 35%. So real momentum across all our leading brands, AUSTEDO, UZEDY and AJOVY. And so I think fundamentally, you've seen that drive down through the P&L. Our gross margin has changed, our ability to drive EBITDA and ability to drive EPS and create real shareholder value. So I think the skepticism could it be done has passed now. And I think now the questions always are, how quickly can you move this? How quickly can the transition of the portfolio continue? And what does the end game look like? And that's starting to now come to fruition with the pipeline. And so although we had some -- we made great progress on the pipeline, really '26, it becomes sort of the breakout year. We have 7 milestones for '26. We have -- we started the year with the duvakitug maintenance data, which once again, I think, position it as the best TL1A out there. Q2, we're going to have the first data in anti-IL-15 in vitiligo. In Q3, we're going to have the anti-IL-15 data in celiac disease. In Q3, we're also going to have the futility analysis of emrusolmin in MSA, so a go and no go. And then in Q3, we'll also have the readout of our dual-action rescue inhaler in asthma. And also in Q3, we'll launch olanzapine, our long-acting treatment for schizophrenia that joins its sibling, UZEDY which is doing really well on the market. And then in Q4, we have the first-in-human data on our PD1-IL2. So that doesn't sound much like a pure-play generics company. But that's sort of so -- 2025 now was a really good year. But as in Teva, it's all about the next year, and it's all about making sure we nail it in '26.

Yes. Well, I mean, so many good things to talk about in '25. And before we start diving into some of your branded drugs, I mean, is there anything that disappointed you last year? Anything that maybe was a little bit less than what you thought or I don't know if there was any sort of negative surprises?

Look, I mean, I'm generally quite a glass half full, half empty type of guy. As people who work with me, it's probably quite depressing sometimes. So I'm always looking for what is more. So I think there's things we could have done better across our business. But if I really step back and look at it objectively, we've moved the company on many parallels, whether it's our generics business, whether it's our biosimilar business, whether that's our manufacturing cost base, whether it's our innovative. So I think we've moved things in parallel at speed across quite a large company. So I think I'm very pleased with that. So I think for once, I'm not saying we couldn't do things better, I think they're more in the margins. And I think one of the things I was particularly proud of is we started this organizational effectiveness, this cost efficiency program, and we achieved our goal in '25 when we started it, and that set us up well for '26 to achieve 2/3 of the $700 million. So when I reel off the things we've done, probably the one thing actually and I think about it, I would have liked to have done some BD. I would have liked to in-license something. But we have a real focus on capital and the return on capital deployed. We have a good organic growth engine. We can do a lot organically. We'd like to add something to it, but it's got to be the right price, and it's got to fit in. And if ultimately it isn't, we're good at holding the line and staying disciplined.

Okay. All right. So why don't we dive into your branded portfolio now? Why don't we start with AUSTEDO, 30% growth 3 years in a row. I mean, that's probably surprising to you, right? I mean, essentially, you crossed $3 billion right now in your 3 branded products, but with AUSTEDO, obviously, is the majority of that. So maybe that's a good place to start. And what's sort of given you the ability to grow maybe much faster than you would have expected, right? I mean, I seem to remember you guys put out that $2.5 billion goal in 2027, and we seem to be getting there faster than expected. So maybe could you talk a little bit about some of that brand strength and maybe what's driving that to help us kind of assess the durability of that recent trend?

Yes. No, look, I think it comes down to 2 particular areas. One would be what is the market opportunity? So I think that plays an important part. And then, what is our focus on our capabilities? So the market opportunity as much as this is still surprising, 85% of patients who are diagnosed with tardive dyskinesia are still not on therapy. It's a very dynamic market where people come on and they come off. And so the opportunity to drive real growth and change people's lives is huge still. So that's the sort of market dynamic. And I think what we've done and a lot of what we do at Teva is about applying real prioritization, real focus, having clear expectations, applying the right level of resource, having a great team with great capability, but clear expectations setting. So when we set the $2.5 billion in '27, for me, that was one where the organization then had to step up and say, okay, let's work back. What do we need to achieve in '23, '24 and '25 to get there? And so a really talented team, super focused, and that team keeps getting better. It's very impressive. And so great market. Excellent execution. And as you say, we may get to the $2.5 billion ahead of -- a year ahead, which sort of is quite surprising to many who obviously, as you said, didn't believe it was ever going to happen. But I think that's a testament to understand the opportunity, applying the right resources and executing flawlessly.

Could we talk about the XR transition in there as well because that's having a pretty -- we see it having a pretty big impact on the pricing, right, which I'm sure there's a margin that's associated with that? If you could just sort of talk about maybe where we are in that transition process?

Yes, it's a good point, Glenn. Thanks for bringing it up. So obviously, we have this patient dynamic, lots of new patients coming in, but also we launched the XR formulation once a day. What that has allowed patients to do is to titrate to a more efficacious dose easier because they do that easier, they end up on a higher sort of average dose. Still, by the way, less than the Phase III clinical trials. There's still some way to go, but we have seen that. And if you look in all our quarterly results, we do emphasize the growth in milligrams per patient. And it's been in the 20% for quite some time. So the opportunity to bring more patients in is that the opportunity to get those patients on XR, which helps them get on to a more optimal dose, which helps them be more compliant and adherent. If you think about that, there's so many opportunities we have to keep growing the brand. But as you've highlighted, the milligrams does correlate to value. So that is a value driver. And we still have a long way to go to get patients -- majority of patients on XR and majority of patients on the optimal dose. So I see -- that's why when we talk about the greater than $3 billion for the asset, we have a high degree of confidence in that and I think people are starting to also get confident in achieving that number.

And when I think about the guidance for this year, $2.4 billion to $2.55 billion from memory, right, that kind of implies only 6% to 13%. I say only after 3 years of compounded 30% growth. So I get that. It feels like it continues to be an underpenetrated opportunity. It feels like we got the ongoing XR tailwind. It feels like maybe there's some competitive share gains. And I don't know if you want to talk about the competitive dynamics of that market, but it still feels like there's a lot of those tailwinds that are kind of still in your favor and maybe we're seeing the deceleration of growth from the law of large numbers, some pricing in there, but I don't know if you want to just sort of touch on that?

Yes. So it's -- so a couple of things to focus on there is as you saw, we had a really big Q4. In Q4, we highlighted that we had about $100 million benefit from the channel stocking in and a bit of gross to net, mostly the channel stocking in. So that sort of sucks out of Q1. And so if you take that out and reverse that out, we've grown at between 11% to 18% this year, 18% at the high end. And I think 18% off a 30% compound growth, as you said, it should come down because we're growing off a bigger base. So I still think it's really healthy. The one thing I take the opportunity to highlight this year and people ask about the range, part of that is because we had destocking in Q4, but also part of it is we're not quite sure how it's going to play out in Q4 this year with the IRA price being initiated in Q1 of '27. So are people going to have different inventory levels in Q4? Maybe. So we'll see how that plays out. We're watching what the other -- the first wave of IRA drugs have done. We've got a good idea. But that just to help people understand that range. It's less about new patients coming in, less about our ability to execute. It's more about those dynamics, which are hard to predict.

I think just sort of moving on, it feels like to me a little bit AJOVY and UZEDY, they sort of get lost in the shadow of AUSTEDO. I don't know if there's any high-level commentary you want to make on those 2 drugs because they continue to be great growth drivers for the company. And now I think your branded revenues are up to almost 20% of the total revenues, and they're meaningful contributors as well. I don't know if there's anything you wanted to add on that front?

Yes. No, I think it's really important, actually, I'm glad you brought up. So firstly, let's take UZEDY. UZEDY is a long-acting risperidone schizophrenia product. And when that was launched, expectations, I think, generally were really low. And that's probably fair enough, big incumbent brand in that sector, other brands, genericized. So really, really difficult competitive environment. We've come in, I think the high end of the guidance this year is $280. So really shown a great product, great product profile and well executed, what a brand can do. So I think actually, this shows -- this is -- this really shows the capability that we have in our team to take a difficult market to understand the dynamics of it, to have the strategic thinking to understand the price and the access is a really important sort of ratio. And so I think UZEDY, people need to look at it and go, wow, what is done because we're going to talk about olanzapine probably shortly. And then that's the franchise of $1.5 billion to $2 billion. And then AJOVY, I think it just shows what commercial products can do in Teva's hands. So AJOVY was sort of given up on. The injectable CGRPs, the orals have come in, the market has gone, it's very competitive, big players across all of our regions, we continue to grow at double digit, over 20%, and we're taking market share. How do we do that? Same thing. Great focus, great planning, great execution. Those fundamentals we're good at. So I'd say, AUSTEDO, UZEDY and AJOVY have a lot in common. It's about excellence in planning, understand the market execution, which is worth talking about because when we talk about olanzapine, DARI, duvakitug, all the products that are coming to market, we will launch them really well.

Okay. We're going to talk about olanzapine, duvakitug and the rescue inhale in 1 second, but I just have one last question before we move to the pipeline. You have a world-class generics business. We talk about it a lot. I don't know if there's sort of any high-level commentary you want to make with respect to pricing trends. We have biosimilars now sort of flowing through there. Maybe the cadence of those biosimilar launches a little slower than maybe you would have thought. I don't know where we stand, but it's such an important component because of the cash flow of your business that it generates that enables you to do all this other sort of R&D and business development activity. Any high-level generics commentary and then we'll...

Yes, absolutely. Once again, I think sometimes if you look at generics on its own, there's some really impressive results to talk about, but we've talked about some other exciting areas. But let me talk about generics. So this is quite a volatile business. But in the 3 years, we've generated a CAGR in the mid-single digits across the whole business. And it's one of the largest in the world. So it's a big business to do that over. I think some of the exciting things we've done that are ahead of us now to come is we have a biosimilar portfolio of 28. We've launched 10 now. We have 10 on the market. We're going to launch another 6 by '27. We're going to launch the rest starting '28 going forward. We're going to keep adding to that. So now we have the second largest biosimilar portfolio. So if you think about all that growth and performance we've driven in our generics business, it's been without biosimilars. So I think if you think about this, it's like thinking a car that is getting even more efficient, a really, really good engine, and we're applying biosimilars to it. That's the turbo. So I think we're setting ourselves up for, I think, a very positive future for our generics because we've changed the portfolio and we've changed the manufacturing network. So we're going to start to see our COGS coming down, which allows us to protect our gross margin. So a lot of good things, and that does allow us to keep fueling the pipeline, which we'll talk about because we have a really big broad pipeline and it's late stage. So we need to fund that.

Okay. Let's move on. On the TL 1A, you obviously just published the 44-week data. That looked probably stronger than I think most people were expecting and so I mean, what was your sort of interpretation of that data readout? Does that make you incrementally more bullish? And any high-level thoughts as you're embarking on these Phase III trials?

Yes. Look, we were always bullish because we know we've made the one -- the best TL 1A, and we made it by design. So we didn't fall into having the best. We designed it to be the best, and it is the best induction and maintenance. And so I think the frame is and I'll ask people to think about, we don't think we have the best TL 1A to compete with TL 1As in UC and CD. We think we now have an asset that will compete across [MOAs] . So we think because its efficacy, its safety and its tolerability, no monitoring, we believe there'll be no black box. So we think this could be really a big player in UC and CD. So for us now, I think Sanofi posted $2 billion to $5 billion of peak sales in UC and CD, and we sort of took that. I challenge whether that's ambitious enough, but we'll wait. And I always remind people if it's the $2 billion, which I struggle to understand why, it's a game changer for Teva, but it won't be based on the efficacy of the data we're seeing.

So I mean, I think when you announced that Sanofi partnership, some people were surprised, right? And now we've had the Blackstone sort of partnership announced more recently. Could you just touch on that quickly on why you did that?

Yes. No, that was a Royalty Pharma partnership. So look, I think the key principle for people to understand is, and it's a key belief we have at Teva is we have a great pipeline, but pipelines, in my view, is all about bringing to the market as fast as possible. That is the sole link. Bringing to the market as fast as possible, you create significant value. That's our job. Now we happen to have a really, really exciting big pipeline with many indications. Duvakitug could end up in 5 to 10 indications, right? So we have big ambitions. Anti-IL-15 is going to be in 3, possibly 4 and 5. And so for us, it was all about let's not get stuck in the rounding error of what this financing can do long term for multibillion-dollar assets. Let's just get it to the market as fast as possible. And that's our key principle. And I think what you've probably seen in 3 years is a company that seems to have no pipeline innovative to have now one of their busiest late-stage pipelines. And so that's our approach, move fast, get it to market, create value, create shareholder value and maximize that patent life.

Okay. Olanzapine, I think in your opening remarks, you talked about commercialization in 3Q this year. Is that...

Depending on the FDA, it should arrive in either September or October. So let's say, Q4, October.

Okay. I mean, maybe could you give us a history lesson of sort of the time line here? I mean, I know there was some past -- there were some historical issues with some of the long-acting injectables and maybe talk about why olanzapine may be different?

Yes. So first, let's talk about the olanzapine molecule. The olanzapine molecule is considered the most efficacious molecule. So it's used to treat severe schizophrenia. It's the most used molecule in the U.S. and in Europe, 20% of schizophrenia patients are on olanzapine in the U.S. and 30% in Europe. So it's -- no one will debate it's the most efficacious. Now it hasn't had a long-acting. There's one long-acting that was launched in the market that isn't being used because you have to monitor the patient after you inject because of a side effect called PDSS. So there is no long-acting. Now if you look at what happened with the non- olanzapine molecules, 13% of those transferred to long-acting when they became available. So one could use that as an analog and say, the oral olanzapine market, one could expect 13% to transfer to our long-acting olanzapine. You could also say it could be a lot larger because a patient has severe schizophrenia, they have to be compliant. So they really need to be on long-acting, which is why we see a lot of excitement. So the potential here is we've said $1.5 billion to $2 billion for our portfolio, you said it has olanzapine, I'm very comfortable with that. I think there's now great excitement. Could it be more? We said we can do $1.5 billion, $2 billion. Let's get those numbers on the score board, and then we'll see what we can do. But we've got to launch it first. We're launching in Q4. And I would take the opportunity to tell people what does a good launch look like. It's not revenue, which [indiscernible] but it's about sample, physician use, breadth and depth of physician use formally on P&T committees at hospitals where it can be used. So just broad usage generated excitement and experience. And then we'll start to make sure we get good access on Medicaid. On Medicare, it will probably be a bit slower. What we learned with UZEDY is -- what we're not prepared to do is give away value based on the product profile. So we'll hold for the right access at the right value. That could take time, but we've planned for it to take time. And what we saw with UZEDY is physicians value the product profile we're bringing to the market with UZEDY. They will value it even greater with olanzapine. So I just watch that revenue maybe towards more second half of '27 because it's about access usage and sampling because we're trying to create a franchise that's going to be a big one and live for a long time. So we need to be thoughtful about how we introduce it from a pricing point of view.

Okay. Can we switch over to the asthma program?

Absolutely, yes.

Okay. Could you remind people of the current competitive landscape there? You currently have a Phase III trial sort of going on. Could you sort of reiterate your confidence in that trial and sort of what you're seeing thus far?

So the data readout is going to be in second half of this year, around about Q3, where we're going to have the read of the Phase III study. So dual-action rescue inhaler in the U.S. guidelines have been issued that 10 million American asthma patients should be on a dual-action rescue inhaler. One has been launched by AstraZeneca a couple of years ago. So they're shaping the market. It's the first time there's been one here. So they're educating physicians on using this. And by the way, there are over 5,000 fatalities every year because of the lack of a dual-action rescue inhaler being used. So there's a real need here. Now so we come to the market late, which is generally you don't want to come to the market late. This is the one you do because a very good respiratory company like AstraZeneca is forming the market. We come in. What's our differentiation? We will have a better device, but the key differentiation is we'll have a pediatric indication. So 25% of this market is pediatric. So we can come in and follow them, so to speak, and say, okay, use our dual-action rescue inhaler because that's a pediatric indication.

We only have a few more minutes left. I'm amazed at how fast the clock has gone. There's so much to talk about here. But outside of duvakitug, olanzapine and DARI, there's more, and you addressed some of those in your opening prepared remarks. Let me just give you a minute just to talk about anything else in the pipeline that you want to share with the audience and that you think everybody should be focused on?

Well, obviously, the anti-IL-15, the vitiligo data, obviously, Royalty Pharma came in as the earliest ever partnership they've done on financing in an asset. And so I think, obviously, what they've seen excites them. And so I think the vitiligo data will come out in Q2. I think it's interesting because that means we can get to market in '31, which is because there's a regulatory path that's been already shown by Incyte and other company as a topical out there. And so if you think about it and then we have the celiac disease, but the way to think about with Teva, we're going to launch olanzapine this year. In '28, we'll launch DARI, dual-action rescue inhaler. Maybe we'll launch emrusolmin for MSA rare disease. And then in '29, we'll launch duvakitug. That will take a year sabbatical, and then we'll have in '31, an anti-IL-15 vitiligo. And then we're going to announce 2 more indications for duvakitug this year. So if you think about it, our challenge is how do we keep launching these products while maintaining good growth on our innovative portfolio.

It's just crazy. I mean, you think about your $3 billion in branded revenues today and you wind the clock forward 5 years from now and think about where this company could be, right? I mean , you talk about the innovation transition, right? It's happening right in front of our eyes, right?

Yes. I mean, look, I mean, I think just on that point, our pipeline has over $13 billion of peak sales in it. And it's not a pipeline based on Phase I. It's a pipeline -- that's a late-stage pipeline. You start to -- you can risk adjust that, but you put that into our P&L where our gross margin is right now, it's a game changer for value creation.

Yes. All right. We got a couple of minutes left, and I got 2 questions left. Let's talk about guidance. Could you talk about some of the key drivers in the revenue and EBITDA guidance? And I think one of the things that we wanted to talk specifically about was the cadence of that throughout 2026 because you got Revlimid in 2025 that maybe is messing with some of the quarters. So anything with respect to the '26 guidance that you think is worth calling out?

Yes, I really appreciate you calling that actually, because as we're doing this transition from a pure-play generics to a biopharma company, there's lots going on in our P&L. There's lots going on in our portfolio. And so when you think about guidance, so firstly, what's important, our EBITDA is going to hit $5 billion. It's going to have a 5 in front of it, okay? I won't say anything more. That after losing Revlimid is, I think, a massive achievement, and it's reflective of the portfolio transition as well as the cost. Now on how that progresses, H1 and H2 are always -- H1 is always lighter than H2 of Teva from a gross margin and from a revenue point of view. But particularly in Q1, what I'd highlight is our gross margin will probably be more reflective of Q1 in '25 minus Revlimid, which is -- I think that was around 51% gross margin because obviously, we don't have Revlimid this year. So I think it's worth thinking about that. And then you'll see our gross margin continue to improve throughout the year and then probably the 55%. So if anybody is modeling, please model that in there. That's just about the portfolio transition and the fact that we've lost over $1 billion of generic Revlimid, which from a modeling point of view, I think, is important. But just remember, you lose $1.1 billion of Revlimid, you lose a lot of profit, yet we grow EBITDA. How do you grow EBITDA? You only do that with the transition of a portfolio that we've spoken about, $3 billion innovative at 35% and also very, very rigorous cost programs to put in place, which we're executing. So Teva is going to come out of '26, fitter, leaner, more set up for continued shareholder value creation.

You say leaner, and this is going to be my last question. I want to give you the last word here. I mean, obviously, so much positive stuff has happened in '25. We've talked about the strength of the brands. We've talked about sort of the development in the pipeline. We didn't really talk about sort of your cost-saving initiatives and the 30% out margin target you have for 2027. So there's a lot to sort of unpack there. And it looked like to me, the stock was getting a fair amount of the credit up at $36, $37, and now it's sort of pulled back here to the $31 level, and we can maybe talk about macroeconomic, we could talk about the Middle East conflict, whatever it is. But I want to give you the last word here to tell the investors what you think is important, where they should be focused on? I know we have obviously touched, but I want to give you the last word if there's anything else that you want to emphasize to the investors?

Yes. Look, I mean, when people -- it's -- I think if you look in your rearview mirror, then you think, wow, the stock doesn't really work. It's in a great place. I never look in the rearview mirror. I look about what's in front, what the value creation that's in front of us. And there's 2 things I think is really worth thinking about and if you then let the math play out. One is our EBITDA is just going to keep growing. And so we're at $5 billion this year. We're going to keep growing. Our cash flow is going to grow, not exponentially, it's going to go really significant. I mean by 2030, we're going to have over to $3.5 billion, maybe even more close to $4 billion of free cash flow. How does that happen? It happens because our portfolio is transitioning so fast with this product we talked about. But our cost-saving programs, we are maniacal about cost savings, capital allocation. Our capital goes to sales and marketing, our pipeline and making sure our factories have the right equipment in them. Everything else doesn't get capital because it doesn't drive shareholder value. It's a service part. And so the shareholder value to come. I always say we're 1/3 of the way through the story, right? So don't sit on the sidelines too long because -- and then I think you'll be disappointed.

Excellent. All right. Richard Francis, thank you very much.

Thanks a lot.