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

Okay. Perfect. So good morning, everyone. Thank you for joining this session at the Morgan Stanley Global Healthcare Conference. For those of you who don't know me, I'm Srikapilla, European pharma research analyst here at Morgan Stanley. And I'm joined by my colleague, Azita Venkat at MS. And I'm very pleased to have Richard Francis and Eric Hughes here today. The CEO and Head of R&D of Teva. So thank you very much for joining us.

Thank you for having us.

So before we get started, please note that this presentation is for Morgan Stanley institutional clients and employees. For all important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your MS sales rep. And I apologize for how many times I'm going to say that over the next to 3 day. So perhaps we get started, Richard, before we go into detail, perhaps you could start with introductory comments as to where we are in the Teva story today. Progress on the pivot to growth strategy and the outlook from here?

Okay. I'll try be brief because I was taking spend the whole time talking about that. So where we are in the story to as you answer that first part of the question. So Pivotal growth, we started in 2023. It was a 3-part plan, return to growth, accelerate growth and maintain growth. So we're in the second chapter or phase, you could say. So I would say there's a lot more to come, and we'll be explaining why there's a lot more to come. But I think over this period of time, what we've shown is we've started with the ambition of transforming Teva from a pure-play generics company into a world-leading biopharma company. And very quickly, over 3.5 years, that is become something which seems slightly unbelievable in 2023 to something that is very believable now just because if you look at the products we have, the pipeline we have, the momentum we have then we clearly are executing well on that ambition. Now the pivot strategy and I see many familiar faces in the audience here, so you're used to me being quite buoyant about this. But I think the repetition is why we've done well, pivot growth is based on pillars: deliver on our growth engines, step up innovation, create generics firehouse and focus the business, focus capital. We've been executing this seamlessly for the last 3.5 years, it will be executed seamlessly going forward for the next, I'd say, at least because we have a clear idea how we can create shareholder value, how we can continue to grow the top line and the bottom line. And a lot of that comes from the fact that we've taken some innovative products, AJOVY, Sedo and Yusti and accelerated them and made people start to model them in a way that they wouldn't model them before in their calculations. And that's because we are really, really good at commercializing products. And with step-up innovation, which I'm sure we'll get a lot of questions on, and he shouldn't rightly so, we've taken a company that was questioned whether you could develop innovative products and move them into the clinic and then move them through the clinic. And I think we've done that. And I think in most metrics, we are up a quarter. So that means if the first pillar is that we can sell stuff. And the second pillar we're developing stuff very quickly, and I think some moody unique assets, and we'll talk about the readouts we have this year. And clearly, those show a lot of potential to create a lot of growth on the top and the bottom line going forward. And then on the third pillar, we've gone from a declining generation business to one that's now stabilize and over the last few years, accelerated or grown. And we're going to add more and more biosimilars to that. And then finally, let me take minutes, is we returned to capital allocation from a deal-making perspective. And so we've obviously done that with our first deal with MLex, which I think we're seeing as being strategically aligned to what we said we're going to do, being the CNS space. It's very synergistic. I think we're going to be able to turn that asset into assets who are going to fulfill those financial requirements that I've laid out. And then because my CFO is looking at me now, I must mention the fact that we've earned 2 other things which is actually today is a big day for us. So we've taken ADS shares and convert those to ordinary shares. So those will be -- will allow more investors to have access to the Teva opportunity, which I think is still significant going forward. And then the final thing, which I think relates to something which we never talk about anymore, which we did talk about a little bit at the start of my tenure, which is debt. So the -- there's a good thing about that. Our debt has gone down considerably. And because we've become investment grade now across all 3 of the rate agencies over a year ahead of when we said we were going to do that. We did a refinancing last week where we were hugely oversubscribed. And I think we've got that financing done in a very short period of time at a very good price. And that reflects, once again, all the other things I've said because obviously, that's looked at very closely. So congratulations to the team who did that last week. So there's a lot within that and we sure we can go deeper, but maybe the fact there's a lot within it is why I am so convinced that the value creation story that we've started has a long way to run with Teva.

And before we get into the innovative portfolio in more detail, perhaps we just touch on tariffs. So President Trump has proposed 100% tariffs on imported generics from August 2028 rising to 200% a year later. So since you announced some agreements with the administration around U.S. manufacturing. So has that changed how you think about the tariff exposure and cause Teva's existing U.S. footprint ultimately become somewhat of a competitive advantage.

So obviously, the interesting thing, it's a very dynamic world we live in, geopolitically in most areas, actually. And I think what Teva has shown is that we have a real capability to maneuver in that world. But to your specific point on tariffs, yes, we -- I think we have the largest generic manufacturing footprint in the United States. I think that gives us an advantage on that one level. But I also think we've shown with our work with the administration, both through things we've done in HSS and IRA as well as the potential deal we're going to close with the administration that you saw in the White House a couple of weeks ago that I think we have the ability to work well with this administration because we're a unique company. We bring, I think, it's close to $40 billion of savings in the U.S. every year as well as the fact that we bring innovative. So I think our seat at the table gives us a significant share of voice. But is it a competitive advantage, as we work together, you'll file I'm more measured, I don't lean into things too much. Let's see how it plays out. I think we're in a strong position right now. But I would also say that the changing dynamics of our portfolio, particularly around biosimilars probably lends itself to also helping us in that more challenging environment.

Very clear. So perhaps we start on TED and the 2027 outlook. So it's my understanding, Teva continue to target $2.5 billion of estate sales next year, which is roughly in line with the midpoint of your revised guide. So how should we think about volume growth next year to offset pricing headwinds? And how much could volume provide a tailwind versus your guidance?

So I think everybody is trying to sort of get -- I mean I can understand why to sort of give guidance for 2027 on the stat, but I did give guidance in 2023 on a statin. So I get it really had a schedule, $22.5 billion. Look, the way I think about it, the first way I want people to always think about how I answer this question, I answered this question with $3 billion. This product will do over $3 billion, and that's the most important thing to be thinking about. What it does in '27 is just a journey on that road to $3 billion, okay, greater than $3 billion. What will it be? Well, obviously, we've seen good momentum this year with this data. The team at the U.S. is doing a great job. Where we'll be next year, where the state will give guidance on that. I think I'll remind everybody that the untreated population tragically is still really, really high when it comes to tardive dyskinesia. Our performance, our capability to capture patients to get them on to therapy, to have them on the optimal dose as well as to make sure they can hear us stay compliant is improving all the time. That is why I feel so confident about getting over $3 billion. So when it comes to 2027, we'll talk closer when I have more data from Q3 and Q4 and talk to you about where I think the volume is going to come from I think we're going to end up from a revenue point of view. But I would remind everybody that it looks like now where we are with our guidance, the midpoint, we're going to hit our $2.5 billion a year early. So we had our $2.5 billion in the state a year early. We have investment grade across all 3 rating agencies a year early. There's a lot of things that we do that people didn't think we could do, and we do them earlier. When it comes to the Phase III studies on many of our assets, we put them through the clinic or Eric has a lot quicker. So that's maybe how I'd answer is that a longer opportunity. Think of it as $3 billion plus, and then we back from that.

Understood. And perhaps if you can touch on competition for Estado. So Neurogen has stepped up investment behind INGREZZA and says it's capturing the majority of new patient start. So are you seeing any changes in the new stock trends or prescribing behavior and any changes in the competitive landscape.

Look, it's a very competitive area, particularly as our competition relies on the asset so heavily. So it's very competitive. We recognize that. I think what we've shown throughout this as really driving a stead on a different trajectory than anybody could have foreseen is we're very good at execution. We're very good about our capital allocation. What we need to spend versus what others spend to make sure we get the right return on that and we're focusing on that. And I think we've shown that we can perform very competitively within that market. And I don't really get into too much more detail about that. I used to sell pharmaceuticals, and I was always told to talk about the competition. So I'm standing pretty with that. We stand by what we said we're going to do on guidance, and I go back to we're going to do more than $3 billion. It is competitive. We don't ignore that and we're very thoughtful about how we allocate resources, but also how we elevate our performance and our execution because I think the team can execute better every year with the resources they have or even extra resources.

Perhaps we could move to Ajovy, which has been a bright spot. It continues to outgrow the injectable CGRP market and take share, and guidance has already been raised this year. So as oral eCG people can see GLP-1. But all GRPs continue to take share. How sustainable is the outperformance? And how important do you think the quarterly dosing is and maybe you can touch on exceeding the $1 billion target.

So for Joy, yes, is in extraordinary that we sat here talking about job reaching $1 billion. And 3.5 years ago, we weren't talking about a JV doing anything. And I say that because I think it goes back to a lot of things we do at Teva, which is being incredibly focused incredibly operationally driven when it comes to performance. And we saw that we had an asset go that was underperforming that could perform better, but to perform better and needed to capture market share and outperform the market and outperform competitors who are some pretty big competitors, and we had to do that across every one of our regions. Now it has surprised me how well we've done, if I'm really honest, because at the same time we're driving ISTE, we launched USEDI. So to do this consistently well across all of our regions. I think it just shows the capability that we have geographically, but in a hugely competitive area, not just in the injectable competition, but as you highlighted, the oral. How far can it go? Look, the ambition we always have is we'll grow ahead of market. And we are going way ahead of market right now. How long we keep that going? We'll see. I think we're going to have to start to give new guidance on the JV again because we seem to be catching up to the $1 billion very quickly. And so we'll probably do that to let people understand where that can go and they can model that. But I'd take it back to Teva, can sell innovative products really, really, really well because we're really focused. We're very performance-focused because of that, all of our assets, whether JVs or ASTEDO outperform in their particular segments.

Perfect. Let's switch to USD. So it's performed very strongly in the U.S., as you've highlighted. But what is the latest kind of play with ex U.S. launches, how should we think about the international opportunity for used? And when should we expect an update?

Yes. So I think you said. I think another great example of Teva going into a super competitive market, genericize, some big brands in there, how can you actually do in that? I think two things is great product developed by Eric and his team, which meets medical unmet need significantly from the ability to be subcu, get to therapy doses within 8 to 24 hours. And you don't have to have any concomitant adjunctive therapy. At the same time, so he can be released from the hospital institution but still competitive. And now people are talking about model in this in a very different way. Can you go to Europe, that's a more of a challenging one because of pricing and where we get the pricing. I think that probably leads on to olanzapine which you're probably going to ask me about anyway. But at landing, we see a definite opportunity to have a European launch. But once again, we've got to be very selective because 2 things is we want to make sure it's being appreciated for the value it brings. And also, we want to make sure that ties in with some of the political questions you asked me about MFN and how do we manage that. But I think we have a we're pretty confident we have a path to launch olanzapine in the rest of world. You said we never built it into our forecast. So it was never baked in. And I think that's the right thing to do. But cumulatively, those 2 will do $1.5 billion to $2 billion and now I think I'm getting a few questions on whether that is the right number, should it be higher, but let us launch olanzapine, let us get that to the market, let us keep driving used, and then we can talk about whether we should change that.

Okay. So you did preempt my next question, which was on olanzapine and the launch. So how should we think about the launch dynamics? You previously mentioned no meaningful revenues in Q4 '26, first half of '27, consensus is modeling roughly $210 million next year. So how comfortable are you with that? And what do you see as the biggest determinants of uptake in year 1?

Yes. So -- maybe reversal. I'm not going to comment on the $200 million because yes, I'm going to stay to that. We'll talk about that when we give guidance. How do I think about -- how confident I feel about this? Despite my measured approach of many things, I'm super excited about landing. Why? Because of it, you said it to take used into the market as so congested to have such a strong performance in where the competition, the share of voice, the pricing dynamics, the access dynamics is so tough and to do so well. And we'll talk about some of the metrics on that. We are the leading LAI now in risperidone. We have doubled that market in the time we've been there. So when you take olanzapine, which -- so we've got all that muscle we've built up. So we have that capability. We have that institutional knowledge. We have the physicians, the patients, the payers, the nurse practitioners, we know where everybody is. We have a very, very good commercial team. Very good MSL team. We put olanzapine into their hands, which is far more straightforward. There is no real competition. The unmet need is huge because people want to be more compliant. So my ambition is that we have a really good uptick now to revenue, what does that mean? In Q4, I want people to start sampling it and want to make sure we get access on the hospital formularies as quickly as we can, and that's how we should measure sort of Q4, Q1, Q2. The rate limiting step is Medicaid. We have to get Medicaid and that's state by state as many people know. Some will get at the start. Some will get after 6 months, 9, 12. I think after 12 months, we have about 85% of the market with Medicaid, but that is a rate-limiting step. The way to think about it is TRx the sampling. And so I think we'll be able to communicate really early on how well we're doing. But I'm not going to hedge on this. We want that curve to be a curve that really takes off. But we will not be getting that access with Medicare because we think that will require us to give discounts that we don't appropriate for the value the product brings. And so it will be Medicaid, and we'll have to work slowly and hard on Medicare. I think in time, maybe the year after, when you set and olanzapine together, that will create enough size that Medicare would want to do a more rational deal. So those are things to consider, but very, very excited, very excited about the product and the offering for these patients. By the way, with used in olanzapine, will cover mild to moderate to severe. So about 85% of the schizophrenia population. And we're in those centers all the time right now. And I can tell the enthusiasm for your study is high, but in olanzapine is definitely palpable.

And staying with the franchise before I turn to Andy to talk on generics, consensus for your combined you said on olanzapine at peak is kind of at the top end of your guide of $1.5 billion to $2 billion. And given some of the comments that you've made around higher oral olanzapine use long-acting penetration potentially in Europe, how should we think about the pushes and pulls on that target, particularly what drives upside?

Yes. Look, I think a lot of this comes down to -- look, there's reasons those people very smart people thinking about this could be the higher end because olanzapine needs a long acting these are severe patients. So there's a reason that you could argue that the LAI market right now is about 13% to 14%, olanzapine should probably be higher than that. But we'll have to see how that plays out. It's also about making sure that at some point, we do get access to Medicare because that will open up a lot more. And in Europe, we do target getting a number of countries, but at the right price. So I think there's reasons that we could be at the higher end. I like to take it step by step and then we build the P&L, we build our future financial modeling on what we think is going to happen so we know what we can spend. As that changes, we can adapt that. But I'm not going to die. There's reason to be optimistic. I just want to maybe get a first year under my belt before we can start to talk about changing numbers.

Perfect -- at?

Richard, Eric, thanks a lot for your time. So probably pivoting towards generics. So in terms of outlook this year, ex Revlimid, you're obviously expecting it to be down flat to low single digit. So there's obviously reflecting fewer high-value launches, software OTC and increased competition there. So in terms of the moving parts, what changes get you back to that 1% to 2% longer-term growth aspiration for the entire generics franchise?