Teva Pharmaceutical Industries Limited (TEVA) Earnings

Management highlights

### Pivot to Growth Strategy Progress - The 4-pillar strategy (deliver growth engines, step up innovation, build a generics powerhouse, focus the business) is on track to hit 2027 targets: mid-single digit total revenue growth, 30% non-GAAP operating income, net debt/EBITDA below 2x, and 80% cash conversion of earnings. - Capital allocation progress: Fitch upgraded Teva to investment grade, with management expecting additional upgrades from S&P and Moody's in the near term. The Amalex acquisition closed in June 2026, with launch expected in 2027 pending FDA approval. Transition to a direct ordinary share listing on the NYSE is scheduled for September 2026, to improve accessibility for investors. ### R&D and Pipeline Progress - The company expects 8 major pipeline milestones in 2026, with 5 potential new product submissions over the next 5 years, enabling one new launch per year from 2026 to 2030, subject to regulatory approval. Total peak sales potential from the current pipeline exceeds $10 billion. - Key pipeline updates: - *Olanzapine LAI*: On track for FDA approval and US launch in Q4 2026; already has an accepted EU MAA. Expected peak sales of 1.5-2 billion USD combined with Uceti. - *Ecopipan (for Tourette syndrome)*: First-in-class D1 antagonist, submitted to the FDA in June 2026, with potential launch in H1 2027. Addresses a large unmet need: only 50% of 100,000 US pediatric Tourette patients are treated, and just 20-30% remain on current therapy after one year. - *DARI (asthma rescue inhaler)*: Fully enrolled a 2,700+ patient study, with data readout expected in early 2027. - *Duvacetug (TL1A inhibitor, partnered with Sanofi)*: Two new indications added for hidradenitis suppurativa (HS) and fibrostenotic Crohn's disease (FSCD), both areas of high unmet need with no approved targeted therapies for FSCD. - *Anti-IL-15 (for vitiligo, celiac disease)*: Positive proof-of-concept data in vitiligo showed clinically meaningful repigmentation after just two doses; Phase 2b/3 study started in 2026. Celiac disease proof-of-concept study data readout expected in H2 2026. ### Financial Operational Highlights - Non-GAAP gross margin expanded 80 basis points YoY to 55.4%, driven by the growing share of higher-margin innovative products. Free cash flow grew 31% YoY to $622 million, reflecting disciplined capital allocation. - Balance sheet improvement: Net debt/EBITDA is 2.8x as of Q2 end (2.3x excluding the Amalex acquisition), well on track to reach the 2x target by 2027. Transformation program initiatives have delivered 400 basis points of margin improvement since 2025.

Guidance

- Full year 2026 total revenue guidance midpoint is raised by $75 million, reflecting stronger-than-expected innovative product performance offset by generic softness. The three lead innovative products (Esteto, Uceti, Ejovi) have their combined full year 2026 guidance midpoint raised by $150 million, to a total of ~$3.7 billion (17% growth over 2025). - Esteto full year 2026 guidance: 2.45 billion USD to 2.6 billion USD, with a midpoint of 2.525 billion USD, exceeding management's original 2027 target of 2.5 billion USD. Management maintains confidence in peak sales above 3 billion USD. - Uceti full year 2026 guidance: 270 million USD to 290 million USD, midpoint raised by 15 million USD. - Ejovi full year 2026 guidance: 850 million USD to 870 million USD, midpoint raised by 90 million USD. Management sees a clear path to 1 billion USD peak sales. - Non-GAAP gross margin guidance for 2026 is maintained at 54.5% to 55.5%. Non-GAAP operating expenses are expected to come in at the higher end of the 27-28% of revenue range (28%), reflecting deliberate investments to support the growing innovative portfolio and biosimilars. Guidance for non-GAAP operating profit, adjusted EBITDA, EPS, and free cash flow is reaffirmed at prior ranges. - Global generics revenue (excluding generic Revlimid and the divested Japan business) is expected to be flat to down low single digit in local currency for full year 2026. - Q4 2026 Esteto revenue is expected to be down YoY due to changing purchasing patterns ahead of IRA implementation in January 2027. No Q4 2026 revenue is expected from the Olanzapine LAI launch, as initial volumes will be primarily samples and vouchers while payer coverage is established. - Operating margins are expected to improve sequentially in H2 2026 driven by cost savings from transformation programs, despite a slight Q4 gross margin decline due to Esteto revenue dynamics.

Segment performance

Total Q2 2026 revenue was approximately $4.1 billion, a 1% decrease year-over-year (YoY) in USD, driven by generic revenue declines offset by strong innovative product growth. 1. **Innovative Product Segment**: Grew 43% YoY in Q2, and is projected to reach 22% of total company revenue in 2026 (up from 9% in 2022). Key product performance: - *Esteto*: Q2 US revenue $676 million (up 33% YoY), global revenue up 40% YoY. Over 60% of new Esteto starts are for Esteto XR, with 14% TRX growth and 21% milligram growth. - *Uceti*: Q2 revenue grew 43% YoY to $77 million, with 63% YoY TRX-MOT growth, and has captured nearly 10% of the relevant market share. - *Ejovi*: Q2 global revenue reached $244 million (up 56% YoY), with 83% US revenue growth driven by contracting improvements and market share gains. 2. **Generics Segment**: Down 15% YoY overall. Excluding generic Revlimid, the segment was down just 2% YoY globally, with US generics up 1% YoY. The decline is primarily due to the loss of generic Revlimid revenue, fewer high-value 2026 launches, a softer OTC cough/cold season, and increased competition. Long-term, the segment is expected to deliver 1-2% annual growth. The biosimilar sub-segment (part of generics) now has 15 products on the market and 14 in the pipeline, and is on track to exceed $800 million in revenue by 2027.

Risks & headwinds

- Uncertainty around IRA implementation impacts on 2027 Esteto revenue and formulary positioning, with no full revenue impact quantified yet as discussions with payers are ongoing. - Potential impacts of new proposed US tariffs are still being evaluated, though Teva has six manufacturing facilities in the US and is one of the largest generic manufacturers in the country, providing some mitigation. - Pipeline success is not guaranteed; all future launches are subject to regulatory approval, and clinical trial results may not meet pre-specified or clinically meaningful endpoints. - Generic segment headwinds from lower launch counts, softer OTC demand, and increased competition are expected to impact 2026 results. - Elevated channel inventory for Esteto will require drawdown in H2 2026, impacting near-term revenue dynamics before the IRA implementation.

Analyst Q&A

• Q: How confident is management that Esteto will not be disadvantaged in 2027 formularies after IRA implementation, and what is the expected impact of new proposed US tariffs? /

  A: Management clarified 60% of new Esteto starts are for Esteto XR (not 60% of all new patient starts for the category). Medicare plans are required to cover negotiated IRA products like Esteto XR, and management remains confident in the product's profile, patient demand, and physician support to retain strong market access. Peak sales guidance above $3 billion is unchanged. For tariffs, the policy is new and still being digested, but Teva has 6 US manufacturing facilities and is one of the largest domestic generic manufacturers, giving it time to adapt and work with regulators. (398 chars)

• Q: Why has the biosimilars opportunity become more meaningful for Teva recently, and are there any US market changes opening up this market? /

  A: Management's excitement comes from strong execution by Teva's team, not just market changes. Despite often not being first to market, 2 of Teva's 5 US biosimilars are currently market share leaders, and a third is on track to reach number one. Teva's existing scale, reach, and experience navigating the complex fragmented US biosimilar market let it outperform many competitors, and the pipeline will add more products to the portfolio. The business is already on track to exceed its 2027 target of $800 million in biosimilar revenue. (412 chars)

• Q: Why use Forte's 0.127 delta as the benchmark for the celiac study instead of Calypso's 0.4-0.45 delta, and what would be considered a clinically meaningful result? /

  A: Forte's result is the most widely documented and comparable to Teva's study design, while Calypso's data was not readily available for comparison. Teva's study uses a 3g daily gluten challenge for 6 weeks, and is designed to measure the difference in villous atrophy between placebo and active treatment. Management will stick to the established Forte benchmark for comparison, and the study will generate multiple data points beyond just the primary delta, including symptomatic outcomes that will inform future Phase 2/3 trial design. (405 chars)

• Q: Inventories for Esteto remain elevated after an expected drawdown in Q2. How should this be modeled for H2 2026, and why is EBITDA guidance maintained despite strong innovative performance? /

  A: Partial inventory drawdown occurred in H1 2026, with the remainder expected to complete in H2 2026, ahead of expected purchasing pattern changes ahead of the January 2027 IRA implementation. Fundamentally, the product has strong TRX, milligram, and new patient growth, supporting the long-term peak sales target above $3 billion. For EBITDA, the $75 million total revenue midpoint increase is offset by generic softness, and the higher revenue is being reinvested in the innovative and biosimilar portfolios, keeping EBITDA guidance within the prior range. (441 chars)

• Q: What is the strategic difference between Teva's anti-IL-15 and competing anti-IL-15 receptor assets for indications like vitiligo and celiac, and how is Ecopipam positioned in Tourette syndrome relative to existing generically available antipsychotics? /

  A: Teva targets the IL-15 ligand, while competitors target the IL-15 receptor. Ligand targeting is cleaner, avoids potential off-target receptor interactions, and lets Teva easily measure target engagement to inform dose and scheduling, with a single subcutaneous dose suppressing free IL-15 for up to 90 days. For Ecopipam, current Tourette treatment progresses from behavioral therapy to off-label modestly effective treatments, then to D2 antipsychotics with poor tolerability. Ecopipam's novel D1 antagonism mechanism has much better tolerability, so it is expected to move to earlier lines of treatment over time, capturing large unmet demand from patients and parents hesitant to use long-term antipsychotics. (563 chars)