Teva Pharmaceutical Industries Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Pivot to Growth Strategy: Focused on four pillars - deliver on growth engines, step up innovation, create sustainable generics powerhouse, and focus the business.
• Innovative Portfolio: AUSTEDO, AJOVY, and UZEDY driving growth. UZEDY's launch momentum and guidance increase due to strong product profile and execution.
• Pipeline Progress:
  • Anti-TL1A program: Top line results expected in Q4 2024 for ulcerative colitis and Crohn's disease study.
  • Olanzapine LAI program: On track, presented period one of the study with positive results, will present full data set in H1 2025.
  • Anti-IL-15 program: Phase 1 data presented, initiated second indication in vitiligo.
  • Emrusolmin: Enrolled first subject in Phase 2 study for multiple system atrophy.
• Generics Business: Strong performance across all regions driven by product launches, supply chain and commercial execution.
• TAPI Business: Return to growth in Q3 with 4% growth, on track for divestment in H1 2025.

Segment Performance

• Innovative Business:
  • AUSTEDO: Q3 revenue of $435 million, 28% growth, with full-year guidance of $1.6 billion maintained.
  • AJOVY: 21% growth in Q3 2024, showing strong performance across regions.
  • UZEDY: Q3 US revenue $35 million, year-to-date $75 million, with full-year guidance increased from $80 million to $100 million. The product is a subcutaneous prefilter syringe not requiring refrigeration and allows patients to reach therapeutic dose within 8 - 24 hours.
• Generic Business: Global generics business grew 17%. US grew 30%, EU 8%, international market 13% (all in local currency).
• TAPI API Business: Q3 growth of 4%, with focus on CDMO exANTI-IL-15Sion gaining traction, and on track for divestment in H1 of 2025.

Guidance

• Revenue: Raised 2024 full-year revenue guidance to $16.1 billion to $16.5 billion, reflecting strong performance in the first nine months and expected performance in Q4.
• UZEDY: Full-year revenue expected to be $100 million, up from prior $80 million.
• Copaxone: Revenues higher than previous guidance due to lower erosion from competing therapies.
• Non-GAAP Metrics: Raised lower end of 2024 non-GAAP operating income and EBITDA guidance by $100 million, earnings per share guidance range between $2.40 and $2.50. Full-year free cash flow expected to be between $1.7 billion and $2 billion.
• Long-Term Targets: On track to meet 2027 targets with single-digit growth, 30% operating income margin, net debt adjusted EBITDA of two times, and cash to earnings of 80%.

Risks

• EU Antitrust Investigation: Disagreement with European Commission's decision on Copaxone antitrust investigation and plan to appeal, which will take many years and no short-term cash impact.
• Debt Repayment: 2025 has front-loaded debt payments, including around $1.4 billion in Q1 and Q3 2025, with need to manage against organic free cash flow generation and market conditions.

Question and Answer

Q: What is your expectation on placebo response in the TL1A Phase 2 trial coming up?

A: Placebo responses in ulcerative colitis and Crohn's disease are variable. It's hard to predict specifically regarding the study.

Q: On UZEDY, the launch performance is tracking ahead, and what does that mean for peak sales for long-acting Olanzapine?

A: UZEDY's success with its differentiated product and strong commercial team gives optimism for Olanzapine due to unmet medical need and good relationships with market stakeholders, but specific peak sales details will be clarified as data and market understanding progresses.

Q: On long-acting Olanzapine, why the new trial of three extended release formulations with different release rates?

A: Part of the European submission package for PK analysis.

Q: Make in America had received significant push, is there a structural tailwind or how can Teva leverage such a possible push in the generics and biosimilars world? And what does it do for margins in the longer run?

A: Teva will work productively with any administration, and if policy changes benefit the generic market, it could be helpful, but it's too early to determine specific impact on margins.

Q: On Olanzapine LAI, with the safety data available till now, can you comment on expectations of confidence with such a label?

A: The scientific story is strong with the formulation designed to control spikes in PK, being a subcutaneous shot unlikely to hit large vessels, and clinical dataset and Phase 1 data showing no PDSS issues. Chances are good, but it's a review question for the FDA.

Q: Can you comment on how you're thinking about US generics for 2025? Particularly interested in drivers that can offset pressure on lenalidomide given the competitive dynamics there, and how you're thinking about new contributors to the US generics/biosimilars portfolio in 2025 beyond say Stelara.

A: US generics business for 2025 will benefit from launches of complex generics like Victoza, octreotide, Forteo, and planned launches in 2025 such as Symbicort, Saxenda, and biosimilars like Humira, Stelara to offset lenalidomide pressure.

Q: As you're looking at the UZEDY ramp, where are you getting patients from? Are those switches from oral risperidone? Are you getting switchers from other oral atypical antipsychotics?

A: UZEDY is benefiting from a great product profile including pre-filled syringe, subcutaneous, quick reaching therapeutic dose, and a strong commercial team. It's taking patients from orals and other long-actings, with a lot from orals showing its appeal.

Q: How are you thinking long-term about any impact on LAI antipsychotics from the availability of muscarinic agonists in schizophrenia?

A: Keep a close eye on new MOAs for schizophrenia, but new muscarinic treatments are a BID oral medication with adherence issues, while LAI antipsychotics have different value propositions.

Q: Can you talk about, is there a filing pathway for Emrusolmin based on the Phase 2, or would we have to think about a Phase 3 kind of program coming from there?

A: Emrusolmin's Phase 2 study is robust with 200 participants. If responses are seen, there could be an accelerated filing pathway, but it depends on data.

Q: On TL1A and to extent the Phase 2 data reads out successfully, just curious just how quickly you can move that forward into Phase 3, just given the competitive landscape that's out there.

A: We're working closely with Sanofi and aim to start Phase 3 as rapidly as possible once data is available, targeting 2025.

Q: Can you talk about overall level of investment going on at Teva right now? You've obviously accelerated the pipeline. You've made some really good investments on that front, but to the extent we continue to see kind of this momentum in the core business, how should we think about that upside flowing through the P&L versus going into incremental investments and further accelerating some of these growth drivers?

A: Teva thinks about capital allocation with focus on paying down debt, investing in growth drivers, and BD. Around 45% of incremental gross profit year-to-date is allocated back to OpEx to invest in the business, with the rest flowing through to expand margin and EBITDA.

Q: You've taken a cumulative $1 billion impairment charge in the last two quarters. What's sort of driving that? Is there some material change in the business conditions? And then how does that impact the divestment discussions that you're having?

A: The impairment related to TAPI is due to reviewing allocated net assets including goodwill for potential deal structure, not related to TAPI's performance. It has no impact on divestment discussions as TAPI's business plan is projecting well.

Q: On TL1A, wanted to understand the rationale for the endpoint selection here. So, for CD, you're looking at endoscopic response as the primary endpoint. Some of the KOL feedback suggests that it's a harder endpoint to show meaningful benefit in a short-term study like this versus you see, you sort of have a more realistic clinical remission endpoint. If you can comment on that.

A: For Crohn's disease, the primary endpoint is endoscopic endpoint, with key secondary endpoint being clinical remission, and both should judge the compound's activity.

Q: Could you talk about how you’re seeing the pricing environment of generic medicine this year and how you see it evolve maybe into 2025?

A: Pricing pressure on generics is downward due to the nature of the business. Teva offsets this by launching new products and improving supply chain and cost of goods, expecting similar pressure in 2025.

Q: On TL1A, could you maybe share a bit more color on the baseline split between UC and then Crohn's disease across your three groups, if that's possible?

A: The study has 240 patients, 120 for each indication (ulcerative colitis and Crohn's disease). Patients are moderate to severe, with a good proportion being biologically experienced and some having experienced steroid use.