Teva Pharmaceutical Industries Limited

Ladies and gentlemen thank you for standing by and welcome to Tether second quarter financial results conference call. At this time all participants are in a listen only mode. There will be a presentation followed by question and answer session at which time if you wish to ask a question you will need to press the star and one on your telephone keypad. and Mr. Traju, this call is being recorded today on Wednesday the 5th of August 2020. I would now like to hand over to your first speaker today, Mr. Kevin Mannix, Senior Vice President, Investor Relations. Please go ahead sir.

Thank you Tracy and thank you everyone for joining us today to discuss Tevis second quarter 2020 financial results. On the call with me are Cora Schultz, Teva's Chief Executive Officer, Eli Kalif, Chief Financial Officer, and Brendan O'Grady, Teva's Head of North America Commercial. We hope you've had an opportunity to review our earnings press release, which was issued earlier this morning. A copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevafarm.com as well as through our Teva Investor Relations app. Please note that the discussion on today's call includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the company's operations to better understand its business. Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends. A reconciliation of gap to non-gap measures is available in our earnings release and in today's presentation. To begin today's call, Cor and Eli will provide an overview of the second quarter performance, recent events, and priorities going forward. This will be followed by a question and answer session. Today's call, which will run approximately one hour, is being webcast live and recorded. You'll be able to replay the call and view the transcript on the Teva Investor Relations website. And with that, I'll now turn the call over to Cor Schultz. Cor, if you would, please.

Thank you, Kevin. Welcome, everybody. I hope you're all safe and healthy. And I'd like to start by commenting a bit on the COVID-19 situation. So if I could have the next slide, please. As you know, Tether is the world's largest manufacturer of pharmaceuticals in volume. And I would like to share with you that our manufacturing organization, our QC, our logistics has shown great resilience all over the world in this situation. And despite the challenges of COVID-19, we have been able to stay operational, been able to supply customers, and we're very, very proud about it. The way we've been thinking about it is illustrated on the next slide. We've really been focused on three key stakeholders, our patients, our employees, and our communities. and I won't give you all the details that would take too long, but just reiterate that we've been committed to our patients. We serve around 200 million patients every day. We've been able to do so with uninterrupted supplies. Our employees is of course our key concern when it comes to safety and protection. And I'm happy to say that due to a lot of measures worldwide, we have been able to avoid any outbreaks of COVID-19 related to our facilities We've had no facilities that had to be shut down for longer periods of time because of any kind of COVID-19 problems. So it has taken a lot of work. It has taken a lot of new precautions, a lot of new procedures. But we're happy to say that we're able to handle this in a good way. We've also tried to support communities and patients the best we could. We've donated products in more than 25 countries. We've donated all kinds of different products. and we made sure to support also locally in our factories to people less fortunate than us and this has been done with great passion and great effectiveness and I'm very proud about what all our employees have done. So I would like to share with you my big thanks to all our employees for keeping the business going in a very nice way. I won't tell you all the details about how much we support the healthcare systems around the world, but I'll just share here a few hashtags. One in every ten scripts in the U.S. are filled with whichever generic product. We actually manufacture by far the most of all medicines listed on the WHO essential medicines list. We also provide huge savings around the world and just in the US alone more than 41 billion dollars in savings in 2018 and probably even more so this year. But of course the most important is to supply high quality medication for patients who need it every day and we continue to do so. But now let's move to the financials. Our revenues came in at 3.9 billion. and as I'll show you in a moment, that's slightly below what we would normally expect. There's a phenomenon here where we saw higher demand in the first quarter of certain generics and OTCs products, especially in Europe and we've seen lower demand in the second quarter and I'll show you that in a minute. Our non-GAAP EBITDA came in at 1.1 billion, the GAAP EPS at 13 cents and the non-GAAP EPS at 55 cents. The free cash flow came in just around 0.6 billion, and all in all, for the first half, 1.1 billion has been accumulated in free cash flow. Net debt continues to decline. We're now at 2 and 3.9 billion, and as a side issue, I can tell you that in July, we repaid 1.1 billion. I'm very happy to reaffirm our outlook. There will be a slide at the end of the presentation where you will see all the different details. We are basically reaffirming all the details of our outlook, including the strong growth of our new products. which I'll be commenting on a little bit when I comment on our business update. On the business side, we have a lot of news for you today. Some of them we have reported in the last couple of days. I won't comment on this slide, but there'll be a separate slide of each of them in the coming presentation and I'll comment on them when we get to that. So if we move to the next slide, then I can show you this phenomenon we've had on the revenues. Really what you should look at is the Q1 20 and Q2 20 column. and look at the dark green colored part of the bar which is Europe. We basically had a 200 million swing factor in Europe. So what it means is that in the first quarter we probably sold 200 million more. We can see now when we analyze due to patient level hoarding and stockpiling of products. And that means in the second quarter we sold 200 million less. So if you move that 200 million you get to 1.2 billion in each of the two quarters for Europe. and that's why we did the half year comparison to the right where you can see first half 19 compared to first half 20 and what you can see there is we did 2.4 billion in 19 in the first half in Europe and we did 2.4 billion in 20 in the first half. So basically a very steady market situation. Now that's basically a reflection that we have some products that are declining such as Copaxone and we have other products that are growing such as Osteto and Adobe and the two are basically balancing each other out right now and then we make a little bit more money because we manage to be more efficient and reduce our cost right now. So we talk about the two drivers of sales growth that's compensating for capacity decline. Let's move to the next slide and look at Osteto. As you can see here, Osteto continues to grow very steadily. There are some small variations from quarter to quarter, but basically if you take the graph in the middle, you can sort of make a straight line, and then you have the growth track since the launch, and we see that continuing. We see very good prescription numbers, and as you'll see at the end, we are maintaining our guidance for the year of around $650 million in revenues for Osteto. Nice to note also is that Osteto has been approved in China. That's a unique thing in the sense that it's approved without a phase three trial because the Chinese authorities realized that this was a drug they would like to have. So we got a regulatory approval without doing a Chinese trial. And we're looking forward to launching Osteto in China. Of course, launches in China are always pretty slow because you start in the private market. but nevertheless it's a good sign that we bring Osteto to other patient populations also outside of U.S. So very strong growth that continues on Osteto. Now the other growth driver, adjov is described in the next slide and here we have I would say a fantastic story which I have not seen that many times in my 30 years plus in pharmaceuticals because we have a situation where we launch a product and you can see here in the middle with a good NBRX share. You have to consider here that we have three players in the market and there was one company launching significantly before us and we get a decent start. We've had an aim all the time to have at the end of the day around 25% of the market which fits with the fact it's a three player market and we are not the first to launch. And then we have a negative development with declining NBRX share. and that's mainly a reflection of the fact that we don't have an auto-injector and this is a very efficacious therapy for chronic migraine and you self-inject once a month at home and we only had a pre-filled syringe, not an auto-injector because we had a delay on the approval of the auto-injector. Then what happened was we finally got the approval and since the product has an excellent efficacy profile and an unbeaten safety profile. You can see here, since we got the autoinjector, the NBRX share has continued to grow significantly per month and per week. And I can tell you here that the July numbers are even higher than the June numbers. So we are very optimistic about the fact that we are getting back to that natural capture share, natural NBRX level, which would be somewhere between 25 and 30 and which would lead to us getting a TRX share in the end of around 25 which is really what our ambition is for this product. So a very positive story here in the US and I should add also that it's doing well in Europe. We now have reimbursement in 16 countries. So slowly these numbers will start to add up and you will start to see meaningful double-digit numbers in millions of euros and dollars per quarter of European revenue going forward. So that's very positive. We also have another positive thing which is our partner Utsuka on Adobe has filed the product in Japan and we look forward to the approval and launch in Japan. Now, right now, Astero and Adobe are the two products that are driving most of the growth. But there are also things to come in the future, and I have three stories here I would like to share with you. And the first one is Fasinumab. And as you know, Fasinumab has been in development in a partnership with Regeneron for a long time, and Regeneron are conducting clinical trials. And we just had a readout from phase three, and we had a efficacy readout, and we had two phase three trials. and in those trials, the one milligram monthly dose demonstrated significant improvements in pain and physical function over placebo, both at week 16 and week 24 respectively. So this is very good, clear-cut efficacy on the one milligram monthly. The one milligram monthly dose also showed nominal significant benefits in physical function in two trials. and pain in one trial when compared to the maximum FDA approved prescription doses of non-steroid anti-inflammatory drugs for osteoarthritis. So that's what you normally call NSAIDs. So what we're talking about here is that when we compare the one milligram monthly against the normal therapy, we also saw improvements. So this is of course very, very positive. In The trial where we had one milligram every two months, there we saw a numerical benefit over placebo, but we did not reach statistical significance. In the initial safety analysis of the phase three trials, there was an increase in orthopathies reported with facinimab. In a subgroup of patients from one phase three long-term safety trial, there was an increase in joint replacement with facinimab one milligram monthly treatment during the off-drug follow-up period. although this increase was not seen in the other trials to date. So additional long-term safety data from the ongoing trials are being collected and I expect it to be reported early next year and then following that if everything looks good then you could expect a filing of the product sometime the first half of next year. So that's of course something for the future and we have the partnership with Regeneron which means that we're sharing the product in the U.S., and we are going to do the commercialization outside of the U.S. If we move to the next slide, then another exciting move here is that we have a vision to be the leader in generics, which we are, but also to be one of the leaders in biopharmaceuticals, including biosimilars. and as you know, we are just getting started there and we have a pipeline with six biosimilars in development but we would like to have more, you could say, projects in this area. So we just entered into an exclusive strategic partnership for the commercialization of five biosimilar products with Alvetech and we very much look forward to this and we think that our commercial expertise in biosimilars in the US will be a key player in this combined with Alvetech's strong technology and know-how in development of biosimilars. So this is very exciting for us. It means that we now have more than 10 biosimilars in our development pipeline, which we are very optimistic about. A last move we've done, which is more like a... I would say part of being focused and part of optimizing our business also on profitability and future growth is that in Japan we have a business venture to build with Takeda which we're very happy about and we've done a small change here. We've basically taken part of the business which are old generic products with low profitability and some contract manufacturing and many more. We have a lot of operations of contract manufacturing products that are all manufactured at a manufacturing plant we have in Takayama. We are planning to sell this to Nishiko, a main player in the generic space in Japan. They will be taking over these old products. We will keep our newly launched generics. We will keep our complex generic portfolio. We will keep our long-listed products and specialty assets and this transaction we expect will take place at the end of this year, and it will secure future growth of our Japanese business, and it will also improve the profitability. The last update I want to give you on the business is on the next slide. It's about Tuxema. As you know, we launched Tuxema at the end of last year. and I always said that we thought we could do better than most people have done with biosimilars in the U.S. due to our commercial footprint and the fact that we are the biggest volume supplier of pharmaceuticals in the U.S. so we have customer relations to basically nearly everybody and that's important when you launch a product like a biosimilar such as Truxina. I'm just happy to report here that another good thing that has happened is that injection for rheumatoid arthritis has been approved. and that means that we can keep on growing our Truxema business in the US nicely going forward. Then we also have a very, very exciting thing that's happened in the digital slash product slash respiratory space which also bodes well for future growth. Now, this is the world's first product where we have a asthma or COPD respiratory inhaler that has integrated electronics that measures the actual inhalation, the velocity and volume of your inhalation and can give you a feedback on your smartphone, both with regard to the quality of your inhalation, with when you did the inhalation, with the dose and so on, but not only can it do it on your smartphone, it can also have the smartphone connected to the cloud and you can then control that that data is handed over to a caregiver, a parent, a doctor, and it will be possible then to have a, you could say, electronic consultation with your doctor, sharing the data, discussing the data, and in that way staying more on top of the therapy. Or for caregivers, parents, they can share with their children, with relatives, you can share with your partner how the disease is evolving, how you're dosing your medication. and this is very, very exciting. We just launched the first product ProAir DigiHaler in the US. These are the very first weeks. We see a very encouraging take up in the marketplace. We are collaborating with certain healthcare systems on this product as well. So we are very optimistic that this can bring significant clinical benefits and therapeutic benefits to people suffering from asthma and COPD not only in the US but longer term all over the world. These were some future growth drivers and some current growth drivers, but let me just round off by saying where is this all going to lead from a financial point of view before we slide into the financials. This slide you've all seen before and expect to see it many times again until the end of 2023. There's no change to the slide. which is good. Our target for operating income margin is still 28%. We need cash earnings about 80% to pay down debt and when we pay down debt and grow EBITDA, then the net debt to EBITDA ratio declines and we have a target of less than three times at the end of 2023. And as you know, we are committed to spend all our cash flow on debt reduction. We continue to do so and we do not have any plans to raise equity. But with this long-term financial target, I'd like to hand over to Eli Kalif, who will go through the financials.