Teva Pharmaceutical Industries Limited

Ladies and gentlemen, thank you for standing by and welcome to the Teva Pharmaceutical Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. We will currently ask you to limit yourselves to one question and one follower page. I must advise you that this conference is being recorded today and I would now like to hand the conference over to your first speaker, Kevin Mannix, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Valerie, and thank you, everyone, for joining us today to discuss Teva's third 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 and to better understand its business. Thank you for watching. To begin today's call, Cor and Eli will provide an overview of the third quarter performance, recent events, financial outlook, and priorities going forward. This will be followed by a question and answer session. Today's call, which will run for one hour, is being webcast live and recorded. You'll be able to replay the call as well as view the transcript later today on the Teva Investor Relations website. And with that, I'll now turn the call over to Teva's CEO, Cor Schultz. Cor, if you would, please.

Thanks, Kevin. Welcome to all of you, and thanks for joining this call, and thanks for your interest in Tether. We had a solid third quarter. We saw revenues of $4 billion. That's slightly below our expectation. The reason was that we saw overall lower total script volume in both U.S. and Europe as a consequence of COVID-19, and slightly less patients actually going to doctors and to hospitals for therapy. When we look at the EBITDA, then the non-GAAP EBITDA came in at $1.2 billion, which is completely in line with our expectations. So we compensated for the slightly lower revenues by cost savings. We had a GAAP loss per share of $3.97, and that includes a $4.6 billion Google impairment. And we had a non-GAAP EPS of $0.58, which was completely in line with our expectations. The free cash flow was also in line with expectations at $0.5 billion. We are very happy to see a continued reduction in our debt, and the net debt as of the end of the third quarter now stands at $23.8 billion. In terms of business news, we had several interesting things happening in the third quarter. The first one I mentioned here actually happened at the very end of the quarter, the last day of the quarter. That was the very successful launch of the generic versions of the HIV medications Truvada and Tripla in the U.S., The sales are all booked in the fourth quarter, but we actually did have the sort of physical launch on the very last day of the third quarter. We're also very happy that we continue to see the strong penetration of Trixima, and we're also very happy about the development of Adobe, and the fact that we are now looking forward to getting it approved in Japan, since it has been sent into the authorities by our partner, Otsuka, in July. In a very interesting move, we now complement our portfolio of inhalers, digital inhalers, in the U.S. asthma space, and we now have launched also the Adu DigiHaler and the Amon Air DigiHaler, which basically means that we offer a full therapeutic opportunity for people to treat their asthma with our DigiHalers, which is a new and very advanced way of treating asthma where you get direct feedback from the device and where your device communicates with your smartphone direct to your caregiver. So we are having high expectations for this going forward. Last but not least, I'd like to just touch very briefly on the fact that despite COVID-19, which is affecting the whole world and of course affects all the countries in which we have our operations, we were able through resilience of our organization to maintain full operational capacity everywhere and serve the roughly 200 million patients we serve on a daily basis with our essential medicines. Next slide, please. Today, I actually celebrate that I've been three years with the company as CEO, and one of the key things which I'm proud of is this debt reduction you're seeing here. In the three years that have passed since I joined, we reduced the debt from 34 billion down to 23.8, so more than 10 billion reduction. And as you know, it's our ambition to keep on doing Thank you very much. Now, in terms of revenue development, you could say the last three years we've seen a significant reduction in revenue as a consequence of the patent expiry of Copaxone in the U.S. and Europe. And now we've actually reached a level where we have sort of flattened, we've plateaued, stabilized the revenue, and we're now looking forward to marginal increases in revenues moving forward. There's a couple of quarters here where we have once-offs, and we always have that once in a while. That's the nature of our business. One was one we knew about. That was the fourth quarter in 2019 where we made a launch of Sinicalcid. That boosted, as you can see, the North American sales, that generic launch. And then there was the first quarter of 2020 where in Europe we saw a patient-level hoarding of all kinds of products, generics, all kinds of products, which happened just at the arrival of COVID-19 before the lockdowns. and that's why you see the European sales jump in the first quarter this year. Then there was a reverse of that jump in the second quarter so you see the European sales go down from 1.4 billion in the first quarter to 1 billion in the second quarter. and now you see more of a normalization. And I would say the European and US sales in the third quarter, they are probably around 5% below the normal run rate that our market share would carry. We have not lost any market share, so it's really that the volume in the market is still somewhat negatively affected by COVID-19. We do hope, of course, that in the coming quarters We will see a normalization so that we get back to the normal total market size. And then, of course, in the fourth quarter, we will see the benefit of the so far very successful launch of Truvada and a tripler in North America. So a little bump up there in North America in Q4. Can we move to the next slide, please? So as you know, we have three main drivers Thank you for joining us. and you can see it still keeps growing strongly. Also here there are some ups and downs per quarter. That's just random moves in the pipeline so to speak or in the value chain. The main thing here is it keeps increasing. It's 64% up versus the same quarter a year ago and we're now above 10,000 patients and I know I mentioned this before but it really is important to realize that the 10,000 patients is a combination of Huntington's disease and tardive dyskinesia and the potential for tardive dyskinesia in the U.S. is huge. There are roughly 500,000 patients suffering from tardive dyskinesia in the U.S. And of course, not everybody will all get therapy, but I'm sure that in the following years, we'll see more patients in therapy than we have right now. So I'm very optimistic that we'll see a continued strong growth of Osteto in the coming quarters. If we move to the next slide, please. Now the second element that needs to drive our growth worldwide is Adobe. And here we have actually quite an interesting development. First of all, let's start with the negative piece. The negative piece is that the sales were 35 million and we would like to see them higher. And that's partly because our TRX share is a little bit low now due to the fact that we lost NPRX as we lost traction in the market in the beginning of this year, basically due to the fact that we did not have an auto-injector and the two competing products both had an auto-injector. Now, we have launched the auto-injector back in May, and what you see here is something that I've only seen, I think, once before in my 30 years in pharmaceuticals. It's a really successful relaunch, in this case driven by a device. and what you see is that the capture rate sort of has more than doubled in a few months from being close to 11% to now being nearly 25%. And you can see now that it starts to carry through to the TRX count. So I'm very optimistic that we will continue to see a journey growing nicely and I can tell you it's not on this slide but in Europe we see the same very nice development in a big market such as Germany where we've also launched the ultrainjector. We also see and more. Next slide please. Another element in our strategy, and here I refer to our R&D strategy that we disclosed some time ago, is biosimilars. And those of you who have followed the company know that I've been saying before we launched Troxima a year ago that we wanted to prove that the U.S. market is really open for biosimilars. And if you have the right commercial setup, you can actually penetrate nicely, and there's a new Thank you very much. and this is of course important because it's a good launch but it's also important because as you know we have more than 10 biosimilar products in our pipeline now for North America for the U.S. market and this is just validating the commercial model that this is a business which is a really good supplement to traditional old generics and we're looking forward to launching many more biosimilars going forward. One of the reasons why we think that will keep on growing is really that it's the only biosimilar, rituximab biosimilar that has RA indication as part of its label. Next slide, please. So we are looking into hopefully a marginally growing revenue in the coming periods as a consequence of these growth drivers I just described. And of course, combined with the fact that Copaxone keeps declining, but keeps declining less than these three elements have grown. But that's not the only thing which goes into our sort of optimization of the business. We are also working very hard on improving the operating margin, both through the gross margin and through total improvement in our business model. And here you see how we bottomed out at 24.5% in 2019. Thank you for joining us. More than two years ago, just after I joined Tether, and this is a target we are firmly committed to, and all our optimization of the business is driving towards achieving this target, which is very, very doable. Now, let's take you to the next slide. And here I have the same slide as you see many times, and this is basically a slide that's been unchanged for a couple of years, and I think it will stay unchanged hopefully for for the next three years until we get to the point where we actually realize the numbers, which will be at the end of 2023, which is three years from now. First of all, we are committed to the 28% operating income margin. We are committed to cash earnings above 80, and we are committed to getting remit debt to EBITDA below three times. And of course, the way to do so is to utilizing our cash flows to pay down debt, and we do not plan to raise any equity. and on this slide I would like to actually reflect a little bit on the last three years with Teva because it has been a phenomenal journey operationally together with my management team and all the employees. I think everybody's done a fantastic job in optimizing the company, restructuring the company, securing a healthy margin despite a revenue loss of around $5 billion on a yearly basis, getting good control on the cash flow and keeping on paying down the net debt. I would like to share with all our shareholders who are listening that it is of course frustrating that when your operational plan actually is executed completely according to plan and you see your whole organization doing a great job that you then have legal situations, litigation situations in the U.S. which are related to events way before you joined the company, litigation situations that get worse and many more. and many more. And of course we would love to solve these litigations. We are still in a constructive positive dialogue with the state AGs on the opioids and as you know we are going to trial with DOJ on Thank you, Cora, and good morning and afternoon to everyone. As always, we start with a review of the GAAP performance on slide 13.