Teva Pharmaceutical Industries Limited

Good day and thank you for standing by and welcome to the Terra fourth quarter and full year 2021 financial results conference call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session you will need to press star and one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and zero. I would now like to hand the conference over to your speaker today, Ran Mehir, Senior Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you, Annette. Thank you, everyone, for joining us today to discuss David's fourth quarter and full year 2021 financial results. We also have had an opportunity to review our earnings press release, which was issued earlier this morning. A copy of this press release as well as a copy of the slides being presented on this call can be found on our website at stevofarm.com Please review our forward-looking statements on slide number 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our S&P form 10-K and 10-Q. To begin today's call, for sure, Stevo CEO will provide an overview of the 2021 performance recent events and priorities going forward. Our CSO Eric Kalif will follow up by reviewing the fourth quarter financial results in more detail before providing an overview of Teva's 2022 financial outlook. Joining Cora and Eliyahu on the call today is Van Dietleks, Teva's head of North America Commercial, who will be available during the question and answer session that will follow the presentation. Please know that today's call will run approximately one hour. And with that, I now turn the call over to Cora.

Thank you very much Ron and welcome everybody and thank you for your interest in our company. I'll start by commenting on the 2021 highlights. We came in with revenues at $15.9 billion. We did see some headwinds compared to our initial guidance. Basically coming from COVID that resulted in less volumes in general in the marketplace of generics and OTC both in Europe and U.S. and we also had a bit of headwind from the fact that the US doctors didn't see as many patients as normally, so we saw a slightly slower penetration of some of our products than we predicted from the beginning of the year. But all in all, we are happy with the 15.9 billion that we ended up with as revenues. The adjusted EBITDA came in at 4.9 billion US dollars, which is very much within the guidance. The GAAP diluted EPS came in at 38 cents. The non-debt-valued EPS came in at $2.58, again in the middle of our guidance. Free cash flow at $2.2 billion, also within our guidance. And the debt reduction continues, and the net debt is now reduced down to $20.9 billion. So it won't be long before we get below $20, which is nice. If we look at the business highlights, then of course we have to handle the COVID-19 pandemic, which continues. We were hoping at the beginning of the year that it would be over, but as we all know, it wasn't. It continued. And we did see, of course, a lot of challenges which we overcame operationally. So our whole operations worked out really, really well. I'd like to thank all our employees for a fantastic job all throughout the years. Then we did do a refinancing, which I'll comment on. We saw a nice growth of a Stato, a nice growth of a Jovi. and we are excited about launching Risperidone LAI later this year and I'll comment on all of those in the following slides. So if we go to the next slide please. The number one question I always get from analysts and investors is of course on the litigation side. And as you all know we had legacy opioid litigation dating back to somewhere between 2000 and 2010 and that's a lot of this. More than 3,500 different cases are pending, so to speak. Now, we've been making some progress recently, and if I start with the court decisions, then to be very brief about it, we had a court decision which was a bench trial in Orange County, California, where it basically was stated that if you do everything correct and the prescriptions are correct, the products are in compliance with FDA regulations and and many, many more. And then there was a jury trial in New York where we lost and we were found to be liable. so was actually the state of New York as well. So that was an interesting verdict as a mistrial motion pending due to arguments from the AG at the end of the trial which were not correct. So if we then switch to the settlement front then you all know we had a settlement in Louisiana some time ago and now we've had a settlement in Texas. Both these settlements combine a cash compensation and providing products. In the case of Texas, it's generic Narcan spray, and that's a product you use when you have an overdose situation. So we're very happy about the settlement. We think it's a good way forward. It makes sense for Texas to get some resources to take care of people suffering from substance abuse, and it makes sense to get the generic Narcan spray, which can help people in an overdose situation. I'm always optimistic, as you know, so I'm still optimistic that we can reach a nationwide settlement within the next 12 months. I've said that before. I'm still believing in that, and I think that the Texas settlement will be a good starting point for those ongoing discussions. We move to the next slide, and here you can see our revenues throughout the year, and you'll see that We had a bigger revenue in Q420 than we had in Q421. And the reason for that is really that we launched Truvada Natripla, generic Truvada Natripla, back in Q420. And we didn't have the similar big launch in Q421. Other than that, you could say it's really a very steady business. And you can see from the different components, Europe, international markets, and so on, that they're very steady. and performing quite well. If we go to the next slide. So in the U.S. marketplace, we have two main growth drivers, and that's Osteto and Adobe. And let's look at Osteto first. You can basically see that we continue to increase our script count per quarter. Basically, more and more people are getting on the therapy. And you can see that we also, on an average basis, continue to increase revenues quarter by quarter. It's a little up and down, as you can see. We have some swings here, and that's basically because you see some volatility sometimes with the wholesalers. We did see some, what you call, spec buying in the fourth quarter. That's basically in anticipation of a price increase, which is traditionally taken at the beginning of the year, so early January. Wholesalers sometimes buy product. Of course, to avoid the price increase, and we saw a bit of that. But underlying, there's a very strong correlation between the nice growth in the scripts and patients and the nice growth in revenue. And we expect revenue, of course, to continue to grow throughout this year. Why can we expect that? Let's look at the next slide. Basically because Osteo is indicated for Huntington's disease career in Huntington's, so involuntary movements in Huntington's, but it's also and other indicators for Tardive Dyskinesia. And Tardive Dyskinesia are these significant involuntary movements that are socially debilitating and that can really be a big problem for the patients suffering from it. There's around 500,000 patients or persons in US suffering from Tardive Dyskinesia. It's underdiagnosed and it's undertreated. is treated as we speak. And of course, we are working to broaden that base, making sure that the benefit of the product will reach more patients. This will drive increased scripts and will, of course, also drive increased revenues for Stevo. So we are also, like I said before, optimistic that we'll see increased patient numbers throughout the current year. If we move to the next slide, then we are looking at Adobe. As you know, Adjovi is preventive therapy for migraine. We are competing with two other products. We have the longest acting product profile, which basically means that our product can be used both monthly and quarterly, which is, of course, a benefit, that flexibility for patients. And the long duration also means that you have a very steady clinical action profile. So good efficacy on the product. We continue to grow scripts in the U.S., as you can see. A lot of users in the US. And we continue also to grow our scripts in EU and also our market share. And here you see that our market share, the last one we had for November, I believe, is now around 28%. And we have changed our ambition. We started out with an ambition some years ago because we launched as number three of having more than 20% share. Then we moved it to 25%. And now we have an ambition of at least having a third of the market, both in US and Europe. We also just launched in Japan with our partner, Otsuka, and we're very happy about the performance of Adobe and confident that the product will keep on increasing revenues in the current year. If we take a look at our pipeline, then we have a lot of exciting products here. There's a very big biopsy portfolio, which I will comment on in just a moment. We have some exciting biopharmaceutical products in development, and then we have The Respiradone LAI which has been filed with FDA and where we are looking forward to getting an approval hopefully in the middle of this year. And let me just talk a little bit more in detail about Respiradone LAI. If we move to the next slide, then Respiradone LAI is for patients with schizophrenia. It's an antipsychotic. And in the phase three trial, it showed phenomenal efficacy. So you see here the risk of relapse was reduced by up to 80% versus placebo, so that's one of the best results you can find for long-acting antipsychotics. So it's a really, really efficacious product, and it's also the easiest product to use. And what do I mean by that? Well, many of the long-acting antipsychotics have what you call intramuscular injection, which means you have a relatively long needle, and you need to make a depot in the muscle tissue. That is relatively painful and complicated so the administration of the products is not that easy. This product you inject subcutaneous with a very small short needle. It's a low volume of injection and you can inject in different places. So it's basically an easy way to get your therapy that is as efficacious if not more efficacious than anything else. So we expect to see a very good launch of this product once we get approval and we're very much looking forward to this and bringing the benefits to the patients suffering from schizophrenia who need stable therapy in order to avoid relapses which can really hurt their cognitive function capability. So let's go to the next slide where I'll give you just a little heads up on our biosimilar portfolio. So we have 13 biosimilars in development. about half of them are in-house programs, half of them are programs that we have in-licensed. It's a very strong portfolio. Roughly, we are addressing some 80% of the value that goes off patent in the coming years. And we believe we can grab a good share of that value. Of course, there are other competitors, but if you look at Truxima, which was the biosimilar, or which is the biosimilar of Ritoxan, our biosimilar, and right now we have a 28% volume market share which we think is very good and it's a nice product for us. It has shown stability in the marketplace also on the pricing so we're very optimistic about the commercial potential of our biosimilar portfolio and it will of course also add increased access for populations around the world just like generic products does So does biosimilar products ensure access to important medicines worldwide. Also in Europe we are launching products now and we'll have a biosimilar that we launched during this year. Now we've also always been focused on our gross margin and operating margin. And I won't go into all the details here. But what I will tell you is it's not a coincidence when you see our margins improving. It's a lot of work by thousands of people in our organization, in our manufacturing organization, in our procurement organization, basically optimizing all the classical elements of manufacturing. And you see some of the headlines here, procurement, network, operational excellence, insurance supply chain, agile operations. So these are all the classical things, and if you're interested in manufacturing optimization, you can rest assured that we're doing all the things that you can do, Thank you very much. Thank you very much. Thank you very much. as a company is created by more than 20 acquisitions over more than 20 years. And that leaves a very complex footprint of offices, of manufacturing sites, of R&D sites. But it also leaves a lot of capabilities. So the trick here is to keep all your capabilities, keep all your operational strength, but consolidate your sites so that you get more efficient. Bigger sites, fewer sites. and here you can see over the last five years how we've gone from 80 manufacturing sites down to around 50 and we have plans to continue this so in the next couple of years we will be divesting or decommissioning probably around another 10 sites so this evolution will continue. The same thing will of course happen for our office sites and our R&D sites. So continued optimization, more to come in the coming years. Now if we take and look at an example here, our European business, then you will notice here that the operating margin is improving. Now the operating margin basically improves for two reasons. One is the gross margin improvements that I just talked about, but the other one is as you consolidate your commercial offices, as you consolidate your commercial operation and optimize that, then of course also you could say your commercial cost as percent of sales also comes down. and those two factors have been driving up the operating margin in Europe. You can see here from 25% to 31%, a very, very nice and strong development and again something that will continue to improve mainly now with the contribution from the gross margin because we're getting closer to having optimized the commercial footprint in both Europe, US and international markets. But I've talked a lot about margins. Let's just take a look at the operating margin here. You can see here how we had a bad run down from 28.8 in 2017 down to 24.5 in 2019. That is really driven by this significant drop in compaction revenues as a consequence of the patent expiry on compaction. Now compaction is now down, as you know. This year it will be less than a billion in revenue. So it's not a major factor in our market anymore. And we've been working hard to improve the gross margin, as I told you, and the operating margin. And we set a target five years ago, or actually four years ago, but for the end of 2023, then it will be a five-year target from 18 to 23. And that target is 28%. And as you can see, we are very well on our way to hit that. and I've always said that we won't bring out new targets until we hit our target but it might just be that we get so close that in the later part of this year we will actually share with you future targets so that you don't get the wrong impression that we will be stopping at 28. We will continue to drive up operating margin since that's a key element of Australia and why is it so important? Well, the next slide tells you something about why it's important. It's because we have a starting point with too much debt, so we need to drive down the debt. And the only way to drive down the debt is to generate cash flow and allocate the cash to reducing debt. And the way to generate the cash flow is, of course, to have a high operating margin. So, therefore, the whole thing, of course, fits together. And you see here how we've been taking down debt since 2017 with some roughly $13 billion. In the same period, we have, of course, been paying interest rates, about a billion a year. So you could say that we have paid $17 billion to the bondholders over the last years. This will continue in the coming years. And then, of course, you can all calculate that there will be a nice time when we don't need to allocate all our excess liquidity and cash to bondholders. But we can, at some point in time in the coming years, start allocating cash to the shareholders which will, of course, be a big pleasure to reach that point. Now, on the way to that, we, of course, need to manage our debt and what we call the debt stacks. That's really how much debt you need to repay every year. You need to have a good balance between your operational cash flow and the debt you're paying back every year. And last year, we did a successful refinancing of $5 billion, so basically we We borrowed $5 billion by selling bonds and we repaid debt by $5 billion by checking out existing bonds from the market. All with the purpose of getting a more flat repayment profile so that we are repaying for the next three years what matches our operating cash flow. And that means that liquidity-wise there's a good balance between the liquidity we generate and repaying the bonds over the next three years. Now, we did this in a new fashion. We issued what's called sustainability-linked bonds. And that's a new thing which makes a lot of sense for us because, you know, we are the world's leading generic pharma company. And what do we do? Well, we really supply medicines to hundreds of millions of people in high quality so they can take care of their health issues. How can we do things better for the world? Well, basically by supplying more high-quality medicines at a low cost and many more. And if you look at the sort of targets we set up for these sustainability-linked bonds, then the first target is a classical climate change target. So it's a reduction in greenhouse gases by 2025 and we are well on our way to do that. And actually it's funny because the reduction in greenhouse gases goes hand in hand with improvement of the gross margin. Because the best way to improve your climate footprint is to use less resources. So the more efficient you manufacture, the less resources you use in manufacturing, the less burden you are to the environment, and the better is your gross margin. So the financial targets go hand in hand with the environmental targets. On access, this is a thing we can do better than probably anybody else. We can manufacture the medicines that are on WHO's essential medicines list, really what society needs to have a basic healthcare system. We can ensure that these medicines get regulatory approval in low and middle income countries and then we can ensure that actual volumes of medicines are brought to the patients in these countries all helping the healthcare systems. So that's what we committed to doing and that's what we will be doing in the coming years and reporting on of course so that everybody can see that we meet the targets of these new bonds. Now I talked about the debt maturity profile. Just a quick look here of what we did. So we took out, you could say, bonds, maturities in 22, 23, 24, and we pushed it into 27, 29, and 30. And you can see basically taking the next three years down to around the $2 billion mark. And you can also see here that we will need to do one last refinancing before we get to 25, 26, and 27. probably of around three to four billion. Again, taking those debt stacks to a level of around two by pushing something into 31, 32 and so on. And that will be the last time we need to do that. Then we'll have balance for the rest of the time between the debt repayments, the maturities and our operating cash flow. Now that takes me to my last slide, which is a nice, boring, good slide, which has been there since 2018. it just tells you that we're sticking to our long-term financial targets operating income margin I talked about it already 28% cash to earnings above 80 to secure we have the cash for the debt repayments and net debt of course coming below three times EBITDA by the end of 23 and all this is of course predicated upon what you see here that we're committed to utilizing our cash to pay down debt and we don't plan to raise any equity We think our patient equity holders deserve to see the open amplification go away and the debt come down and get the full value benefits of that when that happens eventually. And with that, I'll hand over to our CFO, Eli Kalif.