Teva Pharmaceutical Industries Limited

Good day and thank you for standing by. Welcome to the Tevis Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand over to our first speaker today, Ren Meyer, Senior Vice President, Head of Investor Relations.

Thank you, Nadia. Thank you, everyone, for joining us today to discuss Teva's third quarter 2022 financial results. We hope you have added 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 tevafarm.com. Please review our forward-looking statements on slide number two. Additional information regarding these statements and our non-GAAP financial measures is available on our earning release and in our SEC forms 10-K and 10-Q. To begin today's call, Coach Schultz, Teva CEO, will provide an overview of the first quarter performance, recent events, and priorities going forward. Our CFO, Eli Kalif, will follow up by reviewing the financial results in more detail, including our 2022 financial outlook. Joining Cor and Eli on the call today is Sven Ditleps, Teva's head of North America business, 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 will now turn the call over to Cor. Cor, if you would, please.

Thank you, Ryan. and welcome to all of you. Let's take a look at the highlights for the third quarter. We came in with revenue of $3.6 billion and our adjusted EBITDA came in at $1.1 billion. The GAAP diluted earnings per share were 5 cents and the non-GAAP diluted earnings per share were 59 cents. We did see significant headwinds on the revenues in Q3 On itself, we had a net impact of $215 million. And yesterday, we've seen an impact of $510 million. That's, of course, compared to 2021. And just to give you an idea about how you can think about it, we have an estimated guidance on the revenue of, let's make it simple, $15 billion. Half of that is U.S. dollar sales in the U.S., more or less, and half of it is non-U.S. dollar sales. and the dollar has been strengthening against nearly every currency. So if you imagine we have half the revenues, seven and a half billion, and there's a strengthening, let's say 1%, then that means that our revenues go down by 75 million US dollars. So each percent increase of the US dollar is a 75 million reduction on our revenue. And of course, then when you get to operating profit, it's less of an effect, there's some offsetting elements, So it's roughly 20 million reduction in U.S. dollar operating profit for each percent that the dollar strengthens, just so you get an idea about it. The free cash flow came in nicely at 685 million, and we continue to reduce our debt in accordance with our strategic aim, and we are now down to 19 billion, first time in many years that we are below 20, which is really nice to see. Now, the revenues are still affected by the strengthening of the dollar, and the dollar remains strong here in the beginning of the fourth quarter. So we've adjusted our guidance on revenues, but we have been able through a lot of measures to keep our guidance on the adjusted EBITDA, adjusted EPS, and free cash flow. So we're reaffirming that guidance, and Eli will talk more about that later. Both Osteto and Adjovi are doing very fine. We'll take a look at that in a couple of minutes. and in Europe we've seen a good development of the business. So net of the exchange effect I just talked about, we've seen 5% growth in our generic and OTC revenue in Europe and that's of course reflecting our strong position there and also some good new product launches. We have also seen substantial progress on the nationwide opioid settlement and in just a few minutes I'll give you some more details on that. And then on the US generic drug antitrust litigation, We have made some more settlements. You know, these are of a lower size, so roughly around a billion per 1% of a million, sorry, 1 million US dollars per 1% of the US population. And lately we have settled in Georgia and Arkansas, and we expect to see more of that in the coming months. So let's move on to the opioid litigation updates. So as you remember, we have reached an agreement in principle some months ago, and we've accrued for that in our half-year earnings. So that's really unchanged. We still have that accrual, and we've been having a lot of progress on that. So in the coming period, we expect to initiate the actual process of having the opt-ins and opt-outs and so on, on both the state level and on the subdivision level. We have also completed the details of our agreement with Allergan, and that was already part of the overall accrual that we did at the half year. But that's now sort of been done in details, crossing the T's and dotting the I's. We have also, as you might have seen, concluded a settlement with New York, which ends the litigation in New York. And it's done in the way that New York basically signs onto the national agreement, which has a certain value. And then they also get what you call a trial bump because they have a verdict against us. They get some extra money. And what's important for us is, of course, that the national agreement is what we already had accrued for. We had also accrued for the premium for New York, most of it. And we now have an arrangement where the extra money, they get it over 18 years, which is good for us because it means that it's very manageable in relation to our cash flow and our debt situation. So we are quite satisfied with that outcome. And then as I said, we are looking into that in the coming period at some point in time we'll have to go through the normal process of the states opting in and then the subdivisions opting in to the nationwide agreement. And we're quite optimistic that we'll get a very, very high number of states and subdivisions joining. And in that way we will put the majority of opioid litigation behind us to the benefit, hopefully, of the US people and also good for us as a company so that we can focus on the future. Now, talking about the future, let's look at the current situation on revenue and how it's been developing. And I'd like to just point to the latest chart here, the latest bar here. You can see that it's roughly 3.6 billion, as we just talked about. and if you add the 215 that we lost on exchange rates, you see it sort of gets to the 3.8 range, which is very similar to where it's been sort of a bit up and down over the last many quarters. So the main change here is really that we have seen this appreciation of the US dollar, other than that we have very stable business in all the different areas of our business. But let me just comment on our two key products. So you will see here that Osteto grew 30% versus last year to 260 million and we see a very strong development continue on Osteto with nice increase in both revenues and in prescriptions and also in patients and number of doctors writing the product. So all in all it's looking very positive and we are on track to reach around 1 billion US dollars in sales in 2022. So that's very positive. and, of course, very nice to see more and more people being treated also for tardive dyskinesia with this nice drug. If we move to Adobe, then we also here have a very nice positive development. You can see the scripts in the U.S. The TRX keep on growing. You can see here how the market share in Europe is nearly 33%. In U.S., it's around 25%. And as you know, we recently launched with a partner in Japan, and they're already up to 28%. So as I've said before, we have a target here that we want to get at least to a third of the market, 33%. And I think it's fair to tell you that I've already told Europe that that's getting too easy now. So they have a new target of 50%, which is exciting, of course, for them and me. Now, if we go on to cost management, then, of course, there's a lot of discussions about inflationary pressure and so on these days. and of course we also have some inflationary pressures on things like energy and other elements of our manufacturing cost base. We are trying to compensate by being more efficient and as you know we've had a strong efficiency drive for the last five years. We're continuing that and that is to some extent you could say The net debt continues to decline Just a little fun fact here. Over the last five years, we have paid $20 billion of cash to the bondholders. The $15 billion, that's the reduction in the debt. And the $5 billion is, of course, roughly a billion in interest rate every year. So $20 billion out of the accounts from us to them. And we will continue to do that until we get the debt down and we get the interest rate payments down in parallel, of course. So on the pipeline, if we take a look at that, then I think I'll only comment on one key event, and that is that we've just refiled Risperidone LAI for schizophrenia, and we are very optimistic about it. We did a complete quality check of all our clinical data. It looked good, and we refiled it with FDA and hope to be able to launch this product sometime during the first half of next year. If we look at another element of our business, our ESG ratings, then, of course, you all know that a lot of elements go into this environmental, social, and governance ratings. And all the ratings are a little different. And we've been able to improve all of these, which we're very happy about. It goes well hand in hand with the sustainability-linked bonds where we did the $5 billion refinancing a year ago. So we're happy to see this continued improvement. Some of the scales are where you want to have a high number, others you want to have a low number. But I can tell you that all of these five important ESG ratings have been improved during the last 12 months. To reiterate our long-term financial targets that we communicated a quarter ago, we have four targets. One is the operating income margin. We want to keep on driving it up and get to 30% in 2027. We need, of course, to keep on driving debt down. You just saw that. It's also on a steady track there. We need to get to around two times net debt to EBITDA in 2027, and we'll do that. The cash earnings, of course, have to stay around 80% in order to be able to get the debt down. And then we are committed to revenue growth, and that basically means that we will do it in a combination of organic revenue growth and selected project or product in licensing to secure revenue. that we see revenues growing forward. We are committed to utilizing the cash flow to pay down debt, and we do not plan to raise equity. So with that, I'll hand over to Eli Kalif.