Teva Pharmaceutical Industries Limited (TEVA) Barclays Global Healthcare Conference (Transcript)

Teva Pharmaceutical Industries Limited (NYSE:TEVA) Barclays Global Healthcare Conference March 14, 2023 10:15 AM ET

Company Participants

Eli Kalif - EVP and CFO

Conference Call Participants

Balaji Prasad - Barclays

Balaji Prasad

Good morning, everyone. My name is Balaji Prasad, I'm the Senior Analyst for the Barclays Specialty Pharmaceuticals coverage. For the next session of the day at the Barclays Annual Healthcare Conference. I have the pleasure of hosting Teva, and Eli Kalif, the Chief Financial Officer from Teva. Thank you so much for joining us today. It's a pleasure to have you here.

Eli Kalif

Thank you for having me. Really excited to be here.

Balaji Prasad

It's a very interesting phase for Teva now with the CEO change and everything else. But considering that you had your earnings call recently, why don't you start with a couple of recaps from your earnings call and then we can get into Q&A.

Eli Kalif

Yes. So, yes, we're really excited to have Richard with us, I think, over the last several years. The company really focused on how to be able to stabilize the optimization to make sure that our capital allocation really focused on serving the debt and keeping our restructuring capabilities, taking a lot of cost out of the system. And with the coming new CEO, Richard Francis and his well experienced record, we see ourselves now positioned into growth.

What does it mean? It mean that we initiated already in the last two months on ongoing strategic review. That strategic review of going with the several work streams that you go across the companies and with dedicated teams. That going through any assets, any operations, any portfolio that we can think about on thinking about growth.

What type of activities you want to focus on? What type of activities you want to stop to focus on? And everything is how we envision our working capital is our capital allocation in the future in order to drive growth.

So I think that, you know, coming from the earnings and one of the most major element was our offering that we did in the last weeks. We actually offered to $1 billion S&P bonds. We offset that deal to $2.5 billion with tendering of the same $2.5 billion. We announced yesterday on the tendering finalization relief. As with the fact that we have kind of a clear runway for the next three years with an average $1.6 billion, $1.7 billion debt stake for 2023, 2024, 2025 that enable us to secure liquidity, which means that's going to be paid from our organic free cash flow and really having us focusing on our strategy on growth.

Question-and-Answer Session

Q - Balaji Prasad

Thanks for that recap, Eli. As I see, I think the task for Teva is clearly cut out. So you have the growth mandate that that Richard will be driving, and then you have the capital allocation thoughts on priorities, but you're being getting very well over the last couple of months especially. So maybe starting with Richard and how should we think about as top priorities for the near term and then the major focus items of priorities for the longer term? And what does the growth mandate for Richard translate into a material?

Eli Kalif

Yes. I think if you're looking first of all on our existing portfolio. If you think about generics, yes, we have in U.S. generics as all the rest of the players, we see some kind of stabilization in terms of the pricing. But we're also looking on the ex-U. S. generics. If you think about it more than 60% from our generics is ex U.S. It's around $5 billion just ex-U.S. They are super stable, really predictable growing nicely in terms of the margin. So this one we keep focus on the U.S. generics and we're focusing more as we speak on complex generics, everything related to inhibitors specialist all type of injectables and we truly believe that the value is there, although it's taking a lot of time, unfortunately, to get the right approval on time.

But we demonstrated in the past few assets that it's worth it. So we keep focusing on that. And I think that if you think about biosimilars, currently the focus is really to grow those capabilities. We have on our portfolio around 16 assets on biosimilars, three are already in the market, a five with the partnership with the Alvotech and 8 kind of a homegrown.

And then an integrated R&D organization that grew, have the ability to do an innovative R&D on both perceivers and generics and having the knowledge as well on innovative. We think that we're really positioned well on how we're able to keep putting a nice product in the market. So I think it is related to Richard and I will talk about also on the innovative. I think it's related to Richard.

It is having kind of a view on the existing capabilities, understanding where is the tail, where is really those elements that can able and roll the needle looking and onwards on our capital allocation strategy. And for us in order to create a shareholder value, it's about either accretive on our earnings, which in a way will enable us to grow our fast earnings multiples and either to kind of sustainable growth also to create kind of a more normalized business for us.

As far as related to innovative, as you know, we really truly believe that AUSTEDO is a great asset. And as we speak we actually announced the -- some weeks ago that AUSTEDO, the ones daily. It came with the 6,024 milligram. That it's additional treatment in terms of our products prospect that we can actually offer now to patients, as you all know, AUSTEDO reflect around 800,000 suffering in the U.S. Only 50% of them, that will offset only 5% on treatment.

So it's really how you're able to get the right treatment and dose properly for the patients on the drug. Keep focusing on compliance and endurance and as well really looking on the growth. So we did with AUSTEDO on average like year-over-year around 20%. We're looking on $1.2 billion to part of the strategic review that we're doing now is all type of abilities to grow organically specific assets, but not only that one. If you're looking at our working capital, we're trying to understand what is actually less accretive, more accretive in terms of cash and how we are able even to look on specific assets in the future and to ask ourselves if they are actually incremental into our growth or they can actually -- we can monetize and think about differently on certain assets in the company.

So we -- as we speak, we see ourselves coming before the second half of the year somewhere, I believe, very close to our Q1 earnings and to come and explain to the entire world our strategy, where we're focusing and really to put kind of very clear story to make sure that people understand exactly where we're yielding, knowing that we'll keep focusing on optimizing, keep serving the debt on the level that we put ourselves at least for the next three years when we set that runway now with the latest financing and make sure that our both our bondholders, both our shareholders really understanding are able to drive growth.

Balaji Prasad

Great. Thanks for that comprehensive overview, Eli. Let's start with maybe picking each one of these, the biosimilars business. So when we hosted the lunch with you and Richard and Sven a couple of weeks ago, he was speaking about his belief in the opportunity and it's going to be a meaningful one. And it's also interesting for me when we think about 2020 where literally like what we knew was two assets, which are already commercialized. You seem to have a pipeline. And then the Alvotech partnership happened. All of a sudden, you're like looking into -- you have a ringside view into Stelara, potentially KEYTRUDA and also biosimilars.

As we think about this, starting with this year and then your own internal programs too, so what size or shape could this take over the longer run in a couple of years from now? How big can the biosimilars option would be for Teva?

Eli Kalif

Yes. So if you try to kind of look broadly about the biosimilars, in the last five years, and there was around $25 billion worth of biological assets that went out of that. In the next five years, that number is more than doubled, it's around a bit above $73 billion.

Now if you as currently the existing platform on generics and the existing capabilities. You want to make sure if you have really the portfolio and you capture enough percentage from the outer patent that was the strategy. So as I mentioned, as you mentioned, with the Alvotech, we did kind of a catch up into the market it took five assets. We have a resumed TRUXIMA, TRUXIMA to the Celltrion. We have initiated also earlier last year, Lucentis and this one is made in Europe and also in Canada.

And we have kind of an eight homegrown assets in different phases. And part of our Investor Day in our strategy - we're going to expose part of them to explain, our capabilities and our technologies in order to support those launches. And - but what you think that biosimilar is the new generic, because more and more biological go out of patent. And, you know, it's kind of, for us, due to the capital allocation restrictions that get into us so yes we're looking on this type of - Alvotech, where the partners have the ability to manufacturers, to do developments.

And we actually create a kind of win-win situation leveraging our go-to-market capabilities, in that case, activity in the U.S. So, we see that one keep growing and we're looking on that one. I will say more focus. We truly believe that as much as we're able to build our capabilities, and it's not only in terms of how are you able to contract launch and develop, it's also how are you able to manufacture, and how are you able to source, and how are you able to be less dependent, and have more flexibility. We also need to remember that those partnership most likely doing kind of a profit share, which is a bit lower gross margin, the home grown its higher gross margin.

Balaji Prasad

Sure.

Eli Kalif

So you're actually trying to build kind of flexible, I would say, platform in your biosimilars in order to be able to act on any movement on the revenue mix. So your profitability will align as well.

Balaji Prasad

Understood. Maybe starting with biosimilar, I think that's going to be probably a critical point in terms of how market views your biosimilar capability coming next with Stelara potentially and also. I wish we had Alvotech here and I wish the inspection has been over, but it's not. So the inspection is still ongoing.

Alvotech's being also inspected for pre-approval inspection for biosimilar Stelara so which takes time to come to the conference. But I know it's - you are still at arm's length away from them, but I want to understand your level of confidence on type launch in July in Humira and your ability to supply how should we think about it?

Eli Kalif

Yes. So talking about the next five years, more than $70 billion for sure is like the majority the ones can ask. One of the big one is Humira, as we all know. And Amgen already launched, right, in January. Their product and for you to understand is low concentration, not interchangeable. The majority of the revenue of Humira is right around 85% is really on high concentration. Our product profile is high-concentration, its free as well and interchangeable.

And we truly believe that it's super important to get out - to get approval. And as we speak, the inspection started on March 6, it's ongoing, with the ultimate goal that the FDA committed to provide their response by April 13. So we'll know in the next few weeks. And what's really important to understand here is that the way that we see it and also with that, there is another pre-player thing and the - end of June and in order to early July [indiscernible].

Later on the States, we have another three we understand it, it's our profile currently is uniquely positioned and as long as the innovator, we still have - will be on the formulary, which we may have the competitive advantages for Humira that we're going to launch in the U.S. due to the interchangeability. And so we're working constantly with the PBMs with the right strategy with them, and also part of them able to understand the entire manufacturing process that have Alvotech, so early, just about waiting - the approval and our ability to execute. But we are really lined up with everything that we need.

Balaji Prasad

Understood. So there are two comments. One is getting the approval - inspection approval done. Another part is the formulary discussions which are going on. So can you throw some color on the second part and also help us understand - I mean, I think most investors did understand that the interchangeable high concentration version is kind of what keeps you in the game despite not having the inspection approval yet. But help us understand - how the discussions are evolving and what are you seeing on the ground?

Eli Kalif

Yes, so first of all, also for the interchangeability, there is no PDUFA date, right? This one is also a condition to the re-inspection, and it's very important to clear. But - the way that we see it - we didn't really took in our guidance much. We really de-risked the launch for '23. We look in that one more kind of four, five years beyond '23, right? That's the way that we are positioning ourselves.

So our discussions with the potential PBMs is super strategic discussion, not just for what we can do in the coming year, but how we can position ourselves going forward. And we truly believe that and the way that the market we see it through credit kind of many pre-inflections points./ First of all, as I mentioned, the Amgen, which is a different profile that we have - so that - with a certain level of acceleration and [indiscernible]. But if we will be able to get the approval on time, I think that will change the dynamics.

And that will dictate, I think, different I will say, strategy to the rest to understand how they can position, mostly related to what you mentioned from - the formal learning with the originator. So we're not thinking about it kind of a '23 gain. We think about '24 and beyond. And I cannot provide more details about how this one is progressed, but we are really in for that.

Balaji Prasad

Fair enough. In the interest of time, just shifting towards the pipeline on the specialty side I do want to get your thoughts around the UZEDY opportunity, and are you still on track for a potential action date in 2023?And just help us understand the market share opportunity and what your goals are there?

Eli Kalif

Yes, so UZEDY is risperidone. And if you think about this whole entire market landscape, this is about 1.6 million patients, currently only 13% treated with LAI, long-acting injectable. What we offer as part of UZEDY, it's a different profile. It's a more friendly patient profile, which means it is subcu. It's having a small needle, low volume. It's ready-to-use tech with a pretty first range. And that is something that we believe that's going to get a lot of traction. The total LAI market currently is around $4 billion. So, we believe that, that's going to have kind of certain penetration there.

And as you mentioned, we refiled it back in November. We plan to get the approval by the first half of this year. And the way that we are looking on that one, it's also we started the Phase 3 in olanzapine, and we plan also to have this one filled with RFQ. And most likely, somewhere early next year, we're going to see subcu results, those - both them creating a nice franchise, because if you think about it, it's really aligned with what we said.

And as we know, this order movement with the TD is really classified with use on schizophrenia. So with that, you're creating kind of a franchise. And we truly believe that our capabilities in terms of innovation and how we're able to bring innovative product into the market, you think about launching AJOVY and AUSTEDO in the last several years where the company was struggling with erosion on - debt restructuring and overhang and litigation, between those two products, were very successfully in the market where AJOVY was a bit late in the page.

With that one, we truly believe that we'll be super successful if we get other product in time and when we really finishing that one, really excited about it. And we think that it's trading, as I mentioned, direct franchise and enable us to position another great two assets into growth.

Balaji Prasad

Got it. Great. And could you also just take us through the synergies that you expect between the products between subcu olanzapine and UZEDY and AUSTEDO. You also called out the approval of the AUSTEDO XR questions.

Eli Kalif

Yes. So the synergies, it's mostly about go-to-market. It's mostly about the sales force, it's mostly about how you're able to make sure that you have properly dosed the treatment and mix strategy of the right compliance and adherence. And we see ourselves looking on how much we can still more invest in those two areas in terms of sales force, in terms of capabilities and initiatives around the service and marketing. As you mentioned, in terms of the once-daily, that was kind of another example of our capabilities and how we're able to penetrate.

And we're looking also further to different doses, how we can actually be more impact there. But I think it's all about our ability to create those synergies and to make sure that our sales force is enough diverse to able to get the patients on the drug phase development. So...

Balaji Prasad

Got it. And I think I do want to get some questions on the generics side. The ex-U.S. component is probably well understood, a bit more hazy but also well understood that it's still a growth. The U.S. component and now that you have Christine Bader, who is now the Chairman of AM Technology Drug, and she have been kind of leading the charge and pushing back against the PBMs. Christine seems to have the same viewpoint too. So do you kind of see this deadlock breaking on the generics market where the buying pressure -- buy side pressure is going to ease at some point. You called out stability. At any point in the next couple of years, could we see a more balanced structure here on the...

Eli Kalif

I truly believe it's right. But for us, in terms of financials, it really depends on how much we're able to launch in any given year, right? And if you think about the dynamics in the last, I would say, two years heading to this year, we had less, I would say, launches in '21, '22 was really denominated with Revlimid. In '22, we're going to have more share in Revlimid, of course, we cannot expose this one. It's under the pressure to use so you will see us selling more, and really excited about this one.

We also announced something around that one as well two weeks ago about another two strengths. So I think it's really about -- yes, there will be -- keep certain level of erosions. But our ability to launch on time, our ability to get as needs the inspection, I also mentioned complex generics, that actually changed really the needle in the coming two, three years. So this is as far on the financials.

I think if you think about the economics about this one, we are focusing again currently to capture around 80% more or less from the out of patent. As we speak now, we have more than 900 pending approvals. It's massive, right? And the ability for us to make sure that we are providing the resolution, the right penetration to the patients, not necessarily have the ability to always fight on the right pricing, although if you're first to launch you get some right advantage. But I think what we offer is the generics, it's part of our mission to be committed to be the largest generics. I think this one will be really a game changer on this side.

Balaji Prasad

Maybe in the -- we're just out of time, but I'll put in questions, something that we discussed last evening. As you look at all of these things and the opportunities are clearly evident, and they are much larger [indiscernible], what are the biggest challenges for Teva now? You said the opioids are back, which is fantastic. The growth opportunity is great. What are the challenges?

Eli Kalif

I think the challenge is to make sure that we come in very clear with the strategic review, we come very clear with what we plan to do and make sure that the entire organization is aligned in an understanding that we're actually moving into kind of growth mode and have the ability to become super clear both to our shareholders, our bondholders, any other stakeholders to explain how we're looking on our capital allocation in terms of growth, knowing that we still carry the debt, which means in the next two to three years, we'll keep allocated from our free cash flow.

And we actually released single in this latest refinancing that we're very nicely equipped with $1.7 billion in average to pay the debt, which means that one of the most challenging will be is to make sure people understand how strict our capital allocation, pivoting it in a different way in order to support growth. And as part of those strategic reviews, understanding what we're going to keep doing, what we're going to starting to do and what we're going to obtain. And that will be the challenge in the next three years.

Balaji Prasad

So there's a bit of change management, organizational management, things that you had to handle.

Eli Kalif

Yes.

Balaji Prasad

Yes. Okay. Well, we'll all look forward to the strategic review. Eli, thank you for your time and sharing your thoughts. And I wish you a very productive conference.

Eli Kalif

Thank you very much.

Balaji Prasad

Thank you.

Eli Kalif

Thanks for everyone for your interest in Teva. Thanks.