TEVA-PHARMACEUTICAL-INDUSTRIES Earningcall Transcript Of Q2 of 2024

Richard Francis -- President and Chief Executive Officer

Thank  you,  Ran,  and  good  morning,  everybody,  and  thank  you  for  joining  us  on  our  Q2  2024

earnings call. So I'd like to start by talking to you about the pivot to growth strategy, and it's just over

a year since we launched this pivot to growth strategy. And as you know, the foundation of it was

four pillars: deliver on our growth engines, step-up innovation, sustained generics powerhouse and

focus the business. And I'm pleased to say we've made great progress over the past year, delivering

our growth engines.

We have driven -- we continue to drive Austedo and Uzedy and Ajovy from a revenue point of view.

I'm pleased to say that we've launched Simlandi, our biosimilar, HUMIRA. With regards to step-up

innovation, Eric and his team have done a great job in bringing this pipeline through quickly. We're

pleased to say that olanzapine is now at 95% of target injections completed with no PDSS.

And  also,  there's  some  good  news  on  TL1A  with  the  acceleration  of  that  and  top-line  results

expected in Q4 this year. We'll also -- Eric will also start to highlight a bit more about ICS/SABA, and

we're pleased to introduce a new member of our pipeline family, a treatment for MSA, we will go into

in more detail later on. On the third pillar, sustained generics powerhouse, as you'll see, we've made

-- continue to make good progress here as well with good growth across all regions. And then finally,

focusing our business and our capital allocation with regards to TAPI, we have the second quarter of

revenue growth, and we're well on our way with the process of divestment there, which I'll go to in a

bit more detail later on.

So now, is there pivot to growth delivering on what we set out to do? And as you can see by this

slide, I believe it is. We've had six quarters of continuous growth, culminating in the quarter 2 that

we're  going  to  walk  you  through  today,  of  a  strong  11%.  So  clearly,  this  strategy  is  helping  the

company align and get focused and drive revenue growth. Now to go into a bit more detail on these

numbers.

As you can see by this slide, revenues up to $4.2 billion, 11%; adjusted EBITDA up to $1.2 billion,

4%;  and  non-GAAP  EPS  up  to  $0.61,  up  9%.  Because  of  these  strong  results,  I'm  pleased  to

announce that we're going to increase our guidance for the year, and that will be across revenue,

EBITDA and EPS. And Eli will go into a bit more detail on the specifics of that. But obviously, we're

very pleased to announce that today.

Now I go into a bit more detail as to what's driving that 11%. What I'm pleased is that this has been

driven  across  all  of  our  businesses.  As  you  can  see  from  this  slide,  our  innovative  business

continues  to  perform  well  and  grow  quickly.  But  you'll  also  see  our  Generics  business  growing  at

14%, and I'll walk you through how this has grown across all regions is also a major contributor.

And then finally, TAP API growing at 5% means, once again, we've returned this business to growth,

and this is our second quarter of growth, and this gives us a lot of confidence for the rest of the year.

Now  getting  to  even  more  detail  on  some  of  these  areas,  starting  with  Austedo.  Really  excellent

performance by Austedo. So congratulations to the team behind this.

Really proud of what you've done, $407 million revenue, 32% revenue growth and TRx had a strong

30%. And because of this good strong performance, we're raising guidance from $1.5 billion to $1.6

billion for the year. So we're very pleased about the progress we've made on Austedo. Now just to

give you some updated news on Austedo.

We completed the family with regards to every dosage form having it once a day. And this is a nice

sort of completion of the circle that allows the patients who are titrating to have even more simplistic

dosing regimen. So congratulations to the team for bringing that to the market. As we move on to

Ajovy,  Ajovy  continues  to  grow  strongly  at  12%,  driven  primarily  by  European  business  and  the

international markets.

But what I continue to be impressed with is the competitiveness of all of our regions. We're growing

market share across all of our regions, U.S., Europe and international markets. As I've highlighted

before,  this  just  shows  the  quality  of  the  team  we  have  at  Teva  when  it  comes  to  driving  these

innovative  products  in  even  very  competitive  markets.  Now  I'd  like  to  move  on  to  the  newest

member of our family, Uzedy, and we're very pleased with the momentum that we have with Uzedy.

What  we're  seeing  is  this  really  favorable  product  profile  continues  to  attract  new  positions  and

excite them. And as I've mentioned before, from a patient perspective, the subcutaneous needle is

obviously  something  they  welcome  versus  the  IM.  But  also  what  we're  not  seeing  is  the  practical

nature of the administration. The fact that this product doesn't have to be kept refrigerated, but most

importantly,  that  this  can  be  administered  to  a  patient,  and  they  receive,  get  to  therapeutic  dose

within 8 to 24 hours, and physicians love that.

And  so  this  is  what  is  allowing  us  to  compete  very  effectively  and  to  take  market  share  in  the

risperidone long-acting market. So pleased with the progress we're making there, and confident for

the rest of the year. Now as I move on to my -- the last part of the growth drivers deliver on our first

pillar  and  move  on  to  the  biosimilars.  And  as  you  know,  we  launched  our  Simlandi,  our  biosimilar

HUMIRA in Q2 of this year, and we're really pleased with the progress we've made.

We've  fully  stopped  the  channel.  We're  getting  good  and  growing  coverage  with  our  payers.  And

also,  we  set  up  a  private  label  with  Korlym.  So  I  think  we're  well  set  for  this  to  generate  some

performance in Q3 and Q4 of this year.

But building on this, we also believe that we got approval from the FDA for our biosimilar of Stelara.

And  this  will  be  launched  in  February  of  2025.  But  now  we  have  approval,  this  gives  us  the

opportunity  to  start  to  prepare  for  this  launch  in  February  '25.  Now  it  is  worth  pointing  out  on  this

slide also that how excited we are about these two products.

We do have another five in the pipeline that are coming in the near term. So as you can see that our

biosimilar  strategy  is  gaining  momentum  and  it  will  contribute  to  the  pivot  to  growth  strategy  and

allow us to grow top and bottom line. Now moving on to the second pillar, step-up innovation. Eric is

going to talk a lot about this later, so I'll try not to steal any of his thunder.

What I will do is just highlight the significant progress that has been made. This is now becoming a

deep pipeline, that's exciting. We'll talk a bit about olanzapine and obviously TL1A, but it's nice to

start  to  sort  of  see  some  data  points  in  the  future  emerging  on  TL1A  anti-PD-1  IL-2.  We're  also

working hard to accelerate ICS/SABA.

And  as  I  said  earlier,  we're  pleased  that  we're  bringing  a  much  needed  medicine  to  the  MSA

community in a Phase II study that's starting later this year. So very excited about the work Eric and

his team have done. Now I'm going to go into a couple of these assets to sort of highlight why we're

excited about them from a commercial point of view. So starting with ICS/SABA.

As you can see, this is a big market. There's 13 million people who suffer from asthma in the U.S.,

and the recommendations of the guidelines, the GINA guidelines are that the people should be on a

combination  therapy.  So  that  excites  us,  obviously,  because  ICS/SABA  is  a  combination  therapy.

But what is interesting is we will be differentiated in the fact that we have a pediatric indication and a

patient-friendly device.

Now  just  to  sort  of  give  you  some  grounding  on  the  numbers  here  from  a  pediatric  indication,

asthma is the most common chronic disease when it comes to children in the United States. It also

accounts  for  more  hospitalizations  than  any  other  chronic  illness  in  this  patient  population.  So

clearly, there's an opportunity for us to help these people, and that's what we're energized to do with

ICS/SABA. Hence, we're trying to drive this to the market as quickly as possible.

Now another pipeline product that we're very excited about, and there's a lot of discussion about is

olanzapine. And the reason why we're excited about it is obviously, the opportunity, there's a large

market  of  $5  billion  for  long-acting  antipsychotics.  What's  interesting  is  there  is  no  long-acting

olanzapine that's used in any quantity at all. And that's because they haven't had the right product

profile.

We  believe  in  olanzapine  or  long-acting  olanzapine,  we  will  have  the  product  profile  that  has

efficacy,  safety  and  tolerability,  all  in  one.  It  will  also  have  similar  attributes  to  Uzedy,  which  the

ability  to  reach  therapeutic  doses  quickly,  so  avoiding  oral  supplementation.  So  making  it  very

user-friendly  for  the  physician.  And  that's  why  we're  seeing  the  excitement  among  the  psychiatric

community.

So  now  moving  on  to  our  third  pillar,  which  is  creating  a  sustainable  generics  powerhouse.  So  as

you see here, 40% growth globally, but all regions contributing very strongly. Particularly pleased to

see the U.S. at 16%.

But as you can see, 8% and 22% for international markets, strong growth across all of our regions.

Now moving on to TAPI, our final pillar of our strategy, which is focusing on capital. The aim was to

get TAPI management team up and running and focused on driving this business. As I've said in the

past, it's an $85 billion market.

We have a great business with TAPI, and the question is keeping it focused, could we get it back to

growth.  We  have  done  that  for  the  second  quarter.  We're  seeing  continued  strong  traction  across

the CDMO community. And the divestment process is on track and we're targeting completion by H1

in 2025.

So that concludes my presentation for today. I'm going to hand over to Eric, who's going to walk you

through that exciting pipeline that I spoke about.

Eric Hughes -- Chief Medical Officer, Head of Research and Development

Thank  you,  Richard.  Starting  with  our  late-stage  innovative  pipeline.  First,  I'd  like  to  talk  about

anti-TL1A, our program in inflammatory bowel disease, also known as duvakitug. This is a study that

we accelerated.

We randomized our last patient on July 5, and that gives us about a three-month acceleration, which

we  are  excited  to  say  that  we  can  now  produce  top-line  data  in  the  fourth  quarter  of  this  year.

Moving  on  to  olanzapine  LAI.  We've  also  accelerated  this  program  by  nine  months,  and  we'll  be

presenting our Phase III data in the second half of this year at a conference, so we can review the

exciting data we announced earlier this year. Finally, ICS/SABA, our dual action rescue inhaler that

Richard mentioned.

We're working very diligently to keep our Phase III study on time, which we're doing a good job right

now,  and  we're  on  target  for  our  second  half  of  2026.  But  as  usual,  we'll  always  work  hard  to

accelerate  that  program  as  well.  So  an  exciting  late-stage  program  that  we've  got  going  here  at

Teva.  Now  one  of  the  things  we  announced  this  month  as  well  is  something  that  I'm  particularly

proud of is our Ajovy program in pediatrics.

We  finished  our  pediatric  study  in  episodic  migraine,  the  SPACE  study,  and  this  was  a

well-controlled  robust  study  of  approximately  over  200  patients  for  treatment  of  eight  weeks.  And

we're  very  pleased  to  say  that  we  achieved  a  primary  and  secondary  endpoints  that  showed  a

significant  reduction  in  our  monthly  migraine  days  compared  to  placebo.  And  this  was  very

consistent with what we saw in the adult population, with no emergent safety segments. So it's very

encouraging to see a more fragile population, the safety and the efficacy continue to be shown for

Ajovy.

We continue in our pediatric adolescent program in chronic migraine. So we hope to someday bring

this treatment to children around the world in our label, but more to come. Now moving on to a new

program  that  Richard  had  mentioned,  and  that's  in  MSA,  multiple  system  atrophy.  This  is  a

devastating, fatal and neurodegenerative adult disease.

It's  characterized  by  autonomic  failure,  cerebellar  ataxia  and  Parkinsonism.  It's  particularly

devastating to think that in five years, 60% of these patients become wheel-bound and by 12 years

after diagnosis, few of the patients are still living. It's an orphan disease of about 65,000 patients in

the  G7  and  there's  currently  no  available  treatments  for  this  terrible  disease.  Our  program,

emrusolmin,  is  an  important  program  that  targets  the  alpha-synuclein  aggregates  that  drive  the

disease pathology.

Now  it's  important  to  remember,  this  is  an  orally  administered  small  molecule.  It's  brain  penetrant.

That  means  it  gets  to  not  only  the  membrane-bound,  also  the  synuclein  aggregates,  but  also  the

intracellular  forms.  And  that's  important  because  emrusolmin  has  the  potential  to  be  a

disease-modifying treatment.

It  blocks  the  early  aggregates,  destabilizes  them,  creates  less  toxic  early  aggregates  and  drives

them in the monomeric form. It also blocks the formulation of the larger aggregates as well. So really

important  action,  and  we're  very  excited  to  be  starting  a  Phase  II  study  in  the  second  half  of  this

year.  Now  moving  on  to  another  program  that  we're  excited  to  show  progress,  and  that's  our

anti-PD-1 IL-2 program.

This is an exciting program because it brings together two important aspects of the immune system,

targeted therapies to the PD-1 T cells, but bringing an attenuated IL-2 to those cells. So that's really

bringing  a  powerful  cytokine  signal  to  the  cells  to  fight  tumor  cancer  --  tumor  cells.  So  this  is  an

important thing. The goal here is to not only activate these T cells, but avoid the cytotoxic toxicity of

high doses of IL-2.

And you can see in this ex vivo study to the left that when you look at melanoma cells with human

PBMCs, we have great activity for the anti-PD-1 IL-2, but also an additional activity if you combine it

with a drug such as KEYTRUDA. So we're very excited. We screened our first patient in the study

and more to come in the future. So as Richard mentioned, we're progressing our innovative pipeline,

both early and late.

Starting with olanzapine LAI. I mentioned we accelerated by nine months. We'll have the full safety

database complete by the second half of this year. So we're on target.

Duvakitug is now moving forward. We accelerated by three months, and we're going to be looking

for those top-line results in the fourth quarter of 2024. Our anti-IL-15 program is now fully enrolled, a

POC study for celiac disease, and we've opened a new IND for vitiligo, and we'll be finishing up our

Phase  I  work  in  the  second  half  of  this  year.  Our  anti-PD-1,  as  I  mentioned,  anti-PD-1  IL-2,  as  I

mentioned, has now screened its first patient.

We're  looking  for  full  enrollment  by  2026  of  Part  I.  And  our  dual  action  rescue  inhaler,  ICS/SABA,

we're on target for patient recruitment. We'll work to accelerate that program as well. We're on target

for the second half of 2026.

And finally, emrusolmin, I'm particularly proud of beginning a Phase II study start of this year. And

with that, I'll pass it off to Eli Kalif.

Eli Kalif -- Executive Vice President, Chief Financial Officer

Thank you, Eric, and good morning and good afternoon to everyone. I will begin my review of our

Q2 2024 financial results with Slide 26, starting with our GAAP performance. Revenue in the second

quarter of 2024 were $4.2 billion, an increase of 7% in U.S. dollars or 11% in local currency terms

compared to the second quarter of 2023.

This  increase  in  revenue  was  mainly  driven  by  growth  from  generic  products  across  all  our

segments  globally,  including  strong  contribution  from  generics  Revlimid  and  the  launch  of  generic

Victoza  in  the  U.S.  and  strong  continued  growth  from  Austedo.  In  Q2  2024,  we  recorded  a  GAAP

operating loss of $5 million compared to an operating loss of $654 million in the same quarter last

year.  This  improvement  in  the  second  quarter  of  2024  was  mainly  driven  by  higher  revenue  and

gross profit as well as legal settlement and loss contingencies and the goodwill impairment charges

compared to the same quarter last year.

GAAP net loss in Q2 2024 was $846 million, and GAAP loss per share was $0.75 compared to the

net loss of $872 million and a loss per share of $0.78 in Q2 of last year. The lower net loss in the

second  quarter  of  2024  was  mainly  due  to  the  lower  operating  loss  that  I  just  discussed,  partially

offset by higher income taxes related to the settlement agreement we announced in June with the

Israeli tax authorities to resolve all pending litigation for the company's taxable years from 2008 until

2020.  Turning  to  Slide  27.  You  can  see  that  total  non-GAAP  adjustment  in  the  second  quarter  of

2024 were $1.5 billion, similar to Q2 2023.

A  notable  non-GAAP  adjustment  this  quarter  includes  corresponding  tax  effect  and  unusual  tax

items of $503 million, mainly related to the settlement agreement with the Israeli tax authorities I just

mentioned. Other notable adjustments include a goodwill impairment charge of $400 million related

to our TAPI reporting units based on Teva's pivot to growth strategy assumption and our planning

for divestment. Now moving to Slide 28 for a review of our non-GAAP performance. As I mentioned

earlier, our second quarter revenue were approximately $4.2 billion, an increase of 7% in U.S.

dollars  or  11%  in  local  currency  terms  compared  to  Q2  of  last  year.  Our  non-GAAP  gross  profit

margin  was  52.9%  compared  to  52.2%  in  Q2  2023  and  51.4%  in  the  first  quarter  of  '24.  This

increase  in  our  non-GAAP  gross  profit  margin,  both  compared  to  last  year  and  the  first  quarter  of

2024, was mainly driven by expected improvement in our portfolio mix, mainly from strong continued

growth  from  Austedo  as  well  as  the  decrease  in  our  operation  costs.  As  we  progress  through  the

rest  of  the  year,  we  expect  our  gross  margin  to  continue  to  improve  in  the  second  half,  driven  by

continuous  improvement  in  our  portfolio  mix,  with  a  strong  continued  growth  in  our  innovative

products and continuation of our cost optimization programs.

Moving  to  non-GAAP  operating  margin  in  Q2  2024,  which  was  25.3%  compared  to  26.1%  in  Q2

2023.  This  decrease  in  GAAP  operating  margin  in  the  second  quarter  of  2024  was  mainly  due  to

higher sales and marketing and R&D expenses as a percentage of revenue, reflecting our deliberate

investments  to  support  our  key  growth  engines,  including  promotional  activities  related  to  Austedo

and investment in our late-stage pipeline assets, both in line with our pivot to growth strategy. These

were partially offset by our higher gross margin. We ended the quarter with a non-GAAP earnings

per  share  of  $0.61  compared  to  $0.56  in  Q2  2023,  mainly  driven  by  higher  operating  income  and

lower financial expenses.

Now moving to Slide 29. As communicated in the beginning of this year, we are making a thoughtful

and  deliberate  investment  to  support  our  growing  innovative  portfolio  as  well  as  progress  and

accelerated  our  key  pipeline  assets.  As  you  can  see,  this  is  reflected  in  our  first  half  results,  a

continued improvement in our portfolio mix and a disciplined cost management in driving our margin

expansion as well as enabling us to invest in our business to drive short-term and long-term growth.

Looking  at  the  rest  of  2024,  we  expect  to  see  operating  leverage  in  the  second  half  of  this  year,

driven  by  expected  ramp  in  our  revenue  and  continue  to  expect  operating  expenses  to  be  in  the

initially provided range of 27% to 27.5% for the full year.

Turning to free cash flow on Slide 30. Our free cash flow in the second quarter of 2024 was $324

million  compared  to  $632  million  in  Q2  2023.  The  decrease  in  the  free  cash  flow  in  the  second

quarter  of  2024  resulted  mainly  from  changes  in  working  capital  items  due  to  revenue  growth,

including  a  negative  impact  from  accounts  receivable  due  to  timing  of  collections  and  accounts

payable,  higher  tax  payments  as  well  as  higher  proceeds  from  divestitures  of  business  and  other

assets  in  the  second  quarter  of  last  year.  Today,  we  are  reaffirming  our  2024  free  cash  flow

guidance which we initially provided in January.

Our 2024 free cash flow is expected to be in the range of $1.7 billion to $2 billion, and we expected

it to continue to pick up during the second half of the year, driven by higher revenue and profitability

as well as working capital improvements. Turning to Slide 31. Our net debt at the end of Q2 2024

was $16.4 billion. Our gross debt was $18.6 million compared to $19.8 million at the end of 2023.

The decrease in our gross debt was mainly due to repayment of $956 million or 6% seniority notes

at maturity in April 2024 and the positive impact of $247 million from exchange rate fluctuations. Our

net  debt  to  EBITDA  slightly  improved,  coming  in  3.3  times  for  Q2  2024,  mainly  due  to  higher

EBITDA.  As  of  June  30  and  as  of  today,  there  is  no  amount  outstanding  under  our  $1.8  billion

revolving credit facilities. Now let's turn to Slide 32 to our 2024 non-GAAP outlook discussion.

As Richard highlighted earlier and as I reflected on the first half of this year, we have made a solid

progress  in  terms  of  our  revenue.  This  includes  solid  momentum  in  our  key  growth  engine,

especially Austedo, which continues to see strong demand, supported by our focus on investment.

In addition, our core generics business continued to perform very well across all our markets, and

we also expected COPAXONE revenue to be better than initially guided in our provided guidance in

January.  Therefore,  to  reflect  our  revenue  performance  in  the  first  half,  along  with  expected

development in the second half of 2024, we are raising our 2024 full year revenue guidance to $16

billion to $16.4 billion.

This  reflects  an  increase  of  $200  million  at  the  midpoint  of  our  previous  guidance  range.

Accordingly, we are also raising the lower end of our 2024 non-GAAP outlook for operating income

and  EBITDA  by  $100  million  and  lower  end  of  the  earnings  per  share  guidance  by  $0.10  to  be

between $2.30 to $2.50. We continue to expect our non-GAAP gross margin to be between 53% to

54% for the full year, with a gradual pickup in the margin in the second half of the year, in line with

our revenue trajectory and portfolio mix as well as improvement from our ongoing cost optimization

programs.  Like  I  mentioned  earlier,  we  expect  to  see  operating  leverage  in  the  second  half  of  the

year and our operating expenses to be as initially provided range of 27% to 27.5% for the full year.

Coming  to  free  cash  flow,  we  continue  to  expect  free  cash  flow  to  be  between  $1.7  billion  to  $2

billion  for  the  full  year.  With  this,  I  conclude  my  review  of  Teva  results  for  the  second  quarter  of

2024, and now I will hand it back to Richard for a summary.

Richard Francis -- President and Chief Executive Officer

Thank you, Eli. And I'd just like to take the opportunity to reiterate our 2027 financial guidance. We

aim  to  grow  at  mid-single  digit  revenue,  the  operating  margin  at  30%  we're  committed  to,  net

debt-to-EBITDA  two  times  and  cash  flow  to  earnings  of  80%.  So  once  again,  we  reiterate  our

commitment to that.

Now if I move on to our confidence in that and what drives that is the pivot to growth strategy. And

as you know, the first period of time was '23 to '24 to return the company to growth. And as I showed

on  my  earlier  slide,  we've  done  six  quarters  of  growth  and  we  continue  to  believe  we  will  be

returning to growth and have the opportunity to continue on that journey because of the work we're

doing  and  the  results  we're  seeing  with  Austedo,  Uzedy,  Ajovy  and  also  the  generics  business  as

well  as  the  biosimilar  pipeline  starting  to  come  through.  We  believe  that  allows  us  to  position

ourselves to '25 and beyond to continue that growth and accelerate it based on some of the exciting

programs that Eric has talked about, but also the fact that in those products I've mentioned, Austedo

and Uzedy, we have growth that we predicted and we've communicated as well that we think can

drive beyond '25.

So with that, we remain very optimistic about the future. And I'd like to close the presentation and

now open it up to questions and answers.

Operator

Questions & Answers: