Good morning, everyone. Thank you for joining this session of the Morgan Stanley Global Healthcare Conference. My name is Thibault Boutherin. I am part of the Pharma Equity Research team based in London. Before we start this session, I just need to refer to important disclosures. Please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosure. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, I'm delighted to have with me Richard Francis, CEO of Teva. Thank you for joining us today. We will shortly start the Q&A, and I invite investors in the room who have any questions to raise their hand through the session, and we'll get a mic to you.
But before we start, Richard, we'd like to start with some introductory comments on the current situation and outlook for Teva.
Great. Well, good morning, and thank you, Thibault. Thanks for the opportunity to talk here. So maybe a quick sort of overview of where Teva is right now. We launched the Pivot to Growth strategy in May, in New York City, where we outlined how we're gonna make Teva strategically perform over the next five years, to 2027, I think the numbers we gave to. And that review hinged upon four key pillars to get us back to growth, because as you know, we've been declining for a number of years, and to get us back to growth. And that will be driven by four pillars. One of those is to maximize our growth engines around our innovative AUSTEDO, UZEDY, and AJOVY. We can talk about those. The second was to step up innovation.
We have a pipeline that I think is maybe a bit of a surprise to people from some of the products we have. Obviously, the best is one known as the TL1A, but we have some really exciting assets other than that. So to make sure we drive that innovation through to the market. The third pillar was to make sure we create a generics powerhouse and make sure our generics business performs consistently over time, generating growth on the top line and the bottom line. And the final thing was to focus the business, to make sure all the capital is allocated to the right growth engines, which drive the top line and the bottom line.
And within that was the announcement that we were going to move TAPI, our API business, to a standalone business, to allow that to benefit from what is a very exciting API market. So that's sort of our strategy and we've started that journey. We obviously launched it in May. You know, it's a long journey, but I think we've got off to a, you know, a good start. I think in Q2, people saw that we've started to execute across all of those, particularly pleasant and pleasing to see AUSTEDO performing well in the launch of XR and then UZEDY. And then also the fact that we're moving quickly our TL1A through the clinic and olanzapine through the clinic. And we've almost completed the separation of TAPI, so that's a standalone business.
So, I feel we've made really good progress, but I think for Teva, it's about we've got to consistently execute over this strategy, and I think, then I think we'll start to get some traction.
Thank you very much. Before we dig a little bit more the strategy of the business, I just wanted to ask a topical question around the Inflation Reduction Act reform coming up. Could you just give us your view on the way this reform could potentially impact the generics and biosimilars industry? And I think in particular, the question for us is, could you potentially encourage litigation settlement between originators and biosimilar companies to allow a progressive introduction of biosimilars in the market ahead of the potential inclusion of a branded drug on the Uncertain price negotiation list?
Yeah, it's an interesting topic that's starting to come up. So look, firstly, I think you know, where Teva is positioned, the IRA is. You know, has interesting ramifications for the business. But if you think about Teva, I sort of segment the business into generics, biosimilars, and innovative medicines. And when it comes to generating access to affordable medicines, I think, you know, we've obviously got our generics pillar and our biosimilar pillar, which drive that, and our innovative pillar, which maybe is something which is going to probably more be impacted by the IRA. So for me, I think the bigger question we get sort of focusing on the act is, are we getting access to affordable medicines in the US?
I think we can clearly say that when it comes to the generics business, despite the fact that we actually sell them at often the lowest prices in the whole of the world, the actual US user, the patient, doesn't benefit from those. So, you know, there are many things that I think need to be evolved in the pricing system in the US to make the necessity for things like the IRA, you know, less important. So, I think we see that across all of our businesses. The question you ask is this sort of emerging conversation, which is actually, is there, is this, does this become an opportunity or an issue for generics biosimilars?
Does this become a, an opportunity, or an issue for the innovative companies to, as you said, use biosimilars in a different way? I think we've got to see how this plays out, particularly as we don't really know how the IRA negotiations will go in the first place.
Yeah.
And so I think everybody's strategically trying to line up different plans and have contingency plans on top of contingency plans. So it's, it's ever-moving. I think for us, because of those three businesses, I feel we're well positioned regardless of, of how the sort of cards fall.
Okay, that's very clear. Let's come back on the strategy you mentioned at the Capital Market Day and your target 2027. There is still a gap between your expectations and ambitions and consensus. So what do you think today consensus is missing? I think they're focusing about a 1% growth over the next 22-27. That's for sure, kind of missing the digit.
Yeah.
What's missing from what consensus is expecting?
... So, so I don't think in a way they're missing anything. I think, you know, the investor community and the analyst community know Teva's business well. The reason why I think there's a different projection of the future is because I think there's a credibility issue maybe for Teva because of the past. So I think, you know, when I think about a Pivot to Growth strategy, and I look at it and what we're gonna do with our generics business, what we're gonna do with our biosimilars, our innovative business, I think when I speak to people, they understand it. It's very clear what we're trying to do in each of those businesses. But I think we've just got to perform. We've just got to deliver.
When we deliver, I think people are going to start to, to do different financial forecasts. They'll value our innovative business differently. They'll value our biosimilars, they'll value our generics business. They'll be able to model it better on a top line, on a margin, and on EBITDA. But so for me, I think it's, you know, for me to say people are missing something when they're so focused on, on the business and so smart, I think would be, would be unfair. I think what it is, I think people get what we're trying to do. We've just got to do it, and if we do it, I would anticipate and expect everybody to start modeling it the way we model it. You know, our Pivot to Growth strategy, we didn't throw out, you know, expectations lightly.
So we modeled this in great detail across all of our businesses, and I believe it's fundamentally achievable. So I think that's what needs to happen. So quarter two was a good move in the right direction. I think people started talking about the innovative business for the first time. I think people are talking about innovative pipeline for the first time. So which I don't think has ever been valued. I mean, no one values our pipeline right now. I accept that. But I think going forward, that will change, and as that changes, I think the difference in the outlook of the consensus, maybe in the long term than ours, will narrow. But that's our job: deliver, execute, and then educate.
Let's spend a little bit of time on your key growth driver, AUSTEDO, and mostly for Tardive dyskinesia. You have this very ambitious, a $2.5 billion target by 2027. So if you could just come back on your strategy to accelerate the sales of this key product, how far are you into the implementation of this strategy? And kind of when do you expect to see the inflection to growth to which, to reach that target?
Yeah, thanks, Uncertain. So look, I think you said very ambitious target. So obviously, you clearly laid out your point of view on that. But look, going back to what we as a team did, I didn't pick $2.5 billion, you know, on the back of a napkin. I didn't just sort of, you know, guess at that. I went into great detail. I've been in the biotech business a long time, and I went through many, you know, patient modeling in detail myself to understand what could be done. So look, I believe this can absolutely be done. The question is, why do people not believe, going back to the consistent theme here, maybe of credibility, believe that? So firstly, I'll reiterate, there's nearly 800,000 people suffering from Tardive Dyskinesia.
There is literally a drop in the ocean of people on therapy. So there's a huge unmet medical need, which is for a very distressing condition. It's not something you can live with, or you want to live with. So once you get on medication, it's, it's literally a life-changing experience. So for us, we see great opportunity to help that. We have one competitor in the market, so I think, you know, that also is a benefit, not because there's lack of competition, but we have also a share of voice, and they have a share of voice, which encourages more patients to come in. Now, to the second part of your question, what have we done to change that direction?
So we put, literally when I arrived, I think in February, we put more resources into AUSTEDO immediately and significant resources to allow us to have more sales force. But then we've also started to address some of the things which are needed in specialty pharmacy in the US, which is around, you know, patient services. It's around, you know, how you impact conversion rate, you know, from a script to getting on, on, on therapy and working through insurance, through compliance, through making sure you're on the right dose, we're making you on titration. So just to give some examples, so we've increased the sales force, created more focus, that's one.
Second thing, we've improved our targeting of physicians because it's the marketplace or where patients appear is something which we probably hadn't done the best work on in the past. The second thing is we've put more effort and money into our patient services. So when patients get a prescription, we make sure they get the coverage, and they get on it. We used to have a dropout out there. And then we started to make sure we launched a titration pack, a titration pack, which can be prescribed by a physician, which is really important because not all physicians want a titration pack in their office for many reasons. So there's a big amount who are excluded, so now they can write it.
Which means when you titrate, you end up on the right dose, the right efficacy, which a patient wants, which allows them to stay on therapy longer, so adds to compliance. If you do all those things, and we've started, we've done all of those, as well as working with specialty pharmacy, they all start to have traction. Now, that traction is going to take probably 6-12 months to become optimal.
Mm-hmm.
Because even a sales force, you hire them, I've done that many times, they're not really hitting performance for six months.
Mm-hmm.
It takes some time. So we're starting to see some of that come through, and some will, you know, and it will come into, but I think it will be in a great place at the end of maybe, in Q2 next year, but that's investment, but it's quite precise in how we've allocated it.
That's very clear. Your other growth driver, AJOVY, injectables for migraine. So if you can come back on, we have quite a good growth globally actually with this product. So what are the key growth driver for the drug in the future? And how do you think also in particular of the increasing competition from the overall anti-migraine side of the market?
Yeah, so this is a really interesting one where we're seeing good growth. Some of that's been driven by geographic expansions and going to new countries. Some is also driven by just our competitiveness within the market. So if you look across many of our markets, we're starting to become the fastest-growing injectable. So we're getting market share back or growing our market share. Part of that's probably driven by some of our competitors maybe losing a bit of focus because they've got other portfolio launches to launch. But I think it also is down to our added focus on what we're doing with AJOVY . Now, the question is, what could AJOVY be for Teva?
And I think we're still evaluating that because I think when we saw the orals come along, there was a lot of the belief that, okay, the orals would just take over. I think the orals have shown two things. One is they grow the whole market, because more people will come in to seek help for their migraine. The second thing is, the orals are not the be all and end all. And as I went out to meet, visit physicians, they said, "You know, there are some side effects. There's some significant side effects that my patients haven't liked, so they've moved back to injectables." And then there's some patients who realize, "Actually, I'd rather have an injectable rather than rely on myself with an oral medication." So I think it's starting to settle down.
For me, I think this is actually a growth opportunity. We're in the position of trying to evaluate what that looks like, what type of resources. But I see that as something which maybe people have discounted because of the orals coming in, but probably more news to come on that later.
Great. And the next one of your growth driver that everyone is looking very closely is UZEDY, you know, the new injectable drug for schizophrenia. So if you just come back on your launch strategy in a market that's quite competitive, and if you can also come back on maybe some early feedbacks you get from physicians and patients as well.
Yeah. So I mean, to remind everybody, this is a $4 billion market, so it's a big market, and UZEDY is our long-acting risperidone. And so the initial feedback has been really positive, and let me explain what I mean by that. So we have obviously gone into hospitals where many, most of these medications are initiated and spoken to the psychiatrist. And when you think about, we've developed a product profile which exactly suits what the physician and the patient need. In simplistic terms, things like a subcutaneous injection, prefilled syringe, can be kept outside the fridge, useful for everybody. But I think what's been critical is there is no loading dose. You inject, it gets to therapeutic levels within 6-24 hours, and you don't have to supplement that with other oral medications. So when you speak to psychiatrists, they'll say...
They'll be very enthusiastic, because they say, "If I use one of the alternatives, I'll have to start a loading dose, then I'll have to see them in a week or two weeks to then increase the dose or see where they are. And I need to prescribe them all supplements in the meantime to manage that ability to be therapeutic. With yours, I don't need to do that." So I think we've developed a very good product profile. What we're working through now is just some of the things you have to do to get a product like this, available. So you've got to work through DNT committees in hospitals, make sure it's on the hospital formulary. You then got to make sure it gets payer access.
We're working through those and making good progress, but, you know, we're also being mindful of, this year is about our set up year. You know, we want to make sure people use the product. We have a lot of patients go on it, and we're seeing some good access from that point of view. When it comes to access with the big payers, we want to make sure we have the right negotiations to ensure that what we agree on can carry through for many years, because we see this as being a product which will be a good growth driver for us.
Very well. And in connection with that, your pipeline asset you just mentioned before, the long-acting injectable version of olanzapine, which is also a schizophrenia drug. So if you could, kind of define the key characteristic of this product and also you know, how you see the synergies and complementarities with UZEDY as well.
Yeah, so, olanzapine, which is in phase three right now, which is recruiting really well, which is what maybe another one I would say people don't look at enough. You know, when I came in, obviously, I looked at our TL1A, I looked at our PD-1, anti-PD-1, IL-2, IL-15, all the sexy stuff, and I sort of overlooked the olanzapine, and then I came back and looked at olanzapine again. And the product profile, once again, is really exciting. Based on this technology we have, where we partner with MedinCell, where, when you inject UZEDY or olanzapine, the product aggregates incredibly quickly. So once it's subcutaneous, versus the olanzapine products on the market.
Now, we believe this will significantly reduce or eliminate PDSS, which is a side effect which the long-acting olanzapine injectables have. And we truly believe that. Now, if that happens, I think we have the first true long-acting olanzapine, because there is no olanzapine long-acting that's actually used in any quantity. So by definition, there isn't any market. Now, as you've seen with risperidone orals and risperidone long-acting, there's a real need for long-acting, the same as for olanzapine. And the complementary, you talked about those two products, for us, as a going to the market, you know, we're not, you know, those are two well-defined drugs that are used in the treatment of schizophrenia, you know, so it's mild, moderate, severe. So, we think they fit perfectly in a portfolio, in a bag.
Also, what we've seen in speaking to psychiatrists at the recent Psychiatric Association meeting a couple of months ago, that we're now being perceived as a major player in psychiatry. So I think olanzapine, we've got to get through the phase three study. I'm cautiously optimistic, but, you know, the data has to read out. What I would say, it's recruiting very fast in phase three, and things recruit very fast in phase three because physicians want to be in the study, and they want to be in the study because they see the benefit of getting the product approved. And so the enthusiasm in the phase three sites has been very high. So once again, very encouraging.
That's okay. I just, once I want to check if there's any question in the room, from anyone?... That's fine. We'll, we'll move on to business development.
Right.
So you indicated in the Capital Markets Day that you are now ready to get back to business development, which Teva has been kind of avoiding for some years. So if you can just remind us your priorities in terms of therapeutic categories, asset maturities, and also how you think about the balance between continuing to progress in deleveraging versus accelerating inorganic growth.
Okay, yeah, I'll. So, you know, firstly, you sort of made a comment that Teva wasn't interested in the past. Teva couldn't do it. Yeah, if you look at our balance sheet, there's no way we could really be too active. And we've probably other things to focus on. So we're now focused actively on BD. We've hired Angus Grant, who I think many of you will know as I suppose, I hope he doesn't mind me calling him a veteran of the industry. And, you know, with his experience in the innovative side of the business, we're clearly making a statement that we're looking to in-license or do BD in innovative area. Now, at the start, because of the financial limitations we have, that will be in-licensing.
And I think we, because of our portfolio, which is exciting in innovation, it's not huge. So we can add things in here with it, with creating synergies, but not diluting our impact or share of voice. The areas we're going to go after are the areas of CNS and immunology, because that's where we're playing right now. So that's our main focus right now. Now, those are two massive areas, so it doesn't really sort of narrow our remit too much. That said, you know, I'm also somebody who in the past has moved outside of these. I want to be very disciplined, but if a good opportunity comes along, we'd look at it.
I think at Biogen, when I was there, we did hemophilia, which turned out to be a, you know, a very, financially positive, execution. But with neurology and immunology, I think we cover most bases, and so we're actively there, and we'll see how that plays out. And as also, our financial situation changes very quickly over the next few years, very quickly. And so we need to get ourselves ready for doing acquisitions because, you know, when we're in a position to do them, we don't want to start looking for targets then. We want to be looking for targets now and understanding how the landscape evolves, and then we'll be acquiring them.
That's very clear. Thinking about capital allocation, you know, from where you see it between your businesses and your geography. So when you invest in the business, you mentioned your business line, generics, biosimilars, specialty care, but also you have your geographies, you know, North America, Europe, as well. So how are you kind of thinking about capital allocation in this context?
So that's a real key element of the strategy. So it's very, very clear in the company now how we allocate capital. So capital goes first and foremost to innovation, right? And, because it's the biggest growth driver on top and bottom line, and then we'll allocate capital to, to biosimilars and generics. Now, that doesn't mean we starve biosimilars and generics. We think about how we allocate capital and how we prioritize. So one of the things we did in the Pivot to Growth strategy, which we believe... Now I'll go back and say, we made a statement in the Pivot to Growth that we're going to create a generics powerhouse. That's not an ambiguous title. That's not a loose title. So what is a powerhouse? A powerhouse is something that grows top and bottom line consistently, right?
That is a big statement when it comes to generics. To do that, what do we do? And this goes back to your capital allocation, allocation question. We're going to take our pipeline, which is huge, and we're not going to go after 80%+ of generics that are, or patent products that are going to come off patent. We're going to reduce that to 60. So we're going to do less, but we're going to bring them to market quicker, more consistently, which creates more value. That requires less money, that requires less capital. And then in manufacturing, we're going to actually remove products from our portfolio because they are either not profitable or massively diluted, but they create complexity on manufacturing.
We're going to reduce that, allowing us to make more of the things that make us money and reduce, continue to reduce our manufacturing footprint, less cost. So once again, still driving that more efficient capital allocation. So that's how we're thinking about capital allocation. And the good thing is, the team across the world feel that. So whether it's those, those particular businesses or geographies, they know it, and they feel it, and we make decisions which are categorical. So we take stuff away, and we allocate it here. Hence, the reason why you've seen, despite this investment in AUSTEDO and other things, investment in TL1A, investment in olanzapine, you know, at least for the first half of the year, we haven't changed our operating expenditure versus last year-
Mm-hmm.
because we've reallocated.
Mm-hmm.
And that's what we want to keep doing. Now, obviously, as our top line grows, which I believe it will, many people are still evaluating that, then if we keep allocating as a percentage of sales for R&D, for sales and marketing, then obviously those will be allowed to grow. But we're. That's how we're thinking about capital allocation, and that's how we're thinking about being very, you know, cost conscious about our cost base.
That's very clear. I want... You mentioned biosimilars, and you are building a portfolio. You already have a couple of biosimilars in the US on market, and you have a few more to come. And we are seeing this interesting change in the industry, where we are seeing this sort of innovative deal emerging first between Coherus and the Mark Cuban Pharma company, introducing a biosimilar Humira with a very deep price discount. Then CVS partnered with Sandoz to do something a little bit similar. So I just want to have your view on, you know, do you think these initiatives are kind of very specific to the biosimilar Humira situation in the US, which is, you know, kind of competitive landscape that's particular? Or do you think we are seeing actually a change happening in the US with biosimilars?
So, look, I think to touch upon those partner label things that you described are not new, that have always been done. So I think, I don't see that as necessarily something which is surprising or an evolution. It's just what has always happened. The fact that it's now being applied to biosimilars, I think is perhaps what's creating some headlines. The question, I think within the question is, what does this mean for biosimilars? Is this an opportunity? Is this a threat, or is it somewhere in between? Look, the strategy we've outlined at Teva is we believe having a big portfolio of biosimilars is how you maximize the opportunity, without at the same time minimizing the variability that can happen from different biosimilar. But we're doing that primarily through partnering.
We're doing that through partnering, so we don't allocate capital unnecessary to something that we don't need to allocate, because we can partner, and allows us to allocate capital to our innovative medicines. That also de-risks it from a capital allocation, because as this portfolio plays out, then I think what we'll see in biosimilars is some biosimilars will do incredibly well and others will do less well for various reasons. I think they'll all make money, but for us, having a big portfolio allows us not to be so contingent on this one. I know I'll get questions, or at least today, at some point about Humira. You know, this Humira is the sort of, you know, this is the holy grail of biosimilars.
It's a good opportunity, no question, but for Teva, it's part of a portfolio play, and you know, quite close after that is Stelara, and then we have other products. For me, it's about how, how do we make sure they get launched on time, regardless of whether that market is hyper competitive or less competitive. As it plays out over a portfolio, we'll have a good revenue stream, a good top line, a good bottom line accreted. Some years will grow more than others because the unpredictability of when biosimilars actually get to the market and the traction. But when you play it out over a portfolio, for me, that's the right strategy. So when it comes to these individual circumstances, I think they've become, those, those aren't things that drive strategy, more opportunistic.
Understood. That's clear. I just want to spend a little bit of time on US generics pricing, which has been, you know, very important for investors through 2022. So basically, we saw this kind of cycles of price deflation that we saw in 2017 and 2022, and then pricing kind of come back and improve again, and we saw this through the end of last year up to now, with now that we have much more mild pricing environments in the US So I want to have your view on how do you see this evolving in the short term, and do you think we're going to see this deflation cycle coming back in the future, or has something changed in the industry that could kind of insulate you from this?
So, let me be really clear on this. You know, there is no comeback on this from a pricing. I mean, it's economics. Supply, demand, three people, three institutions with massive purchasing power, that's here to stay. You know, it's simply, you said it, it's got ... It's sort of a double negative. The price reduction has gone back, but it's still a price reduction.
Yeah.
So, right. Yeah, so it's, you know, I think you used the word inflation in that, right?
Deflation.
Yeah, yeah. So, none of that's going to happen. Okay? You know, the only way you get a price increase in generics is if everybody stops supplying it, and then potentially you can do something. But that's not a strategy. You don't, you don't plan out strategically. Look, for me, generic pricing will always go down.
Mm-hmm. Yeah.
It's in the US, always. How fast? It sort of depends on how many people supply. You know, the modeling we've done, 5 or 6 people come in, the price crashes. Yeah? So how do you manage that environment? You don't hope things are going to get better. You don't hope people are going to be asking for less of a price to you. What you do is you strategically set up to have more launches, more highly profitable launches, and then you need to take out of your portfolio things which are falling down, and can be diluted, then the math works out. So you go back to the Pivot to Growth strategy. Let's make sure we take our big pipeline, and we launch it more consistently on time, every time.
And the things that are diluted in our manufacturing, our portfolio, we keep taking out. So as we launch, we take out, and that gives us more sustainable business and a better chance to grow. But, you know, when I hear the statements around the environment's improving, when we did this strategy, we looked at what generics was going to look like 5, 10, 15 years ago, and how we could be, we could be successful. And in no strategy did we start to play out a scenario where there would be inflation in generics-
Mm.
It would get better, and these three purchasers would stop asking for discounts.
Mm.
We never could. That would be unreasonable. Why would that happen? But I think what we put in place with our Pivot to Growth strategy means we can get back to growth, even when some of the products have been slashed on price, because we'll be launching other products, and we'll be improving our portfolio by taking out products. And our manufacturing, because we continue to reduce our complexity and scale, will improve from a COGS positioning. And as our COGS improve, we can take price decreases without affecting our gross margin as much. So you put all those together, then I think it goes back to we'll create a generics powerhouse that we will be in control of and less reliant on the market doing something positive.
Mm-hmm. Understood. I think we're running out of time, so thank you very much for, for taking the time to be with us today and for the session.
Thank you.