Thank you, Ella, and thank you, everyone, for joining us today to discuss Teva's Q2 2021 financial results.
Joining me
on today's call is Kare Schultz, Teva's Chief Executive Officer Eli Khalif, Teva's Chief Financial Officer and Brendan Grady, Teva's Head of North America Commercial. We hope you've had an opportunity to review our press release, which was issued about an hour ago. A copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevapharm.com. Please note that the discussion on today's call includes certain non GAAP measures as defined by the SEC. Management uses both GAAP financial measures and George disclosed non GAAP financial measures internally to evaluate and manage the company's operations in order to better understand its business.
Further, management believes the inclusion of non GAAP Financial Measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends. A reconciliation of GAAP to non GAAP measures is available in our earnings release and in today's presentation. Please note Today's call will run approximately 1 hour. And with that, I'll turn the call over to Teva's Chief Executive Officer, Kare Schultz. Kare, Hewitt, please.
Welcome to all of you, and thanks for your interest in Teva. I'll start by the financial highlights. Our revenues came in at 3,900,000,000 Which is roughly the same as a year ago, and it was really driven very much by AJOVY and AUSTEDO. And it was you as they came in. The adjusted EBITDA came in at $1,200,000,000 and the GAAP diluted EPS came in at $0.19 and the non GAAP diluted Our debt reduction continues as we've laid it out several years ago according to our plan and the net Debt to EBITDA ratio is now down to 4.7.
The 2021 revenue outlook is lower to reflect the ongoing impact of COVID-nineteen from €16,400,000,000 to €16,800,000,000 down to €16,000,000,000 to €16,400,000,000 However, operating income, EBITDA, EPS and free cash flow remains as already guided, so it's reaffirmed. And the reason for this is basically We have been awaiting the consequences of COVID in the total market, and therefore, we've been cautious since the beginning of the year, of course, on our Just around the €4,000,000,000 per quarter, a little up, a little down, depending on launches. And of course, longer term, we want to change And you can see here the script numbers, the total script numbers per quarter, where we had a new all time high here in the Q2. You can also see the revenues per quarter, and they Yes, a little up and down, and there's some true ups of rebates in there sometimes. There's some wholesaler swings in there sometimes.
There's been a There's been a little bit of a, as you would say, lower wholesaler purchasing in the Q1, which is correct, it's settled in the Q2. Underlying, we see a strong The campaign so far has resulted in expanded activity on our websites, and we are optimistic that this will continue to drive growth in prescriptions and Also continued growth in sales. As a consequence of the slower market development compared to what we expected, we have lowered the outlook for Solid net sales growth in the Q2 of 'twenty one and is really based on both the U. S. And the European performance.
As you see market share of 33%, and we think this is doable within the coming years based on the very, very good safety and efficacy profile of AJOVY And the fact that it is the longest acting product and therefore also the only product that can be dosed both monthly and quarterly. So we are very And it shows how it continues to grow in share in the market. Right now, we also hear around 25%. And the market has been Moving after a sort of overall market slowdown in the Q1, probably related to COVID, has started to improve, and we expect it margin, we are well underway. Since it bottomed out in 2019, we have been improving it significantly.
And right now, We are just shy of 27%, which is the target for this year. And of course, we're aiming for the 28% in 2023, and we are very confident that we They are unchanged, and of course, they are to be achieved by the end of 2023. And I just mentioned the operating income margin of Now when we execute our business, we deliver more Pharmaceutical products, more medicines to the world than any other pharma company. And that's, of course, very, very important for the patients who use the products every We are the leading generic company in the world, and that is that we help to create sustainable health care systems where the authorities Our insurance companies or whoever pays for the medication, the private individual, get a chance to have a sustainable and affordable access to medicine. And We've started 2 years ago to have an independent external company do a report on what is the real economic benefit of our activities.
And I'm just Just going to show you a few snapshots here. The report is available. You can find it online. It's from Matrix Global Advisors. And here, you can just see some highlights that we saved the U.
S. Healthcare system some $29,000,000,000 in 2020. And you can see we've done it by state. We have the details by state in the report, but you can also see that the savings, they ended up, some of them with the government, some of them with private health And some of it out of pocket co pays that got reduced and so on. And just the same directly to the patients were 4,000,000,000 So a significant contribution to the U.
S. Health care system. Now the same can be said for all countries where we operate. We don't do the report That we have been saving the countries a lot of money. And on top of this, of course, when we do generics and biosimilars, If you're more interested in this, take a look at the report.
You can find it online. But with this, I think we should move To have a look at the financials, so I'll hand over to our CFO, Eli Khalif.
Thank you, Kare, and good morning and afternoon to everyone. I begin my review of the Q2 2021 financial results on Slide 14, starting with our GAAP performance. Revenue the Q2 of 2021, we're approximately $3,900,000,000 an increase of 1% or a decrease of 2% in in our North America segment, mainly related to COPAXONE and ANDA, partially offset by positive foreign currency impact as well as higher along with the manufacturing site in Japan. Exchange rate movements during the Q2 of 2021, The hedging effect positively impacted revenue by $135,000,000 compared to the Q2 of 2020. In Q2 2020 1, we recorded a GAAP operating income of $582,000,000 versus $173,000,000 in Q2 2020, GAAP net income of $207,000,000 versus $140,000,000 in Q2 2020 and a GAAP earnings per share of 0 point a year ago.
The year over year improvement in GAAP operating income, net income and earnings per share was mainly due to a lower Turning to Slide 15. You can see that the net non GAAP adjustment in the Q2 2021 were $444,000,000 versus $465,000,000 in the Q2 of 2020. Non GAAP net income and non Turning to Slide 16. We review our non GAAP performance. Kare and I have already reviewed the 2nd driven by higher profitability in Europe and international markets, resulting from the change in product portfolio mix We ended the quarter with a non GAAP earnings per share of $0.59 compared to $0.55 in Q2 Turning to free cash flow on Slide 18.
Teva's free cash flow in the Q2 of 2021 was 625,000,000 and inventories as well as lower profit in our Europe segment. Please recall our 2021 free cash flow guidance, which we first provided in February, reaffirming in April and are reaffirming today. 2021 free cash flow is expected to be in the range of Debt declined to $22,700,000,000 versus $23,700,000,000 at the end of 2020. I'm pleased to report that just last week, we repaid an additional 1 point dollars 1,000,000,000 which is not reflected in the quarter end total. Additional upcoming maturities, including $1,200,000,000 in the 4th quarter.
Our Net debt to EBITDA continued to decline coming in at 4.7% for Q2 2021. Debt reduction continued to be during the We have experienced a nice recovery in some countries and products from the effects of the global pandemic. We unfortunately have not seen everywhere in our business. Some markets and products are still feeling the lingering effect that the pandemic has had on the purchasing pattern of our To adjust our guidance range for full year revenue from the original range of $16,400,000,000 to $16,800,000,000 to the new range of to $16,400,000,000 This lowers the midpoint of our range by $400,000,000 The new range includes an adjustment to our full Your expectation for global sales of AUSTEDO, for which we are lowering our guidance by $100,000,000 to $850,000,000 for The reason Kare mentioned earlier, for our other financial targets for 2021, operating income, EBITDA, earnings per share and the free cash flow, we are reaffirming the current ranges first provided in February, reaffirming in April. We
And your first question is from the line of Gary Nachman from BMO Capital
With the lowered revenue guidance, could you elaborate on you're doing to maintain EBITDA, EBS and free cash flow guidance a little bit more, how much is gross margin improvement versus reducing OpEx? And are you likely to be at the lower end of the ranges for EBITDA, ABS How do you see that playing out? What's built into the guidance if the first half arguably saw maybe a little bit more pressure than what you had anticipated?
Thanks for the question. I'll start by answering restrictions would affect the marketplace. And what we were anticipating when we came out with our first guidance was really that the vaccination drive would It would result in a lifting of saying of restrictions in the second quarter so that economic activity and doctor visits and script activity and so Would resume in the second quarter, both in U. S. And Europe.
Now the way we then managed the P and L, so to speak, was to be cautious on the overall spend pattern. Nothing specific for a specific area. We just went slow on the spend so that we knew that we would be able to manage the situation from Now it so turned out that we did see a lifting of restrictions and then there was a lag in the U. S. From Restrictions, maybe not a lag on all consumption, but there was a lag on doctor visits and scripts.
So we've seen a The improvement and now I'm sort of switching into answering your second question in combination here. We did see an improvement in Scripps over the last 2 months in the U. S, but it didn't really come all the way from, you would say, the 1st April. It came late in the quarter, and And we're optimistic about the next two quarters based on what we've seen. Now in Europe, it's a little different because there, we really had restrictions all the way up to Not very long ago in most major countries.
And we're only now seeing the first signs that the situation is improving in terms Volumes in generics and OTC based on the lifting of the sanctions. Now then you might ask, what's the assumption for the rest of The assumption for the rest of the year in our guidance is that we continue this situation with lifted restrictions. So you have some restrictions still There are travel restrictions. There are some places where you need to wear a mask and so on. But we are not baking into the guidance that we It's some dramatic reversal to lockdowns due to some terrible new variant or something like that.
Everything we can see right now points The assumptions, but also the way we are handling the earnings versus the revenue. Thanks for the question.
Thank
Your next question is from the line of Navandi
My first one is on Opioid, if I may. So Teva was part of the 2019 agreement in principle with J and J and Distributors, But was not part of the recent proposed settlement. Are you able to share any progress on a possible standalone global settlement? And I just have a quick question on AUSTEDO, if you plan another DTC or other promotional campaign during the rest of the year. Thank you.
Thank you for those two questions. So on the opioids framework, you're absolutely right that at the time in Cleveland when Nearly 2 years ago, when the framework was first established, there were the 3 distributors, J and J and us, and we have been in constant dialogue with The AGs and the plaintiff lawyers since then, I think it's fair to say that the cash amount and therefore the immediate interest from the plaintiff lawyers By giving them generic Suboxone, which can help them wean off the product, get off the bad products they're And get back hopefully into a life without any substance abuse. And we have been offering for a 10 year period to provide this free of To all states in the U. S, and I think that's a very attractive offer for the states. However, of course, since we are not offering much cash because, as you know, we have a Debt of more than $20,000,000,000 Then the actual attorney fees related to it are, of course, less.
And that's probably why they have decided to Take the other four companies first and then move on to us second. We have been in an ongoing dialogue, as I said, both with the We are optimistic that we can reach a settlement in the during the coming year. We think For Tardive Dyskinesia, as I said earlier on, there's a huge unmet need, nearly 500,000 people suffering from tardive dyskinesia in the U. Only a fraction being treated, and this is a very good and important therapy. It's the first time there is to the benefit of them and, of course, also resulting in increased sales of AUSTEDO.
Thanks for the questions.
Thank you.
Thank you. Your next question is from the line of Elliot Wilbur of Raymond James. Please go ahead.
Thanks. Good morning. Kare, maybe if you could just provide us with an update in terms of trends with respect To the North American generics business, specifically just what you're seeing currently in terms of price volume erosion on the base And then the outlook for new pipeline opportunities, new generic launches, I know that there's this Seemingly continual shift outward in terms of trying to gain approval for these complex generics, but you Previously talked about teriparatide and Vyetta as being complex generic opportunities In 2021, maybe just an update on your expectations around base erosion trends and And pipeline yield for the second half. Then a follow-up on the commentary around AUSTEDO. Can you just let us know what The current or what percentage of current Rx's are in fact for tardive dyskinesia?
And given that you've launched the product now in China, maybe you could just help frame expectations for The potential global opportunity relative to the U. S. Market for that product. Thanks.
Thanks for those two questions. I will give a broad answer and I'll have Brendan give you some more details. So as I've said many times, the North American generics and biosimilar It's a space where we constantly have this, as you say, volume erosion on old products because more competitors come in and Surprise erosion on old products because new competitors come in. We're not seeing any dramatic changes in the market conditions. We're not seeing a lot Less or a lot more suppliers, and we're not seeing more or less price erosion that we've been seeing traditionally.
So I would say a quite average year this year. Basically, we are having a business to the tune of $1,000,000,000 a quarter, roughly $4,000,000,000 on an annualized basis North America in the generic and biosimilar space, and we expect to maintain that going forward, potentially grow it a little. You're You're absolutely right that a lot of complex generics are being delayed, not just ours, everybody. I think with NuvaRing, we have probably the only complex The rest of the year for U. S.
Generics.
Hey, Cor, I mean, I think that, Corey, you framed it up well. I think that we'll see U. Price erosion and volume, I think that price erosion is pretty much what we've seen as historic norms. It depends it's Highly dependent on what your portfolio is. But I think volumes coming back due to COVID.
As Kare mentioned earlier in the call, We saw wholesaler orders kind of come back to what we would see pre COVID levels during the month of June. So when we think about new As I mentioned on some previous calls, we have up to maybe 12 potential complex When we started the year, FDA has only one, what we call complex generic approval, as Kare mentioned, which was NuvaRing, which was ours. We'll see what comes in the second half of the year, but there's still a decent stable of products that could be approved in the second half of the year. To date, We've launched 13. I think last year, we launched 20 some generic products.
So overall, I think we're trending just fine. We should see hopefully approvals pick up in the second half of the year.
Thanks, Brendan. With regard to AUSTEDO outside the U. S, For instance, in the U. S, first, you have to work your way through hospital listings. We're doing very well there.
Then you need to get on these National drug reimbursement list and also on the provincial list. And then eventually, you'll see the product start to move in So it will be some years out before you see big numbers on AUSTEDO China, but it's off to a very good start and it's meaningful, it's profitable. So We're happy about that. With regard to the split between Huntington's and tardive dyskinesia, I don't have that exact And I don't know whether we really have it. But Brendan, what would you say?
What's your feeling about it? Because I don't think we have the exact numbers.
Yes. So Kare, the split between AUSTEDO, if you think about our tardive dyskinesian Huntington's disease, is about 4 About 80%, nearly 80% of AUSTEDO scripts are for tardive dyskinesia. And of course, that's why we're bullish on the product because about 6%, 7% of the estimated population with tardive dyskinesia has been treated. So there's significant room for growth there.
Thanks,
Your next question is from the line of David Steinberg from
Two questions. Kare, just to clarify, Did you say you expect a settlement, an opioid litigation settlement this year? And if so, could you discuss the flexibility to manage And then secondly, just on shoring up some of the struggling revenues. I know you've indicated in the past that you're focused on debt pay down and you're not going to be buying any assets, but any opportunities to leverage your global sales infrastructure and To leverage your global sales infrastructure and bring in new products either via co promote joint ventures or other type
Thanks for those two questions. So first of all, on the opioids, the frame Which is now nearly, as I said, nearly 2 years old. If you look at the framework, then you can say what it ended up with for the three Distributors in J and J is not radically different from what they initially agreed in the framework. So If you look at our framework deal way back, then it was €250,000,000 over 10 years and it was Over 10 years, whatever the demand was, estimated at $23,000,000,000 at list price, probably $10,000,000,000 $11,000,000,000 net price and of course, the manufacturing cost, which is somewhat less than that. Now if you look at the cash component here, Then the framework with resulted in a deal with J and J where they pay over, I can't 5 years or something like that.
And I believe the distributors, they pay over something like 17 years. And you could say, since we We have a lot less money than those 4 companies. I would not be surprised if we end up paying over a longer period than the 10 years that we initially Get a settlement, which, of course, we would not like to do, then, of course, there's some flexibility on that if you stretch out the payments over a longer period. So Basically, I don't expect that anybody will have any benefit from trying to push us to cash payments, which are not in line with our financial situation That will not benefit anybody. So I don't really see that the cash component might increase, but I don't think it will be In a structural way, that will really affect our liquidity to the extent that we will have any problems with More revenue based on, you could say, our business footprint.
I think there are some good examples, not the least in the biosimilar space. You saw All the deals we did with Alvotech, which will potentially give us new biosimilars in the U. S. Over the coming years. You We did a deal recently on a Lucentis biosimilar in Europe.
So we are looking for these kind of opportunities, as you say, where our commercial footprint Europe and North America can be used by companies who have a good product, but don't have that commercial infrastructure. And I'm marginally They will find some more products. They will not be huge blockbusters because then people tend to do it on their own. But I think we can supplement our revenues with these
Your next question
2 of them. First, can you talk a little bit about the branded pipeline? You've been working on a few things there for the next 24 months. Should we And then secondly, regarding AJOVY, you kind of mentioned 33% Mark, it's Joe. I'm wondering if this is just against the other injectables or also against the prophylaxis oral products, which are coming in.
And in general, if you consider the progress of the prophylaxis oral products, how big would you expect the injectable prophylaxis CGRP market to be, call it, 3 to 5 years out, being kind of like a public is the market overall. And with that question, I would also I'd like to extend my thanks and
It's, of course, super important that the branded pipeline also delivers. And first, we should be happy that risperidone LAI hopefully will from schizophrenia in the sense that it's subcutaneous, so it's not an intramuscular injection, and it can be lasting 1 or 2 months, which is longer than current therapy. So we think this can benefit a lot, people suffering from schizophrenia to get a more convenient therapy where they avoid relapses due to a convenient long acting therapy. Therapy where they avoid relapses due to a convenient long acting therapy. But there's a lot of other exciting things happening sort of short term.
You know that we have Very exciting concept in oncology that is being sort of the front runner is really a out license We have Takeda, and it's the principle of attenuating an oncology product. So you basically have an oncology product that It would be too toxic if it wasn't turned down, so to speak. And then you have we have a special technology to turn down the effect and to make sure it works where it's supposed to work. And we have a very interesting product in our own pipeline. And within a year, we'll see the Takeda results.
And They will be positive validating the concept. And then we have our own product. And the idea is basically that you have a way of targeting the So that's very exciting to see the outcome of this Takeda trial, which will validate the concept. We We have IL-five in clinical development, and that's a really an upgraded version of the IL-five for respiratory disease, which could be The case is more long acting, so we're excited about that. And then we have a lot of early things going on.
We have in fibromyalgia, We are looking at whether AJOVY can work in fibromyalgia. So many exciting things happening in the next 2 years. And of course, also early It's a little too early to get really excited because it's always difficult in the early phases, but I'm very happy about our pipeline in bio Pharmaceuticals. So that's really positive. When we then switch to your second question on AJOVY, Then I'll give it a comment and then Brendan can also supplement.
The way I think about when I say a third is of the injectable prevention And we have to sort of distinguish a little bit here because there's oral preventive therapy where you basically take tablets all along, I think every second day or something like that at a very, very high cost because if you have to take a tablet every day, I can't remember the cost comes But very, very high. And then you have the quite cost competitive injectables now, the 3 injectables. And my 3% is out of the injectable segment. I think the injectable segment will be significant because it's even though it's an injection, it's It's subcutaneous. It's quite convenient.
And then you don't have to think about it, taking these tablets all the time. People who do not like to take injections who have needle phobia and so on, they will for sure go for the oral therapy if they can get their insurance company to pay for it because the Actual cost of these type of therapies is very high. I also think there's a difference between U. S. And Europe.
I think it's going to be very, very difficult in Europe to get the prices We're seeing in U. S. On the orals. The orals are very compared to orals in Europe, whereas the injectables are more meaningful in comparison to all the European therapies in the same space. So I think there's going to be some regional So I think there's going to be some regional differences.
But to give a specific answer, it's a third of the injectable segment I'm talking about. I don't know if you You want to comment on the orals, Brandon?
Yes. So Kare, I'll make a comment. So first, Ronnie, thanks for the nice words. It's been a pleasure speaking to you over the years. When we think About the migraine segment, as Kare mentioned, when we talk about a third of the market, we're talking about the injectable market.
But if you think about the overall migraine market, there To what extent, we're really not sure. I think Cord talked about the complexities of oral versus injectables. There's a Lot of advantages to an injectable product in an oral preventative when it also has an acute indication is not necessarily straightforward as one might So AJOVY has the longest acting is the longest acting product in the migraine Which gives us that 3 month dosing regimen that others don't have. And I think what we're starting to see is we're and sales, right, I talked a little bit about that as we grew share and we went into the pandemic, the volume was coming down due to the pandemic. That we're coming out of it, we did $46,000,000 in Q2, which is up 35% versus Q2 of 2020 48% versus Q1 of 2020.
So I think AJOVY is on the right path. I think we are absolutely we'll get to our forward with the orals as one might think, and I think there's a lot of advantages to a quarterly or monthly injection. So thanks for the question.
Thank you.
Thank you. Your next question is from the line of Umer Raffat from Evercore.
And I ask because there are still a few reports of state AGs and certain counties, etcetera, not participating. So I wanted to gauge your thoughts there and whether necessarily a good or bad thing from Teva perspective. And then secondly, I know there's still some lingering litigation between Teva and And former Allergan, now at V, on what percentage of the liability may potentially have to be covered by that entity On your opioid side, can you just catch us up there? And what would your base case expectation be on what percentage of the cash balance has to be put up by them? Thank you
Thanks, Omer, for the two questions. So first of all, the overall nationwide settlement that has And announced between the 3 distributors and J and J, I think the risk of what you call a blow up or lack of participation is Extremely low. And the reason why I say it is that since the framework where you could say there was basically a majority that wanted to participate because it was Negotiated with the lead plaintiff lawyers and with the lead state AGs. There's been a lot of work going on behind the with everybody, including us, and it's quite clear to me that the majority of the states realize that if anything good to the Supreme Court where there might be a win or loss. So it's totally unpredictable what will happen, and it's not going to help the And there's this very, very sad fact that since all restrictions have been put in place by everybody, everybody is doing all they can to avoid any We all know from statistics that the majority of abuse Today and for many years has been illegal fentanyl, illegal methamphetamine coming from China, coming from Mexico, coming from Colombia and And it's the fight against that and it's the help to people suffering from substance abuse in the form of Suboxone, in the form of money going to therapy That can help the situation.
So I must admit, I can't see how this will blow up because politically and practically, this is the And at the end of the day, this is not really a legal situation at the core of it. This is really a societal political situation at the core of it. And therefore, I think we're also seeing now kind of a politicallegal resolution, which I think will work for the majority. There might be some holdouts in the subdivisions. I think we saw already the judge in Cleveland putting pressure on these subdivisions saying you should indirectly, he's saying you should join this because if you don't join, I'll put all the pressure All the details for your county, for your region, for your Native tribe or whatever it is.
And that's a lot of work and a lot of pressure to put, of course, on the subdivisions because the judge, in this case, in Cleveland, I think he So I don't think it's going to blow up. If it blew up, then, of course, It would be us taking it case by case. Right now, we have 2 cases, California and New York. It's It's always hard to predict. The only thing I'll say, it's not a clear cut case either way, which means that the plaintiff lawyers and the states, they have a big risk as well in all of this.
And that's what I think is part of why we will see a settlement also with Teva. And I actually said within The coming year, so I didn't say within this year. I said within the coming year, and that's what I still believe. When it comes to Allergan, there's no real litigation with Allergan at all on this, there is, of course, a situation that Allergan owned Actavis and Actavis was And when it comes to liability, it always has a component of the owner and has a component of the actual legal entity and has a component of timing. On top of that, of course, Allergan has its own independent opioid product that has nothing to do with Teva or Activist whatsoever.
So the way I look at it is that AllerganAdwe will most likely end up settling with the plaintiff lawyers in in an independent settlement. We will settle with them in an independent settlement, and that will be the end of that. So
Your next question is from the line of Jason Gerberry of Bank of America.
Just
a follow-up on Umer's question With the opioid deal, it seems like there's a timing consideration for these opt ins for the subdivisions that aligns with when we'll get rulings from California, West Virginia, New York type cases that involve subdivisions. And so, what I'm wondering is how important you These outcomes coming in at reasonable levels, how important that is to Corralling all the subdivisions into these opt ins or do you think that there was mention of legislation or agreements between the states and their subdivisions In order to sort of realize the full magnitude of the proceeds of those settlement bills. So it's more of a high level conceptual question here. California, which is seeking $50,000,000,000 a big number comes out. I wonder if that's going to create some Motivation on the part of subdivisions to try it out in court?
Yes. So it's a good question. So let me try Whatsoever on damages within 120 days. And you're absolutely right about the 30 days for the states to opt in and then the 120 days For the sub divisions to opt in. So in the bench trial in California, there's a judge, no jury.
And it's a 2 So the first trial, which will probably not even end within 120 days, it might, but it might not. That part will only determine whether Any basis for discussing liability at all? And there might not be because in the way the trial is going, you can question Whether the plaintiffs have proven any damages really or any causality between some of the products and the substance abuse in California. But That's another story. But anyway, the timing is such that there will be a decision by the judge on the liability, and then there'll be California will be way later than 120 days.
In New York, it's the same thing that first, This trial will go on for quite a while because it's a jury trial, it's complex, there's a lot of people involved. And therefore, there will also not be a monetary verdict, you So what is most likely happening, the way I look at it, is that the state AGs, they think together with the key This is the time to wrap up this thing. It doesn't make any sense to keep on going. Nobody has an interest in having a tale of small cases lingering Because that will cost the lawyers a lot of money to proceed with these cases. The damages will be, of course, significantly less.
Most likely, there will be a heavy sort of leaning on the global settlement as a benchmark for this. So There will be a lot of pressure, I think, on the subdivisions to join in with the states, and they will not see any numbers from California or New York before the time they have to decide. Does that clarify the situation?
No, yes, that's really helpful. I wasn't sure if California was consolidated damage liability phase or just liability phase? That's helpful.
It's separate. So basically, you could say, I think it's a psychological Jason here where the key plaintiff lawyers, the key state AGs will put pressure on everybody to participate in this settlement, basically because They think it's the best for the country, and it's I also think the plaintiff lawyers think it's the best economic outcome on average For all the plaintiff lawyers. You have to remember that their fees are to the tune of $2,500,000,000 So it's A lot of money we're talking about also for the plaintiff lawyers.
Your next question It's from the line of David Amsellem from Piper Sandler. Please go ahead.
So just on AUSTEDO, I wanted to come back to that. You talked about payer Your access or efforts to improve access, if I'm not mistaken, can you just elaborate on what access Like in terms of HOOPP's patients have to and practices have to jump through and how problematic That is in particularly in tardive dyskinesia. And then secondly, with your competitor having data later this year In Huntington's Corio, can you talk about the extent of competition there and the extent to which you could see pressure on AUSTEDO in Huntington's to the extent that your competitor gets a label Expansion in that setting. Thank you.
Yes. Thanks for those questions. So I'll give it an overall answer, and then Brendan can supplement. So If we look at the last question about Huntington's disease first, then I don't think it's going to have a major impact. I'm I'm pretty convinced that those doctors who are preferring to use the competitive product, they are probably also in some degree already using For Huntington's disease, they have the freedom of medical choice, of course.
So I think it's happening already. And it's a small part, Brendan said, it's only about 20% of our business right now, and the big potential is really in tarder This is Kanesha, which leads me to your first question where, of course, we have a lot of support activities to secure that the patients can Actually get on the product, but I'll let Brendan explain to you some of the details on how we actually do that and secure that we get patients on the product.
Jordan? Yes, sure. Thanks, Cory. So yes, I mean, if you look at AUSTEDO's access, in commercial, AUSTEDO has 2% coverage, and that's preferred coverage. And in Medicare Part D, it's pretty close.
It's 89%. So across the board, Ostea has broad payer coverage. And as far as patients getting on it, it really depends what that coverage means And it's one that we work very closely with payers to make sure that those patients, whether it's HD or TD, have And it's a fairly smooth process. So we're happy where we stand with payer coverage. And we've talked a little bit We think there's a tremendous opportunity.
I agree with Kare. We Huntington's disease, what happens there with our competitors, I don't think it will have a impact and there's still significant growth opportunities in tardive dyskinesia. So thank you.
Thank you. Your next question is from the line of Daniel
I've got 2. First, a follow-up on opioid litigation, and I hate to belabor the point, but as we think about a potential settlement deal, is there a minimum percentage The plaintiffs that would be needed to be a part of that in order for you to move forward. If said differently, is there some level below 100% that you would be happy with Understanding that achieving a truly global settlement may be difficult. And second, you mentioned risperidone LAI earlier. Can you talk a little bit about how you're thinking about the market opportunity for that product, just given the highly genericized nature of the risperidone market today?
Thanks for those two questions. So if we take the first one about the opioid litigation again. Then the way The deal that the distributors in J and J have made structured is basically that there's a minimum That needs to participate and the more they participate, the bigger the payout, you could say of the theoretical max amount. And I can't remember The exact number of states, but I think you should think about it this way that the expectation is that certainly more than 40 states out of the 50 will And hopefully, a number higher than that. And of the subdivisions, there's a lot of legal twist to it because for some Once the state participate, the subdivisions sort of have to participate.
For some states, it's unclear. And for some states, it's clear that they don't have to participate. But my Expectation would be that you are talking about a threshold of more than 80%, both for the states and for the subdivisions. And you You have to remember that this is all negotiated with all the lead plaintiff lawyers. So this is not negotiated in isolation.
This is a deal that's done by the aggregation of all the different lawyers into groups and then representatives from these groups. So I think it's very, very likely That you will see this level of above 80% for both the subdivisions and for the states. If we then switch Completely to risperidone LAI, how big is that opportunity? I think it's quite a big opportunity because the pricing on LAIs is Right, stable and good in the marketplace. And the pricing of Eli has really not gone generic for the new and better products.
So that means that we will be launching probably with a price that's the average price of branded patent protected LRIs. You have to remember that the reason trial of the drug. And that's why it's a subcutaneous injection instead of intramuscular. That's why it's a much thinner, much And that's why it doesn't last 2 weeks, but it can last a month or 2 months. And we have very, very good clinical data, which I'm sure you've seen.
So we are very optimistic that we can get a significant and what do I mean by significant? I mean more than 10 So that means, if you do the math on that, that it is actually a significant opportunity, which will both benefit our revenues,
And your final question today is from Nathan Rich of Goldman Sachs. Please go ahead.
Good morning. Thanks for squeezing me in. I wanted to go back to The earlier commentary around guidance and just a couple of follow-up questions. I guess firstly, Kare, Around your comments on the revenue outlook for the rest of the year, it sounds like you saw volume pickup late in the second quarter. Have you seen that continue in July?
And Can you talk about what the guidance range assumes around volumes over the course of the year? I'm just wondering how you're thinking about the Potential variability around the delta variant and the impact that, that could have on doctor visits and volumes over the course of the year. And then my second question is on the operating margin guidance. I think on one of the slides, it showed the 2021 operating margin And target being 27%. I guess if I use the midpoint of the guidance range, it would be closer to 27.5%.
I know that's not a huge difference. But But could you maybe just kind of clarify on what the operating margin target is for the year and how we should think about the swing factors Between both revenue and expenses as we think about where you're likely to come in for the year? Thank you.
Yes. Thanks for those two questions. I'll take the first one and then I'll let Eli take the last one on the margin. So good question on the guidance. So exactly like we said, both in Europe and in U.
At the end of the second quarter, we did start to see some improvement in volumes. And as you can do from the math, we did roughly Somewhat more in the second half in order to meet the guidance, of course, which we expect that we will. And that means that we We are expecting to have higher volumes, and there are 2 elements to it. 1 is that the restrictions have been lifted all over Europe, more or less, and in the U. The volume has resulted in higher scripts in the U.
S. And also now we see the first indications of some higher volumes in Europe. Now So you are absolutely right that like any Other types of business, right? If all of a sudden there's a travel ban in the U. S.
And there's a full lockdown in the U. S, then we have a new And then we would have to revise our guidance most likely. And the same thing for Europe, if all of a sudden there was a travel ban in And if all of a sudden there was, you could say, lockdowns, I personally don't think that's very likely because as I said, When you look at the number of severe cases that are being hospitalized and when you look at the number of deaths, then the The increase in infection rates in various countries due to the new variants doesn't seem to create the mortality that we saw in the beginning. And that's Basically, of course, because of the high level of vaccinations in the U. S.
And in Europe. So that's really the assumption is that we see higher volumes in Consequence of the lifting of lockdowns and restrictions. And if that was to change, then we have a new situation, which we will, of course, communicate about if all of a sudden we see the U. S. Nationwide lockdown or something like that, which I think is not likely.
But that's really the assumptions behind it. And now maybe, Eli, you can comment on the margin.
Yes. Hello, Nathan. Thanks for the question. So if you go back to Slide 16, where we showed the first half of You can see that we generate gross profit margin of 53.6%, very close What we generate in Q2, which means that our run rate that we predict to end the year very close to the 53.5%. Now if you look On the last two quarters actual, we're actually lower than 27% on the OpEx, which means the OpEx is driving between around 26.8%.
Now when we target the 27 Now when we target the 27%, and I know that it's a bit lower than the midpoint, which is 27.4%, that The variable elements that we have in the OpEx, which we assume 53.5% on the gross margin going to 27% on OP, which mean This is something around 26.5 percent to land on the OpEx versus what we had in the first half of twenty 6.8%. That's 0.3%. That's the variable
Thank you, Eli, for that answer, and Thank you all of you. I'll turn it back to the operator.