Annual healthcare conference in Las Vegas. I'm pleased to be introducing our next company presenter, Teva Pharmaceuticals. We've got CEO Richard Francis and Eric Hughes, head of global R&D. My name is Jason Gerberry. I cover SMID cap Biotech and specialty pharma. So, gentlemen, thanks for joining. Richard, maybe I'll start with a high-level point. You came on board. You had a Capital Markets Day in May of last year, emphasizing sort of a Pivot to Growth. Your predecessor put out a lot of fires, stabilized the base. Then you come in now that things were the foundation was stabilized, and you're looking to drive that Pivot to Growth. Where do you see, since kind of laying out that edict about a year ago, the company having progressed? Maybe if you just want to highlight those key points, and then we'll go from there.
Okay. So firstly, thank you, Jason, for having us. Appreciate it. So yeah, it was a year ago almost. I think it was last week that we launched the Pivot to Growth strategy. I think it's fair to say that it was received with a huge amount of skepticism after five or six years of decline. But in the Pivot to Growth, we laid out some very clear guidance as to why we were going to grow and what it was going to take. And we'll talk about that today. But it was around driving our innovation in our branded business, to drive our pipeline. Eric's going to talk a bit about that, getting our generics business back to stability and growth, and then allocating our capital to do those three things in a very efficient way so we could manage the bottom line and obviously service the debt.
I say it was met with a lot of skepticism because I think that the way you introduced it, which I really appreciate, did make it sort of sound like it was destiny. But I can tell you the last year has been a lot of hard work because to do all those things in parallel has taken a huge amount of focus by the organization. I think the organization has really benefited from having a clear strategy of what we're going to do, where we're going to focus, what we're not going to do, and where we're not going to allocate capital. I think maybe a year on, I think the reason why there's a lot less skepticism and maybe some enthusiasm bubbling up is because our products, which we've launched, our innovative ones, are Austedo grew 67% in Q1. Uzedy's on good momentum.
Ajovy's going to hit $500 million this year. Step Up Innovation. Eric, I think, announced the olanzapine study, which we'll talk about. The TL1A recruitment's going really well. We're in the clinic with the ICS/SABA. We're talking about IL-15 now. Then generics. I mean, everybody as much as I keep telling people, I think the generics is a good business. Because of the volatility in the past, I think people were skeptical. Now we've seen that all our regions grew. We grew that business globally at 8%. So I think what's happened is we focused on those three key pillars. We've executed. I think one of the things that I wanted to get the company known for is we do what we say we're going to do. I think that's where we are.
I think there's opportunity for this for a lot more. We'll talk a bit about that. I think we've come a long way in a year. Obviously, the final piece was to focus the capital. We're going to obviously divest TAPI, our API business, in the process of doing that. We hope to close on that in the first half of next year. I think we've shown we can do a lot of things in parallel. We can do them well. Now we've just got to keep doing them and continue to do that over the coming years.
Yeah, I think investors have gotten, to your point about Ajovy and Austedo, a better line of sight on growth drivers. At that Capital Markets Day, you talked about maybe paring back certain generic R&D spend, using that to fund the innovative side of the house. You've done a few financing type of deals to spare the P&L. Those are my words, not yours. So how important is it for you that you can kind of show investors that low to mid-single digit top line growth, but also pair that with EBITDA growth? Because I think that's probably one of the fundamental debates right now around Teva is, what is the right multiple? And there's this wide chasm if you look at the peer group.
So it seems like EBITDA growth would be an important component of that if you're going to drive the next leg of growth from a stock perspective.
Yeah, I mean, look, maybe I can help in the debate. It's a higher multiple. Okay. But why is it a higher multiple? So to touch on the points you raise, which are good areas of debate, I think we've shown with four quarters, we've grown the top line in four quarters, which, by the way, hasn't been done for a very, very long time. And I think the fact that that has been well received, but not maybe significantly, is because I think we've shown people we can do that. And people expect us to do that, which is good that we've managed to get some people to believe that in a year. But going back to some of the things that we talked about, you talked about there, the financing and how do we grow the bottom line.
I think to start with that bottom line question first, we've committed to the 30% operating margin in 2027. What I've continuously said is, we're not going to do that in a linear way. It's going to be slow. Then it's going to gain momentum. Why is that? Well, that's because we're investing in so many things now because we have so many opportunities. We have Austedo, Uzedy, that's just been launched. We have Ajovy. We have, in phase III, ICS/SABA. We have TL1A in very accelerated phase II. And we have olanzapine just concluding its phase III. We want to move those, all of those assets, we want to invest as optimally as we can because that creates long-term value.
And we don't want to hedge and just edge them along because we're trying to be so conscientious about hitting an operating margin, which I believe we're going to hit absolutely in 2027. So for that, we're sort of spoiled for riches. So we want to invest in them. That does put pressure on the EBITDA, does put pressure on the operating margin in the short term. But this is a plan in 2027. So I don't even think 2027 is that far out. So I think what I'd like people to take is, we are financially very, very aware of what we're doing. We're in the weeds of it. And so what we've done is based on that strategy of invest in the things that are going to drive value in the short, but definitely the medium and long term.
To do that, do that thoughtfully in a way that allows us still to service our debt very well because we want to get that down. So that's the way to think about it. Very committed. I believe the 30% is absolutely achievable. But that's how people need to think about it. I do understand people want us to grow EBITDA and EPS. We will. But it just won't be as fast in the short term because we have the opportunities in front of us.
Okay. I guess a core component of Pivot to Growth is sort of this stabilization of the generics business. As we think about maybe this business, say the U.S. generics business, how much of this is just U.S. pricing, perhaps moderating in terms of the rate of erosion and getting some benefit on Revlimid on a year-on-year basis versus the ability to execute on a new product portfolio? I think at the Capital Markets Day, you talked about being better at taking advantage of these complex, higher-value products. That would probably encompass Humira, Sandostatin LAR, and Korlym, these types of products. That's more of a future outlook type of thing for second half. Maybe if you can help us get a better feel for what's going on in the generics.
So yeah, look, it's a good question because I think the generics, the U.S. generics business, sort of has more share of voice than maybe it should. And let me explain why. 65% of our generics business is ex-U.S. And it grows at mid-single digit or double digit. And so it's a good business. Now, the U.S., I can understand, has attracted a bit of attention because it's been volatile. And that volatility has, I think, concerned people. Now, what we've said is, to reduce that volatility, to get it back to consistent and consistent growth, we need to launch more products on time than we had in the past. And we need to supply that market better, both in making sure we supply things on time in full and have better cost of goods.
Those things we're working on, and we've been working on pretty hard in the last year, I think we're starting to see a bit of traction. Those two things don't happen within a year because you're changing manufacturing base, SKUs. And in the pipeline, Eric can talk a bit about what we've done to make sure we launch our generics more effectively on time. But we definitely have made progress. So the U.S., to me, is a business which has stabilized and will be stabilized going forward. And the question is, what's the growth that we can attribute to that over time? And the way we do that is, we keep launching our complex generics on time more often. We keep improving our manufacturing and supply base. And those are the fundamental basic things we need to do. And that's not rocket science.
But to do it on the scale we're doing it, we've got to get a lot better than we were. And we are. But we still have a lot of opportunity to get better. But maybe Eric can talk a bit about the pipeline and why we are getting better.
Yeah, so one of the things, too, is the generics business is a huge business we have with a lot of pipeline products. One of the things we've done, we've focused the groups. We've prioritized the programs. And it makes a big difference when you have a high-value program and you have people urgently jumping on it when they're coming to the finish line. So that urgency, the kind of focus we give on the high-priority programs, it's almost like applying an innovative mindset to the generics group. So that actually makes a huge difference in how we can execute timed things and launch on time, first time, first time right. So I think that makes a big difference.
Yeah, and just to pick up, we've got 13 complex generics being launched this year and next year, and probably a similar amount we'll publicize that for 2026 and 2027. But the ones in 2026 and 2027 should come to the market more optimally than the ones we're working on this year because we're going to get better. And so we've got a lot in our pipeline. We've never had an issue with our pipeline. In fact, we've had an issue in executing our pipeline.
So you mentioned earlier deserving of a higher multiple. I think getting to investment grade, getting the leverage down, probably will it impact that for you guys? And so you've gotten the leverage down to about 3.45, I believe, on the last quarter update. Talk about the TAPI divestiture, right? Because when we think about this business, A, what are the variables that sort of gate a transaction? And when we think about the multiples out there, it's difficult to find multiples. I simplistically tell people they're not going to sell it for a multiple less than they trade at. So I'm just kind of curious if you can maybe address those points.
I'll try as best I can. Look, so look, I think, firstly, we are making great progress on the debt. I mean, we're doing that regardless of TAPI. And I think people have seen that and seen our discipline at that. So I think people have a very clear line of sight how we get to investment grade in two times. And now, ironically, we're getting challenged as to whether we should get our debt down that low. But that's another question, probably. But with regard to TAPI, so TAPI is an excellent business. And the more we've actually focused that business by separating it from a management as its own CEO, CFO, executive management team, allowing it to operate in the global API market, which is worth $85 billion and growing about 6%-7%, I think we see huge opportunity.
Because of that, there are two things which make me think I was going to get a higher multiple. I won't tell you the multiple, but a higher multiple or good multiple is because it has probably one of the best margins in the sector. And it has it because it works across all platforms, all technology platforms, super complex as well as simple. And it has a great reputation for supply and quality. And those are things that people want when it comes to API. And so, in last year, we started to refocus the business to look externally for business. And already, the traction we have for CDMOs, as well as actually other pharma companies, has increased significantly. So I think, for me, it is a business which a carve-out that's doing—I think—it's doing OK.
It could do a lot better if it was solely focused on doing that. And I think people, strategic buyers as well as non-strategic buyers, should see that. But let's see how that plays out. I don't want to get drawn into a, this is the value. This is what it could be. I clearly think it has good value. But we'll see how that plays out. But there are no sort of gating as to, this has to happen. This has to happen. That business, and we've gone deep into it, we've set it up to divest. So we've done all the work. So we have everything aligned. So I think we're in a position to do well on that. But that's one we'll wait and see.
From a timing standpoint, how important is it to get that business back to top line growth before you choose to sell it so that you can ensure you get fair value? Or is it maybe there's scarcity value in certain of the APIs that you have in the portfolio that make the timing optimal?
So firstly, we're back to growth already, Q1. So we're great Q1. So we've done that. And we're going to accelerate it. I think I can say that. We are going to accelerate that throughout the year. And that obviously helps. But I think if you look into the business, it's going to be nice that it's growing because it's going to go show the strategy we put behind TAPI is working. But the quality of that business stands out quite clearly, in my view. So people are going to look to buy that, can see the value that that business could have long-term, medium to long term. And I think the fact that it's growing will help. But I think just the depth of quality there would probably doesn't need that. But we want to do it because it grows our numbers this year.
We should be doing it. We can do it.
Yeah. Okay, and you mentioned, from a capital deployment standpoint, some questions that you get around, do you need to go all the way to 2x, right, versus make some investments in the business? So maybe what's your latest thought there in terms of being able to selectively deploy and perhaps bring in some additional assets? Teva was probably arguably underinvested from an R&D standpoint from, say, 2017 to 2022. But do you feel like you have enough on your plate and deleveraging remains the focus? And if anything, any deal you do is going to be light on the upfront?
So yeah, I mean, it's a lot of what you said, actually. We are going to get ourselves down to 2x because we committed to do it. And I don't think Teva should give targets and not stick to them. I don't think we have the credibility to start changing. And so we need to do what we say we're going to do. And we will. We do have, actually, a really exciting pipeline this late stage. But other things that are emerging, our IL-15 that Eric's spoken about, the drug for MSA as well. So I think we have quite a bit. But we are looking. And we're looking very hard for other assets to either license in because we have a platform that can be leveraged more. And I think we have the ability to do licensing deals, even with our current balance sheet.
But that'll be determined on they've got to be good assets. We don't really have an appetite for carrying too much risk because of the past. And those are hard things to find. And we want them to be accretive to the top and bottom line pretty quickly because we don't want to carry something because we've got enough good stuff in our pipeline to carry. So that just makes it hard. But that's a focus we've had for just under a year. And we're building that up. And don't forget, the deleverage is going to happen pretty quick. And so it could be accelerated with TAPI. But it's sort of picking up momentum as we speak every quarter. So we've got to get prepared for our balance sheet to be in a healthier position to then buy things.
We don't want to wait for the balance sheet to look good, and then we go out shopping. We're actively shopping now.
OK. Before we jump to the fun part of the discussion, which is pipeline, just remind us where you are in cleaning up the residual litigation issues or legacy issues. I think there's probably one legal matter of focus, which was the Copaxone PAP legal matter. So just if you can kind of level set there and sort of what might be a range of outcomes.
So, yeah, so we're at the closing stages of that one. So, I think we've already had that in our financials accrued. So, I think we're in a good position to be able to close that out. So, I feel very good about that. I think that's going to be done in the next. I suppose I'm dealing with governments and lawyers. So, I don't want to be too, but I think we have everything we need to make that something which is now going to be in our rearview mirror. So, maybe that's a quarter or two.
Okay. Well, maybe.
Now the fun stuff, yeah?
Yeah, the fun stuff. So you just had a recent olanzapine pipeline update. And I guess, as we think about I think you guys highlighted it. There's a clear mismatch in terms of LAI share versus oral molecule share for this molecule olanzapine, which seems like the go-to agent for psychiatrists when schizophrenic patients are, I guess, more symptomatic or more severe in their disease. So how are you thinking about just the general value proposition as more data accrue in-house? And when I look at the LAI market, I see a couple of $500 million products and then a monster product in Invega. So what do you see as the key variable to being on either side of that spectrum from a product profile standpoint?
I can start off, and you can talk a little bit more about the market size. But for me, olanzapine, first of all, you're right. It's a go-to drug that psychiatrists use quite regularly. It's been around. They know how well it works. It is for more maybe severe or complex patients that they use it for. And it does control symptoms relatively rapidly. I think the interesting thing going forward is, there is a more or greater appreciation of the importance of LAIs and the control of patients. LAIs give you a long-term exposure that's easily given. You don't have to worry about the adherence that patients have with oral medications, like we all have. So those things have great benefit for patients: less relapses, less worsening of their disease, less hospitalizations. These are all very good things for patients for the longevity with their disease and their control.
So that's one, first and foremost. Uzedy is a great example of that, where it's a product that has a great product profile. It's very easy to use and can be used by our psychiatrists very easily in the clinic. Olanzapine, we want to get there as well. Olanzapine, there's a drug that, as I said, they know it controls patients well. But they have no options. Right now, they just have an LAI that has a Black Box Warning. And we really designed our program to address that issue. So now we're converting what is an intramuscular injection into a subcutaneous injection in a nice, convenient formulation for once-a-month dosing, which is something they just don't have today. So it gives them a great option in the future. So for me, it's two things. And Richard, you can talk about the market size.
But for me, olanzapine has no options right now. It's a market we've done this before with Uzedy. We're going to do this again with olanzapine in a field where there's no other options. So we're really excited about that.
Yeah, I mean, I think the amount of patients on LAI is about 13%, 14% right now. I think that's forecast to grow 6% a year. Now, there are no patients on olanzapine long-acting because of the black box warning. So if you think about the most prescribed oral medication for schizophrenia doesn't have a long-acting, then I think you could say the long-acting market will grow. But regardless of that, I think if you use the analog of how many patients went from oral to long-acting, then I think that's a good analog of what could happen for the oral patients who are on olanzapine who move to long-acting. So I think there's a huge unmet medical need. That's clear. And I think, for us, I think we're well positioned because we're out there with Uzedy, which we launched last year.
So we either launch olanzapine, if everything's successful, unlikely the end of 2025, maybe, but more likely quarter one of 2026. We've had our teams out there all our commercial teams, our payer teams, our MSLs out there for nearly 2 years using the same technology with Uzedy as we're going to use for olanzapine. And the one thing we didn't have with Uzedy is, we didn't have any pre-launch. The company wasn't geared and wired to do that. And so I think this allows us to prepare the market, make sure they understand it, and get things set up. So I think olanzapine has a significant opportunity to help the Pivot to Growth and keep driving the top and bottom line.
So fair to say, on the analog exercise, that this product could be significantly bigger than Uzedy?
Yeah, I think so, absolutely, just because Uzedy is a better long-acting version of Risperdal. And there's other long-acting versions of Risperdal. And Uzedy, as I said on the earnings call, we're getting good momentum because of its unique profile. And it gets to therapeutic dose within 24 hours, which is seen as a big unmet medical need for physicians. We thought it was going to be important. But it's a lot bigger. So I think if we take Uzedy as having good momentum, but yet the unmet medical need we thought that was fulfilling was good. But we think olanzapine's filling a lot bigger unmet medical need. So I do see it as a more significant product.
What would you say to the contention from some psychiatrists that the candidate for olanzapine LAI is the patient that doesn't need concomitant metformin to mitigate the weight gain and some of the metabolic liability with olanzapine? The idea of putting someone on an LAI in general is the compliance, right? Like there are patients that have difficulty adhering to oral therapy, right? From what I hear, at least, if someone's going to be a candidate, I don't want to have to be on some concomitant oral therapy to go along with it. Is that a right way to think about it? And is there a haircut factor, then, to think about for this olanzapine market that we're getting in this concomitant medication?
Yes, so the metabolic profile of olanzapine is very well understood. It's going to probably be the same for us with the long-acting injectable. So that's a decision whether you use the metformin on a patient-by-patient basis, whether you need that or not. So it's not an unknown. It's something that we can manage easily with the patients today. And I think that that's, like I said, a patient-by-patient decision by the physician. So I don't see that as a big impediment. It's the value of the subcutaneous once-a-month injection, which really is the value of the product.
Yep. Now, there was a lot of focus on PDSS in your update. But can you talk about the rest of the safety profile? Is that something that mirrors the oral therapy, what you've observed? Is that something you can comment on?
Yeah, I think that the safety profile we'll see is very similar to what you see with olanzapine. The first cut of the data shows that. We haven't seen any PDSS. We've gotten 2,722 injections to date. So we're about 80% of our target right now. So we're confident that it is exactly what we predicted. I think the side effect profile is consistent with olanzapine.
We talked about this a little bit on the earnings call. You have an adjudication committee that looks at these PDSS events. Can you talk a little bit about that, just to ensure that you don't see a false positive and say the remaining 20%?
Yeah, so that's a good point. So proactively, we set up an adjudication committee. So if anyone has even a slight appearance of what a PDSS would look like, which is this lethargy and sedation within about 24-48 hours after the injection, we'd be monitoring. And remember, these folks were actually in the hospital when they started the olanzapine. So we have hourly coverage of these patients in a well-observed setting. So we're very confident in the data we're collecting. One of the things I liked about this study, when we did the first cut of the data for the primary, it was very clean. There was no surprises. The data lock went very well. The efficacy was right where we thought it was going to be. So our predictions were right on.
So that just tells me that not only are we running the study well, that we're doing all this special monitoring, but we can have some confidence in the data. So yeah, I don't think we're going to have any missteps when it comes to seeing or not seeing PDSS.
OK. Maybe TL1A. We have about five minutes. So probably some quick hitters here for me. Do you and your partner have internally discussed, I imagine, predefined kind of benchmarks for what's clinically sufficient or meets the standard to be competitive as it pertains to this decision to move forward with? And to what extent does having an autoinjector teed up to go into phase III in a timely manner? How does this all play together as you kind of look to catch up and be there early in the market formation with TL1A?
Yeah, so we clearly have objectives for what the efficacy is we want to see. And we also have better than expected objectives. The key, though, is what you said: moving forward as quickly as possible. And our phase II study this is just the last month. We've enrolled 29 patients. And we're only halfway through the month. So we are accelerating the enrollment of this study really, really well. And I'm very proud of the team on that. So we do have objectives. And we clearly will have an autoinjector at the time of launch. The goal is to have a single shot injection each time the patient has to get a shot in an autoinjector form. So everything you need for a good launch, we're setting up at this point. And we're working very closely with Sanofi.
The collaboration we have with them is one of the best I've seen. We have a great management team that's running collaborations. I think we have like 10 subteams working together every week at this point. That ability to be ready for phase III is key. I keep saying this at each of the investor meetings, is that the timing of the deal was good for both sides. But it was more important about the execution and the ability to catch up and make sure that we're in the fight here. Really, it's going very well. Enrollment's great. We're being prepared for phase III.
Okay. And then maybe with the biosimilar Humira and the Evernorth Cigna update, maybe just talk about how you think through the potential for pull-through here of a private label product. And what are the similarities and maybe dissimilarities from what we're seeing with Sandoz really getting a huge inflection in market share, who also had a private label deal with a large insurer? So I think a lot of people are connecting the dots and seeing how well they've been able to do. And then you add on to the fact that you have interchangeability with the high concentrate form. It seems like there's some excitement, that at least there's some optionality in the numbers this year that people perhaps, or maybe you internally, hadn't thought about at the beginning of the year.
So look, I think on a high level, firstly, I said the biosimilar market would change. And 2023 wouldn't be the defining year. And I think it's shown that is true. It's become quite more dynamic in the last couple of months. So that's good. And we're definitely going to benefit from that. I think the challenges we still had is, we didn't contract early because we weren't here in January. So we've had to come into a bit more of a crowded area. But yes, we have that private label set up. We have other agreements that we're working on through the normal channels. So I think we are more optimistic about the whole biosimilar market, the fact that the PBMs, the payers have started to think of this as, I think, more of a significant opportunity to save money over the long term.
Now they're taking control, rather than being on the back foot with rebates, et cetera. I really like that because I think that plays out well for all our biosimilars. We're bringing six to the market before 2027. We did risk adjust the numbers in the 2024 guidance for Humira. But I'm not going to be optimistic or pessimistic about it because we have to see how all this plays out. There's more opportunity, I think, because of how people are changing their mind. But that's got to have traction and actually lead to us shifting units and making sales. We're going to find that in Q2 and Q3. Long term, I'm very optimistic. This year, it looks like it may get more traction because of some of the changes. But we wait and see.
With interchangeability itself, one of the things that we'd heard from payers is that I don't have to send your doctor letters. A lot of the friction that goes along with getting someone on a non-interchangeable biosimilar is not an issue now. So the contract becomes effective, I think, July or June, something like that, with Evernorth. So mindfully, you weren't there at the beginning. But why the cautious tone, perhaps, for the second half?
Because I think that's just not cautious. I call it measured. Measured tone, that's my new phrase on that. Because look, there's a lot of history with Teva. I think we're measured. I don't underplay things. I think we lean forward. We did $2.5 billion for Austedo. We said we were going to recruit TL1A and catch up with the others. We generally do what we say we're going to do. But where we are in control, we will always lean in. Where we're relying on other people to do things, we are a bit more measured because all these things are encouraging. But they all have to then follow through and flow through into things happening. So I think, for me, it's less cautious. It's more measured.
And then when we have more clarity on that, then I think we've shown that we're happy to lean into numbers and start talking about numbers.
All right, great. Well, I believe we're at time. So thank you, gentlemen, for joining us. And good luck to the rest of your meetings today.
Thank you, Jason. Thanks for having us. Appreciate it.