Good morning, everyone. My name's Nathan Rich. I cover the generic and specialty pharma space for Goldman Sachs. We're very pleased to have Teva here with us this morning. Richard Francis, President and CEO. Thanks very much for being with us and joining us today. Richard, I wanted to start high level. I think kind of one of the biggest changes since you launched Pivot to Growth was really bringing innovative products to the forefront of the messaging for the company. And I think you're starting to get more credit for that. I guess, maybe how would you evaluate maybe the progress that you've made on Pivot to Growth so far in the first year? And I guess, how have you changed, you know, how capital and resources internally are deployed as you kind of build buy-in to this strategy?
Yeah. Well, firstly, thank you for having me. Appreciate it. And, great to be here, in Miami. A lot better weather I thought than England, but I opened the,
Not today so far, but.
I opened the blinds this morning, and it's exactly the same. Pivot to Growth has been a really important part of Teva's transition. It, as much as it's a bit of a tagline, there's a huge amount of detail below it. We have four pillars which I often talk about. Those four pillars are all about allocating capital. You talked about innovation. Innovation is a key part of the growth of the company going forward. We've outlined that from 2023- 2030. We've really clearly identified how we're gonna grow the business over that period of time. When we think about capital allocation, the four pillars to deliver on our growth engine, step up innovation, create a sustainable generics powerhouse, and focus the business. The last part of that is allocating capital.
And so we've been pretty ruthless at allocating capital. And to do that and to keep our operating expenses at the right level, we've had to just stop doing stuff. And so, if you think about the first one, deliver on our growth engines, we've obviously shown we can grow Austedo significantly, Ajovy, and now UZEDY. And we've done that by building capability 'cause some of it's about capability, and some of it's about allocating resources. And we've driven and stepped up innovation TL1A. Olanzapine is obviously, we'll probably talk about the results, but that study was completed in the clinic nine months ahead of schedule. We've launched ICS-SABA. We've moved TL1A through the clinic, a lot quicker than people thought. And now in the clinic with IL-15. That's a capability build and a resource capital allocation.
And so how do we find the money? The third pillar, which is create a generics sustainable powerhouse, was, you know, Teva has everything to be excellent generics. But we haven't been excellent. So we have a great pipeline. We have good manufacturing, and we have a good commercial footprint across the world. What we realized is that we were basically covering every molecule that lost its patent. And so we're covering 85%-90%. And obviously, if you look at those from a value creation point of view, they're all very different. And there's a tail on that which creates a lot of work but a lot less values than some of the others. So we've reduced our pipeline down to 65%. Now, that throws off a significant amount of resources, capital that we've allocated to the innovative pipeline.
and then in some of our businesses, we've just taken sales, marketing away from certain older elements of our business and reallocated it to the Austedo , the AJOVY, and the UZEDY. So we've been ruthless. And it's not a little trim here, trim there. It's, it's, we're not doing that. We're doing this. Now, that's good 'cause it allows us to allocate capital, make prioritization. What it does do, though, is that means the company has to perform because when you place a lot more bets, then you may not end up with the returns, but you probably don't end up with maybe the downside. So I think what I've been most pleased about in the year is we've been that clarity of focus on capital allocation, capability build, what we measure has driven performance.
And so I think people are realizing, well, Teva can sell innovative biz products really well. It can move innovative products through the clinic really well, and it can do some good partnerships. And at the same time, it seems to be creating a more focused generics business which delivers good returns, and more consistency than we've seen in a long time. So I think, yeah, we, you had to make some choices, and we made them. And, and we've, and that's, that, that focus has helped us, I think, deliver a performance which has maybe surprised a few people.
I think there's also been a fair amount of investment, like you said, along the lines that you just talked about. You know, you have the long-term targets out there, you know, returning to revenue growth, 30% EBIT margins by 2027. I guess, how are you thinking about that path? 'Cause, you know, if you look at the P&L, sales and marketing as a percent of revenue up a little bit, R&D as a percent of revenue up a little bit, suggests that you're investing. You know, when do you kind of see that start to be leveraged and, you know, see that path, the 30% operating margin?
Yeah. No, it's a really good question. Like, I asked it a lot. It's, you know, the growth is good 'cause we returned to growth last year after five or six years of no declining growth. So that was quite a pivotal moment.
Right.
All right? But then the worry is, I can understand, is are you gonna just spend all the money generating revenue and use it in expenses and not drop anything to the bottom line? So, what I've been telling people is we'll get to 30%, but it will not be linear. Because the reason it won't be is we have so much opportunity right in front of us. We have Austedo , Ajovy, UZEDY. We have a pipeline that is in phase III that we wanna get to the market as quick, quick as possible to drive growth. So we have to be really mindful about investing and executing. Because when they happen, when obviously olanzapine, we hope to get to the market in the start of 2026. UZEDY's getting good momentum. Austedo continues to perform. With that, those investments, you get a return.
So that's what we're doing. We're investing. We're still improving our bottom line, but it's not that linear. It'll be more of a slower growth and then an acceleration towards 2027 because that lines up with, as we launch our innovative products, it lines up with as we start to get our generics business in the U.S. performing more consistently. So I think all the reasons to believe are there. And because we execute and we keep executing, I think people are starting to understand that and understand that if we don't invest, then we're leaving, I think, future mid to long-term growth, profitable growth on the table.
Yeah. And I guess, one more high-level one and then getting into some of the specific products. But, you know, you talked about, you know, having a pretty robust pipeline in phase III right now. I guess, how do you think about the future? You obviously have other assets in the pipeline. How do you think about either trying to accelerate those or, you know, maybe adding additional assets into the pipeline and, you know, that being a source of investment or allocation of resources?
Yeah. So look, I mean, when I came to Teva, I mean, I did quite a bit of due diligence from the outside. But I didn't see all the pipeline, 'cause we didn't really talk about it much. When I came in, I was pretty surprised at, okay, it's, it's a, it's low in quantity but high in quality. And, you know, when you think about olanzapine, ICS-SABA, which now people are talking about a lot because obviously AstraZeneca have launched theirs, TL1A. We can talk a lot about that. IL-15, the PD-1/IL-2, drug for MS. So we've got a lot in there that I think has a high probability of succeeding. We can talk about why I think that. But then we want to do, we want to supplement that with, and we're looking continuously.
We have been looking for a year at opportunities to in-license. We did a Biolojic Design deal, end of last year or maybe it was the start of this year. I can't remember, to bring in an antibody for multiple indications. We'll, we'll keep doing that. We probably wanna build in-license in more late-stage because we wanna drive revenue, top and bottom line. But we are also starting to look at building out in the pipeline where we think we understand the opportunity that's there. But it won't be excessive. You know, the way I think about our innovative business, it's, I mean, I'm really excited about it because it is the business is growing very fast with products which have the potential to, to, I think, continue that growth. It'll be supplemented by new ones being launched in the short term.
So 2026 with Olanzapine, 2026, 2027 with ICS-SABA. Then you've got the TL1A, then the IL-15. So there's reason to be, there's not really a patent cliff anywhere on the horizon. And because of our size of our innovative business, as we add these products to it, they can drive significant growth because maybe our weakness is our strength. We don't have a huge base business of innovation, innovative business. So when you put in Austedo or UZEDY and Ajovy on top of that and you grow it, it really accelerates the top line, which, by the way, from a gross margin point of view, falls down really nicely.
You've talked about the kind of foundation that the company has in CNS. Is that sort of where you would look to kind of further bolster the pipeline? You know, or are there other areas where you feel like, you know, could be complementary to some of the assets that you currently have?
Yeah. So on the whole, we, we've got a very clear BD strategy of what we're going after, which is mainly CNS and immunology because then we can leverage the infrastructure we have, both the capability in research and development and the capability in our go-to-market model. So obviously, with Austedo and UZEDY and Ajovy , there's a lot of synergies there, and we can still have capacity to put more products into that. So that's the perfect, that's the sweet spot. And obviously, the same to a degree with immunology because with TL1A, we'll have IL-15 behind it. That's not, but we don't wanna be, you know, so restricted to that. We have a lot of capability in Teva that is sort of, I would say, a bit agnostic.
Our supply chain, our managed markets, I mean, we're a huge supplier of medicine, so we can really leverage that. And so because of that, I think that gives us a slight bit of freedom. Obviously, in CNS and immunology, we have a huge opportunity for so many diseases. I'd like to think we can build on that. But we'll always be a bit speculative outside that as well.
Yeah. I wanted to ask about olanzapine, maybe go through some of the key products now. So I guess, what do you kind of feel like will help move the market to long-acting injectables? I mean, 'cause I feel like there's kind of broad acknowledgement that it should help compliance, and that's very beneficial to patients. But the market's been a little bit slow to move. I don't know if you kind of have a sense of what the current kind of hesitation is from providers, whether it's, you know, saving it for maybe the more severe patients. I'd be just curious to get your perspective there 'cause I think if you look at some other markets in Europe, penetration of long-acting injectables is a lot higher, like 40%-50%. Do you think the U.S. can ever kind of get towards that?
I don't know. I don't know. It's rare we use Europe as an example.
Yeah. Right.
Yeah. That's true. The way I, so that, look, I think about it, I think it can move in that direction. The question is, does it need to from our perspective? So I always think about what you can change and what you can control. And look, so firstly, I think with olanzapine, the great thing is there is no long-acting olanzapine that's used.
Yeah.
So if olanzapine is used, our long-acting olanzapine in the same way that the long-actings of the other antipsychotics are used, then that market's pretty big for one product.
Yeah.
and so for me, if it gets to Europe, that's amazing. If it doesn't, then this is still a very meaningful product for us to drive growth. And because its profile is so attractive, potentially attractive, we'll have to wait till the full safety database gets locked. But so far, we haven't seen any PDSS that I think, that itself can be a significant driver for us. But what is interesting is UZEDY, which we launched last year, which in a way is, you know, people thought you've moved UZEDY, a long-acting risperidone, to a market that has long-acting risperidone. So how are you gonna really differentiate? And the two things which we thought were important, which are 'cause we use this technology, this MedinCell technology, which when you inject it, it's subq for one, and it aggregates straight away.
It allows you to get to therapeutic dose within 6-24 hours. Now, we thought that was an important attribute, but it's only when we spoke to physicians that we realized that a lot of these physicians are dealing with people who have breakthrough episodes. And so when they see them, they need to get them under control pretty quickly. If they don't, they have to hospitalize them, or they're trying to juggle an oral supplement of other medications that they're using with the other long-acting. And then if they see them every day or every few days to see, did I get it right? That's a concern.
What we've realized is the fact that we can get to therapeutic dose within 24 hours means they can, in 6-24, they can inject it, and they either keep them throughout the day or they can allow the patient to go home really quickly. And for them, from just being able to manage their practice, that's a huge advantage. So I think that's why we've seen UZEDY gaining some good momentum. So I think it just shows, maybe the products that were on offer in the past weren't meeting all the needs of the physicians and the patients. So with these two products, maybe we could grow the long-acting the way we think about it at Teva, and you'll hear this a lot from me, is we don't look to revolutionize things that we don't control too much.
Yeah.
Because otherwise, the questions you'll ask me is, why do you think you can move long-acting to the level of Europe? And I'll have to come up with some idea, and you'll go, well, okay, it sounds good, but no one's ever done it. So why would you do it? So I think what we're trying to be is, can we achieve our 27 goals and beyond by not fundamentally changing the dynamics of some of the markets we're in? And we'll talk about generics. You know, I do not believe pricing will, we're not planning for pricing to get better in generics. So it'll allow us to hit our numbers.
Yeah.
Pricing will do whatever it does, and we'll still hit our numbers. So I think the same way with the long-acting. But I, but I think it's really exciting. And I think it's interesting to go back to your opening remarks. I thought olanzapine was exciting in May 2023, and it was only when we announced the phase III data that people started to believe it maybe more. And maybe that was because they just didn't believe Teva could develop an innovative product.
Yeah.
And that's the sort of skepticism we're having to overcome.
Yeah.
Which is fine, and we'll overcome it.
Yeah. TL1A, I think there's another one where there's been a lot of kind of debate on sort of what the future opportunity is. I think you kind of talked about potentially being best in class with potency and selectivity of, of your drug versus the others that are out there. I guess, you know, maybe how do you see your drug positioned relative to the competition? And you, you guys have kind of taken this like all-comers approach. You know, why do you think that was sort of the right way to go about development?
So look, I think the reason why people ask us a lot about, so first let me go back. So we developed our first TL1A about 12 years ago internally. And this is our third TL1A. So I think it's important because it goes to show that we kept improving it, and we understand this target very well. And because of that, we kept improving it to make sure it had more specificity, selectivity, and low neutralizing antibodies 'cause we thought those are important from dose frequency, and patient population. You know, neutralizing antibodies, I think, is a very important part, which people don't talk about 'cause I know from other diseases I've operated in, physicians will use something with a low level of neutralizing antibodies because if it doesn't work, they wanna be able to move on to another therapy.
And I wanna give that optionality to the patient. So I think, and the other reason why this has been talked about is because people said we were way behind everybody. And I always answer that the same way, which is it doesn't matter where you are in the race. It's where you are at the end of the race that's important. And we're trying to predict the end of the race a long time away. And I'll say, look, you know, are they ahead? Maybe they're ahead. I don't know. I mean, it's not one of those where you're watching the scoreboard and you see the distance between the Grand Prix cars. But for me, I thought I'd mention that for Miami.
Miami, right.
The Great Great Grand Prix. I think it was run by an English person as well. So for me, it's about, are we executing that study really fast? And we are. And we've done full enrollment, and we have the interim analysis that's taken place this year. We'll move into phase III with the FDA approval, first half of next year. I don't think that's gonna put us that far behind. And because we've designed our study on the basis that I think we are capturing UC and CD, we are taking all-comers that'll give us potentially an advantage on time going forward. But if it all doesn't, and we do end up coming to market third, then one is how far behind are you? And if it's six months, one year, in my experience, 30 years, that makes no difference.
If you come to the market and you're differentiated, then, I think, you know, it doesn't make much difference. I mean, and I do remind 'cause I'm sure we'll talk about Humira. Humira, I think, was third to the market by quite a long way.
Yeah.
I'm not saying we can emulate Humira, so don't forecast that in your models, please. But,
Our drug.
Yeah, exactly. Yeah. But I think it just goes to show. And I, you know, I was back in the day, launched Tecfidera, which was, you know, late to the market theoretically from an oral point of view, but it's how you put the market together, how you prepare yourself, and the segmentation and the positioning. So I feel very confident about it. Look, firstly, we've got the efficacy data. We've got to prove that profile. And once we do, I think we've got a great partner in Sanofi that allows us to go to the market with a real intent.
Yeah.
You know, this is not, we'll try and do our best.
Yeah.
By then, I think they'll want to see some revenue growth from it as well because of their portfolio, you know, aging a bit.
And when you say end of the race, that's FDA approval is end of the race, or you just kind of need to be around that finish line at the same time? It's really what happens after that.
Yeah. I think, I think that's what I think. Yeah. But, and then look, I would say the other thing I say is who's first in the third indication.
Yeah.
In the fourth indication and the fifth indication. So.
Yeah. Makes sense. I see a sub that hasn't been talked about a lot previously.
The hidden gem.
What will it take to kind of make it that gem that's not hidden anymore? You know, I kind of feel like you've kind of talked about this as a new standard of care. You know, AstraZeneca has a product that's, you know, relatively small so far, kind of remains to be seen. But we started to see a pickup in scripts for their product.
Yeah.
Do you kind of feel like you're starting to see that momentum?
So look, here's an interesting one. So I just previously said that getting close to being first to market is the best thing, and we wanna catch up on it. And in this one, it's a bit of a strange one because AstraZeneca going ahead is probably not a bad thing for us. There's a couple of reasons why I like ICS-SABA. It is one, I think it has a high POS to get through the clinic. I think everybody would agree with that. And we have a differentiation, and we have a, can have a pediatric label. 25% of the patients are pediatric. 10 million, the guidelines in America that 10 million, people should be on, the combination. And so, but that's a market that has to be created.
So I think having AstraZeneca, who has also a very rich history in respiratory, has gone out there, and they've really, I think, gone at it. And so they'll help, I think, create the awareness in the market. And I think we'll come in. I'd like us all to be closer, which is why we're trying to move it through the clinic quicker. But we'll both come through and say, okay, but in children, we're the only one that's indicated.
Yeah.
Now, I think we will have you speak to Eric Hughes, my head of R&D and CMO. Our device is a very simple device. It's the one that kids use, and it's very easy to use 'cause we've been making devices for 30 years. So I think there'll be also a patient population of people who maybe find the AZ one a bit more complicated. And so we'll pick up that one. So I like that because that potentially kicks into our growth around 2027. Maybe we can get it early. It's about how quickly we move it through the clinic. But it's a market that I think will become a big market because, you know, the way I communicate it is 10 million patients, if only 2-3 million move on to onto these therapies, then it's a significant value market.
Now, why would only 2-3 million move out of 10 if it's guidelines?
Yeah.
I think it will probably follow what's UC in Europe, which is most people do move across pretty quickly. So I think that's exciting. We'll talk more about that. But, you know, right now our focus is we've got to execute the clinical trial in the clinic. These are not easy studies to do in children. We've got to move it fast, which is one of the reasons why we did the deal and partnership with Launch Therapeutics and Evernorth because one, we wanna go faster. We probably don't wanna have any constraints on money and expenses that we, which we talked about. But also, Launch Therapeutics have skills and competency and experience in recruiting in asthma studies.
Yeah.
So we wanna leverage that 'cause we wanna move fast. That's the thing about what's been going on at Teva in the last year is as we, we're really focused. And so I follow the recruitment of all the phase III studies every two weeks, and I speak to the team every two weeks. And so that creates a really galvanized company who realizes that we don't sort of put a slide up and go, yeah, we're a bit behind, but this is quite normal. Well, we wanna accelerate everything. So how do we, everything's about beating the curve, beating recruitment. And that's a mentality that's starting to really live in Teva. And I think that gives me a lot of confidence about how we keep moving forward on executing this pipeline, which I think people are still skeptical that we can actually just execute it.
I think we're showing we probably executed olanzapine and schizophrenia faster than any company. I mean, I don't know. I haven't looked at the dates on that, but everybody's surprised 'cause schizophrenia is really hard to recruit.
Yeah.
We've done it nine months ahead. People say, how do you do that when you have no experience in it? I said, well, we had a bit with UZEDY, but we built capability, and we just focused on it. So we just made sure it had to happen.
Yeah.
When you do that, it's remarkable. We don't have that luxury of having 20 things in phase III.
Just a lot more disciplined and targeted with it.
Yeah.
Yeah. I guess, you know, another product where I think there's been a pretty significant turnaround is Austedo. You know, could you maybe just talk about what's driven the re-acceleration in that growth and kind of, you know, made a ton of progress so far? You still have $1 billion plus to go to get to your 2027 target. What's the key to kind of achieving that?
Do you think I'll hit the target?
We do, actually.
Yeah. Okay. Believer. Thank you. So what we've done is it's the same thing. We've got focus. We saw the opportunity. We understood quite quickly 'cause obviously my background is a lot of it is specialty in the U.S. is what's it gonna take to realize that opportunity? What does that plan involve? What resources, what capability can we execute? And then, you know, I'm a big believer in you work back. So when I started last year, I said to the team, you know, we're gonna go for $1.2 billion. That's what we're gonna go for.
Yeah.
They didn't wanna do that. I said, let's make sure we get the resources. Let's build a plan, and let's just go for it. I think so part of it's about setting targets and then understand, and then building plans to hit those targets. Obviously once we hit the 1.2 internally, people start to believe, okay, and we build muscle, we build capability, we build belief, we build ambition. And those are really important in a company. Now going after the target we set this year, you know, we're very focused on that and delivering that. The 2.5 is something the company absolutely believes they can do. So that's focus, you know. Obviously I spend a lot of time on it. We measure a lot of things.
We have a, you know, I'm a big believer in what measure gets done. But we measure, when I say a lot of things on our pillars, we measure everything every month of how we're executing. And there are not many critical things. So Austedo, UZEDY, and Ajovy are the critical things we measure on pillar one. On pillar two, it's our phase III and phase II. We measure the recruitment of those, and so that discipline and on our Austedo, I think what we've shown is, you know, Teva does have a legacy of innovation. I mean, Copaxone, I was at Biogen a long time, and Teva were annoyingly good at selling Copaxone. Like, really good. And so that, that's still in the DNA.
And I think with the Austedo , we've pulled it out, and we've sort of gone back to that. And we can be a leader in this. We can be good. And so apply the resources. But with resources, go expectation and responsibility to deliver. So it's not free money. If you get the money, you gotta deliver. And so there's a performance-based culture that's really being built there now, which is we understand the responsibility we have, the team in the U.S. is selling Austedo , and we need to deliver on it. And when you get a galvanized team focused like that, these things happen. And I think it has happened really quickly and surprised people.
You're starting DTC advertising. Is there any way to frame like the potential lift from that just in terms of awareness and like what that could lead to down the line?
Well, it's just sort of part of the armamentarium you use. We started that in January. You know, the way I think about Austedo , and I obviously had to convince people that the 27 target was doable because everybody said it was ridiculous. You'll never hit that.
Yeah.
We have modeled it. I personally have modeled it, everything. 'Cause I knew if we put a number out there and we don't hit it, then it's not gonna be good.
Right.
I hate that. So when you think about it, there's a huge untreated patient population of people who suffer from tardive dyskinesia. So part of it is getting those to get prescribed. But then there's so many other levers we can pull. How many of those that prescribe end up on therapy? So how many drop out before they get therapy? How many start on therapy, don't titrate to the optimal dose, then find the suboptimal, and then they drop out, or they just stay on suboptimal? How many titrate up, get on the optimal dose, but then don't inhale or drop out? And we put programs at every single step of that which we didn't have before. So yes, DTC fills. We have more patients coming to the office, and Austedo's getting, XR's getting prescribed more.
But then as they come through, we've gotta make sure they get on the, the right dose, they get the titration pack, they stay on it, they're part of the adherence programs. We partnered with specialty pharmacy to help on that. So we're pulling a lot of the levers. And all of those levers, by the way, not all of them are at sort of optimum because we started them, you know, last year. And sales force we increased, but that's now running, I think, at a high level. But some of the other things I've just described, you know, we can improve those year on year.
Yeah. Maybe wanted to go over to the biosimilars. I think that's been another area of surprise, you know, being relatively late to the market with biosimilar Humira. But I think, you know, having that relationship with Evernorth and Cigna for the unbranded product, I guess, can you talk about maybe just, you know, what your expectations are around kind of pace of uptake? You know, I think that their strategy has kind of been, you know, their clients will tell them kind of what sort of formulary they want. So I guess what are your expectations for how many, you know, people might adopt or, you know, how many of their clients might adopt that unbranded biosimilar in a preferred position, as you think about just like the general uptake of, you know, biosimilar Humira?
I don't know.
Or when do you get that visibility?
Yeah. Now, the reason why I say I don't know is like, I don't wanna pretend I do know. Look, I think we said on the Pivot to Growth strategy our biosimilar strategy was bring as many biosimilars to the market as we can, but be mindful about how much capital we invest to do that because the future looks good, but when it will actually happen, we're not sure. So, but we're very sure about some other aspects where we can allocate capital. So I think the world has changed dramatically, it seems, from biosimilars and Humira last year to this year.
Yeah.
But I think it's still gotta play out. So I think it's a lot more positive, but it still has to play out. It has to go through, I think, the whole value chain on a larger scale. But it looks promising. And I think we have an opportunity to play in all of that despite the fact that we're late because I think we have a great product. We have interchangeability. So some things that still hold true. So I feel optimistic, but until we start to get some data points, then these are great conversations. We're having a huge amount of interest. But that has to be contracted and then executed.
You know, once again, I think I'm always measured in this because I think the biosimilar strategy we have is really good for the next years 'cause it will play out well. But to specifically say for a quarter or two what's gonna play out now right at the start of this journey.
Yeah.
I think what I'd say is it's too hard to call. And for us, we're super focused on maximizing it, like absolutely. But we're not reliant on it to hit our numbers.
Yeah.
So to hit by our 2027 numbers, we're expecting the market to be, you know, more measured. If it does really start to open up, then that's great for us. But we go after it as if it's our life depends on it. But it, but we don't, but we're we can't control every single aspect of that.
I guess is that something then that kind of happens with these annual contracting cycles where, you know, payers make formulary decisions and just over time over that, you know, multi-year period, you kind of just see the, you know, biosimilar adoption build and that should be fine.
I think it's probably more dynamic than that. Look, I think we've seen with the private label, people are trying to take control now.
Yeah.
You know, it's interesting what it's gonna play out. You know, my view is they've gone from this, I'll live off the rebate, which by the way, I negotiate, so I can't always control. So, you know, I mean, if you're trying to plan five years, do you plan the same rebate, a bigger rebate? And, and once when the point comes, they don't give you the rebate.
Yeah.
So I think what we've seen with biosimilars is actually we can take control and we can really manage this. And part of it is private label. Part of it is using interchangeability. The pharmacy can switch. There's lots of aspects. But I think for me, it comes back to I think they want more control. And they realize this is an opportunity to drive more control, more predictability, and more value, whether they can execute it. And if they can, then I think they start to follow Europe. And Europe executes really well on this, but the margins stay really well because everybody realizes it has to be sustainable. So if the U.S. replicates Europe on this one, then I think that'll be good for us. And it'd be good for the healthcare system in the U.S.
And it'd be good for payers and patients and policyholders. But a long way to go.
Do you think this can move faster with a drug like Stelara where you don't have this initial hesitation to, I think, kind of force switching or adopt these low-list biosimilars? So maybe like for future biosimilars that come to market over two years, like maybe compress.
We saw it in Europe. We launched. I've been part of launching a lot of biosimilars. People started working out. And then the second one. And then now, I mean, we're launching six before 2027. So there's a lot coming. So the payers and the PBMs need to get their mind together. Like, there's a huge amount here. What do we wanna do?
Yeah.
I don't think they will be playing the same playbook as they played with Humira in 2023.
Yeah.
In 2024 or 2025 or 2026 or 2027. I think that's gonna evolve. So absolutely, I think it will change.
Yeah. And I guess one, one last question on this. You know, there's pretty significant changes being made to the Part D program in Medicare that increases plan liability that I think the adoption of biosimilars is payers don't have that same rebate incentive than that they had in the past. And they wanna slow people's progression through the Part D benefit. Do you think that that will help kind of, you know, push biosimilar adoption further along? Kind of a more step change type of.
It potentially could. I think we're still trying to understand how all of these changes play out, 'cause it's quite a dynamic situation with that and the IRA. So I think we'll see. But we're constantly look at it and model, is it an advantage? Is it a disadvantage? Is it an advantage? One part of our business is a disadvantage. So we're, but it hasn't really become super crystal clear as to how that's gonna play out.
Yeah.
But so we've gotta be a bit agile.
We've gone almost the entire time without talking about generics. Maybe just hit that.
Yeah.
For the rest of.
What a difference a year makes.
Yeah. Right. Right.
You know? You kinda.
More, more debt. Do you wanna throw in a bit of debt?
Yeah.
Yeah. You talked about not assuming improvement in generics. Maybe what's the baseline assumption when you say that in terms of what's baked into the long-term plan?
So look, what we did, so firstly, on our generics business, which is a world leader in generics. So we're very proud. We're number one. And outside the U.S., which is 65% of our business, we grow mid-single digit to high double digit every year. It's super profitable. It's great. We had a challenge with the U.S. business, which, while we're talking about it. And but we have everything to drive that business to long-term growth because we have a great pipeline. We have good manufacturing and a good go-to-market model. We just need to get them all working well together. And that's what we're working on. Now pricing, everybody keeps asking me whether pricing's gonna get better. It's sort of like the discussion on sort of inflation and the Fed, isn't it?
Right.
What's Fed gonna reduce it? What's inflation gonna be? So for me, pricing is something that we didn't ever predict as a positive. So if you look at our growth, and we launched it last year, we said generics would contribute very, very small amounts to our growth to 2027. Our U.S. business quickly. And we didn't know what the market was gonna do. Now, we believe the only way to so pricing is all about competition. I can't control competition. The only way I can control pricing is I launch new products which have less competition. I improve manufacturing cost of goods to offset some of the price erosion with goods improvement. Those are things we focus on. Will the world get better? I don't know. If I was one of the purchasers, I would not. I would keep trying to drive down prices as much.
because they make more money.
Yeah.
So I'm assuming they will. In the years where or quarters where it's better, we'll take that. But I don't think I'll ever, I should never say this, actually. I think I'm always told not to say this. But I don't think I'll ever say we didn't hit our targets because the pricing in the U.S. went down so much, too much. I won't say that.
I guess on the flip side, do you feel like there have been structural changes to the?
No.
No?
No. Everybody keeps asking me that. No, the three buyers are still living ferociously hand to mouth and want the least price. Some quarters, less people come into the market with new molecules. Some quarters, more come in. But to look at that in a positive way, I think is for us, we think it's dangerous.
Yeah.
We just assume it's gonna be super hard every year.
Yeah.
If it's not, we'll take it. But if it is, we've prepared for it. We don't make excuses internally. We say, well, we need to make our stuff cheaper every year, and we need to launch better every year. If we do those, we can handle whatever comes at us.
Yeah. Great. Well, that's all the time we had. Richard, thanks so much. Really appreciate it.
Really appreciate it. Thanks for your time. Thank you.