Some lively music to kick off the conference here. Well, anyways, thanks everyone for joining us. Again, I am Chris Schott from JP Morgan, and it is my pleasure to be hosting this conversation with Richard Francis, CEO of Teva. It has obviously been a really amazing story the last few years as you have transformed the company.
We are going to just kick off with some bigger picture questions, then we will dig into some details on the product portfolio pipeline, and we will leave a few minutes for questions at the end. With that, Richard, maybe just bigger picture question. You are coming up on your fourth year as CEO of Teva. There has obviously been a lot of progress across the portfolio. Can you just talk about the biggest changes you have seen at the organization as you have kind of transformed the company, and just how you think about the positioning of the company going forward?
Well, firstly, thanks, Chris, for hosting. I appreciate it, and thank you getting the early session in. That is a question we could spend 45 minutes talking about, but I will try and make it succinct as possible. I think if I just pick some simple headlines is, when we started this, and probably the reason you did not cover us back then was we were a pure play generics company. You probably had big question marks as well. With Pivot to Growth, we said we are going to become a world-class biopharma company. That seemed like a hard leap of faith for anybody to believe.
When you think about what we have done, it has really been focused on accelerating our innovative business and stabilizing our generics business, and fundamentally changing our portfolio. It comes down to the four pillars we have. Deliver on our growth engine, step up innovation, create generics powerhouse, and focus the business. The biggest change has been by taking a pure play generics company and making it now a very credible and one of, I think, the most exciting biopharma companies.
To do that has to have substance. Delivering on our growth engines, all the products we have in the market right now are growing at double digit. Innovative business growth 40% in Q2, and a lot of long-term potential growth there. Step up innovation, Eric Hughes, the Head of R&D. When people did not think we could do R&D, we now have, I think, one of the most attractive and I would say good risk profile late-stage pipelines out there.
And our generics business, not only did we stabilize it, we grew it, and we've changed the portfolio with biosimilars there very quickly. And then the final part was focus the business. It's about capital allocation. I think what the conversations we have is about where do you allocate capital? Where's the best return short, medium, and long term? And if you look at this transition over the last four years, we haven't changed our OpEx as a percentage of revenue at all throughout that period, really, which means we've had to reallocate capital to do all those things that I've said because it takes money to launch innovative products.
It takes money to put things through the clinic. So I think the biggest change has been the strategy, but the execution of the strategy, quarter- on- quarter, which I think is one of the things we had to show people is a strategy which was very detailed, was still questioned, that we've executed. And I'd like to think we've become known as a company that does what it says, and we're quite transparent about what we want to do, so we can be measured against it, which is a bit uncomfortable. But I think, if anybody reads through any transcripts, we're super consistent.
Yes..
And we know that when people don't believe the targets we have, we know we have to achieve them to get belief. But now I think we have that momentum.
Yeah. In terms of where we are in that journey, do you feel like you've got the right people in place and the right assets in place that we think of this as more a sustained growth story from here, or are we still kind of in the transition process, I guess, for the organization?
I think it's more the former. It's quite extraordinary. I've been doing pharma for 35 years and when I look at what Teva has, what we have in front of us now from an innovative pipeline, it's extraordinary, and I sort of pinch myself sometimes. What do I mean by that? We have duvakitug, [the anti-TL1A] which we now have in four indications in the clinic. Well, two indications in the clinic and about more about to go in. So we have a pipeline in a product, which I've never had, by the way. I've heard other CEOs talk about it, never had it.
Then we have anti-IL-15, which we've shown some data in select diseases of vitiligo. And we know there's two other indications we can go to. So that's another pipeline in product. We have two products which are pipeline in product, but then we have our late stage olanzapine, ecopipam, DARI. And I think you mentioned there, we basically have a launch every year for the next five years, and then probably a launch every 18 months for the considerable future.
For me, it's exactly what you said. I think we just have a story now where if we can keep executing, I'd even argue to plus or minus, we will still keep growing this company top and bottom line, which means we keep creating value for shareholders. And I think that path is clearer than it's ever been. We were talking before we get on stage, and people say to me, have I missed the boat?
Yeah.
I say, "Absolutely not. You haven't because you missed the good upside, but those were really hard yards. All that transformation we had to do.
Yeah, totally. Yeah.
Now it is really hard, but it is execution of things we know are really good, and we know are great value, and we know are coming. We know olanzapine is coming, we know ecopipam is coming. We know DARI is coming, we know duvakitug is coming, we know anti-IL-15 is coming. So we know those are coming, we have just got to execute. So for me, hard work still, but probably a far clearer line of sight to that continued growth story.
Right. I know this is a transition year of sorts, 2026 with generic REVLIMID. When you think about the growth profile of Teva 2027 plus, how should we think about the growth for the business from here?
Yeah, it's a growth business, so we'll keep growing and I think we've talked about around the mid-single digit. I think we talked about in the capital markets day. But I don't think that really tells the whole story. Growth is one, but what I've realized, and if anybody's new to the Teva story, the thing to focus on is a weird line in our P&L, which is gross margin. If you look at the gross margin, so when I started, the gross margin was 48%. It's now turning to 55%.
The reason why that's maybe the area of opportunity is because when we talk about revenue growth, revenue growth is one, but if your revenue growth is fundamentally driven by an innovative portfolio, which has gross margin in the 90%, and you keep managing your OpEx in a disciplined way, then you have to grow your EBITDA, then you have to grow your EPS, and you have to grow your cash flow.
Yeah.
Which I think I'm not as good on the finances you are, Chris, but that means you're creating shareholder value. No, I genuinely mean that. For me, the growth story is one on revenue, but how does that translate to creating value for shareholders? Well, it's because we're going to change the gross margin, we're going to change the operating margin, and we're going to change our cash flow and EPS. We talked about that for 2030. Here's an interesting stat I quickly read up on this morning. I think our innovative sales end of 2022 were $1.2 billion, right? Which sort of, because now you're tracking at a billion a quarter now.
Yeah.
That's a fundamental change in a very short period of time, and that's just going to be magnified as we go forward. The revenue growth is one, but the type of revenue we're growing, I think, is the real exciting part.
It seems like there's a number of companies I think have attempted to transition.
Yeah.
That you've now done. It does seem like when I look at where you were on margins and where I look at a full biopharma company, there's a long way to go, and that seems like that should be-
Exactly.
...a pretty exciting growth story.
That's why I think sometimes people forget, because you're just not used to looking at it. When I was at Biogen, I can't remember, I think the margin was ridiculous, like 98%. Right? We just thought that was the norm. Here, the weakness is actually our strength. It's our secret sauce, because if we can be disciplined in what we do, how we allocate capital, and keep launching and keep growing, and we're very good at commercializing products. To your point, the 55% becomes a 60%, the 60% becomes a 65%. Then we'll talk about where it hits the ceiling, but it's a long way away.
Yeah, absolutely. Speaking of targets you put out there, can you just talk about on the operating margin front progress you are making? I know at the time it seemed like a very aggressive target you gave for 2027. You are a long way there, but just where are we in that journey and how do I think about, maybe the second part of that question, the cadence of operating margin expansion as we look beyond 2027?
Yeah. 2027, we said we are going to do 30% operating margin, which as you say, everybody-
Yeah.
...could not quite back in the maths on that.
Yeah.
It was hard to back in the maths.
Yeah.
But there's probably two key areas which have made it with a high degree of confidence we know it's going to happen, despite losing generic REVLIMID. , which I think we should get a bit of credit for, is the portfolio, once again, has changed dramatically. As we keep executing on AUSTEDO, AJOVY, UZEDY, we launch olanzapine, these are high margin products, and we're very good at selling them. The portfolio mix changes, which changes the gross margin, which obviously with disciplined OpEx management will hit your OP.
That's one. The other thing is, as much as we are disciplined on OpEx, we've gone after our cost structure very aggressively in the last two years. I'm sometimes asked internally, "When will the efficiency programs stop?" I say, "They'll never stop." They'll never stop, because it's about capital allocation. Some things deserve to give a good return on capital now, but in three years' time, there'll be something that will do more, and this can be made more efficient.
So in our ROE, we're saving $700 million of costs after investment by the end of 2027, and we're well on track to do that. So portfolio and $700 million of savings gives a high degree of confidence we're going to hit the OP of 30%. I think your question, which I'm being asked more and more is, okay, but what's it going to go going forward? Two things I'll say on that. Firstly, when I looked at top pharma, whatever those 10, 12 companies-
Yeah.
...their OP margin, not many were above 30%, which surprised me. Because they don't have a $8 billion generic business.
Yeah. Exactly.
I was struggling to understand that. Firstly, we are up to 30%, I think, based on our mix, that is an achievement. Where can it go? Well, obviously, I think it can go higher, no question. What we need to manage and what we are thinking about as a team is, do we want to set a target on that? Do we kind of give a line of sight? Because one of the questions I am getting with investors is, "We like what you have done with the operating margin, but you have a really rich pipeline.
Yeah.
Do not sacrifice the pipeline for short-term operating margin." I understand that, and I think we are trying to work out how we manage that. At the same time, I have become somebody who realizes that you do not want to offer a return to investors in the future, because as I sort of say to myself, tomorrow never comes.
You have got to give people a return, I think, on a consistent basis. Maybe more in the future, but I think still some in the short and medium term, particularly with Teva, to keep this belief and momentum. Operating margin will go up. We have not given a target. We are thinking about whether we need to do a new 2027 target type thing for 2030, 2031, 2032, and we are still in that debate.
Yeah. It seems like the story to me becomes more top line at some point-
Yeah.
...as you go through that process. You've mentioned the branded pipeline, and we're going to go through those specific assets in a minute, but broadly speaking, can you talk about the R&D capabilities of the company? Because I know that's one thing I get from investors is, I'd say a little bit of skepticism about how does this company go from a generic company to having all these branded assets now. So can you talk a little bit, as you look at that organization, you've run that organization, the capabilities that are within?
Really good question, and I sort of remind people, which I've always believed, is companies don't have capability, people have capability, and people happen to be in companies. When we were at Teva and I was working, obviously worked closely with Eric Hughes, the Head of R&D. I can remember, literally February 2023, Saturday, showing me the pipeline. I'm like, "How do we have a TL1A?" He said, "Well, we do, but they're just not being prosecuted." Eric, congratulations to him, he built a great capability of both in R&D.
We had some great talent internally that hadn't been invested in and hadn't been given resources. So we resourced that, and then we brought people in from the outside who we know have the capability. So I think our R&D team is world-class because the people are world-class. Despite people all saying, "Well, Teva, can you do innovative?" I do remind people about COPAXONE and some other things Teva did, but I understand that muscle may be atrophied a bit, but we have very talented people.
The other thing I'd say on that is two things, is all our antibodies come out of our R&D facility or research facility in Sydney. I'd argue that our antibodies, and we'll talk more about this over the next probably 12- 18 months, are by design the best antibodies. I know that seems an extraordinary statement, but I think we're seeing that with TL1A, duvakitug in the data. We'll see that with anti-IL-15 in the data. We have a TSLP/IL-13 coming to the clinic in Q1, which I think you'll start to see how cool that is.
Our PD-1/IL-2, which we'll have data at the end of this year, which people say, "Well, but everybody's done a PD-1/IL-2." It's not as simple as that. It's how you engineer it that creates the opportunity. I don't know what the results will be, but I think that another one will show that our engineering capability, I would say, is probably the best of anybody. Because people don't spend time on engineering an antibody. They just find an antibody, make it, target something, and get efficacy. We spend a lot of time saying, "What is the optimal way from a manufacturing yield, neutralizing antibodies?" Things that maybe seem a bit trivial, but longer term, I think add real value.
I know you talked about this a little bit, but on that balancing of investment, you have these capabilities, you have a pipeline that is now maturing. I think one of the differences I think of those top 10 or 12 biopharma companies versus Teva is percent of revenue that goes into R&D. How do you think about that line item in the P&L trending over time? Is that something you can manage and you will find resources, or do we have to think about that as maybe offsetting some of this gross margin expansion over time?
In a way, it can be all of the above.
Okay.
Maybe I tell you how we think about it at Teva. We think about capital allocation as firstly, really seriously. We do not talk about resources. We do not talk about budget. We talk about capital. If you get given capital, you have to give a return on the capital. Hence, the reason why our efficiency program has been so hard, we have driven that so hard, is because we think there are some things we do in the company that do not justify having capital because they are relatively low-value things. Let us not try to do them exceptionally well.
Let us just do them enough to help the company operate. When you think about it is interesting. What I have said to us is you get capital when you can give a return on it. Right now, if you look at our investment in innovation, if you take into account the partnerships we have and the financing with Royalty Pharma, et c, our percentage versus revenue is probably towards the higher end of the industry if you gross it up.
Okay.
Right? But what I also say is, I am very happy, not that this would happen, but just to make my point, in a year that we spend nothing on R&D. Because if the assets don't deserve the capital, why would you give them capital?
Yeah.
I say to Eric all the time, we only apply capital to assets in our pipeline if we genuinely think it will give a return. If we don't, there are no pet projects. The joke we have is if he is not willing to invest his bonus in it, we are not going to invest our capital in it. But I think that is really important because I have been at companies where too much, the budget is their budget every year. I don't believe that should be the case.
I think we have a lot of exciting assets, these products in the pipeline, and that has challenged us to say, do we grow our OpEx base a lot and explain to people, well, maybe the 30% is hard to do. We thought, well, no, we are not going to renege on our promises. There is capital elsewhere that we can invest in. Doing the deals with Royalty Pharma, Blackstone, two things that appealed to me on that, which I didn't fully understand at the time. One is the way they validated the science was brutal.
Yeah.
That was like a colonoscopy. So when they came away going, "Your anti-IL-15 is great." I go, "That is good. You might as well have good due diligence." They take some of the risk, which I think is a very sensible thing to do. Same with Blackstone, same with Abingworth. So we get validation, we get the capital, and now we can go across all of these indications at speed.
Because another question you could and might ask me, and probably will, is, "Well, aren't you diluting your return because you don't own it all?" So two things. I did the analysis, and I realized most of the top 20, 30 drugs in the world have a royalty stream because they weren't invented in big pharma, which is another challenge to why R&D gets so much money-
Yep.
...if things are invented elsewhere. The second thing is, go back to my gross margin comment. We're 55%, so if you give up 2% royalty or 3% royalty, it makes a difference. The third thing I said to the team, I said, having 100% of a pie, piece of a pie that arrives late across less indications. If you do the analysis and have more indications, you arrive a year early. The difference is just gigantic.
Yeah.
It's just a no-brainer.
Yeah.
Ours is the principle we have in R&D, we have a good asset. We move as fast as we possibly can. We'll work out the finances later. It's so hard to find good assets. In my career, to see a pipe like this, we're not going to mess around. Get it to market as fast as possible, maximize it, and we'll manage the capital allocation on that journey.
Great. Maybe just pivoting into the branded portfolio. AUSTEDO obviously grown very nicely these last few years. One of the questions we get is just how much more room is there for this one to continue to grow? Where are we in terms of, I know you were pushing the doses higher, the penetration rate's still low, but just is this still a business that we can think about a lot of growth going forward?
We can, yeah. The fundamentals are, to your point, is extraordinary. 85% of patients with tardive dyskinesia are still not treated.
Yeah.
There's a huge opportunity to treat more patients. The other things that we've made real traction on is, firstly, we have introduced titration for patients so they can titrate easier. That helps them end up on a more efficacious dose, more in line with the clinical trials. We put together adherence and compliance programs. While we've heard about those many times throughout our career, the difference they make are meaningful.
A lot of patients still coming in, making sure those patients get onto the optimal milligrams, making sure they adhere to that and are compliant to that. You attack all of those, you can fundamentally keep driving this asset for many years, which is why I say greater than $3 billion peak sales is something that, when I look at those elements, is very achievable.
Yeah. Competitive landscape, have you seen any changes at all as you think about your closest competitor here?
Look, it's a really competitive market, and so I think we know that. There are two of us in it. It's very competitive. What I always say is, it's about making sure we capture a good share of the patients coming in. We mobilize those patients to come in. We educate the physicians to identify tardive dyskinesia. And we keep doing that well, that I think, because there's so many untreated, that everybody can grow. It is competitive.
But for us, that's about making sure we perform really well. We're good at operational excellence. We have the right levels of capital deployed to do that. But it's about execution on a. And I think we've shown since the start of Pivot to Growth, we have executed quarter- on- quarter very well, and that's a muscle that we're very good at. But we're not complacent. It's competitive, and so we've got to be mindful of that.
Great. Yeah. Can you just talk a little bit about 2026 results for this one? I know there's been some inventory dynamics, but as you're just kind of thinking about underlying growth, what's the trend been for AUSTEDO?
Yeah. So to explain to people, AUSTEDO, there's a bit of puts and takes. So the channel filled up a bit at the end of last year, Q4, which you try your best to control, but you can't not ship product, which we told everybody should flow out this year. It is slowly, slower than I would do if I managed that inventory.
Yeah, sure.
There you go. It's slow. That's going to make the comparison of Q4 this year and Q4 last year will probably be down. Another part of that is what's going to go back to wholesalers knowing that we have the IRA 2027 discount. One would like to draw down their stock even more, so they then take stock at the new price. Those are the things that I think the things to think about AUSTEDO, that the quarter four is an interesting quarter that we keep communicating. That will be down. Your question is, what is the underlying TRx and all those things?
I think we're still showing that we're very competitive in TRx, very competitive on the milligram growth, because that's important. If you look at all our quarterly earnings, the milligram growth is happening quarter- on- quarter. I think we're up 20% last quarter. Adherence and compliance is improving. All of those things that I talked about are all heading in the right direction.
Sometimes I say to the team, I say, "How can we keep getting better on compliance and adherence?" Or, "How come it's not quicker?" I forget that you have to do this through all the specialty pharmacies, all the patients. While you can hit some very effectively, there's still a big patient base that hasn't got all of those programs at an optimal level. The good thing is I can see this having an impact for many years to come.
Sure. Your confidence overall of that $3 billion longer term target seems pretty-
Well, look, I think we've been talking for quite a few years. I don't put out targets without really having an ability to understand how we're going to deliver them. There's no hope in that. We've got a very structured execution of what is needed to make it happen. Is it hard? Yeah. Do we tend to achieve our targets? Absolutely. I have high degree of confidence.
Great. Which elsewhere in the branded portfolio, AJOVY's been another success story of the company. Can you talk a little bit about what's enabled Teva to drive the growth here? I typically think about franchises like this that launch and maybe slow a bit, that it's hard to re-inflect. You've clearly re-inflected it.
Yeah.
What's enabled that? And another maybe similar question, what's the path from here for AJOVY?
Yeah. AJOVY is a great example. It's sort of a bit. There's some similarities to AUSTEDO. At Teva, we had, when I came in, very few growth opportunities. And one thing we're really, really good at is prioritization. And prioritization, when it's done really well, means you just don't do other things. Really brutal prioritization. We said AUSTEDO has to hit $2.5 billion.
Yeah.
There's no. Let's not debate it. You're either on the bus or you're off the bus, but once we're here, let's make it happen. AJOVY, we said, well, this is in the twilight of its life. I'm, "Well, don't see that." Looked to the market and said, "No, there's more to come. By the way, it has to do better." If we're going to be good and innovative, we have to show we can do it across all three regions. Part of it is just saying, we have to do better. Now let's build a plan to make sure we do better.
We didn't allocate a lot more capital. We gave a lot more focus, a lot of different expectations, and we worked out what we had to do better. What has surprised me, though, because to your point, you rarely reinvigorate a brand. We've not only reinvigorated, we've accelerated it, and we continue to. Now, which is extraordinary, we talk about AJOVY being $1 billion brand. I think most people can put that in there.
I think we even have to think about what is the long term target for that, because the growth rate you saw in Q2 was extraordinary across all regions. I think what to do that growth, we have to take market share. We have to grow above the market in every region. We grow way above the market. I think the market grows at 6%, and as you saw, we're growing at 20% across all of us. We're taking market share, and that's just excellent execution against some of the biggest pharma companies out there.
Yeah. Excellent. Just in the interest of time here, I'm going to be shifting over to the pipeline.
Yeah.
Olanzapine LAI. I know we're heading into a PDUFA. Can you just maybe just to start with frame the opportunity here for olanzapine? It's one that we're pretty excited about, but just maybe just to set the stage for the conversation.
Yeah. olanzapine is exciting. olanzapine molecule is the most used molecule to treat schizophrenic patients. 20% of patients are on olanzapine. Now, olanzapine doesn't have a long-acting treatment that's used really. You've got 20% of the patients who have severe schizophrenia, and olanzapine is their treatment of choice, but compliance and adherence becomes key. Because if you have any lack of compliance, you then have a breakthrough, and that can lead to a hospitalization, and it can be pretty devastating for the patient.
So they need long-acting. When you think about the opportunity, the way to think of maybe an analogy you can build is, well, in the non-olanzapine market, what happened? When the long-actings were approved, 13% of patients moved across. You could just say, well, if that is just replicated, 13% of olanzapine patients move to the long-acting olanzapine from Teva. That creates a pretty significant opportunity.
You could argue, people do challenge me, but would more patients come to a long-acting olanzapine because of that need for compliance and adherence? I'd say, yep, that could be the case. But if you just think about it being 13%, and you think about what that looks like, that's where we get to the $1.5 billion-$2 billion franchise for UZEDY and olanzapine. Although I get challenged sometimes, is that not enough? I said, well, if you plug that into your models, it's a game changer for us still.
Yeah.
If we do better, we're pretty transparent at coming back and saying. But it's still a challenging market from a Medicaid and Medicare. It's managed very aggressively. But I think we see a clear line of sight to that range.
Great. On that dynamic of the challenging payer environment here, how should we think about the launch curve for this one and getting access to the payers here?
Yeah. The most important thing is to create long-term value, right? This is not about cutting a deal with particularly Medicare at any cost. I think just to let everybody know, we have not cut a deal with Medicare on UZEDY, and we are three years into a launch. Because the discounts they want, we do not think reflect the value of the product. We have done our deals with Medicaid because you have to do Medicaid, and that is state by state. But Medicare, we have not, and so that means physicians ask for UZEDY, and they get it because it is a schizophrenia patient, and they explain why UZEDY-
Yeah.
...is needed versus other long-acting. For olanzapine, getting back to the question, we want to get Medicaid covered as quickly as possible. That depends on the state. Some are day one, some are within three months, some are six, and some are 12. I think after 12 months, 85% of the market, Medicaid should have us listed, but we cannot speed that up. The way to think about the launch is we are not going to have a significant amount of revenue. We are not going to have revenue really this year. There will be a bit of stocking in the first half even next year, not a lot, because we are not trying to get access through Medicaid, so we do not open up.
Yep.
It will be TRx, hospital formularies, sampling programs. How many physicians have used us? What is their breadth? What is their depth? That is what we are going to go after because that creates sustainable value. Then you will start to see the revenue kick in in the second half of next year, and then we will have the right value and access balance.
Then I do think at some point, I do not quite know when, Medicare will come and say, "Well, UZEDY and olanzapine, we should probably cut a deal because now you have such a scale." Then we will probably have a sensible conversation, I hope. But that is the way to think about it, and I think what I encourage investors to look at is we will be transparent. What is our TRx? What is our breadth? What is that? So you can see the leading indicators.
Yep.
Because that is what I am focused on. Then I think people go, "Okay, I can see how this is going to create value." I do not want to chase the dollars to sacrifice value long term.
But in terms of revenue, though, we should think about pretty modest revenue.
Yes.
I think you said this year, but even first half of next year, just this year.
Absolutely.
Maybe just one other one that is on UZEDY. Can you just compare and contrast a little bit if we are trying to just think about that launch and how that progressed versus how you are envisioning olanzapine playing out?
Yeah. I will be pretty bold on this one. Olanzapine is going to launch so much better than UZEDY, right? Just a lot better. That is how we have said it internally, and I have looked at the graphs, I have looked at everything we have done, and we are aligned in that as a team. The reason why we are aligned is because we have that UZEDY muscle. We are in the offices of physicians every day.
We are in the hospitals. We know the people on the P&T committee. We know the nurse practitioners. We know the long-term care institutions. We know where everybody is, so we need to maximize that, and we are going to maximize that. The launch curve will be very different, and it will be a better launch than UZEDY.
Maybe the other end of this story. I look at J&J and the franchise they have in long-acting atypicals. Why can't this be a much bigger franchise for Teva than $1.5 billion-$2 billion?
I would say, look, without saying it emphatically can't, it could be. But there is a lot of work we have to do to make that even possible. The way that it has changed, though, is when those products launched, there was no management of schizophrenia patients. Literally none. Every schizophrenic patient got what they needed, and so there was no managed care. The world is very, very, very different now, and so I think that is one, and how that is managed. But look, I do not want to say things, could it be bigger? It absolutely could. I want to get through the first 18 months.
Yeah.
Probably, we will have that conversation. I remind people, if we still tap out in this 1.5 billion-2 billion, at the margins we have, that is a game changer for Teva. I got asked last week, you may even ask me, so I will get ahead of it. Celiac, $1 billion, that seems a bit modest with the amount of people who have celiac disease. I go, "Well, look, I have not really gone into the details of forecasting celiac, but if it is $1 billion, it is another game changer for us."
Right? It goes back to that gross margin at the start we talked about. When you keep layering on high margin products, should olanzapine and UZEDY be bigger than $2 billion? Could be. From a value creation, let us cross that bridge in a few years because we are going to create so much value in the short term on those, if you want to call them-
Conservative targets.
Measured targets.
There we go. You've got another launch next year with Tourette's as well.
Yeah.
Talk a little bit, this is the first kind of acquisition we had seen Teva do in some time. What attracted you to this asset, and how are you thinking about the landscape you're entering there?
Yeah. I'm super excited about this asset. One, because you can get emotionally attached to things, and as a father of three children, when I learned about Tourette's and I learned that it impacts many people in the development phase of their life, it is huge, and it's really quite sad. It's devastating for the child as well as the parent. When you see the efficacy of this product, you think this is something that could really transform. When I look at what treatment is currently there, first it's obviously psychotherapy, then it's off-label use of a product which doesn't really have efficacy.
Then you go on to actually schizophrenic drugs, which do have long-term side effects. You have a child, as a parent, I don't want to put my child on a schizophrenic product that I know is going to have some long-term effects, because it has some modest efficacy in Tourette's. I think we have this untapped market. Why am I excited? Firstly, that sort of almost impact we can have on people's lives. The second thing is, there's 100,000 children who suffer from Tourette's, 50,000 are on therapy.
Of those, only, I think 20%-30% stay on therapy after a year. That tells you everything about both the efficacy and the tolerability. When I think about what we've done in AUSTEDO, what we've done in UZEDY , where we've attracted patients back into the office. We've educated physicians, we've educated caregivers with Tourette's. That's a playbook we can apply exactly to ecopipam.
I have to say, this is a patient community that has no support because those indications in the psychiatric drug were add-ons way later. It is such a small patient population, they are not really looked after. When we went to the Physician and Patient Association meeting, the excitement about a treatment designed for them, not an added indication later, for them, with a company dedicated to CNS and neurology, was palpable. I feel this could be an amazing opportunity to transform lives and a great revenue driver for us over the forthcoming years.
The payer environment for this one, anything unique about this we should be watching?
That is a good question. Look, I think there is an opportunity here to get the right value on this product. We want to think carefully about that, so we are doing a lot of work now because obviously this can launch in Q1 next year. It is a pediatric orphan, and you can think about the opportunity that you can have a price that is associated with a pediatric and an orphan.
Yeah.
But once again, going back to what I said on olanzapine, we want to make sure we have the right access and the right value. This is not all about access, this is not all about value, it is that balance. We have done that well on AJOVY, we have done that well on UZEDY, and we have done that well on AUSTEDO in a very competitive environment. So we are applying that same skill set to this. But yes, it is a different pricing than probably we are used to.
Yeah. On the TL1A, I know you've mentioned a few times, I'm just watching this immunology landscape and it's evolving quickly with lots of different modalities, and great for patients in terms of improving standard of care. When you think about that asset, just maybe talk about how you think about it competitively versus other TL1As, and then maybe more holistically with where this fits into the IBD landscape overall.
Yeah. Well, I think, firstly, for people who are new to the story, our TL1A is better than everybody else's, which is what people in my position tend to say. But, the reason why it's better goes back to what I said right at the start with our antibody engineering team in Sydney. This is our fourth TL1A. I remind people of that. The other three were good, but we kept working on making it better. So we know we have more potency, better specificity, low neutralizing to antibody. We know all the things we have better. Because by the way, we made the other antibodies.
Yeah.
We know what they did. So we know we have the better one. The phase II, I think, showed that. Now you can't cost compare, I know, but I think most people saw it and said, "It looks like you are the better one." So I think we're better by design, not by luck. I think in the TL1A field, that will give us a competitive advantage. I think TL1As will play out very well because they're very safe and well-tolerated. People forget, in IBD, it's a nasty condition, UC and CD, but there are a lot of products which either have black box warnings or have to have some safety monitoring.
I think, Eric, I heard there's like 7,000, 8,000 patients now treated with the TL1A. It's a very well-tolerated and safe antibody. So I think we have that. So I think TL1A will be used because of its efficacy and its safety and tolerability higher up the treatment dynamic. I think that's something which people aren't fully appreciating, because physicians want to use things that are efficacious and safe and can be tolerated, then you can be on them a long time. Combine that with low neutralizing antibodies. So I think TL1A's will be used a lot. I'd like to think that we'll be the most used TL1A because we're the best TL1A.
Yeah, absolutely. On the topic of combination therapy, it seems to be kind of an emerging theme. How does Teva think about combos? It seems like given the safety of the drug, it could be a great combination kind of candidate, I guess.
Yeah, it's interesting. Eric, my Head of R&D, keeps educating me on this, and he says, "First you've got to get a drug to work. And if you have a drug that works really well, that is amazing." The fact that people are moving ahead saying, "Well, how about a combination bispecific, trispecific?" One is that when you have a safe, efficacious, anything you add to it, the assumption is it makes it more efficacious and doesn't touch the safety tolerability, which is a bit sort of hopeful.
Yeah.
What more does it give on efficacy that it damages the other side of the equation? So I think firstly, a lot has to play out over many years. The other thing that I have been educated on is every bispecific is different. So I go back to our PD-1/IL-2. When I started talking about that three years ago, everybody said, "PD-1/IL-2s have been tried. They don't work or they're not good enough." What I realized is people literally take a PD-1 and IL-2 and put them in a syringe. That's a combination. That's a bispecific.
Yeah.
You can engineer them together, and that's the same as everybody else's. But then we went, "No. How you engineer them together is important." So going back to TL1A, look, we have bispecifics in our pipeline. We have trispecifics in our pipeline. We have many things. We don't talk about them because what we're looking to understand is, does it improve the benefit-risk profile, and what is the need? Let's see how TL1A comes out in these conditions. If it gives a really good level of efficacy, one could argue, do you really want to tamper with that? But we're open to it, but I think that has a long way to play out. The thing I would pitch is we're about to move into the clinic our TSLP/IL-13.
Yeah.
Now, I think people say, "Well, other people have TSLP/IL-13s.
Yeah.
I say, "Wait till you see the engineering on our TSLP/IL-13." It is extraordinary. I think what people are going to understand is the enhanced engineering we have at Teva means people need to start looking at the capability of that engineering and how that differentiates a single asset or a bispecific or a trispecific, and it can be very, very different.
Yeah. Excellent. In the last couple minutes here, maybe we will talk about the generic business for a few minutes here. I know there is a lot of moving pieces this year with REVLIMID and some of the headwinds there. Just talk a bit about the growth you envision for the generics and how we maybe bridge from what we are seeing with the business today versus the longer-term outlook for that franchise.
Yeah. I always find at four years left of 45, we get to generics. Three and a half years ago.
It's good. It's a
Four years ago, it was the other way around.
Good transition of the business.
Yeah, exactly. The questions I suppose are around really. And by the way, it's right. It should be that order because it's about value creation and what the business is doing. That said, our generics business, I first remind people it was declining before 2023, then we grew it. That is a phenomenal turnaround. We did that through executing better on both our pipeline, bringing things to market more often on time, and being in the first wave.
That creates value. We improved our manufacturing, our supply chain, because we weren't supplying all that we could. We did that. Then our commercial model, we were more disciplined in how we actually priced our assets in the market. We did those, and that's the muscle we keep building on. I've always said our CAGR going forward is 1%-2%.
That is partly because I wanted everybody to just model it on that, and it is not down, it is not up. It is what it is. It throws off a good amount of cash. It really helps us give scale and manufacturing. Now it gives us presence around the world to maximize our innovativity. It does a lot of good things. The reality is we have done a lot of great work on our portfolio, and we have now got 15 biosimilars in the market. When we started the conversation, I think we had three or something, four.
Yeah.
We have another 14 in the pipeline, and we are going to add to that at real pace. What that does is it changes the makeup of our generics portfolio. It moves it into a more heavy biosimilar, which biosimilars traditionally have a more stable revenue. They have a better gross margin, so more predictability. I think maybe the generics questions when we next sit down will be, "Can you help us understand, is it really 1% or 2% growth?
Maybe it could be more?" For us, it is about changing that portfolio, changing the manufacturing, changing our supply chain. We have done a lot of good work there. So I do see that as being more of a growth driver going forward, which is helpful and important. Still outweighed by the innovative, but we have made some good progress.
Maybe last question. Another one that has changed quite a bit the last few years. How are you thinking about deploying capital from here? I know first few years as CEO, I know it was a lot of debt paydown.
Yeah.
You're on the other side of that. How do we balance of more tuck-in acquisitions like we've seen, versus a dividend, versus repo? How are you balancing all those?
Yeah. I think it's interesting, once again, last question is on debt. It used to be the first question. What I think what we've done on debt, and going back to your question on R&D investment and how we do this, I hope people take away is we are really focused on capital deployment. We've got to pay down debt, but we've got to keep investing in growth like growth drivers. It's not, "Let us pay down debt, then we'll do this." We have to do both. We have to be dynamic, and we've done that.
We've got investment grade now across all three rating agencies, a year ahead of when we said we were going to. I think that's a real testament to not only paying down the debt, but how they see where we're headed. We always said there are four things we're going to do. Pay down debt, invest in our growth drivers, the AUSTEDOs, the launches, invest in our pipeline, do BD, and then return capital to shareholders. The number one's gone because we paid down our debt.
Yeah.
We're left with the other three, and those are still relevant. We've got a lot of products to launch. We have to do that. We've got a pipeline to feed. We are going to do more BD. We're actively looking all the time. As you saw with Amylyx and you probably saw with the BioXcel, we have a view on what we should pay for things. Because we have a good pipeline, we're disciplined, and a lot of things, we don't get to the price that sellers want, and so we walk away. It goes back to our discipline on capital allocation. Then on the fourth point, we'll return capital to shareholders.
But on that, just to manage expectations, we don't see as a dividend being a good allocation of capital because we have too many growth drivers, and I think that's where we need to invest. Then on buybacks, I don't think about this as a yearly, we do that. We think about when we think the stock, if we buy the stock, it will give a return-
Yeah.
...on that acquisition of that stock. And we think about it that way. So it'll be when we see that happening, and because I think at the end of the day, we have to give a good return on capital. And as long as it does that, then if we do that, then I think we're going to create value return for the shareholders as well. So that's how we think about it.
Excellent. Well, think about time. Thank you for joining us today. Appreciate it.
Thanks, Chris. Appreciate the time. Thank you.