Teva Pharmaceutical Industries Limited (TEVA) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to today’s Teva Pharmaceutical First Quarter 2020 Financial Results. At this time all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today and without any further delay I would now like to hand the conference over to presenter today Kevin Mannix, Senior Vice President and Head of Investor Relations. Please go ahead sir.

Thank you operator and thank you, everyone, for joining us today to discuss Teva’s first quarter 2020 financial results. On the call with me are Kare Schultz, Teva’s Chief Executive Officer, Eli Kalif; Chief Financial Officer and Brendan O’Grady; Teva's Head of North America Commercial.We hope you have had an opportunity to review our earnings press release, which was issued just an hour ago. A copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevapharm.com as well as through our Teva Investor Relations app.Please note that the discussion on today’s call includes certain non-GAAP measures, as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the Company’s operations to better understand its business.Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the Company’s financial performance, results of operations and trends. A reconciliation of GAAP to non-GAAP measures is available in our earnings release and in today’s presentation.To begin today’s call, Kare and Eli will provide an overview of the first quarter performance, recent events, and priorities going forward. This will be followed by question-and-answer session. Today’s call which will run approximately one hour is being webcast live and recorded. You will be able to replay the call and view the transcript on Teva Investor Relations website.And with that I will now turn the call over to Kare Schultz. Kare if you would please.

Thanks Kevin. Welcome to all of you and thank you for your interest in our company. I hope you are all safe no matter where you might be. Before I go into the financials for the first quarter I just like to address Teva's response to COVID-19. I have chosen to give you some insights into the four elements where we have been focusing business continuity, sourcing and production, our employees and our communities.It's been paramount force to secure business continuity not just because of the need of the business but also because of the need of around 200 million patients that we serve in essential medicines every day. We have also wanted to minimize the impact on our R&D programs and secure that we could progress towards new product launches.In the process of keeping our commercial upgradation going we have been seeing a lot of digital instruments being implemented. We have been instrumental in doing a lot of E-detailing different new ways of communication in order to keep the sales force effective. I’m also had to report that we have not been seeing any job losses related to COVID-19. We have kept everything operational.A big part of our operation is of course sourcing and production. I am happy to report that all facilities remain open to meet the demand for our essential medicines. I would like to thank all our employees for the fantastic job they have been doing securing that we could stay operational in all of our facilities in this very challenging times. We do have adequate inventories of raw materials and finished products across our global network to live up to the demand from our customers and we have been able despite many difficulties to secure safe supply chain for our medicines and we basically had an uninterrupted supply chain worldwide.For our employees safety has been paramount consideration. We have been able to secure a safe and healthy rig environment. We had no report of anybody being infected due to going to work. We have implemented many, many both local and global precautions in order to secure and stay operational and keep a healthy work environment. This is based on strict guidelines both from our own side and of course also living up to all local requirements from authorities.It's been important for us to support our communities both the local communities near our factories, near our offices but also the global communities through different international organizations, different healthcare organizations working with different governments and we have been supplying millions of tablets both for investigational treatments but also for already approved treatments supporting different healthcare systems in many, many parts of the world. We have also been changing our production schedules to take into consideration those products that are more in demand now securing both API and finished products to secure that we could live up to demand for the products that we have in our portfolio.Let's move to the next slide. On this slide, I will try to give you just a very brief overview of some of the positives and some of the risks related to COVID-19. One clear positive for the industry is that industry and governments are now working together to ensure availability of essential medicines. And I think it’s for the pharmaceutical industry, it is a positive that society clearly realizes the importance of the pharmaceutical industry both in supplying needed medications for various treatments related to COVID-19 but also of course in doing research in order to secure new treatments, vaccines, new treatment modalities are being sought for.There is also an underlying worldwide demand for new and existing medicines and this has not changed. So we have to remember that despite all the new slow and everybody being focused on COVID-19 the broad health situation for the population hasn't changed because of this so there is the same underlying demand for our different products.As I said before we have seen new digital capabilities in our sales force, new ways of communicating and only the future will show us to what extent there will be a permanent change in the way we do the promotion of our products worldwide.We have not seeing any material impact on our ongoing clinical trials and we are hoping to see results coming through in the coming months as planned. However, there are also some significant risks. We all know that raw materials and finished goods are concentrated in terms of manufacturing in a few countries, especially raw materials and API is concentrated very much in couple of countries for most of the global supply. I'm happy to report that we of course have our own API network with more than 15 factories and that these factories are predominantly in eastern and western Europe.There's a risk related to the fact that we have seen some strong-strong patient demand in the month of March and this patient demand could lead to a overstocking at the patient level, hard to predict exactly and this of course might lead to for these specific products lower sales of these products in the coming months and quarters. It's also quite clear that there is a risk that the reduced physical interaction between our sales force and healthcare professionals could lead to a slower uptake of our new products. It's not something we've seen yet, but it is a risk.And it's also quite clear that some of the clinical trials that we have been planning to initiate will be delayed and the delays will then depend on how long the lockdown of hospitals and clinics will last in individual countries. So overall we have a dynamic situation with some positives and some risks and we of course working diligently to secure that we pursue the positives and we try to avoid the risks.If we move to the next slide, I will now move to the financials. We show revenues of $4.4 billion. This was helped by a strong underlying demand for all our key products and also high demand in March for generics and OTC products. The non-GAAP EBITDA came out at $1.4 billion a positive result that was affected by the higher revenues, but also by the lower cost and the lower cost was partly influenced by the COVID-19 lockdowns, but also by our ongoing rationalization and optimization programs that I will get back to.The GAAP EPS came out at $0.06 and the non-GAAP EPS came out at $0.76. We saw a strong cash flow at about $550 million and just to repeat what I've said many times the ongoing cash generation on a yearly basis is running at around $2 billion slightly above $2 billion. We do have some swings per quarter. Eli will get into that later, but we see a steady level here above $2 billion.This also leads to an ongoing reduction of the net debt. This quarter it was $600 million in reduction and we are now down to $24.3 billion. We have been looking very carefully at the changes. So the ups and downs both from COVID-19 but also from the general and business development and when we look at all the sort of upsides and downsides and all the changes. This leads us to reconfirm our outlook. So our outlook that Eli will get into in more detail remains unchanged.If we look at the business then we've had some nice positive developments. We've had the AJOVY auto-injector approved in the U.S. and we just launched it. We have seen more launches of AJOVY in Europe now in 12 countries. We were the first anti- CGRP product for migraine prevention has got NICE approval in the UK which was very positive.We've launched one more biosimilar in the U.S., HERZUMA. We have launched the last digihalers product which gives us a now full digitized respiratory portfolio in the U.S. and we look forward to launching these products in the market in the coming months in the U.S. And then we had our partners Eagle had an orphan drug designation win in court which means that the BENDEKA/TREANDA orphan drug designation stands until December 22, and we also on BENDEKA saw positive pattern ruling which means the BENDEKA patents will stand until 2031.If we move to the next slide, then you probably remember that since I presented the restructuring plan more than two years ago. I've told you that 2019 would be a trough here for Teva in terms of revenue and earnings. I also said that a trough is pretty flat at the bottom. So when we start getting out of the trough it's not a dramatic increase but there will be an increase in revenue and earnings and you're seeing that here, I have to say that you're probably seeing it a little bit more than the underlying really is and that's because in Q4, ‘19 we did have a very strong quarter in North America due to several very strong generic launches including Rituxan, the biosimilar product and we also had a very strong first quarter in Europe with a lot of generics and OTC being sold in March as I mentioned. So but even if you take these things out and sort of try to normalize things, I can just confirms all of you that we are seeing the trough, we are seeing that we've been passed the bottom of the trough and we are seeing a slow improvement in both revenues and earnings.If we turn to the next slide then this describes apart from our strong generic business what are the key growth drivers for our business and we've talked about these many times before AUSTEDO and AJOVY. I like to point to this very nice picture of the AJOVY auto-injector. Now the auto-injector has just been launched as I said in the U.S. and it's also just been launched in Germany and I'll get back to what the benefits of this very slick and nice device, easy to use and what the benefits are for patients and also in terms of the business development.If we move to the next slide then you can see how we're doing on AUSTEDO. The graph to the left that's a patient or a script count for quarter and you can see here that we have a very steady, very positive development in the total scripts. If you look at the revenues then it's a little bit more bumpy. I can tell you the underlying trend is just as steady as the scripts but we did see a bit of stock swings between Q4 and Q1 and we also saw the donut hole having a small effect in Q1 but we're confident that the underlying trend continues and that we are heading for the goal of $650 million of AUSTEDO sales in the U.S. in this year. So very strong development in AUSTEDO both in of course Korea in Huntington's disease and also in tardive dyskinesia.If we move to the next slide, here you can see the script count for AJOVY, the weekly normalized TRx count and you can see how it actually has gone flat for quite a while. This is of course not how we want it to be. You can also see how the NBRx Share went up nicely to around the 25%-30% and then it came down. It is the unfortunate result of us not getting the approval for the auto-injector basically being delayed with the auto-injector. That meant that despite the fact that with our long acting anti-CGRP product which due to its long action is available both in a weekly and a quarterly version despite the benefits of this product and the safety profile it has, we were losing out in the doctor's offices because we did not have an auto-injector and since the two products both have an auto-injector we saw our new two branch decline.Now we just launched the auto-injector and I'm very confident that we'll see an increase both in the new-to-brand share and also eventually the total share and our aim is to end this year with a long-term target for new-to-brand of 25% and I have high hopes we can do that.We're also seeing more European launches as I mentioned and we've just been approved in Canada. So I'm very confident that we will see a positive development of AJOVY and we are keeping an unchanged target for AJOVY sale for this year at $250 million.If we move to the next slide then you probably all remember that last quarter I talked about a new long-term improvement program we finished the restructuring and we now started a gross margin improvement program and you might ask with all the COVID-19 things happening what's happening to this program and you might even ask since the target of this program is an operating margin of 28% and we already surpassed that in the first quarter is that because we finished the program and I have to tell no to both; no we have not stopped the program, the program is running very well. We're doing all the different elements you can see here on procurement, network, operational excellence, supply chain, organizational model. We have reorganized our entire manufacturing operation.So we are in full swing with the program. The numbers for the first quarter is exceptionally good. So they're not you could say at sustainable level yet but they do indicate that the 28% operating margin that is the target for this program at the end of 2023 that is an achievable target and that is still what we are going for.And if we go to the next slide then I just like to make it absolutely clear that there's no change whatsoever to our long-term financial target. We are very confident. We can reach this. I just talked about the 28% operating income margin target. We also have above 80% cash to earnings target. This is of course informed because we still have a huge debt and the only way to pay down debt is of course to generate cash and use it to reduce the debt. That's what we're going to be doing. That's what we are doing. We'll keep on doing and as a consequence of that our target is to have net debt to EBITDA ratio below 3 at the end of 2023.So with these words I'll hand over to Eli who will go through more of the financial details.

Thank you Kare and good morning and afternoon to everyone. These are indeed very extreme times that we are living and operating in to say the least. I hope that you are safe and healthy. We do have a lot to cover and I want to leave as much time as possible to take your questions. So let's get started.On slide 14, we highlight Teva's GAAP results including GAAP net income of $69 million and earnings per share on a GAAP basis of $0.06 for the first quarter of 2020. Our year-over-year improvement in our GAAP result was the result of an increase in gross profit and higher sales, lower operating expenses, legal settlements, shareholder tax benefit and minority and share in the profit offset by increased in impairments and restructuring charges.Turning to slide 15. I will detail the impairment, restructuring and other charges which totaled almost $770 million for the quarter. Impairment of a long live intangible assets accounting for the majority of the non-GAAP adjustments with $649 million in the first three months of 2020. This include impairment of the process R&D assets totaling $331 million mainly related to AUSTEDO for the treatment of Tourette syndrome in pediatric patients.Also included was the impairment of identified product rights of $318 million mainly due to the Japan in connection with ongoing regulatory pricing reduction and generic competition and updated market assumption regarding price and volume of certain generic products for early market in the United States. Amortization was $258 million for the first quarter which is right within the range of $250 million to $260 million per quarter that I guided during February.Turning to Slide 16. We review our non-GAAP performance. Quarterly revenues were approximately $4.4 billion, up 5% compared to Q1, 2019. The year-over-year increase was driven mainly by double-digit sales growth in Europe due to higher demand of certain products resulting from the impact of the COVID-19 pandemic on a purchasing pattern as well as continued growth in generics and new generic product launch. This was followed a low single-digit growth in North America primarily due to AUSTEDO and ANDA in international market.Also in the first quarter hedging positively impacted revenue by $60 million which was partially offset by $5 million negative impact recognized under cost of sales. Hedging transactions against future projected revenue and expenses are recognized on a balance sheet at their fair value on a quarterly basis. While the foreign exchanging impact on the underlining revenue and expenses may occur in subsequent quarters.Non-GAAP gross margin came in at 53.1% for the first quarter versus 51.8%. As a result of a continued network optimization and a higher generic gross margin as well as the positive impact from economic hedged activity partially offset by an increase in ANDA, our distribution business which is less profitable. Our non-GAAP operating margin was 28.5% versus 24.6% a year ago. This was driven by the reasons that I just noted coupled with the lower operating expenses as our overall spent base including cost was $3.1 billion, a decline of 1% versus Q1, 2019.We ended the quarter with a non-GAAP EPS of $0.76 which is $0.60 higher than Q1, 2019. I acknowledge that this is a significantly higher than the Street consensus indeed our sales came in much higher especially in Europe due to the reasons that I just noted.Turning to Slide 17. I'd like to highlight just a few of the revenue trends we have been seeing throughout the different segments and the regions with my main focus being on the sequential trends. Starting with North America, our generic business generated $952 million in the sales which was sequential drop of 16% from fourth quarter. Please note that Q4 exceptionally strong following our exclusive lounge of biosimilar TRUXIMA and there were no notable launches in the first quarter.Looking ahead the most notable launch is expected in the fourth quarter which is the launch of our generic version of Truvada.North America COPAXONE sales dropped as expected due to ongoing generic competition to approximately $200 million a level similar to the year ago and one we believe is the good quarterly run rate for the remainder of the year. At this point in time based on what we had seen in the first quarter in all three regions, we are not changing our 2020 annual outlook for global COPAXONE sales to be approximately $1.2 billion.AUSTEDO sales in North America were up 65% year-over-year totaling $122 million for the quarter. We did however see a sequential decline of 10% as we have mentioned before sales of AUSTEDO tend to fluctuate from quarter to quarter. In the fourth quarter, there was a particularly strong demand. We expect sales to continue to grow throughout the year and which on our full-year target approximately $650 million. Meanwhile AJOVY saw a modest increase of $29 million in the quarterly sales.We expect sales to continue to grow as we fully launched the auto-injector in the U.S. I did highlight earlier the strength of our revenue in Europe, which jumped 18% compared to Q4, 2019, almost entirely from the growth in generic and OTC. This sequential increase was fueled by higher demand of certain products and due to the impact of the COVID-19 pandemic on a purchasing pattern as well as continued growth in generics in a new generic product launches.Our international market was basically flat sequentially from Q4, 2019, well we did see expected weakness in our sales of generics in Japan due to the national health insurance price revision. This was offset by strengths in Israel, Russia and other markets.I will now like to touch on our spend base what we have been seeing and why. Turning to Slide 18. As you know this company put forth tremendous efforts to reduce its overall spend base by $3 billion over the last two years and was quite successful in doing so.Looking now on the year-over-year and quarter-over-quarter results, I would like to note a few observations. First we see a nice reduction in operating expenses from the fourth quarter, clearly COVID-19 pandemic influence this decline but we are all still actively controlling the spend. Secondly, we see sequential drop in the cost of goods sold certainly this is due to a lot of sales but it is also the result of our ongoing efforts to improve our gross margin through the transformation of our network.Turning to Slide 19. We review our free cash flow for the quarter. Our quarterly free cash flow tend to start a year off on the low side and then increase as the year progress. The slow start is usually the result of annual incentive payments for our employees which we did see this in Q1 as well as $70 million in cash payments for restructuring expenses. This was countered by the strong net income generated in the quarter. We recognized there is some uncertainty about timing this year due to the fact of COVID-19 pandemic but as you can see we have now generated more than $2.2 billion in free cash flow over the last four quarters and we are comfortable with the range we have guided to our 2020 which is $1.8 billion to $2.2 billion.I will also like to briefly touch on our cash conversion. We have a long term target of at least 80% for Teva cash conversion. This is a work in progress but we are starting to see some positive signs with a year-over-year improvement in our cash conversion. This is a priority for Teva something that you are actively working on each and every quarter including and managing our working capital. This includes appropriate management of our inventories which declined approximately $500 million a year-over-year.This is a good segue to discuss our liquidity which you can see on Slide 20. As we have consistently communicated generating free cash flow is a priority for Teva as we work diligently to continue to reduce our debt load. You can see that our net debt declined by approximately $600 million compared to Q4, 2019 to $24.3 billion which includes $700 million debt repayment during the quarter.Our net debt to EBITDA ratio fell for the third straight quarter dropping to 4.95 times benefiting from the debt reduction and stronger than expected quarterly EBITDA. This marked the first quarter that the ratio was under five times since the third quarter of 2018; an important milestone for Teva. Our expectation is that by the end of 2020 our net debt to EBITDA ratio will consistently be below five times as we noted last November following our successful financing and again on our first quarter call in February we have the liquidity and cash flow to cover boundary payments for the next three years before looking to refinance the 2023 maturity.Turning to our outlook. We begin with the review of the main assumption supporting our 2020 financial guidance on Slide 21 which we first presented in February. Our team spent a significant amount of time assessing, analyzing and modeling the ever-changing environment due to COVID-19 pandemic and its effects currently and potentially, on both purchasing patterns of our larger global customers and overall utilization by patients.Based on this analysis, we are keeping our key assumptions including those for sales of COPAXONE, AUSTEDO and AJOVY. Clearly these assumptions are our best estimates at this time but we believe this is the proper course of action. These key assumptions from the foundation for our overall financial outlook for 2020 which you can see on Slide 22. Based on the assumptions that we just reaffirmed we are also reaffirming all five key metrics that make up our 2020 financial outlook including total annual revenue of $16.6 billion to $17 billion earnings per share in the range of $2.3 to $2.55 and free cash flow of $1.8 billion to $2.2 billion.I would like to acknowledge that despite the significant performance in the first quarter we are leaving our guidance for 2020 unchanged. We think this is prudent giving the ever-changing environment due to COVID-19 pandemic and while Teva does not provide quarterly guidance, we would highlight our expectation that the impact of the COVID-19 pandemic will likely be shelved the most in our second quarter results offsetting the first quarter outperformance. This guidance also reflects the expected volatility in the foreign exchange market which can be headwind on revenue and income.Before I close I would like to thank to all Teva employees who have worked under challenging conditions including members of the finance team and other participant at Teva worked hard to prepare our financial reports this quarter. It was a great effort. And this concludes my review of first quarter results and 2020 financial guidance. We now open the call for questions and answers. Operator, would you please open the call for questions?

Thank you. [Operator Instructions] Your first question comes from the line from Kevin Caliendo, your line is now open.

Hi, thanks for taking my call. I had a couple of questions. Was there any stocking of the auto-injector in 1Q that may have impacted sales for the product?

So thank you Kevin for that question. I think the answer is quite very brief. No, there was not, so there's no financial impact in the first quarter results of stocking of the auto-injector into the market and the simple explanation is that it was not available because it wasn't approved yet. So we were not sort of really shipping it in the first quarter. So we hope of course to see a nice uptake of the product here in the second quarter and but there was no effect in the first quarter.

That's great.

Thank you. We need to stay with one question. Thank you very much. Please reenter the queue. Thank you. Your next question comes from the line from Akash Tewari. Your line is now open. Please ask your question.

Hi, this is [Andrew] on for Akash. So first I noticed TRx for the Gx business initially went up during COVID and then took a significant turn down over the last few weeks. That said on a relative basis it seems like Teva’s volumes haven't fallen to the same degree as Sandoz or Milan. Do you have any color on what's occurring here and what types of Gx portfolios and drug categories are being less impacted by COVID. And then secondly can you give any color on how COVID is impacting your Gx supply chain? Are you seeing any increased inventory [holding] or any cases of drug shortages yet? I know that you saw some significant inventory consumption which affected cash flow in the quarter. Thanks.

So I can't really comment on the other companies and their situation. I haven't really looked into that. I must admit. But I can tell you that, we did see in March a couple of weeks where there was very strong generics demand and OTC demand in Europe especially in Europe. And we then saw it revert back to levels that are slightly below the norm. You could say it's nothing a dramatic and it's very different from individual product to individual product. Just to give you a feel for it, we have some products. Now I'm just mentioning something, of course we have many thousand products, 20,000 different parts but the category of respiratory products for instance we see a steady increase demand of respiratory products in the U.S. and in some of the European markets but in some European markets we don't see it.In some European markets, governments made limitations to how many scripts you could go and fill at the pharmacy. In some markets they didn't. So it's really a very, very mixed bag situation. I would say overall for us we did probably see some extra patient level demand in Q1 especially in March, I do expect that we will see a somewhat reversal of some of that demand here in the Q2. It's not really dramatic but it's the way the swing factor will be to the extent there is one but probably maybe other companies have seen it more significant.

Thank you.

Thank you. Your next question comes from the line from Randall Stanicky. Your line is now open.

Great. Thanks, Kare, sounds like that the [$5.3 billion] to $5.8 billion range, EBITDA range for 2023 is on track. You've got past the COGS restructuring the two primary things going for the COGS improvement and the revenue opportunity. COGS is pretty clear. Revenue is less clear. You've pointed to biosimilars as a big part of this. Can you walk through how we should think about quantifying that opportunity over the next three years? Is there a $500 million opportunity from the pipeline here, $2 billion, $1 billion, how do you, how should we think about the support from biosimilars to your revenue? Why? Thank you.

Yes. So the elements, you could say unchanged but the dynamics are different. So if we talk about -- I totally agree with you that our gross margin optimization project or the COGS that's really very much in our own control. We are working diligently on it. I think there's a very high likelihood that just like we succeeded with the restructuring, we will succeed with this margin improvement program. So that then leaves the revenue to be the key question and what I've said is I'm confident that we've seen a trough also for the revenue that's not the same to say that we will see dramatic increases in revenue. I never said that but we will see single-digit increase in revenue and then you might ask what's the dynamics behind it and sorry for repeating but they're really a couple of elements here.On the specialty side you have COPAXONE that will keep on declining but at a much slower pace than what you saw before. So we are now down, we saw the guidance $1.5 billion on COPAXONE that number in the coming years will slowly come down. For now we have a good strong patent position in Europe which is maintaining a nice level there. We have generic competition in the U.S. but we have stabilization there. So we all know we see a modest decline in COPAXONE going forward. Now that decline has to be balanced by the growth in AUSTEDO and AJOVY combined.And we believe we've come to the point now where the growth in AUSTEDO and AJOVY this year will be higher than the decline in COPAXONE and that dynamic will continue in the coming years. So if you believe in that then you could say then the rest of the business which is all the generics and the OTC basically has to be flat in order to secure growth. Of course if we can grow the total generic business including the biosimilars that's good but at least we need to maintain a stable flat level there if we want to grow the total business given that AUSTEDO and AJOVY are growing.So you should see the biosimilars in that context. I asked doing more biosimilars over the coming years, we secured that our total generic business will be growing and that's because more and more of the products every year that come up for generic competition are biologics or by pharmaceuticals. So it's a way to secure that the totality of our generic business including biosimilars will be growing. It is not something that knocks it out of the park and all of a sudden creates fantastic growth because there's also competition in biosimilars. So every time you launch a biosimilar you have also some competitors. Typically you have less competitors then you have on classical generics.You also have a higher investment in getting the product to the market and you have a tougher fight for market share. So far we launched the biosimilar Rituxan last year. We are very happy about the uptake we are seeing. We are into the double-digit market share that I was explaining that was our ambition. So we think we have a very sustainable generic business including the biosimilars. I'm sorry it was a bit of a long answer but I just wanted to highlight the key dynamics of the revenue and the firm conclusion is that we do expect to see modest growth of our revenue. Thanks for the question.

Thank you. The next question comes from the line from David Amsellem. Please ask your question.

Hi everyone this is [Zach] on for David. Thank you for taking my question. Just a quick one for me. Would you mind providing an update on the generic Forteo and NuvaRing filings and your latest thoughts on potential launch timing and specifically on the Forteo generic, do you think that the Phoenix product will ultimately be substitutable? Thank you.

Thanks for that question. I will hand that over to Brendan since it's a U.S. specific question. Brendan O’Grady: Yes. Thank you, Kare. And so I'll take Forteo first. So as you all know, Forteo is a complex generic product. We continue to work with the FDA on the product it continues to progress. We expect Forteo could be possible later this year or early next year. We'll see where that heads regards to the other product they've applied for an AB rating on the product. We'll see how long that takes and where that progresses. I can't really comment on that because I don't know where that company is with that. It's possible they could get it. It's also quite possible we could launch prior to that. So we'll see where that goes. In regards to NuvaRing we're progressing and working through the final stages with FDA. So as soon as that product is approved we will be operationally ready to launch.

Great. Thank you.

Thanks for the question.

Thank you. The next question comes from the line from Umer Raffat. Your line is now open.

Hi, thanks so much for taking my question. I just wanted to ask about the gross to net and what's being baked into guidance especially considering, I would have thought AUSTEDO probably gets a lot of growth and an expansion into the balance of the year Kare and also I saw Amgen report Aimovig down quarter-over-quarter in 1Q but it doesn't seem like that happened for AJOVY. So I'm just trying to understand the growth and dynamic what you're seeing and also what you're assuming given the higher unemployment and more Medicaid. Thank you very much.

Thanks for that question. So we're basically not seeing any dramatic changes on the gross to net. We do sometimes in a quarter have small adjustments on specific products based on prior period adjustments and things like that. We have not seen anything dramatic here in the first quarter. We're not expecting to see any major changes going forward. As you know we have quite a number of products that are in the Medicaid space and we see a pretty stable situation there and also for Medicare. So I would say that our gross to net expectations apart from the changes in contracting which of course we bake into the outlook all the time so whenever we enter new contracts we calculate that into our gross to net predictions but apart from that we're not seeing any dramatic changes.

Thank you. Your next question comes from the line from Louise Chen. Your line is now open.

Hi, thanks for taking the questions. This is [Jen] came on for Louise. I'm wondering what's the latest update on the opioid litigation? Do you still expect track 2 this year or do you expect any impacts or delays from COVID-19?

So on the opioid litigation we're still working actively with the AGs on the framework that we agreed with them last year. We are seeing a delay due to the COVID-19 both in the sense that the work go slower because everybody's at home but also because you could say in these kind of matters often when there's a trial approaching that's a trigger for people to get the work done so to speak and as I'm sure you're aware the New York trial that was the first upcoming trial, state trial that has been delayed. So I think it's fair to assume that we'll see a delay. I do hope that we will reach a final firm settlement based on the framework agreement. This will be to the benefit of the U.S. public and to people who suffer from substance abuse. So I'm still optimistic that will be the case but it will definitely be delayed.

Thank you.

Thank you for the question.

Thank you. Your next question comes from the line from Gary Nachman. Your line is now open.

Hey, this is Alice on for Gary. Thanks for taking the question. Just a quick one on AUSTEDO. How much of the priority is it to add additional indications to the pipeline for that? And are you considering an eventual international expansion for the product at all?

Sorry, I couldn't completely hear you. Could you try to repeat the question. Your line is not so clear. Just repeat the question please.

Yes. For AUSTEDO how much of a priority that add additional indications to that and are you considering eventual international expansion for that product?

Okay. Thank you. Now I hear. So indication expansion and international sales. So yes, we are considering both. Of course we had a disappointment as you know in the first quarter that we were looking for an indication into it and that did not work out. So we are still considering whether we can expand the indications. We're also looking as to whether we would be able to launch the product in other markets. Right now we are working actively on Japan and China looking to see if there's a chance of launching there and we have filed in China. So we are optimistic that that might be possible. So we are still pursuing international expansion of AUSTEDO. I don't know Brendan, if you want to comment on how you see the U.S. in terms of the new indications. Brendan O’Grady: Yes, of course anytime you get a new indication to a medicine it can drive revenue and ultimately drive profits but just to think about AUSTEDO today, there's still a significant opportunity in both Huntington's disease as well as tardive dyskinesia. The population of tardive dyskinesia is only maybe 10% to 15% treated. So there's significant upside there. So that's certainly our focus today but other indications associated with movement disorder would provide further growth for us.

Thanks for the question.

Yes. Thank you.

Thank you. The next question comes from the line from Ami Fadia. Your line is now open.

Hi, good morning. Thanks for taking my question. Can you provide some thoughts on the feasibility of pre-gained manufacturing back to the U.S. for certain essential products and how are you thinking about this in the context of Teva?And then, just a follow-up from an earlier question with regards to AJOVY with the availability of the auto-injector. Do you anticipate an expansion in gross to net with maybe some revised contracting? Thank you.

So, that was an elegant way of getting two questions into, that’s fine. So, the manufacturing discussion. It is of course at the end of the day a political decision. It's a fact that API manufacturing has moved out of the U.S. over the last 10 to 15 years and has basically no real API manufacturing left in the U.S.The same thing goes for the early stage raw materials, starting materials that also produced not in the U.S. a big majority of this products have their raw materials or API produced in China. In our case, we have an API network where we have some manufacturing and raw materials coming from China.We have a quite a large part coming from Europe where we have a network of some 15 manufacturing sites. This API manufacturing should be brought back to the U.S., then it would of course take some kind of preferential treatment from a political point-of-view simply due to the fact that manufacturing cost in the U.S. are higher than they are in China and in India.And that means that nobody can be competitive if you move the production back to the U.S. unless you get preferential treatment by the buyers, be it the government or be it the customers. What we're doing at Teva is we are trying to secure a very sustainable safe supply chain.So, we have a lot of our finished product being manufactured in the U.S. we have a lot of our API being manufactured in Europe in our factories there. So, we believe we have a very safe and supply chain. Of course, we try to persuade our customers that there's a value to that.But it's up to the customers whether they want to pay for the extra supply chain security or not. You could say I could have an optimistic hope that based on COVID-19 there will be more willingness to engage longer contracts that's not just the price, that's the only variable but it's also quality and safety of supply.If that sends out to be the case, we will be in a good position if we continue to only compete on price like what we've seen in the past. Then of course that’s a benefit for the Chinese and the Indian manufacturers.With regard to the other question, AJOVY auto-injector, I think I'll refer that to Brendan. Brendan O’Grady: Yes, thank you Kare. So, we just want the AJOVY auto-injector here at the end of April. So, in the middle of that launch right now but I think you can expect from an overall payer perspective, that you won't see a decline in the gross to net.So, on a per unit basis, it should be prefilled syringe will look very much like the auto-injector. And of course, we continue to see our overall percentage of paid prescriptions to increase thicker up into the high 70s now.So, there won't be any dramatic impact. We continue to bid increased payer coverage. We had a couple new formulary wins happen just recently. Part of that's being fueled by auto-injector. The only thing that I think you might see is of course is we gain new patients on the auto-injector that haven’t been on CGRP before.They have to go to the prior authorization process. So, there is there will be some coupon cards out there. So, those individuals which could have a slight impact on the total gross to net but the number of paying patients increases and of course the net revenue you should you will continue to see that increases well.

Thank you for the question.

Thank you.

Thank you. The next question comes from the line from Elliot Wilbur. Your line is now open.

Thanks, good morning, good afternoon. Just sticking with CGRP same question for Kare, for Brendan as well. Maybe just some initial color commentary on how the introduction on the orals has impacted this space. Seems to be largely a market expansive dynamic at this point.But just want to see if you would agree with that observation. And then more specifically, I know it's still relatively early here but there was a recent labeling change to one of the products in the category Aimovig with the addition of hypertension morning, it does not seem to be insignificant.Just wondering if you guys have had a chance to assess that and how you think that may impact market dynamics. Thanks.

Thanks for the question. I will comment briefly and then Brendan can also chip in. so, in terms of the orals, we don’t really see any impact in the overall market. We have to remember that it's really two different say treatment modalities.1) Is preventive therapy, in our case within an injection every third month or every month which you really take to reduce the number of migraine attacks. And on average, you get a reduction of 50%, in some cases up to 90% or a 100%. So, it's a really beneficial therapy for anybody who suffers from migraine to the extent of chronic migraine four days or more a month.The oral products are acute in connection with the attack. So, you could say it's really two different situations and I think that everybody who suffers from migraine to the level of four days or more, they definitely want to avoid the attacks if they can no matter how they can treat them.So, it's probably more of a comparative situation for the different acute therapies that these products might gain some share there. But it doesn't seem to impact the overall preventive market. And on the labeling, I have not heard anything about this issue with regards to AJOVY. But I'll just hand it over to Brendan to hear what comments you have. Brendan? Brendan O’Grady: Yes, thank you Kare. So, I'll talk about the orals fist so. I agree Kare with obviously with what you said. I think that it is somewhat two different markets.If you think about migraine or if you know migraine patients, depending upon severity of the migraine, I think that these could be potentially additive products in your assumption that this is probably going to create market expansion, I think is correct.We'll see it's still early days but of course one's more acute and the other is more prevention. So, like I said we'll see how that goes. In regards to Aimovig's labeling change, of course, if you think about AJOVY, almost prevalent side effect is a report in our label as injection side reaction which tends to be pretty mild and transient.So, I think that that's good and I think that overall now with AJOVY in the marketplace. And of course we have the prefilled syringe which many physicians and patients wanted to make sure that we would keep in the market with the launch of auto-injector which we are going to continue to do.So, we have both of those offerings, we have a very good safety profile, a very good efficacy profile. And of course, the ability to offer quarterly dosing. So, we do think that we have a very competitive offering in the marketplace. And we'll see what impact the label change with Aimovig has.

Thanks for the question.

Thank you. The next question comes from the line from Ronny Gal. Your line is now open.

Hi, good morning. Hope you're all keeping safe. Congratulations on the very nice quarter results. I wanted to ask you Kare about the proposal to move some of the market and sure I know you have broadly commented about where your network is.There's now an offer or a proposal being formed that will push a lot of the manufacturing including API I'm sure, on the United States. And some of your peers came out basically arguing medicine not be done that way, be done through a network of international markets. That would be very costly.But it seems that there is an at least in currency swap effort to try to move that. Where does Teva stand on this, are you in favor of shifting manufacturing of API and is there some from the United States, at least then move it require medicine or should we rely on network-friendly countries to do so?

So thanks for that question, Ronny. What you're asking is really a political question. And of course I'm not a politician, I'm just a pharmaceutical executive who manufacture products. So, it's quite clear that the international globalization and competition has led to different parts of value chain being in different countries.So, you could say the raw materials very much in India, in China, API very much in China, India, some of it in Eastern Europe in Europe. And research very much in the U.S. for instance innovated new medicines very much being developed in United States and Europe and in different countries.So, the pharmaceutical business is a globalized value chain. Now, to the extent that politicians wants to secure certain elements of certain manufacturing in their country, that's really a political choice where you weigh economic benefits up against benefits of security of supply and so on.And I don’t have a firm position on what the politician should do but I can tell you that it's impossible to move manufacturing back to the U.S. unless the politician takes some firm political action. Because the comparative drivers of cost and the price competition in generics has led to the current situation.The approval by FDA of 1000s of ANDA's for Chinese and Indian companies, the approval of 100s of factories by FDA has led to the manufacturing moving out of United States. If you want to change that, you I ever have to toughen up on GMPs our environmental standards or simply decide that this is a security issue in-line with procurement of weapons and telecommunications and so on.So, it's really not for me to decide, it is a political decision. Thanks for the question.

Thank you.

Thank you. Ladies and gentlemen, we will now take our last question. And this comes from the line from David Risinger. Your line is now open.

Yes, thanks very much. So, I just wanted to start by saying, Kevin, if it's okay with you, I'd like to consider hiring the call operator given her effective call management to come and work in my household to manage our kids screen time.

Understood.

Anyway. So, my question actually is just on the IQVIA trend. So, what we've seen in the IQVIA gross dollar figures recently is pretty high rate of decline year-over-year in terms of year-over-year trends.Could you just comment on whether we should be looking at those at all, whether those trends are consistent with how you see the business trending in the U.S. year-over-year in sort of the current quarter and any implications for how we should think about forecasting the businesses where we're updating our models. Thank you.

So, thanks for that question, David. And you're right. The efficient operator, make sure you got your question and otherwise I guess you would have been skipped. But just please clarify what IQVIA trend, are you thinking about the volume or specific products or what is you're thinking about?

Sorry, yes. So, with the IQVIA trend that I'm talking about is the gross sales dollars trend which was declining about 40% year-over-year recently according to IQVIA for U.S. generics for Teva.

So, I would say that it's very difficult for us on a quarterly basis to reconcile the IQVIA gross numbers with our actual numbers. And so, I think the best way you can look at it is to look at our reported generic sales in North America and I think I've stated now for two years in a row, eight quarters in a row that we have a run rate of roughly a $1 billion a quarter on North American generics.I don’t see any change to that. So, how this fluctuations end up in the IQVIA and now but I don’t really know but it could be there's something about the gross numbers and the gross to net and so on. As you know there is a very high rebating rates in generics. So, there might be some kind of disconnect there and there might also be a disconnect on what gets reported, what volumes gets actually picked by IQVIA.So, I can just confirm that we are still seeing the North American generics business the same way with a run rate of around a $1 billion a quarter plus or minus, and then there's really no change in that. But I agree with you, it's difficult to reconcile the IQVIA numbers with our actual numbers.So, with that I'd like to thank everybody who listened in and wish you a nice and safety. Thank you.

Thank you ladies and gentlemen. That does conclude our conference for today. To listen to the replay of this conference, please dial 0044 3333 009785 and enter the conference ID 973 5219. Thank you for participating. You may now all disconnect.