Good day and thank you for standing by. Welcome to the Teva Second Quarter 2021 Financial Results and Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speakers today, and Mr. Kevin Mannix, Senior Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you, Ella, and thank you, everyone, for joining us today to discuss Teva's second quarter 2021 financial results. Joining me on today's call is Kåre Schultz, Teva's Chief Executive Officer; Eli Kalif, Teva's Chief Financial Officer; and Brendan O'Grady, Teva's Head of North America Commercial. We hope you've had an opportunity to review our press release, which was issued about an hour ago, a copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevapharm.com. Please note that the discussion on today's call includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the Company's operations in order to better understand its business. Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the Company's financial performance, results of operations and trends. A reconciliation of GAAP to non-GAAP measures is available in our earnings release and in today's presentation. Please note that today's call will run approximately one hour. And with that, I'll turn the call over to Teva's Chief Executive Officer; Kåre Schultz. Kåre, you would, please Kåre Schultz: Welcome to all of in Teva. I'll start by the financial highlights. Our revenues came in at SEK3.9 billion, which is roughly the same as a year ago, and it was really driven very much by AJOVY and AUSTEDO. And it was also affected by the continued slightly lower script volume due to COVID-19 restrictions in Europe in generics and OTC, and to some extent, also lower total market in the segments where AJOVY and AUSTEDO competes. So overall, given this situation, we were very satisfied with the revenue as they came in. The adjusted EBITDA came in at $1.2 billion. And the GAAP diluted EPS came in at $0.19 and the non-GAAP diluted EPS at $0.59, very much in line with our expectations and the consensus estimate. The free cash flow came in at $625 million, also a number we were satisfied with. Our debt reduction continues, as we've laid out several years ago according to our plan, and the net debt-to-EBITDA ratio is now down to 4.7. The 2021 revenue outlook is lower to reflect the ongoing impact of COVID-19 from $16.4 billion to $16.8 billion, down to $16 billion to $16.4 billion. However, operating income, EBITDA, EPS and free cash flow remains as already guided. So, it's reaffirmed, and the reason for this is basically that we have been awaiting the consequences of COVID in the total market, and therefore, we've been cautious since the beginning of the year of course, on our spend.

Thank you, Kåre, and good morning and afternoon to everyone. I begin my review of the second quarter 2021 financial results on Slide 14, starting with our GAAP performance. Revenue in the second quarter of 2021 were approximately $3.9 billion, an increase of 1% or a decrease of 2% in local currency terms compared to the second quarter of 2020. This decrease was mainly due to a lower revenue in our North America segment, mainly related to COPAXONE and ANDA partially offset by positive foreign currency impacts as well as higher revenue from generic products, OTC, AJOVY and COPAXONE in our Europe segment. Revenues were also affected by changes in demand for certain products resulting from the impact of COVID-19 pandemic.

Thank you. And your first question is from the line of Gary Nachman from BMO Capital Markets. Please go ahead.

With the lowered revenue guidance, could you elaborate on what you're doing to maintain EBITDA, EPS and free cash flow guidance a little bit more? How much is gross margin improvement versus reducing OpEx? And are you likely to be at the lower end of the ranges for EBITDA, EPS and free cash flow? And then also just, how do you see the second half recovery from COVID? How do you see that playing out? What's built into the guidance, if the first half arguably saw maybe a little bit more pressure than what you had anticipated? And maybe talk about that regionally? Thanks. Kåre Schultz: Thanks for the question. I'll start by answering it and then Eli can comment, if he has further elements to add. So the situation from the beginning of the year was, of course, that there was huge uncertainty with regard to your second question actually, which is to what extent corporate restrictions would affect the marketplace. And what we were anticipating when we came out with our first guidance was really that the vaccination drive would result in a lifting of restrictions in the second quarter, so that economic activity and doctor visits and script activity and so on would resume in the second quarter, both in U.S. and Europe. Now the way we then manage the P&L, so to speak, was to be cautious on the overall spend pattern, nothing specific for a specific area. We just went slow on the spend so that we knew that we would be able to manage the situation from an earnings point of view and a cash flow point of view, should we come in a little lower if the restrictions in various countries were to continue, because we, of course, have no magical insight into…

Your next question is from the line of Navann Ty from Citi. Please go ahead.

My first one is on opioid, if I may. So Teva was part of the 2019 agreement in principle with J&J and distributors, but was not part of the recent proposed settlement. Are you able to share any progress on a possible stand-alone global settlement? And I just have a quick question on AUSTEDO, if you plan another DTC or other promotional campaigns during the rest of the year? Thank you. Kåre Schultz: Thank you for those two questions. So, on the opioid framework, you're absolutely right that at the time in Cleveland when nearly two years ago when the framework was first established, there were the three distributors, J&J and us. And we have been in constant dialogue with the AGs and the plaintiff lawyers. Since then, I think it's fair to say that the cash amount, and therefore, the immediate interest from the plaintiff lawyers, has been higher in the four companies than in our offer. As you know, our offer is really to help the people suffering from substance abuse from substance abuse by giving them generics Suboxone, which can help them wean off the product, get off the bad products they're on, and get back, hopefully, into a life without any substance abuse. And we have been offering for a 10-year period to provide this free of charge to all states in the U.S. And I think that's a very attractive offer for the states. However, of course, since we are not offering much cash because, as you know, we have a huge debt of more than $20 billion, then the actual attorney fees related to it are, of course, less, and that's probably why they have decided to take the other four companies first and then move on to our second. We have been in an ongoing dialogue, as I said, both with the AGs and the plaintiff lawyers. We are optimistic that we can reach a settlement during the coming year. We think that the court cases that are ongoing right now gives a good incentive for all parties to reach a settlement, and we think a settlement will be to the benefit for all the Americans that suffer from substance abuse. So, we are cautiously optimistic that we are moving ahead towards a settlement on a sort of nationwide basis for us. On the AUSTEDO question, we will continue the DTC campaigns for AUSTEDO for tardive dyskinesia. As I said earlier on, there's a huge unmet need, nearly 0.5 million people suffering from tardive dyskinesia in the U.S., only a fraction being treated. And this is a very good and important therapy. It's the first time that is a therapy for tardive dyskinesia, so we will continue to do that with the aim of having more patients treated to the benefit of them, and, of course, also resulting in increased sales of AUSTEDO. Thanks for the questions.

Thank you. Your next question is from the line of Elliot Wilbur of Raymond James. Please go ahead.

Kåre, maybe if you could just provide us with an update in terms of trends with respect to the North American generics business, specifically just what you're seeing currently in terms of price volume erosion on the base and then the outlook for new pipeline opportunities, new generic launches. I know that there's this seemingly continual shift outward in terms of trying to gain approval for these complex generics, but you previously talked about teriparatide and Byetta as being complex generic opportunities in 2021, maybe just an update on your expectations around base erosion trends and pipeline yield for the second half? And then a follow-up on the commentary around AUSTEDO, can you just let us know what the current or what percentage of current Rxs are, in fact, for tardive dyskinesia? And given that you've launched a product now in China, maybe you could just help frame expectations for the potential global opportunity relative to the U.S. market for that product. Kåre Schultz: Thanks for those two questions. I will give a broad answer and then I'll have Brendan give you some more details. So as I've said many times, the North American generics and biosimilar space is a space where we constantly have this, as you say, volume erosion on old products because more competitors come in and also price erosion on old products because new competitors come in. We are not seeing any dramatic changes in the market conditions. We're not seeing a lot less or a lot more suppliers. And we're not seeing more or less price erosion than we've been seeing traditionally. So I would say a quite average year this year. Basically, we are having a business to the tune of $1 billion a quarter, roughly $4 billion on an annualized basis for North America in the generic and biosimilar space. And we expect to maintain that having more patients going forward potentially grow it a little. You're absolutely right that a lot of complex generics are being delayed, not just ours, everybody. I think with NuvaRing, we have probably the only complex generic approval this year. But with regard to all the other products, I'll just let Brendan comment how he sees the rest of the year for U.S. generics.

Thank you, Kåre. I mean, I think that, Kåre, you framed it up well. I think that we'll see U.S. generics price erosion and volume. I think that price erosion is pretty much what we've seen as historic norms. It highly dependent on what your portfolio is, but I think volume is coming back due to COVID as Kåre mentioned earlier in the call. We saw wholesaler orders kind of come back to what we would see pre-COVID levels during the month of June. So when we think about new product launches, as I mentioned on some previous calls, we have up to maybe 12 potential complex generic launches. When we started the year, FDA has only one what we call complex generic approval, as Kåre mentioned, which was NuvaRing, which was ours. We'll see what comes in the second half of the year, but there's still a decent table of products that could be approved in the second half of the year. To date, we've launched 13. I think last year, we launched 20 some generic products. So overall, I think we're trending just fine, and we should see, hopefully, approvals pick up in the second half of the year. Kåre Schultz: Thanks, Brendan. With regard to AUSTEDO outside the U.S., it's absolutely right that we've launched in China, and we have a nice initial take-up. It takes a lot longer in China than it does, for instance, in the U.S. First, you have to work your way through hospital listings. We're doing very well there. Then you need to get on the national drug reimbursement list and also on the provincial list. And then eventually, you will see the product start to move in a serious way. So it will be some years out before you see big numbers on our state of China, but it's off to a very good meaningful, it's profitable. So we're happy about that. With regard to the split between Huntington's and tardive dyskinesia, I don't have that exact split and I don't know whether we really have it. But Brendan, what would you say -- what's your feeling about because I don't think we have the exact numbers.

Yes. So Kåre, the split between AUSTEDO, if you think about tardive dyskinesia and Huntington's disease is about 4:1, about 80% -- nearly 80% of AUSTEDO scripts are for tardive dyskinesia. And of course, that's why we're bullish on the product because about 6%, 7% of the estimated population with tardive dyskinesia has been treated. So, there's significant room for growth there.

Next question is from the line of David Steinberg from Jefferies. Please go ahead.

Two questions. Kåre, just to clarify, did you say you expect the settlement in opioid litigation settlement this year? And if so, could you discuss the flexibility to manage through cash litigation payments in the future? I know you've offered mostly Suboxone product and less cash, but I'm assuming there will be a cash component. And then secondly, just on shoring up some of the struggling revenues. I know you've indicated in the past that you're focused on debt pay down and you're not going to be buying any assets, but any opportunities to leverage your global sales infrastructure and bring in new products either via co-promote joint ventures or other type structures? Thanks. Kåre Schultz: Thanks for those two questions. So first of all, on the opioids, the framework, which is now nearly, as I said, nearly two years old, if you look at the framework, then you can say what it ended up with for the distributors in J&J is not radically different from what they initially agreed in the framework. So if you look at our framework deal way back, then it was $250 million over 10 years. And it was Suboxone, generic Suboxone over 10 years, whatever the demand was estimated at $23 billion at $23 billion at list price, probably $10 billion, $11 billion at net price, and of course, the manufacturing cost, which is somewhat less than that. Now if you look at the cash component here, then the framework with resulted in a deal with J&J, where they pay over I can't remember, five years or something like that. And I believe the distributors they pay over something like 17 years. And you could say since we have a lot less money than those four companies, I would not be surprised if we…

Your next question is from the line of Ronny Gal of Bernstein. Please go ahead.

Good morning and thank you for taking my questions. Two of them. First, can you talk a little bit about the branded pipeline you've been working on a few things there for the next 24 months? Should we see any material pipeline use from there? And then secondly, regarding AJOVY, you kind of mentioned 33% market share. I'm wondering if this is just against the other injectables or also against the prophylaxis oral products, which are coming in. And in general, if you consider the progress of the prophylaxis oral products, how big would you expect the injectable prophylaxis CGRP market to be, call it, three to five years out in kind of like -- public is the market overall. And with that question, I would also like to extend my thanks and say goodbye to Brendan O'Grady, for -- and thank you for all the years of service here. Thank you.

Thanks for those questions, Ronny, and good luck to you in the future, and good luck to us in order to good development is, of course, super important that the branded pipeline also delivers. And first, we should be happy that risperidone LAI, hopefully will get approved and will be launched next year. So that's not really a clinical news, but that's, of course, a rejuvenation of part of the pipeline. It's a super important product for people suffering from schizophrenia in the sense that it's subcutaneous, so it's not an intramuscular injection. And it can be lasting one or two months, which is longer than current therapy. So, we think this can benefit a lot people suffering from schizophrenia to get a more convenient therapy where they avoid relapses due to convenient long-acting therapy, but there's a lot of other exciting things happening sort of short term. You know that we have a very exciting concept in oncology that is being sort of the frontrunner is really out license we have to Takeda, and it's the principle of attenuating a oncology product. So you basically have an oncology product that would be too toxic if it wasn't turned down, so to speak. And then we have a special technology to turn the effect and to make sure it works were supposed to work, and we have a very interesting product in our own pipeline. And within a year, we'll see the Takeda results. And hopefully, they will be positive, validating the concept. And then we have our own product. And the idea is basically that you have a way of targeting the cells where you have the cancer and then you have a sort of kill-cell mechanism that is turned down so that is not toxic to the rest…

Yes. So core, I'll make a comment. So first, Ronny, thanks for the nice words. It's been a pleasure speaking to you over the years. When we think about the migraine segment, as Kåre mentioned, when we talk about 1/3 of the market, we're talking about the injectable market. But if you think about the overall migraine market, there's multiple entries now and we do see that the injectables will probably, the growth will be impacted by the orals. To what extent, we're really not sure. I think Kåre talked about the complexities of oral versus injectables. There's a lot of advantages to an injectable product and an oral preventative when it also has an acute indication, is not necessarily straightforward as one might think. So AJOVY has the longest acting -- is the longest acting product in the migraine market, which gives us that three-month dosing regimen that others don't have. And I think what we're starting to see is we're starting to see separating a little bit, at least clinically from maybe the other injectables because of that. And you're starting to see the increase in sales, right? I talked a little bit about as we grew share and we went into the pandemic, we were growing share, but volume was coming down due to the pandemic. Now that we're coming out of it, we did $46 million in Q2 of this year, which is up 35% versus Q2 of 2020 and up 48% versus Q1 of 2020. So I think AJOVY is on the right path. I think we are absolutely -- we'll get to our goal of 1/3 of the injectable market. And we'll have to kind of wait and see what the split is between orals and injectables. But again, it's not as straightforward with the orals as one might think, and I think there's a lot of advantages to a quarterly or monthly injection. So thanks for the question.

Your next question is from the line of Umer Raffat from Evercore. Please go ahead.

Kåre, is there any chance of a blowup of the current settlement by J&J and distributors? And I ask because there are still a few reports of state AGs and certain counties, et cetera, not participating. So I wanted to gauge your thoughts there and whether that's necessarily a good or bad thing from Teva perspective? And then secondly, I know there's still some lingering litigation lingering litigation between Teva and former Allergan now AbbVie on what percentage of the liability may potentially have to be covered by that entity on your opioid side? Can you just catch us up there? And what would your base case expectation be on what percentage of the cash balance has to be put up by them? Thank you very much. Kåre Schultz: Thanks, Umer, for the two questions. So first of all, the overall nationwide settlement that has been announced between the three distributors and J&J. I think the risk of what you call a blowup or lack of participation is extremely low. And the reason why I say it is that, since the framework where you could say there was basically a majority that wanted to participate because it was really negotiated with the lead plaintiff lawyers and with the lead state AGs. There's been a lot of work going on behind the scenes with everybody, including us. And it's quite clear to me that the majority of the states realize that if anything, good is going to come out of this then there has to be a global settlement, because otherwise, we will have potentially 3,000 court cases, which will drag out over the next 10, 20 years. And some, they might win, some they might lose. In the meantime, it will make its way to the Supreme Court, where there…

Your next question is from the line of Jason Gerberry of Bank of America. Please go ahead.

Good morning. Thanks for taking my question. Just a follow-up on Umer's question with the opioid deal. It seems like there's a timing consideration for these opt-ins for the subdivision that aligns with when we'll get rulings from the California, West Virginia, New York type cases that involve subdivisions. And so, what I'm wondering is how important do you think these outcomes coming in at reasonable levels, how important that is to kind of corralling all the subdivisions in these options? Or do you think that there was a mention of legislation or agreements between the states and their subdivisions in order to sort of realize the full magnitude of the proceeds of those settlement deals. So, it's more of a high-level conceptual question here of California, which is seeking $50 billion, a big number comes out. I wonder if that's going to create some motivation on the part of subdivisions to try it out in court. Kåre Schultz: Yes. So it's a good question. So let me try and explain how it's working right now. First of all, the court cases in both New York and California will not have any clarification whatsoever on damages within 120 days. And you're absolutely right about the 30 days for the states to opt in then the 120 days for the subdivisions to opt in. So in the bench trial in California, there's a judge no jury and it's a two-step trial. So the first trial, which will probably not even end within 120 days, it might, but it might not. That part will only determine whether there's any basis for discussing liability at all. And there might not be because in the way the trial is going you can question whether the plaintiffs have proven any damages really or any causality…

Yes, that's really helpful. I wasn't sure if California was consolidated damages and liability phase or just liability phase? That's helpful. Kåre Schultz: It's separate. So basically, you could say, I think it's a psychological situation here where the key plaintiff lawyers, the key state AGs will put pressure on everybody to participate in this settlement, basically because they think it's the best for the country. And it's I also think the planes thinks it's the best economic outcome on average for all the plaintiff lawyers. You have to remember that AFPs are to the $2.5 billion. So it's a lot of money we're talking about also for the plaintiff lawyers.

Your next question is from the line of David Amsellem, Piper Sandler. Please go ahead.

So just on AUSTEDO, I wanted to come back to that. You talked about payer access or efforts to improve access, if I'm not mistaken. Can you just elaborate on what access is like in terms group patients have and practices have to jump through and how problematic that is in, particularly, in tardive dyskinesia? And then secondly, with your competitor having data later this year in Huntington's, Kåre, can you talk about the extent of competition there and the extent to which you could see pressure on AUSTEDO in Huntington's to the extent that your competitor get a label expansion in that setting? Thank you, Kåre Schultz: Yes. Thanks for those questions. So I'll give it an overall answer and then Brendan can supplement. So if we look at the last question about Huntington's disease first, then I don't think it's going to have a major impact. I'm pretty convinced that those doctors who are preferring to use the competitor product, they are probably also in some degree already using it for Huntington's disease. They have the freedom of the medical choice, of course. So I think it's happening already. And it's a small part, as Brendan said, it's only about 20% of our business right now and the big potential is really in tardive dyskinesia, which leads me to your first question, where, of course, we have a lot of support activities to secure that the patients can actually get on the product. But I'll let Brendan explain to you some of the details on how we actually do that and secure that we get patients on the product, Brendan?

Yes, sure. Thanks, Kåre. So yes, I mean, if you look at AUSTEDO's access. I think, commercial AUSTEDO has 90% coverage, and that's preferred coverage and in Medicare Part D, it's pretty close, it's is 89%. So across the board, AUSTEDO has read payer coverage. And as far as patients getting on it, it really depends what that coverage means and it depends upon the specific plan. There could be prior authorizations. Many times they're there is, but it's not certainly an onerous process, and it's one that we work very closely with payers to make sure that those patients whether it's HD or TD have access to it, and it's a fairly smooth process. So we're happy where we stand with payer coverage. And we've talked a little bit about AUSTEDO. We think there's a tremendous opportunity. I agree with Kåre. Huntington's disease, what happens there with our competitors, I don't think it'll have a big impact and there's still significant growth opportunities in tardive dyskinesia. So thank you.

Your next question is from the line of Daniel Busby of RBC Capital Markets. Please go ahead.

I've got two. First, a follow-up on opioid litigation, and I hate to belabor the point. But as we think about a potential settlement deal, is there a minimum percentage of plaintiffs that would be needed to be a part of that in order for you to move forward? I said differently, is there some level below 100% that you would be happy with understanding that achieving a truly global settlement may be difficult? And second, you mentioned risperidone LAI earlier. Can you talk a little bit about how you're thinking about the market opportunity for that product, just given the highly genericized nature of the risperidone market today? Thank you. Kåre Schultz: Thanks for those two questions. So if we take the first one about the opioid litigation again, then the way the deal that the distributors in J&J have made structured is basically that there's a minimum that needs to participate and the more that participate, the bigger the payout, you could say, of the theoretical max amount. And I can't remember the exact number of states, but I think you should think about it this way, that the expectation is that certainly more than 40 states out of the 50 will participate, and hopefully, a number higher than that. And of the subdivisions, there's a lot of legal twists to it because for some states, once the state participate, the subdivision sort of have to participate. For some states, it's unclear and for some states, it's clear that they don't have to participate. But my expectation would be that you are talking about a threshold of more than 80%, both for the states and for the subdivisions. And you have to remember that this is all negotiated with all the lead plaintiff lawyers. This is not negotiated…

And your final question today is from Nathan Rich of Goldman Sachs. Please go ahead.

Good morning. Thanks for squeezing me in. I wanted to go back to the earlier commentary around guidance, and just a couple of follow-up questions. I guess, firstly, Kåre, around your comments on the revenue outlook for the rest of the year, it sounds like you saw volume pick up late in the second quarter. Have you seen that continue in July? And can you talk about what the guidance range assumes around volumes over the course of the year. I'm just wondering how you're thinking about the potential variability around the Delta variant and the impact that, that could have on doctor visits and volumes over the course of the year? And then my second question is on the operating margin guidance. I think on one of the slides that showed the 2021 operating margin target being 27%. I guess if I use the midpoint of the guidance range, it would be closer to 27.5%. I know that's not a I know that's not a huge difference, but could you maybe just kind of clarify on what the operating margin target is for the year and how we should think about the swing factors between both revenue and expenses as we think about where you're likely to come in for the year? Kåre Schultz: Yes. Thanks for those two questions. I'll take the first one, and then I'll let Eli take the last one on the margin. So a good question on the guidance. So exactly like we said, both in Europe, and in U.S. at the end of the second quarter, we did start to see some improvement in volumes. And as you can do from the math, we did roughly $7.8 billion in the first half. And you can conclude from the simple math of our guidance…

Hello, Nathan, and thanks for the question. And if you go back to Slide 16, when we show the first half of '21, you can see that we generate gross profit margin of 53.6% and very close to what we generate in Q2, which means that our run rate that we predict to end the year very close to the 53.5%. Now, if you look back on the last two quarters actual, we're actually lower than 27% on the OpEx, which means the OpEx is driving between around 26.8%. Now when we target the 27%, and I know that it's a bit lower than the midpoint, which is 27.4%, that variable elements that we have in which we assume 55% on the gross margin going to 27% on OP between that this is something around 26.5% to land on the OpEx versus what we had in the first half of 26.8, that's 0.3%. That's the variable element inside OpEx. And we keep it like that because we still need to support, of course, the revenue and a few other elements in our OpEx. So that's only the elements on some variable elements into the OpEx line. Kåre Schultz: Thank you, Eli, for that answer, and thank you, all of you, I'll turn it back to the operator.

Thank you. Ladies and gentlemen, that does conclude the conference for today. This conference will be available for a replay after 2:00 p.m. Easter time today through till August 27 of 2021. You may access the remote replay system at any time by dialing 0044-333-300-9785, and entering the access code 9693275. I will repeat the number that's 0044-333-300-9785 and access code 9693275. Thank you for participating. You may all disconnect.