Good day, and thank you for standing by. Welcome to the Teva's Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Ran Meir, Senior Vice President, Head of Investor Relations.

Thank you, Nadia. Thank you, everyone, for joining us today to discuss Teva's third quarter 2022 financial results. We hope you have had an opportunity to review our earnings press release, which was issued earlier this morning. A copy of this press release as well as a copy of the slides being presented on this call can be found on our website at tevapharm.com. Please review our forward-looking statements on Slide 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC Forms 10-K and 10-Q. To begin today's call, Kare Schultz, Teva's CEO, will provide an overview of the first quarter performance, recent events and priorities going forward. Our CFO, Eli Kalif, will follow up by reviewing the financial results in more detail. including our 2022 financial outlook. Joining Kare and Eli on the call today is Sven Dethlefs, Teva's Head of North America Business, who will be available during the question-and-answer session that will follow the presentation. Please note that today's call will run approximately 1 hour. And with that, I will now turn the call over to Kare. Kare, if you would, please? Kåre Schultz: Thank you, Ran, and welcome to all of you. Let's take a look at the highlights for the third quarter. We came in with revenue of $3.6 billion, and our adjusted EBITDA came in at USD 1.1 billion. The GAAP diluted earnings per share were $0.05 and the non-GAAP diluted earnings per share were $0.59. We did see significant headwinds on the revenues in Q3 on itself, we had a net impact of $215 million. And year-to-date, we've seen an impact of $510 million. That's, of course, compared to 2021. And just to give you an idea about how you can think…

Thank you, Kare, and good morning and good afternoon to everyone. I will begin my review of the third quarter of 2022 financial results on Slide 15, starting with our GAAP performance. Revenues in the third quarter of 2022 were $3.6 billion, representing a decrease of 8% or 2% in local currency terms compared to the third quarter of 2021. The decrease in revenues was mainly driven by foreign exchange headwinds in both of our European and international markets businesses. In North America, a strong uplift of AUSTEDO partially compensated a decrease in revenues in our generics business, COPAXONE and BENDEKA and TREANDA. In Q3 2022, we recorded a GAAP operating income of $419 million compared to $623 million in Q3 2021. GAAP net income of $56 million compared to $292 million in Q3 2021 and a GAAP earnings per share of $0.05 compared to $0.26 in the same period a year ago. The year-over-year decline of a GAAP operating income, net income and earnings per share was mainly driven by higher legal settlements and loss contingencies as well as lower gross profit and was partially offset by lower operating expenses. In recent months, the global economy has been impacted by fluctuating foreign exchange rates. Approximately 47% of our revenues are denominated in currencies other than U.S. dollars. The strengthening of the U.S. dollar versus other currencies in which we operated negatively impacted our revenues, results of operations, profit and cash flows. As Kare discussed earlier, the continued strengthening of the U.S. dollar versus other currencies during the third quarter of 2022, net hedging effect negatively impacted revenues and GAAP operating income by $215 million and $53 million, respectively, compared to the third quarter of 2021. On a year-to-date basis, we saw the same trend regarding U.S. dollar appreciation, which…

[Operator Instructions] We will now take the first question. It comes from the line of Elliot Wilbur from Raymond James.

Just first question on free cash flow and maybe just thinking a little bit about longer-term dynamics there. And just trying to incorporate the pending opioid litigation settlements and sort of think about what could potentially be a new floor on that number. We've kind of, I guess, sort of put -- I've been thinking about a floor in terms of free cash flow around $2 billion and obviously expecting somewhere north of $350 million to be paid out annually in connection with the settlement. But in thinking about sort of what could be the new floor over the next couple of years, I mean, is it reasonable to subtract that from sort of the lower end of the baseline number that we've been talking about for the last couple of years of $1.9 billion to $2.2 billion? Or do you still think that it's reasonable to assume that, that $2 billion floor is defensible going forward even with the litigation settlements? And then if I could just ask you to provide some more granularity or color into performance trends within the North American segment, specifically thinking about biosimilar trends and then obviously, what's happening with respect to U.S. generics because certainly, the number was quite a bit below expectations. So just trying to get a little bit more insight into the dynamics there. Kåre Schultz: Thanks, Elliot. So I'll give you a quick answer on the free cash flow, and then Sven will give you some more details on North America and the biosims and generics. So the free cash flow that we are expecting in the coming years is that you're talking about. So at the level of $2 billion. And that is taking into account what you also mentioned quite correctly, some place close to $350 million cash outlay through the year. And we don't see any dramatic changes to that. The whole nationwide agreement is based, as you know, on a 13-year payment schedule with equal installments. And actually, the New York settlement that we just did is partly the nationwide and partly an even longer payment schedule of the trial bump, you can call, which is over 18 years. So that's not putting additional pressure on our cash flow. But I can also just ask Eli, if you have a quick comment, and then we'll move on to Sven.

Thanks, Kare. Yes, Elliot, thanks for the questions. I think that part of our plans to reach the 80% cash conversion is also a management of working capital. So you can say that, that level that Kare mentioned around $2 billion it's a kind of a combination of our efforts to generate more cash on working capital improvements as well as from the business. So I will say that we are safely there. Kåre Schultz: And then, Sven, if you comment on North America sales.

Yes. So for North America sales, the sales came in below our run rate or a target run rate of USD 1 billion. I think we said in the last quarter that we had a strong first half with the launch of generic Revlimid, resulting in sales above this run rate. In the second half of 2022, we do not have any significant additional launches. For that reason, the generic sales run rate is below this USD 1 billion. This will only improve in 2023 when we anticipate more launches into the U.S. generics business. Other than this, our biosimilars sales were quite stable in Q3. We have a stable volume market share in the U.S. business that has stabilized over the last month. And on the generic price erosion level, I think also here, we see some improved rates as compared to what we've seen a year ago. It is an incremental stabilization across various product categories. We always analyze it by different product categories. And we expect this to continue in 2023. So we have on the price erosion side, I think, a stable outlook. And on the sales side, as I said, it will improve with more product launches coming into our generics business.

We will now take the next question. It comes from the line of Glen Santangelo from Jefferies.

Kare, I just wanted to talk and go back to some of your long-term targets. I think what investors are really focused on here is trying to understand the transition of the growth algorithm on the revenue side back into positive territory. And you gave a lot of detail last quarter about the 13 biosimilars in development. We didn't really talk much on this call about the biosimilar for Humira potentially coming in the middle of next year. To the previous question, you were just talking about the wave of sort of generics that are coming over next year and actually the next 4 years, I think you sort of laid out on the last call. And so I was wondering if you could maybe give us a little bit more detailed thoughts around that growth algorithm and what it will take to sort of inflect the revenues back into positive territory. And if you have any early thoughts on 2023, not that you want to give guidance or anything, but how we should think about that sort of revenue transition taking into consideration the continued headwinds from COPAXONE and the generics in North America. Kåre Schultz: Yes. Thanks, Glen. Good question. So let me give you a bit more details and some of it is, of course, a repeat of what I explained already a quarter ago. So if you look at the generic piece of the revenues, then first of all, we have a stable business outside the U.S., which will have single-digit positive growth. So that's Europe, that's international markets. As you know, the pricing there is quite stable. We are in the top 3 in all the European markets and also doing well in international markets. So that piece is sort of growing, you could say,…

[Operator Instructions] We will now take the next question. It comes from the line of Umer Raffat from Evercore.

I wanted to [indiscernible] on biosimilar Humira. Do you think you need an inspection to get the approval on the upcoming BsUFA? Or do you think you can get an approval without a new FDA inspection? And can you confirm for us that the interchangeable version is the one that has the BsUFA coming up, not the one that had the CRL? And secondly, this 749 schizophrenia molecule that's now in Phase III, can you tell us a little more about what the molecule is and what you've seen in Phase I because it was not on current trials? Kåre Schultz: Thank you very much. I will have Sven answer you on Humira and interchangeability and inspections and so on. And then I'll tell you about the antipsychotic that's going into Phase III.

The second question was on the interchangeability action dates. The action date that is coming up in December is on the interchangeability BLA. And the other question was whether there is a side reinspection necessary. So just as a reminder, the file and the FDA interactions are managed by Alvotech, not by us. And I believe Alvotech already published that they are in discussions with the FDA about the site reinspection and how it will be conducted. Kåre Schultz: Thank you, Sven. And on the 44749 that is a long-acting version of olanzapine, and it's very promising. As you know, it's the same prolongation methodology that's been used for risperidone LAI. And I'm sure you've seen the Phase III data there, which are excellent, both for once monthly and once every second month therapy. And as we all know, there's a big need for better long-acting therapies for schizophrenia, simply due to the fact that that's a way to secure adherence. And any relapse in schizophrenia has a potential damaging effect on the cognitive capabilities of the patients. And with olanzapine, there's been a warning for a, you could say, drowsiness syndrome, you basically fall asleep. And that's because if you take a long-acting olanzapine, then it's an intramuscular injection, that's a risk that the drug gets in your bloodstream and that you simply faint or fall asleep. So for that reason, right now, you have to sit 3 hours in the doctor's office and wait after you get the injection, which means that very few people actually use it. On the other hand, we are developing a subcutaneous version here, where we think there'll be no risk of this, which means it will be a lot more convenient, easy to use for the nurse, for the doctor for the patient. So we're very excited about that.

And the next question comes from the line of Jason Gerberry from Bank of America Securities.

Just a follow-up on the biosimilar Humira situation. As we think specifically about 2023, if approval does get pushed into maybe the second quarter or middle of next year, is there a risk that, from a contracting perspective, you're unable to participate in the market, specifically in 2023? Or do you see that as a dynamic process that will kind of reopen for bidding every quarter? And then just a follow-up on the rising European energy cost dynamic, how that impacts your business, could you give us a sense? I assume that most of that's going to be in your COGS line. And what proportion of your business is more exposed to these inflationary pressures? Just trying to get a sense of how to put in context your commentary about increasing efficiency to sort of mitigate those headwinds. Kåre Schultz: Again, Sven will give you the outlook on biosimilar Humira and then I'll talk to you about the energy cost.

So on the biosimilar Humira, we are in talks with our customers, the 3 large PBMs and all other customers for the commercial side of the business to contract for 2023. All these preparations run according to plan. We are also preparing according to plan our marketing and sales and supply chain strategies. So that's all on track. And we are working closely with Alvotech to make everything work to be launch-ready by July 1. So in the contracting itself, of course, you only contract once you launch in July, this is how the settlement agreements with Epi have been structured. And then I don't expect that we will see in biosimilars a quarterly renewal of bids or businesses like you see on the generic side because the customer is different, its PBMs and not the big co-selling groups that you contract with. And secondly, the supply chain and how the supplies work are too, I would say, complicated to allow fast switchovers between different biosimilars. So once you are in the business, you should be, let's say, enjoying the business for a longer period like -- or as compared to generic spending that we see in the U.S. generics market. Kåre Schultz: Thank you, Sven. On the energy cost, and that's, as you said, specifically in Europe, that's an issue. Then let me, first of all, make it very clear that all our factories have taken precautions and done modifications to energy systems and so on, so that we can continue operating uninterrupted despite the changes in the European energy markets. We have also secured supplies of various types of energy, including the gas that we need, the oil that we need and so on. There's an inflationary effect this year, which is included in our numbers. And as you said, it's in the COGS line -- cost of goods sold line. And to some extent, that is modified by some of the hedging we do on our energy contracts next year. We have also made sure to contract most of our energy, of course, at somewhat higher prices. You have noticed that the prices have been coming down again over the last month or so after a peak. So we are seeing things relatively normalizing. Of course, some of the efficiency gains we are doing will be eaten up by this that has happened already this year to the extent we've been covering these increased costs and it's going to happen again next year. It's not dramatic. It's something we can manage. And as I said, from an operational point of view, we are completely safe. And from a cost point of view, we're doing our best to reduce the total impact of these increases in energy prices.

We will now take the next question. It comes from the line of Gary Nachman from BMO Capital.

This is Denis Reznik on for Gary Nachman. Just in regards to business development, can you talk about the characteristics of potential assets you're looking at and kind of where and how they fit into the overall pipeline? And then if you can just kind of quantify and classify the current BD landscape in general. Are there many interesting assets out there worth in-licensing? Kåre Schultz: So thanks for that question. So in the BD area, what we're really looking for is we're looking for individual products or individual projects that will fit nicely with the portfolio we have, both our R&D portfolio, which is focused on neuroscience and immunology and our commercial portfolio, which is quite broad. So we are not looking to buy companies. We don't have the money for it. We don't have the appetite for it. But we are looking to find products that will fit nicely with our commercial footprint already. And we've done quite a number of deals. If you might have noticed, we have done deals in the biosimilar area. We just talked about the Alvotech deal. We've also done deals in Europe on biosimilar LUCENTIS recently. We've done deals with different research group on earlier projects such as MODAG, where we're looking into neuroscience and other exciting deals. So that's really what you should think about that we are looking for project or product-specific deals that can strengthen our portfolio, either in the marketplace to drive revenues shorter term or in our R&D portfolio.

We will now take the next question. And it comes from the line of Ash Verma from UBS.

So I have two. One is just this Alvotech partnered biosimilar products like Stelara and Eylea. Are they coming from the same facility? Is that something that needs to be resolved as well? That's first. And then the second one on AUSTEDO, so I wanted to check on the DTC since it's a very promotion-sensitive market, I know you launched a campaign in mid-2021. Has that been renewed? Or do you intend to continue DTC because this is an important drug in your portfolio? And I think your competitor is making a lot of investment on the DTC front. Kåre Schultz: Thank you for those 2 questions. Sven will handle both of them.

Yes. So the Alvotech facility or the products that you mentioned Stelara, Eylea and Humira and the others that we contracted, the drug substance is manufactured in the same facility that is also now subject to this FDA discussion on Humira. The drug product itself, the manufacturing is in several locations and with several subcontractors set up in Europe. We reviewed the setup. I think it's adequate to supply us. And we are also confident that the FDA discussion will turn out positive in the end. So that's on track. On the question on AUSTEDO. So we did not continue our TV campaign. We had a very effective TV campaign. But in Q3, we did not continue it. We analyzed that our targets of patient activation and an expansion of our prescriber base have been achieved, and our analysis suggests that we can generate the best return of our marketing investments in our downstream, moving from patient activation to the area of sales force effectiveness, sales force deployment, the patient titration and adherence management. And that does not exclude, of course, that we would return to TV. But at the moment, we believe we get the highest return on marketing spend in downstream activities.

We will now take the next question. It comes from the line of David Amsellem from Piper Sandler.

So I just wanted to drill down on product concentration in the North American generic business. What portion of the business comes from the EpiPen generic and also TRUXIMA. And I guess where I'm going with this is, I'm trying to get a better read on to the relative importance of those 2 products for the business. How are you thinking about the competitive landscape for TRUXIMA going forward? And then same question on EpiPen, bearing in mind that there are some companies developing some noninjectable alternative dosage forms of epinephrine, how you're thinking about that as well? Kåre Schultz: Thank you for that question. I'll pass it on to Sven.

Yes. Thank you for the question. So TRUXIMA and EpiPen are, of course, core anchors in our generics portfolio. I would say we have another -- if you do an ABC analysis about the sales and the gross margin that we generate in generics out of the around about 300 products that we have in North America. And then, of course, we have the Canadian business as well. We have, I believe, a healthy and very classic concentration of anchor products like TRUXIMA and EpiPen. We have a couple of inhaler products. So asthma products, [indiscernible] products as well, and patches and complex injectables. So that's quite good, I would say, and healthy portfolio distribution, and they are very stable and resilient. And that is also one of the reasons why Teva in its pipeline for North America is committed to the development of complex generics, among them, many of them that we already discussed here; Forteo, Restasis and so forth. Because we believe that over time, you can drive a very stable and resilient generics business with these type of complex products. Kåre Schultz: And the second question was just on the competition. Is anything expected on Epi and...

On EpiPen, I don't think that we will get a generic substitutable EpiPen, the second one, our third one into the market. I think here, the competition is more happening with the products that are 505(b)(2) developments that come with new modes of action or different convenience for the patients. So that, of course, will also find its market. But EpiPen as a brand in our generic, of course, very well established in this category as the market leaders, and everybody knows how to use them. And for that reason, we don't see a dramatic shift in market share distribution in this category. Kåre Schultz: Yes. And then on TRUXIMA, we can just say, as Sven has already alluded to, we have a stable market share. We're very happy about the performance there, and we don't expect any major upheavals in that market. So thank you for the questions.

There are no further questions on the phone at this time. Please continue. Kåre Schultz: Thank you very much. Thank you, everyone, for listening in, and have a nice day.

That does conclude our conference for today. Thank you for participating. You may all disconnect.