Hello, and welcome to the Q2 2023 Teva Pharmaceutical Industries Limited earnings conference call. My name is Alex. I'll be coordinating the call today. [Operator instructions]. I'll now hand over to your host, Ran Meir, head of Investor Relations. Please go ahead.

Thank you, Alex. Thank you, everyone, for joining us today. We hope you have had an opportunity to review our 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 statement on Slide No. 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earning release and in our SEC Forms 10-K and 10-Q. To begin today's call, Richard Francis, Teva's CEO, will provide an overview of Teva's Q2 2023 results and business performance, as well as recent events, and our priorities going forward. Then Dr. Eric Hughes, our head of R&D and Chief Medical Officer, will discuss progress on our innovative pipeline. Our CFO, Eli Kalif, will follow up by reviewing the financial results in more details, including our 2023 financial outlook. Joining Richard, Eric, 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 one hour. And with that, I will now turn the call over to Richard. Richard, if you would, please?

Thank you, Ran, and thank you, everybody, for joining our call. I'm very pleased to update you on our Q2 performance and the progress we are making on executing our Pivot to Growth strategy. It's been an exciting quarter, with the launch of AUSTEDO XR, our once-a-day formulation, and the launch of UZEDY, our long-acting treatment for schizophrenia. Now moving to Slide 4, let's start with our results. Revenue was up 4% in local currencies to $3.9 billion, and non-GAAP gross margin was at 52.2%, up 3.1% versus Q1. Adjusted EBITDA was at $1.1 billion. Based on this, we are increasing our revenues outlook for 2023 to $15 billion to $15.4 billion. I'm also pleased to highlight that we've got good momentum on our Pivot to Growth strategy, with good execution across the four pillars driving this growth, and I'll give you an update on those in the presentation as well. Now, digging down a bit into this performance and this 4% on the next slide. This was driven by our growth engines, and as you can see here, there's a 51% increase in revenue for AUSTEDO, strong performance there. And Jovi continues to perform and in North America grew 16% and in Europe 32%. We continue to see good growth in our international markets at 13% for our generics business, and Europe came in at plus 2%. Now, maybe to dig a bit deeper on AUSTEDO’s performance on the next slide. I believe we're on track to hit the $1.2 billion target we set for 2023. As you can see, revenues for Q2 was $308 million, and that was a 51% increase. Strong continued TRx growth. I'd like to point out we did launch our once-a-day formulation in this quarter in May, which we're very pleased to bring this…

Thank you, Richard. First on to AUSTEDO XR, next slide. We were very happy to see the efficacy of AUSTEDO at the time of our Phase 3 approval, but we're very excited to see the long-term data recently presented at the American Academy of Neurology. You can see in this slide that over this three-year period, there is a durability of response, and in fact, there's a site improvement over those three years irrespective of the psychiatric underlying condition. Now, our goal now is to make these responses, this durability, convenient for all patients. So, with our approval of AUSTEDO XR this year, we're excited to bring us a lower pill burden and the convenience of once-a-day dosing to patients, and we'll continue to provide AUSTEDO and AUSTEDO XR to our HCPs to provide as much flexibility in our treatment as possible. Next slide. As Richard noted, the product profile of UZEDY is very attractive to our HCPs. The subcutaneous injections, the small needle, no loading dose, no supplemental oral therapy, and is provided in a prefilled syringe. But it's also important to note the efficacy. We've shown an 80% reduction in the risk of relapse, and a significantly longer time to relapse. But when we talk about our data to our experts, one of the things that we note is that after the stabilization of patients on oral risperidone in the study, we actually saw a slight improvement on the long-acting injectable of UZEDY in our study. So, these are early days, but this is very encouraging to see such activity and improvement with the long-acting injection. Go to the next slide. So, we have now a portfolio of products throughout the lifecycle of drug development. We're excited to be bringing our Anti-PD1-IL2 program into the clinic early next…

Thank you, Eric, and good morning and good afternoon to everyone. I'll begin my review of our Q2 2023 financial result with Slide 25, starting with our GAAP performance. Revenue in the second quarter of 2023 was $3.9 billion, representing an increase of 2% compared to Q2 2022. In local currency terms, revenue increased by 4%. To provide you some color on our revenue performance by region, in North America, we had overall strong performance, with 5% growth in Q2 2023 compared to the second quarter last year. This growth was mainly driven by higher revenue from certain innovative products, primarily AUSTEDO and AJOVY, as well as Anda, our distribution business, which benefited from higher demand in secondary wholesaler markets. It was partially offset by low revenue from our generic products in COPAXON, BENDEKA and TREANDA. Revenues in our generic business in North America decreased by 6% in Q2 2023, mainly due to increasing competition to parts of our portfolio. The overall pricing environment in North America generics remains stable. Revenues in Europe segment reflect in local currency terms. We continue to see solid growth in our generic business and from AJOVY in the second quarter. This was however largely offset by low revenue from our legacy brands, including COPAXON. And revenues from our international market segments increased by 13% in local currency terms. This was mainly driven by higher revenue from generics products coming from price increases largely as a result of rising costs due to inflationary pressures. This increase was partially offset by regulatory price reduction and generic competition to off-patent products in Japan. GAAP operating loss was $646 million in the second quarter of 2023, compared to an operating loss of $949 million in the second quarter of 2022. The lower operating loss in the second quarter…

Thank you, Eli, and thank you, Eric. So, in summary, as I said earlier, solid Q2 performance-wise, driven by our growth drivers of AUSTEDO, UZEDY, and AJOVY. Good, stable business from our generics portfolio. Eli has talked about upping the guidance, which we're pleased about, and we've made tangible progress on our Pivot to Growth strategy to get us back to long-term growth. So, with that, I'll hand it back to the operator to take some questions. Thank you for your time.

[Operator Instructions]. Our first question for today comes from Jason Gerberry of Bank of America. Jason, your line is now open. Please go ahead.

Hey guys thanks for taking my questions. I guess, just curious with AUSTEDO and the growth ambitions that you've laid out, I'm wondering if you could identify like sort of the singular biggest driver to this undertreatment dynamic. Do you think that these patients are sitting in psychiatrists’ office and just haven't been made aware, or just choosing not to get treatment, or do you think that maybe the population is just more dispersed and it's just going to require more of a larger field force to get the word out around these therapies? And then maybe, Richard, just curious, there's a lot of media reports about API and the TL1A assets being explored as potential divestiture candidates. Wondering if you could add any color to that topic and willingness to part ways with either of those. Thanks.

Thanks, Jason. Thanks for your question. I'll answer both, but also give maybe Sven an opportunity to comment. On the patients, the untreated patients for tardive dyskinesia, it's a bit of all of what you said actually. There are patients sitting in the office that don't get diagnosed from the psychiatrist. And some of that can be quite simple that the symptoms of tardive dyskinesia, they aren't visible to the physician and the physician has to explore them. So, that's one. Another part is they actually don't make their way into the physician's office to seek actual treatment. And we see that because when we do direct to consumer programs, we see a significant influx of patients into physician's office. So, I think what our process going forward is, to make sure we constantly educate physicians about identifying these patients and asking them the right questions. And I think we're seeing a good traction on that. And then the second is to make sure patients actually enter the physician's office to ask questions about some of the symptoms they have. So, yes, that's a journey. I think we're making good progress. Now, moving on to API and TL1A. Look, as we said with regard to our TAPI business, we've set it up as a standalone business because we see if we focus this business, we have ability to drive topline growth, which will help us on our Pivot to Growth strategy. We’ve started the progress on that and that's going very well and we remain committed to that. I think the attraction there and the discussion that's been talked about outside, I think merely highlights how I think attractive this business is and how with the right focus it can perform. When it comes to the TL1A, as I've said on a number of calls, we are committed to this asset. We fully funded it through its clinical development. We’re very excited about it. We do, as Eric highlighted, believe we have a differentiated best-in-class. But obviously it's a hot topic. So, everybody's talking about TL1A, and in particular, I think ours gets brought to belong. But our aim is to once again develop that asset and use that as another lever to get ourselves back to growth. It'll be one of those things that drive growth in 2028 and beyond. So, thank you for question. Would you like to add anything else, Sven, to that?

No, I think you covered it well. What I may want to add is that you already saw the last years, a significant expansion of the prescriber base for tardive dyskinesia. Please keep in mind that these patients have multiple diseases. They have a mental health condition that is already difficult to treat, and tardive dyskinesia then needs to be recognized by physicians. It is, of course, with the VMAT2 inhibitors, very well treatable. And we've seen that physicians that have started to treat tardive dyskinesia, also are able to identify more patients. For that reason, we believe we can tap into this enormous patient potential and help even more patients in the future. And then other factors that are particular contributing to our growth is of course now the availability of the once daily formulation because we couldn't participate in a market segment which is very much focused also on patient convenience. And we are quite happy now that we can address that market segment as well. So, it will contribute to our growth in particular.

Okay, thanks guys.

Thank you. Our next question comes from Umer Raffat of Evercore ISI. Your line is now open. Please go ahead.

Hi, guys. Thanks for taking my question. I think 2026 was a date you mentioned on slides regarding a possible EU entry that you're investigating. My question is, considering the US approval was on a 505(b)(2) basis, there has to be an additional trial, and I'm curious what specific feedback or any early feedback EM is sharing on that note. Secondly, it looks like EBITDA for the full year, as much as it's tracking how to consensus so far, it's not quite annualizing at what the low end of the full-year guidance is. And even versus first half last year, it's slightly lower, partially because of the gross margin first quarter. But to get to above 4.5 last year in EBITDA, there was a one-time charge called other non-GAAP of $200 million, which kind of enabled the full year to get to just above 4.5. And I'm curious, are you modeling some sort of other non-GAAP charge to enable getting to above 4.5 EBITDA this year? Thank you.

Thank you, Umer. Thanks for the questions. So, yes, we’ve made a lot of progress on AUSTEDO and making sure tardive dyskinesia and Huntington disease patients can benefit from that in Europe. And on the particular timings in the past, I'll hand that over to Eric.

Thank you, Umer. So, we are working on the package for the EU with AUSTEDO. The requirements are, we believe, sufficient with the data we have to date. That's an ongoing discussion with the health authorities. I'll be working on that through the following year.

Thanks, Eric. And then, Eli, do you want to touch on the questions on the EBITDA?

Yes, for sure. Umer, thank you for the question. I think first, we're not considering any non-GAAP adjustment for the second half in order to make sure that we are actually landing the $4.5 billion, 4.6 billion EBITDA that we are expecting. But I will mention that the second half will be more accretive in terms of gross margin that will flow to the EBITDA line. And this is mostly due to the mix and the fact that we actually now narrow the guidance on the topline and that get us kind of at least to be at the midpoint just for the modeling of a 15.2. And other than that, we are also not banking on too much on (indiscernible). They’re rebounding. We are using the same average of (indiscernible) for the first half.

Thanks, Eli. Thanks for your questions, Umer.

Thank you. Our next question comes from Balaji Prasad from Barclays. Your line is now open. Please go ahead.

Hi, everyone. This is Mikaela on from Balaji. Thanks for taking our questions. Just two for me. What does Teva aim to achieve with more control on the biosimilar facility? And if you could just provide some more color on what you've seen till now. And then my other one is just on the pricing stabilization that you mentioned, was generic pricing in the US stable quarter-over-quarter or year-over-year? Thank you so much.

Thank you. So, look, I'll start on those, and I'll hand over to Sven. I think, look, on the Alvotech partnership. I think what we mean by operational involvement is, and it means that when it comes to the manufacturing and the quality aspects, obviously with Teva with 50 plus sites, we have a wealth of experience in this area. And so, we're actually having people on the ground working with Alvotech to help them obviously in the areas that have been identified by the FDA. So, that is something which we set up. We even have a committee set up, so it's formalized with JSC. So, I think that's well structured and Alvotech are very excited about the help they're getting from us. When it comes to the generic pricing, I'll hand that to Sven to talk about that from quarter to yearly.

Yes, thank you for the question. So, the US generics price decline has indeed slowed down over the last quarters. If you look at the pure core generics business that Teva has in the US, we actually had six very stable quarters now, which was also supported by the slowdown price decline. It's not driven by a change in price bidding on the side of wholesalers or on the side of buying groups. That did not change in the last quarters. What we've seen is that of course generics are built on supply and demand. And since we've seen more supply chain disruptions or supply discontinuities also on behalf of our competitors, it helps slow down the price erosion. And what we also notice is that not only Teva, but also other companies are looking into portfolio consolidation. And if you do that, typically it supports the price decline slowdown. And then we've seen not too many large generic launches, which is the third factor, typically the pricing influencing price decline. And for that reason, we overall see a stable situation at the moment, and we have to see if this continues over the next quarter. So, far we have no indication for a change.

Thank you. Our next question comes from Ash Verma of UBS. Your line is now open. Please go ahead.

Hey, thanks for taking my questions. I have two. So, on AUSTEDO, so XR is a nice step to kind of minimize the (indiscernible) and the other key competitor. Is titration something that you can simplify as well in the near-term and that can minimize that gap further? And then second one just on generic symbicort, I think there was settlement that you had with AstraZeneca on that and can retrace launch trigger actualization of your market entry as per your settlement terms. Thanks.

Thanks, Ash. Thanks for your question. So, I'll start with AUSTEDO, and then I'll hand over to Sven for symbicort. So, you're right to highlight that titration is important for AUSTEDO as to make sure the patients end up on the efficacious dose. What we have done, and actually it's occurred month in August is, we continue to improve our titration offering with a titration pack that can be prescribed by the physician. So, it just makes it simple. It doesn't rely on the sample having to be left in the physician's office. So, I think that's going to help the patients move through that titration to end up on the optimal dose for them from an efficacy point of view. So, we just see that as another one of the offerings that we're laying on to AUSTEDO that go with many others, which is going back to what I said about the investment we're putting into AUSTEDO is across multichannel, different areas, and that's why we have confidence in hitting the $2.5 billion in 2027. But on the symbicort, if I can hand that to you, Sven.

Yes. Maybe adding also to that, that we eliminated the six milligram titration step. So, that has already been simplified, and we are working on a more simplified titration schedule. Also, what we do this month, so in August, we launch a titration package, a blister package that can be prescribed by physicians to initiate patients. So, that will also help with effective titration. On generic symbicort, we are working on this complex development. It's an inhaler. It's a combination inhaler. The FDA, of course has higher hurdles to get these product approved. For that reason, our expectation is that this launch will be more driven by approvability of the product itself than any other considerations.

Thank you. Our next question comes from Thibault Boutherin of Morgan Stanley. Your line is now open. Please go ahead.

Hello. Thank you for taking my questions. I had some technical difficulties, so apologize if it has already been asked. But my first question is on biosimilar Humira. It now seems that you will enter the market most likely in 2024 after most of your competitors have already launched. So, what opportunity do you believe the biosimilar still represents? Could it still be a meaningful contributor to your revenues next year, or should we be conservative and assume that it'll be changing to compete in this market with a late entry? And if you do think that it's a meaningful opportunity, if you could highlight the factors that would enable you to compete despite being a little bit late to the market. Second question on UZEDY, just if you could give us an update on coverage in the US and the position of formularies compared to your key competitors in the injectable schizophrenia field. Thank you.

Okay. I'll hand both those questions to Sven. I think before I do, when we think about Humira, just to sort of outline, I think this is an evolving market. So, I think it's going to be interesting to see how 2023 plays out, and it's important to also understand the product profile that we have with Alvotech is I think, highly differentiated based on interchangeability and the quality of our (indiscernible). But maybe, Sven, if you can add a bit more depth to that.

Yes, of course. We have seen now that on July 1st, we had the market formation for biosimilars in the US, with several companies entering the market so far, but it's very early. There's only been a slow uptake of biosimilars versus the originator, AbbVie. What we expect is that we have in 2024 more decisions coming up on the side of PBMs about formulary same changes or eventually also hard changes to the formulary, taking the originator out of the programs. So, we have to work with Alvotech now on the FDA approval for our drug. That's the prerequisite for us to enter the market. But we believe there's still an opportunity to be captured also in 2024 because we always said there is a two-phase market formation now, one in July and one coming more with the natural formulary changes in January 2024. And then we will see how our very comprehensive product profile will work out. But overall, currently our focus is on the FDA approval of the Alvotech site in Iceland. And I think you asked the second question about UZEDY and coverage …

Market coverage.

So, we are working, of course, with the target on parity position in all the payer plans. The majority of patients comes from Medicare and Medicaid. They have longer decision timelines than in the commercial segment, but we are making very good progress here in our market access discussions. We are actually right on plan or slightly ahead of our market access strategy targets. And we are very happy with the launch, how it's progressing. We've seen so far if you get a prescription for UZEDY, about 80% are filled also. And we have very high interest on the hospital side for the free sampling program. That's an important segment for us as well, because many patients are initiated on that side. So, overall, I would say our launch is right on target and progressing well.

Thank you very much.

Thank you. Our next question comes from David Amsellem of Piper Sandler. David, your line's now open. Please go ahead.

Hey, thanks. So, I had a couple high level questions about the neuropsychiatry business. Can you talk about your willingness or the wherewithal to bring in pipeline assets or even smaller scale commercial stage assets where you can leverage the commercial infrastructure that you have in place for AUSTEDO. So, just talk about your psychiatry focus in terms of BD M&A and what you can and can't do. And then secondly, and just a broader strategic question, do you think that there is a possibility or does it make sense to potentially explore a separation of the neuroscience business into a standalone business as a means of unlocking value, just given where AUSTEDO is and how the broader markets think of businesses with novel CNS assets? Thank you.

Thank you for those questions, David. So, in answer to your first question, yes. I think we've started to build a real franchise with the psychiatric community. And actually, when we are at a recent conference, the American Conference of Psychiatry, people actually said, you are now the company in this area. And obviously, they see that with AUSTEDO. They see that with UZEDY, and obviously Olanzapine, that Eric spoke about. So, yes, and we are actively out there looking at BDN opportunities. You know, some of those about end licensing, and some of these are constrained a bit by our balance sheet and where we are right now. But the advantage we have is, we have an infrastructure that we can bring plug and play products into. So, I think for us, it's beneficial and it can be cost effective and for potential partners, they see that leverage that we have with the community and the relationships we have. So, I think that's something which we are active in, but obviously we need to find the right asset at the right price or the right company even. Now, moving on to your second question around the separation of the neuroscience business. No, that's not a consideration, just to be very clear about that. I think Teva really benefits from putting Teva as a complete Teva. We are fueling a lot of our growth in our innovative business from the support of our generics business and our other businesses. And so, there's a lot of synergies that are at play here. And even in R&D, the work that's been done on the complex generics, the support they get from the innovative part of our business here is very helpful. So, right now, I think where Teva is, it will actually stay as it is and we'll continue to grow as Teva as one. So, thank you for your question.

Thank you. Our final question for today comes from Chris Schott of J.P. Morgan. Your line is now open. Please go ahead.

Great. Thanks. Just two questions for me. First, can you just elaborate a little bit more on gross margin progression as we think about the second half of the year? I'm just trying get a sense of what's a good number to think about as we kind of think about this obviously nice improvement relative to 1Q, but just how much of a normalization should we think about in the second half? And then my second question was just follow-up on UZEDY. Given some of the payer dynamics and this process taking a little bit longer, when can we think about revenue ramping for this product? Is that something we could see in 2023, or is that more 2024 before you expect the coverage to come into place? Thank you.

So, thanks for those questions. Before I hand over the gross margin to Eli, I just want to sort of lay out how people should start to think about our gross margin as our company evolves. So, one of the things about gross margin, as Eli has highlighted already, is driven by obviously our cost of goods and our COGS, but also our portfolio mix. And one of the things that I think is important for people to start to think about as we grow our innovative business, our portfolio will change, and with that changes our profitability and our gross margin from that innovative business. And so, obviously growing AUSTEDO, growing UZEDY, growing AJOVY, which is still happening, launching last week, that will continue to move gross margin in the right direction. The second thing which is important to understand in 2023 is H2 will have a higher revenue based on what Eli has just said than H1. So, if you take those factors together, it leads us to improving gross margin. But I'll give - I'll hand over to Eli to give you maybe some more specific numbers.

Yes. So, thanks, Chris. And Richard, I will continue what you mentioned. So, first there are a few dynamics there if you look on the second half of the year. First of all, in terms of the mix of the revenue, we're stepping up with a set of, as we’re heading into the second half, and the majority of the increase in revenue that came from the distribution business in Anda, happened already in the first half, which means that mix actually going to change significantly in the second half or the second half, and the distribution business in 2023 will be the same back in 2022. So, that increase actually already happened in the first half and will not keep diluting the gross margin. With that said, there are other activities that we're doing in terms of our cost elements, and we see some also I would say gradual decrease in the inflationary pressures, mostly related to costs like logistics, freight, and energy as well, other elements related to direct material pressures we got in the second half of the year, last year on procurement for our inventories. Now, the numbers to think about it, we're actually yielding to the 53% for the year, which means that gradually we'll see Q3 and Q4 increasing, most likely close to 53.5 range in Q3, and very close to the 54 in the Q4.

Thanks, Eli. And Chris, to answer your last question, the UZEDY uptake, is it 2023 or 2024? Thanks for that question. 2023 is more of the setting up of UZEDY, getting access to payers, but also onto formulary committees at hospitals, going to DAT committees and making sure people are aware of the product. So, I think, don't think of 2023 as the growth driver from a revenue point of view. It's more as we enter 2024 that's when as those things get in place there, the hospitals, then we see that's when the real revenue growth will start. But really pleased with the physician, and actually Sven highlighted the amount of sampling that the hospitals are using and the physician interest and uptake now. But that obviously helps us get through those formulary committees because the support of the physician is really important. So, those early signs are very encouraging, but think about modeling in 2024. So, thanks for the question, Chris. And I think that concludes all the questions we have today. So, I'd like to thank everybody again for taking the time to call in, for the people who asked a question. Hopefully you’ve found this informative, and we look forward to updating later in the year on quarter three. Thank you.

Thank you for joining today's call. You may now disconnect your lines.