Ladies and gentlemen, thank you for standing by and welcome to Teva's Second Quarter Financial Results Conference Call. 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 call is being recorded today on Wednesday, 6th August, 2020. I would now like to hand over to your first speaker today Mr. Kevin Mannix, Senior Vice President, Investor Relations. Please go ahead sir.

Thank you, Tracy and thank you everyone for joining us today to discuss Teva's second 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've had an opportunity to review our earnings press release which was issued earlier this morning. 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 second quarter performance, recent events, and priorities going forward. This will be followed by a question-and-answer session. Today's call which will run approximately one hour is being webcast live and recorded. You'll be able to replay the call and view the transcript on the Teva Investor Relations website. And with that I'll now turn the call over to Kare Schultz. Kare, if you would please.

Thank you, Kevin. Welcome everybody. I hope you're all safe and healthy. And I'd like to start by commenting a bit on the COVID-19 situation. So, if I could have the next slide please. As you know Teva is the world's largest manufacturer of pharmaceuticals in volume. And I would like to share with you that our manufacturing organization, our QC, our logistics organization has shown great resilience all over the world in this situation. And despite the challenges of COVID-19, we have been able to stay operational, being able to supply customers and we are very proud about it. The way we've been thinking about it is illustrated on the next slide. We've really been focused on three key stakeholders; our patients, our employees, and our communities. And I won't give you all the details that would take too long, but just reiterate that we've been committed to our patients. We serve around 200 million patients every day. We've been able to do so with uninterrupted supplies. Our employees is of course our key concern when it comes to safety and protection and I'm happy to say that due to a lot of measures worldwide, we have been able to avoid any outbreaks of COVID-19 related to our facilities. And we've had no facilities that had to be shut down for longer periods of time because of any kind of the COVID-19 problems. So, it has taken a lot of work, it has taken a lot of new precautions a lot of new procedures, but we're happy to say that we were able to handle this in a good way. We've also tried to support communities and patients the best we could. We've donated products in more than 25 countries. We've donated all kind of different products. And we…

Thank you, Kare, and good morning and afternoon to everyone. I hope that everywhere you are in the world that you are safe and healthy. So let us begin with our financial review of the second quarter. We begin on slide 18 where we highlight Teva GAAP results including GAAP net income of $140 million and earnings per share GAAP basis $0.13 for the second quarter of 2020. Our year-over-year improvement in our GAAP result was the result of lower operating expenses including lower impairment items and legal settlement as well as minority and share in profit offset by smaller tax benefit. Turning to Slide 19. We see impairments, restructuring and other charges, which totaled $465 million for the quarter. The main charges in the quarter and the largest was tied to our business in Japan. As previously announced, Teva and Takeda have decided to sell the majority of the business venture the generics and operational assets resulting in an impairment charge of $261 million. Amortization was $249 million for the second quarter aligned with the range of $250 million to $260 million per quarter that we guided to at the beginning of the year. Turning to Slide 20. We review our non-GAAP performance. I want first to start with a complete look at the year-over-year financial performance and then I would like to touch on the sequential swing in the first two quarters of 2020 in more detail. Second quarter 2020 revenue were approximately $3.9 billion, down 7% compared to Q2 2019. This decrease was mainly due to a lower revenue from generic, OTC and COPAXONE in all regions and the lower revenue from QVAR and BENDEKA/TREANDA in North America, as well as the impact of COVID-19 had on certain purchasing pattern, partially offset by higher revenue from AUSTEDO,…

[Operator Instructions] Your first question today comes from the line of Gregg Gilbert from Truist.

Thank you. Kare putting aside the strong performance for a moment, I wanted to ask about liability management. Is there any progress you can discuss around your proposed opioid settlement? And on the price fixing allegations, how do you plan to balance the need to create certainty for long-term investors with the desire to achieve your long-term deleveraging targets as well as other considerations that we should be aware of? Thank you.

Yes. Thank you for that question. So first on the opioids. We have continued our positive dialogue with the AGs and we're continuing to refine you could say the framework with of course the objective to implement it. There has been a significant delay in the process due to COVID 19. It basically is the case for most big settlements like the framework settlement that when you have a lot of parties you need to bring together with a lot of lawyers involved. Unless there's a triggering event, it doesn't really happen. And we were expecting that triggering an event as some of you probably remember to be the trial in New York in February, but that got delayed postponed because of COVID. It's still being postponed. So we don't have a clear timing on that. So I would say a very positive dialogue with the AGs, but no clarity on when exactly framework will come to fruition. It is still a very I think desirable thing for the framework to get implemented. It does include as you know from us donation at the level of $23 billion, $25 billion of products at WAC price probably half of that net price in a category where the states can alleviate some of the problems about substance misuse and help treat patients better. So we think it's a good thing for American people, if this framework does get implemented. And we are still very optimistic and hopeful, it will get implemented. But on the timing, I must admit, I don't really have a good clear answer as to when that might be. I think it will sort of be -- once we have clarity on a sort of, legal situation a major trial in one of the key states. And the fact that that is actually progressing and that might result in a clarification on that. On the price fixing situation, we remain in dialogue with DOJ. We of course see a situation where we do not see that the company in anyway participated in criminal-organized price fixing or were a part of creating curtail or anything like that. So we would like to resolve it together, in a positive way with DOJ. And we don't know whether this will be possible. But there's of course the option that we resolved it, which would be nice. And then there's the option that it goes on, in the legal system. And we are looking at all options. And we think that we can manage the situation, no matter what option. And that we have good plans for doing so. But right now we're still in a dialogue with DOJ. Thank you.

Thank you for that.

Thank you. Your next question comes from the line of Ronny Gal from Bernstein.

And congratulations on the nice quarter, two if I may. Kare, we're seeing some significant cash -- CapEx awards in the U.S. government to companies who are not directly involved historically, in the generic industry. And we've not seen the traditional companies that are in an industry participating. Now you have both formulation capabilities and significant API capabilities. And I kind of wonder if you can give us an update about that process, your ability to participate in it, your ability to shift manufacturing of API. And dosage forms to the U.S. or Europe, as the countries require, especially if you see this as something you will participate in, given that apparently is going forward. Second, in the first half of the year, we've seen on the bulk volume oral products which we all track to IQVIA, a significant drop in Teva's volumes. And can you just describe to us a little bit of the dynamics there and your strategy going forward? Is this a significant segment for you? Is this something that, is nice to have? How do we think about, the progress of your volumes, as a kind of a bulk generic supplier to the U.S. market? Thank you.

So just to clarify the last question, Ronny to be absolutely certain what you asked about, you said bulk generics what do you think about API, or you were thinking what would we -- just clarify?

I mean -- yeah. I meant commodity generics. So finished dosage forms, but you just look at the raw volume numbers, that we get from IQVIA or VMAT you see significant declines there over the last six months?

Yeah. So let me address both questions. So if we take the U.S. first and the discussions about API and so on, that has been going on for a while but really got more you could say at the front page in connection with COVID-19. So first of all, Teva is a company with a very strong manufacturing base, basically in U.S., Europe and I would say, we could call it NATO-Allied countries or U.S. and NATO-Allied countries. So we have disproportionate large parts of our entire manufacturing in countries that are politically aligned with U.S. and Europe, which of course is a good thing from a U.S. perspective. It's also true that there's been a discussion about getting API manufacturing actually API manufacturing back into the U.S. It's a fact that it has basically -- they all left the U.S. within the last 30 years. So there is nothing left, which means that getting it back for real, would take probably 10, 20 years, and would have to depend on major structural changes in pricing and all these kind of elements, as you can imagine. Now we are of course positive towards any collaboration with the U.S. government. We have been in dialogue with the U.S. government all along. And sketched out possibilities on specific products where we might help also specific products that are related to COVID-19 therapies where we might help. So far, it hasn't come to anything specific. I would say with regard to what has happened so far, there's probably without me getting into any details a mixture of operational and in some cases political agendas that get mixed up here. Teva is not really interested in the political side of it. We are more an operational company. So if it makes operational sense, we…

Thank you. Your next question comes from the line of Nathan Rich from Goldman Sachs.

Thanks for the questions. Just two on the margin performance and outlook. You've had nice margin performance so far in the year. I think looking at the midpoint of guidance for the back half implies a 26% EBITDA margin or so down from the 30% level, you saw in the first half of the year. So can you maybe just talk more about your expectations for margin cadence and kind of any factors that we should keep in mind as we think about modeling the back half of the year? And then tied to that, I just wanted to ask one clarification question, kind of, putting together your comments on what you've seen in the first half of the year related to COVID. Did you guys have a sense of what the net impact to either revenue or EBITDA was from some of the COVID related purchasing dynamics that you've seen so far?

Yeah. So thanks for those two questions. I'll give it a quick answer and then I'll turn it over to Eli to hear if he wants to say more about the margins. But you're absolutely right that for a number of specific reasons we saw a very high-margin in the first quarter, which we also indicated that's not really what's part of our – well, it is part of our full year guidance, of course, but we won't maintain that level. And you could say every quarter you have a couple of swing factors, which might be to the tune of $50 million, $100 million could be exchange rate, could be launches of products, could be people either destocking or stocking up and so on. So you have some swings there. If I give you the big picture, then I would say the big picture is that we're going to hit 28% operating margin at the end of 2023. That's a firm target and we are firmly dedicated to that. Now you're probably also right that this year could be around 26% and there are some swing factors up and down that can affect that and Eli can comment on that. But I think the most important for you to know is that we'll hit the 28% in 2023. We'll do that by improving at around 100 basis points per year. And we'll do it in a combination of active portfolio management of our in-line portfolio, active management of our costs in our manufacturing network and active management of our sales marketing and G&A cost. So we'll be optimizing the whole thing. And I think it's fair to say that this is something I've done many times before. So this is something I know can be done. So on the…

Okay. Okay. Thanks Nathan for the question. So there are kind of a combination of I would say main three elements. First of all, we need to actually understand the OpEx. The OpEx for the first half is trending combined R&D, sales and marketing and G&A at the level of around 25% to 25.5%. And a year ago it's like 27.7%. So here you have like at least 2%. And we end up 2019 with 51.5% on gross margin and 24.5% on Operator:, our planning is to at least top 100 basis points, additional one point for both gross margin and OP by end of the year by end of 2020. What you can see for the first half that we are already on trend on the gross margin. We're actually yielding to 52.5%, which in that area we see it's coming. And we got kind of an upside in Q1 due to economic hedge revaluation mark-to-market that give us kind of an upside. So we currently – the first half has accumulated 27% but we see it actually yielding to the level of 25.5% to 26%. And as you can actually recall from my prepared remarks mainly you can see that the first half is with a $6 billion spend base and you can actually recall that we're going to do less than last year which was 12.7%. So the numbers for the next half most likely going to trend on the OpEx in the range of around 26%. So with that one I think that you can understand how we will look on that dynamics.

Thank you, Eli. Let’s move to the next question.

Okay. Thank you.

Thank you. Your next question comes from the line of Elliot Wilbur from Raymond James.

Thanks. Good morning. Kare, specifically just wanted to ask you a couple of follow-up questions around the fasinumab program in light of the new data. Obviously, replacing signal may be new with respect to fasinumab but not something that's new to the class. Just wondering how you're thinking about the benefit/risk profile now of the product and approvability in light of the new data and whether or not there's any insight that you could share with us with respect to that particular subgroup where the signal was seeing on lines such as patient demographics or concomitant medication use or anything there that may help us to sort of put that into a little bit better perspective?

Yes. Thank you for that question Elliot. I'm afraid I can't give you that detail yet, because the detailed analysis of all those very relevant factors have not been completed yet. And we haven't also got the full sort of long-term safety database that we're collecting. We haven't got that yet, which we will get at the end of this year. So the beginning of next year we'll have that ready for you. So the way I look at it is basically, you could say in a way unchanged to what I've said in the last two years, which is that I believe that this is a very efficacious product. I think that's confirmed now. The one milligram monthly dosing is definitely very efficacious. I think there is a very low level of safety risk here. But of course, it remains to be assessed completely once we have the full long-term safety. And it remains to be discussed with FDA. But the way I look at it unless something new pops up in the final analysis is that it's a – from my overall point of view and I have to say, I'm not a clinical expert right but I've seen a lot of clinical trials. I think this makes sense. And it also makes sense because the alternative pain medication that people often use does have a risk of misuse, does have a risk of addiction, and this product does not have any risk of addiction. So you could say, you need to take the risk-benefit in a way. If you look at it holistically and look at the product itself, the strong improvement it has on pain and physical function, which has proven beyond doubt in the clinical trial and then the associated improvement, which is that you will be avoiding alternative therapies that have a risk of abuse. And in that sense from a commercial point of view, if it does end up getting approved by FDA then I think it has a strong commercial opportunity here to the benefit of many patients suffering from severe pain. So thank you for that question, Elliot.

Your next question comes from the line of Gary Nachman, BMO Capital Markets.

Hi. This is Bill Ion [ph] on for Gary. Thanks for taking the question. Just wondering, if you could provide some detail on what portion of the new AJOVY prescriptions are coming from the auto-injector? And if you're seeing any migration of existing patients from the syringe to the auto-injector?

Yes. Thank you of that question, Gary. I think, I remember the number, but I think maybe I even had it on the slide. So I'm just going to look back to see what we have on the slide. I've got it here. So yeah it's right here. I think the auto-injector is launched of course now accounts for 40% of total NBRx and 50% of TRx. So out of the NBRx you're seeing, it's 40% which roughly, if I do just rough math on the curve here without having done it in detail indicates that the growth we are seeing is basically identical to the auto-injector scripts, but we still have a lot of scripts on the prefilled syringe. So it indicates that, we are not seeing a switching but that we're seeing generation of new scripts, which is very, very positive.

Okay. Great. And then just a follow-up, you recently announced data for – from the Phase 3b open-label focus study. Can you just comment on how you see that contributing to the value of AJOVY versus competitor?

We – I would say, if I look at in general with the focus studies and the long-term Phase 3 programs we have, AJOVY has shown a fantastic main – maintains its efficacy in a really, really strong way. It's well-known in many CNS drugs that efficacy wears down over time. That's quite a normal phenomenon. This is not the case with AJOVY. So the long-term data the long-term focus data we have indicates that AJOVY keeps on working sometimes even better, and which is maybe just random right that you get some results that are slightly better than you had in the previous period, but it's quite remarkable that the efficacy of AJOVY keeps on working even in long long-term use. And that's of course extremely positive, because this is the chronic disease. And what you really want is a drug that works well from the beginning, but keeps working. So I think it's very, very positive. I don't have any direct comparison to our competitors, because they are not in that trial. But I can just say that for AJOVY the results are really, really strong. Thank you for that question.

Thank you.

Thank you. Your next question comes from the line of Umer Raffat, Evercore.

Hi. Thanks so much for taking my question. I have two, if I may. First, we saw the U.S. government cash outlays to Kodak recently on securing drug supply. I'm curious, if Teva could possibly be in a position to land something similar? Especially, if it guarantees some sort of supply chain on critical ingredients? And also Kare, I saw in the press release there were arthropathies in the osteoarthritis trial. Can you speak to what percentage of that was type two RPOA? Thank you very much.

Yes. So the first one on U.S. government and Kodak, I don't really have a comment on that specific deal. What – I – only know what you also know what we read in the press that they got a loan of some $750 million. And that they would use that to establish API manufacturing in the U.S. Structurally right now, it's not profitable to do API in the U.S. That's why nobody does it. So unless there's some structural changes then it's probably going to be a very, very tough challenge even if you get a very cheap loan to make that a positive business venture. But that remains to be seen. We are very open to doing API manufacturing in the U.S. and we also open and are in discussion with the U.S. government about it, but it has to be sustainable and it has to be long term. And, hopefully, we can end up working something out like that. But I think a lot of what's happening right now is political and it's not really sustainable and operational but that remains to be seen. Then I can't comment on the details on the different types of RPOA, simply because we haven't had the time. This is hot off the press, you could say, in the Phase 3 readout here. And I haven't had the time to look at all the details. So that will have to wait until we sort of have more time to analyze. That's also why I couldn't ask about the details about do we see any differences in subgroups and so on. That analysis has to follow and we'll share it with you once we have it. Thanks for the questions.

Thank you. Your next question comes from the line of Akash Tewari from Wolfe Research.

Hey, guys. Thanks so much for taking my questions. So, look, there seems to be a big delta between the drugs that are named in the criminal complaints for generic price fixing versus civil complaints. As we size up kind of the potential liability impact, what's more appropriate, I think, just for building up a framework? And there's also admittedly a minority perception that there could be minimal-to-no DOJ liability for Teva. Is that a reasonable base case assumption for investors? And then, just one question on the Rest of the World business. It's been underperforming for a few years, but consensus keeps modeling this line to kind of stabilize. Over what time frame could Rest of World kind of return to growth for Teva? And how long would kind of the growing pains with the new Japan strategy last? Thanks a lot.

Yes. So, thanks for those two questions. So if we look at the price fixing first, then there's a criminal side to it, which is something we discussed with the DOJ. There's also a civil side in the DOJ and then there's a sort of a AG/MDL side to it, which is also civil. And I think you're referring to the fact that, with DOJ on the criminal side, there are allegations, I think, around 10 products. And on the civil side the allegation is around 110 products. Now, first of all, it's important to repeat that in our internal investigation, where we've been through more than a million documents, we don't see any evidence of organized price fixing, organized curtail or anything involving a structured approach to this by Teva. Now we do have continued discussions with the DOJ. And I think it's not really possible right now to give you a sort of firm basis for how you should model this. It's an unclarified legal situation. And as you know, in legal situations they can develop in all kind of ways in the U.S. And we will do our best; of course, based on the fact that we believe we did nothing wrong to not have a sort of insurmountable financial damage coming out of this. And there's a lot of tactical elements to that, which I can't really comment on. So I can't really give you a firm answer on that one. I'm sorry. When it comes to the rest of the world, then you're absolutely right that we've had a number of events that have been dragging down the total revenue development of the rest of the world or international markets. Actually, underlying most of the markets have grown nicely. And the last sort of problem child left, you could say, in terms of growth has very much been Japan. And with the new restructuring of the business in Japan, we hope to put that behind us, which basically means that I'm optimistic that we will see modest growth in the rest of the world in the years to come. We don't have anything left that we feel we have to sort of reorganize or cleanup or whatever you want to call it. So that's part of the restructuring should be done by the deal we're doing in Japan at the end of this year. So thank you for the questions.

Thanks a lot.

I think now we are hitting close to the hour. So, I guess, we have time for one more question.

Thank you. Your final question comes from the line of Jason Gerberry Bank of America.

Hi. This is Ash Verma on for Jason. Just wanted to get a little bit more details on the Alvotech biosimilar partnership, how do you think this positions you to compete in this evolving market? And can you also elaborate on the profile of the programs you will advance? Are these early or near-to-market assets, or do you have any therapeutic focus? Thanks.

Thanks for that question. So, on collaboration, our strategic collaboration with Alvotech involves five biosimilar products that are, you could say, at different stages of development. But they are compared to our own portfolio slightly earlier than our own portfolio. So they hopefully will secure assuming that they all are successful. They will secure that we have a sort of string of launches over the coming 10 years in the U.S. in the biosimilar space. We do feel that with our commercial presence in the U.S. where we are the biggest volume supplier of pharmaceuticals that we can handle products in basically all therapeutic categories. And we are very happy about the development we've seen on TRUXIMA. So we very much look forward to this. I can't comment on which specific products we're talking about but that will evolve as time goes by. We will, of course, make you aware of that. But I can just say that now we have a portfolio of more than 10 biosimilars in the U.S. marketplace. And I think that Brendan and his organization, has shown a very good performance on TRUXIMA and maybe we will end this session with giving the word to Brendan. So you can round it off by just commenting on how you see our performance on TRUXIMA since we launched and going forward and how you see the Alvotech deal. So, over to you Brendan for the final comments.

Yeah. Thanks, Kare. I appreciate the question. I think that if you look at our commercial performance on TRUXIMA, it's been one of the most successful biosimilar launches in the industry. We're up to a 17% weekly new-to-brand share. And mid-2020 factor in business is not captured in IQVIA. So, if you look at Teva's commercial footprint, as Kare said earlier in the call, we have a strong footprint with customers on both the generic and specialty side, which I think lends to our capabilities in the biosimilar markets. As we think about the Alvotech deal, I think that that deal fills a nice gap in our portfolio between the two assets that we currently have in some of our own assets here later on four, five, six years out. So, I think it's a great deal for us, a great deal for Alvotech, and I think it will be a nice match of our capabilities. So I look forward to commercializing those assets. Thanks Kare.

Thank you, Brendan. So, over to you operator, and thanks for listening in to all of you.

Thank you.

Thank you everybody for joining us. Tracy, if you could please provide the replay information. As usual, we are all available to take your calls and look forward to speaking to you in the coming days and weeks. Thank you.

Thank you. Ladies and gentlemen, this conference will be available for replay after today's call. You may access the remote replay system at any time by dialing 0044-3333-009-785 and enter the access code 6145548. Those numbers again are 0044-3333-009-785 and access code 6145548. That does conclude our call for today. Thank you all for participating, and you may now disconnect.