Ladies and gentlemen, thank you for standing by, and welcome to the Teva Pharmaceutical Third Quarter 2020 Earnings Call. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker, Kevin Mannix, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Valerie, and thank you, everyone, for joining us today to discuss Teva's third quarter 2020 financial results. On the call with me are Kåre 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 and 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, Kåre and Eli will provide an overview of the third quarter performance, recent events, financial outlook and priorities going forward. This will be followed by a question-and-answer session. Today's call, which will run for 1 hour, is being webcast live and recorded. You'll be able to replay the call as well as view the transcript later today on the Teva Investor Relations website. And with that, I'll now turn the call over to Teva's CEO, Kåre Schultz. Kåre, if you would, please. Kåre Schultz: Thanks, Kevin. Welcome to all of you, and thanks for joining this call, and thanks for your interest in Teva. We had a solid third…

Thank you, Kåre, and good morning and afternoon to everyone. As always, we start with a review of the GAAP performance on Slide 13. Revenue in the third quarter of 2020 were approximately $4 billion, a decrease of 3% in both U.S. dollar and local currency terms compared to the third quarter of 2019, mainly due to a lower revenue from generics, OTC and COPAXONE in all regions and lower revenue from QVAR and BENDEKA/TREANDA in our North America segment as well as reduced demand for certain products resulting from the impact of COVID-19 pandemic, partially offset by higher revenue from AUSTEDO and AJOVY. Teva posted a quarterly GAAP loss of $4.35 billion, a loss per share on a GAAP basis of $3.97, for the third quarter of 2020. The significant year-over-year decline was mainly due to a $4.6 billion goodwill impairment, which I will discuss on the next slide. On Slide 14, we can see the impairment, restructuring and other non-GAAP adjustments, which totaled approximately $5 billion for the quarter. The majority of this amount was the result of a $4.6 billion goodwill impairment that was booked to the North America reporting unit in connection with the current market capitalization, influenced by uncertainty regarding the time frame for resolution of certain litigation. The company is committed to its projected cash flow target and management view on the litigation exposure has not changed. However, recent developments indicate the time frame for resolution will take significantly longer than previously expected. As such, for accounting purposes, management has incorporated these factors into its valuation of the North America reporting unit, resulting in an impairment charge of $4.6 billion. Amortization was $251 million for the third quarter, aligned with the range of $250 million to $260 million per quarter that we guided as…

[Operator Instructions] And your first question comes from the line of Gregg Gilbert of Truist Securities.

Kåre, as you pointed out in your prepared remarks, the company is executing well against the targets that you and the team have laid out that your equity continues to be held back by liabilities that you inherited. So I was hoping you could comment or update us on those liabilities? On opioids, it looks like J&J and the distributors have very recently updated their financials to reflect what could be a near-term settlement. So on that, perhaps you could weigh in on whether Teva is linked into that or not or on your own? And then on price fixing, you previously expressed, in our view, open mindedness and settling with the DOJ, even with a reasonable DPA and a penalty. Has that ship sailed, given your comments about going to trial? Any other color you could offer would be great.

Kåre, just check your mute button, please? Kåre Schultz: So thanks for that, a very good question. So on the opioids, we are still in a very positive dialogue with the AGs. And that's the same group of AGs, of course, that we did the framework settlement with. And it is hopefully so that we'll see a firm settlement within the foreseeable future. Now the problem is I've said that before and I've also alluded to the fact that one of the triggering points for getting the actual settlement done where everybody signs because there's a lot of parties involved in this, a lot of the states, a lot of claimant lawyers and so on. So one of the triggering points for getting settlements like this done is when there is the pressure from an actual trial that all the parties are going to. And I was very optimistic, I guess, about a year ago that the New York trial that was scheduled origin for January, then March, then January, then got even postponed, it hasn't happened yet. And then there was a West Virginia trial that got postponed. So all the trials that could trigger that people sign on the dotted line have been postponed. It's quite obvious that there's been ongoing negotiations between us and the AGs between the 4 other companies that are participating in the framework. And I would say that they are maybe more progressed in terms of the fact that they had reached enough financial number than they started out with, all of them, it seems like. But it's important to mention that from the beginning, we were 5 individual companies that were negotiating at the same time with the AGs, but we didn't negotiate a, you would say, combined deal. It's 5 deals,…

And your next question comes from the line of Umer Raffat of Evercore.

Kåre, I know there's definitely a huge focus on the litigations and settlements. But as we think beyond and we think about the base business, I feel like the one thing investors aren't quite hearing is a clear plan on new products, new innovation and the real direction from a base business evolution perspective where a real path is laid for top line -- sustained top line growth, which people are willing to get excited about and put a real multiple on. And I would just like to perhaps offer an opportunity for you to lay out your vision, assuming you do get these settlements over the next 12 to 18 months, where do you see it going? Do you -- what are the plans to make the next AJOVY and the next AUSTEDO and the likes? And a quick CFO question, if I may, as well. There's an unusually large gain from American Well Corporation. And I wonder if it's -- if there's other investments of this scale we should be aware of within Teva? Kåre Schultz: Yes. Thanks for those 2 questions, Umer. I'll start with the first one about future growth. And it's a little bit of, of course, a long answer I have to give you because our business is comprised of several buckets or several therapeutic categories. And the underlying business is really the generics and OTC business. And there, we see a quite stable situation in North America and in Europe, and of course, we have these leaps in North America when we have -- we launch the first to file, and we make some extra $100 million in a quarter. And then the next quarter, we make some and then not so much. But if you look at it underlying, in terms of…

And your next question comes from the line of Ronny Gal of Bernstein.

Kåre, I'd like to talk a little bit of biosimilars because like you I think this is really interesting growth drivers. I guess of the 10 products, let's just start with the 10 products you have in the pipeline. Could you share with us any name products before 2025? And out of those 10, how many are yours only versus how many are you sourcing from Celltrion or other partners? That is kind of like what's your share with the margins here? And then specifically around the Humira biosimilars. if I -- you may finish on this one. Specifically around the Humira biosimilars, I haven't seen a settlement for you with AbbVie. So I have no good idea about when you're going to come in. And it seems you are doing its interchangeability trial. If you can comment on that, tell us when you expect those results? And how do you think it positions you in the marketplace? Kåre Schultz: Yes. So first of all, out of the, let's say, roughly 10-plus biosimilars, we have in development or where we are waiting for approval and launch in the U.S., it's 50-50 between internal development and things that we have in-sourced. You saw the Alvotech deal, which we announced just recently. So we basically have half coming from that deal and half coming from our own internal development. And then I have to disappoint you that for competitive reasons, we have so far decided not to comment on any specifics. It's not difficult to guess some of them, I'm sure, because we are basically going for roughly the 10 biggest because that makes the most sense. So I'm sure you can guess most of them, but we've actually decided not to comment on the actual timing and the actual products, and that's really for competitive reasons. So I'm sorry about that.

And your next question comes from the line of Elliot Wilbur of Raymond James.

This is Lucas Lee on for Elliot. So the top line outlook is lower by $100 million with COPAXONE outlook increased by $100 million and AJOVY down by $50 million, implying a $150 million reduction in other areas. So what are the primary factors accounting for that? And if I could sneak in a product-specific question, AJOVY sales has been lighter than expected given absolute and relative growth as measured by Rx trends. Could you help us understand the dynamics there? Is this a function of heightened rebate pressure? Or were there other onetime factors leading to the flattish sequential top line? Kåre Schultz: Thank you. So your math on the top line is absolutely correct. And the $150 million that we talk about here is basically related to the lower total script volume in the U.S. on a lot of different products, including generics and the same thing in Europe. What we saw was, we saw first an increase in volumes in the first quarter, and we saw a significant decrease in volumes in the second quarter to the tune of maybe 15%. And then in the third quarter, we've seen on average because there's, of course, ups and downs from different lines of business and so on. But on average, on both our sort of older specialty products and our generics, we are seeing something like a 5% reduction in total script volume across Europe and across United States, so the total TRx in the marketplace. And that's why I'm saying that this reduction of, let's say, $150 million is basically related to that volume reduction and not to any change in our, you could say, market shares in Europe or in U.S. And of course, we hope it's probably -- right now it's difficult to predict, as…

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

So you guys had a pretty significant goodwill impairment charge regarding uncertainty on resolution of certain litigation for your North American business. Can you talk about what brings that? Does it have anything to do with generic Revlimid? And is there any comment on when that product is getting on to the market? And then is it fair to say there wasn't an ongoing civil liability on the generic price fixing side, you would have more strongly considered a settlement with the DOJ. What is the legal ramifications long-term of admitting deals in regards to the civil liabilities? And is there a time frame for the DOJ resolution and then the civil liabilities resolution on price fixing? Kåre Schultz: Okay. Thank you. I'll give the first question to Brendan, and then I'll just take the price fixing now. So on the pricing is correct. There's, of course, a criminal side to DOJ and a civil side to DOJ. And then we also have a legal situation with the state AGs on price fixing. And you're absolutely correct, if we, as a company, were to admit to a criminal act on price fixing, which we did not commit, then you would sort of take away your own defense on the civil side, whether it's with DOJ or whether it's with the AGs. And typically, you will often be able to reach a solution with the DOJ that from a financial point of view is something that you can accept, given the circumstances and the hassle of going to trial. But it's more uncertain how it looks with the trial that the civil AG trial because that's a more broad-based accusation they are raising. And if you were to go along with that, which is, in our view, unfounded, then that, of course, would have a potentially higher financial cost. And that's exactly right. That's one of the reasons why we did not want to settle with DOJ with a DPA that would force us to meet criminal conduct, which we have not conducted. And on the first one, I don't know whether Brendan or Eli can answer that?

So Kåre, I'm hearing you loud and clear, but I -- the question was a little muffled. I'd be happy to address it. Could you just repeat it for me or have him repeat it?

Yes. No problem. So just if you can hear me, the goodwill impairment charge, $4.3 billion on North America regarding uncertainty on certain legal timing. What is kind of leading to that big step down on goodwill impairment? And does it have anything to do with generic Revlimid? And when could that product get onto the market, given the [indiscernible] ready settlement? Kåre Schultz: Yes. So maybe you could talk about the revenue, Brendan, but I'll just give a brief answer to the first part of it. So the reason for the adjustment, -- the main reason for the adjustment is, you would say, accounting, technical, the fact that there is a discrepancy between the net assets that we're showing in our accounts before this write-down and then the market capitalization. And if you have that for more than a year, then it's good practice to take a good look at it and look at whether you should adjust your accounting, in this case, the goodwill to bring your market cap closer to the actual -- or rather bring your net assets closer to the market cap. So it has nothing to do with Revlimid. It is just an overall assessment that there are factors in the market that probably will continue, such as the overall litigation, the price fixing litigation. We do believe that due to COVID-19, these could be very prolonged. They could go on. The price fixing litigation could go on for years. And as a consequence of that, we can't say that the overhang on the share price will be removed soon. And as a consequence of that, we decided to make a write-down on the goodwill. But maybe Brendan, you can comment on the Revlimid.

Yes. So Kåre, I'll just make a comment on the Revlimid piece. We typically don't comment on settlements for obvious reasons and confidentiality. And we typically don't comment on the dates of particular launches. So I'll just leave Revlimid at that and leave it with Kåre's answer.

Your next question comes from the line of David Amsellem of Piper Sandler.

Just a couple. So I wanted to get your thoughts on the longer-term trajectory of AUSTEDO's. As we all know, Neurocrine is running a study of valbenazine and Huntington's chorea, which should read out next year. I mean, do you think that's something that, to the extent that they get a label expansion could move to stun to the growth of AUSTEDO over the long term? That's #1. And then #2, you have some high-value generics Forteo, NuvaRing. To the extent that those don't bear fruit in a timely manner next year, I mean, is that something that you think could have an impact on the trajectory of the generics business, particularly considering you have a more competitive landscape for biosimilars? How should we think about that to the extent that you have the sort of a paucity of launches next year, if that comes to pass? Kåre Schultz: Thanks a lot. So in terms of AUSTEDO, like I said, when I comment on the development, AUSTEDO and the competitive product is actually in a very good position where they are the first products approved for tardive dyskinesia. There are only 2 products approved for this disease. I think we have around 10,000 patients. They have around 15,000 patients on drug, and the patient pool, just for tardive dyskinesia, is around 500,000 and maybe only half of that will ever get on active therapy, but it just means there's a big potential. And the competitiveness is, you could say, quite similar and reflected in the patient accounts due to the fact that Ingrezza launched a little bit ahead of us. So a little bit ahead, but I think the growth in patients is pretty similar between the 2 companies. So I don't see that their potential approval in Huntington's would make a major change in the market dynamics. So I'm very optimistic that due to that huge unmet medical need, we will continue to see AUSTEDO growing for the next many years. With regard to the high-value launches, and you can say, of course, it always gives a little positive leap. We -- I just showed you the [indiscernible] in '19, and we're going to have Truvada and Atripla here in the fourth quarter of '20. And most likely, every year, we get one of these key, more complex, high-value drugs approved. We still have the EpiPen and so on. So I don't think it's going to play a major difference to what we see in terms of earnings and revenue next year. But maybe I don't know, Brendan, if you want to give a specific comment to some of these high-value launches?

Sure, Kåre. I'd be happy to. So we have numerous potential high-value launches that are always possible next year. There's 5 or 6 of them. We'll see, as we move through the regulatory process, which ones get approved and which ones don't. And you're right, the market can change by the time we get approval and launch, but the way that we certainly account for those and risk adjust those in our P&L takes all that into consideration. So I'm optimistic next year, we'll have several high-value launches. We'll see how that goes, but that's generally the way it plays out. And the only other thing that I would add on AUSTEDO is that there is a significant number of patients out there, as Kåre said, about 5% of the market -- available market is treated between us and our competitor. So we do see significant upside potential with tardive dyskinesia. And tardive dyskinesia represents the majority of the growth and the value. Huntington's disease is important, but tardive dyskinesia is certainly the bigger market. So I'll just -- I'll leave it there.

Your next question comes from the line of Randall Stanicky of RBC Capital.

Kåre, it looks like you're reaffirming your implied EBITDA target in 2023 of close to $6 billion on the assumption that you can take down debt -- net debt by a couple of billion a year and get under 3x on net leverage. So that seems to imply revenue growth of 2% to 3% on your 28% margin EBITDA growth mid- to high-single digits. So first question is, is that the right way to think about the outlook on those metrics? And then secondly, can you talk about the digital health -- sorry, digital therapeutics opportunity on the back of AirDuo and ArmonAir? Are there additional opportunities as you think about the broader base of business, either brand generic or biosimilar? And do you see a 505(b)(2) opportunity in digital therapeutics? Kåre Schultz: Thanks. So the first question, you are, of course, overall, spot on there. We will probably have a cash flow $2 billion, $2 billion-plus per year. And we'll allocate the cash flow to debt reduction. So that means in the next years, we'll take some $6 billion plus out of our debt. And then, of course, you said the math is quite straightforward that EBITDA should be around $6 billion. And the way to get to that EBITDA is also pretty straightforward because we've already sort of explained to you what we think the operating margin will be because that's going to be 28% in the end of the period. And then, of course, you can calculate, as you rightly did, that we need a low single-digit growth in revenues in order to get to there. And that's what we believe we can do. And the reason why we believe we can do it is what I explained to Umer based on his question with the various…

And your last question comes from the line of Balaji Prasad of Barclays.

This. This is Steven on for Balaji. Maybe if you could talk more about the outlook for AJOVY. I guess, could you just provide a little bit more color on what exactly has changed from the outlook provided in August? And then how do you view the additional competition coming into the migraine prevention market over the next 1 to 2 years? Kåre Schultz: Yes. Thank you very much. So what really changed has been that the total market growth has not been exactly as we hoped for. So therefore, we are getting a higher TRx number, as you saw. We are getting a higher NBRx share. So we are getting a higher share of the market, which is good, but the total market has continued to be held back in its growth compared to what we hope for and plan for most likely due to COVID and the fact that new therapies simply grow slower when people go less to the doctor. And that's the key driver. The other element that has been a factor is that we're probably seeing more, you could say, new scripts come in where we were -- where we ended up using co-pay cards and pay downs, and that has led to a slower, you could say, ramp-up of the revenue per script compared to what we were planning for. Now next year, we expect to see a continuous growth in the NBRx rate and as a follow-on from that, the TRx rate. And as people get on more regular therapy, of course, they don't get the same initial buy down. And that means that the net revenue per script will be going up. So we are quite optimistic that we'll see a nice development of the AJOVY sales next year, also helped by the increasing number of European launches in the very strong initial performance we're seeing there. So thank you very much for that question.

Thank you, everybody. That concludes our call for today. We look forward to speaking to you today, tomorrow and the weeks to come. Thank you again for participating.

Thank you. Ladies and gentlemen, that does conclude your conference call for today. A replay of this event will be available in 4 hours' time. You can listen to this at any time by dialing +44-3333-009-785, by conference ID, 7275239. We thank you for participating, and you may now all disconnect.