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

Thank you, Annette. Thank you everyone for joining us today to discuss Teva’s fourth quarter and full year 2021 financial results. We hope you have had an opportunity to review our earnings express 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 number 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 Kåre Schultz, Teva’s CEO will provide an overview of the 2021 performance, recent events and priorities going forward. Our CFO, Eli Kalif will follow up by reviewing the fourth quarter financial results in more detail, before providing an overview of Teva’s 2022 financial outlook. Joining Kåre and Eli on the call today is Sven Dethlefs Teva's Head of North America Commercial 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 now turn the call over to Kåre. Kåre, if you would please. Kåre Schultz: Thank you very much, Ran, and welcome everybody, and thank you for your interest in our company. I'll start by commenting on the 2021 highlights. We came in with revenues at $15.9 billion. We did see some headwinds compared to our initial guidance, basically coming from COVID that resulted in less volumes, general in the marketplace of generics and OTC, both in Europe and U.S. And we also had a bit of headwind from the fact that the U.S. doctors didn't see as many patients as normally. So, we saw a slightly slower penetration…

Thank you, Kåre. Good morning and afternoon to everyone. I'll begin a review of our 2021 financial results with my main focus being on the fourth quarter performance. This will be followed by an introduction of our 2022 non-GAAP guidance and some of the important assumptions behind it. While most of the discussions around 2022 guidance will come at the end of my presentation, in a few spots along the way I will touch upon our expectation regarding forward-looking trends to assist you with your modeling. Beginning on slide 23, I would like to start with our Q4 GAAP performance. Revenues in the fourth quarter of 2021 were $4.1 billion, a decrease of 8% in both U.S. dollar and local currency terms compared to the fourth quarter of 2020. This decrease was mainly due to lower revenues from generics products in North America and COPAXONE, partially offset by higher revenues from AUSTEDO and AJOVY. As Kåre mentioned earlier, our revenue continued to be affected by the ongoing impact of the COVID-19 pandemic on markets and on customer stocking and purchasing patterns. For the sake of year-over-year comparison, I would like to note that Q4 2020 included generic product sales in Japan totaling $73 million and approximately $240 million for the full year of 2020. As we have previously communicated, these products were divested as of February 1, 2021, along with the manufacturing sites in Japan. As we have discussed in the past, the decrease we are seeing in our revenues from generic products in North America was mainly driven by the fewer generic products launches in 2021, compared to 2020. Foreign exchange rates movements during the fourth quarter of 2021, net of hedging effects, negatively impacted revenues by $90 million compared to the fourth quarter of 2020. GAAP operating income…

And the first comes from the line of Umer Raffat from Evercore. Please ask your question. Your line is now open.

Hi, guys. Thanks so much for taking my question. I guess, I'm a little confused about the AUSTEDO number reported. It's up 4% in volume quarter-over-quarter, but sales are up 40%. And it looks like the dollars per RX are up almost 35% versus Q3. Is there something unique that happened, as it relates to inventory and/or a favorable gross to net change or reconciliations? That would be very helpful. Also, perhaps on the opioid theme, I noticed the headline you put at the Texas is $225 million, which is really interesting, because J&J's headline for the global settlement to Texas with $290 million, meaning you're not so far off versus the headline J&J was able to successfully negotiate. So if you're really tracking as close as you are to the headline numbers versus J&J, presumably, that should form the basis for a lot more interest nationwide, especially considering your financial status and they probably appreciate it. So, why aren't we seeing more traction on a potential nationwide settlement? And just finally, just a quick one. I noticed fibromyalgia for CGRP. Did that trial not work? Because I know wasn't even fully recruited yet. Kåre Schultz: Thank you, Umer, for those three questions. I'll start from the last one and -- two last ones, and then I'll let Sven answer the one about AUSTEDO. So, on fibromyalgia, it's correct that we have had a -- recorded a futility analysis done. And the conclusion of that by the experts who look into it was that it would be futile to continue the trial. So, we will not be continuing looking into fibromyalgia. So that's absolutely correct observed. On the opioids piece, you could say that we are still optimistic, as I said that we can reach a nationwide settlement in the coming 12 months. We have been, of course, in constant dialogue over the last couple of years. And you, of course, remember, the initial framework, which was less cash and more product was $250 million nationwide in cash and $23 billion in product. And then, it didn't really fly. And I think it's fair to say, the reason why it didn't really fly was mainly because the , they basically did not see any fees coming in from the product part. And that means that it was not attractive to them. Whereas the new balance we have in Texas, where you could say we have a third in products, $75 million of generic Narcan spray, which is very good thing for treatment of opioid overdoses; and then, the other two thirds $150 million in cash over a period of years. I think that's a more appealing setup. So, I would agree with you that if it was doing this, there's probably now a higher probability that we can reach a nationwide settlement. And then, I'll then pass on to Sven on answering the AUSTEDO question.

Yes. Thanks, Kåre. So, Umer, in the second half of 2021, we had a 63%, higher script count for AUSTEDO than in the first half of 2021. So, we had a very good trajectory. Actually, December was our strongest month in the year and that also saw the strongest step up. So, in context of that, we also know that the Q4 quarter is always the strongest one for AUSTEDO. We have a spec buying by the wholesaler that causes it to earlier due to the price increase that we took for January 2022. And that was one factor. The second one, as I explained was the script count. And we saw a slight improvement in daily dose per patient which also contributed to a strong quarter for -- in the last year.

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

Kåre, if you don't mind, quick three ones. One, with Risperidone LAI, do you own this royalty-free or is there some stream that comes out of that? Second, can you give us a feel for the biosimilar margins in your partnerships? Given those are becoming a bigger product, is this dilutive or accretive to your gross margin? And third, can you talk a little bit about your sensitivity to interest rates? Essentially, there's a 1% increase in interest rates in 2022. How much will that impact your earnings if we think about 2023 and beyond, just to give us a feel for the sensitivity there? Kåre Schultz: Thank you very much, Ronny. I think I need to just to repeat the first question about Risperidone LAI. What is the specific question?

Do you own royalty on this? So, do you own it royalty-free? Kåre Schultz: Okay. So, this product is developed by us based on in-license technology from MedinCell. They have a prolongation technology that we're using for this product. And we also have olanzapine LAI in development using the same technology. And we are paying a small royalty on the product. It's not dilutive to our margins when we launched Risperidone LAI in the product. We expect the overall margin of Risperidone LAI to be good and healthy. So we are very optimistic about the fact that we can grab a reasonable volume share and also market share in value of the long-acting segment, simply by offering a more convenient and better dosing with unbeaten efficacy. So, I guess, that covers the first two questions because that was also the question about the margin. And please correct me if I'm wrong there, Ronny. Then on...

Yes. The second question was around the biosimilar partnership margins. Is this accretive or dilutive to your gross margin? Kåre Schultz: Okay. So no, they're not. It's basically so that you could say, biosimilars, of course, have higher development costs. But the -- once you get into the actual market, even with a split with a partner, it's a margin that can compete with traditional generics. So it's not diluting. It's, of course, not the same margin as a specialty patented products such as COPAXONE, for instance. But if you look at our overall margins, then our biosimilar in-licensed products can match the overall margins we have. Then the last question on the interest rate. First, I'll just note that all our debt is based on bonds that have been sold in the marketplace. So, they are not really in any way influenced by any moves in interest rates. So the simple question is that all the $20 billion of debt we had, the interest rate is locked. So, there's no effect of interest rates going up and down over the coming years, which means we can predict our finance cost extremely precise. The only swing factor is, in a way, the exchange rate between dollars and euros because some of the debt is in euros. And of course, there's a conversion there into dollars, which can affect both the size of the net debt, whether the euro goes up and down versus the dollar, and also a little bit the size of the yearly interest rate payments. But other than that, it's very, very predictable due to the fact that it's all locked in, and we don't have any variable interest rate on any of our debt. Thank you for the questions.

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

First question, perhaps for Eli. In light of the strong gross margin performance and the roughly 180 basis-point year-over-year improvement, could you just provide us with some color or insight into expected gross margin trends in 2022? Just trying to get a little bit better sense of the ongoing benefit from manufacturing rationalization versus the lighter top line outlook, and probably what is going to be a more favorable mix impact. Then, a follow-up question for Kåre on AUSTEDO trends. Obviously, this is going to be the key growth driver within the branded segment for the next several years, the TD population remains very underpenetrated, under captured. I know you guys have initiated some patient activation efforts to capture more of that market, and we're starting to see some incremental gains there, but perhaps slower than expected. Question really is, if you look at external expectations, the market does not really see that product growing much over the next 5 to 7 years. And you guys really haven't said anything about peak expectations for the product. So, if there's any color you can provide in terms of sort of where you think this product can be in 5 to 7 years versus the roughly $1.3 billion that external estimates project. Thanks. Kåre Schultz: So Eli, you first for the margin?

Yes. Thanks, Elliot, for the question. So, just back a bit to the prepared remarks of Kåre. You saw how we're getting reduced, mostly our manufacturing sites. And as Kåre mentioned, we still on top of the 50 that we're able to be that position, we have more planned around that one, which means that the core manufacturing cost is going to reduce as well in 2022. So, when we are doing our kind of the modeling, we're not really heavily considering on getting a benefit on a mix of products, which means that in 2022, we're most likely going to talk between 50 to 100 additional basis points on our gross margin. Kåre Schultz: Thank you, Eli. Yes, we keep on pushing, and you should expect also longer term that we'll keep on pushing the gross margin up by classical consolidation, optimization, rationalization. Now, on to AUSTEDO, 5 to 7 years out. As you probably know, I never get peak sales on any product because there are so many assumptions. People always forget the assumptions and just think about the number. But I'd love to discuss what we think will happen with AUSTEDO over the coming years. And we think that AUSTEDO will keep on growing nicely, basically due to the clinical benefits of the product and the large unmet medical need that you alluded to yourself that I also showed on a slide. If you want to think about it conceptually, then we will probably get more patients. And there's also a chance we'll keep them longer and they will be titrated faster. So, we will see growth, which this year, we are estimating that it will be growing $200 million. I don't see any reason why that absolute growth should slow down over the coming years. And then you can do your own math and see what peak sales you get to 5 to 7 years out. But I do agree with you that that number is higher than $1.3 billion for sure. But maybe, Sven, you can just comment on what are we seeing in terms of the plans to optimize both titration and product presentation and so on, on AUSTEDO?

Yes. I think we -- I see the three sources for growth for us. One is, of course, the patient number. We need to activate more patients and improve the diagnosis rate for tardive dyskinesia with our physician group. That's number one. That's what we're already doing with our field force and with our recently launched TV campaign. The second element for growth for us is working better with the patients to reach an optimal titration, so dose per day level because that's directly correlated with the clinical benefits of this drug. And there, we see -- when you look at the current treatment rates and where the long-term data for this product stands that there's still an ability to optimize the treatment rate. And the third element is something that we learned, of course, also with our COPAXONE franchise is adherence here is a key element for a chronic disease, especially for this patient population. And that's, I think, the third element for growth for us. Kåre Schultz: Thanks, Sven. Thank you for the questions.

And the next question comes from the line of Navann Ty from Citi.

What are your COVID assumptions behind the 2022 guidance? So, do you assume a lingering impact on the generics business? And then, my second question is on costs. So, the midpoint 2022 EBITDA margin will be slightly lower. So, can you comment on your SG&A and R&D assumptions for 2022? And then, just a quick one on opioids. The Texas settlement, was it in line with your expectation? Was it driven by Teva’s market share in the state, especially if we compare versus your peer Endo? Thank you. Kåre Schultz: Thank you for those three questions. I will handle the first and the last, and then Eli will comment on the SG&A piece. So, our assumption for COVID, this year is a relatively optimistic assumption, you could say, in the sense, but also cautious on the guidance range that you would say the lower end of the guidance will only happen if we see a continued negative effect from COVID. And we are optimistic that we are seeing now openings in -- of society in U.S., in Europe and in general, a high level of economic activity. And we see prescription levels in Europe getting close to what they were in 2019, still a little bit below but we're optimistic that we will get back to the '19 level and above in terms of the total volumes in the marketplace, not specifically for us, but just in general. So, that is really our assumption. But you will see also that we have like -- and you alluded to, we have widened the range on our revenues because there is, of course, the risk that we will see some kind of continued new lockdowns or whatever. And we have to be able to manage that within our guidance, if that happens. So, that's on the COVID piece. Then I'll handle the opioid piece. The way you should think about it when we think about the possibilities of a nationwide settlement is really we are thinking along the lines of the way it was done by J&J and the three big distributors. And that is really a formula where you say that it's mainly population-based, but it's skewed a little bit so that the smaller population states get a slightly higher percentage than the straight out population calculation. What does that mean? It basically means that if you do a straight out population calculation, then you would say that with the population in Texas, a nationwide settlement would be 12 times the taxes settlement. If you do the percentage that went into the nationwide settlements of J&J, then you would roughly have to move aside by 16. But it's really population based. It's not related to anything specific about individual products or anything like that. That's the principle that we expect if we are successful with a nationwide settlement, that's the principle that we expect will be used there. And then, the last question about SG&A, Eli?

Yes. So thanks, Navann, for your question. You asked both on R&D and SG&A. So, I think that overall, if you look on the first half of '21 versus the first -- second half '21, it's more or less the same in terms of dollars. There are some variable elements in between Q4 that we were able actually to manage in terms of priorities. Overall, our OpEx went down to 26.5%, same for the R&D. It's all about vitalization of projects, so nothing there specific. Kåre Schultz: Thank you for the questions.

And the next question comes from the line of Chris Schott from JP Morgan.

Just two for me. First, I just wanted to confirm, I think you mentioned that the first half sales would be 45% of total for the year. I think it's a bit more skewed kind of first half versus second half than we've typically seen. And I'm just trying to elaborate maybe a bit more of what's driving that swing. And the second one is maybe a bigger picture question on North American generics. I think in the past, you talked about kind of a $4 billion run rate as your target here. I think you've been below that for the past few quarters. Can you talk a little bit about what needs to happen to get back to that type of level? And is that something reasonable to think about as we go through 2022 as you think about whatever launches you have, et cetera, as we go through the year? Thanks so much. Kåre Schultz: Thanks for the questions, Chris. I will comment on the first one, and then Sven will comment on the second, North American question. So, it's correct that it is probably a bit more skewed than what we've seen in other years, but it's very sensitive to when we have launches. And what we're estimating this year -- and Sven can comment on some of the North American ones. We are estimating that we will see more launches that will affect the second half, then we will see affect first half. So, we're not really carrying like we carried to Truvada and Atripla into the first quarter of 2021. If you look at our U.S. generic sales, we still had some of that tail in the first quarter of last year. We don't have a big launch that we did, you would say, fourth quarter of '21 that we are carrying into the first quarter of '22. We do have launches coming up, Risperidone LAI, several generic launches. So, those will mainly affect the second half. And then, we do have the basic seasonality that we've had always that most pharma companies have that we have the donut hole on those various things on rebate schemes and so on. That takes down the first quarter. And you typically have the reverse thing happening in the fourth quarter. So, it's maybe slightly more skewed than normal, but there's nothing really extraordinary behind it other than our operational plans. And maybe, Sven, you can comment on the $4 billion run rate for U.S. Generics run North America -- we should just make sure we always make it clear that we’re talking about North America. So it's really U.S. and Canada. But, over to you, Sven.

Yes. The North American generics sales are reported in three segments: biosimilars, Teva Canada, and the U.S. generics business. So in 2020, we were above the $4 billion target. And in 2021, we were below the $4 billion target. And I think the two years, I tell you how it goes. It goes -- in 2020, we had quite a strong biosimilar business and an excellent launch of generics with Truvada and Atripla, and that was absent from 2021. And that gives you an idea how we think about the $4 billion as it -- basically, in a year where you have a good generics launch in complex generics with a large originator value to address or you have a biosimilar launch. We're quite confident that we get to the $4 billion sales. Kåre Schultz: Thank you. Thank you for the questions.

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

Kåre, we were previously talking about 2021 as a trough year. Are you confident now that '22 should be a trough year in terms of revenue and EPS, especially if COVID normalizes? That's first. Second, on the opioid litigation, if the nationwide settlement ends up being, I guess, one-third product, one-third cash, is that something that you can actually absorb with your balance sheet, that type of mix? It seems like you're sort of going down that path. And then with Risperidone LAI, just curious, do you have the sales force in place to launch this product? Talk about maybe some prelaunch activities that you're doing, and if there'll be any real incremental spend on this in the back half of the year? Kåre Schultz: Thanks for those three questions. I'll address the first two ones and then Sven will address the risperidone question. So, I can confirm that I am expecting that 2022 will be the trough year, so to speak, or the combination of '21 and '22, you could say, unfortunately, will be the two trough years. And the reason being that is, of course, that I'm expecting that we will see a normalization of the volumes in Europe and U.S. And what we're talking about is probably that volumes in '21 were, let's say, 4% -- something like that. 4% to 5% below what we would have expected if we had seen zero effect of COVID on the volume of doctor visits, hospital visits and so on for diseases not related to COVID-19. And you combine that with the dynamics of COPAXONE now have come down to around below $1 billion this year. And it will keep going down, but of course, the absolute amount is less and less, and the growth number on AUSTEDO and AJOVY…

Yes. So the commercial organization is in place, including the sales force, and we finance this by reallocating resources within our budget. And yes, we will see a step-up in the SG&A spend when we launch the product.

And there is one more question from Jason Gerberry from Bank of America.

Just one other follow-up on the opioid front. I think there's a February 25th deadline for final implementation for the J&J distributor side of the equation. So, is that too little time for Teva to negotiate its way into the deal, or would participation in a global deal have to happen subsequently? I'd imagine your counterparties would love a much bigger top line to announce to its constituents. So, I'm just curious if we're too late in the game there. And then, ultimately, how do you leverage the existing framework? And then, ultimately, when we look at the final opt-in later this month, how much residual litigation burden after the settlement would be unsatisfactory versus how would you characterize true global piece in a global settlement? Thanks. Kåre Schultz: Aiming, of course, at reaching a nationwide settlement within the next 12 months. It's not our aim to join into communication around the settlements that J&J and the three distributors have been reaching. We see that as our settlement will most likely be communicated separately. And it's also different in that we have a product component, which nobody else has. So, that's how we see that. In terms of how do you get piece, so to speak, how to get a comprehensive holistic settlement. It's really all about the subdivisions. So, if you look at what we did in Louisiana and what we did in Texas, it basically includes all the subdivisions. So, if you think about nationwide settlement, you have the same situation for us, as you've seen for J&J and the distributors. You need to get into the 90s in terms of how many stock divisions go along with it because otherwise, you will just have too much of a tail of litigation out there. What I've been seeing, and I'm not -- I don't have any insights over and above what's publicly available is, of course, that we are seeing increasing participation rates for the J&J and the distributors settlements from the subdivisions. And from what I've been reading, we are in the 90s, and we're really seeing majority of states and majority of subdivisions going along with this. And I think that it just makes sense because it makes sense for the population. It makes sense for the states. It makes sense for the . It makes sense for the companies. And I don't see a lot of subdivisions eventually actually trying to go to trial and going up against their states as a whole vehicle twist to this, which I won't get into. But it's problematic for a county or a city to really pursue this once the state has settled. And I don't think we'll see much of that. I hope that answers the question.

Thank you. Please continue with your closing remarks. Kåre Schultz: So, thank you, everyone, for joining the call. It was a pleasure taking the questions and talking to you. And I wish you all a nice and safe day. Bye, bye.

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