Good day, and thank you for standing by, and welcome to Teva's First Quarter 2022 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 first speaker today, Ran Meir, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Annette. Thank you, everyone, for joining us today to discuss Teva's first quarter 2022 financial results. We hope you have had an opportunity to review our earnings press release which was issued earlier this morning. A copy of this press release as well as a copy of the slides being presented on this call can be found on our website at tevapharm.com. Please review our forward-looking statements on Slide 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 first quarter performance, recent events and priorities going forward. Our CFO, Eli Kalif, will follow up by reviewing the financial results in more detail, including our 2022 financial outlook. Joining 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 will now turn the call over to Kåre. Kåre, if you would, please? Kåre Schultz: Thank you. Welcome, everyone. I'm happy to present a solid first quarter of this year, with continued progress on many fronts. If we take a look at the financials, then revenues came in at $3.7 billion, our adjusted EBITDA came in at $1.1 billion and our GAAP diluted loss per share was $0.86 and our non-GAAP diluted EPS came in at $0.55. Free cash flow came in at $117 million, and we're happy to show you that the debt reduction continued and net debt is now reduced to $20.7 billion. Our 2022 revenue outlook has been revised slightly downward mainly due…

Thank you, Kåre, and good morning and good afternoon to everyone. I'll begin my review of the first quarter of 2022 financial results on Slide 16, starting with our GAAP performance. Revenues in the first quarter of 2022 were $3.7 billion, a decrease of 8% or 5% in local currency terms compared to the first quarter of 2021. This decrease was mainly due to lower revenues in our North America segment, mainly driven by generics products and COPAXONE, partially offset by higher revenue from ANDA and generic products in our Europe segment. We have been seeing generic product launches for Teva towards the end of the first quarter. However, the decrease in our revenues from generic products in North America is still affected by the low number of launches in 2021. In Q1 2022, we recorded a GAAP operating loss of $713 million compared to operating income of $434 million in Q1 2021. GAAP net loss of $955 million compared to a net income of $77 million in Q1 2021. A GAAP loss per share of $0.86 compared to earnings per share of $0.07 in the same period a year ago. GAAP operating loss, net loss and loss per share were mainly driven by higher legal settlement expenses related to an update of the estimated settlement provision recorded in connection with the remaining opioid cases in the first quarter of 2022. Foreign exchange rate movements during the first quarter of 2022, including hedging effects negatively impacted revenue and GAAP operating income by $133 million and $56 million, respectively, compared to the first quarter of 2021. This was a result of impact of the stronger U.S. dollar, especially versus the euro. As a reminder, approximately 50% of our revenues come from sales denominated in non-U.S. dollar currency. Turning to Slide 17.…

And the first question comes from the line of Balaji Prasad from Barclays.

This is Balaji from Barclays. Firstly, on global opioid settlement, Kåre, I couldn't help notice that you seem to call out a more specific time line this time around for the first time, stating that you expect to see a settlement by the end of the year. So could you give some incremental color around the progress that you're seeing at least to the extent that is disclosable? And what role will the state settlements play as you go towards this date? And secondly, on biosimilar, Humira, can you give your thoughts on the relevance of the high concentration interchangeability and the impact on share dynamics that you expect with or without this interchangeability? Kåre Schultz: Thank you, Balaji. I didn't -- there was small thing on your opioid question where the sound just dropped out. So, I got it that you wanted some more color on it, but there was some specific element you asked about, which I couldn't hear.

Yes. You seem to have been mentioning a more specific time line for the first time, stating that you expect some progress by the end of the year. So, I was asking what progress and what color you could provide further on it? Kåre Schultz: Okay. Thank you very much. So I'll take the first question, and then Sven can comment on Humira in the U.S. and those elements. So on the opioids, you can see that we have been doing a number of settlements on a state-by-state basis so far and you can see that there are some common elements there in all the settlements, which, you could say, two main elements. One is, it's a combination of product that can benefit people suffering from substance abuse. So, we have products in there. And you can also see that we are paying over a longer period of time. And of course, the reason why we need to pay over a longer period of time is due to our balance sheet and the debt we just talked about. So the only way it's possible for us to do it is if we spread out the payments. And the other thing is, of course, we can bring value to the table due to the fact that we are one of the biggest manufacturers of generics in the world, if not the biggest, and also in North America, we have generic Narcan, which can be used to help people if they overdose. So we're very happy about those settlements. And in conjunction with that, we, of course, also have ongoing negotiations on a nationwide settlement, and we also believe we're getting closer there. So, I'm slightly more optimistic on the time schedule now, and that's why I hope that we will see a nationwide settlement before the end of this year. Sven, will you address the biosims Humira question?

Yes. Thank you, Balaji. So on the biosimilars for Humira, we have now a clear situation due to the settlement between Alvotech and AbbVie concerning the launch of this product. So we will be in the second wave in July 2023 with our product formulation. The product features themselves, I would say every single feature in itself is, of course, not a decisive factor, but it is the whole package of our product that makes it attractive. So it's citrate free, it's interchangeable, and its high concentration and it also has an attractive auto-injector. And what we know with the payer discussions is that payers very well, of course, analyze the features of each product offering coming to the market in July next year. And we believe that the total package that we offer is highly attractive to provide us market access. That is one aspect of the product features. The second one is, of course, to create pull-through in the market once you have the product in the market because this product launch will behave not like a classical generic launch in the U.S., but it has more features of a European branded generic launch. And there, we know that the product features and the attractiveness of the package is quite important. So, we are quite happy with the Alvotech, Humira biosimilar that we will launch next year.

Thank you. And the next question comes from the line of David Amsellem from Piper Sandler. Please ask your question. Your line is now open.

So, I wanted to get some additional thoughts from you, Kåre, regarding business development and M&A and specifically, the extent to which you're prioritizing the addition of brand assets. And to that end, can you talk about your financial wherewithal to do consequential M&A? How large of this transaction can you contemplate, both now and also in the context of the global settlement being effectuated? So, I wanted to get your thoughts there. And then, as a corollary to that, is it fair to say that you're going to look for neuroscience-focused assets or are you looking at other therapeutic verticals? Kåre Schultz: Thank you for those two questions. I'll answer both of them. So first of all, of course, it will be nice to do some interesting M&A, but you've got to look at our balance sheet, and we don't really have any cash or significant debt capacity on our balance sheet. So that's not really going to happen in terms of any major transactions for the next several years. What you will see us doing, which is what we have been doing is, you could say, early stage in-licensing of interesting assets that we can take through development on our own all together with a partner. And that we will continue to do, of course, but you will not see us doing any major M&A transactions. We simply do not have the balance sheet for that as we speak, and that's with or without an opioid settlement. You could say M&A based on, you could say, based on share capital is a theoretical option, not with our current ratios that would be value destroying for the shareholders. But potentially, in the future, if the share price improves, then of course, that is a theoretical opportunity. But cash-based acquisitions, no, that, you'll not see in the coming years. Then in what areas do we want to do in this early stage in-licensing? Well, we basically focus on neuroscience and immunology. Those are the two areas where we have the most knowledge, and that's where we have our current portfolio. We have 15 very exciting biopharmaceutical projects right now in the clinic. And those will be there that we'll be focusing on. And some of the recent deals we've done with early-stage assets have also been in those areas. So, we'll continue down that path. Thank you for the questions.

Thank you. And the next line or the next question comes from the line of Umer Raffat from Evercore ISI. Please ask your question. Your line is now open.

This is Eric Masane speaking for Umer Raffat. Can you hear me just wanted to make sure I've been having audio issues? Kåre Schultz: We can hear you.

Great. I just have one quick question on opioids first. Lately, we've been seeing a lot more of the states from the -- that opted out of the agreements on a state-by-state basis. Are these states requiring more cash per capita compared to those that were in the agreements from your perspective? And just one follow-up. Kåre Schultz: So no, that's not the case. If you look at, you could say, Texas and Florida, then, of course, it's a -- all the deals are slightly different, but the key elements are that, of course, we see products in there, we see cash in there, we see a long payment period in there, and that's what we've been saying from the beginning. If you want to think philosophically about what has changed then compared to the nationwide settlement where the four other big companies, the three big distributors and J&J, they offered cash only. Back then, we offered basically product only and a little bit of cash. And now we've adjusted it. And of course, it goes hand-in-hand with the fact that we have the capability now of paying slightly more cash than we could some years ago. We've stabilized the business. And if you sort of look at what we're doing right now with the individual states that we're settling, this is very much in line with what we would hope to do on a nationwide basis.

Got it. And just a follow-up on the AJOVY and AUSTEDO that we saw in the U.S. It seems that consensus is expecting a bit more than what was actually reported. Do you think consensus numbers need to rebase or do you think the U.S. market has drivers that aren't being accounted for? Kåre Schultz: No, I don't think so. I think actually, the consensus numbers for the U.S. are pretty close on a full year basis. to our consensus numbers. So -- and we are reconfirming those. It's correct that if you look at the quarters, as I showed you, then we had this big swing always between fourth quarter, first quarter due to the spec buying and the donut hole. And we're also seeing that this year, but we are reconfirming our AUSTEDO outlook of $1 billion. So -- and that is the way I remember it from different consensus as I've seen, that's pretty close to the consensus in the marketplace.

Thank you. And the next question comes from the line of Chris Schott from JPMorgan. Please ask your question. Your line is now open.

Just two for me. I guess, first on the next set of guidance targets, I know you're going to give that later this year, but it seems like the past five years, we're kind of stabilizing the business, really focused on margin improvement. I guess, high level, as you think about kind of post 2023, does the focus pivot more to top line growth or is it still going to be a very margin-centric story? I'm kind of asking for maybe a bit of a preview of how to think about kind of Teva longer term? And I know we'll get more details later this year, but any color there would be appreciated. And then the second one for me was on the quarterly revenue progression. You're talking about this kind of 45-55 split for the year, which I think is a bit more back-end loaded than we typically see. I guess, how much of that ramp is tied to products where you have is a full clearly on approval and a more commercial execution related versus how much of that is tied to assets where maybe you're still waiting for approval. I am sure, I guess, get a sense of just the risk tied to FDA or regulatory on getting to that second half ramp? Kåre Schultz: Yes. Thanks for those questions, Chris. So I'll give it a shot at both of them and then Sven can give some additional color to the last one. So if you think about what we will be communicating in terms of long-term guidance later sometime in the coming year, then you should really think about it as explaining the same plus more, I would say. So, we will not get away from the fact that we need to keep on generating cash…

Yes. Thank you, Kåre. So for AJOVY, we expect a steady development that is based on improved market access and improved market share. For AUSTEDO, we see a pretty good development now with our key campaign and the patient activation in script count. We had within the quarter from January to March, a significant step-up in TRXs. So we expect AUSTEDO to grow throughout this year towards its guidance target. In generics, of course, we had in the first quarter now a significant step down in Truvada and Atripla. We also had, as a reminder, last year in Q1, a loading effect for EpiPen because the approval of the COVID vaccine led to an EpiPen spike that we've seen in 2021. So that didn't repeat in 2022. But for generics, the outlook, of course, is that we are not independent of the macro environment in the U.S. with the price deflation, but we have now launched Revlimid in March 2022, so just four weeks ago. And that will continue to build up revenues for us throughout the year within the settlement framework that we have with BMS and then we have a couple of other products where we still expect or hope for approval from the FDA and generics. The most important one for us is FORTEO, which would be also a significant contributor to our sales in 2022. So, the bottom line is that we expect a gradual development throughout the year and the buildup of revenues towards the end of the year.

Thank you. And the next question comes from the line of Elliot Wilbur from Raymond James. Please ask your question. Your line is now open.

Perhaps for Eli, just wanted to ask a question around the operating profit impact from the reduction to your top line guidance, owing to currency, specifically, and then thinking about the combined impact of currency assuming that there is one combined with lower expected profit contribution from COPAXONE, which is not insignificant still. Trying to think about what some of the potential offsets to those may be that enabled you to still maintain prior adjusted EBITDA and free cash flow guidance? Or should we be thinking a little bit more along the lines that these numbers may be a little bit more skewed towards the lower end of the range versus where they currently stand? And then I had a follow-up question for you, Kåre, on the legal settlement provision this quarter. Just want to get a sense of where or what the current balance sheet accrual is for legal settlements and loss contingencies. I'm assuming it's over $3 billion now. I'm just trying to get a sense based on some of the settlements that have been entered into recently, which seem to be along similar lines to what we've seen really over the last year or so, why we've seen a fairly significant step-up in the accrual related to potential settlements on opioid litigation? Kåre Schultz: Thanks, Elliot. So Eli will talk first about the currency elements.

Yes. Thanks, Elliot, for the question. So, we still stick to what we said in February in terms of the margin, which means that according to our long-term financial targets with the baseline of '19 onwards to total t50 basis points up to the 28% OP, which is leading us to top this year as well, like 0.7% year-over-year on gross margin. And the flow-through will be going to OP, part of those, I would say, elements impacting our revenue. As you know, we're also operating in those countries that actually we are getting kind of less on the expenses. So it's kind of not offsetting all of this one. I would say, not the full offset. But because of our ongoing activities, mainly on COGS reduction and we see it quarter-over-quarter and the fact that we remove certain fixed costs, mainly with manufacturing footprint from our portfolio, and we see now kind of a benefit that already help us to offset those things. So, all in all, if you look on our current midpoint on the new guidance, we should land at the same more or less margin that we talked already in Q1, around 27.5% to 27.7% for the year. Kåre Schultz: Thank you, Eli. And on the legal provision, the legal provision for the opioid litigation is now at US$2.6 billion, which is an increase of 1.1 billion versus the last quarter. And it's really the result of a holistic assessment of what's the effect of the settlements we've done so far, what's the most likely, outcome based on our current negotiations. So you should see there's a holistic assessment that we do. And of course, there's a lot of detailed factors in there, there's products in there of various volumes, there's cash in there over various periods and so on. So that's really our best guess as we speak.

Thank you. And the next question comes from the line of Ronny Gal from Bernstein. Please ask your question. Your line is now open.

I'll ask two. The first about the CRL Risperidone, can you just talk a little bit about what the issues here? Risperidone is a known molecule with known efficacy to the formulation, is it manufacturing? Is it lack of preclinical data, where are the gaps? And the second one about the material contribution from adalimumab in 2023, is this something you're going to see? Or is it more for 2024 contribution? And probably my last call, my question, I want to sneak one in. Eli, if you can tell us what this $2.6 billion in provision for the opioid settlement, mean in terms of undiscounted dollars, essentially, there's some discounting assumption thrown in there about how long it will take to pay, but how much is kind of like the non-discounted dollar value it represents? Kåre Schultz: Thank you for those three questions, Ronny, and good luck in your future career. So the first one, the CRL, I can't tell you all the details, but I can tell you it has nothing to do with, you could say, efficacy and safety. We have very, very good efficacy data, very good safety data. We are very confident that the principle works very, very well. But it's to do with some details around how you could say the whole execution of the clinical trials have been done and some details there, which we are confident that we can address and correct and communicate, back to FDA within maximum six months. And then, we expect the review time of six months. So, we still have high trust in the fact that we can get the product approved at the end of the day. Then on Humira, Sven, will you handle that question?

Yes. Thank you, Kåre, and congratulations Ronny to your new job. So the question was if adalimumab biosimilar becomes a material event for us in 2023 or 2024? I believe this is dependent on the market access strategy of payers, how they think about the switchover between AbbVie to the biosimilar offering. And that can happen in the summer of 2023 given that there are many now available options or it is pushed out to 2024 depending on the contracting strategy of the payers. So of course, we are committed to come to market in 2023 in the summer and also to have a broad offering. But I believe payers will look in a couple of factors to come up with their strategy. Of course, one is the product feature, then the reliability of supplies of all the companies coming to market because that is a significant volume market in the U.S. And of course, AbbVie able to cover 100% of the volume, then it will be driven by, of course, attractive prices. And then, as I said, the experience and to create a pull-through in the market itself once you have contracted, and I think these four factors will define the market access strategy overall. And once we have the contracting right, at that moment -- only at that moment, we can say whether it is a material event for us in 2023 or in 2024. But it was for sure in be one in 2024. Kåre Schultz: Yes. So thanks for that answer, Sven. And of course, Ronny, I would say I would be disappointed if it's not a material event in '23 because, of course, we are aiming at launching for the settlement date. And we are happy, of course, that the Alvotech product is already being sold in Europe, so it's in the marketplace. So we have, you could say, high confidence that, that will work out. On the last question to Eli, just inspiration for you, the settlements we've done, as you've seen, had basically nearly all of them being something like 13 or 15 years payment. But Eli, you can comment a bit more on the technical details.

Yes. So Ronny, you can understand that it's a very, I would say, detailed detail because there are certain layers on what we already settled and the rest of the things. But all in all, it's an average between 13 to 15 years. We're using our company WACC, and this one is kind of a discounting, but we need to understand that most of the discounting related to the cash and because of those players that we already settled a part of them already happening in the first years and part of the one that we didn't settle for longer years. So, it really depends. It's not really a pure linear. And also, we need to understand that embedded their part of the fees and as well part of the element of the product. So -- but all in all, it's like between 13 to 15 years discounted the net of 2.6%.

Thank you. And the next question comes from the line of Gary Nachman from BMO Capital Markets. Please ask your question. Your line is now open.

First, Kåre, when you think of the operating margin expanding beyond 28% over time, where will that mostly come from? Higher-margin products, greater manufacturing efficiencies, lower spend in certain areas? Just qualitatively, how you're thinking about that? How much higher that could potentially go? Could it get into the 30s in a few years? And then with AUSTEDO, just talk a bit more about how you're confident you could get to the full year guidance of $1 billion? Where will most of the acceleration come from? It does seem like it will be challenging at this point. Kåre Schultz: Thanks for those two questions. I'll answer the first one and Sven will take the second one. So, the operating margin expansion will primarily come from a combination of gross margin improvement and you could say, product portfolio improvement, but it's really basic product portfolio improvement. So, it's also improving the manufacturing cost of product families by consolidation. So, it's not that we're expecting a major shift, let's say, from generics to specialty. It's more the fact that we can, within all the product groups we have, keep on optimizing. And that goes for the manufacturing footprint. As you know, last couple of years -- last four years, we moved from 80 manufacturing sites down to 50. Right now, we are in the process of moving down another 10 sites to around 40 manufacturing sites. And we'll keep on optimizing and we'll also keep on optimizing our product portfolios. So all in all, the majority of the benefit will come from gross margin improvements, and there will be limited improvements on, you could say, the commercial cost structure because that's relatively lean by now. And we don't see the same magnitude of improvements. If you then speculate how much improvement can you see, then it's my experience that when you haven't reached sort of the world-class situation on your manufacturing, then you can do something like 50 to 100 basis points per annum. And we will get back to you with some more firm targets in the coming year on what our long-term financial target for the operating margin will be. On the AUSTEDO, maybe Sven, you can give some details on how we see AUSTEDO developing and why we are confident that we can meet the $1 billion sales guidance.

Yes. Our guidance implies that we have a growth in sales of roundabout 30% versus 2021. Our script count went up in quarter-over-quarter by 27%. Also when you harmonize over two quarters the sales to eliminate the effect of the spec buying and the donut hole in Q1 and Q4 of last year, we also see that the sales are absolutely on track with roundabout plus 32% over these two quarters. And for that reason, I'm quite confident that we can get to $1 billion sales from AUSTEDO in North America. Kåre Schultz: And maybe we should just add in the sort of known fact that, of course, one of the key things driving increased scripts and volume for AUSTEDO is tardive dyskinesia. There are only two products approved for tardive dyskinesia in United States. AUSTEDO is one of them. And right now, we are estimating that's significantly less than 10% of the population or the patients population suffering from tardive dyskinesia are getting therapy. So, there's a huge unmet potential among the 500,000 suffering from tardive dyskinesia in the United States. So there's a huge unmet medical need there, which we will be more than happy to, of course, satisfy.

And then last question comes from the line of Jason Gerberry from Bank of America. Please ask your question. Your line is now open.

This is Bhavin Patel on for Jason Gerberry. So my first question is on U.S. Humira. We're hearing a number of players increasingly talk about the importance of supply commitments in a market like this. Could you talk about your strategy and the percent of the market a supplier needs to commit to providing the biosimilar to? And then on generic Revlimid, could you speak to the extent that Teva could have preferential volume position versus other generics in 2023 or beyond? And then finally, if I could fit one last in, I'm just wondering if you could provide some insight as to why AUSTEDO sales are so volatile quarter-to-quarter? It looks like $154 million last quarter versus $282 million this quarter. Is it driven by the stocking patterns or phasing on patient assistance program impact? Kåre Schultz: Thank you for those three questions. I think that Sven will do the majority of the answers here. I'd just day that in general, when you talk about biosimilar products or for that matter, competing biologics, then, of course, it's always important to have some firm commitments on supplies. And if we look at what we have been competing recently with the biosimilar to Rituxan with Truxima then we have been targeting from the beginning that we would have double-digit volume share. And right now, we have around 1/4 of the market. And that's really what we've been going for. And you can see some patterns of course, in what's realistic to get when you have a multiplayer competitive situation. And from that, you can sort of deduct a range of volumes that you need. But I will leave that question and the other questions for you, Sven, to answer.

Yes. The first one was on the supply commitment supply chain question regarding Humira biosimilar. So our partner is here , they do the drug substance manufacturing and also the drug product manufacturing, and we are the commercial partner in the U.S. This is how it is set up. Humira, Alvotech is already approved in the European Union, and it will be launched before we come here to the U.S. market. That gives us some confidence that the supply chain reliability should be there and that we have a good understanding about how much volume we can supply to the U.S. market. There's, of course, also a plan about how volume will be ramped up over time for this product. So, we have clarity in that aspect as well. And then the volume commitment that we can do in here for the U.S. is dependent on our market access and contracting strategy. So, that will be something that we would balance for the product launch next year, but we are quite confident that we will be in shape for this product launch. So, the other question was on the AUSTEDO sales volatility. We talked about that before. Of course, we had the spec buying effect in Q4 of last year, and then you always have an inventory, let's say, a reduction on the wholesaling channel in Q1 this year. We've seen this every year. In addition, there is the donut-hole effect that comes in, in January, February of this year, and that leads to the sales volatility of AUSTEDO. Overall, as I said before, the script count is on track and is actually growing very gradually, according to our plans. So for that reason, we are confident that we have reached our sales target. And I think there was a third question, but I don't... Kåre Schultz: Yes, there was a Revlemid where we have a volume-based settlement, and you can correct me if I'm wrong, Sven, but the way I remember it, there's a volume limitation this year but also in '23 and '24. And then in '25, that's no longer the case. And there will also be other competitors, which, from what I know, also have some kind of volume restriction. So, we'll probably see all-out competition in '25, and we'll see some, you could say, volume limitations for us in '23 and '24.

Yes, that's correct. Kåre Schultz: So thank you for those questions.

Thank you. That does conclude our question-and-answer session. Please continue with your closing remarks. Kåre Schultz: Thank you, everyone, for listening in. It was a pleasure, and we'll see you next quarter. Bye-bye.

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