Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Teva Pharmaceuticals third quarter two inch 19 financial results Conference call.
Time, all participants are in listen only mode. There will be a presentation followed by a question adults the session at which time if you wish to ask a question you will need to press star one on your telephone I must advise you to conference is being recorded today.
I would now like to have become friends or that you're supposed to be could stay Kevin Mannix. Please go ahead.
Thank you Laura Thank you everyone for joining us today to discuss cabbage third quarter 2019 financial results. We hope you've had an opportunity to review our earnings press release, a copy of the released as well as a copy of the slides being presented on this call can be found on our website at www Dot Tebow farm as well I threw out.
<unk> Investor Relations.
Please note that the discussion on todays call include certain non-GAAP measures as defined by the FCC management uses both GAAP financial measures and the disclose 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 Companys 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 todays call.
No.
Core Schultz Tevas, Chief Executive Officer, Mike Mcclellan Davis, Chief Financial Officer will review the third quarter results question and answer session will follow their presentation, joining core and Mike on the call today's Brendan O'grady Tevas head up North America, commercial and with that I'll now turn the call over to core Corp. you would please thank you Kevin and welcome ever.
A body.
It's a pleasure to review the third quarter highlights.
Oh revenues came in a bit more than 4 billion very much in line with the last three quarters as we've been discussing before we're seeing now a nice Steve <unk> development of our revenues.
GAAP diluted loss per share was 90 29 cents in the third quarter. This was primarily affected by the accrual for the opioid litigation.
On a non-GAAP basis, our diluted earnings per share were 58 cents.
The primary change there was a change to the checks.
Estimated checks for the full year.
And then reduced <unk> by around four cents.
The non cat EBITDA is around a bit more than 1 billion. It's very stable again last three quarters. So really the check on major she is we're seeing the operational and stabilize season, we've been talking about we can see that the run rate on the operating profit stable and we also saw nice cash.
Slow off some $550 million in the third quarter. So all in all <unk>, we're very happy about the financial results.
Commercially I'll touch upon a few topics I will touch upon north American <unk> generics.
Nice growth wishing to stay due to exceed amount, which is a new launch were having in Biosimilars and then of course also on the restructuring program and then positive development on it but lets go first to the restructuring and take a status on that.
So if we can and take a look here at the actual spin pace in 2017 was 16.3 billion as some of you might recall when we announced the restructuring nearly two years ago. We promise we would bring this down by 3 billion to an absolute number of 13.3.
Billion in 2019, we are perfectly on track to doing that you can see here that the ameche right. Now is 13.4 out of courses we swapped.
Fourth quarter last year with the fourth quarter. This year it wouldn't be completely or we can see from all indications that we will hit the 3 billion cost reduction.
This is of course come through a thousands of actions and initiatives around the world. We've seen the number of cheese go down by more than 11500, and we also in the continued process of restructuring our manufacturing network and right now we have in the period close down.
Or sold 11 sites and we have five more sites, where we have announced that the eye in the parts of the being close to divest it by the end of 2019. So we're approaching just above 60 manufacturing sites and that's of course, a very complex and ongoing process, but that's the background also for the reduction in the spend level, which we very of.
Core satisfied with.
The long term target remains a reduction of our net debt to EBITDA below three there's no change there and we continue to add okayed by far most of all cash flow to the reduction in debt and I'm happy to show you hear that in the same restructuring period, we have so far been able to reduce.
The good by 8.3 billion U.S. dollar.
If we look at the global generic sales then you can also see your stabilization here of course, the sales will always swing a little bit quarter by quarter, depending on the actual launches that we are seeing.
And we've seen a a very high number of launches this year I think year to date in the U.S. alone. We have 40 launches. So we see very healthy business basically driven by the fact that we had mall.
Generic projects in the pipeline than anyone else naturally leads to a high level of launch activity both in the U.S. and in Europe and in the international markets. So in some very satisfied with that stabilization and it goes hand in hand with an overall the stabilization of the pricing environment both.
In North America and in Europe on generics.
If we look at no state then the successful penetration of the market continues.
For Huntingtons disease can nisha and for tardive dyskinesia.
And then if you look at the revenue, it's a little up and down to quota, but that's more due to a random elements of shipments and so on and we continue to see a strong growth and we expect.
Talk to keep growing I've told you before that in tardive dyskinesia, we have an estimated patient population potentially of some 500000.
Americans suffering from tardive dyskinesia, and we have one competitor, but between US and then one compare to said we are still only in a very low level of patients receiving treatment in the U.S. So we're quite convinced that this product can keep on growing for the foreseeable future.
If we move to a Joe we then Joe is off to a very good start we see increased revenues, we have a normalized direction right now off around 19%, we've seen a weakening of the news your brain share we contribute this to the lack of us having an auto injector and.
As the classes penetrating more and more we see patients deciding to go for products that have an auto injector.
We expecting.
ER positive clarification with safety on the approval of outs Injectafer us in the coming months and we've just received positive opinion from CHP in Europe . So we will be launching the auto injector in Europe also India, India coming months.
On Copaxone.
I'm happy to share with you the sales numbers for the third quarter.
We saw a very stable development, both in North America as well as in Europe . So so this is of course very positive we continue to see a slow erosion in the Trx count in North America.
And we are optimistic that we will maintain a significant business.
In compaction, both in North America and in Europe .
One.
And also when we made today.
This is the anticipated launch of chokes EMA. The first approved we talk to me I assume late in the U.S., we'll be launching on November 11, and this will be with the full oncology label. This is very exciting because as you know part of our strategy is a leadership in biopharmaceuticals, including by law.
Arctic such as Biosimilars.
And so far we have seen I.
Biosimilars penetrate lists in United States than they have been penetrating in Europe .
We believe that and several reasons for that and one of the reasons is that in order to penetrate you need of course competitive pricing, but you also need dedicated patient support and services and you also need a good commercial footprint in the area, where you're penetrating and due to our long experience and strong.
Precision oncology, we believe that we know how to penetrate this market to the benefit of both patients and payers in the oncology space in the United States. So this is gonna be very exciting and I'll be sharing with you in three months, how we actually indicate performing.
I'm sure that.
One thing that's on everybody's mind.
The opioid litigation situation.
We.
Happy to settle the Treg, one, but we were even more happy to see an agreement in principle with a group of generals.
We believe that the.
Agreement in principle.
Is the best way forward for.
Patients the people in United States suffering from addiction.
I believe our commitment to supplying.
Box and generic for the next 10 years to all the people.
Suffering from addiction, who can use this product to.
Get out of the addiction and it can be element in that whole process. That's.
Basically for what we hope that this framework will materialize and that in materializing together with our defendants we will be able to help alleviate some of the burden from the misuse of opioids in United States.
If we look to the.
Future focus and the present focus then of course, we remain focused on maximizing the profits from our existing core businesses. We remain focused on increasing the sales or new brands, such as stay too and that Joe and I should add that we're working on the launches were launching.
Instead, when a jovian more conscious as we speak and also in the coming period.
We are executing on all.
My pharmaceutical R&D strategy and I'll be sharing more that with you in February and as well in February I'll share with you all my new manufacturing strategy, which will of course be focusing on delivering efficiencies and optimization.
And all of this we do to secure a strong free cash flow and of course secure the debt repayment.
Before I turn over to Mike I would like to add if you.
Extra elements one is warm thing to Mike for the great collaboration I've had with him over last two years and for everything is done for Teva.
You know Mike is leaving the company for personal reasons and he is committed to stay on until today and I'm very grateful for that we have announced today also that we had appointed a new CFO ILEC Felice, whereas the strong background in finance and manufacturing as well as all the relevant elements for us.
You'll be starting on the 27th of December and until then I'll be your interim CFO . So.
With that I'll hand over to Mike.
Thank you Gore and good morning, everyone as always we start with a review of the gap performance on Slide 15, total posted a quarterly GAAP loss of 314 million and a loss per share on a GAAP basis, a 29 cents for the third quarter of 29 as I'll detail next slide the GAAP results were impacted mainly by.
An update to our legal provision associated with the ongoing opioid litigation.
So turning to slide 16.
In the third quarter of 2019, non-GAAP adjustments amounted to 951 million impact on net income.
Settlements came primarily from three items.
460 million provision for legal settlements generally related to the opioid litigation amortization charges of 255 million, which is a normal quarterly run rate for us and 204 million impairment to intangible assets I'd like to take a minute and give you some insight into how we calculated the legal settlement.
Vision as it relates to ongoing opioid litigation.
As you recall that in Q2 after considering the 85 million settlement, we had with Oklahoma and its unique characteristics. We further evaluated the potential settlements scenarios and outcomes for the purpose of determining the size of the provision we would take and in accordance with accounting requirements as no single scenario was considered to be most.
Probable at that time, we recorded the minimum of these estimates which in Q2 was approximately 500 million.
Since then we've had two additional data points, which are a our track one settlement with the two counties in Ohio and be the not yet finalized agreement in principle on a nationwide settlement framework announced on October 20, Onest. These data points and other factors were taking into consideration and our ongoing evaluation of potential.
Settlement scenarios and the outcomes, which resulted in increasing the provision by about 450 million to its curdled total of approximately $1 billion as in accordance with their accounting requirements. When no scenario is considered most probable we're required to record the minimum of these range of estimates.
In addition, this quarter, we took an impairment at 204 million, which brings the year to date impairment number to approximately 1.2 billion on intangible assets. These are mostly comprised of intangible assets and product rights as well as IP R&D assets related to the Actavis generics acquisition.
Now turning to our non-GAAP performance on Slide 17 quarterly revenues were 4.3 billion, a decrease of 265 million or 6% compared to the third quarter 2018. The decrease was mainly due to generic competition to copaxone a decline in revenues from trend and Bendeka and lower sales and.
Russia in Japan. This was partially offset by higher revenues from the progress of our launches of a state owned a jovi in the us a recovering Hubert and strong trends in our end the business in the U.S.
Gross margin was 49.3% compared to 49.9% for the same period in 2018. The change in gross margin was driven by the decline in Copaxone amended mustering revenues in the U.S., which were partially offset by improved profitability of our north American generics business and growing sales of a stay though and as Joe.
Moving.
Operating income in the quarter declined by 5% compared to the same period of 2018. The decrease was mainly attributable to the decline of Copaxone and other specialty brands. These declines were partially offset by cost reductions in Europe as well as increased sales of a state over in the us.
non-GAAP earnings per share in the quarter were 58 cents 10 cents lower than the same period of last year. The decrease was mainly due to operating profit at higher tax expense, partially offset by lower financial expenses.
I'd like to take a minute, though to describe what we're seeing in the development of our expected tax rate for 2019 at the start of the year, we guided for an expected tax rate of approximately 16%. We now expect our annual tax rate for 2019 to be closer to 18%.
Crease, which is mainly driven by U.S. losses, which do not have a tax benefit interest expense disallowance coming from the the further development of the U.S. tax reform in our accounts and other changes to tax positions.
The change in the tax rate in Q3, plus the catch up for the first two quarters of 19 reduced our Q3 EPS by approximately four cents as core mentioned earlier.
Turning to slide 18, we have been highlighting for several quarters now including in our 2019 guidance provided in February the impact of the stronger US dollar on our results since approximately 50% of our revenues come from sales denominated non U.S. dollar currencies, we see that the exchange rate movements. During the third quarter of 19 had a negative impact.
Back to 55 million on revenues, while the impact on operating profit was smaller at 22 million the main currencies wherever relevant to our operations a decrease the most in valued against the U.S. dollar where the euro at 4% and the pound at about 5%. We expect that the U.S. dollar will remain strong for the remainder of the year.
Turning to slide 19 free cash flow for the quarter came into 551 million an increase of 383 million versus the second quarter of 2019. This significant increase in free cash flow in the year was mainly attributable to the expected improvements in working capital that I previously guided to I'd remind.
You the working capital was a drag on cash and the amount of 365 million and 345 million in the first and second quarters, respectively. However, working capital was basically neutral in the third quarter of 2019.
So turning to slide 20, we ended the third quarter with a net debt of 25.7 billion.
The net debt to EBITDA ratio of 5.62, we're especially pleased to see a reversal of the upward trend of the ratio from the previous four quarters. As this is the first time since the activists acquisition that we've seen the decline in this ratio.
In the course of Q3 2019, we did borrow 500 million under our revolving credit facility and we subsequently repaid 400 million of such borrowings during the month of October we repaid the remaining 100 million and as of today, we have no outstanding draw on our revolving credit facility.
So turning to the financial outlook for 2019 today, we are revising our five main financial targets based on the performance of the first nine months and what we're seeing for the fourth quarter. As you can see on the updated outlook. We've basically brought up the bottom end of the ranges of all of our parameters, where we end up in these ranges will be determined in Maine.
Only by the penetration of the trick Sema launch in the U.S. Copaxone trends foreign exchange effects and our product mix in our generic business for the rest of the year.
So lastly on a personal note as you know today remarks, My final earnings call as Teva CFO I'd like to say that it's been a real honor and privilege to serve in this position the last two years I'm, especially proud of the work.
That might talented and dedicated group of employees in this great company of accomplish and I believe the company will only grow stronger in the future.
I wish I really believe great success as he takes over this important role and to the members of the investment community I've always appreciated your thoughtful questions unhelpful feedback and our investor goal in relations goal has always been and we'll continue to be to communicate with the investors clearly and concisely as we possibly can.
Thank you and now we'll open the floor up for questions and answers.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced please be advised you will be limited to two questions. If you have more than two questions. We kindly request you go back to the key.
First question comes from the line of Elliot Wilbur. Please ask your question.
Thanks, Good morning, and best wishes to you Mike and thanks for all your help over the past couple of years.
Question, specifically with respect to gross margin performance in the quarter, a little bit lighter than expected and I know, there's been quite a bit focus on that this morning sort of given how important that is you ultimately reading gene your operating margin target I guess drilling down through the numbers a little bit it looks like everything in terms of.
Segments was essentially flat sequentially with exception of the international business.
Down about 200 basis points. So I don't know if that's a function of exchange or just plant utilization, but maybe you could just drill down on those dynamics a little bit more in sort of talk about what accounted for the relative softness.
There and then as a follow up for.
I guess court in Britain, and just maybe some thoughts on kind of overall CRP market dynamics.
In the US yes, the positive as we still see 7000 kind of new to brand Rx is every week, but that's basically been flat for eight months. So just.
Spots on maybe sort of overall market growth trends oppose to just tevas relative share or the market. Thanks.
Thank you very much for those questions I think Michael taking the first ones and then ill give it to go in the second one and then bring will will add to that so Mike you go first.
Yes. So we did have a sequential dip below Q2 to Q3 in the in the gross margin percentage, but we also had that last year. So it's a little bit of a normal pattern in the year. We do expect the full year on the Q O Q4 will get back towards the 50% if we actually look at what what drives that in the Q3 the couple of things.
You're right the international markets, we saw a little bit of a lower gross profit percentage there.
Mainly related to Japan, we've seen some some product mix there that's a little bit light in the quarter. We also have a little bit higher write offs in the quarter versus what we've had in Q2 that tends to happen in the summer months as you have some planned shutdowns and the reevaluate the write offs of products, but.
But we still feel good that we're on track for roughly 50% for the year.
And you should see around that level in Q4.
And on the overall and CGP dynamics in the US I'll, just say that from an overall perspective, we're still very optimistic about this segment, we see a very good reception in the marketplace in terms of efficacy we see.
Constant good flowing as you mentioned sales of NPL rigs, which means that the market continues to.
Accumulate so we still very optimistic on this segment and also internationally, we only just starting to launch.
In Europe , and the rest of the wells, but we believe this will be strong worldwide segment.
And we have any further comments, yes, I would just comment core that.
Then I think if you look at the segment is core mentioned is very effective class and medications and I think you saw a lot of early pent up demand and I've said since the beginning 2019 was going to be a bit of a rollercoaster I do think that the market levels out a little bit and continues to grow and I think that will play a significant part in that growth.
Thank you bring.
The next question comes from the line of Ken Cacciatore. Please go ahead. Your line is open.
Hi, Thanks, so much court, you're doing a great job trying to resolve this litigation, but can you just give us a sense of dealing with all attorney General's versus some are we making any progress with those that are not part of this early agreement that you have so is there any progress being made as you try to bring the rest of them.
Under the 10 and then also in terms of the upcoming debt that you have due in the next couple of years can you just talk about how this litigation maybe impacting your ability to refinance our work on that.
Those debt obligations. Thank you.
Thank you very much for that question Im sure that is on everybody's mind and the.
Litigation on opioids, and what I'll say on that has said the frame leg as of course been developed together with the four.
Agee's that had been sort of being tied to this and it was started based on the track one case that was coming up as you know in Cleveland.
In the way, it's developing is basically that there's a framework that everybody agrees to.
And that will say, if you could say the American public and we'll save the people suffering from addiction very well, we have made a 10 year commitment to supply a key component in the treatment pattern for people suffering from addiction. Some of the defendants have made commitments to and provides.
Significant financial resources also over a longer period of time and I feel this will be a very very good way to move on because at the end of the day what matters is really if we alleviate some of the burden from the people who have problems with addiction.
Now that being said of course I realize that this will only work if everybody comes together I very much hope that everybody will come together that was the whole idea behind it that's what the agee's has been signaling to us. It's a process that's ongoing im sure I'd say, it's an interesting and dynamic process, but I have high hopes that we will.
Succeed in the end to that based of the American public but also to the based on everybody involved now when it comes to the.
Ongoing equally challenging we have that we need to secure refinancing in order to save our debt.
I don't think it's a major issue I think what matters here is that as a willingness to look at a longer period here to look at like a 10 year period in the order to resolve the issue and that of course means said on a short term basis, given the fact that as we just discussed we have a high debt and we Havent high.
Net debt to EBITDA ratio.
And the fact that we were looking at a longer term solution is positive for our ability to on an ongoing basis refinance our debt and maybe Mike you have a common.
Yes.
We regularly assess the market conditions as they relate to refinance or that at this point, we can't comment on specific refinancing plans, but I think we've mentioned in the past that we would like to to get out in front of the 21 maturity sometime.
Latest in the first half of next year. So we'll continue to monitor the market conditions and look at refinancing when it makes sense. We have been encouraged by the recent moves both in the broader market interest rates as well as in our own secondary rates. So there is some things that we will look at and assess the.
Market as the time comes.
Thank you we will now take our next question from the line of Astor Registry of Oppenheimer. Please go ahead.
Good morning, and a couple quick ones on Steego can you update us on the Tourette syndrome readout.
Yes, sure. So we expect to have the final results of the two it's in the first half of next year and of course as soon as we have the filing results, we will communicate and into the market at this point in time, we don't have any further information but of course, we very much hope for positive outcome to the benefit.
Patients suffering from two it's.
And then you mentioned you mentioned in the press release.
Investing in some early stage R&D project can you help us understand what they are in when we might be able to season.
So on those.
Yes.
We had the strategy, where we are pursuing R&D in Biopharmaceuticals now lets innovative biopharmaceuticals and it's also biologic such as Biosimilars and we will be communicating more intense on the R&D strategy and the portfolio in February in connection with our full year.
Some and right now audiences said, we had approximately 25 I have some should projects and it's a very I think exciting portfolio that fits with our commercial footprint as well.
I don't have any further comments today.
Okay, and then lastly, any updates on the price fixing litigation.
There's no real update there it's.
Ongoing.
Along with the Department of Justice, we have of course shared.
More than 1 million documents with them, we have not found any evidence that we were in any way part of any structured.
Lucian all price fixing side, we remain of course in dialogue with the department of Justice.
Thank you.
Thank you. The next question comes from the line of Gregg Gilbert from Suntrust. Please ask your question.
Thank you.
I know you plan to update in February on this that you didnt replace your head of global Ops, a few weeks ago. So I was hoping you could provide.
A little more color on that and update us on your progress to streamline your global operations and reduce cost of goods. It seems like cost of goods.
The next frontier in terms of cost reduction thats have given the low hanging fruit you probably already picked in the other lines and my second question is for Brendan when do you expect approval for generic versions of Forteo and Nuva ring and can you update us.
Unexpected launch activity in general and the coming months. Thanks.
So thanks for that question you absolutely right of course, it's a key topic for us to and secure that week long term improve our operating margin and our gross margin and you could say that.
The reason.
Change we had in the head of our global manufacturing.
In that change we replaced a very experienced in very very competent position within our very experienced very very competent patients and we also in our choice of new CFO have secured a person with a very long and index experience in global complex manufacturing and margin.
Truman's so I'm convinced that.
The management team will be able to.
Inform you about our manufacturing strategy and the positive effects. It will have on our cross marketing long term and we'll be doing so with more color more detailed in February but you're absolutely right. It's one of our key priorities for the very simple reason across margin is around 50 and that means basically every dollar we sell we spent.
50 cents by far the biggest cost element in our email on the manufacturing. So so thats of course, a key focus area for us going forward, but more and more details on February and then onto Brendan.
Yes, so as core mentioned, we've launched 40 generic products year to date, we have another five to eight that will complete by the end of the year.
Nuvaring.
Forteo and Restasis, none of those are in the the 2019 plan, we likely won't launch Forteo before the second half of 2020.
Nuvaring is is that moved out to 2020 and their restasis could be any day. We just we just don't really know kind of on that one so whenever the FDA.
As it were operationally ready to go.
Thanks for the color.
Thank you we will now take our next question from David Risinger from Morgan Stanley . Please go ahead. Your line is open.
Thanks, very much two questions. Please first with respect to the.
Okay. The proposed opioid settlement could you just explain how have accounts for the 23 billion and free suboxone over 10 years from a financial exposure standpoint in reserves.
So how you book that into reserves or do not book that into reserves.
And then.
With respect to.
Joby could you talk about.
Potential formulary changes in 2020.
Any opportunities to improve its position that we should know about thanks you.
Thank you very much I'll take the first one and then Mike will probably add something today and then brings in will address the joby formulary creation. So.
If you go back to the half year announcement and at that point in time as you know we have had the first.
Settlement in Oklahoma and in the way the accounting rules.
If you have a settlement, but you don't know really what the end result will be for for the whole issue, yes, the partial settlement.
In what you're supposed to do as you as opposed to assess what the likely outcomes are and if that's not one outcome, which is the most likely then you'll pick the low end of the range of outcomes that are sort of within within the likely scenario. So since then of course, we've had two things happening we've been settling the track one.
And in Cleveland, and then we have the framework, which still has not been finalized meaning that you know we don't have it to sort of in a final form and we don't know exactly how it's going to play out. So we've taken on these things into account, including the commitment to onto the framework, which we hope very.
Much will come to fruition onto the framework to commit to at where pricing delivered 23 billion off suboxone and that all those elements have been taking into account and that is then led to a range of possible outcomes and we have then made an accrual which.
Matches, the lower in the range, but Mike I'm sure I Didnt get it all right, but if you have some further comments please.
I think you've got the substance right. Let me just get some of the mechanics to expand on it. So our expectation is that we will book or reserve for the the future costs of of the settlement, whether it'd be the cash costs or the cost of goods. Some of those elements will be discounted using an appropriate discount rate back.
To a present value overtime, which you will see is as inventory is produced and released it will be taken against that reserve as well as cash settlements as part of.
Future cash outflow.
Then over the years. The reserve will then of course be evaluated on an ongoing basis for changes in cost of goods changes in interest rates.
Or any other thing that may change that liability, but our expectation is to eventually once there is a final settlement with everyone that you will see a much more clear number as core mentioned and we've got a lot a range of estimates at this point and as nothing is more probable than any other point on the the range at this point Weve.
The minimum of what we expect.
So as far as agility formulary access for 2020, we don't expect any major negative changes to for our formulary position going into 2020, we have currently about 70%.
The call acceptable access are acceptable coverage and we hope to continue to improve that especially as it go into 2020, we have one major blues plan coming on that that we Nols in January onest, So that'll help and.
Although there's not a lot of volume and Medicaid and Medicare part D.
We're looking at that those segments as well and improving their coverage there also.
Thank you.
Thank you. The next question comes from the line of Ronny Gal from Bernstein. Please ask your question.
Hi, good morning, everybody congratulations on the nice quarter.
Michael Yeah, we'll Miss you we are always enjoyed working with you.
You don't line Im going to.
Got a cap you got three but all the same topic, which is roughly pricing I was wondering what took seamap economics now what pricing bandwidth is it same walk as the innovators and as it currently is eight.
And now that you launching this product commercially I was wondering you can share with us a bit more but the margin that you will be making on sale.
Let me a partnership with South Korean.
Then just following up a couple of questions that just came in on that.
On that settlement on the Lps settlement can you, let us now ill share with us roughly what will be a drag on cash flows if the agreement with the floor Agee's will actually end up being agreement that that passes the entire country. As is just so you can kind of model the possibility.
And.
The question if the pricing for 2019, a seat Joe the now that we have the contracts between 19 together.
But the pricing grant a week on up moderately or is it more flat or step down given the contract situation.
Okay. Thank you have already for those questions.
To exceed that question and the Allstate addition, I don't leave for Brendan, but I'll just add to handle the opioid first and with regard to the opioid and framework. It's really too early to give you. If I may answer to this on the cash flow and Thats simply because we haven't really you could say got to the.
Fine print on it and there's a lot of details about how was the ramp up of on volumes B and how will lead to actually be executed. So it's too early to for forest and give you a number for for the actual cash flow.
Assuming that the framework results in a frame agreement, which have very much hope associated to the benefit of American people and people suffering from addiction. We will of course update you as soon as that has happened with a more precise number both on the accrual and on the effect on on cash flow and then bring know what are you sure.
So let ronnie the.
The press release on trucks team has the whack price is listed in there. So it's 840 555 to 100 milligram vile.
40, 220, 775 for the 500 milligram vile, which represents I believe about a 10%.
Below the reference brand whack of course, we will likely sell it for something less than that I won't get into the exact specifics of how we're going to do that in the channels, we're going to do that and so forth.
I think you're kind of where how this will go.
As far as far as the margin.
This is a profit split between us and Celltrion celltrion, where the developers they they submitted the delay to the.
To the FDA and our deal in our profit split acknowledges the the partnership that we have with cell trend. So thats all comment about that in regards to offset.
And agility.
I think as we have we convert patients confidence coupon cards, we have more patients in paid prescriptions and we continue to improve our formulary access you will see the the margins on a jovial improve and I don't see any real a significant change to the margin on us that as we head into 2020.
And maybe just to add on stable if we take price.
Adjustments on a stable it will be modest.
Thank you.
Thank you. Our next question comes from the line of Ami Fadia SCB Leerink. Please ask your question.
Good morning.
Finally on from me. Thank you for taking my questions.
Just a couple sort of on the Biosimilar.
Yes, we've seen some different biosimilarity neulasta remicade launches in the us priorly and they've gotten off to different Rams acknowledged that sort of their different patient populations in durations. So just given these dynamics how are you sort of thinking about the launch curve.
Plasma taksta versus some of these.
And then just on.
Some of the other.
Some of your pipeline.
Herceptin when is this expected to.
Hit the market and then maybe broader question longer term what is your appetite to sort of bringing on additional biosimilar us into the pipeline. Thank you.
So I think I'll address the last on the broader question and then I'll leave it to specific ones footprint and so longer term, we actually have a appetite for bringing specific biosimilars to the marketplace. We realize that is a unique situation product by product and we firmly believe that in order to be success.
So with the by simulating the U.S. marketplace.
We need to have the say commercial footprint and commercial inside in order to penetrate the market in this case as I said before with the took seem that we believe that due to our long experience in the oncology space in the us with.
I will products in the marketplace and longstanding relationships with all the different parts of the commercial value chain that we had a very good chance of doing so and we also believe that in the future.
I'll be able to do the same with many different biosimilars. So thats part of our say biopharmaceutical R&D strategy that we both work on MRD, new biologics, but also on Biosimilars.
On the specifics.
Brendan Yes, you can imagine there's been a lot of interest in the the Biosimilar launch of reduction. So there's been a lot of interest in truck Sema and that of course, Pfizer will follow on after us so that we'd be too in the market here in the not too distant future.
I think still remains to be determined how pricing shakes out and what the uptake is on share but were fairly optimistic that that we have the right next to take advantage of it. If you think about who Tesla is as an organization. We have oncology business that were very familiar with and we had a product we have a product in that portfolio granix.
Very much acts like a biosimilar.
And then we have of course that generic business and the Biosimilars are somewhere between a branded generic. So we think we have the right commercial structure and the right strategy to to fully take advantage of this marketplace, maybe uniquely better than than most so we'll see where it all goes we look forward to showing you the results when we get there to February .
But we're optimistic that we'll see fairly good uptake in this market, maybe better than what we seen with with some past biosimilars.
In regards to Herceptin I think you asked when we were planning to launch are set than it will be late Q1, I believe is to date for for Herceptin.
Which is our our product is for us.
Thanks next question question comes from the line of Dana Flanders of Guggenheim. Please ask your question.
Hi, Thank you very much for the questions.
My first is our care I know you've talked about the U.S. generic.
Business being about 4 billion and annual sales and.
I know it can be lumpy it seems to be trending lower this year and you pushed out some launches. So just can you comment on how much wiggle room, you seem to that $4 billion number and would you expect launches.
Next year.
Take that us number back to that annualize $4 billion run rate.
And then just my second quick follow up on Joe.
And I recognize the importance of having an auto injector can you just talk about the need or lack thereof of a primary care.
Presence to really.
Helped drive and Rx.
Back toward you'd like to see echo. Thanks.
Thank you for the questions I'll take the first on the nothing Britain I will share the second one so in terms of.
4 billion, it's important just to remember what we've been saying all the time, we are seeing North America. So if you look into detailed numbers is not the United States alone is United States, and Canada and as you know we have a very strong generic business in Canada as well, so north American business hasn't run rate, which is very close to two fold.
Building and it as you say correctly it can be bid up and down quarter. I think this year. It will be very close to full building in total and I had the same Ross expectations for next year, we'll give you more insight into that of course, when we come out with the guidance in February for 2020, but do we do to see a a strong insist.
Animal business and you absolutely right some of our launches will get delayed or us will move up some will do better than expected when they finally get less like Pippin and if you can junior and all of US we will be disappointed that they get delayed. So that's just the name of the gaming in generics.
And with regard to Joe We I think all that you go with that one win.
Sure. So we've always looked at the CRP market specifically the agility launch is a two phase launch for us. So we launched the pre filled syringe into the market.
We saw early a lot of early quick demand and of course, some last several months, we've seen a decline in the new brand new to brand share and largely we believe that that is due to patient preference of the auto injector. So when we speak to physicians and we talked to them about Joey there is certainly very happy with the the clinical profile the side effect profile.
The way patients respond to it and they really don't see much as they have a downside in a pre filled syringe intact. One of the things. They continue to to ask as are we going to keep the pre filled syringe on the market. Once we launched the auto injector and of course, we are because they see the benefit of that.
But when you put the products all three in front of a patient.
They seem to prefer at a very higher rate.
The auto injector over the pre filled syringe, so I think that thats, largely what we're seeing and and Thats. The reason for the decrease in new to brand share. So I think when we launched the auto injector here in the coming months, we'll see a continued bump and kind of the second curve up in the launch of agility, but in regards to your comment about the pie.
Primary care Salesforce, we actually do have a primary care salesforce selling adobe we have to Salesforce is selling a deal that we have our neurology salesforce, which is calling on headaches centers.
And and Neurologists and then we have what we call our specialty sales force, that's calling on high decile primary care writers as well as non neurology high decile headaches specialists. So we feel that we've got the right promotional mix from a sales reps standpoint.
But certainly we don't have as deeper relationships with primary care. Some of our competitors I think it's going to take us a little bit longer to penetrate that market.
Thank you.
Thank you. The next question comes from the line of Chris Schott from JP Morgan. Please ask your question.
Great. Thanks, very much further questions just a follow up on a few topics from before maybe the first on a jovi you obviously, highlighting the auto injector is driving re acceleration for the franchise just help us understand a little bit how quickly post the auto injector launch do you expect we'll see that uptake. So is your monitoring have how important that that's going to be for the franchises.
And we Havent almost immediately attorney to give this quarter or two to evaluate.
Second question was on track seem out and that opportunity. It's is largely a new start opportunity or do you think there is the potential to convert existing patients as well and there's only really quick one on taxes, you stepped up the tax rate to 18% set a decent run rate to think about for Teva on a go forward basis. Thanks very much.
Thank you for the questions.
I think Brendan you will take the first two and then Mike you'll take the last one.
Sure so.
As far as the auto injector with agility.
I don't expect it will launch the auto injector and all of a sudden will pop up to 30 40 50 in new to brand share I do think that we will we will see a steepening of the curve and I think that we'll continue to see growth in agility kind of back to the 2020, 530% that we're looking for.
As far as new to brand share how long that takes.
I don't know it I don't expect any immediate but I expect that to continue to grow and climb into that 20% to 30% new to brand share that we're looking for.
As far as truck seem the goes I would expect that you won't see many conversions of patients currently on therapy. I think this this is I think this that whether it's chuck seen or whether it is any biosimilar in an oncology setting is probably going to be mostly driven by new patient starts.
Yes, so when it comes to the tax rate I did say in the past that we would see some pressure on the tax rate and we would eventually get towards 18%.
We have gone there a little quicker than than we thought we thought we'd be more in the 16 range. This year, but I think eighteens not abetted range for the next couple of years in the outer years of course, maybe we'll be able to bring it back down little bit, but given our business and giving the rules that were dealing with with no significant new changes in tax.
Mhm 18 is is a reasonable run rate for the next couple of years.
Thank you.
Thank you. The next question comes from the Lady the cash to worry from Wolfe Research. Please ask your question.
Hey, thanks, so much so if we look at your long term guidance.
Projections for your operating margin can you and let's just say we put in consensus topline revenue projections, there seems to be an embedded opex cuts. That's that's baked in over the next few years, maybe to the order of $500 billion to $1 billion can you give us a sense of how much cost can still be cut out of.
Tevas.
Current cost structure, and given kind of the pricing wars, we're seeing on CRP is that kind of possible and maybe on the other line for how the U.S. business can you give us a sense of what the growth trajectory as that line is over the next few years and what the margins are for them for those products. Thanks.
So.
I'll try and handle the first part and then.
I don't think we have much comments on the on the margin for us, but we'll see what Mike will it will comment on that so if you look our long term.
Financial targets, then we have an operating margin tied up 27%, which is of course higher than where we are right. Now now you have to matching that that improvement we're basically come from.
Say three main sources one is the gross margin improvement that again will come from the source of optimizing the manufacturing network, which basically takes down the cost of manufacturing for the product in their buying proves across margin and then of course. This also in mix effect on the gross margin when capacity goes.
Down and the generic business is stable and then of course your gross margin goes down when compaction has sort of flattened out and no stadium.
Stable and Joe we are increasing and your generic is roughly flat then your across marketing goes up so those two elements of course, they help US and then of course, you had the ongoing optimization of the rest of your operational and cost and then you're right. We've just taking out 3 billion of the spin base and we could we do then once more.
But of course, we can keep on looking for optimization and improvements and we'll be doing so going forward on on the online in the us.
Do we comment on that I don't think so Mike, but I think you can see the basic sales trends there. The this is all the the remaining products many of which already facing generic competition. So you will see them slowly decline they tend to have good operating margins because we don't invest behind these products. So so that is something but you can see over the course of the.
The last couple of years that number has gotten down to a reasonable amount and it's been pretty stable throughout the year. So you'll see a slow drag, but but it's not going to fall off the face of theirs.
Great. Thanks, so much.
Thank you. The next question comes from the line, Jason Gerberry of banks Americas. Please ask your question.
Okay. Thanks for taking my questions.
Just first quarter just curious if you can comment at all on Wall Street Journal or part that came out.
A few months ago about the possibility that opioid manufacturers are contemplating opting into part is bankruptcy proceeding well not filing for bankruptcy themselves, but leveraging that legal proceeding which would seem to us to potentially offer you expedience and a consolidated legal mechanism to work with your counterpart.
Yes. So just curious if what are the impediments to that and then just secondly.
On November 22nd I think Theres, a deadline for parties municipalities to opt into a negotiating class curious if you view that as a major milestone in terms of.
Your ability to strike a settlement that is global at all encompassing with the political subdivisions. Thanks.
Thanks for that question, so you're absolutely right that there is a theoretical opportunity of seeing the Purdue bankruptcy sort of being expanded to cover the whole.
Proceeds situation on opioid mitigation however, as of today, that's not what we are pursuing.
Today, we strongly hope and believe the framework, we have developed together with all that defendants and together with the.
State agencies that is the most likely in the best way forward as I've said before in this call for for for the American population and also for the people who suffer from addiction. This will be in my mind, the most constructive way to move forward.
In the event that this would not without of course, you're right. There is a legal framework, which would.
You some kind of.
Participation.
The you could say from a legal point of view of all this defendants in some overall resolution on to the bankruptcy proceedings, Purdue, but thats not really not what I see is based solution right now I think this momentum behind the general framework that we have developed together with the state agencies.
Your next question next question comes from the line is David Amsellem of Piper Jaffray. Please ask your question.
Thanks, So on.
Well the.
Just irrespective of the add on.
Thank you need to contract more aggressively longer term, given how youre consumables and jackets, and certainly lonely with some galliani being fully aggressive.
In in year one.
Some along and then number two on.
Your competitor is now going to be running.
Ill and Huntingtons chorea, so that in mind.
How do you see the competitive landscape.
Huntingtons when you do have.
Any formal there.
How do you see that involved.
Any sense bedding Grace.
Yes, the label expansion for our husbands as far as long as one thanks.
Okay. So I'll take obviously the the agility question first.
I think said if you look at our focus on a job. It is then on profitability as well as access and share and I think that we've taken a little bit different approach in regards to access.
But as I said earlier, we have 70%.
Optical access and we continue to we hope to continue to grow that so I don't think that we necessarily need a more aggressive contracting approach with agility to be successful I think.
Again, the auto injectors, not going to be everything, but we do have kind of a revised commercial strategy and plan around to Joby, which includes targeting physicians and a whole host the thing so.
I think that.
The gross to net is fine and I think that day, we don't expect new aggressive contracting play for access.
As far as I've said, all goes I think that if you.
We'll see where INGREZZA goes and we'll cross that bridge when we get to it you are right right now we the only ones of the HD indication.
Whether INGREZZA gets that indication or not we'll see.
If they do.
So certainly has a foothold in that market physician seem to be fairly pleased with the way that offset as working so well it will increase competition and likely take some share had no idea how they'll perform in that market.
Thank you.
Next question comes from the line of asset from Evercore ISI. Please go ahead. Your line is now open.
Hi, Thanks, so much for taking my question core I wanted to ask a two part question on opioid settlement framework and I see two possible layers of alignment that still needs to happen and would really appreciate if you could give us color on each of them. So the first one would be the rest of the 46 Ddgs and there's lot of feedback that they're not fully aligned and not comfortable and I'll.
I was curious if you could catch us up on what exactly is a hold up there second is the cities and counties and I'm, particularly interested in them because it seems to me that state agencies do appear to be focused on addressing the opioid crisis. There, okay with taking suboxone supply, whereas cities and counties are being represented by trial lawyers, who are mainly focused on.
On their cut on the dollar settlement size.
In theory, those try lawyers have no incentive to get the cities and counties to align unless theres dollars coming their way one that theoretically implied deadlock Im just trying to understand is there a credible path towards resolution the next six months or so.
Yes of course very interesting.
Question, which I caught completely ensign all detailed since I'm not a party to all those discussions.
And if we start from the from the overall situation and as I said before I believe that the framework. That's on the table now that's the best possible way forward. So the purpose of helping.
The people suffering from addiction in United States I think the state AGTC that I think the defense and US we see that and in that might be some subdivisions, who don't see exactly that way, but hopefully at the end of the date what will be what we will prevail will be what space for the American public and and.
The people suffering from addiction, and you could also say that.
If it's not resolve this way just like the state eighties outlined it comes to compete random game for which county, which CD goes first in the sort of sequence of suing and how much money do they actually get until potentially you know some people stop sampling or stop paying.
So I think we need a holistic solution here.
Things to the benefit of everybody to do that way and I very much hope that that will be the case.
Thank you.
Next question comes from the line of Gary Nachman from BMO capital markets. Please go ahead.
Thanks.
Core I know you will give guidance in February but with most of the you're behind you. How are you thinking about 2019 as a potential trough here.
And ability to return to growth next year, both in terms of revenue and EBITDA just give some of the major pushes and pulls on that front.
And then just.
Yes, just one follow up.
Part of that is that Copaxone is holding up better than expected. So explaining the dynamics there behind the scenes and can that be maintained into next year, what sort of declines should we be thinking about what that franchise. Thanks.
Thanks.
Very interesting question, you're absolutely right as I've said I guess since I joined.
Then we were going to do the restructuring and the decline of Copaxone combined with the restructuring would actually from a natural point of view.
Automatically result in Moelis. This shipping the trough year and as you know a trough is flat at the bottom and that's what we're seeing right now in terms of the development in revenue and the development in operating profit you basically see the last quarters being very stable and we havent operating profit at the level of.
Off just above the one 1 billion and the revenues at the level of above four building now if we then think about next year, it's too early Foster Creek.
Guidance, and then you might ask why cotton to give guidance and one of the elements is it puts your second question Copac, some because you're right. We're seeing a stabilization basically the last three quarters of compacts and have been very stable, we see a marginal decline in the Trx volume, we see very stable development.
In Europe , and this a lot of moving parts than this and if we take the US first then you can say, yes. The unknown factor are we going to have one more generic competitor in in the 40 milligram compaction right now we don't have any evidence that we will have short term, but we don't know when that will happen. So thats one swing factor.
Now that situation will also affect the contracting and the pricing. If there is no new competitors are coming in this high likelihood that pricing environment will stay relatively stable now that will have a positive effect on the outlook for compaction from next year, if all of US out in this an approval of a competitor then of course that has a negative.
The effect on the pricing environment in terms of share development. It looks pretty steady I don't expect any major offsets there in terms of Europe , we have a situation where we have a patent thats been confirmed in the European patent system, which basically means that the 40 milligram is covered by European.
Pattern as we speak and Thats of course, a positive on the I'll hand, you have a lot of dynamics.
On the actual country level in Europe , but all in all I would say that.
There's some swing factors there, but right now they look positive and then you have all the elements where you can speculate on the exact cross unit will have on a jovi, how will that whole thing develop the exact progression pass off or state. It rule for sure grow but exactly how much will it grow and you have currencies.
How would they develop.
Everything else.
Equal on this we don't have as a major negative happening then I still firmly believe that we have the trough yet we'll see a marginal improvement next year you now operating profit. We also have things that could happen such as we have the orphan drug designation that equal caught on.
Bendeka, which is protecting both been taken trend from generic competition and that has been appealed and as it has actually the the court proceedings have happened and we are waiting for the outcome of that litigation. We hope it will go equals way so that would be no change to the situation that had been <expletive> .
Orphan drug designation, but that could also be a swing factor. So a lot opex and fourth but I would say everything else being equal.
I totally confirmed that we expect this will be the trough year and that we will see a marginal improvement in the operating profit next year.
Okay. Thank you.
So this completes our quarterly earnings call from the third quarter I very much look forward to hopefully.
Talking to most of you three months from now when we will announce the full year results and also share with you our Luke on our future manufacturing strategy and biopharmaceutical R&D strategy. Thank you so much for listening.
Thank you that does conclude the conference for today, if you wish to listen to the replay of this conference. Please dial plus fulfil 3333 series there are 975 and typing the uncle replay code 5965 to seven hash. Thank you for participating you may all disconnect.
Okay.
Yes.
No.