Q4 2019 Earnings Call
Ladies and gentlemen think of a standing by welcome to the fourth quarter and full year Twitchy 19 financial results.
At this time, all participants are and I listen only mode. They will be a presentation followed by question answer session at which time, if you'd like to ask a question. Please press Star then one on your telephone keypad.
I must advise you to call is being recorded today <unk> 20.
Now that tend the conference, but Youre speaking today, Kevin Mannix, Senior Vice President head of <unk> Investor Relations. Please go ahead.
Thank you Stephen Thank you everyone for joining us today to discuss Tevas fourth quarter full year 29, Chief financial results. We hope you had an opportunity to review our very detailed earnings press release, which was issued earlier. This morning, a copy of the release as well as a copy of the slides being presented on this call can be found on our website <unk>.
W. W have a farm dot com as well as smart Teva 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 today's call core shelf Tevas, Chief Executive Officer will provide an overview of the 2019 performance recent events and priorities going forward, our chief financial Officer legally we'll follow up by reviewing the fourth quarter financial results in more detail before providing an overview of Kevin just 20.
20 financial outlook.
Joining core and alley on the call today, it's Brendan over 87 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 the course shelves or if you would please thanks, Kevin good morning, everybody and thanks for calling in.
It's a great militia true.
Told you about how strong results for 2019.
The financial side, it's worth noticing that we made all the components of our 2019 guidance revenues came in at 16.9 billion. He should of course note that we've changed the way we report.
Just fusion sales that we haven't Israel Sullied company in Israel from a gross basis to admit spaces and we've done a revision to restate. The numbers. So that you can see the numbers for 17 18 19. This has no impact on the earnings numbers or cash flow from is it simply whether you will.
Recall that revenue from distribution in Israel. This Ross.
So and we missed that talk for revenues.
For the EBITDA with 4.7 billion and the non-GAAP EPS, so $2 and 46. We're also pleased for the cash flow came in above $2 billion.
Now the key drivers for this for some good business performance.
As Im sure you noticed kept on his rapid growth and has of course big continued potential we launched the jobin. The you and got reimbursement in the first contract is very excited about that also very excited about the savings that we just thought the auto injector approval in us Kevin in Europe already so that looks very good also.
The future and then we're very pleased with the way we managed to say managed to the decline of protection in both us and ensure also in Europe. So we saw stable compaction sales at the end of 2019, and we expect to see a modest decline in 2020.
In the generics we had many many launches around the world.
Loan in the U.S., we had nearly 50 launches, including our first peak Biosimilar launch in the us to see Matt. We also very happy about the results so far that launch.
Also published our first you have a global economic impact report.
Just a couple of highlights our products actually helped us healthcare system say 41.9 billion us dollars.
On a yearly basis and out of that number 6 billion newest cause was patient savings, where they say on our public costs. So we think Mccarthy grew very well in the US also with direct and indirect 57000 jobs.
Now if we move to the next slide then you probably all remember that in 2017 so.
More than two years ago, two and half years ago, we had a pretty dramatic situation.
34 billion and we had compaction cooling off patent worldwide. So we won a lot of question looking at a revenue loss over a couple of years of close to 5 billion.
Handle that was a restructuring plan that was meant to reduce our expense base by 3 billion by securing cash flow to handle the safe and secure our future earnings I'm Happy to report said we had.
Executed the restructuring plan second as we laid it out to about five years ago.
As not being you would say easy on the organization, we've had to close down or divest some 23.
Swing sites some of those are still in process of the final closures and we've had to close.
And the 40 offices in the four stores around the world say goodbye to more than 13000 employees.
We managed to do this without hurting our operational capacity in any way you guys still fully operational on all these many many products, we do 30000 different products. Many many billions of.
Use per year.
And to give you feel for how complex the restructuring and spin.
The next slide shows you a map of the World and you can see that we've been closing down a lot of sites all over in North America, South America, Europe Middle East Southeast Asia, Japan. So so this will ensure we feel great effort and I'd like to thank everybody in the organization for the fantastic job you think Dod key.
Everything going in a nice way high quality, while reducing the statements.
Now one of the reasons why we had to do this was to handle our debt situation and on the next slide you can see that we started out when I started in the company in the end of 2017 with around $34 billion. Okay. I'm happy to report now that we just come just below 20 524.
Hi, So it's definitely going into right direction and you should of course expected. This.
We will continue in the coming years.
Talking about this debt.
We've also had to do.
Refinancing and we've done that very successfully in the fourth quarter and as a consequence of the refinancing we now have liquidity and protect the cash flow to cover the bond repayments you in the next three years.
At the same time, we have a situation where our EBITDA is stabilizing associated would.
Before sit at the trough year for earnings would FY 2019, so that's the bottom of the trough so to speak and we've seen that stabilization happening. So when you stabilize your EBITDA and you keep on reducing your debt then slowly your rate show your debt ratio EBITDA too.
Net debt to EBITDA will be declining and Thats what are we seeing at peak in Q2 90.
5.72, and it's been declining and is now come down to 5.32 at the end of 2000 lighting and this Rachel will keep on improving meaning that it will keep declining in the companies.
Talking about the debt.
We have a slide showing you the debt structure.
You can see or is that the next three years, we have paid stacks of around 2 billion, which basically means as I said before that we can handle these with the liquidity we have on hand, right now and with the cash flow and we expect a few generating the debt stack in 23, we'll call for some refinancing so sometime in 22.
You should expect it will do the refinancing similar to the one that we just executed two to handle that situation.
Now you could say the restructuring is now over and done with.
So what's next so the next phase will be dominated by two elements. One is a continued improvement of our manufacturing costs and the gross margin improving gross margins and the other is secured growth in the topline growth in revenues and if we move to the next slide and I'd like to.
Addressing the gross margin improvement program that we just initiated and that will be running.
Over the coming is.
Now the program has five key reasons and.
These are not new for manufacturing optimization.
All leave us where we have not taken full advantage of this leaves us in the past and Thats, what we got to do in coming years. So due to the fact that we had to be very widespread manufacturing network in may very many products. We can still improved on how procurement cost basis and this is what we're going to be doing.
By consolidating things getting better overview of the situation and making sure that you get all the procurement benefits around the world.
Now we can also still improve our network we had around 80 manufacturing sites. When I started we announced the process of getting below 60, but we still have opportunities for consolidation.
Our manufacturing sites and you will see this happening in the future.
Yes by year.
But that's another way to optimize than just consolidate manufacturing sites and that is optimized each and every site on their own basically making sure that the manufacturing volumes you had mentioned capabilities that you utilize your man power equipment to the full.
And the in the restructuring, we really focused a lot on sort of optimizing the network footprint closing sites and moving things. So that we couldn't consolidate our volumes now in the coming is we will also be very focused on optimizing each and every manufacturing site will be the efficiency ratio between output and.
Cost and we're very convinced that this is something we can do successfully.
Then given the fact that we still haven't around 60 manufacturing sites worldwide and we sell billions of products every year.
As a different products and of course that all supply chain optimization is very important.
We're working hard to reach a situation, where we have global systems that call our entire supply chain and that will be the basis for continuous optimization office supply chain and then last talked not least when each of an agile operating model and organization and I'm happy to inform you that the new head of our manufacturing.
Organization, a paid as yes, the reorganize his organization to have a more technology focused set up where we ensure that all the best practices can be implemented in a fast and consistently across the world.
Some of you who are thinking more about the investment in seven might say okay. This is very nice all textbook stuff about optimizing manufacturing, but what does it really mean to the female and if you look at the next slide you can see year. The operating margin expansion that we are projecting.
And you will notice that the target.
28% in non-GAAP operating margin.
2023, now there's really nothing new to this because this is our long term financial targets that we already communicate in 2018. So what we're doing now is part of the plan from the beginning and the reason why it's not the 27% you heard in 2018 is simply the change of.
Reporting from gross to net on the easily distribution this off.
Medically this percentage.
Hi, It's your 0.9 percentage points. So thats why we revised the tie from 27% to 28%. So this is.
Commitment that we will aim at reaching 28% operating margin at the end of 2023. So that's on the cost side you would see then on the revenue side I just explained that we need some strong growth and we need some strong growth drivers. So so here we had two key products that have important.
What is stable and the other one is Joe and then I'll talk a little bit about both of those if we move to a state of first.
Then if I get into the sort of new things that we're looking at clinical development just like to say that we're very very pleased about the performance almost data in 2019, we keep on accumulating.
Patient basis and that of course helps a lot of patients. It is also a good contribution to our revenue growth.
Right now we have around 9000 patients on the basis using of Seo and if you're thinking about the growth potential you will know that in tardive dyskinesia, there's only or Seo and one other competing products that have been approved.
In the last couple of years as the first product ever for this indication. So for the first time, Eva there's a wage treat how does this condition. It's now estimates said there is around 500000 patients suffering from tardive dyskinesia in United States alone and then of course puts into perspective. The fact that we have so far.
Gordon to 9000 patients almost Seo and it just indicates that we believe that this product can keep growing for many years to come on top of the.
The current indications in Hudson's disease and in Tardive Dyskinesia. We're also working on two new indications one is fairly imminent.
Rich syndrome, where we have conducted a phase three trial and the results.
We will be reported.
In the coming months. So that's very very close to being reported of course, we hope there'll be a positive outcome, we don't know swear to say.
We really good for patients if we saw what parts of the outcome of this trial. We are also doing a phase three trial.
Treating this commission.
Equal healthy there's no drop really approved for that so it will be a first ccs parcel to show good clinical effect. These data we will see sometime in 2021.
Both these new indications are very exciting and hopefully.
Seed to the benefit of patients but of course also to the benefit of the growth of a state of sales if we move to Joe.
And we have a lot of regulatory approval activities ongoing.
We are in the middle.
Launching in Europe, we will be launching our auto injector soon in Europe. It has been approved and talking about the auto injector. We also believe that we've had the auto injector approved in United States and we will also in the coming on to be launching the auto injector in United States, We hope in the migraine indication.
Then we will get back to a catch rate of around 25% based on the fact that we now have a competitive device and we have a very very competitive clinical profile.
We of course also working on bringing Adobe to the rest of the World for instance, in Japan, where we just had really good clinical results together with our partner.
For the patent for Japan.
And then in the in many on the market so.
You will see a lot of launches of a joke in.
Yeah.
In terms of clinical development, if we move to that and of course, we also working on expanding the clinical indications for Adobe and we're doing some phase two trials, where we are expecting results in 2021, one is in posttraumatic headache.
Very serious and quite widespread.
Problem for many patients in the US and of course, we hope to be able to show you think there and the other one in fibromyalgia, which is also agencies that as a big patient.
Population in us and indices, where there's really no real good treatment.
Now talking about the difference.
Lifecycle management doing on Australia, and Adobe Leach means to talk about our total specialty pipeline.
And then we've not disclosed this before and we're very happy about our pipeline as you know we had the strategy, where we want to be leaders in generics and we want to aim for leading decision in Biopharmaceuticals and if you look at.
Pipeline, you will see that we have high number of Biosimilars in development and we had one imminent launch.
In Biosimilars in a novel Biologics, we have a lot of different things going on in most.
Signing short term cinnamon and we are developing together with regeneron and where we hope to see data. This year from the phase three trials and we're very excited about that.
Thats, a big potential if you succeed.
Relevant.
On the small molecule side, we really not doing a lot of say new molecules, but we're doing some exciting.
Long acting products in different CNS indications and of course, we do have the lifecycle management that we doing on auto sales and then we have a brand new thing which is.
Hey, potentially revolutionary in the respiratory feel that we have developed and gotten approval for some very very sophisticated TG halos basically respiratory inhalers to treat asthma and we are working now on launching these products sometime during this year and we're very excited about.
Good.
If we move on to generics and we are the world leaders in generics and in order to maintain that decision of course, you need to do a lot of generic.
Projects and we do so more than a thousand generic products are currently under development.
We'll see here that the big numbers.
Hi favorable between 2020 in 2030, there some 2010 billion in originator sales that go off patent and you'll see that that fits very well with our business, where we have around 4 billion in revenue in North America, and we're loading in some four or five.
10 million, a new sales have yet which is basically if you think about the math. It's the 210 billion split out over 10 years, we get some 10% to 12% of that and Thats, a priest price discount of some 80%.
For the generics competitively originators on average and that in shop with 400 to 500 million that reload into the market of new sales.
We of course also had a strong pipeline of generics in Europe and international markets and overall, we're very cognizant of maintaining our leadership and also maintaining good profitability going forward.
Chopping about profitability leads me to the long term financial targets and as I've already showed you we have a target by the end of 23 to have a 28% operating.
Income margin, we have a target already state to be above 80% in the cash earnings and we have a target to get our net debt to EBITDA below three times, which we still aim at doing at the end of 2000 between.
And now talking about the financials I would like to hand over to our new CFO, Ellie who will take you through the funniest or would you.
Thank you color and good morning, and after until everyone I would like to start by saying that I'm extremely pleased to be here today as part of 17 I will start with a review of our financial results and then we'll follow that when the first look through our twentytwenty guidance as well as some of the major assumptions behind it.
Beginning on slide 20, we start with a review of our GAAP performance.
In Q4, 2019 recorded GAAP operating income of 148 million.
GAAP net income from Teva shareholders to off 110 million and the GAAP earnings per share that then.
This compares to few Fourtwenty 18, one recorded GAAP operating loss of frequent to be on a GAAP net loss the devil shareholder of 2.9 billion and the GAAP loss per share of $2 than 85 cents.
The year over year improvement in the quarter result was mainly driven by the impact of nonrecurring items, which had as much greater negative effect in Q Fourtwenty 18.
Q4 2019.
Turning to slide number 21.
We see impairment provisions of 477 million for intangibles in Q4, 2019 of which 259 million is the U.S. intangible assets related to the acquisitions of Actavis generics. This compares to 2.7 billion of goodwill and 1 billion of intangibles in Q4 2000.
The 18.
Organization was good I am going on under 90 million for the fourth quarter and we expect 2220.
A run rate should be in the run rate of 350 to 60 million per quarter Lastly, restructuring charge of 59 million in the quarter were consistent with the ongoing activities throughout 2019.
Turning to slide 20 to review our non-GAAP performance.
What are your revenue were 4.5 billion up slightly compared to Q4, Plenti 18 revenue are mainly affected by higher revenue from a seto Adobe shook Sema Q var.
The U.S. as well as the of generic product launch and Russia offset by generic competition to go faster as well as decline in revenue from a net country and Israel and Japan.
Compared to Q Fourtwenty 18, we experienced a negative FX impact of 470 million net.
Revenue in Q4, 2019 increased by 96 million or 2%.
Gross margin for the quarter was 50.6% compared to 52.7% in Q4 18.
The change in gross margin was mainly driven by declining share and profit of facility at an increasing the less profitable the submission business, partially offset by the Rob offset energy will be as well as an increasing profitability of apiay and other activities.
Operating profit in Q4, 2019 was 1.1 billion and Twelvek, 12% increase compared to Q4 2018.
Quintle, mainly due to the ongoing cost reduction program high revenue off of that.
For family, partially offset by decline cutbacks on and other specialty brands, mainly been that country on the.
Compared to Q Fourtwenty 18, we experience a negative FX impact of 29 million, that's operating income increased by 144 million or 50% net domestic.
We ended the quarter within non-GAAP EPS of 62 cents.
18% or nine cents higher than Q, Fourtwenty 18, mostly due to higher operating profit and lower finance expenses, partially offset by higher.
Before going further we my review of the quarter I would like to take a few minutes to the some of the revision of previously reported consolidated financial statements related to our Israeli distribution business as the leader.
This business is part of the international markets reporting segments, which facilitate distribution of seven and third party products to pharmacies hospitals and other organization in Israel.
In connection with the preparation of seven consolidated financial statements for fiscal year ended December 31st Plenti 19.
Determined that the full year any during periods of fiscal years, 2017, and 2018 and the first three quarters of fiscal year 2019. He said he material error in the presentation of distribution revenues from its Israeli distribution business.
The company evaluate the cumulative impact of this item on its previously issued and open answers statement or 2017 and 29 team.
And during the financial statements for 2017 at 28 in and the first three quarters of 90 18.
It concluded the revisions were not material individually or in aggregate to any of its previously issued in June.
No financial statements.
As revise his presentation of the net revenue and cost of sales in the circle consolidated financial statements reflect this item.
The impact of this revision is a decrease in net revenue within offsetting decreasing the cost of so there is no impact on a gross profit operating income earning per share. In addition, there is no impact on seven balance sheet or statement of cash flows for during the period.
On Slide 24, you can see a very little illustration of what changed and what did not due to the revision I just described.
The presentation, we have noted the revisions in some cases.
We have done here have presented results both prior to and after a revision in order to assist you in your analysis.
Now turning to slide 25.
We can see that the fourth quarter was especially strong one for free cash flow demo free cash flow in Q4 front. The 19 was $974 million, an increase of 452 million or 87% compared to Q4, 2018 and more than 2 billion for the full year 2019 exceeding our original guidance.
The difference compared to both top few Fourtwenty 18 was mainly due to the higher net income focus working capital management as well as a few one item most notably Esa lease sale leaseback deal.
As it relates to the working capital in Twentytwenty I will note that we expect working capital to be neutral to positive source of cash.
Generating free cash flow is our greatest focused in order to successfully continue reducing our debt load and effort, which is highlighted in slide 26.
We ended the year only the net debt of just under 25 million at a net debt to EBITDA ratio of 5.32 times.
And the context in quarter decline.
Our expectation is that by the end up 22, ending our net debt to EBITDA right, Joe will be below five times.
As Carl mentioned.
The remarks.
And our successful options successful financing in November our liquidity and expected cash flow will cover all repayments for the next three years.
Now, let's look of that development Aplenty 19 results versus our guidance here on slide 27.
Represent the full year 2019 performance compared to the original guidance issue at the start of 2019 as well as the revised guidance on November which so as to bring up the bottom end of all of the ranges.
Note that advertisers to revenue the guidance range, our their original range and do not reflect the revision of ethylene to adding your analysis, we are presenting that do not.
2019, so priority and after the revision and as I mentioned earlier there is no further impact on the other metrics you see here, including cash flow.
We're very pleased with the overall performance throughout the year, which allow us to meet all of our financial guidance target.
We believe this results provide a strong foundation for us to begin drawing from Twentytwenty and beyond.
Turning to slide 28.
I would like to give you a brief overview of some of the main assumption for Twentytwenty financial guidance, which can also be found in this mornings press release.
Most notable assumption is our global capacity revenue, which we expect the declined by approximately 300 million versus a full year 2019. The majority of this decline is expected to come mainly in the U.S., but the decline would be offset by the ongoing growth of Seto energy.
We expect continued momentum of the setup in both narrative is in Asia and Huntingtons disease.
An expected sales to grow to 650 million in Twentytwenty.
Furthermore, as you'll get especially at the benefits from continuing patient growth in both us and you and Europe, where we can continue ramp up our initial launch in Germany Global sales of Joe we are expected to be a constantly approximately 450 million.
I would like to Ed.
Thats, we expect both North America, and Europe generic similar relative stable compared to 2019 benefiting from new launches, which help us thoughts regular price erosion or losses of Exclusivities.
In fact, all your real pressure, we see in our international generic we're in Japan continues to be a drag on our offer region due to their national health insurance price revisions.
A few more items to highlight in our assumptions foreign accent exchange rate movements are expected to moderate negative impact on revenue and operating profit versus letting 19.
Looking at back in 2019.
Our tax was 18% as we guided last November you will recall that our 29 index was higher than previous years due to the interest this alone resulting from your sector phone and other changes to that that position.
As we look at Twentytwenty, we expect our tax to remain in the 17% to 18% range.
So now turning to our financial outlook to Twentytwenty on slide 29.
Based on the assumption I just reviewed as well as the Esterly revenue revision, we expect total twentytwenty revenue to be between 60.6 billion to $17 billion non-GAAP operating income is expected to be between 4 billion and 4.4 billion. While EBITDA is expected to be between 4.7 billion to 4.9 billion.
Using a shutout of approximately 1.1 billion shares we expect earning per share due in the range of two dollar and 30 cents to $2.55. Lastly, 22 free cash flow is expected to get the range of 1.8 billion in 2.2 billion.
This concludes our review and for the fourth quarter results and Twentytwenty financial guidance, we'll now open up the call for questions and answers.
Operator would you please open the call for questions.
Thank you very much as a reminder, pure wanted to ask a question today. Please press Star then one on your telephone keypad and white PNM to be announced you can't cancer placed by Prosigna hash key.
Can I. Please ask all participants to limit questions to one question and a follow up.
The first question we have today comes from the line of Gregg Gilbert from Suntrust. Please go ahead.
Thank you first quarter I was hoping you could provide whatever update you can about.
Progress on the settlement framework, you laid out a few months ago given its importance.
Cash flow and that et cetera, and the coming years and my follow ups or Brendan how can we best thinking about us generic sales.
In 2020, and can you provide the obligatory update on important products like generic forteo on.
Deferring and whether they are factored in for this year. Thank you.
Thanks for those situations, so I'll address the first one and bring new reducing.
Framework that we negotiated.
You.
Still being worked on and the AG.
Access and we are activities and so.
The other participants participants in the framework free distributors and jumps on jobs and I am still.
Cautiously optimistic that this will result in an actual settlements.
And this will be I think.
Positive for the us.
Population it will be positive for those fuel in the us offering from substance abuse. So I'm optimistic that it will come to fruition. There's of course, the New York trial coming off.
20 for March and it would of course be beneficial if the settlement could materialize before that date. So that we have to go through that trial, but it remains to be seeing there is nothing eminent but.
Just repeat that I'm optimistic about the changes are.
The framework, we're solving and firms.
Brendan Moring and thanks for the question so in regards to the North American generic business.
We see this year 2020, much like we did 2019. It is a round a 4 billion dollar business and should continue to be right around that range.
A lot of questions around.
The products.
And that some of the big product launch this year of course, our Restasis. We continue to work with the FDA have have positive discussions there as well as nuvaring. So they are in the 2019 plan of course are properly risk adjusted.
Truvada is there as well in Q4 and of course, we've already launched the Biosimilar truck seem which is the reduction biosimilar, which is going quite well and we'll launch at her zuma in the March timeframe. So all in all we see this year shaping up very similar to last year as far as the year or the North American generic business.
Which is which has stabilized force quite nicely.
Thank you Brenda next question.
Thank you very much. The next question comes from the line of Ronny Gal from Bernstein. Please go ahead.
Good morning, everybody and thank you would think last question first question.
For alley around their cash flows.
I kind of looking at your cash flow the year over year, and you basically pointing us to essentially flattish.
Free cash so you had lot of impairment charges and 29 team that probably should nonrecurring 2020 associated with elimination of staff and so forth.
Is there anything in the free cash flow in 2020 that we show where I sit there and you put some.
Additional reserves for settlements and so forth or is this essentially to the upper earning power of off the business and the follow up is.
Around the back similar business.
If I understand what Ben the dollar you guys are putting the back similar revenue in the U.S. into the generic business I was wondering if it gets a little bit about the relative contribution here the margins and I noticed that you got TVB.
Yeah going into the clinic already but I couldn't find in a clean trials. The girls can you share with us what that product might be.
So it will take the first one and then bring will take the second part.
Hello, Thanks for question so.
Okay on 29 in in terms of cash flow, we have kind of several one items one of them as I mentioned in my prepared remarks is the Esa Neely vexing upon equivalent around 120 mill and we have some significant reduction in our.
In capital mainly associated with inventories.
On the it's on an mail for Q3 to Q4 as well year over year of around 300 million, maybe actually exclude those two due mainly I can do lend around 1.71 0.8, working now on the midpoint of around 2 billion for next year.
Got it into it with what we're doing now in terms of operations and margin and again more more positive what was the elements on working capital.
So this is really the earning power of the company in terms of Gaslog. That's a good it's a good base due to start the improvement for the following year. So.
Yes, correct.
Thank you so so running in regards to the Biosimilar. So as you know we launched truck scene in the fourth quarter and were fairly pleased with.
The uptake of truck segment and in the fourth quarter, we achieved double digit market share.
And you can see the market you're kind of its been bouncing around between 12 and 15%. We think we can grow that.
And we're pleased with the growth and as well, we're not going to get actually into the into the margin you could probably back into that little bit, but as you know we have a profit share with cell trial. So it's something that we don't really disclose but we are reporting truck sina as well as Brazil NB in the generic business and I know.
Last part of your question.
You got out in your pipeline products supposedly phase one and you might some other deal with developing on your own in phase one.
And it's not unclaimed trials Doug.
So I wonder if you can share with us would that isn't should we see it there soon.
Ronny I would actually prefer not to comment on anything that early in the pipeline. So we'll share more information with you with that.
Appropriated right time.
Thank you.
Thank you next question.
Thank you very much as a reminder, can we please just limit their questions to one question and a follow up. The next question. We have comes from the line of Louise Chen from Cantor. Please go ahead.
Thanks for taking my questions here. So my first question here is if you can elaborate more on some of the pushes and pulls that actually get you to a sales EBITDA growth in your guidance for 2020, and then my follow up here can you elaborate also little bit more on the outlook for the European and the rest of world generic market. Thank you.
Thank you I'll take those so if you take the pushes and pulls then of course you got the main pushing calls regarding the main assumptions. So there's a pull coming from global Pacsun, where we are saying that we did one of the hospital in 19, and we expect to do 1.2 in 2020 Thats roughly around 700.
Joining us 400 million, you and 100 million in international markets. So that's a pool of 300 million and then we have a state and adobe growing and altogether. They grow up to 900 million Thats, a plus a 400 million. So so thats of course net positive of 100, then once you get into the.
Details and of course, there's a lot of details Elie mentioned that we have price erosion on some of the key products in Japan linked to the reimbursement system of the Japanese government. So thats decline there we have all elements, where we have increases so a lot of smaller moving and moving parts. If we look.
And sort of slide into the second part of your question about the generic business in Europe and in International markets, then and we are expecting and we said this before as well we expecting low single digit growth of the generic market in Europe and also in international markets. If you exclude.
The price pressure and we are seeing on the long list of products in in Japan. So a.
Low single digit growth of generic in analgesia for that matter in those markets. Thank you next question. Please.
Thank you then next question comes from line of East Roger Ballou from Oppenheimer. Please go ahead.
Good morning, Thank you for taking my questions.
A quick one for you if I may and you've talked about 29 peanuts, the coffee if anything yet the low end.
Earnings guidance. It below 2019 results can you walk us to some of the considerations that went into setting that lower end the guidance range.
So when you said your guidance range, you will always had some kind of need to flexibility because you don't know what's going to happen and.
I have.
Not miss the guidance of the cognizant working at for 62 quarters in a row.
Planning to start doing that now so that means that in your guidance show in need of certain flexibility for having some unforeseen events happening.
And you can never.
So, let's say to investors that there won't be better prices right. So therefore of course the guidance includes a certain level of flexibility to handle bad surprises assist.
Just the way it is and that's also the which should be because with the breadth of our business globally, we cannot foresee anything that might happen during full year. So so therefore, you're right that the low end low end of course, not what we are aiming for that will never be the case, but it reflects the fact that thats always uncertainty in any business.
Thank you and then a quick follow up until the how are you thinking about that you went well you left late in that case 50 million guidance.
Thank you and oil TRP prevention in the U.S. could disrupt the market for Matt meaningfully add on pricing pieces happen.
Yes, so so a quick answer to this.
Roughly 200 million in the U.S. and roughly 50 million outside the us with some variation of course, depending on the launch the outside of the US and we don't think the acute therapies that are coming to the market will have any meaningful effect on the preventive therapy is that we're talking about here.
Next question please.
Thank you very much. The next question comes from minus Amy furniture from SPP Leerink. Please go ahead.
Hi, good morning, Thanks for taking my question.
Can you talk about some of the dynamics with regard to actually in the U.S. market now that you have an auto injector.
Would you be more aggressive with regards to contracting and getting ordinary access them.
To drive further growth and if you could talk about how that.
Dynamic might play out in the context of some new entrants in the market there.
And then I have a follow up thanks.
Thank you very much Brendan will answer your question. So yes, I mean, if when you look at the preventative CG European market in the us and we knew that as we went to 19, there we're going to be ebbs and flows as to how things one with the geography, but.
In general we have the payer coverage that we need to hit our targets were about 70% preferred coverage across the less of course, there are gaps that we continue to work on.
And we continue to have conversations with payers, but it's certainly a balance as you look at your gross to net as to how aggressive that you'd like to being you need to be we think now that we have the auto injector approved as we as we prepare for launch which will do here in the next couple of months, we will have an offering that is really.
Unmatched in the CRP market will have the pre filled syringe, we'll have the auto injector, we'll have the ability for medical on the medical side as well as on the self administer patient side and of course, we have the quarterly dosing which continues to.
Increase of the quarterly dosing now is up to about 17.1%. They continue to see that grow and thats really indicative of of Joe we being the longest acting CRP preventative therapy. So we're quite.
Optimistic about the continued growth of agility and our competitive place in the market.
Okay. Thank you can you also talk about the market opportunity.
Tourettes syndrome for a steadily and then maybe if possible give us an update on the four tail application. Thank you.
Yes, so onto risks of course, we haven't seen the final phase three data so it's a bit too early but it's quite clear that if we.
We're seeing positive outcome of the phase three trial and following that if we were educated and approval from.
This is a very clear medical need for thousands of patients. So there's definitely a very.
Meaningful.
Use of the product in that indication and there's a very meaningful market for the product.
In that indication and then.
On your I guess your third question.
On the for sale as President, Yes, I'll just give you a quick update on Forteo, we continue to work with the FDA for tail as you know.
And if if we're successful this year it would be late this year or could slide into 2021, we'll wait and see that we're continuing to work with the FDA. Thanks for the next question.
Thank you. The next question comes from my reference from Evercore. Please go ahead.
Hi, since everyone's asking 1.3 questions I'll do save.
First.
On the 2020 guidance I noticed you are getting ahead of consensus on the Joby analyst at all and a little bit on Copaxone too and yet the overall guidance does not ahead of consensus at all this makes me ask.
Is that delta entirely explained by the revision in.
And the distribution ex us or are you guiding slightly below consensus on generics as well, let's first.
Second.
The tourettes trial, you're flagging as a catalyst.
It's my understanding the trials when concluded since November and I would've thought we should have results by now and the fact that we don't makes me wonder maybe we shouldn't be setting expectations, but you flagged the very prominent lease I'm curious, where you guys shake out and what are you expecting from that trial, especially North America and did not work there.
And finally, the operating margin target of 28% that you're setting out can you give us a little more color on that as it relates to whether it assumes additional actually R&D declines or do you have to you assume at least $2 billion, a new revenues to get to those margin targets. Thank you.
Okay.
Three three.
Integrated questions and let me try and answer all three of them relatively briefly so first of all the dynamics I mentioned on the revenue they are really sort of reflecting a marginal increase in revenue, which is also what the guidance is reflecting if you look at it we're not seeing a dramatic.
Increases in revenue and of course, it will accelerate in the coming years simply due to the math that as we've talked about before it drag from compaction is getting less and less as you can see and the contribution from Australia, and Joe is getting bigger and bigger in terms of North American generics, we also maintaining the guidance weve.
For the past that would say two years, which is a north American.
Generics around 4 billion, which means bill in the quarter can be up and down can be between 901.1, but that's really how we see also for the commentary.
On Tourette Youre, absolutely correct, we don't know.
The way works with trials is of course that they are.
The blinded they get you in them you clean data you do the analysis and until you sort of had the final conclusions you don't inform anybody about other than the team that's working on it so I have no knowledge about dislike.
You have them knowledge about it so it's anybody's guess you're absolutely right.
Yeah.
Other product has failed these trials I had no reason to believe.
Different than anybody else, so that basically means that in a situation like this this you know at big chance of success NFC chips or failure. That's the way it is with any phase three trial in terms of the 28% margin then.
What I tried to explain my presentation was that we are now intensively working on a gross margin improvement project as you know our gross margin is around 50%, which means that the biggest cost element in our entire email is all manufacturing costs and that also means if you want to see a meaningful impact.
Room in your total margin then you really need to try and improve that element and that's really what we're driving for now doing a lot of things at the same time pending a very consistent gross margin improved program. Now that also means that what you should expect will be done in order to reached 28% is a company.
One of improving the gross margin modest growth in the topline no dramatic changes to the R&D and the commercial cost pattern.
Thank you.
Thank you very much. The next question comes from Randall Stanicky from RBC capital markets. Please go ahead.
Thanks core looking at your net leverage target of just under three times by 2023, if we take the.
The current net debt and apply roughly 2 billion in free cash flow paydown through that time period, the implied EBITDA growth third the applied EBITDA was closer to 6 billion.
That seems like a big jump and even if we take a higher free cash flow assumption, we still got pretty robust EBITDA growth. So the question is what is your confidence in that current leverage target for 2023, and then the follow up is you've been talking more recently about China.
Then you have in the past the revenue opportunity there for products like Treanda and I said, though.
Can you talk about how important China is over the next three to five years and how much revenue contribution you think you can get from that region. Thanks.
Let me answer let me stop start by China, ANSI, it's not a significant contribution over the next three to five years.
It's a ramp up from basically is close to zero and that means it's meaningful in the outer years of course, five to 10 years out you'll see that the strong percentage growth for year means the absolute number stop.
Four or five to 10 years out in China is a slow moving market, where you need to.
Oh, it's your products and then they survive for long time, and they keep growing for long time I've done that in my previous two companies very successful and I think we can do exactly the same here with products such as trend or Seo and so on so it's a more long term play and it's a short term.
Short term factor I am very firm on the target outgoing below three times I'll give you the simple math just like you just.
Laid out let's say, we just below 25 billion right now.
End of 23 will probably be let's just say very simplistic, Matt at least 8 billion lower right hopefully a little bit more because we'll do 2 billion plus per year that takes us to somewhere between below 17 billion.
Now if you then as say what is 17 divided by three that's just below six so that means we need to grow EBITDA somewhere between 5.5, and 5.8 billion and I think thats very realistic. So so you absolutely spot on with the math, but it's very doable and it's our plans to.
Great Thats helpful. Thank you.
Next question. Please. Thank you. The next question comes from delays you presented from Barclays. Please go ahead.
Hi, good morning on Thanksgiving discussions.
Biosimilar can you throw some more color on the small market dynamics.
Competitor has come in with that strong discount on IMS shows you have a strong Q4 can we expect this run rate we maintained a with a surprisingly aggressive discount.
So when you look at about someone I assume that your when you're talking about discount you mean, there are reduction of whack price, yes, it to relative to the innovator gap. So we were 10% under they came in at 20, 324% under.
But of course, there's more gross to nets that happened in the in the overall channel. So I think you have to take a look at how you balance that between the gtlds between the payers.
Certainly uptake ASP into consideration and physician reimbursement. So all those things are part of our competitive offering and I will tell you that.
We certainly want to maximize the value of the Biosimilar launch, but at the same time, we intend to be competitive on pricing and make sure that make sure that everybody in the value chain, we align that appropriately to be successful.
That's helpful. Just secondly, Celltrion announced third party 30 plans.
You'll see an opportunity for you to announce your current partnership which is limited to two biosimilars could we take it up higher.
Potentially I mean, certainly open to having those conversations assembly.
We have a good partnership going right now with that with the first still we're very optimistic about the launch of truck seamless So we'll see where it goes.
Okay. Thank.
Thank you next question. Please. Thank you then next question comes from line of Sue room enough from Morningstar. Please go ahead.
Hi.
Great quarter.
You know when in the generic side I know you have.
Same as a positive but.
Thank you had 50 launches on the generics I mean is.
Is that kind of offsetting any pricing or is it pretty.
Stabilized.
So the pricing.
For us is somewhat stabilized and I think it depends upon your portfolio and your mix. What you have launched its new what goes into transition in what your basis, but for us.
We've seen the pricing stabilize force that doesn't mean that on the base business that we don't have consistent rps and price challenges and everything else because you can see continued to see erosion there but.
New launches is certainly important and it's not necessarily because thats, how you refill the bucket, what you're losing on the base business.
It's not and it's not always necessarily the number of new launches. Its you can have fewer launches the higher value launches. So it kind of depends on the Max we had between 40 and 50 as you point out last year, depending upon what you count as a new launch.
Probably will do fewer launches this year, but we may have some higher value launch the overall thats kind of the ebb and flow of of the generic business, yes, and just to repeat the all numbers, we have a north American generic business of just around 4 billion us dollars and we see.
Say price erosion ever yet stabilizing probably at around 400 million select and since then we see new launches also of around 400 million could be five on 400. It goes a little bit almond doubts or in the big picture. We see this is very stable business going forward and the same goes for Europe, where we see this modest so.
Single digit percentage growth of the business and the only real challenge you could say on the pricing. We have right now is in Japan, where the price reforms means that the longest products are coming down in value and some of generics are coming down value. So overall, our generics businesses.
Yeah, that's super helpful, especially since.
And I guess kind of fighting off the cuff Pacsun and then the generic pricing so.
Yeah, great great stuff on the yeah.
Okay side also thank you.
Thank you make your next question. Please. Thank you. The next question comes on line of Elliot Wilbur from Raymond James. Please go ahead.
Thanks, Good morning core just wanted to go back to the Joby opportunity in Europe could you re frame for us once again, how you see that opportunity relative to the you asked in dollar terms and then what you think your ultimate.
Capture could be of that market I know, you've talked about hoping to get back to 25% in the U.S., but how are you thinking about.
Relative European or ex us opportunity I should say, yes, and then I also want to go back to you've talked about the operating margin.
Again quite a bit already but wanted to drill down on that a little bit more if I think about 350 basis points of improvement headed into 2023, I mean that translates into incremental operating profit of around 630 million relative to your total Cogs line currently.
It seems to be a very small number and I would've expected just given some of the more aggressive.
Restructuring, our manufacturing optimization initiatives that the ultimate savings there would.
Be far greater than what we're seen which obviously also includes some element of growth in the business. Overall. So just if you could maybe provide a little bit more granularity in terms of.
What the actual dollar amount that could come out of that caused line over the next couple of years versus growth in the business that would be helpful. Thanks, Chuck So let me take those two question. So first we have the question about Joe we outside of that.
US and if we look at your first then one thing which is interesting actually giving faced debate about the pharmaceutical pricing in the US is that the pricing level, we're seeing in Europe. So far that we expect to see going forward.
And including different government rebates and so on the net pricing is very similar between.
Yes in Europe. So we don't have the situation, where Europe is five lower and the.
Frequency of chronic migraine in the treatment of chronic migraine is at the same level in Europe as numerous.
Basically meaning that you had a slightly bigger patient drew.
And you have any use this traditionally a slower penetration in Europe, and then use for couple of reasons one of the reasons. It said you have 35 countries each with their own healthcare systems and reimbursement system. So it takes a while to do these negotiations and get on reimbursement country by country.
We are doing quite well, we got a lot of the big countries, but we're still working on all us and that means that your ramp up curve in terms of.
Market penetration is slower.
Our expectation is that we can command the same share basically at 25% share we believe we have.
A clinical profile, which is actually the based in the market is.
Longer acting venting products, both quarterly dosing and monthly dosing and now we have a really really good auto injector that matches. The competition. So we believe that 25% is realistic target for this market.
On top of Europe, you say, there's lot of small conscious or there is also Japan, where we have outlicense that product to very good partner Sucre that I know for many years and they're just concluded very successfully local trial in collaboration with us with excellent clinical outcome. Once again she will notice.
Joe has only had excellent clinical outcomes in all trials short long whatever and now also in Japan. So we also optimistic about the opportunity in Japan. So so long term now we are talking maybe five years out.
Probably see the same.
Potential for Joe we in us as in the rest of the world.
Now addressing your second question.
Then 2023 is not the end of the optimization of our manufacturing operations, but what we're doing now is a long term program that we will continue most likely for the next 10 years, where you optimize on a sustainable basis more and more by integrating your manufacturing model Thats remember we come from situation.
The company was created out of 20 mergers manufacturing sites oral the world not really consolidated IP systems not consolidated manufacturing planning we are improving all that is we see and we think that target. We gave you for 28% in 2023 is very realistic and then after that of course will come.
Turning to work on optimizations, but it doesn't happen that fast and manufacturing. Some show you know regulatory requirements approvals stability programs. All the things you need to do when you consolidate and optimize manufacturing.
Is something that takes time and therefore I think it's realistic target we have.
So it cost us development and so for something we will keep on doing also after 2023.
I think so I do have anymore.
So thank you everybody for joining us today I think we're past the the 95 time, we apologize for those who are not able to ask a question I will be around all day and throughout the rest to weaken next week answer to your question. Thanks again for joining us.
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