Q2 2020 Teva Pharmaceutical Industries Ltd Earnings Call
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Third quarter financial results conference call.
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There will be a presentation.
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I'd like to hand over to your first speaker today Mr., Kevin Mannix, Senior Vice President Investor Relations. Please go ahead sorry.
Thank you Tracy and thank you everyone for joining us today to discuss till the second quarter 2020 financial results on the call with me are core Schultz Tevas, Chief Executive Officer, Elie Khalif, Chief Financial Officer, and branded O'grady Tevas head of North America commercial we hope you've had an opportunity to review our earnings press release, which was issue.
You'd earlier this morning, a copy of the release as well as a copy of the slides being presented on this call can be found on our website at www Dot type of farm Dot com as well is through our tablet Investor Relations App. Please note that the discussion on todays call include certain non-GAAP measures as defined by the FCC man.
Shipment 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.
Formats 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 Coronelli will provide an overview of the second quarter performance recent events and priorities going forward.
Will be followed by question and answer session today's call, which will run approximately one hour is being webcast live and recorded.
Be able to replay the call and view the transcript on the job Investor Relations website and with that I'll now turn the call over the course Shoals core if you would please.
Thank you Kevin welcome everybody, I hope Youre safe and healthy and I like to stop by commenting a bit on the code 900 situation.
Could have next slide please.
As you know.
Teva is the world's largest manufacture pharmaceuticals in volume and.
I would like to.
Shared with you that our manufacturing organization now QC, our logistics organization has shown great resilience all over the world in this situation and despite the challenges of coking 19, we have been able to stay operational and able to supply customers and we're very proud about it.
The way we've been thinking about it is illustrated on the next slide.
It really being focused on.
Three key stakeholders, our patients aren't please now turn vintages.
And I won't give you all the details that would take too long, but just to reiterate that we've been committed to all patients. We said around 200 million patients every day, we've been able to do so.
Uninterrupted supply.
I'm pleased as of course, our key concern when it comes to safety and protection and I'm happy to see that due to a lot of measures worldwide. We have been able to avoid any outbreaks of koby 19 related to our facilities and we've had no facilities that had to be shut down for longer periods of time because of any kind of.
Koby 19 problems. So it has taken a lot of work is taking a lot of new precaution slug, new procedures, but we have to say that.
Weve able to handle these in a good way we've also try to support communities and patients. The pace. We could we donated products in more than 25 countries. We have donated all kind of different products and we make sure to support also locally.
Doctors to people less fortunate than us and this has been done with great passion and great effectiveness and I'm very proud about what all I'm pleased with Don So I would like to share with you might think thanks to all our employees for keeping the business going in a very nice way.
I won't tell you all the details about how much should we support the healthcare systems around the world, but I'll just share here a few hasek one in every 10 scripts in the U.S. filled with a teva generic product.
We actually manufactured by far the most of all medicines listed on the Whr essential medicines list. We're also provide shoot savings around the world and.
Just in the U.S. alone more than $41 billion in savings in 2018, and probably even more so this year, but of course, the most important is to supply high quality medications for patients who needed everyday and we've continued to do so but now listening to the financials.
Our revenues came in at 3.9 billion and I'll show you in a moment that slightly below what we would normally expect as a phenomenon here, where we saw higher demand in the first quarter of certain generics and otcs products, especially in Europe, and we've seen lower demand in the second quarter.
And I'll show you that an imminent our non-GAAP EBITDA came in at 1.1 billion. The GAAP EPS at 13 cents and the non-GAAP EPS at 55 cents the fee free cash flow came in just around.
Your point 6 billion and all know for the first half 1.1 billion has been accumulated in free cash flow net that continues to decline. We're now at 23.9 billion and as societies you I can tell you that in July we repaid 1.1 billion.
Happy to reaffirm our outlook.
There will be a slide at the end of the presentation will you will see over different details. We are basically reaffirming all the details of our outlook, including the strong growth of our new products, which I'll be commenting on a little bit when I comment on our business update on the business side, we have a lot of news for you today some of them. We have reported in the last couple of days.
I won't comment on these on this slide but there'll be a separate slide of each of them in the coming presentation and I'll comment on when we get to that so if we move to the next slide and I can share. This phenomenon. We've had on the revenues really what you should look at is the Q1 20 in Q2, two any color and look.
At the stock Green color part of the bar, which is Europe, we basically had a 200 million swing factor in Europe. So what it means is that in the first quarter, we probably so 200 million more we can see now when we analyze due to patient level ordering and stockpiling of products and that means in the second quarter, we sell through.
Hundred million less so if you move that 200 million you get to 1.2 billion in each of the two quarters for Europe and Thats why we did the half year comparison to the right where you can see first half 19 compared to first half 20, and what you can see there is we did 2.4 billion in 19 in the first half in Europe, and we did 2.4 billion.
In 20 in the first half so basically a very steady market situation now that's basically a reflection that we have some products that are declining such as compaction and we are all our products that are growing such as those data and adobe and the true up basically balancing each other out right now and then we make a little bit more money because we managed to.
The more efficient and reduce our cost right now so is talking about the two drivers of sales growth thats compensating for complexion decline.
Let's move to the next slide a little bit of Seto.
As you can see here sterile continues to grow very steadily there's some small variations from quarter to quarter, but basically if you take the graph in the middle you can sort of make a straight line and then you have the growth track since the launch and we see that continuing we see very good prescription numbers and as you will see at the end.
We are maintaining our guidance for the year of around 650 million in revenues or settled now.
Nice to note also is that still has been approved in China. That's the unique thing in the sense, it's approved without a phase three trial because the Chinese authorities realize that this was brought they would like to have.
So we got to regulatory approval without doing a Chinese trial, and we're looking forward to launching of settle in China of course launches in China, I always pretty slow because you started the private market, but nevertheless, it's a good sign that we bring settle to other patient populations also outside of us so very strong growth.
Continues on overstated now the our growth driver Joe is described in the next slide.
And here, we have I would say a fantastic story, which I have not seen that many times in my 30 years plus in pharmaceuticals, because we have a situation where we launch a product.
And you can see here in the middle with a good.
Eric share you have to consider here that we have three players in the market and there was one company launching a significantly before us and we get a decent start we've had an aim all the time to have at the end of the day around 25% of the market, which fits with the fact, it's a free play a market and we.
Not the first to launch.
And then we have a negative development were declining in Barrick share and Thats, mainly a reflection of the fact that we don't have an auto injector and since this is a very indications therapy for chronic migraine and yourself inject once a month at home and we only had a prefilled syringe not an auto injector because.
We had a delay on the approval of the auto injector, then and what happened was we finally got the approval and since the product has an excellent safety profile and unbeaten safety profile you can see here since we got the auto injector. The indirect share has continued to grow significantly per month.
And per week and I can tell you are here that the July numbers I, even higher than the June numbers. So we're very optimistic about the fact that we're getting back to that natural capture share and natural index level, which would be somewhere between.
25, and thirdly, and which would lead to us getting a trx share in the end of around 25, which is really what our ambition is for this product. So a very positive store here in the us and I should add also that it's doing well in Europe. We now have reimbursement in 16 countries. So slowly these numbers.
I will start to add up and you will start to see meaningful double digit numbers millions of euro of euros and dollars per quarter of the European revenue going forward. So thats very positive. We also have another positive thing which is our partner so.
Joe We has filed the product in Japan, and we look forward to the approval and launch in Japan.
Now right now, let's say two and a Joe we are the two products that are driving most of the growth, but also other things to come in the future and I have three stores here I'd like to share with you and the first one is pacino Matt.
And as you know for Cinemark has been in development in a partnership with Regeneron for long time, and Regeneron conducting clinical trials and we just had a readout from phase three and we had a figure it out and.
We had two phase three trials.
And in those trials, one milligram monthly dose demonstrated significant improvements in pain and physical function or placebo. Both at week 16, and week 24, respectively. So this is very good clear card efficacy on the one milligram monthly.
The.
One milligram monthly dose also show nominal significant benefits in physical function in two trials.
And pain in one trial when compared to the maximum if approved prescription doses of nonsteroidal anti inflammatory looks for osteoarthritis. So thats, what you know local insights. So what we've talked about here is that when we compare the one milligram monthly against the normal.
Therapy. We also saw improvements. So this is of course very very positive.
In.
The trial, where we had one milligram every two months.
We saw a numerical benefit over CBU, but we did not reach statistical significance significance.
In the initial safety analysis of the phase three trials there was an increase in.
So passes reported with such and such.
Subgroup of patients from one phase three long term safety trial that was an increase in joint replacement with personal met one milligram monthly treatment during the off drug follow up period. Although this increase was not in the other trials to date.
So additional longer term safety data from the ongoing trials being collected and I expect it to reported early next year and then following that if everything looks good and you could expect filing of the product sometime the first half of next year. So thats of course, something for the future and we had the partnership with Regeneron.
Which means that we're sharing the product in the us and we are going to do the commercialization outside of the US if we move to the next slide in another exciting move here.
Is that you know we have ambitions to be.
The leader in generics, which we are but order to be also to be one of the leaders in biopharmaceuticals, including Biosimilars and as you know we are just getting started there and we had a pipeline with six biosimilars in development, but we would like to have more you could say.
Projects in this area. So we just into entered into an exclusive strategic partnership for the commercialization of five biosimilar products with Alphatec and we very much look forward to this and we think that our commercial expertise in biosimilars in the us will be a key player in this combined.
Alphatec strong technology and know how in development of Biosimilars. So this is very exciting for us.
It means that we now have more than 10 biosimilars in our development pipeline, which we're very optimistic about.
Hey last movie we've done.
Which is more like a I would say product being focused and part of optimizing our business also on profitability and future growth is set in Japan, we have a business venture together with Takeda, which we're very happy about and we've done a small change here, we basically taken.
Part of the business, which are old generic products with low profitability and.
Some.
Contract manufacturing operation so contract manufacturing products that all manufactured at a manufacturing plant, we haven't Tacoma and we.
Turning to sell this tuning Chico a main player in the generic space in Japan, and there will be taking over these old products, we will keep our new newly launched generics, we will keep our complex generic portfolio, we'll keep our longest products and specialty assets and this transaction we expect.
We'll take place at the end of this year and it will secure future growth of our Japanese business and it will also improve the profitability last update I want to give you on the business is on next slide it's about.
Hi service, it's about 60, Matt as you know we launched vaccine.
At the end of last year, and I always said that we thought we could do better than most people have done with by customers in the us due to our commercial footprint and the fact that we are the biggest volume supplier of pharmaceuticals in the us. So we have customer relations to basically nearly every body and thats important when you launch a product.
Mike.
And as such as took Sheena I'm just happy to report here that one.
And our good thing that does happen is the injection for Royal Authority arthritis has been approved and that means that we can keep on growing our tuxedo business in the us nicely going forward.
Then we also have.
A very very exciting thing that's happened in the USA digital slashed products last respiratory space, which also bodes well for future growth. Now. This is the world's first product, where we had a.
Asthma or CPD respiratory inhaler.
That has integrated electronics that measures the actual inhalation velocity and volume of your inhalation and can give you a feedback on your smartphone both with regard to the quality of inhalation with when you did inhalation with the dosing so but not only can and do it on your smartphone it can.
Also have the smartphone connected to the cloud and you can then control that data is handed over to caregiver apparent adopter and it will be possible then to have a you could say electronic consultation with the adopted sharing the data discussion the.
Data and in that way staying more on top of the therapy offer caregivers parents. They can share with their children with relatives you can share with your partner how the diseases evolving how your dosing communication and this is a very very exciting we just launched the first product Proair Digi heyler.
In the us.
These are the very first weeks, we see very encouraging tick up in the marketplace. We are collaborating with.
So.
Healthcare systems on this product as well so we're very optimistic that this can bring significant clinical benefits and therapeutic benefit to people suffering from asthma and CPD not only in the us for longer term all over the world service, where some future growth drivers and some current growth drive.
Yes, but let me just round off by saying where is all going to be from a financial point of view before we start into the financials and this slide you've all seen at before and expect to see many times again until the end of 2023, and there's no change to the slide which is good.
Hi, good for operating income margins still 28%, we need cash earnings about 80% to pay down debt and when we pay down debt and grow EBITDA than the net debt to EBITDA ratio declined and we have a target of less than three times at the end of 2023 and as you know we're committed to spend all our cash.
Cash flow on debt reduction, we continue to do so and we do not have any plans to a 62 equity, but with this long term financial targets I like to hand over to indicative will go through the phases.
Thank you core and good morning, an afternoon to everyone hope that everywhere you our annual that you're safe and healthy.
So let us begin with our financial review of the second quarter, we begin on slide 18.
Where we highlight Teva GAAP results, including GAAP net income of $140 million and earning per share GAAP basis, 30 cents for the second quarter of Twentytwenty.
Our year over year improvement in our GAAP result was the result of lower operating expenses, including lower impairment items and legal settlement as well as minority and share in profit offset by smaller tax benefit.
Turning to slide 19.
We see impairments restructuring and other charges, which totaled 465 million for the quarter.
The main charters in the quarter and the largest was tied to our business in Japan.
As previously announced seven ticket have decided to sell the majority of the business ventures, the generics and operation assets, resulting in impairment charge of 261 million.
Amortization with only 49 million for the second quarter aligned with the range of 250 million to 260 million per quarter that we guided to at the beginning of the year.
Turning to slide 20.
We review our GAAP non-GAAP performance.
Our first to start with a complete look at the year over year financial performance and then I would like to touch on the sequential thing in the first two quarters of Twentytwenty in more detail.
Second quarter Twentytwenty revenue were approximately 3.9 billion down 7% compared to Q2 2019. This decrease was mainly due to a lower revenue from generic OTI C and copaxone in all regions and the lower revenue from two var and Bendeka Treanda in North America as well.
As the impact of Cobot 19 head on certain purchasing pattern, partially offset by higher revenue from a steadily under energy will be in the U.S.
The decline also reflects and negative foreign exchange impact of 79 million net of hedging.
Non-GAAP gross margin came in at 52% for the second quarter versus 52.4% a year ago. The modest decline in the gross margin was due to a lower gross margin, especially products coupled with the negative impact from hedging activity, partially offset by lower cost of goods sold relate.
There are ongoing network optimization.
Our non-GAAP operating margin was 25.3% versus 34.2% a year ago. The increase was driven by lower operating expenses as our overall spend base, including called was approximately 2.9 billion compared to approximately 3.2 billion for Q2 2019.
These results led to a non-GAAP EPS of 55 cents, which is five cents lower than Q2 2019.
Now I would like to touch on the first half of Twentytwenty, which was comprised of two very different quarters as purchasing partners, especially in Europe were impacted both positively and negatively by cobot 19 pandemic.
You will recall that in May when we presented a very strong first quarter result, we noted that we were experiencing increasing demand of certain medicines as was expected during a global crisis of this nature nor was this more apparent then in our operating operations, where we saw strong demand for our products, especially.
Really generic and LTC. We did however expect that this will reverse in the second quarter results offsetting the strong first quarter outperformance as it can see by the results were reporting today. Our assessment was correct. The impact is mainly affected by strong revenues over the pandemic related products.
And customer stocking in the first quarter at the expense of the second quarter.
Still when we compare the first half of the year to the first half of 2019, we see just slight impact of cobot 19 on our topline which declined just 1%. Furthermore, we saw 8% increase in EBITDA and 10% increase in both net income and EPS.
Free cash flow for the first half actually double compared to last year. The strong results are mainly due to the post to the cost reductions and efficiency measures that the company implemented in 2018 and 2019. In addition, we're also benefiting from particular management of quarterly cash flow fluctuations, resulting in a greater.
Narrative in our cash conversion trends.
Turning to slide 21.
I'd like to highlight just a few of the revenue trends, where we've been seen throughout the different segments and regions. We remained focus always being on a sequential trends.
In the first quarter of Twentytwenty, we experienced increasing demand of certain medicines as it will expected to during the global crisis of this nature, we saw compensating effects.
Lower demand for certain medicines during the second quarter of Twentytwenty.
We start with North America.
Where our generic business.
Generated 923 million itself, which was sequential drop of 3% from the first quarter.
In the absence of any major launches in the second quarter sales were supported by the strength of stroke Sema. Our bill similar for Detoxing are for HSH authorized generic of our own specialty product and our generic equivalent of depending upon junior.
Looking at our specialty product, both the sterno and Copaxone bounced back nicely compared to the first quarter, while we begin to see at the early positive signs of the introduction of the Alpha injector device for Adobe, We expect joby cells to continue to grow as the launch of the outage sector continues.
Turning to Europe as I mentioned this was the region that benefit significantly from cobot 19 effect on the purchasing patterns in the first quarter. The significant purchases were more than reverse in the second quarter as demand for certain products decline. The pandemic effect also led to a declining.
After visit by patients, resulting in fewer new prescription during the second quarter of Twentytwenty.
Furthermore, our specialty portfolio, so price decline for oncology product as a result of generic competition as well as declining copaxone revenue due to competing let's say a state product, which were partially offset by a new launches of generic products.
Our international market segment was lower by almost 14% compared to the first quarter of twentytwenty or 2% in local currency terms.
The decrease was mainly related to the effect of the cobot 19 pandemic.
Now, let's take a look at our spend based on slide 22.
As you know the cost reduction plan that was introduced at the end of 2017 led to an overall reduction in our spend base of more than 3 billion.
2019 total of 12.7 billion.
Since the start of the year, our spend base has continued to decline due to a number of factors, which I highlighted in the Q1 call and Thats continued to impact our spend base.
The most significant decline this quarter versus Q1 is our cost of goods sold which is certainly attributable to the reduced topline as well as our ongoing efforts to improve our gross margin through the transformation of our network.
Looking at the operating expenses were always mindful of our spending and continue to actively control it especially in the face of covered 19 pandemic.
Selling and marketing engine a boat so significant decline for the second straight quarter.
All of this gave us the total spend based of approximately 6 billion for the first half of Twentytwenty and expected our full year spend based to be lower than our full year 2019 total.
Turning to slide 23.
We see our free cash flow for the quarter came in at 582 million compared to 168 million in Q2 2019.
The increase resulted mainly from the higher cash flow generated from operating activities. This brings our total free cash flow generation for the first half of Twentytwenty to more than 1.1 billion. This was an unusually strong start of the year, especially given but first half performance which are.
Usually impacted by annual incentive payments our employees.
Based on the first two quarters and our outlook for the remainder of the year. We're now no not changing our free cash flow guidance for Twentytwenty, which is in the range of 1.8 billion to 2.2 billion.
Containing a review of cash.
On Slide 24, you can see our strong cash conversion for the first half of the year came in at 79% versus 40% for the first half of 29 team cash conversion is one of our key long term financial targets and we are targeting at least 80% for Teva cash conversion as core described.
Since a lot since the long term financial targets were introduced in 2018 at high level of cash conversion is especially important for Teva as we focus on our main goal of reducing our significant debt load.
We're very focused on ensuring that our cash conversion continues to improve each year.
There are many touch point within the organization that we are focusing on that will enable us to shoot this long term targets, including the active management of our working capital and the improvement of our gross and operating margin.
These efforts are especially reflected in the cash conversion for the first half of Twentytwenty.
Now turning to our debt development on slide 25.
As I just mentioned our main focus from the start has made to reduce the company significant debt load, including the net reduction of 100 million in the second quarter. The company has reduced its net debt by more than 10 billion in the last three years. There is still a lot of work to do and I'm pleased to report that this work continuing.
July with additional repayment of 1.1 billion that is not affected in the quarters and totals.
Our net debt to EBITDA ratio fell for fourth straight quarter dropping to 4.9 times.
As we noted last November following our successful financing and again on our fourth quarter calls in February we have liquidity and cash flow to cover loan repayments for the years Twentytwenty, one and twentytwenty too before looking refinancing at Twentytwenty treat maturities.
Turning to our outlook for Twentytwenty on slide 26.
As I mentioned last quarter, we're operating in a unique environment created by the Cobot 19 pandemic.
As you can see based on our financial results for the first two quarters of the year. They could pandemic at a significant effect on the purchasing patterns of our large global customers and overall utilizations of by patients, which has led to a swing in our search results.
Still our team has done a very good job in managing through the pandemic and its effect staying focused on driving the business forward, including the growth of our two key specialty assets of stereo and the JV.
Based on the results of the first half Twentytwenty as well as what we have seen in the first months of the third quarter. We are reaffirming our annual financial outlook that was first presented in February and reaffirmed in may including total revenue.
Of 60.6 billion to 17 billion, earning per share in the range of $2.30 to $2.55 and free cash flow between 1.8 billion to 2.2 billion.
We will continue to monitor and analyze the current and potential impact of cobot 19 on our business.
Where we end up into it in each of the guiding range will depend on the performance of all the three regions, including their normalization of purchasing patterns and patient demand the timing of generic launches the continuation of the growth of steadily in the Joby and foreign exchange rates at the same time will.
Continue to manage our overall spend base.
And with this.
I want to conclude my review for the second quarter results of Twentytwenty financial guidance, we'll now open up the call for questions and answers operator will you. Please open the call for questions. Thank you Sir.
I remind you ladies and gentlemen, if you wish to ask a question unique stolen.
Thank you.
Your name.
We ask you to limit your question too.
With one follow up.
One person with one follow up thank you.
Question today comes from the line of Gregg Gilbert from pilot.
Thank you a core putting aside the strong performance for a moment I wanted to ask about liability management.
Is there any progress you can discuss around your proposed opioid settlement and on the price fixing allegations how do you plan to balance the need to create certainty for long term investors with the desire to achieve your long term de leveraging targets as well as other considerations that we should be aware of thank you.
Yes. Thank you question so.
First on the opioids, we have continued our positive dialogue with the AG.
And we're continuing to refine you could say the framework with of course, the objective to implemented.
There has been a significant delay in the process.
Due to covert 19.
It basically is the case for most pick.
Settlements like the framework settlement that when you have a lot of parties you need to bring together with a lot of lawyers involve unless there's a triggering event. It doesn't really happen and we were expecting that triggering event as some of you probably remember to be the the trial in New York.
In February that got delayed.
Phone because of co with its still being postponed so we don't have a clear timing on that so I would say a very positive dialogue with the eightys, but.
No clarity on when exactly the framework will come to fruition. It is still a very I think the seibel thing for the framework to get implemented. It does include as you know from us donation at the level of.
23 $25 billion products.
Whack price probably half of that net price in a category, where the states can alleviate some of the problems about substance misuse and help treat patients better. So so we think it's a good thing for the American people. If this framework does get implemented and we are still very optimistic and hopefully.
But on the timing I must admit I don't really have a good clear answer as to when that might be I think it will sort of be once we have clarity on a sort of legal situation a major trial in one of the key states and the fact that that is actually progressing and that might result in a clarification on that on the price.
Fiction situation, we remain in dialogue with DLJ, we of course to see a situation, where we do not see that the company in any way participated in.
Criminal organized price fixing or were part of creating a cocktail or anything like that so.
We would like to resolve together in a passed away with you Jay and we don't know whether this will be possible, but there's of course the option that will resolve it which would be nice and then there's the auction that it goes on in the legal system and we're looking at all options and we think that we can manage the situation no matter what option.
And that we have good plans for doing so but right now we're still in the dialogue with UK.
Thank you thank you for that.
Thank you. Your next question comes from the line of Ronny Gal sometime sang.
Good morning, congratulations on the nice quarter to refine mine core we're seeing some some significant cash Capex awards in the US government to companies were not directly involved historically in the generic industry.
And we've not seen the traditional.
Companies that are in an industry participating or you have both formulation capabilities and significant apiay capabilities and I'm wondering give us an update but that process your ability to participate in its your ability to shift manufacturing of paipai and dosage form see us or Europe as countries acquire thank you do you see this.
Something you will participate in given apparently going forward.
Second in the first half the year, we've seen on the bulk volume oral products, which we all track to accuse me up a significant drop in tablets volumes and you can you just described just little bit the dynamics there and your strategy going forward is this a significant segments to you is something that it's nice to have how do we how do we think the button.
Progress of your volumes as back about a bulk generic supplier to the as market. Thanks.
So it is just to clarify the last question around him to be associated with just about you said Paul generics, we think about it.
You are thinking what do we just described.
Yes, Matt commodity generics so.
Finished dosage forms, but you just look at at the Rob volume number so we get easier or some on the gas and basic you'll see significant declines there over the last six months.
Yep.
Let me address both question. So if we take US first and the discussions about LPI answer one that has been going on for awhile, but really caught more per se.
At the front page in connection with with Cowen 19.
So first of all Teva is a company with a very strong manufacturing base basically in us Europe and I would say, we recall in NATO allied countries or use NATO Allied countries that we have a disproportionate lot parts of our entire manufacturing in countries that.
Politically aligned with with us in Europe.
Which of course, the good thing from a US perspective, it's also through that Thats been discussions about getting a pie manufacturing excellence VI manufacturing back into the US. It's a fact that it has basically all the us within the last 30 years. So there is.
Nothing left which means that getting impacted from real would say, probably 10 20 years and would have to depend on major structural changes in pricing and always kind of elements. As you can imagine now we of course positive towards any collaboration with the U.S. government we had been in.
Along with the with government, all along and sketched out possibilities on specific products, where we might help also specific products that are related to cope with 19 therapies, where we might help so far.
It hasn't come to anything specific I would say with regard to what has happened so far.
There's probably without getting into any details a mixture of operational and in some cases political agendas that get mixed up here.
It's not really interested in the political side of it we are more and operational company. So if the if it if it makes operational sense, we would love to do more manufacturing in the west, but it will take certain structural changes in the marketplace, which we are currently not seeing happening and therefore without those changes you will not yet.
To a major relocation to us, but we are open to make any kind of deal on different products, we've offered that as well to the U.S. government and the second question I think the reduction you see in volumes here in the first half in us that's mainly related to covert 19, we can see.
Market data that we sort of have the same market share as no maintaining major change in our market share. So the major change we've seen is a reduced volume.
Being bought by patients in pharmacists both of generics in LTC products in the second quarter of this year and that basically relate to the locked down or semi lockdown or fear of growing out or whatever you want to call it which has reduced.
The volume set patients have been buying there's an indication the latest macro data from the comedies that supply such data that this is normalizing hasn't completely normalized but if we look in Europe and us as a tendency that it's getting back closer to normal volume levels, It's anybody's guess.
How's the pandemic will evolve rest of the year.
It gets a lot worse than probably we will see a modification of volumes being lower than they were last year. If the situation continues to improve slowly area by area has been doing in Europe, then you'll probably get back to a more normal volume level. So thanks for that question. So those two questions. Thanks.
Please.
Your next question comes from the line of Mason with Goldman Sachs.
Hello, Thanks for the their questions.
Two on on the margins performance and outlook.
You had nice margin performance so far in the year I think looking at the midpoint of guidance for the back half.
Sort of implies you know a 26% EBITDA margin or so kind of down from the 30% level you saw in the first half a year. So can you maybe just talk more about kind of your expectations for margin cadence and kind of any factor that we should keep in mind.
As we think about modeling the back half of the year.
And then tied to that I just wanted out one clarification question.
Kind of putting together your comment on what you've seen in the first half of the year related to co bid.
Did you guys kind of have a sense of what the net impact either revenue or EBITDA was from.
Some of their covered related kind of purchasing dynamics that you've seen so far.
Yes. So thanks for those two questions I'll give it a quick answer and then I'll turn over to air lease. So here he wants to say more about the margins, but you're absolutely right that for a number of specific reasons. We saw very high margin in the first quarter, which will also indicated that's not really what's part of our.
In our while it is part of our full year guidance cost that we will maintain that level and you could say every every quarter you have a couple swing factors, which might go through June of 50, 100 million could be exchange rate could be launches of products could be people in Ohio Destocking Northstar.
Talking off and so on so you have so you have some swings there.
If I give you the big picture, then I would say the big picture is that we're going to hit 28% operating margin at the end of 2023, that's a from target and we affirmative dedicated to that.
Now you are probably also right that this year could be around 26.
Some swing factors are up and down that can affect that and and as we can comment on that I think the most important for you to know instead, we will hit the 28 in 2023, we'll do buy that by improving at around 100 basis points per year, and we'll do it in a combination of active.
Portfolio management of our inline portfolio active management of our cost in our manufacturing network and active management.
Sales marketing and Gionee cost, so we'll be optimizing the whole thing and.
I think it's fair to say that this is something I've done many times before so this is something I know can be done. So so on the margin accretive for him on that and the covis.
Thats a little bit of a more tricky question actually because that definitely was a positive effect in the first quarter that definitely was a negative effect in the second quarter. Devaney was you know probably a wash more or less on the revenue probably a slight improvement on the cost. But then we also had associated costs that window. So if you go to the micro.
Level for instance distribution costs have gone up its close transportation cost window.
Travel costs have gone down because travel winter. So you have all the swing factors up and down so I would hesitate to give you.
A from number other than saying that in my Big picture analysis dislike the half year half analysis you show. So from an early I think it's a wash.
I don't think there's a significant effect positive or negative as a lot of small effects in both directions, but I think overall, it's awash so with that I'll, just let elie comment more on the margins for the second half and and how he sees the final year operating margins and then see thank you for your questions and then up.
His comments, we'll move onto the next.
Okay. Okay. Thanks, nothing for the question. So there are kind of a combination of our same entry elements first of all and we need to actually understand the opex. The opex for the first half is trending combined R&D sales marketing and DNA at the level of around 25 to 25% to 25.5%.
And a year ago, it's like 27.7. So here you have like at least at least at 2% and we end up 2019 with.
51.5% on gross margin and 24.5% on on LP and are planning is to at least top 100 basis points. Additional one point for both gross margin in Opie by end of the year by end of Twentytwenty. What you can see for the first half the too early on trend on the gross margin actually linked to 52.5.
Which in that area and we see it's coming and we got kind of an upside in Q1 due to economic hedges revaluation mark to market that to get this kind of kind of an upside. So we're currently that first houses accumulated 27%, but we see it actually linked to the level, 75.5% to 26%.
And as you as you can actually recall from my prepared remarks.
Mainly you can see that's the first half with a 6 billion.
Spend base and you can actually recall that we going to do less than last year, which was 12.7. So the numbers for the next the house, most likely going to trend on the opex at the range of around 26%. So with that one I think that you can understand how we'll open the dynamics.
Thank you really let's move to the next quarter. Thank you.
Thank you. Your next question comes from the line of Elliot Wilbur Raymond James.
Thanks, Good morning.
Core specifically just wanted to ask you a couple of follow up questions around the person you Matt program in light of the new data.
Obviously.
Replacement cycle, maybe new with respect to send your math, but not something that's new to the class just wondering how you're thinking about the benefit risk profile now of the product and approve ability in light of the new.
Data and whether or not theres any insight that you could share was flat with respect to that particular subgroup, where the signal was seen.
On.
Lines, such as patient demographics sure.
Concomitant medication use or anything there that may help us to sort of put that into.
Little bit better perspective thanks.
Yes. Thank you for that question Iliad, I'm afraid I can't give you.
That detailed yet because the the detailed analysis of all those very relevant factors have not been completed yet and we haven't also got the for so long term safety.
Database that we collection, we haven't got that hit with which we will get at the end of this year. So the beginning of next year, we'll have that ready for you. So the way I look at it is basically you could say.
In a way unchanged to what I've said the last two years, which is that I believe that this is a very efficacious product I think thats confirm now one milligram monthly dosing is definitely Verifications I think there is a very.
Low level of safety risk here, but of course it remains to be assessed completely once we have the for long term safety and it remains to be discussed with with the FDA, but the way I look at it.
Unless something new Pops up in the final analysis.
Is that it's a from my overall point of view and I have to say I'm not a clinical expert right.
But I've seen a lot of clinical trials I think this makes sense and it also makes sense because the alternative pain medication that people off news does have a risk of misuse does have a risk of addiction and this product does not have any risk of addiction. So you could say you need to check the risk benefit in a way if you look at it holistically.
And look at the product itself. The strong improvement has on pain and physical function, which is proving to know beyond doubt in the clinical trial and then the associated improvement, which is that you will be avoiding alternative therapies that have at risk of.
Abuse and in that sense from a commercial point of view if it does indicate approved getting approved by FDA. Then I think it has a a strong commercial opportunity here to the benefit of many patients suffering from severe pain.
So thank you for that question.
Thank you.
Next question comes from the line of Gary Nachman.
Capital markets.
Hi, This is the lie on for Gary Thanks for taking the question I'm just wondering if.
And then following what portion of the new Gtld prescriptions are coming from the auto injector.
If you're seeing any migration of existing patients from the syringe to the auto injector.
Yes. Thank you for last question, Gary I think.
I remember the number but I think maybe I can help on the slide so I'm just going to look back.
To see what we have on this slide I've got a tier.
So yes, it's right.
Here I think.
The auto injector is launched of course now accounts for 40% chose to MPLX and 50% of Trx so out of the.
And we are anxious seeing its 40%, which roughly if I do you know just rough math on the curve here without having done in detail indicates that the growth. We're seeing is basically identical to the orange is the scripts, but we still have a lot of scripts on the Prefilled syringe.
So it indicates that we're not seeing a switching but we're seeing generation of new scripts, which is very very positive.
Okay, Great and then just a follow up recently announced data for from the Phase three be open label focused study can you just comment on how you see that contributing the value of the joke diverse competitor.
We I would say if I look at in general with a focus studies and the long term.
Phase three programs, we have a Joe we has shown a.
Fantastic.
Maine.
Maintains its efficacy in a really really strong way, it's well known in many CNS drugs that efficacy where style overtime thats quite a normal phenomenon. This is not the case with Adobe. So the long term data long term focused data we had indicates that Joe we keeps on working sometimes even.
Which is maybe just random right educate some results that are slightly better that you had in the previous period, but it's quite remarkable that efficacy of Joe we keeps on working even in a long long term.
Use and Thats of course extremely positive because this is the chronic disease and what you really want to drop that works well from the beginning but keeps working so I think it's very very positive I don't have any direct comparison to our competitors because they are not in that trial, but I can just say that for Joe with results I will.
The strong.
Thanks Christian.
Thanks.
Thank you next question comes on the line of.
Evercore.
Okay.
Hi, Thanks, so much for taking my question I have two if I may 1st.
We saw the U.S. government cash outlays to Kodak recently on securing drug supply Im curious if.
Teva could possibly be in a position on land something similar.
Especially for guarantees some sort of supply chain on critical ingredients and also core I saw in the press release.
Crop season, osteoarthritis trial can you speak to what percentage of that was tied to our Pos. Thank you very much.
Yes, so the first one on.
Our newest common encoding I don't really have a comment on that specific deal.
What I only know what you all to know what we've written the press that the car alone of some 750 million and.
And that they would use that to establish API manufacturing in the us structurally right now it's not profitable to do a pie in the US that's why nobody does it so unless there's some structural changes then it's probably going to be very very tough challenge.
If you get a very cheap low to make that a positive business venture, but that remains to be seeing.
We're very open to doing a pie manufacturing in us and we also.
And our discussion the U.S. government about it but it has to be sustainable and has to be long term and hopefully we can we can end up working working something out like that but I think a lot of what's happening right. Now is political and is not really sustainable in operational but that remains to be seen.
Then.
I cannot comment on the details.
On the different types of our pure way simply because we haven't had time. This is hot off the pressure for say the phase three read out here and I haven't had the chance to look at all the details. So that will have to wait until we sort of have more time to analyze that's also why couldn't ask about the details about.
We see any differences in shop groups and so on that analysis has to follow and we'll shared with you once we have it.
Thanks for the questions.
Thanks.
Your next question comes from the line.
Terry from for Sach catch.
Hey, guys. Thanks, so much for taking my questions. So there seems to be a big delta between the drugs that are needed the criminal complaint.
Birch quite fixing versus civil complaint as we sized up kind of the potential liability impact what's more appropriate I think just for building up a framework and there's also admittedly a minority perception that there could be minimal to no DRG liability for Teva is that a reasonable base case assumption.
For investors and then just one question on the rest of the well business.
It's been underperforming for a few years, but can thats just keeps modeling this line to kind of stabilized.
Over what timeframe could rest of world kind of return to growth for Teva and how long would kind of the growing pains with the new Japan strategy last thanks a lot.
Yes, so thanks for those two questions. So if we look at the.
The price.
Fiction first then there's a criminal side to it which is something we discussed with you Jay that there's also a civil side with you Jay and then there's a sort of.
Edgy NGL side, too, which is also simple and I think you're referring to the fact that with few Jay on the criminal side their allocations I think around 10 products and the civil side the allocations around 110 products now.
First of all its important to repeat that in our internal investigation, where we've been through more than a million documents. We don't see any evidence of organized price fixing organized cartel or anything involving a structured approach to this bye bye now.
Now we do have continued discussions with the Geo Jay and I think it's not really possible right now to give you a.
A sort of from basis for how you should model. This it's an on clarified legal situation and as you know with legal situation taken developing all kind of ways in the us and we will do our best of course based on the fact that we believe we did nothing wrong too.
And not have a solar on surmountable financial damage coming out of this.
And there's a lot of technical elements to that which I can't really comment on so I cannot give you a fair amount on that one I am sorry.
When it comes.
Through the rest of the World then you're absolutely right that we've had a number of events that have been dragging down the total revenue development of the rest of world or international markets.
Actually the underlying most of the market to grow nationally and the last several problem child left you could say in terms of growth has.
Very much in Japan, and with the new restructuring of the business in Japan, we hope to put that behind us, which basically means that.
Im optimistic that we will see modest growth in the rest of the world in the years to come.
We don't have anything left that we feel we have to sort of reorganize a clean up or whatever you want to call. It so.
So thats part of the restructuring should be done by the.
We are doing in Japan at into this year. So thank you for the questions.
Well I think now we're hitting.
Most of the hour. So I guess, we have time for one more question. Thank you. Your final question comes from the line of Jason Capre Bank of America.
Hi, This is asher mile on for Jason.
Just wanted to get any more details on the album Big Biosimilar partnership.
How do you think dispositions you to compete any this will make market and can you elaborate on the profile of the programs you will advance our these early or need to market assets or do you have any kind of big focus. Thanks.
Thanks for question so our collaboration.
Our strategic collaboration with Alphatec involves five biosimilar products that you could say at different stages of development, but they are compared to our own portfolio slightly earlier than our own portfolio. So they hopefully will secure assuming that they all are successful they will secure.
We have a sort of long string of launches over the coming 10 years in the us in the Biosimilar space.
We do feel that with our commercial presence in the US where we are the biggest volume supplier of pharmaceuticals that we can handle products in basically all therapeutic categories and.
We are very happy about the development we've seen on succeed so we very much look forward to this.
I can't comment on which specific products, we're talking about but that will evolve as time goes by we will of course.
Make you aware that but I can just say that now we have a portfolio more intense biosimilars in the us marketplace and I think that brand in his organization has shown a very good performance on fixing humor, and maybe we will end decision with.
Moving the word to Brendan So you can rounded off by just commenting on how you see outperformance on Tricksy, Matt since we launched and going forward and how you see we obviously feel to over to your breakeven for the final comments.
Yes. Thanks, Thanks core I appreciate the question I think that if you look at our commercial performance on track Sema, It's been one of the most successful biosimilar launches.
In the industry, we're up to 17% weekly new to brand share and mid Twentys. When you factor in businesses not capturing qbs. So if you look at Tevas commercial footprint.
Of course that earlier in the call we have a strong footprint with customers on both the generic and specialty side, which I think.
Lends to our capabilities in the in the Biosimilar markets as we think about the Alphatec deal I think that deal fills in nice gap in our portfolio between the two assets that we currently have and some of our own assets here later on.
456 years out so I think it's a great deal for us a great deal for Alphatec and I think it'll be a nice match for capabilities I look forward to commercializing those assets. Thanks core.
Thank you Brendan.
So over to you operator.
And thanks for listening to all of you.
Thank you thank everybody for joining us Tracy if you could please provide the replay information as usual we are available to take your calls.
And look forward to speaking you in the coming days and weeks. Thank you.
Thank you ladies and gentlemen, this conference will be available for replay of today's call you may access to the mandatory.
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