Q4 2020 Teva Pharmaceutical Industries Ltd Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome days type of fourth quarter on full year 'twenty 'twenty financial results at this time, all participants southern Edison only mode there'll be a presentation followed by question on session at which time, if you wish to ask a question for you when he's press star one on your telephone and wait for your name to.
We announced in the interest of time, please limit yourself to one question on one follow up question only.
Mr. Advise you that this conference is being recorded today Wednesday, the 10th of February 'twenty to 'twenty, one I would now like to turn the conference over to your Speaker today, Kevin Mannix Senior Vice President head of Investor Relations. Please go ahead Sir.
Thank you Sharon and thank you everyone for joining us today to discuss <unk> fourth quarter and full year 2020 financial results. We hope you've had an opportunity to review our press release, which was issued one hour ago, 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 Teva farm Dot com.
Please note that the discussion on today's call include certain non-GAAP measures as defined by the SEC management uses both GAAP financial measures and the disclosed non-GAAP to 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 company's 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 of course, Schultz <unk>, Chief Executive Officer will provide an overview of the fourth quarter and full year performance recent events and priorities going forward, our Chief Financial Officer. Early Khalif will then review the results in more detail before providing an overview of Teva is 'twenty 'twenty, one financial outlook joining corn early on the call today is <unk>.
Did o'grady Teva as 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'll now turn the call over to core core if you would please.
Thanks, Kevin and welcome everyone to this call and thank you for your interest in Teva I will review some of all key business highlights and then Ali will review the financials and then we'll have time for Q&A.
I'm very happy to report that we met all of our key components of our 2020 financial guidance as you've seen our revenues came in at $16 7 billion non-GAAP operating income at $4 4 billion and the non-GAAP EBITDA of $4 9 billion non-GAAP EPS came in slightly above all guidance at $2.
57 cents in the free cash flow came in at $2 1 billion on the business side, a lot of important things happened.
You could say the over arching thing for 2020 was the COVID-19 pandemic and the successful navigation of the pandemic by the company and by the employees, we do our utmost to particularly employees and by doing so we were able to protect our supply chain with minimal disruption and also continue our R&D programs.
Graham and all product launches.
I'll get back to us stayed with Jovian, succeeding on the following slides, but I'd like to mention the very successful launch of the first versions of the treatments Truvada and Trippler for HIV treatment. So generic versions of those products were launched by us on the fourth quarter in the U S. A very successful generic launch we also just launched in.
The U S Nuvaring and we're very happy to have this approval for complex generic.
We're also very pleased with the phase III results, we got from all Risperidone L. A I S.
As you know patients suffering from schizophrenia really need better long acting therapy, where they don't have to have intramuscular injections, where they don't have problems with reconstitution and this product is a ready to use long acting product subcutaneously injected by a thin needle so it will improve convenience and compliance.
Hopefully with strong benefits for people suffering from schizophrenia. We also launch did you hear the whole did you halo portfolio in the us and in these times of health. We are very optimistic that the did you hailer portfolio of products can help people suffering from asthma and other respiratory diseases.
To improve the treatment and the compliance with the treatment to the benefit of their health outcomes for move to the next slide.
Then I'll just give you a few comments to our revenue development.
And we did have a strange year in the same day.
In Q1 2020 as you can see from the European Green Bar, there we had a.
Unexpected extra sales in the foam on patient level holding us.
As the pandemic pandemic hit in the first Lockdowns happened in Europe. So, we basically sold $200 million more in the first quarter in Europe than we would normally do and other than that came back is $200 million less in Q2, and then we sort of normalized in Europe at the end of the year in Q4 in the U S. We didn't have the same.
Swings we didn't have the same hot locked islands as we show on Europe, and you basically see we were sort of going at the normal run rate of around 2 billion per quarter and then in Q4, we had the lift up basically coming from the launch of Truvada and a triple net and the rest of the business was pretty steady over the quarters.
A dramatic changes there.
If we move to the next slide.
And then I'll give a few comments to a stereo well.
Stayed all keeps growing very strongly we had a 65% increase over 19 in our revenues in 2020, and we also expect us to keep on growing strongly as you will see from our guidance we have a good growth in prescriptions good growth in our sales.
And then what I always mention when we talk about it was stable is the huge potential.
Potential there's a huge unmet medical need in the form of tardive dyskinesia. We are estimating that we have around 500000 patients suffering from tardive dyskinesia in the us of course, not everybody will be treated at all times, but as you can see from our patient numbers and if you look at the numbers on one.
On the only competitor than we are only scratching the surface in meeting the medical needs of people suffering from tardive dyskinesia. So for that reason I'm optimistic that all state. It will continue to grow also the coming years.
If we move to the next slide.
Ben.
We have a bit of a roller coaster story for jewelry in the U S. We had a really good launch and then we lost.
Competitive.
Power you could say due to the fact that we did not have an auto injector are two competitors both launched with an auto injector, we were delayed regulatory wise and you're so MPLX share go from 30, all the way down to 11, then we finally launched all auto injector, which I think is based on class very high quality Swiss product.
Really easy to use.
And if you combine that ER.
New and better device, which then meant that we got back into a better capture rate with an MBR on share of around 25%. If you combine this bit of device and the increase in our catch rate with the fact that we do have unbeaten efficacy and we have a longer duration of action than any other competitors and due to the.
Longer duration of action, we can offer both quarterly and monthly therapy, then I'm actually quite optimistic about the potential for a job in terms of market share and I've been saying since the launch that we would be happy to get 25 per cent of the market.
I'm sort of upping that ambition, a bit and saying that I really think with the on Japan efficacy the longer duration of action and a clearly high quality very convenient auto injector I don't see why we cannot have a long term aspiration in the U S. All having a third of the market and that by the way it fits very well with Europe. We're in.
Some of the countries, where we have launched and Thats, mainly by now in some other countries, where we launched early we are already now getting close to a third of the market. So so good development on the market share for Joe.
If we move to the next slide.
Then many of you probably remember that up and told them about biosimilars as a future cornerstone of our presence in you could say the overall generic space and.
We had to prove ourselves with the launch of trucks email.
We had to prove that we could get a good market share. There has been you could say some disappointment on the penetration rate for biosimilars in the us over the last five to 10 years I think with <unk>, we have proven that we can get the volume share.
We are up to 24% now.
I don't think that we will go from 24% to 48% in the next 12 months, but I do think we have a sustainable market share that we can increase that as more competition now we have two competitors in the originator, but this is a very good business for us. It's a solid market share. We have already we think we can expand it and we're very opt.
Domestic also about the benefits of our broad future portfolio in Biosimilars, which I'll actually address on the next slide.
So if you look at our all Biosimilar and specialty pipeline. Then you can see here that we by now we have a very broad biosimilar pipeline, roughly 10 products half of them on our own internal development half of them what came in with the in licensing deal we.
Made with Alphatec and then we are very excited about this and we think it will be a very good business for us for the coming many years I can also mention here that you can see that Risperidone AI of course, we're getting ready for submission. There hopefully we can submit get approval and launch sometime next year and on.
Of course, we also waiting to see the all.
Outcome for the competing product to casino map scenario map, which has an advisory committee coming up so it will be exciting to see there what happens and it took us about all patent and regeneron will be following that closely hoping that we can file the product. This year I won't give any more comments to all the details, but you can see we have a broad portfolio.
Of both bio pharmaceuticals, and Biosimilars, if we move to the next slide.
Another cornerstone of our strategy is to continuously improve our manufacturing intensive efficiency and cost and thereby increasing our gross margin and our operating margin now I won't talk about all of these elements.
I'll talk to you about it before its really not rocket science. It's what you do when you want to improve manufacturing operation, it's more than a thousand soft projects under these five categories I'll just mention two things where you can clearly see and where we are sharing with you. What we're doing on the network side and I'll show you just in a minute.
How we've developed by reducing the number of manufacturing sites, we have and we will continue that net of cost benefits by increasing the scale effect on the remaining sites, increasing and concentrating the volumes and also on the supply chain.
Given COVID-19, and everything that's been happening.
You could say consolidation and the overview and the smart use of it.
For reviewing your supply chain at all times for securing both your manufacturing supply chain and the distributions for supply chain is critical and I'd like to mention here that also the supply chain from manufacturing to patients is critical and we are very happy about the support that Teva has been able to keep to the state.
Israel is vaccination program, where we are playing a key role being the company doing all the logistics getting the vaccines from the airport into the warehouse into all of the 400 vaccination centers in Israel, and thereby securing a very fast vaccination process in <unk> based on logistics.
And of course supply of products.
If we move to the next slide then I promise you to give you a short look into our consolidation of our manufacturing sites. What you can see here is that over the last three years, we've gone from 80 to around 60 manufacturing sites, but we're not stopping there as you can see here at the bottom we have additionally.
On sites, where we have announced that they will either be divested all closed and that of course sits us all for a reduction down to 50 sites and then I'm sure later on we can do even more consolidation and we have different examples we've recently divested in countries, such as Japan, Thailand, Russia, Serbia and so.
So so there's a lot of smaller sites that we are closing and concentrating the volume on a bigger sites and thereby getting better manufacturing efficiencies and you can see that on the next slide.
I am showing you the operating margin.
You can see the negative development from 17 to 19 basically as a consequence of the loss of revenue on Copaxone, which was a very high operating margin product and then you can see how we are fighting our way back moving from 24, 5% operating margin in 19 up to $26 three in 2000.
<unk> 20, the midpoint of our guidance for this year is 26, eight and our long term target at the end of 'twenty three is 28% and that's a target we are firmly committed to.
If you move to this next slide then you can see in all of that development that we are firmly committed to the.
The reduction in our net debt and you can see the development since I joined the company in Q3 17 on till now where we have reduced the debt by some 10 billion you should continue to see that going forward. The only reason why the graph has gone a little flat for last two quarters is actually the currency adjustment on us.
Our euro denominated debt, which has led of course to some increase in the dollar converted number for that debt, which has slowed down the debt reduction a little bit, but it will pick up again strongly here in 'twenty one.
If we move to my last slide here other than.
Happy to repeat.
On the long term financial targets and there is no change here apart from the design, we've moved to three green round circles and Thats of course, you could say a little the contribution here warming ups on the next slide which is an ESG slide but these are financials, 28% operating income margin at the end of 'twenty three reaffirming.
So that more than 80% cash earnings and our net debt to EBITDA below three times and in order to secure that we will of course use all cash flow to pay down debt and us aside remark, which I've said for the last three years, we don't have any plan to raise equity we wanted the current shareholders to get the full benefit oil <unk>.
<unk> in the business.
Now I have my last slide on ESG.
I like to show you I won't comment on all the great things. We are doing just pick the east so to speak the environmental piece and I just want to review briefly our 2030 environmental long term targets. One is focused on greenhouse gases to cut our emissions by a third and the other is focused on the energy both the.
<unk> efficiency and also the continued increase in use of renewable energy sources.
And then the last one is really focused on waste and recycling of waste and then reducing and minimizing antimicrobial discharge. It's a project we do together with a lot of other companies in the pharmaceutical industry to basically secure that we won't have problems with resistant bacteria.
To ensure that we have a reduction in the risk of this happening two to all of us by working together across the pharmaceutical industry. So with this I would like to hand over to <unk>, who will review the financials.
Thank you Corey and good morning, and afternoon to everyone.
I hope you all have a safe and healthy 2021.
I will begin my review of our 2020 financial result, with my main focus being on the fourth quarter performance.
This will be followed by an introduction to our 2021 non-GAAP guidance.
Some of the important assumptions behind it.
While most of the discussion around 2021 guidance will come at the end of my presentation in a few spots along the way I will touch upon our expectation regarding forward looking trends to assist you with your modeling. So please take note of this.
Beginning on slide 17.
We start with a review of our GAAP performance. The fourth quarter was the strongest quarter of 2020 with regards to net revenues totaling $4 5 billion.
Relatively flat compared to the fourth quarter of 2019 sales are up 12% compared to the third quarter of 2020.
The strong sequential performance was supported by growth in all segments, especially North America, which benefited from the strong launches of our generic provision of Truvada and <unk> as well as the continued strength of aceto and took sema.
In Q4, 2020, we recorded a GAAP operating income of $406 million versus $148 million in Q4 2019.
Income of $150 million versus $110 million in Q4, 2019, and GAAP earnings per share of <unk> 14 cents versus <unk> in the same period in 2019.
The year over year improvement in GAAP operating income net income and earnings per share was mainly driven by the successful launch of generic drove other <unk> in the us coupled with the lower level of intangible assets impairment.
Turning to slide 18.
You can see that the net GAAP adjustment in the fourth quarter of 2020 were $683 million.
Non-GAAP income and non-GAAP EPS for the fourth quarter of 2020 were adjusted to exclude these items with the largest being amortization of purchased intangible assets totaling 262 million all of which $231 million included in cost of goods sold and remaining $31 million in selling and marketing.
This quarterly amount for amortization is aligned with the range of 250 million to $260 million per quarter that we guided to at the beginning of 2020, and we expect it to be the same in 2021.
Impairment of assets and accelerated depreciation totaled $236 million in the fourth quarter of 2020, which was mainly associated with the impairment of identified product rights of $127 million in the U S.
Turning to slide 19.
I'll review, our non-GAAP performance.
As I mentioned at the beginning of my remarks quarterly revenue was $4 5 billion, which was flat compared to Q4 2019 and annual revenues were $16 7 billion a decline of 1% compared to full year 2019.
Non-GAAP gross profit was $2 3 billion in the fourth quarter of 2020 flat compared to the fourth quarter of 2019.
Non-GAAP gross profit margin was 52, 3% in the fourth quarter of 2020 compared to 56% in the fourth quarter of 2019.
The year over year increase in non-GAAP gross profit margin was due to our efforts to reduce our cost of goods sold as part of our long term financial targets and due to the strong launches of our generic versions of drove other than a triple in the U S full.
Full year 2020, net GAAP gross margin was 52, 4% versus 51, 5% in full year 2019.
Non-GAAP operating income in the fourth quarter of 2020 was $1 1 billion, an increase of approximately 7% compared to the fourth quarter of 2019.
And then GAAP operating margin was 25, 6% in the fourth quarter of 2020 compared to 23, 8% in the fourth quarter of 2019 day.
The increase was mainly due to the aforementioned strength of our generic launches in the US continued growth of us data and continued focus on an efficient disciplined cost structure.
Full year 2020, non-GAAP operating margin was 26, 3% versus 24, 5% in for year 2019.
We ended the quarter with a non-GAAP earnings per share of 68 cents, an increase of 10% versus SKU for 2019, mostly due to the higher operating profit as well as the lower tax rate for the full year 2020, non-GAAP, earning per share was $2 57 and <unk>.
Kris for 17.
Prior to the full year 2019, and <unk> <unk> above the high end of our 2020 guidance.
Now, let's take a moment to discuss our overall spend base.
We declined for the third straight per year on Slide 20, you can see that we had a modest decrease in our spend base in the fourth quarter, but for the full year it declined $474 million.
More than half of the annual decrease was due to a lower cost of goods sold partially related to a lower annual sales as well through our ongoing efforts to transform our global operational network lower operating expenses also contributed to the decline in spend based on due to the ongoing active management of our operator.
<unk> expenses.
Looking ahead to 2021, we expect the overall spend base to continue to decline, but at a more gradual pace, mainly due to our efforts to reduce our cost of goods sold through procurement cost excellence network optimization and restructuring operation on the quality excellence and two on supply.
Chain integration and agile operating model and organization. This ongoing effort alone and increase in the top line will lead to further growth all windows.
Operating margin improvement in 2021 with the ultimate goal being 28% operating margin by end of 'twenty three.
Now turning to free cash flow on slide 21.
Davis free cash flow in Q4, 2020 was $471 million versus $974 million in Q4 2019.
Please keep in mind when considering the year over year decline that Q4, 2019 was unusually high mainly due to a onetime sale of assets as well as $95 million benefit from an interest rate swap transaction.
For the full year 2020 free cash flow was $2 1 billion, which was flat versus full year 2019.
Im very pleased with the work our team has done to minimize the large quarterly swings in our free cash flow, which we had experienced in previous years as you can see here the quarter.
Free cash flow results were fairly consistent throughout 2020.
Turning to slide 22.
Our cash to earnings for our full year 2020 was 75% versus 79% for full year 2019 as free cash flow was unchanged, but net income was 200 million higher in 2020 versus 2019.
Despite the drop we're on track to achieve our long term goal of at least 80% cash to earnings a year by end of 2023.
Turning to our outstanding debt on slide 23.
Net debt declined to $23 7 billion versus $24 9 billion. In 2019. This reflect repayment of $1 9 billion during 2020, which was partially offset by a $900 million negative foreign exchange impact on.
Our net debt to EBITDA at the end of 2020 was four eight times versus five three times at the end of 2019.
We're very pleased with the progress we have been making each year to bring our overall debt load lower than the net debt to EBITDA ratio closer to our long term target of under three times by the end of 2023.
Looking ahead to 2021, it will be another year of debt reduction totaling $3 2 billion, including our <unk> 25 convertible debentures our 26.
Due to the net share settlement feature this convertible senior debentures were classified on the balance sheet under a short term debt.
<unk> of the convertible debentures were able to close the Teva to redeem the debentures on February 21, and $491 million of the convertible debentures were redeemed on that date as we have stated since 2019, our liquidity and expected cash flow will cover bond repayments.
For the next two years before having to refinance later on maturities, including for 2023.
Now, let's look at the development of 2020 result versus our guidance here on slide 24.
We present, the full year 2020 performance compare to the original guidance issued at the start of 2020 as well as the revised guidance from November.
Where we lowered the midpoint of our revenue guidance by $150 million, while bringing up the bottom end to end of the range for operating income EBITDA and earnings per share.
We're very pleased with the overall performance in 2020, especially given the uncertainty that was created by the global pandemic. Despite these challenges the efforts of our employees around the world allowed us to meet the five components of our 2020 outlook as well as to continue to make progress towards.
Our long term financial targets.
Now, let's turn to our attention on our 'twenty 'twenty one net.
Non-GAAP outlook, which we are introducing for the first time today.
Here on Slide 25, you will find the five main components of our outlook.
Revenue operating income EBITDA earnings per share and free cash flow as well additional components, including the expected revenue range for key products.
As I just mentioned our company worked extremely hard throughout 2020 anticipate and mitigate the pandemic effects.
Despite the significant amount of progress made around the world, especially by our industry to battle the spread of the virus, we expect to continue to face an evolving environment for the purchasing partner of our larger global customers and overall utilization by patients.
With this in mind, we begin with 2021 total revenue, which we expect to be between $16 4 billion for $16 8 billion.
Please note. This range reflects the divestment of $240 million in 2020 revenues from generic product in Japan, along with the manufacturing sites there.
Divestment was announced in July 2020, and become effective on February one 2021.
We have factored into our guidance. The continued erosion of global Copaxone revenue, which we expect to decline during 'twenty, one by approximately 300 million to approximately 1 billion 50.
Full year 2020, the majority of the decline is expected in the us due to a third generic entrants later this year.
The expected decline in income tax on sales should be more than offset by the ongoing growth of us steadily in the Derby.
We expect continued momentum with us data in both 30 of dyskinesia in Huntington disease with a total annual revenue to grow to approximately $950 million in 2021. Furthermore, Adobe is expected to benefit from continued patient growth in both the us and Europe bolstered further by all.
Auto injector device, which we begin to rollout.
After offering of jewelry in the Prefilled syringe the first two years.
Global sales of Adobe are expected to be approximately $300 million.
With modest decline expected in our spend base non-GAAP operating income is expected to be between $4 3 billion to $4 6 billion and then a GAAP EBITDA is expected to be between $4 8 billion to $5 1 billion.
Using a share count of approximately $1 1 billion shares we expect earnings per share to be in the range of $2 50 to $2 77.
As you know, we do not provide quarterly guidance, but I thought it will be helpful to share with you. How we are thinking about the progression of both sales and earnings.
Throughout the year.
Based on our expectation today, we do not expect to see the same trends that we experienced last year. When we saw a big swings both up and down due to the global pandemic looking on 2021, we expect that the first quarter will be the lowest of the for quarter for sales and earnings with gradual pickup in the second quarter.
<unk>.
<unk>, we would expect that the approximately 48% of our 2021 sales will be generated in the first half of the year and approximately 52% in the second health.
For annual earnings per share approximately 45% will come in the first half of 'twenty, one and approximately 55% in the second half of the year hopefully discolor will assist you with your modeling.
2021 free cash flow is expected to be at the range of 2 billion to $2 3 billion. We expect about one third of the analysts free cash flow to be generated in the first half of 'twenty, one and two thirds to be generated in the second half of 'twenty one.
This is due to unusual timing of annual bonus payments made in the first quarter and inventories coming down due to the normal course of business.
Lastly, looking at the tax in 2020, our non-GAAP tax was 66%, which was below the 70% to 80% range. We originally guidance as we look to 2021, we expect the rate once again to be in the range of 17% to 18%.
And this concludes our reviews of Teva fourth quarter and full year 2020 results in 'twenty 'twenty, one financial guidance, we will now open up the call for questions and answer operating if you will please.
Thank you.
Thank you, ladies and gentlemen, as a reminder, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
On the interest of time, please limit yourselves to one question on one follow up question early if you wish to cancel your request. Please press the husky once again. Please press star one if you wish to ask a question.
Your first question today comes from the line of <unk> <unk> from Evercore. Please go ahead. Your line is open.
Hi, Thanks, so much for taking my question.
If I may.
<unk> trends quarter over quarter on a reported sales basis versus what we're seeing in IMS, there seems to be a bit of ER.
There seems to be more going on than what volumes would tell us I was curious if you could.
Shed some light on that as well as I noticed there is.
There is an antibody.
Gastro intestinal as all you guys disclose on it which is now in phase one on your specialty pipeline. If you could give us any color on that thank you very much.
Thanks for those two questions all address the last one and then.
All of it.
In Britain and address the first one.
No.
I can't give you a lot of color on our pipeline. The early pipeline, we don't really disclose a lot but I.
I can tell you that this specific project that is for celiac disease and it's it's an exciting project we might.
On a year from now have a day.
Day, where we focus on the R&D pipeline and then we will give you some more color, but until then thats about all I can tell you. So Brendan will you comment on the <unk> trend.
Sure happy to and good morning, So I assume what you're talking about is the increase on share.
With the job as you've seen our total prescriptions for new prescriptions for basically doubled over 2020.
And I assume that youre looking at when the revenue.
All kind of follow that so if you think about the market as a patient gets on a product that's on a jokey oftentimes, they're given a sample and then they may enter our savings program for a period of time.
While we work through the while they work through the prior authorization process. So revenue tends to lag share quite a bit and we've increased our ex us quite a bit on 2020 will continue to do so on 2021. So the expectation is that as our share continues to grow on wise, you'll see revenue follow that but there is a lagging.
It's a lagging indicator.
Thank you for the question.
Thank you.
Thank you and your next question comes from the line of Gregg Gilbert from to US. Please go ahead. Your line is open.
Thank you.
Core and in the past I've asked you about the melting ice cube that is the generic business and you corrected me by calling it more of an ice bucket. So my question is do you still think you can keep that business.
Table over the coming years based on what you have in us that sort of dependent on biosimilars or any other factors you'd point out and then secondly on opioids. It seems like the wholesalers are getting close on a settlement as evidenced by their.
Comments on their accruals et cetera, do you have anything new to say about where Teva stands on its opioid discussions and are you open to settling maybe in different ways, perhaps carving states out separately from other parties. Thank you.
Thanks for those two questions I would say on on the ice cube question I would more call.
North American generic business a win.
All working ice machine and all.
These machines you have on a borrower ice keeps coming out so you always have ice.
It doesn't overflow so you don't get dramatically more ice it does melt and go away. So you don't lose the ice.
It's the same way within the North American business and I think Ive said for I think really two years, maybe three years now it's roughly a $4 billion business in North America, and it's roughly $1 billion a quarter with the natural swings from launches.
Various other swing factors, so I have great confidence in this business going forward I have also said many times the prices are not going to get back to where they were.
We do have the worlds if not the world's lowest but at least we have lower prices in U S than we have in Europe. It was just proven one small by the rain.
Institute issued a report reasonably you might've seen it where they conclude that generic pricing is lower in the U S. The envision Europe.
Which is a side remark is interesting when we are being accused of rigging and doing a cartel on generic pricing in the us that would be the worst catch on history, resulting in lower prices, but that's another discussion for another day, but it leads me to your other question, which is also about litigation about the opioid situation.
So.
I think that we.
We are close to a settlement so.
Can you say.
Other companies involved in the framework, but there is a difference between being close and getting something signed finally and I've said before on <unk>.
Fortunately I think we need some kind of pressure for everybody to get together and do final settlements in this space of opioid litigation.
And so far all the trials had been delayed it's probably a year ago I was talking about the New York trial that was still at that point, probably scheduled or maybe it just about to get moved due to the COVID-19 pandemic and since then we've had one year of delays in the legal system for good reasons of course due to the pandemic.
So I'm still optimistic about the framework settlement I am still very optimistic about Teva finally, reaching an agreement, but I'm not so optimistic about the timing simply due to the fact that the legal system is not really up and running net means that that pressure.
Pressure that will probably get people to sign on the dotted line is really not right. There right now hopefully as the pandemic gets better in the coming quarters, we will see a return with some pressure from some upcoming trials and that will result in a in a final settlement with regard to <unk>.
Settling in parts of it then I think the best for everybody is a framework that includes.
Both of US states and the subdivisions that will be the most elegant way to do it but of course, you can imagine all kind of different other ways of settling it.
Thanks for the questions.
Okay.
Thank you and your next question comes from the line of.
Elliot Wilbur from Raymond James. Please go ahead your line is open.
Thanks. Good morning, good afternoon, if I could just ask you to.
To provide some additional color core and Brendan Roger.
On your commentary regarding the trends in North American generics business, just specifically thinking about the headwinds in terms of volume price erosion.
What's your expectation for 2021 versus 2020 and more specifically what should we be thinking about in terms of new product launches new product contribution we've been talking about generic versions of <unk>.
For Teo Restasis and <unk> for quite some time, obviously realized nuvaring.
But there must be some other key launches that have kind of moved into the <unk>.
Moving into the target range here that we should be thinking about in 2021, and just wondering if theres any also any day.
Certain launches based on settlements that.
Give us a little bit more visibility into trends there.
Follow up just get your commentary around generic epipen market dynamics seem pretty strong increase in demand.
Unusually strong for this time of year, assuming there is some tie into COVID-19, vaccinations, but just wanted to see what youre seeing sort of at the stocking.
Level versus what we're seeing in terms of retail prescriptions.
Thanks for those two questions. So I'll give you an overall take on the North American Generics and then Brendan will give you some details on that and also answer the question on Epipen. So if I go back to this.
Analogy of the ice machine then you can say the way I look at US we have and fix the machine that makes new OE ice cubes. All the time in form of launches speeded Biosimilars complex generic simple generics and that means we have a steady flow of launches into the market of course, they don't come every day.
He on there and sometimes a small launches in one quarter than another but on.
MHC basis, we have a steady machine launching products really adding revenue all the time, we also have the ICU smelting.
In the container for the ice cubes and Theyre not melting very fast all very slow compared to how they used to their melting at a steady rate. So we don't have this phenomenon. We saw I think in 17 18, where they mailed it really fast. So we had really big price erosion, that's not what's happening, but it's not that they're not melting at all either.
So I think we have a.
Normal level of price erosion for us, we get more competitors on products and products get sold and that whole balance I think is very steady on natural and that's why I keep repeating this I know, it's kind of over simplifying it and Brendan will give you some more details, but I keep repeating this that we're doing for building.
On generics in the U S and and.
And Canada, and I think we will keep on doing that I don't see that going to $6 billion I don't see that going to $2 billion I see that thing around the full billion Mark and then we have the growth of course from our specialty products and we have modest growth in our generic business in Europe.
And in the rest of the world, but enough on the Big picture, what you Brendan on the specifics for generic launches and epipen.
Sure. Thanks, Cory so.
There's a couple ways to think about the generic business and when you think about launches.
Both number of launches and value of the launches in 2019, we launched I think 45 or 46 products.
In 2020, we launched 15, but.
But the value of those products is was much different so.
2020 was a good year for us and that was led by two bought on the Triple as we think about 2021, we've already launched two products.
Have another six or eight that were that we know we're going to watch we're preparing to launch and then we have a stable of complex generics.
Maybe 11 that are possible this year, but of course, we won't get all of those on we're not certain which ones. We will get so I like course ice machine analogy.
I think that that is very relevant and I think that we will launch more products. This year than we did last year. It was nice to start off January with the approval on Nuvaring and launch that that is a.
Should be a very good product for us we're a little late to market. So the value isn't going to be this year, what it would've been two years ago had we launched it but it still should be.
So it should be good and as we think about the rest of 2021 as I mentioned there is the stable of.
10, 11 complex generics and some of them we've talked about for a while it's ter parotitis possible octreotide is possible cycles for us as possible.
<unk> is possible so theres some theres some products in there where they all come on now, but we're working with the FDA on all of those and I agree with of course comment.
A $4 billion business that we can that we can likely grow in the low single digits.
And.
The $1 billion per quarter kind of ebbs and flows depending upon the launches that occur on the timing those launches. So hopefully that provides more color for you.
On the Epipen comment Epipen, we're still seeing that as a.
A significant product and revenue generated for us I think that youre right there could be some stocking with with the COVID-19, injections, but I wouldn't necessarily think of that as a major event.
Think that.
That could be a slight boost here and there, but I don't think that thats going to add significant.
Significantly to the overall epipen franchise.
For your question.
Thank you. Your next question comes from the line of Amit <unk> from Us.
<unk> Leerink. Please go ahead your line is open.
Hi, Good morning, Thank you for taking the question.
I had one follow up and then one main question for the main question is how do you think about deleveraging.
For the next couple of years.
How do you think about maybe adding additional growth drivers for the products.
Are you doing in terms of thinking about.
Refocusing R&D or any inorganic opportunities to drive growth in the coming years, and then secondly, just with regards to your comment on growth outside the U S.
Can you talk about some of the pushes and pulls US we think about Europe investor day, but thanks.
Thanks for those two questions. So when it comes to deleveraging then as you saw on the presentation. We are fully committed to using our cash flows to reduce debt and to get below that for.
Lead times net debt to EBITDA.
Now that does not mean that we're not doing any in licensing that we're not doing any early stage R&D in licensing, but it doesn't mean that we're not buying any companies and we are not buying peak late stage assets that have maybe already been improved and so on.
We are working with companies, where our commercial footprint is attractive and that means that big upfronts on are needed, but that together, we can generate value and if you look at the in licensing for instance of the Alphatec.
In our portfolio for the U S and that's a good example of that no dramatic big Upfronts, but at peak value if everything works out well. So so that's the kind of deals that we like we also do a lot on early research collaboration early leads so we take our products into our early development of course.
It doesn't lead to product in the market until 10 years from now something like that so I would say don't expect us to do big moves that will drive additional growth on the next.
Two to five years basis, we will be doing small in licensing, which can help us, but we will not do anything baked because we will stay committed to reducing the debt and the net debt.
EBITDA ratio.
On the terms.
Outside of the US then you can share in Europe, we have a very steady business. We had last year in 2020 once again, the highest absolute profit ever in Teva Europe and were very optimistic about the future in general we do see US. It was reported to also buy early that we.
Still in the second half of last year, so in the third and the fourth quarter.
Volumes in Europe were still below where we would naturally see them not dramatically, but maybe three 4% and the overall generic market in Europe, and we think that will continue for the first.
Couple of quarters for this year simply due to the fact that we still have a lot of lockdowns in Europe and that means that we won't get back to the completely normal market situation. We are optimistic that after the summer we will see a more open European economy, which means that patients will return probably in full volume to hospitals doctors and that.
We said, we will see some higher volume in the second half longer term, we do actually expect to see low single digit growth in Europe and the same thing goes for the rest of the world.
Japan, China Southeast Asia, Latin America, we do we do see volume growth and also value growth in the generic space. There and then of course, we see growth from our specialty products being launched so for instance at Joey is going to be launched in Japan together with our partner Otsuka, We've just launched.
Stay though in China. It has come on the National drug reimbursement list. So we are of course also expanding with Joey stereo around the world, which will also contribute to growth outside of the us. So overall, we are expecting to see low single digit to mid single.
<unk> growth over the coming years.
Thanks for the two questions.
Thank you.
Thank you. Your next question comes from the line of David advising US from Morgan Stanley. Please go ahead. Your line is open.
Yes, thanks, very much and congrats on the.
Strong performance. So my two questions are first.
Obviously, the company's financial progress has been impressive could you discuss the company's flexibility to manage potential future cash litigation payments.
And second.
There has been discussion of a comprehensive settlement.
Core could you please.
Provide a little bit more color on that how you define that and ensure that it covers all U S. Claimants. Thank you.
Thanks for that question all of those questions. So first of all of course, we have the situations as we've just been reviewing where we have more than $20 billion on debt, which basically means that we don't have any free cash laying around of course that doesn't mean that we can't have a cash component in a settlement, but it just.
Means that we don't have the capability of paying 5 billion tomorrow in cash that's not the kind of balance sheet that we have and this is why we've been Nick.
Negotiating with the state Ags and agreeing on a framework that's based on US basically providing what we are good at providing which is generics.
So we are offering to provide generic suboxone. So all states in the United States that means that they can get going on.
Therapy for people, who are suffering from substance abuse and they can save lives.
Use of generic suboxone, So we think thats, a really good way to help the situation to improve the situation.
And then we are aware of other companies, who will not be able to contribute like that and they will be contributing cash and I think it's to the benefit of the American people that this thing gets settled because we can discuss it wherever we can have litigation for ever but that doesn't help anybody.
The individuals that are suffering from substance abuse now in terms of what is the <unk>.
All of a comprehensive settlement of course, it has to be understood that there is a framework that involves five companies, but technically each company's signaling until theres coordinated negotiations discussions and so on but at the end of the day, it's a legal entity accompanies legal engineering and each settlement will.
Don on its own and of course, we would like to settle with everybody. So both the subdivisions in the states. We think that should be possible that should be beneficial for everybody to get this thing off the table so to speak and start helping people.
All of our owned and all the states. So I'm still optimistic that the framework is the right solution and as I told you I'm a little pessimistic on the timing and a key reason for that is that you have 50 states involved you have a lot of companies involved you have.
Maybe 500 plaintiffs lawyers involved so you have a lot of people who needs to get together, but it would be a good idea for everybody I think if we were to push this framework over the finishing line and get it signed sealed and delivered.
Thanks for the question.
Thank you.
Thank you. Your next question comes from the line of Nathan Rich Goldman Sachs. Please go ahead. Your line is open.
Great. Good morning, Thanks for the question for.
First I just wanted to dig into the operating margin guidance for this year, the 50 basis points of improvement.
Could you maybe help us think about.
How youre thinking about gross margins next year. It seems like you have several kind of positive tailwind with the specialty business continuing to grow additional facility rationalization, you've talked about the stable kind of North America generics business.
So I was just kind of wondering why we wouldn't see maybe more.
Gross margin improvement kind of consistent with 2020, given those tailwind.
Japan divestiture in there too so I'm just wondering what what kind of the swing factors are on on operating margins that we should keep in mind.
And then as a follow up on us although the guidance was stronger than we had anticipated I think implies about 40% growth year on year over year off of a very strong year. This year.
So core maybe just where do you see the biggest opportunity is to continue to grow us said, though and I know you.
<unk> talked this year about it being impacted by the ability to get into Doc offices.
Have you started to see that improve and is that one of the factors.
That led to the guidance that you gave.
Yes. Thanks for those two questions I think you will start with the question on operating margin and they all take a stereo.
Okay. Thanks for the question Nathan.
Nathan So if you look on the trajectory on the slides that in his part on the on the operating margin.
Moving from 224, 5% on 2019, when we actually really introduced last year.
Our plans and heading to 20, 613% and actually looking at the $26. Eight you can see that 2020 become kind of a pivotal year for us. So I would say the ob and margin over the gross margin in 19 was kind of a 47% now we actually came to account for 50 50.
And heading into 'twenty, one we should you should think about our margin to be in.
Flow from the gross margin on the op margin for 50% really close to what we are seeing the midpoint 26, 8% and you can actually look on okay. We did kind of for more than one point year over year, but heading less than one point and one of the elements here, we need to remember is that actually we are looking.
For going forward.
The midpoint on the revenue versus last year, if you remove the divestments on Japan.
What we did this year, we work heavily on the Opex to make sure that we have a really really great cost structures. We are looking on.
Moving forward to supporting some other mix on the revenue and that's actually.
A bit higher percentage wise in terms of the Opex for next year. So we still kind of looking to grow and looking on how we actually can and supported with sales marketing and other activities and but I would say that the direction is to actually flip it and flow through.
More than 50% from the gross margin into the op. So I think that's the way you should think about it.
So on a state of all just give us your overall comment and then Brendan you can also give some details if you want so basically we are continuing the very strong trends we've seen on on <unk>. So it's not a dramatic change what is important here is that we can continue to grow and the reason why we believe so is that.
Big unmet medical need there is a lot of patients out there suffering from tardive dyskinesia, who can be treated or not being treated and they can get a huge help in their everyday quality of life.
And therefore, we see that new patients are coming on it all the time of course, we've had some hurdles on our communications with doctors face to face during the pandemic, we expect that will continue to some degree.
But we've also overcome some of that through different tactics and maybe Brendan you can comment on little bit on how do we see tactically that we will keep on driving the growth all of us data in the U S.
Sure happy to core so.
At the outset of the pandemic I think we were able to move quickly to virtual and video detailing with physicians and it's certainly not.
Not necessarily as impactful as on in person face to face detailing as far as generating new to brand prescription.
But.
Certainly it is.
It will play to have played a role we've been able to return to the field.
State and local guidelines will allow.
So we're continuing to engage with physicians.
As far as the unmet medical need that <unk> talked about.
The patient population per ton out of dyskinesia is probably in the 500000 range.
Number of patients about 26000 patients today are treated between the two products on the market. So it's a little more than 5%. So there is still significant opportunity in <unk>.
<unk> market and then when you think about it.
Chorea associated with Huntington's disease, there's about 38000 patients in the us with Huntington's about 30000 of them have chorea associated with Huntington's.
And only about 2600 of those patients are treated so a little less than 10%. So there is still significant opportunity with both tardive dyskinesia and Huntington's disease I think we've really just scratched the surface on this market.
As we continue to grow through 2021.
And the pandemic improves we will have a greater percentage of our details being face to face. So we certainly see some some good upside on some good growth coming from aceto. Both in 2021 on the out years 2022 on beyond so thank you for the question.
So I think now we will take the last set of questions. Because we are getting close to the hour.
Thank you. Your final question comes from the line of Jason <unk> from Bank of America. Please go ahead. Your line is open.
Hi, good morning, and thanks for squeezing me in so.
So I guess.
My first question core is just is there an opportunity for and a distribution in 2021 to play a bigger role in COVID-19 vaccine distribution, you talked a little bit about the.
Israeli experiences that or was that a one off or are these opportunities not available to Teva more broadly and then my other question a follow up question us as it pertains to the Doj legal matter that you referenced earlier with the price.
Fixing suite I know that there was an attempt to get the simple matter stayed.
Pending resolution of the Doj case.
And I think the court balked at that but is there still the potential for getting a simple matter state or could we anticipate both legal matters sort of proceeding in parallel.
This year thanks.
Thanks for those two questions all.
To answer them relatively briefly the first question on <unk>.
Yes, yes, and can potentially play a role in helping states to get vaccine distribution going in a good and safe and reliable way, we know how to do it we're doing it as you know in Israel and has the capability to distribute nationwide to any pharmacy.
As you can imagine on any location you can imagine so it is a possibility whether there'll be a need for it.
I'm not sure, but it's definitely something that we are offering to the health care system right now if they need if they.
Need to help on that front with regard to the Doj criminal case on price fixing and the civil case, then there was actually a development.
Yesterday I believe.
In the civil case, we explained to the judge that.
We have been explaining to the judge that it doesn't make sense to focus on Teva since we have denied any wrongdoing and we have we have a criminal case waiting.
Some of the all all the all other defense they have already said that they did something wrong, such as heritage and other companies. So it doesn't make sense to focus on us in the civil case, it would be much more relevant to focus on the companies that have said they've done something wrong, and then dig into what have they actually done and.
In Layman's term then the judge has agreed to that and that means that teva won't be at the forefront of that case it will be some of the other companies and then you could see net since the cases not state because there's 15 different defendants, including Teva, but it will not focus on Teva. It will focus I think on heritage and some other companies and.
And then the criminal case will of course take its time and we will have to see how that develops over the coming years.
Thank you for those two questions and with this I think we will end the questions and thank you all very much for your interest in Teva. Thank you.
Thank you ladies and gentlemen, this conference will be available for replay from two P. M. Eastern standard time today through until two P. M. Eastern standard time on Tuesday, the 19th of March 2021.