Q1 2021 Teva Pharmaceutical Industries Ltd Earnings Call
Good day, and thank you for standing by and welcome to the Teva pharmaceutical first quarter 2021 financial results Conference call.
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I would now like to hand, the conference over to your Speaker today, Kevin Mannix Senior Vice President head of Investor Relations. Please go ahead Sir.
Yeah.
Thank you and thank you everyone for joining us today to discuss <unk> first quarter 2021 financial results. We hope you've had an opportunity to review our press release, which was issued about an hour ago.
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 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 and evaluate.
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 first quarter recent events and priorities going forward, our chief Financial Officer illegally will then review the results in more detail, including our 2021 financial outlook joining.
Joining core and early on the call today is Brendan O'grady <unk> head of North American commercial 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.
That I will now turn the call over to core core if you would please.
Good morning, good afternoon to all of you and thank you for dialing in we are presenting today Q1, 2021 financial highlights and then we have a set of solid numbers to present too.
All revenues came in at 4 billion, which we see as a good result, given the <unk>.
Continued COVID-19 pandemic and the fixed it is having in the marketplace.
We're seeing all adjusted EBITDA come in at $1 2 billion meeting all expectations and in line with what we see is the continued improvement of our business.
GAAP diluted EPS came in at seven cents and non-GAAP diluted EPS came in at 63 since again in line with all expectations.
We continue to reuse all debt, we had one pay down on some convertible bonds in the period and net debt is now reduced to $23 2 billion U S dollars.
And then last but not least we reaffirm our 2020 one outlook and early we'll show you. Some more details on that later in the presentation next slide please.
Now if we take a look at the quarterly revenue.
Then I'd like to remind you of a couple of things that's been happening when we look back and compare.
We have a normal run rate of around 2 billion in North America and around $1 2 billion in Europe, but if you go back to.
To the first quarter of last year than you see on the dark green that the European numbers, they were significantly higher than the normally coming in at $1 4 billion now that was the 200 million patient level hoarding of products related to the start of the COVID-19 pandemic.
Debt reversed in Q2 last year, So you see Europe, dropping down to 1 billion instead of the normal sort of one 2 billion. So that swing factor of course means that all comparator is more challenging in the first quarter 'twenty 'twenty than it is in the second quarter off the 20th weighted.
Apart from debt, we have a couple of special cases that you can also see the numbers and that's really both in North America. That's the first quarter of 19 that was the very successful launch of trucks IMO and the fourth quarter of 'twenty that was a very successful launch of the generics to truvada in a triple net so.
Those things are kept in mind, we see a good result for the first quarter of 'twenty. One we still see that the underlying volume is reduced in Europe simply due to the fact that less people go to the Doctor as people go to the hospital due to the continued lockdowns in the first quarter of this year, we do expect the Cove.
With 19, Lockdowns too slowly ease here during the second quarter, but really see the hopeful return to normal volumes in the third and the fourth quarter of this year in in Europe.
Moving to the next slide please.
On a state of all we saw U S sales of 146 million in the first quarter. This is an increase of 20% versus last year.
We always have a dip in the first quarter you can see that also happening in 'twenty and in 19, and that's a consequence really of the insurance system in the U S. Where you have these resets of deductibles and all the elements that typically lead to lowest script volumes in the first quarter and then a resumption of growth.
Once you get into the second third and fourth quarter, we are expecting to see that also this year.
We are seeing more than 35000 prescriptions now and in the first quarter and we continue to see future growth of this number.
We also focus in unexpected access and maybe a little bit whichever stay due especially to the tardive dyskinesia patient population as you know there's around 500000 patients suffering from tardive dyskinesia in U S and we have so far only targeting or not targeting but actually only delivering a steroid to a fraction of these popular.
So we will be starting DTC advertising in the coming months and hopefully this will be a further driver behind the strong growth of our state of all that we foresee for this year next.
Next slide please.
With.
Got to jewelry as you can see here, we continue to see a growth in our T. Rx count of course, some small variations, but underlying a strong development all of the total number of <unk> and.
And we do see sales globally of 48 million in the first quarter.
$31 million in North America, and 16 in Europe.
We've seen a uptick in our mutual brand ER scripts right in beer ex <unk>.
And it's right now around 25%, we want to try and drive this higher and will be working hard to do so in the coming months.
In January this year, we just launched the Triple pack, which is a further sort of example of our quarterly dosing and the convenience that we offer to patients who are seeking preventive therapy for migraine by taking a jewelry once a quarter next slide please.
Okay.
We also now at a stage, where we have launched in the majority of European markets.
So we have now launching 19 European markets and as you can see from this slide the European market is now growing you'll have it to the left the total market is basically doubled within the last year and we expect it to continue to grow.
We are seeing a nice growth in our share we did not launch is the first company in this class in Europe, but we can see that when we launch we start taking share and it's been growing very very steadily and we expect it to continue to grow we have especially strong positions in Germany, Nordics U K and some of the all.
The main markets so with regard to the jewelry I'll just repeat what I said last time that we are still bullish on our market share and we do have an aim to have one third of this market in <unk> as a target over the coming years.
Next slide please.
I showed you the nice effect, we had on sales when we launched <unk> email and we continue to see a very strong penetration of troops email. We are now up to more than a quarter of the market 26%.
The latest data point, we have on our share of the market and as you know we are the only which ultimate Biosimilar that also has an indication for Ari. So we are very optimistic that we'll continue to history, a strong position for truck sema in the market in the in the coming years.
Next slide please.
Our portfolio as we've discussed earlier is we see.
See this nicely balanced between Biosimilars now all biologics and different improved versions of small molecules.
And I'm, especially happy that we got such good results on spirit on L. A I. This is a long acting novel therapy, where you can subcutaneously dosed for a month or two with Risperidone and this would be very very beneficial for people suffering from schizophrenia lead to better compliance.
And a better therapy for these people so really.
Looking forward to filing this very soon and hopefully launching it next year.
From that we have as you know a long list of Biosimilars moving into the market oil in coming years, and some exciting lifecycle management, both for from an ism App and from OS data.
Slide please.
Yeah.
One of them all key targets long term financial targets that we've set for the end of 2023 is our operating margin and as I'm sure. Most of you know the target is 28 per cent and we also showing this year at the end of the line so to speak on this graph.
The reason why the margin came down as you probably also all know was really the significant loss of revenue from Copaxone going generic in the U S and in Europe, and that really drove our margin down from the level of around 29 28 down to 24 five per cent in 19 weighed bottomed out.
We continue to see a nice improvement and.
We are still standing firm on the target for 2023 and this quarter as an example, we had a actual margin of 27.1.
Likewise.
So we're talking about the long term financial targets not much new here, they're completely unchanged. The target for operating income margin is 28% cash to earnings above 80, and net debt to EBITDA below three times. So nothing new here, we're still committed to utilizing cash flow to pay down debt and we do not.
To raise equity next slide please.
Now et cetera, ESG is everyone's business.
And it actually always has been we've always been very focused on both environmental social and governance issues, but we.
We're getting better at reporting what we actually doing and all next report on this our next ESG report will come out soon on May 4th and I can only encourage you to take a look at it it will explain in much more detail. How we are minimizing our impact on the environment. How we are seeing a lot of steps to secure it.
C N. Good access to our medicines, how we're dedicating ourselves to quality ethics, and transparency and a lot of all a quick topics you can see some of them here, but it's a whole long report that will be coming out in two weeks time that shows our strong progress and dedication to ESG.
With that I'll hand over to Amy who will give us some more details on the numbers.
Thank you Cor and good morning, and afternoon to everyone I hope, you're all having a great start to 2021.
I'll begin my review of the first quarter 2021 financial results on slide 15, starting with our GAAP performance.
Revenue in the first quarter of 2021, or approximately 4 billion a decrease of 9% compared to the first quarter of 2020.
This decrease was mainly due to a lower revenue from generic OTC with territory and Copaxone in our Europe segment as well as lower revenue from our distribution business Copaxone and been Deca Trianda in our North America segment.
This was partially offset by higher revenue from generics in our North America segment as well as from a third one.
Revenues were also affected by the impact of COVID-19, pandemic I would like to remind you that when comparing the year over year performance. Please note that the first quarter of 2020 benefited significantly from the high COVID-19 related revenue.
Furthermore, please note that Q1 2020 included the generic product sales in Japan, totaling 41 million and approximately $240 million for the full year 2020.
As we communicated on our Q4 2020 earnings calls as of February One 2021. This product were divested along with a manufacturing site in Japan exchange.
Exchange rate movements during the first quarter of 2021 net of hedging effects positively impacted revenue by $74 million compared to the first quarter of 2020.
In Q1, 2021, we recorded a GAAP operating income of 434 million versus one one on $191 million in Q1, 2020, GAAP net income of 77 million versus 69 million in Q1, 2020, and he got earning per share of seven cents versus six cents in.
The same period a year ago.
The year over year improvement in GAAP operating income net income and earnings per share was mainly due to a lower intangible assets impairment charges.
Lee offset by lower profit in Europe, along with a higher legal settlement and loss contingencies.
Turning to slide 16.
You can see that the net GAAP adjustment in the first quarter of 2021 were $621 million versus $766 million in the first quarter of 2020.
And then GAAP net income non-GAAP EPS for the first quarter of 2021 were adjusted to exclude these items with the largest being amortization of purchased intangible assets totaling $242 million.
The majority of which is included in cost of goods sold.
This quarterly amount from amortization is slightly below the range of $250 million to $260 million per quarter that we guided to at the start of the year.
Impairment of assets and accelerated depreciation total $134 million in the first quarter of 2021. This includes an expenses of $79 million for identifier.
You bought assets impairment compared to expenses of 64 9 million in the first quarter of 2020 all.
I'd also note that debt in the first quarter of 2021 were accorded and expenses of $104 million in legal settlement and the loss at the loss contingency the expenses in the quarter was mainly related to a provision for a potential patent settlement.
Now moving to slide 17.
Wherever you are.
Non-GAAP performance.
Corey and I have already reviewed the first quarter revenues, which total approximately $4 billion. So lets move down to the P&L and look at the margin.
Despite the 7% a year over year decline in total non-GAAP gross profit our gross profit margin improved to 53, 8% compared to 53.1% in the first quarter.
The year over year increase in our non-GAAP gross profit margin was due to a favorable product mix as well as our ongoing efforts to improve our cost of goods sold.
A relatively flat operating expenses based health to partially counter $167 million decline in our non-GAAP operating profit versus Q1, 'twenty and resulted in a non-GAAP operating margin of 27, 1%.
We ended the quarter with a non-GAAP, earning per share of 63 a.
A decrease of 17 cents versus 70% versus Q1 2020, mostly due to the lower operating profit.
While I will touch on the guidance later in my presentation I will note that the first quarter came in as we had expected it to and as we guided in February.
Now, let's take a brief look at our spend base on slide 18.
Year over year, our quarterly spend base declined by more than 200 million.
The main driver for this change.
With a reduction in our cost of goods sold as operating expenses were flat.
The decline in sales and the greatest impact on the reduced cost of goods sold supported partially by our ongoing efforts to improve our gross margin through the transformation of our network based on the first quarter as well as an expected modest uptick in operating expenses in the second half of the year, we believe our spend base.
This will come in at approximately 12 billion for 2021.
Now turning to free cash flow on slide 19.
There was free cash flow in the first quarter was $59 million versus $551 million in Q1 2020 as.
As you know there was free cash flow tends to face headwinds at the start of the year due to usual timing of annual bonus payments paid out in the first quarter.
But the headwind was especially large in the first quarter, mainly due to timing of working capital items, resulting from increase in the net accounts receivable and inventories as well as lower profit in our Europe segment.
With recall, our 2021 free cash flow guidance, which we provided in February and are reaffirming today.
2021 free cash flow is expected to be in the range of 2 billion to $2 3 billion. We expect this free cash flow pick up during the next three quarters as we are driving inventory improvement as part of other working capital items.
All our free cash flow was relatively lower for the first quarter, we remain on our objective of 80% or greater free cash flow conversion as part of our long term financial targets.
Turning to our outstanding debt on slide 20.
Net debt declined to $23 2 million versus $23 7 billion at the end of 2020.
Our net debt to EBITDA slightly increased to four nine times versus 483 times.
At the end of 2020, it was nothing the sequential drop in EBITDA moving average total from $4 9 billion. In Q4, 2020 247 billion in Q1, 2021 recall that the first and fourth quarters of 2020 were particularly strong benefiting from higher COVID-19 related sales.
In Q1, and the launch of generic provider in Q4.
<unk> quarter of 2020, so the reversal of the COVID-19 related stocking at the first quarter of 'twenty, one so a lower sales of generic provider, resulting the sequential decline in EBITDA moving annual total.
Debt reduction continues to be our primary focus and main use of cash as it continues to push forward in our efforts to bring our net debt to EBITDA ratio under three times by the end of 2023.
Upcoming maturities include $1 5 billion in the third quarter and $1 2 billion in the fourth quarter, both which will be covered by our liquidity and expected cash flow.
So now turning to our financial outlook for 2021 on slide 21.
Today, we are reaffirming all components of our annual guidance that was presented in February including total revenues between $16 4 billion to $16 8 billion and earnings per share of 2.5 dollars to $7.
Looking at the progression of both dose and earnings throughout the year, we're not changing the color that we provided in February we still expect a gradual pickup in the second quarter. Following the first quarter, which is expected to be the lowest of the FERC process for the sales earnings or.
We're all we would expect debt approximately 48% of our 2021 sales will be generated in the first half of the year and approximately 52% in the second half.
For annual earnings per share approximately 45% will come in the first half of 2021 and approximately 55% in the second half of the year.
And this concludes our review of sales first quarter 2021 result, we will now open up the call for questions and answer operator, if you'll please. Thank you. Thank you as a reminder, too.
To ask a question if you will need to press star one on your telephone keypad.
<unk> a question you will press star and the Husky.
Please standby, while we compile the Q&A roster.
In the interest of time can we ask you to ask one question followed by a follow up question, we will take questions and they all does it have been received and the first question comes from the line of per larger Prasad from Barclays. Please ask your question. Your line is now open.
Hi, good morning, and thanks for the question this biology from Barclays.
So firstly on <unk>.
Joey just wanted to understand a sense of what will be the key growth drivers in Europe, considering that you all touched almost all day, all the core markets, there and what's going to drive market share from 22% 33, plus from Golar and by what timeframe and <unk>.
Generate side just one quick question on <unk>.
Deflationary comments, which all control from the likes of Walgreens on Sandoz yesterday.
Tailor it doesn't seem to have been touched by it especially in this quarter. So can you kind of help us understand what are the offsetting factors here, which help you whether any.
Any generic deflation deflationary trends recently, thank you.
Thank you very much from those two questions. So if we start with the first one on Europe, and Adobe and what how do we see the growth drivers.
Then the key growth driver is our two key growth drivers one is the underlying market growth as you saw the market grew more than 100 per cent in volume over the last year. We expect this to continue a theres a nice uptake in almost all markets. All of this class. So so that's one element then as you know Europe you have the.
Stable quite good pricing there.
It doesn't really matter so much it just means that there's no real change there are expected.
Then we really have a very very good product offering we have.
The fact that we have the longest acting product, which basically means that it's possible to take it once a month or once every three months. The experts are they like that we have the fact that we have a really nice auto injector.
All right, we get from Switzerland, its really sleek device.
And we have the fact that we have a unbeaten safety profile in all labeling we don't have any issues in our labeling on the safety side.
That's not the case for all of our competitors. So all these factors combined with the fact that we have a strong historic position with our sales force and with neurologists in Europe basically means that we see that market share continues to tick up so when I say, we expect to reach a 33 per cent.
It's really a continuation of that graph, you're seeing an uptick and I expected that with some smaller deviations.
See a continued uptick in market share over the coming years and that means that it will not be very many years before we will hit those 33% in the European market.
To your second question when I'm.
I'll get back to a to the ice machine that I introduced before.
Previous call. So, it's so that with all generic.
Generic in the U S market is this ice machine, where you know the new ice cubes in the machine drops down and they're big and they contribute a lot to revenue and profitability because every new and if you look at you had a first to file. So you alone for 180 days, although I should maybe one out of 123.
Comedies that hit the market with a new generic once it goes off patent.
And then gradually more competitive competition comes in the scoop starts to melt and becomes less and less significant and there's price erosion as more competitors enter into the marketplace. Now we had some classical ice cubes you would see.
In the fourth quarter of last year with the generic truvada in the Triple net that we launched and they made a good contribution in the fourth quarter. They automate a nice contribution in the first quarter and then we have some I.
I would say slower melting ice cubes and that's typically what you see within what I would call a comp.
Complex generics when you talk complex generics then you will sometimes see that the products will not get as much competition, because it simply complicated to make the product.
And if that's the case for instance for Epipen. So we have a generic version of Epipen and that is still having a nice revenue nice market share. We also have a generic version and authorized generic program. That's also a complicated product because it's a inhalator respiratory product so that also.
Has a good position. So you can say that there's a little difference in how fast the ice cube melts, if it's a traditional solid oral dosage form generic and typically you get a lot of competition, which means relatively fast the price erosion. If its a complex generic it goes a little slower. So it's really a combination of these factors that meant that we had.
A nice performance of our generic business in the first quarter. Thanks.
Thanks for the question.
Thanks Scott.
Thank you and the next question comes from the line of Gary Nachman from BMO capital markets. Please ask your question. Your line is now open.
Hi, good morning.
What have you been doing to help make their trucks seem a long successful so talk about the dynamics behind the scenes how have you been able to navigate with the payers and physicians, which gives me more confidence biosimilars can be big contributors going forward.
And then a follow up just the much lower free cash flow in the first quarter could you explain some more how the working capital impact of that.
And what you're doing to change that throughout the year to get to that target that you talked about in the guidance. Thank you.
Thanks, Gary for those two questions.
Brendan will answer the first one and then <unk> will answer the second one so would you Brendan.
So thank you.
I don't want to give away too much of our commercial strategy really on truck sales, but I will just comment in general to say when you think about <unk> and where do you think about biosimilars in general.
There's biosimilars that all goes through kind of a medical channel and there will be biosimilars that go through more of a retail pharmacy channel. So the strategies are somewhat different.
As to how you how you navigate that.
And if you think about Teva Teva has a strong specialty business and of course, obviously, we have a very strong dominant position in generic so I think it's the capabilities of both of those organizations. The way we're structured bringing those together that has made us successful in the way that we've approached the biosimilar launches of recently with <unk>.
I think I'd, probably leave it there I think we are well positioned to continue to do all with trucks FEMA will growth trucks in 2021 over 2020 will probably flatten out in the out years, and then a slow decline, which will replace as we launch new biosimilar. So.
That probably answers the question.
Or do you estimate.
Thanks, Brendan it's have at least comment on the cash flow.
Yeah.
Now there are you on mute, yes, sorry, thanks for the question.
And I would say that if we will train their working capital in average versus a revenue I would say that we are up by 1% to 2%.
Over onto our revenue and this is mainly due to sequential increase a bit on the inventories due to demand behavior and also the mix in Q1 in terms of revenue and how this one resulted with with actually a payment terms instead revenue that actually contribute to that one although those one we consider it as a non occurring.
Events swings that we're actually working to stabilize at a already with a lot of actions underway.
Thank you Elliot and thanks for the questions.
Thank you.
Thank you and the next question comes from Jason <unk> from the Bank of America. Please ask your question. Your line is now open.
Alright, guys. Thanks for taking.
My questions.
I guess first question I was just talking gross margin just kind of curious if you could talk about.
Conceptually, how you're thinking about quarterly phasing it seems like truvada wasn't offset against the seasonally soft.
The <unk> pharma seasonality dynamics. So just curious how youre thinking about progression of gross margin does the provide exclusivity comes off and then my second question is just coming back to <unk> from a biosimilar perspective can you give us a sense right now what proportion of the U S oncology market where prescribe.
<unk> arent operating prescribed.
Prescribed the drug with the highest average selling price.
The market dynamics, effectively where providers participate in sort of capitate under value based constructs were.
Lower cost alternatives could could potentially gain traction thanks.
Thanks, Jason for those two questions I'll address the gross margin and then.
We'll get back to Brendan Unsexy, Megan so on the gross margin.
To clarify Truvada is not a main element to the gross margin in the first quarter and basically the reason is.
To explain a little bit again about the ice cubes that truvada launched in the fourth quarter with a 180 days exclusivity.
But technically how that works in the marketplace is that then you know I thought the 180 days you will get competition and then in order to make sure you have a steady flow of products in the market you sell the product and some of the sales you have you don't record because you know that the moment that the generics are.
Number 2345 launch then you will have to give a rebate to the wholesalers, who bought your truvada and a trip or for that matter. So so that means that the truvada sales. They are they are in the first quarter, but they are more significant in the fourth quarter. That's why I mentioned them in the beginning that you could see the from Bob in.
U S sales in the fourth quarter, and then of course, there's something in the first quarter, but not really something that dramatically influences.
The gross margin, so I would rather say that day.
The underlying performance is driven by the constant efforts to rationalize and optimize our manufacturing footprint all major manufacturing operation and then you will see like you said some small swings from quarter to quarter of course based on if you. If all of a sudden you have you know some patient level hoarding and you sell a couple of hundred.
More than debt can maybe.
Affected a little bit all you have a product launch that affects it a little bit but the reason why we are committed to improving our operating margin is really because we know that the thousands of small sop projects. We have in manufacturing it is improving our gross margin and the way we handle our total product portfolio is improving our gross margin. This is.
Something that doesn't come easy it doesn't come overnight and as I've said many times that you should expect that we can do this to the tune of 50 to 100 basis points per year, but you could also expect that once we get to 'twenty three and we hit the 28% operating margin then of course, we don't really want to stop there we want to keep on improving.
The way, we operate and keep on improving our gross margin as we go further so some quarterly fluctuations nothing dramatic underlying steady improvements 50 to 100 basis points per year.
With that would you Brendon on trucks email.
Sure. So when you look at Biosimilars and you think about.
About the commercialization of those products launch order matters. So if you launch first or second youre going to get significant value launched third or fourth youre going to get some value you launch after fourth in the value declines rapidly. So vaccina launch first.
We were able to make significant inroads in the market and then when the second product came out they had.
Had some difficulty getting traction, but then of course, we got an ESP. They didn't have asps as you've talked about so they had an advantage grew share and it cost us more to keep the share that we had so that's really the dynamic is very much like generic each time, a new entrant comes into the market. There will be a period of time, where they have a N. A S. T advantage, where they don't have one of the.
Others do.
That allows them to gain traction from share in the market and it makes it more expensive.
To keep your share because it erodes your price and your discounts all state so.
That's really just the dynamic works very much like a generic market I think when you look at truck Sema again will continue to grow share as we go through 2021.
And.
As we get into 2022 and 2023, we will see that flatten and then probably declines slowly overtime.
Thanks.
Thanks for that question.
Thank you and the next question comes from the line of.
Hafod from Evercore. Please ask your question. Your line is now open hi, Thanks, So much for taking my question core a couple for you and a quick one a couple for you really one have the cities and counties lawyers come back with a counter offer yet on the opioid side I'm very curious about where things stand on that and also on <unk>.
Eric I just wanted to understand what you guys are baking in for full year.
For Europe, and I ask because the commentary coming out of Sandoz appeared far more guarded than what I'm hearing on this call. So thank you so much.
Yes.
I'm sure you're keenly aware of we are in active litigation in San Francisco Darden's here in California.
With with four entities there so I can't really make any specific comments due to the fact that we are in active litigation I can't tell you that we have all the time since we sort of went into the framework agreement been supporting a settlement to the benefit of.
People suffering from substance abuse in the United States and we are still.
Seeing that is the only good solution to this issue. So we're so that's really how much I can say sorry that I can't give you more details on that with regards to generics in Europe, then as I commented at the beginning of this call. We are seeing here in the first quarter.
Continued volume reduction in Europe, OTC and generics. This we also saw in the third and fourth quarter of last year. So we have not come out of Lockdowns in the big markets.
Is that still the case here in the second quarter. So we're still seeing for instance, France, Italy.
Germany, having some level of Lockdowns. However, we are also seeing vaccination rates come up very fast now eventually in Europe. So we're basically sticking to the prediction, which I gave last quarter, which is the first and second quarter Europe will be sort of the affected by.
Reduced volumes on OTC and generics and that we are expecting the lockdowns to basically he's such that third and fourth quarter. This year, we will see more normal patterns of Doctor visits hospital visits and so on and I know normal volume of OTC and generics in Europe.
Thanks for the questions.
Thank you.
Thank you and the next question comes from the line of Craig Gilbert from Trust. Please ask your question. Your line is now open.
Thank you.
My first one is perhaps from Brendan on on generic Narcan can you update us on the opportunity and what happens next there and whether that could become part of a broader settlement framework discussion given its.
You know sort of.
Potential benefit and then core a bigger picture question with the turnaround phase of the company well underway and the margin progression in the good progress we've seen I'm curious how much time and energy you and the board are spending on thinking about positioning Teva for growth later in the decade beyond the assets you've already identified.
As worthy of your investment are you considering licensing bolt ons et cetera things that you cannot.
<unk> bring to the party beyond what you already have in them.
That's part of that I'm curious as to whether.
Your answer would be different if you had asked.
Settlement in hand, with a set amount of cash outflows over X number of years is it sort of are we can make a less now, but we can execute on it because of that uncertainty just curious if your answer would be different if you had the bird in hand in terms of a.
Knowledge of liability size and pacing. Thank you.
Thanks for the questions Greg So the first one goes to Brendan on Narcan.
Yes, I really don't have much of an update on Narcan. We continue to work on it I think we still have some some legal issues that we're working through with it but it's.
Whether it could be part of a broader settlement or not at all.
I'll leave that to core to answer, but just real basically.
Continue to work on Narcan.
When we're ready to introduce into the market that will certainly let you know.
Yes, and with regards to potential settlements and Narcan.
The same boring answer that really due to the fact that we are in active litigation I can't comment on it I can comment on your second question about how.
How do we see the strategy going forward and as you probably know it's it's really our vision for the company to continue to be leaders in generics and strive for leadership in Biopharmaceuticals, including Biosimilars and then and that's really all focused now that of course might include.
As you suggested in licensing M&A and so on however, our financial position and that is really not related to whether we have.
A settlement on opioids are not our financial position is such that we are totally committed to reducing net debt below three times EBITDA and once you get past that point, then you'll probably see that we will continue to be very capital disciplined very cash disciplined and probably wont.
The debt to continue further down before.
Before we consider things such as M&A or dividends or share buybacks, but that really all our lives in the period. After 23, when we're going to get below three times net debt to EBITDA and if we then think about the strategy, we have which is linked to our vision and mission.
And to the extent, it's possible within those targets.
Targets, we do of course do in licensing we have been in licensing early stage assets, we have been in licensing a different biosimilars. So it's not that we don't do it but we just don't do any M&A. We don't go out and buy phase III products are all ready to launch products. So we are very disciplined in how we allocate the capital and we.
We'll stay the course with debt.
At least until we hit the end of 'twenty, three where we will hit our long term financial targets. Thanks for those questions Greg.
<unk>.
Thank you and the next question comes from the line of Ronny Gal from Bernstein. Please ask your question. Your line is now open.
Thank you very much guys on that thanks for taking my questions.
A quick clarification and then a couple of question. The clarification is around Cuba have you stopped reporting that and why now.
The two question I have is why hasn't been received European market. It looks like two of the three companies the way we track the scraps looked like had a significant.
Reduction in the price received by dividing revenue by scripts in the first quarter I was wondering if this is just <unk>.
Inventory or or an agreement on a per agreements that drove that down if you can comment on that and then more growth more.
Broadly core some of your peers have adopted the strategy of licensing.
Second wave products in established markets from <unk>.
From the China for example, you know that.
O'hara adopted there with the PD one.
And that seems to be a logical strategy. If you have a sales force in the oncology market and that was kind of wondering if you guys considered doing those kind of licensing deals for second wave branded product as opposed to Biosimilars or is there a reason why that strategy does not is not that standard.
Thanks for those questions Ronnie could you just clarify once more exactly your first question I didn't completely get it.
Oh key lock you've always done anywhere in your reported and I was wondering if you decide to just simply stopped reporting that number.
Okay. So I don't have a firm answer to that I guess has something to do with the thresholds of revenue and so on that's my guess, but all just referred to earlier and he he can maybe fill us in on what the thresholds on wide really isn't there.
But it's not something that I've been involved in discussing just let you know so early do you have any comments to that Q1 why is it not especially as specified.
Yes, Brian. This is Kevin just is really just a threshold and we are still supporting the product, but the sales have dropped all right.
We just did not included.
Okay got it okay, so running it.
So nothing dramatic and you haven't been there than on the licensing we're really not pursuing this you could see a second wave.
Patent protected specialty products is really not within our strategy. So what we are pursuing is one specialty products and of course, given the size of our portfolio that has a limited number of launches that youll be seeing it.
One once a year once every second year, we will have probably a product that we can launch and then we are pursuing biosimilars and generics so.
It is a possible strategy you could have adopted but that's really not what we are what we're trying to aim at.
Thanks for all the questions right.
Thank you and the next question comes from the line of Elliot Wilbur from Raymond James. Please ask your question. Your line is now open.
Hi, Good morning, first question for core and perhaps Brendan just thinking about full year guidance for Adobe a stead O in light of <unk> performance and recent prescription trends, particularly with a steady flow seems like obviously there has to be a significant acceleration in the back half of the year to kind of get to there.
Those numbers just help us think about your confidence.
And those numbers given what we've seen sort of year to date I guess, what what has to happen there or is it just mainly script volume or is there something that I might not be thinking about in terms of net pricing that may swing in your favor fairly substantially in the second half and then for core just maybe thinking about potential hidden.
Pockets of value in the company's proprietary pipeline you have a couple of novel biologic programs in the respiratory area.
48, 574, and 503 275 anything you can say about where those fit kind of in the current.
As the treatment paradigm and what maybe some of the.
Petr products out there that are those will be going up against in and when might there be day.
Data or an update there is it is it late 2022 or potentially earlier. Thanks.
Elliot Thanks for those two questions.
The first one I'll, just say I'm very confident in our guidance for growth of jewelry and a stereo, but I'll hand, it over to Brendan to give you some color on how we're seeing the U S piece of it I'll just add that on a Joey we see a steady growth in Europe, which we are all there.
Very positive about and we also expect to see all partner with sugarcane.
Approval and due to the launch of jewelry in Japan at the end of this year.
Of course, the bulk of the business for Joey will still be in the U. S. This is also the case of course with those day too, but how would you Brendan.
Yes sure.
Thank you Joe before so if you think about Jovi.
We continue to grow share nicely I mean, we're up to we basically since the launch of auto injector, we doubled the total prescription share as well as the new to brand share of new to brand share right. Now is hovering at around 25%. We think we can get that into the 20% to 30 range.
But to do that as we've grown share we made significant investments in access and in patient assistance.
We'll take that share growth as we move to the back half of 2021 and into 2022 as we improve our access then we will have a more balanced approach in regards to share growth as well as revenue generation. So I think you can think of it that way and as <unk> said were.
We're still believe that the guidance that we put out is certainly achievable.
Think about aceto.
Got it all set also had a 20% share growth quarter over quarter.
Started out maybe a little bit slow in January and February which is not unusual typically you see increased demand in the fourth quarter as People's benefits. They know theyre going to change in the first quarter sales.
You see somewhat of a slow start.
Do you think that the 950 is a is an achievable target.
That is built into that number which you are not aware of and in all major wherever here is that we're starting a DTC campaign, a direct to consumer campaign around tardive dyskinesia and all setup that will kick off with mental health awareness month here in the month of May just starting here in the next couple of weeks. So we think that that'll be a significant catalyst to helping us get to that.
To that guidance that we put out thank you for the question.
Thanks, Brendan with regard to the two products you mentioned in respiratory these two.
Products, all biologics that are in phase II clinical development and the thinking behind them is really that what they offer is a better efficacy and greater convenience for patients. So what we're hoping to do with them and it's too early to give any details on it but what we're hoping to do is really to be able to position them.
A way where they are both superior in the figures inconvenience, but also by being so we're able to expand the share of the population that really gets biologics because right now as I'm sure you know.
There's a certain.
Part of the asthma and COPD population that is not on biologics and we think that these products might be a way to expand the share to the benefit of patients.
We will not have phase two day to publicize this year.
On these but we hope to see some of it I can't remember the exact dates but I think some of it in 'twenty two and some of it in 'twenty three.
Thanks for all the questions Elliot.
Thank you and the next question comes from the line of David.
From Piper Sandler. Please ask your question. Your line is now open.
Thank you so hi.
High level question.
The starting point.
As the business evolves into more of a focus on biosimilars.
And complex generics and we hear those terms thrown around a lot by the U S majors, including yourself.
How do you think about the potential for divestitures.
And I'm asking that question broadly.
You know given how youre thinking about the evolution of the business. So that's number one.
Two on a stead O I just wanted to drill down on the direct to consumer campaign.
To be clear is that a function of any sort of worry about maturation and volume trends.
And is that a signal all debt.
Even though penetration rates.
For Vimeo twos or low.
Perhaps there's needs to be more heavy lifting in terms of winning all of our hearts and minds in the psychiatry community just help me understand the thought process there. Thank you.
Thanks, David I'll answer the first one and then all the.
Passengers' day to question onto to Brendan So.
When we talk about divestitures.
It is important to explain the process we've been through in connection with our restructuring really looked at all our businesses.
And we have basically sold everything that we thought was not strategic.
Might be some small bits and pieces left and we've just sold a few bits and pieces you know the the old generics we had in Japan, we sold those.
Told a few OTC products.
In Scandinavia, but theres nothing major left so so don't expect us to announce all of a sudden that we're selling a big chunk of the business. We are committed both to the complex generics and Biosimilars, but we're also committed to a solid oral dosage forms classical generics and we have to remember that biologics will be.
Increasing part of what goes off patent over the coming years as it has been in the last five years.
Thank you.
And we will now take our next question from the line of Nathan Rich from Goldman Sachs. Please ask your question. Your line is now open.
Thank you and good morning.
Core could you remind us of your expectations for generic price erosion in the U S. Thats assumed in guidance. This year and do you expect this to be fairly stable over over the course of this year. Just wondering if you think there'll be any change in the competitive dynamics.
In the U S. As the FDA gets back to kind of more normalize inspection activity.
And then I wanted to ask a follow up on gross margin.
Do you think that you guys can kind of continue to build off of this level that you said and in the U S. You've made nice progress on gross margins over the past several quarters. I think you also called out some mixed dynamics they were favorable and in the first quarter here and so I just wanted to.
Get a sense of kind of what the key moving pieces are on the gross margin line over the balance of the year. Thank you.
Operator can you hear us operate all can you hear us operator.
Okay.
Yes, we can yes, we can yes, we can yes, we can yes.
The bedroom.
All right.
Okay.
And that's net.
Net net.
Net.
And that is can you hear us from the backup.
Yes.
Yes, we can hear you.
Okay can we continue.
Nathan Yes might need to ask your question again. Please yes sure know please please operator, we need to answer the questions from David.
We answered about the divestitures and then we got caught off by you.
Introducing the next.
A question before we answered the question about Australia in the DTC in the U S. So David you'll get your answer now on Osterloh DTC in the U S. All introduced by saying, we're not doing this due to any weakness analyst day, too, but simply to reach more people with tardive dyskinesia, but Brendan please fill us in on the day.
T C from a studio in the U S.
Yeah. So I think that's exactly right. The reason for the DTC and all set of we've been we've been looking at DTC for a period of time and the real reason is as we see strength in this market and we see a lot of opportunity in this market. There are 500000 patients estimated with tardive dyskinesia in the U S.
We've got about 30000 patients currently treated about 6%. So so the upswing in the potential is huge so it is been shown to be.
To be sensitive to D. C DTC advertising and it's really just a matter of resource allocation. So we think that the trends that we've seen all aceto are strong. We think it is a it makes a significant impact on patients' lives and to be able to put some direct to consumer advertising out there to educate patients who may not even be awareness affiliate.
They have it that theres something available for this treatment.
Could be a tremendous value. So that's really the rationale behind the DTC and we look forward to seeing those results, which will probably start to show up in Q3 and Q4 this year.
Thank you Brandon now we'll move to the next two questions that were asked in the first one is about the erosion on.
On generics.
And then all answering this one and just reiterate debt in.
Our two key markets is of course different so in Europe, we don't see much price erosion is really a question of when things go off patent they shift to another price level and then debt price level is relatively stable. So no dramatic changes there in the U S of course, we do see price erosion and I won't repeat the whole ice machine.
In analogy, but just say that there's some ice cube smelled, a little faster than others and it's basically like we've been discussing so that the complex generics often get less competition. So they.
Keep a attractive pricing for a longer period of time, where more simple products in a few years. They get you know 2345 competitors and the price goes down significantly Theres no dramatic change from the way we analyze the business this year compared to last year, we see of course the normal level.
All erosion of pricing on generic products as they get older. But we also see a good launch prices for new launches of generic so all in all a no big changes. There then we have a question on the gross margin and I'll refer that question to <unk>.
Yes, so on the gross margin and as we did in 'twenty when we top 1% from gross margin that actually contributed an additional one point to our operating margin. This is what we see now in our planning for the year. So we expect it to be at least by 1% versus 2020, so call it at $53 five.
And that will actually contribute to the level of <unk> 27, plus.
So it's still on track.
Thank you Elisa I think we have time for one more question.
Thank you and the last question is from Daniel <unk> from RBC capital markets. Please ask your question. Your line is now open.
Sorry about that can you hear me.
Yes.
Collection issue. Thanks for squeezing me in first question on <unk>, just curious if your plans or outlook for that product have changed following last months Advisory Committee meeting for <unk> med.
And we're still waiting on long term safety data there when should we expect that data and second just on generic price fixing litigation could you remind us what the next steps are here and when is the earliest day, we could see a potential trial, whether that'd be on the civil side or the Doj side. Thank you.
Thank you for those two questions.
So of course, we were watching the tennis Omer.
Calm and the vote that came out there was of course, a disappointing was a vote on the ramps whether it was sufficient fortunate a map there hasn't been any.
Sort of complete and clarification on Fda's point of view on the product itself, so to speak with a different ramps, but but it's definitely a negative for the product class.
And right now with the casino map, we're having and you could say all non essential.
Cost.
All on hold and we are looking forward to discussing the product together with.
Regeneron, we're looking forward to discussing the product with FDA. So it remains to be seen but of course, we're disappointed about the results of the AD comm for generic mab as an indirect indicator that it is a difficult path forward for casino map.
On the generic price fixing litigation I think it's fair to say that the COVID-19 pandemic in the U S has slowed down proceedings.
On the legal in the legal system and it basically means that on the criminal side, we don't have any clear.
Time schedule for when this will move to trial, but it will be a I.
I would say significant period of time before that happens and I think on the civil side, it's pretty much. The same so so no real updates on there on the timing, we'll just have to wait and see how things progress with the legal system in the U S getting bagging gear now as the.
<unk> is reducing its impact in the U S. So thanks for those two questions Daniel.
Thank you everybody for joining us as always we'll be available to take questions throughout the day rest of the week and we look forward to connecting with you all soon take care.
Thank you ladies and gentlemen.
That does conclude our conference for today. This conference will be available for replay within the next couple of hours. After today's call you may access the remote replay system at anytime by dialing.
<unk> 044.
3333009785, and entering the access code 8347148, those numbers again.
The dialing number is zero day before triple three 309.
9785, and the access code is 834748, thank you for today.
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