Q2 2021 Teva Pharmaceutical Industries Ltd Earnings Call
Good day and thank you for standing by welcome to the Teva second quarter 2021 financial results conference call on.
At this time, all participants on listen only mode. After the speaker's presentation there'll be a question and answer session on to ask a question. During the session is on the press star 1 on your telephone.
On a phone please be advised that today's conference is being recorded if you have a quiet on the further assistance. Please press star zero and I would now like to hand, the concerns over to your speaker today and Mr. Kevin Mannix Senior Vice President head of Investor Relations. Please go ahead Sir.
Thank you Ella and thank.
Thank you everyone for joining us today to discuss <unk> second quarter 2021 financial results joining.
Joining me on today's call is <unk>, Chief Executive Officer, Elisa leaf <unk>, Chief Financial Officer, and Brendan O'grady <unk> head of North America commercial.
Hope you had an opportunity to review our press release, which was issued about an 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 includes 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.
Valuation and manage the company's operations in order 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.
GAAP to non-GAAP measures is available in our earnings release and in today's presentation. Please note that today's call will run approximately 1 hour and with that I'll turn the call over to Teva Chief Executive Officer of course shows or if you would please.
Welcome to all of you and thanks for your interest in Teva.
I'll start by other financial highlights.
Our revenues came in at $3.9 billion, which is roughly the same as a year ago and it was really driven very much by a Julien state O N E.
It was also affected by the continued.
Slightly lower script volume due to COVID-19 restrictions in Europe, and generics and OTC and to some extent also lower total market in the segments, where jewelry and other state who competes so overall given this situation we were very satisfied with the revenue as they came in.
The adjusted EBITDA.
And at $1.2 billion.
And the GAAP diluted EPS came in at <unk> 19 cents and the non-GAAP diluted EPS at 59 cents very much in line with our expectations and the consensus estimate.
The free cash flow came in at $625 million Ultra number we were satisfied with.
Our debt reduction continue.
Kim is as we've laid it out several years ago. According to our plan and the net debt to EBITDA ratio is now down to $4.7.
The 2021 revenue outlook is lower to reflect the ongoing impact of COVID-19 from 16.4% to $16.8 billion down from 16% to.
<unk> 16, 4 billion, however, operating income EBITDA EPS and free cash flow remains is already guidance, which we reaffirmed in the reason for this is basically that we have been awaiting the consequences of COVID-19 in the total market and therefore, we've been cautious since the beginning of the year of course on on spend and now we can see.
Continue to have had a relative to our plans negative effect of COVID-19 on children market volumes in the first and second quarter nothing to do with the market share of our products, but basically just a phenomenon of patients not going as much to the doctor and the hospital as we expected in the first and second quarter. We do expect this to change.
We can see is changing in the U S. Due to the lifting of sanctions and we can also see the first signs is changing in Europe due to the lifting of sanctions within the last 1 or 2 months.
If we go to the next slide then you see the revenue development here from 19, 2020, 1 and you can see we have a very stable situation just.
We got the $4 billion per quarter, a little up little down depending on launches and of course longer term, we want to change this into a growing trend, but it's really there's still the dynamics between the nice growth we have on our stereo and Joey and the continued decline we have on capacity Capex from this year as you have seen will be down to around.
Around 1 billion and that really means that the drag from Copaxone is of course getting.
And this by the year and next year, it will be hopefully minimal and that means that next year with the growth of a stereo and Adobe we will see a more positive picture.
Next slide please.
Sterno continues.
<unk> to grow and you can see here the script numbers. The total script numbers per quarter, where we had a new all time high here in the second quarter. You can also see the revenues per quarter and they are a little up and down and Theres. Some.
True ups of rebates in there sometimes there is some wholesaler swings in there sometimes that's been a little bit other.
You would.
Say lower wholesaler purchasing in the first quarter, which is correct itself in the second quarter underlying we see a strong trend of growth lie aligned with the <unk>, we see a stable pricing and we are you could say starting a new initiative, which we started in may which is a DTC campaign targeted at you could say child of.
Tricia.
And charter Dyskinesia is of course, a huge unmet need in the United States. We estimate there's around 500000 people suffering from it and only a fraction is treated so far the campaign. So far is an ex resulted in expanded activity on our websites and we are optimistic that this will continue to drive growth in prescriptions.
Can you just and consequently also continued growth in sales.
A consequence of the slower March.
Market development compared to what we expected we have lowered the outlook for Australia for the full year from 950 million down to $850 million.
Next slide please.
Adobe is show solid net sales growth in the second quarter of 'twenty, 1 and it's really based on both the U S and the European performance as you see here to the left the U S performance in terms of cheer ex is showing a very steady growth is increasing steadily quarter over quarter and we saw record high sales in North America.
Scripts from the same thing as the case in Europe, where you can also see here we show the market share and you can see how this year has gone from around 10% now up to around 25% in a couple of years and we expect this to continue to grow and as I said the last quarter, we have changed our ambition level. We are now having the ambition level both in the U S and in Europe of a third.
Market, so market share of 33% and we think this is doable within the coming years based on the very very good safety and efficacy profile of a Joey and the fact that it is the longest acting product and therefore also the only product that can be dosed, both monthly and quarterly so we're very optimistic about the future growth of.
Joey.
If we go to the next slide then it shows trips EMA, our biosimilar and it shows how it continues to grow and share in the market right. Now we also here around 25%.
And the market has been improving after a sort of overall market slowdown in the first quarter probably related to COVID-19.
<unk> have the data to improve and we expect it to continue to improve in total.
Total development over the year and now of course.
<unk> is the only biosimilar rituximab, which has the <unk> indication and as such very competitive and we believe we can hold on to a strong share in this our first major biosimilar.
As launch.
If we go to the next slide.
As you know our financial long term ambition is really to secure a business with a good operating margin.
Good cash conversion and with an ever decreasing debt in order to basically stabilize the financing.
Financial situation for the company and I can say when it comes to the operating margin we are well underway since it bottom out in 2019, we have been improving significantly and right. Now we are just shy of 27%, which is the target for this year and of course, we are aiming for the 28% in 2023.
Similarly, we are very confident that we can meet this target for the operating margin.
Let's go to the next slide please.
Yeah, I was just talking about our long term financial targets. They are unchanged and of course, there to be achieved by the end of 2023 and I just mentioned the operating income margin of 28% cash earnings we.
We want that to be above 80% and then we want the net debt to EBITDA ratio. That's currently standing at 4.7 to come down below 3.
Now when we execute our business, we deliver more pharmaceutical products more medicines to the world than any other pharma company.
And that's of course very very important for the patients who use the product every day, they get high quality medication that serves them well in treating the condition they have.
But there's also in other aspects of what we do when we have the leading generic company in the world and that is that we help to create sustainable health care systems, where the authorities or.
Our insurance companies a waiver pays for the medication.
Pivot individual.
Get a chance to have a sustainable and affordable access to medicine.
We've started 2 years ago to have an independent external company, who will report on what is the real economic benefit of our activities and I'm just going.
To show you a few snapshots here.
The report is available you can find it online is from matrix grow global advisors and here you can just see some highlights that we save the U S health care system. Some 29 billion in 2020 and you can see we've done it by state we had the details by state in the report but.
You can also see that the savings they ended up some of them with the government. Some of them are private health care insurers and some of it out of pocket co pays that got reduced and so on and just the savings directly to the patients were $4 billion. So a significant contribution to the U S health care system now the same can be said for.
Countries, where we operate we don't do the report on all countries that would be a very very big task, but we did do it for 9 countries in Europe and also here you can see the same pattern that we have been.
Saving the countries a lot of money.
And on top of this of course, when we do generics and Biosimilars. We also create.
All key economic activity, which basically means that we contribute to society not only in the form of savings in the health care system, but also in the form of job creation in the form of economic growth and support to GDP in the various countries. So so this was just a little teaser if you're more interested in this take a look.
A lot of report you can find it online but with this I think we should move on to have a look at the financials. So I'll hand over to our CFO illegally.
Thank you Cory and good morning, and afternoon to everyone. I'll begin my review of the second quarter 2021 financial result on slide 14, starting with our.
Look at the performance.
Revenue in the second quarter of 'twenty or 'twenty, 1 were approximately $3.9 billion, an increase of 1% or a decrease of 2% in local currency terms compared to the second quarter of 2020.
This decrease was mainly due to a lower revenue in our North America segment.
Mainly related to Copaxone and <unk>, partially offset by positive foreign currency impact as well as higher revenue from generic products OTC Adobe and Copaxone in our Europe segment.
Revenue were also affected by changes in demand for certain products, resulting from the impact.
Impact of COVID-19 pandemic.
Our Q2.2020 include the generic product sales in Japan, totaling $65 million and approximately $240 million for the full year of 2020.
As we have previously communicated.
These products were divested as of February 1.2021.
<unk>, along with a manufacturing site in Japan.
Exchange rate movements during the second quarter of 2021, including hedging effect positively impacted revenue by $135 million compared to the second quarter of 2020.
In Q2, 2021, we recorded a GAAP.
GAAP operating income of 582 million versus 173 million in Q2, 2020, GAAP net income of $207 million versus $140 million in Q2, 2020, any GAAP, earning per share of 19 cents versus <unk> 13 cents in the same period a year ago.
The year over year improvement.
In a GAAP operating income net income and earnings per share was mainly due to a lower other asset impairment restructuring and other items charges and higher profit in our Europe segment, partially offset by higher intangible assets impairment charges.
Turning to slide 15.
You can see debt the net non-GAAP adjustment in the second quarter of 2021 were $444 million versus $465 million in the second quarter of 2020.
Non-GAAP net income and non-GAAP earnings per share for the second quarter of 2021 were adjusted to exclude these items.
With.
With the largest being impairment of assets totaling $226 million in the second quarter of 2021.
These include an expenses of $195 million for identifiable intangible asset impairment compared to expenses of $120 million in the second quarter of 2020.
Amortization of purchasing.
Intangible assets totaled $173 million the majority of which is included in cost of goods sold.
Now moving to slide 16.
We will review our non-GAAP performance.
Corey and I have already reviewed in the second quarter revenue.
Total approximately $3.9 billion, so lets move down to the P&L and look at the margin.
A year over year total non-GAAP gross profit increased by 4% and our gross profit margin improved to 53, 3% compared to 52% in the second quarter of 2020.
The year over year incur.
<unk> in the non-GAAP gross profit margin was mainly driven by higher profitability in Europe and international market, resulting from the change in product portfolio mix as well as the network optimization activities, partially offset by lower profitability from Copaxone.
Our non-GAAP operating margin was 26, 4%.
Versus 25, 3% a year ago, the increase was driven by the higher gross profit margin mentioned above.
We ended the quarter with a non-GAAP, earning per share of <unk> 59.
Compared to 55 in Q2.2020, mostly due to the higher gross profit.
Now let's take.
If you look at our spend based on slide 17.
The year over year, our quarterly spend base declined by approximately $15 million or $120 million net of FX. However, looking at our year to date comparison spend base declined by more than 200 million or more than 400.
Hundred million net of FX.
The main driver for this change was a reduction in our cost of goods sold as operating expenses were slightly up the declining sales had 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 6 months of 2021 and according to our current estimation, we believe our spend base will come in approximately 12 billion for 2021.
Now turning to free cash flow on slide 18.
Teva free cash flow in the second quarter of 2021 was 6.
$25 million, a nice rebound from the 59 million generated in the first quarter.
As we have noted before <unk>.
<unk> free cash flow typically faces a few headwinds at the start of the year due to usual timing of annual merit payments paid out in the first quarter, but the headwind was especially large in the first quarter mainly.
<unk> hundred due to the timing of working capital items, resulting from the increase in the net accounts receivable and inventories as well as lower profit in our Europe segment. Please.
Please recall, our 2021 free cash flow guidance, which we first provided in February reaffirmed in April and are reaffirming today 2.
2020.
Free cash flow is expected to be in the range of 2 billion to $2.3 billion, we expected free cash flow to pick up during the next 2 quarters as we keep driving optimization of our working capital with a high focus on inventory improvements.
Turning to our outstanding debt on slide 19.
Net debt declined to $22.7 billion versus $23.7 billion at the end of 2020.
I am pleased to report that just last week, we repaid an additional $1.5 billion, which is not reflected in the quarter in total.
Additional upcoming maturities, including $1.2 billion in the fourth quarter.
Our net debt to.
<unk> continued to decline coming in at $4.7 for Q2.2021.
Debt reduction continues to be our primary focus and main use of cash as we continue to push forward in our efforts to bring our net debt to EBITDA ratio under 3 times by the end of 2023.
So turning to the financial outlook for 2021 on slide 20.
While we have experienced a nice recovery in some countries and product from the effects of the global pandemic. We unfortunately have not seen this everywhere in our business some market and product are still feeling the lingering effect that.
That the pandemic has had on the purchasing pattern of our large global customers and overall utilization by patients.
Based on the results of the first 6 months for 2021, we believe at this time it is prudent to adjust our guidance range for full year revenue from the original range of $16.4 billion to 6.
1.8 billion to the new range of 600 billion to $16.4 billion. This lowers the midpoint of our range by $400 million.
The new range includes an adjustment to our full year expectation for global sales of <unk> for which we are lowering our guidance by 100 million to 850.
16 billion for the reason core mentioned earlier.
For our other financial targets for 2021 operating income EBITDA, earning per share and free cash flow. We are reaffirming the current ranges first provided in February reaffirmed in April.
We will end up with each of these range.
<unk> mill will determined by mainly by the rate of recovery in the purchasing patterns and overall utilization by patients as well as our product mix in our generic business for the rest of the year.
And this concludes my review of the results for the second quarter and 2021 financial guidance.
We will now open the call for questions and answers.
Operator will you. Please open the call for questions.
Thank you as a reminder to ask a question on nickel price.
And 1 on your telephone.
Everyone has the opportunity to ask a question. Please limit yourself to 1 question only.
I'll ask a question.
On your question. Please press the pound key please stand by while we compile the Q&A.
And your first question is from the line of Gara and <unk> from BMO capital markets. Please go ahead.
Hi.
Hey, good morning, guys.
With the lowered revenue guidance could you elaborate on what you're doing to maintain EBITDA EPS and free cash flow guidance, a little bit more how much gross margin improvement versus reducing opex and are you likely to be at the lower end of the ranges for EBITDA EPS.
So on free cash flow.
Then also just how do you see the second half.
Coverage from Covid, how do you see that playing out what's built into the guidance. If if the first half arguably saw maybe a little bit more pressure than what you had anticipated and maybe talk about that regionally.
Thanks for the question and I'll start by answering it and then he can comment if he has for us.
The elements to add so the situation from the beginning of year was of course that there are huge uncertainty with regards to your second question actually which is to what extent COVID-19 restrictions would.
Would affect the market place.
And.
What we were anticipating when we came out with our first guidance was really that the vaccination drive would result in a lifting of saying of restrictions in the second quarter, so that economic activity and a doctor visits and script activity and so on would resume.
In the second quarter, both in U S and Europe now in the <unk>.
Way, we then manage the P&L so to speak was to be cautious on the overall spin pattern. Nothing is specific for a specific area. We just went slow on the spend so that we knew that we would be able.
Shoes, the situation from an earnings point of view and a cash flow point of view should we come in a little lower if the restrictions in various countries where to continue because we of course have no.
Magical inside into how the Covid pandemic will develop now so turned out that we did see a lifting.
To manage restrictions and.
And then there was a lag in the U S from lifting of restrictions maybe not a lag on all consumption, but there was a lag on doctor visits and scripts. So we've seen a improvement in on sort of switching into answering your second question in combination here.
Did see a improvement in script.
Scripts over last 2 months in the U S. But it didn't really come all the way from you would say the first of April it came late in the quarter.
And we are optimistic about the next 2 quarters based on what we've seen now in Europe, It's a little different because there we really had restrictions all the way up to a not very long ago.
So in most major countries and we are only now seeing the first signs that the situation is improving in terms of volumes in generics and OTC based on the lifting of the sanctions. Now then you might ask what's the assumption from the rest of the year in our guidance the assumption for the rest of the year on our guidance is that we continue this situation.
We lifted restrictions. So you have some restrictions still in place that travel restrictions, there someplace, where you need to wear mask and so on but we are not baking into the guidance that we gave some dramatic reversal to lockdown due to some.
Terrible new variant or something like that.
Everything we can see right now points to that.
Situated actually hospitalizations and deaths Ida label, where the governments will most likely not revert to lockdowns and severe restrictions that will affect script volumes in Europe and or U S. So that's really the assumption we have so I hope that clarifies the assumptions, but also the way we.
Debt I think the earnings versus the revenue. Thanks.
Thanks for the question.
Thank you. Thank you. Your next question is from the line of novel <unk> from Citi. Please go ahead.
Hi, good morning, Thanks for taking my question.
My first 1 is on.
We are hand opioids, if I may so teva.
Part of the 2019, an agreement in principle with J&J and distributors.
Part of the recent proposed settlement and are you able to share any progress on the possible Standalone global settlement and I just have a quick question on.
<unk> if you plan on another.
All other promotional campaign during the rest of the year. Thank you.
Thank you for those 2 questions. So on the opioid framework, you're absolutely right that at the time in Cleveland win nearly 2 years ago. When the framework was first established there were the 3.
Distributors J&J in us and we have been in constant dialogue with the Ags and the plaintiff lawyers. Since then I think it's fair to say that the the cash amount and therefore, the immediate interest from the plaintiff's lawyers has been higher in the 4 companies then in our offer as you know our office really to help.
The people suffering from substance abuse by giving them generic suboxone, which can help them win off the product get off the bed products that they're on and get back hopefully into a life without any substance abuse.
And we have been offering for 10 year period to provide this free of charge to all states.
States are in the U S and I think that's a very attractive offer for the states. However of course since we are not offering much cash because as you know we have a huge state of more than 20 billion.
The actual the attorney fees related to it of course, less and that's probably why they have decided to take the other 4 companies first and then.
<unk> 2 our second we have been in an ongoing dialogue as it both with the Ags and the plaintiff's lawyers, we optimistic that we can reach a settlement in our in the comp during the coming year. We think that the court cases that are ongoing right now gives a good incentive for all parties to reach a settlement and we think.
Move autumn will be to the benefit for all the Americans that suffer from substance abuse.
So we are we are cautiously optimistic that we are moving ahead towards a settlement on a sort of nationwide basis for us on.
On the Osterloh question, we will continue the DTC campaigns Forest day too.
A search out of dyskinesia as I said earlier on there's a huge unmet need nearly half a million people suffering from tardive dyskinesia in the U S. Only a fraction being treated and this is a very good and important therapy is the first time there is a therapy for tardive dyskinesia. So so we will continue.
It should do.
With the aim of having more patients treated to the benefit of them and of course also resulting in increased sales of us day 2 thanks.
Thanks for the questions.
Okay.
Thank you. Your next question is from the line of Elliot Wilbur of Raymond James. Please go ahead.
Thanks, Good morning, or maybe if you could just provide us with.
An update in terms of trends with respect to the North American generics business, specifically, just what youre seeing currently in terms of price and volume erosion on the base and.
Do their outlook for new pipeline opportunities new generic launches I know that there's this seemingly a continual a shoe.
Shifting outward in terms of trying to gain approval for these complex generics, but you previously talked about.
Tear pair tied in.
And then the debt by EDA has been a complex generic opportunities in <unk>.
2021, maybe just.
An update on your expectations around base erosion trends and pipeline yield for the second half and then a follow up on the commentary around a stead oak can you just let.
Snow, what the current or what percentage of your current Rx is.
Or in fact for tardive dyskinesia and given that you've launched the product now in China, maybe you could just help frame expectations for the potential global opportunity relative to the U S market.
For that product thanks.
Thanks for those 2 questions I'll give you a broad answer and then I'll have Brendan give you some more details so as I've said many times, the North American generics and Biosimilar space is a space, where we constantly have this as you say.
Volume erosion on old products because.
On a small competitors come in and also price erosion on old products, because new competitors come in we are not seeing any dramatic changes in the market conditions were not seeing you know a lot less on lot more suppliers and we're not seeing more or less price erosion that we've been seeing traditionally so I would say a quite average year this year.
Basically we are having a business to the tune of $1 billion a quarter roughly $4 billion on an annualized basis for North America in the generic and Biosimilar space and we expect to maintain that going forward potentially grow grow their little you're absolutely right that a lot of complex generics have been delayed not just ours everybody.
With Nuvaring, we have probably the only complex generic approval this year, but with regards to all the other products I'll just let Brendan comment how he sees the rest of the year for U S generics.
Okay.
I think that the core you framed it up well I think that.
C U S generic.
Price erosion in volume I think that price erosion is pretty much what we've seen is historic norms on it depends its highly dependent on on what your portfolio is.
But I think volumes coming back due.
Due to Covid as Cort mentioned earlier on the call we saw a wholesaler.
Orders kind of come back to.
I think the pre COVID-19 levels during the month of June.
So when we think about new product launches as I've mentioned on some previous calls.
We have.
To maybe 12 potential a complex generic launches when we started the year.
FDA has only 1 we call complex generic approval as Carr mentioned, which was.
Which was ours, we will see what comes in the second half of the year, but theres still a stable of products that could be approved in.
Second half of the year to date, we've launched 13 I think last year, we launched a 20 some generic products.
Raul I think were trending.
<unk>, we should see hopefully approvals pick up in the second half of the year.
Thanks, Brian with regard to a state or outside the U S separately right that we've launched in China, and we have a nice initial take up it takes a lot longer in China than it does for instance in the U S. First you have to work your way through hospital listings we're.
And just very well there then you need to get on these national drug reimbursement list.
And also on the provincial list and then eventually you'll see the product start to move in a serious way. So it will be some years out before you see big numbers on a state of China, but it's off to a very good start and it's it's meaningful it's profit.
Profitable. So so we're happy about debt with regard to the.
Split between Huntington's and charter Dyskinesia, I don't have that exact split and I don't know, whether we really have it.
But Brendan what would you say, what's your feeling about it because I don't think we have the exact numbers.
Yes, the core the split between.
On a steady.
If you think about tardive dyskinesia Huntington's disease is about 401 about 80% nearly 80% of our sales scripts are for tardive dyskinesia and of course, that's why we're bullish on the product because about 6.7% of the estimated population with tardive dyskinesia has been treated so.
So there is significant room for growth there.
Thanks, Brandon and thanks for the questions.
Thank you.
Your next question is from the line of David Steinberg from Jefferies. Please go ahead.
Thanks 2 questions.
Okay.
To clarify did you did you say you expect a settlement and opioid litigation settlement this year and if so could.
Could you discuss the flexibility to manage through cash litigation payments in the future I know you've offered mostly a shoebox from product and less cash, but I'm, assuming there will be a cash component.
And then secondly, just on.
Shoring up some of the struggling revenues I know you've indicated in the past that your focus on debt pay down and.
Youre not going to be buying any assets, but any opportunities to leverage your global sales infrastructure and bring a new product either via co.
On it which joint ventures or other.
Type structures. Thanks.
Thanks for those 2 questions. So first of all on the opioids the framework, which is now nearly as I said nearly 2 years old.
If you look at the framework then you can see what it ended up with for the 3 distributors and J&J.
Promotion not radically different from what day.
Initially agreed in the framework.
So if you look at our framework deal way back then it was $250 million over 10 years and it was supports on generics a box in over 10 years.
Whatever the demand was estimated at 20.
23 billion at least price, probably 10.11 billion in net price and of course on manufacturing cost, which is somewhat less than debt now if you look at the cash component here than the framework with resolve it in a deal with J&J, where they P over.
Remember 5 years or something.
And I believe the distributors, they pay or something like 17 years and you could say since we have you know.
A lot less money than those 4 companies I would not be surprised if we ended up paying over a longer period than the 10 years that we initially discussed so maybe over 17 years and.
And there are also means.
Means that if we have to pay.
More in order to get a settlement, which of course, we would not like to do then of course, there is some flexibility on on debt. If you stretch out the payments over a longer period. So basically I don't expect that anybody will have any benefit from trying to push us to cash payments.
<unk>, which are not in line with our financial situation because that will not benefit anybody. So I don't really see that day, the cash component might increase but I don't think it will be.
Structural way that will really.
In effect, our liquidity to the to the extent that we will have any problems with serving our debt.
In a gluten pasta way because that's not on the best interest of anyone.
Now with regard to what we can do to generate more revenue based on you can see our business footprint I think there are some good examples are not the least in the biosimilar space.
So the deals we did with al would shake which will potentially give us new biosimilars.
As in the U S over the coming years.
You saw that we did a deal recently.
On a lucentis biosimilar in Europe. So we are looking for these kind of opportunities as you say, we have our commercial footprint in Europe, and North America can be used by companies, who have a good product, but don't have that commercial infrastructure and.
Marginally optimistic that we'll find some more products they will not be huge blockbusters. Because then people tend to do it on their own but I think we can supplement.
Revenues with these kind of deals over the coming years. Thanks.
Thanks for the questions.
Thank you.
Your next question is.
On the line of Ronny Gal of Bernstein. Please go ahead.
Good morning, and thank you for taking my question.
2 of them first can you talk a little bit about the branded pipeline you've been working on a few things are there for the next 24 months should we see any material pipeline is from there.
And then secondly regarding a job or you kind of mentioned 33%.
Market share I'm wondering if this is just against the other injectables Org also against the prophylaxis oral products, which are coming in and in general if you consider the progress of the prophylaxis oral product how big would you expect the.
Injectable <unk>.
Axis seed European market to be call. It 3 to 5 years out being kind of like how big is the market overall and with that question I would also like to extend my thanks, and say goodbye to Brendan O'grady for.
And thank you for all the years of service here. Thank you.
Thanks for those questions Ronny.
And good luck to you.
In the future and good luck to us in order to a secret development is of course Super important that the branded pipeline also delivers and first we should be happy that the Risperidone L. A I hopefully will get approved and will be launched next year. So that's not really the clinical news.
Ronny is of course, a rejuvenation of part of the pipeline.
Super important product for people suffering from schizophrenia in the sense that it's subcutaneous. So it's not an intramuscular injection and it can be a lasting 1 or 2 months, which is longer than current therapy. So we think this can benefit a lot.
People suffering from schizophrenia.
But then you have to create a more convenient therapy, where they avoid relapses due to convenient long acting therapy, but there's a lot of other exciting things happening sort of short term.
You know that we have a very exciting concept in oncology that is being sort of the front runner is really a <unk>.
Our license.
The freedom, we have to Chiquita and he says the principle of attenuating.
A.
Oncology products. So you basically have a oncology product that would be too toxic if it wasn't turned down so to speak and then you have we have a special technology to turn down the effect and to make sure. It works, where it supposed to work and.
We have a very interesting product in our own pipeline and within a year will see the Takeda results and hopefully they will be positive validating the concept and then we have our own product and the idea is basically that you you have a way of targeting the sales where you have the cancer and then.
Then you have a sort of a killer sales mechanism that is turned down so theyre just not toxic to the rest of the body, but it's able to kill off the cancer cells. So so that's very exciting to see the outcome of this Takeda trial, which will validate the concept. We also have IL 5 in clinical development and that's a really an upgraded version.
1 of the the IL 5 for respiratory disease, which could be more efficacious all long acting. So we're excited about debt and then we have a lot of early early things going on we have in fibromyalgia. We are looking at with agile you can work in fibromyalgia. So many exciting things happening in the next 2 years.
And of course also early software, it's a little too early to get really excited because it's always difficult in the early phases, but I'm very happy about our pipeline in biopharmaceuticals.
So that's that's really positively when we then switch to your second question on a on a Joey then I'll give it a comment and.
And then Brendan can also supplement the way I think about it when I say a third is other injectable prevention therapy.
And.
We have to sort of distinguish a little bit here, because there's oral preventive therapy, where you basically take tablets all along I think every second day or something like that at a very very.
Hi cost because if you have to take a tablet every day I can't remember on the cost comes out but very very high and then you have the quite a cost competitive injectables now the 3 injectables and my 33% is out of the injectable segment I think the injectable segment will be significant because it's even though it's an injection in.
Subcutaneous, it's quite convenient and then you don't have to think about it taking these tablets all the time.
The people, who do not like to take injections, who have a needle phobia and so on they will for sure go for the oral therapy, if they can get their insurance company to pay for it because the actual cost of these type of therapies is very high I also think there's a difference.
<unk> between U S and Europe, I think it's going to be very very difficult in Europe to get the prices. We're seeing in U S. On the oils. You also are very very expensive compared to oral in Europe, whereas the injectables on a more meaningful.
Comparisons to other European therapies in the same space. So I think that's going to be some regional.
But to give a specific answer it's a third of the injectable segment I'm talking about I don't know if you want to comment on on the oils and Brendan.
Yes of course I'll make on that so first ronny. Thanks for the thanks for the nice words, it's been a pleasure speaking to you over the years.
When we think about that.
Migraine segment as Cort mentioned, when we talk about a third of the market. We're talking about the injectable market, but if you think about the overall migraine market.
As a multiple entries now and we do see this day Injectables will probably.
The growth will be impacted by the Earl.
<unk> what extent, we're really not sure I think cort talked about the complexities of oral versus injectable theres a lot of advantages to an injectable product and an oral preventative. When it also has an acute indication is not necessarily as straightforward as 1 might think so.
Adobe has the longest acting.
Is the longest acting product in the migraine market, which gives us debt that that 3 months.
Dosing regimen that others don't have and I think what we're starting to see is we're starting to see adobe separating a little bit at least clinically from maybe the other injectables because of that.
And youre starting to see the increase in.
To what I talked a little bit about that as we grew share and we went into the pandemic. We were growing share, but volume is coming down due to the pandemic will now that we're coming out of it.
Did $46 million in Q2.
This year, which is up 35% versus Q2 of 2020 and up 48% versus Q1 on 2000.
Sales, though I think the job you've done on the right path I think we are absolutely we will get to our goal of a third of the injectable market and we'll have to kind of wait and see what the split is between oral and injectables, but.
It's not as straightforward with the oral as 1 might think and I think theres a lot of advantages to a quarterly.
Monthly injection so thanks for the question.
Thank you.
Thank you.
Your next question is from the line off on that.
A thought from Evercore. Please go ahead.
Thanks for taking my question.
Core is there any chance of a blow up of the current settlement.
<unk> from J&J and distributors and I ask because there are still a few reports of state Ags and certain counties et cetera, not participating so I wanted to gauge your thoughts there and whether that's necessarily a good or bad thing from type of perspective, and then secondly, I know theres still some lingering litigation between Teva and a former al again now abbvie.
On on what percentage of the liability may potentially have to be covered by that entity on on your opioid side can you just catch us up there and what would your base case expectation would be on what percentage of the cash balance how should we put up by them. Thank you very much.
Thanks Omar for the 2 questions. So first.
First of all the <unk>.
Overall nationwide settlement that has been announced between the 3 distributors from J&J I think the risk of what you call a blow up or leg of participation is extremely low and the reason why I say it is that.
Since the framework, where you could see there was.
<unk> a majority they'd wanted to participate because it was really negotiated with a lead plaintiff lawyers and with the lead.
Hey day Gs.
It's been a lot of work going on behind the scenes with everybody, including us and its quite clear to me that the majority of the states realize that if anything good.
It's going to come out of this than there has to be a global settlement because otherwise we will have potentially 3000 court cases, which will drag out over the next 10.20 years.
And some they might win some they might lose in the meantime, it will make its way to the Supreme Court, where there might be a win or loss.
So it's totally unpredictable what will happen and it's not going to help the U S part.
Population in terms of those people who suffer from substance abuse. If you want to help people and if you want to improve the situation then we need to do something about it and there's this very very sad fact that since all restriction.
Frictions have been put in place by everybody everybody is doing all they can to avoid any kind of abuse of prescription medication.
We all know from statistics that the majority of abuse today and for many years has been illegal fentanyl illegal meth amphetamine coming from China coming from Mexico coming from Colombia.
And so on and it's the fight against debt and if they help to people suffering from substance abuse in the form of suboxone in the form of money go into therapy, and so on that can help the situation. So I must admit I can't see how this will blow up because politically and practically this is the only solution and at the end of the day.
This is not really a legal situation at the core of it. This is really a societal and political situation at the Covid and therefore I think we also seeing now kind of a political slash legal resolution, which I think will work for the majority there might be some holdouts in the subdivisions.
We saw already the judge in Cleveland, putting.
Cash on the subdivision, saying you should indirectly he's saying you should you should join this because if you don't join output all the pressure on you to supply all the details for your county for your.
On a region for your native tripe or whatever it is and that's a lot of work and a lot of pressure to put of course on the subdivisions.
Patients because the judge in this case in Cleveland I think he also wants to see a overall settlement. So I don't think it's going to blow up.
If it blew up then of course, it would be us taking it case by case right. Now we have 2 cases cannot California, and New York, It's always hard to predict the only thing I'll.
It's not a clear court case, either way, which means that the plaintiff lawyers in the states. They have a big risk as well in all of this and that's what I think is part of why we will see a settlement also with Teva and I actually said within the coming years I didn't say within this year I said within the coming year and that's what I still believe weighted.
I'll save 2 to al again, Theres no real their litigation with Allergan at all on this there is of course the situation debt.
<unk> owned Actavis and Actavis was sold on to Teva.
And when it comes to liability it always has a component of the.
When it comes and it has a component of the actual legal entity and it has a component of timing on top of that of course al again has its own independent opioid.
Product that has nothing to do with Teva or Actavis whatsoever. So the way I look at it as debt.
Eric Ngls.
<unk>.
We will most likely end up settling with the plaintiff lawyers in the states in an independent settlement.
We will settle with them in an independent settlement and that will be that will be the end of that so thanks. Thanks for those 2 questions.
Thank you. Your next question is from the line of.
We can GAAP <unk> Bank of America. Please go ahead.
Oh, Hey, good morning, Thanks for taking my question just on.
Follow up on.
The first question with the opioids deal it seems like there's a timing consideration for these opt ins for the subdivision that aligned with 1 will get rulings from these California.
West, Virginia, and New York pad cases that involve subdivisions and so.
What I'm wondering is how important you think these outcomes coming in at reasonable level.
How important that is to kind of corralling all the subdivision.
It is opt ins or do you think that there was mention.
On a legislation or agreements between the states on their subdivisions in.
In order to sort of realize the full magnitude of the proceeds of other settlement.
More of a high level conceptual question here.
California, which seeking 50 billion a big number comes out I wonder if that's going to create some.
Oren, yes motivation on the part of subdivision to try it out in court.
Yeah. So good question. So let me try and explain how it's working right now.
First of all the court cases in both New York, and California will not have any clarification whatsoever on damages within 120 days and you're absolutely.
So you're right about 30 days from the states to opt in and then the 120 days for the shop divisions to opt in so in this in the bench trial in California, Theres, a judge and jury and it's a 2 step trial. So the first trial, which will probably not even ended within 120 days it might but but.
But it might not.
Net part will only determine whether there's any basis for discussing liability at all and there might not be because.
No.
And the way the trial's going you can question, whether the plaintiffs have proven any damages really or any any causality between some of the products and the the substance abuse in.
In California, but that's another story, but anyway. The timing is such that there will be a decision by the judge on the liability and then there'll be another trial determining actual damages. So that means that debt decision on damages any amount any dollar amount in California, where we will be way later than 120 days in.
In New York, It's the same thing that first you. This trial will go on for quite a while because it's the jury trials complex, there's a lot of.
People involved and therefore, they will also not monetary verdict, you could say within 120 days. So what is most likely happening the way I look at it is that the state Ags.
I think together with the key plaintiffs' lawyers. This is the time to wrap up this thing.
It doesn't make any sense to keep on going nobody has an interest in having a tail of small cases lingering because that will cause the law has a lot of money to proceed with these cases the damages will be of course significantly less most.
Most likely there will be a heavy sort of leaning on the global settlement as a benchmark for this so there will be a lot of pressure I think on the subdivisions to join in with the states and they will not see any numbers from California on New York before the time they have to decide.
Does that clarify.
5 the situation.
No. Yes, that's really helpful. I wasn't sure if California was consolidated debt damages and liability phase or just liability.
It.
Is separate so so basically you could say I think it's a psychological a situation here, where the key plaintiffs' lawyers the key state Ags will.
Pressure on everybody to participate in the settlement based.
Basically because they think it's the best for the country and as I also think the plane Embolize thinks it's the best economic outcome on average for all the plaintiff lawyers.
You have to remember the ftes are to the tune of $2.5 billion. So so there's a lot of money we're talking about.
About auto for the plaintiff lawyers.
Great. Okay. Thank you.
Thank you.
Your next question is from the line of David Anderson.
From Piper Sandler. Please go ahead.
Hey, Thanks, So just on a steady flow I wanted to come back to.
On that.
You talked about payer access are efforts to improve access if I'm not mistaken can you just elaborate on what access is like in terms of hoops patients have to other practices have to jump through and how problematic that is and.
Particularly in target.
Dyskinesia and then secondly, with your competitor having data later this year and Huntington's Korea can you talk about the extent of competition, there and the extent to which you could see pressure.
On a stead O N hunt.
Huntington's to the extent.
Your competitor.
<unk> gets a label expansion in that setting thank you.
Yeah. Thanks for those questions I'll give you the overall answer and then Brendan can supplement so if we if.
If we look at the last question about Huntington's disease. First then I don't think it's going to have a major impact.
I'm pretty convinced that those doctors, who are preferring to use there.
The competitive product. They are probably also in some degree already using it for Huntington's disease. They have the freedom of.
Medical choice of course, so I think it's happening already and it's a small part as Brendan said, it's only on a 20% off of our.
That business right now and the big potential is really in our in charter Dyskinesia, which leaves me from your first question where of course, we have a lot of the support activities to secure that the patients can actually get on the product, but I'll, let Brendan explained to you at some other details on on how we actually do that and secure that we get patients on the product Brendan.
Yeah sure. Thanks tore so yeah, I mean, if you look at us access.
Commercial.
Is 92% coverage.
And debt preferred coverage in Medicare part D is pretty close to 89% so across the board.
On a subtle has broad payer coverage and.
On as far as patients getting on it it really depends what that coverage means and it depends upon the specific plan there could be.
Prior authorizations many times there there is but it's not certainly an onerous process and it's 1 that we worked very closely with payers to make sure that those patients whether it's H D RTD have.
As to it and it's a fairly smooth process. So we're happy where we stand with payer coverage and we've talked a little bit about us debt, we think theres a tremendous opportunity I agree with core.
Uh huh.
Huntington's disease, what happened there with our competitors I don't think it will have a big impact and there's still significant growth.
<unk> case in tardive dyskinesia. So thank you.
Yeah.
Thank you.
Okay.
Your next question is from the line of Danielle Busty of RBC capital markets. Please go ahead.
Great. Good morning, and thanks for the questions I've got 2 first a follow up on opioid litigation.
Hate to belabor the point, but as we think about a potential settlement deal is is there a minimum percentage of plaintiffs that would be needed to be a part of that in order for you to move forward or said differently is there some level below 1.
100% that you'd be happy with understanding that achieving a truly global settlement maybe difficult.
And second you mentioned Risperidone L. A I earlier can you talk a little bit about how you're thinking about the market opportunity for that product just given the highly genericize nature of the risperidone market today. Thank you.
Thanks for those 2 questions. So if we take the first 1 about the opioid litigation again.
Then.
The way the deal is that distributors and J&J has made is structured is basically that there's a minimum that needs to participate in the mall that participate there.
Because the payout you could say of the theoretical Max amount.
I can't remember the exact number of states, but I think you should think about this way that the expectation is that certainly more than 40 states out of the 50 will participate and hopefully a number higher than debt and other subdivisions there's.
From the Eagle a twist to it because for some states once the state participate the subdivision sort of have to participate for some states is unclear and for some states. It's clear that day. They don't have to participate but my expectation would be that you are talking about.
On a threshold on more than 80% both for the states.
In Photoshop divisions, and you have to remember that this is all negotiated with all the lead plaintiff lawyers. So this is not negotiated in isolation. This is a deal that's done by the aggregation of all the different lawyers into groups and then representatives from these groups. So I think it's very very likely that you will see this level.
Of above 80% for both the subdivisions and for the the the states.
If we then switch completely to Risperidone in AI, how big is that opportunity I think it's quite a big opportunity because the pricing on the other is is quite stable and good in the marketplace.
And.
On the pricing overlay is really not.
Gone generic from the new and better products. So that means that we'll be launching probably with a price. That's the average price of branded ER patent protected allies you have to remember that the reason why we can do this new and improved products is a lot of research on into a.
A new mechanism of prolonging the action profile of the drug and that's why it's a subcutaneous injection instead of an intramuscular that's why it's a much cleaner much smaller needle much more pleasant and that's why it doesn't last 2 weeks, but it can last a month or 2 months and we have very very good clinical data, which I'm sure you've seen.
So we are very optimistic that we can get a significant.
And what do I mean by significant I mean more than 10% share.
Share of the total NII market at a pricing level. This corresponds to current which they patent protected products. So that means if you do the math on debt that it is actually a significant.
The opportunity, which will both benefit our revenues, but of course also benefit a lot of people suffering from schizophrenia. So we're thanks for that question I think we have time for the last question.
Thank you.
And your final question today is from Nathan of H of Goldman Sachs. Please go ahead.
Good morning, Thanks for squeezing me in.
Wanted to go back to.
The earlier commentary around guidance and just a couple of follow up questions I guess first for.
Core around your comments on the revenue outlook for the rest of the year. It sounds like you saw volume pick up late in the second quarter.
Or have you seen that continue in July and.
Can you talk about what the guidance range assumes around volumes over the course of the year I'm just wondering how youre thinking about the potential variability around the delta Varian and the impact of that could have on on doctor visits in volumes over the course of the year.
And then my second question.
As on the operating margin guidance I think on 1 of the slides that showed the.
The 2021 operating margin target being 27% I guess, if I use the midpoint of the guidance range. It would be closer to 27, 5% I know that's not a huge difference.
But could you maybe just kind of clarify on on what the.
Operating margin target is for the year and how we should think about the swing factors.
Between both revenue and expenses as we think about where you are likely to come in for the year. Thank you.
Yes, thanks for those 2 questions I'll take the first 1 and then on Italy.
Ill take the last 1 on the market. So good question on the guidance.
Uh huh.
Exactly like we said both in Europe and in U S. At the end of the second quarter. We did start to see some improvement in volumes and as you can do from the math, we did roughly 7.8 billion in the first half.
And you can.
You know conclude from the simple math of our guidance that we're going to do somewhat more in the second half in order to meet the guidance of course on which we expect that we will.
And that means that we are expecting to have higher volumes and there are 2 elements to it 1 is that the restrictions have been lifted all over Europe, more or less and in the U S. They've also been lifted.
So as we sold and highest scripts in the U S. And also now we see the first indications of some higher volumes in Europe now our assumption here is like I said in the beginning that there will not be new lockdowns. Our assumption here is that the delta Varian will not cause massive full lockdowns of society again.
So so you are absolutely right that like any other types of business right. If all of sudden as a travel ban in the U S and there's a full lockdown in the U S and we have a new situation and then we would have to revise our guidance most likely and the same thing for Europe. If all of a sudden there was a travel ban in Europe and if all of sudden there was.
You can see lockdowns.
Personally don't think that's very likely because as I said when you look at the <unk>.
Number of severe cases that are being hospitalized and when you look at the number of deaths than the increase in infection rates in various countries due to the new variants doesn't seem to create the mortality that we saw on.
The beginning and that's basically of course because of the high level of vaccinations in the U S and in Europe. So that's really the assumption is that we see higher volumes insert in fourth quarter.
We saw them right here at the end of the second quarter. So this carries on as a consequence of the lifting of.
Lockdowns and restrictions and if that was to change then we have a new situation, which we will of course communicate about if all of sudden we see a U S nationwide lockdown or something like that which I think is not likely but that's really the assumptions behind it and now maybe early you can comment on the margin yeah.
Hello, Nathan Thanks for the question.
So if you go back to slide 16, where we show the first half of 'twenty 1.
See that we generate gross profit margin of 53, 6%.
Very close to what we generate in Q2, which mean that the run rate that we predict to end the year very close to the 53, 5%.
Now if you look back on the.
Last 2 quarters, the actual were actually lower than 27% on the Opex, which mean the opex is driving between around 26, 8% now when we target the 27% and I know that it's a bit lower than the midpoint, which is $27.4 that the viable.
Payments that we have in the Opex, which we assume 53, 5% on the gross margin going to 27% on O. P. Between debt. This is something around 26, 5% to lend on the Opex versus what we had in the first half of 'twenty 618 that 0.3% that's the variable element inside the Opex and we'll keep it.
It like that because we still need to support.
Of course, the revenue and a few other elements in our Opex. So that's only the elements on some variable elements into the Opex line.
Thank you Haley from that answer.
Thank you all of you I'll turn it back to the operator.
Well Alan Kerr.
Ladies and gentlemen that does conclude the conference for today.
This conference will be available for replay after 2 P. M. Eastern time today through August 27 of 2021.
You may access the remote replay system.
That's at a time by dialing secrecy about 443333009.
Okay and entering the access code 90, 693 to 7.5 Oliver Pizza number that's 0044.
3333009785.
The access code 9.6.
9.3 to 7.5.
Thank you for participating you may all disconnect.
[music].
Okay.
[music].
Okay.
[music].