Q1 2023 Teva Pharmaceutical Industries Ltd Earnings Call

Hello, and welcome to the Q1 2023 at Teva Pharmaceutical Industries Ltd Earnings Conference call. My name is Alex and I'll be coordinating the call today.

If you'd like to ask a question at the end of the presentation that you can press star followed by one thing keypad.

It allowed to control. Your question you May press Star followed by two.

I'll now hand over to your host Ron Matt SVP of Investor Relations. Please go ahead.

Okay.

Thank you Alex Thank you everyone for joining US today, we hope you are adding opportunity to review our press release, which was issued earlier. This morning, a copy of this press release as well as a copy of the slides being presented on this call can be found on our website <unk> com.

Please review our forward looking statement on slide number two.

Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC forms 10-K and 10-Q.

To begin today's call Richard Francis <unk>, CEO will provide an overview of <unk> Q1, 2020, excuse me, though and business performance.

Recent events and priorities going forward, our CFO , Eric Lee will follow I believe you're in the financial results in more detail, including our graduate refinanced.

Financial outlook.

Joining in Greenfield and earlier on the call today are <unk> <unk> head of North America business and Dr. Eric Hughes, our head of R&D and Chief Medical Officer.

I will be available during the question and the question and answer session that we started the presentation.

Please note that today's call will run approximately one hour.

And with that I will now turn the call over to recharge recharge if you would please.

Thank you Ron and good morning, and good afternoon, everyone.

Thank you all for joining us today.

Now before I start going into the Q1 results I thought I'd, just take a bit of time CATV, Mike Doss and impressions of the last few months I've had et cetera.

Now in short impressed by many of the things that I've seen and discovered.

And around the world talking to many of our people.

And it's because of this because I think we have real opportunities to the company and maybe the company is underappreciated.

Currently.

Now, let me go into sort of four areas I'd like to focus on here.

Now I know most of you think of us as a generics company.

And in truth, we have model that we have an emerging inhibitory business, primarily driven by instead of an HIV.

Recently about to be supported by your study of long acting schizophrenia product and this is going to fuel continued growth going forward.

And already this is 10% about total revenue.

We also have a biosimilar portfolio, which I'll talk a bit about nature, which is an opportunity to benefit from $4 billion of brand value coming off patent in the next few years.

Second our pipeline now I definitely know this is not fully known and understood.

I can tell you we have some exciting assets here.

And as I sort of dug deeper I've seen some unique capabilities.

And our R&D organization, particularly when it comes to antibody design and formulation expertise.

And as we go through our pipeline I think you will see that we have a balanced risk profile when many of our assets.

Now coming to our core business.

Core generics business.

A strong global business, what I've discovered.

This was more than the U S. It's about 60% of our business is outside the U S and Europe and emerging markets.

It is a strong business.

That generate significant cash, which obviously currently using to pay down debt.

So then moving on to our people, which has probably been.

Find me the most.

Have a great group of people here at Teva and a great culture.

Real can do attitude and this is something that we're going to leverage as we move forward.

With Teva on <unk>.

Our strategy for growth.

Now that said, we have some headwinds with some short term challenges, which we'll discuss today, particularly around our cost of goods.

But we have plans to deal with these going forward because of that we are reaffirming our guidance for 2023.

Yeah.

Now moving on to the next slide.

I would just like to invite everybody to our Investor day, which we're going to hold in New York next week, we're going to introduce a new strategy for growth with Teva.

This strategy will be built on some of the strong foundations that I described in the previous slide.

And I've been working hard with the executive management team here at Teva, along with many others in the company.

So really challenge ourselves.

Look at how we can with the changing market.

Real value, if it's ever going forward.

Yeah.

I am excited by the activity, we have made some clear choices in this strategy some clear prioritization and we have a focused company going forward with the capital allocation all of this.

So as I said, please join us.

Next week, while we unveiled a new chapter.

Now moving onto Q1 performance, let's start with revenues.

Our revenues for Q1 versus Q1, 2020 to $3 7 billion up 4%.

Instead, it was up 10%.

It will be up 35% driving the innovative business that I mentioned earlier.

And in European generics in local currency were up 12% in local currency and international markets.

9%.

So I think a solid performance for Q1 on the revenue.

Yeah.

Now taking a look at it from a regional perspective.

As you can see all regions were up in local currency growth 2%.

North America, <unk>, Europe , and eight international markets.

So I would keep in mind that our revenues are still affected by the strengthening U S. Dollar and we did have a negative impact of $128 million towards one versus 2022.

Now moving on to the next slide to talk about the startup.

Part of this initiative portfolio that I talked to that.

Revenues.

$170 million up 10%, we're particularly pleased and it was up 28% versus last year.

Now I'm very excited about setup and particularly because I see this is an untapped opportunity.

We had 800000 roughly 800000 people suffering from this condition.

And only 120000 diagnosed and then only.

50000 treated.

So we have significant opportunity to grow this product can help patients suffering from this condition.

On the next slide you will see this has been further improved.

This patient offering with the launch of extent of XR, which is the once a day formulation.

No I think this is the final piece of the puzzle per setup.

Because obviously as you appreciate many of these patients are on multiple medications.

Having a once a day offering I think really offers some advantage for them and strengthen.

The product offering.

<unk> CAGR.

So now moving on to another part of our innovative pipeline our site portfolio is Josie.

Now with Jeremy's, almost reaching $100 million a quarter currently sitting at $95 million up 36% in North America.

Up 17% in Europe .

74% in international markets, so growing across all regions.

We're very pleased about.

And what I've mentioned before and I'll reiterate what I like about the JV is the fact that this was not a product we managed to bring to the market first in its category.

In fact in many areas.

We're not and we will loss.

But what we've shown with our commercial capability and muscle.

Despite this we can achieve growing market share in a significant position in many of the markets Austin number two.

So I still see growth going forward.

Through geographic expansion and expansion of market share.

No.

The new products and a bit your family as you said the spirit of which was accrued.

About two weeks ago.

And we're excited about this long acting with spirit.

I was recently on a field right in the U S with some of our sales representatives.

Speaking to psychiatrist and clinical nurse practitioners actually about our setup.

But many of them are asking when this long chain spirit and would be available.

And in discussing with the wide.

You asked about it came back to a patient friendly profile.

The fact that we have rapid absorption within six months to 24 hours of administration is important for them.

The sub Q small needle no volume.

All of these made it an easy to use product for them.

Patient population.

Now keep in mind that the long acting market is.

A $4 billion opportunity when it comes to schizophrenia.

You said this profile, we think we have a real opportunity to generate some revenue going forward.

Yeah.

Now pivoting back to our generics business.

As I mentioned before.

We have a big business outside the U S over 60% and we're seeing continued strong growth.

And both of these regions, 12% in local currency in Europe .

One, 9% and international markets.

And this is attributed to our core capabilities, we have a good pipeline.

<unk> launch.

Products into our portfolio, we have a good supply chain and we have a good commercial infrastructure.

I see no reason why we cannot continue to leverage this capability going forward.

Now, let's move on to our pipeline.

Notice for this call have separated the innovative pipeline from the Biosimilar pipeline.

And that's really to start to highlight.

The pipeline and some of the exciting assets. We believe we have it now I'll just call out a few here.

Olanzapine long acting another long acting medication for patients people suffer from schizophrenia, which will add to our franchise.

Ics Saba.

In asthma, which are in phase III.

And then <unk> in phase III I will describe these in a bit more detail in a couple of slides, but obviously looking forward to presenting more depth on our pipeline next week at our strategy day.

Dr. Hughes, our head of R&D will be talking about these in far more detail.

Now moving onto our Biosimilar pipeline and franchise.

I think what I've said in the past is you need to have a good pipeline and a good portfolio to succeed in Biosimilars and to have a good commercial footprint I think you can see we have both of those.

Now to address a question, which I think is.

Could it come up today is about Biosimilar humira from where we are with that maybe I could take a few moments to talk about that.

So as many of you know the FDA issued a <unk> to a partner Alphatec.

Based on secondly inspection observations in their facility in Iceland.

Now I would take as expected communication from the FDA shortly assessing their responses.

These observations.

Once alphatec received communication from the FDA, we will have a better understanding of the timing timing of a potential launch of Biosimilar humira.

Okay.

Now going back to those promising late stage assets from our innovative portfolio.

No I don't want to step on.

Eric chooses toast for next week, when we get when we launched the new strategy at Investor Day, So I'll keep it brief but maybe just give us slight headlines on some of these.

Programs.

So olanzapine.

Cited by this because obviously I've mentioned to you already would you study there is a significant opportunity to move the schizophrenia market to a long acting.

<unk> therapy now this olanzapine product Leverages, our <unk> technology lead itself, which is the company. We work with on your study so I'd like to thank this is being proven because of obviously the recent approval of <unk>.

Now moving onto Ics Saba.

This clearly leverages, our respiratory expertise and our ability to bring complex products to the market.

It brings together two well characterized well used trucks for.

So a subset of the asthma market, which we believe is worth around $2 5 billion.

And you will only have one competitor.

Then lastly, moving onto the detailed one asset, which I'm sure you're all familiar with it seems to be a very hot topic right now.

We see this as a good opportunity because it's a validated target and <unk>.

Because of the number of indications that could potentially go after a significant opportunity around 25% and.

And we believe we haven't a best in class profile, but more to come on those assets and the investment bank.

Okay.

In closing I want to talk about an important priority of ours, which is.

Commitment to ESG and I just wanted to take a bit of time gives you an insight into the progress we've made.

So we just pick a few of these that when it comes to greenhouse gas emissions, we have a goal to reduce these like 2020% to 25% by 2025 as you can see we're closing on that already.

Another area of focus has been on compliance and business integrity, and we have met our goal of a 100% of employees trained compliant policies.

Finally, I can highlight the economic impact we've had.

$44 billion in savings from Teva generic medicines across 21 countries.

And we contribute to $20 billion to GDP across 24 countries.

We've made very good progress.

With regard to our ESG commitments.

And with that.

I'll hand over to CFO Alex.

Thank you Richard and good morning, and good afternoon to everyone.

I'll begin my review of our Q1 2023 financial result, with slide 18, starting with our GAAP performance.

Revenue in the first quarter of 2023 were $3 7 billion.

In the long term they were flat compared to the first quarter of 2022.

In local currency terms revenue increased by 4%.

To provide you some color on our revenue performance by region.

In North America.

Overall solid performance with 2% growth in Q1 2023.

Compared to the first quarter last year.

This growth was mainly driven by higher revenue from certain innovative products, mainly aceto and adobe as well as under our distribution business.

This was partially offset by lower revenue from our generic business and.

<unk> entry under.

Our generic business in North America decreased in Q1, 2023, mainly due to increased competition to parts of our portfolio and timing of certain customer b.

The overall pricing environment in North America generics is stable and in line with historical trends.

Revenue in our Europe segment grew strongly by 9%.

In local currency terms, mainly driven by higher revenue from our generic business, including new product launches.

And revenue from our international market segment increased by 8% in local currency term, mainly due to higher revenues in our generics business coming from price increases largely as a result of rising costs due to inflationary pressures.

Operating income was $2 million in the first quarter of 2023 compared to an operating loss of $730 million in the first quarter of 2022.

We had net loss of $205 million compared to a net loss of $955 million in Q1, 2022, and a GAAP loss per share of <unk> 18.

Compared to GAAP loss per share of <unk> 86.

In the same period a year ago.

This improvement in our GAAP operating income net loss and net loss per share in the first quarter of 2023 were mainly due to the higher impact of legal settlements and loss contingencies.

We had in the first quarter of 2022.

Foreign exchange rate movements during the first quarter of 2023, including hedge effects.

Negatively impacted our revenue and GAAP operating income by $128 million and 32 million, respectively compared to the first quarter of 2022.

This was a result of the impact of stronger U S dollar against other currencies.

End market in which we operate.

Mainly the euro and other related currencies.

As a reminder, approximately 50%.

Our revenue in Q1 2023 came from sales denominated in non us dollar currency.

Turning to slide 19.

Yeah.

You can see that total non-GAAP adjustment in the first quarter of 2023 or $661 million compared to $1.064 billion in Q1 2022.

Notable non-GAAP adjustment for the legal expenses of 233 million mainly related to estimated provisions recorded in connection with certain litigation cases in the U S.

Other notable adjustments include amortization of purchased intangible assets of 165 million. The majority of which is included in cost of sales.

And impairment of long lived assets totaling $188 million.

I also want to provide you with an update on the progress with our nationwide okay.

Gentlemen.

During the previous quarter, we had confirmed the high level of state participation.

49 out of 50 states.

Based on our strong state participation, we decided to move ahead to the next phase with.

With the subdivision participation, which I'm happy to report is also going very well.

To date, we have confirmed participation from over 99% of the mitigating subdivision from those participating state.

<unk> with a level of.

Broad support we have seen by the state and subdivision, we expect to move forward currently in the process and we anticipate making the first settlement payment in the second half of 2023.

Now moving to slide 20.

For a review of our non-GAAP performance.

I have already discussed our first quarter revenue, which totaled approximately $3 7 billion and represented a growth of 4% in local currency terms compared to the first quarter of 2022.

Now, let's move down the P&L and look at the margin.

I would like first to drill down and analyze our gross profit performance this quarter.

Our non-GAAP gross profit was 49, 1% in Q1 2019 compared to $54 two things one we need to.

The decrease in non-GAAP gross profit margin was driven by two main factors.

Our portfolio mix and the macroeconomic factors.

Our first quarter came in with a different an unfavorable portfolio mix than we expected.

While we continue our solid growth in our key focus area, including <unk>, <unk> and our generic business in Europe and international market.

This is being offset by margin diluted growth of under business.

And lower contribution from our legacy brand.

As we progress through the year, we anticipate a shift toward a more balanced and normalized portfolio mix in the coming quarter, mainly driven by growth in our setup and Adobe.

As for the impact of the macroeconomic factors I already mentioned on.

On our previous earnings call, we faced inflationary pressures in the second half of 2022 and much of that impact from last year was held in our inventory until this quarter.

This resulted in a higher cost of goods sold in Q1 of this year.

In addition, gross.

Also had some unfavorable impact from hedging activity, which impacted our gross margin with the majority of the impact in our European and international market thing.

Going forward in 2023 were expected improvement on certain elements of the inflationary pressures, including on cost of energy and freight. In addition, we also expected a sequential improvement in our Cogs driven by certain measures, we're taking in our supply chain.

Our non-GAAP operating margin in Q1, 2023 was 21, 4% versus 27, 7% in Q1 2022.

This decrease was mainly driven by the lower gross profit margin as I just mentioned.

As well as the higher other income in the first quarter of 2022, which mainly included one time settlement proceeds in our international market segments.

We ended the quarter with non-GAAP earnings per share of <unk> 40.

Compared to <unk> 55 in Q1 2022, mainly due to the lower gross profit, which I referred to a moment ago.

Now, let's take a look at our spend based on slide 21.

As you can see our quarterly spend base increased by $229 million or $224 million on local currency basis.

Most of this increase was due to a higher cost of goods sold related to the factors I described earlier.

As well as the higher other income in the first quarter of 2022, which mainly included settlement proceeds in our international market segment.

Our next slide 22.

Shows.

How we have been transforming our global manufacturing and operating footprint over the last five years to consolidate our sites to get more efficient.

And here you can see over the last five years, we've gone from Andy manufacturing site down to around 52 site.

And we have plans to continue this progress.

By the end of 2023, we expect to close or divest three additional sites with plans already in place to close or divest 40 center site beyond 2023.

So this evolution will continue as we drive ongoing optimization of our operation efficiencies and improving margins.

Turning to free cash flow on slide 23.

Our free cash flow in the first quarter of 2023 was $41 million.

<unk> free cash flow.

This headwind at the start of the year due to the unusual timing of annual bonus payments paid out in the first quarter. In addition, our free cash flow for Q1 2023 was also impacted by lower profit and changes in working capital items, including an increase in accounts receivable net of RNA.

Partially offset by an increase in accounts payable.

Today, we are reaffirming our 2023 free cash flow guidance, which we provided in February our 2023 free cash flow is expected to be in the range of one seven to $2 1 billion we.

We expect our free cash flow to pick up during the next three quarters as we see ramp up in our profitability and as we continue to drive working capital improvement.

Turning to slide 24.

Our net debt at the end of Q1, 2023 was $18 5 billion compared to $18 4 billion at the end of 2022.

Our gross debt was 27 billion compared to $21 2 billion at the end of 2020 to the.

The decrease in our gross debt was mainly due to 646 million senior notes repaid at maturity.

Partially offset by exchange rate fluctuation of $176 million.

Our net debt to EBITDA slightly increase coming at $4 25.

For Q1, 2023, mainly due to a lower EBITDA.

Looking at slide 25.

Debt reduction continues to be our focus.

As you can see we have made significant progress in the last six years to reduce the level of debt on our balance sheet and we expect this progress to continue.

Our net debt further decline as we work towards our long term financial target of being two times net debt to EBITDA by end of 2027.

Turning to slide 26.

Which represents our upcoming update maturity.

During the first quarter of 2023, we successfully refinanced approximately $2 5 billion of our debt through system ability linked senior note.

This was done to mainly address the 'twenty three.

'twenty, four and 'twenty, five maturities and to align our near term debt maturities with our free cash flow guidance for this year.

This note are linked to sustainability performance target and range phones are continuing intention to establish a dark king between our corporate responsibility commitment and our funding strategy.

If we combine this recent issuance with our previous <unk> bonds.

Financing of $5 billion silver is now the second largest corporate SMB issuer worldwide and the largest in the pharmaceutical industry.

Given the interest rate environment. This will result in a higher financial expenses for the reminder of the year, which was already accounted for in our 2023 annual guidance that we provided in February .

Now, let's turn our attention to our 2023 non-GAAP outlook.

On slide 27.

As we guided in February .

When we provided our full year outlook, we had expected Q1 to be the lowest of the four quarters, both in terms of revenues and margin.

For full year of 2023, we continue to expect our revenues to be between $14 8 billion to $15 4 billion.

We're also reaffirming our 2023 non-GAAP outlook for operating income EBITDA earnings per share and free cash flow is provided in February .

We continue to expect a gradual pickup in margin in the second quarter with further progress in the second half of the year.

The company is fully engaged in navigating and addressing the ongoing impact of the macroeconomic headwinds.

The inflationary pressures that we saw in the second half of last year continued to have an impact in 2023.

As indicated we are walking around certain measures.

Offset the collective increased in our cost of goods sold.

In the coming quarter 'twenty, three we expect a gradual increase in our gross margin with improvement in our portfolio mix.

As I mentioned earlier.

As well as easing of inflationary pressures, including the cost of energy and freight.

In addition, we expect to continue our ongoing efforts to drive improvement in our operating expenses.

With that.

This concludes my review of our results.

For the first.

Quarter of 2023, and now I will hand, it back to Richard for a summary.

Thank you Ali thanks for that.

So in summary.

So we are reaffirming our 2023 non-GAAP guidance for the year.

Yes.

We believe we're setting the job you're going to continue to drive good growth.

With the launch of a set of once daily we believe that's going to add to that and obviously as I've mentioned.

The upcoming commercial launch of your study is opportunity for more growth from our innovative portfolio.

With strong performance in Europe , and international markets in Q1.

And we continue to focus on cost discipline.

And working capital management.

And as of next week I look forward to introducing a new strategic framework and key priorities to many of you in person.

So with that I'd like to open up to questions. Thank you.

Thank you.

Linda if you want to ask a question a compressed.

One on your telephone keypad.

Thanks, a lot to withdraw your question you May press Star followed by two please.

Please ensure you Amit Luckily when asking your question.

Our first question for today comes from Jason <unk> from Bank of America. Jason. Your line is now open. Please go ahead.

Hey, guys. Thanks for taking our questions. This is Todd for Jason.

So the first one on the anti PDL one antibody we saw the preclinical data.

<unk> back in 2018 and from a head to head perspective, what do you think drives your confidence that this may compare favorably to maybe Prometheus is pfizer's <unk>.

<unk> antibody.

And then the second question on Biosimilar Humira.

We know that the revenue is risk adjusted in the 2023 guidance and last quarter. You mentioned that you had some other hedging element.

Might allow you to maintain the guidance.

The product was delayed and so can you share what those elements are.

Thank you.

Okay. Thank you. Thank you for your questions.

I'll now hand, the first one on <unk>, Eric So you can get back to the pack on the tier one and why we're so excited about it yeah sure. Thank you Richard.

We're very excited about our <unk> program the potential to bring a new class of biologics to people suffering from inflammatory bowel diseases.

<unk>.

Exciting for US we believe our anti <unk> antibody is highly differentiated and is the potent at the potential to be best in class. This is really built on the potency of the antibody and our strategy and the way that we targeted the molecule.

We've increased our resources and our efforts to bring this program forward as fast as possible we understand the interest in this program and I think we have the best one so we'll hear more about this next week as Richard alluded to our new strategy and our pipeline. So we'll talk about that more next week.

Thanks very much.

And to ask your answer your second question on Biosimilar Humira.

You're right, we did risk adjusted and a forecast because of the uncertainties that we <unk>.

<unk>.

What I'd say is the reason why we're maintaining guidance as one that was just adjusted so it's a relatively small amount the others we have.

Launches of new study and our growing pipeline, so because of that we feel very.

Clear that getting keeping guidance to date.

So hopefully that answers your questions.

And if I could just ask one follow up should we expect to see any update to the long term 2027 targets at the upcoming R&D day.

So I suppose there's one thing I can say is I cannot answer that question to make it come to the investor.

<unk>.

Yes, we are.

Haven't changed our guidance for 2027% so we're committing to.

Pricing, 70% debt ratio and also the growth.

Thank you.

Thank you. Our next question comes from my rough patch of Evercore ISI. Your line is now open. Please go ahead.

Hi, guys. Thanks for taking my question, maybe if I could spend a quick second on the phase III Olanzapine program could you speak to what level of alignment that you have on FBA on what exactly is it that you need to show in your trial.

To not get the type of black box slowly got on their prior attempt that long acting Zyprexa and then secondly on the Risperidone program I know you've shared commentary a few times, but the question I have is.

J&J barely did about 300 ish million on from our branded sales perspective on that program.

So how much could a sort of follow on to that Risperidone long acting molecule truly do what's the true commercial potential look like thank you very much.

Thank you. Thank you. Thank you for those questions and I'll hand, the first one to Eric again, yes.

Yes. Thank you for asking about our Olanzapine program, we're very excited about this program.

The prospect of bringing another treatment to patients with schizophrenia is really in our wheelhouse. So we're excited by it.

<unk> long acting injectable is building upon our formulation technology that we developed through steady, which really an ingenious formulation that provides really advantage to both caregivers and patients.

It is given subcutaneously.

Characteristics of the formulations, we really hope to have a favorable safety profile compared to other injections that are available for <unk>.

Thank you were referring specifically to the post injection delirium and sedation.

It has a black box warning on intramuscular injection of <unk>.

Now obviously, we've developed our phase III program in conjunction with feedback from FDA and we are confident in the way that we've designed the study with a number of patients and the total number of injections and we will have what we believe to be a.

Very good safety profile to avoid side effects. So the studies initiated I'm very proud to say, it's going well and we're looking forward to the results.

Thanks, Eric So maybe I'll start by answering your question, but also our spend.

Head of North America to come in because obviously, it's his team launching to the spirit and long acting <unk>.

So I think we think because of the favorable patient profile, we have for the product and the feedback we've got from the.

The physicians and the clinical nurse practitioners already and the unmet medical need we think we can make some inroads based on the product characteristics I just laid out so we see the opportunity definitely we think this is an opportunity to catch.

Between to grab between 10% to 20% of that $4 billion market.

But maybe give.

The quarter spent a bit more flavor to that.

Yes. Thank you Charles and thank you for the question. So they are about $1 6 million treated schizophrenia patients in the U S 10 of them as we know receive long acting injectable products. The category itself is growing at around about 4% 5% per year. So it's always good to launching new franchise into a growing.

Category, we actually believe that we can compete with you across the spectrum, which means that we do not see usage is being limited.

Two the Risperidone molecule alone and the main reason that we believe that is that the product profile. It makes it ideal for the used in the hospital setting, but the majority of the new patients initiated with Aaas.

Many key attributes and patient convenience.

Genius <unk> Jackson type option shortly narrow needle small injection volume, we're actually most excited about the pharma for Nick Coe genetic aspects of the product and especially here to tower project levels that can be reached within 24 hours, which is quite important for emergency treatment in hospitals.

And behalf as compared to other drugs in the category, nor oral supplementation or a loading dose. So you can discharge the patients right. After first treatments and Youre safe that you have talked.

Toxic levels for one or two months.

The reason, we believe we have a highly competitive product in the category and as I said, we would.

<unk> can compete across all morning Jules.

To set a new standard for NII treatments.

Yeah.

Thank you. Thank you Matt. Thank you for the question next question.

Thank you. Our next question comes from <unk> Prasad from Barclays. Your line is now open. Please go ahead.

Hi, good morning, and thanks for the questions.

Couple from me firstly on <unk>.

I want to understand how much of that bad debt Alamos Seattle, both Geo and your discussions with the Pbms. What is the total of the negotiations now and is it fair to assume that 'twenty. Two 'twenty three is not the focus of your pbms discussions.

<unk>.

Two kudos clarify about the legal settlement that you have taken a provision for litigations are these related to.

And lastly, if you could just maybe comment further on in the market potential for those that you see currently.

Okay. Thanks, Thanks for the question.

So as you know and the Pbms, Stan I'll hand that one to you.

So of course, we have intense discussions with all major customers Pbms and all the downstream customers for Humira. This year and of course changed the situation because our customers have to prepare for the market entry.

Happening end of June and July for Us. So now we received the CIO that is of course, a transfer into known to all of our customers and we don't have to wait for the outcome of the FDA discussions.

Yes.

Concerning the affordability of the Biosimilar BLA and also of the interchange of a BLA and then we will see how we take it forward with the Pbms.

Thanks, Dan and the legal settlement Ali.

Thanks <unk> for the question, yes, So we had some a few adjustments on mainly on two cases, one we're actually progressing on the patient assistant program.

But from the Doj.

Currently our estimation our alone $100 million.

We are actually working on.

Im trying to settle it.

So this one this quarter, we actually at this point and the other element that we're actually looking now.

Kind of a tiny element and relate to the HIV and on the reverse payment and different from what were up to me to be speaking with you.

And this is a $50 million and the rest is mostly about the timing and other elements relating to.

Certain molecules.

But that's the high level.

Thanks, So I'll answer on the you said maybe two.

Uh huh.

<unk> clarified that what's been said and I said earlier.

This is a great opportunity based on the product.

Profile, we have a very patient friendly profile to $4 billion market.

Based on what we understand about the needs of the patient and the physician feedback.

Very good solution when it comes to long acting formulation.

We see.

Our subs getting between.

10% to 20% of the market, let's see how that plays out I think one thing I would say.

When it comes to the schizophrenia market and maybe spend can add a bit of a flavor of this.

It will take a bit of time. This is a secondary care. This is in hospital as has been alluded to so there's a bit of time to get on coronary to get into those hospitals to get into those.

Departments as outpatient clinics to make sure it's real.

Do you have available so when those patients come in so there is a bit of setting up the system to make sure that happens, but once that's in place. We see this product having a good trajectory I don't know whether you want to add anything to that spend.

I think Richard you covered everything as you said we are prepared for launch will happen in the next days, we have a dedicated sales team both in the field, but also for hospital coverage, we're working through the hospital listing getting reimbursement in all places and then we believe of course, the molecule itself is well known the efficacy as well as <unk>.

There's desk.

Thats clear.

We can communicate our product attributes also in a very clear and compelling way we've done extensive market research to prepare for this launch so I believe we would have.

Good uptake, although you have to see that in the system.

These indications you typically have a slower development like in other indications, but I think we are ready.

Payout here.

Thank you. Thank you.

Thank you next.

Next question comes from Ash pharma of UBS.

Ashley Your line is now open. Please go ahead.

Hi, Good morning, Thank you for taking our questions. So I had two one just on Biosimilar Stella.

Are you planning to pursue interchangeability, there can be an important feature in this <unk> to market and I think Amgen is already filed equal.

And the Changeability.

And the resolution on the Iceland manufacturing side is still going on and we understand I think <unk> is also coming from that site. So can the launch.

Launch timeline get impacted here.

That's my first one and then second.

So for the free cash flow guidance that you provided how confident are you on the outlook here I mean, typically gross margin improve.

Improvements can be gradual and this level of EBITDA deterioration in <unk> can you reach the free cash flow guide on gross margin improvement alone or do you think you need to cut some opex.

As you progress in the year. Thank you.

Thank you Ashley Thanks for your question I think on the <unk> spend if you'd like to get that answer and then Ali Let me go on to the free cash flow.

Yes akshay.

Of course, we are also preparing for this launch.

Launches of course dependent on FDA approval, but also on clearance of all the patent aspects around it.

With J&J.

Our Biosimilar license applications decided inspection would be part of the review process. So this heightened.

<unk> from I would take would be inspected for approval of this drug concerning your question about interchange ability.

Looking into that.

After the drop we will also see now of course with the market formation from Humira.

Customers looking for interchangeability.

But we believe we would have a competitive offering when we come to market with it all.

Free cash flow and Hello, and thanks for the question and Kelly, Yes. So.

The first question and I'll repeat.

Related to first of all what we see in the P&L and I look earlier in the guidance for the year I said that the content is now close to 15 billion were well suited in terms of revenue.

And we're in the range and very well sit there, which means that we're growing in our innovative and.

And we will see more grow also on our generic.

Well on outside of the U S. The European and international market, that's going to help us.

This year in terms of the free cash flow the gross margin.

We think we're largely but currently we don't see now.

Departure from our view on the range on the free cash flow and the second part of it if the working capital element, we actually have certain enhancements in place in the last.

Year, or so and it's mostly about optimizations on the inventories and the supply base. So what we see from there also certain level of benefit and helping us.

To support our <unk>.

Working capital and free cash flow so.

The answer is that we are in the guidance.

Thank you Amy Thank you for your questions.

Thank you. Our next question comes from Nathan Rich of Goldman Sachs. Nathan. Your line is now open. Please go ahead.

Great. Thanks for the questions maybe just following up on the last one.

How much of the gross margin pressure was mix related versus.

Inflation related and can you maybe just talk about the level of visibility you have into the inflationary pressure given there seems to be some lead time there just in terms of the confidence of that kind of easing as the year progresses, and then I'd be curious how it compared to your expectations for the quarter I know theres, some seasonality of the sales but revenue per script.

Look lower than we expected. So can you just expand on what drove that in the context of your full year expectations and how do you think so once daily dosing improves your positioning with physicians going forward.

Thanks for the questions.

Thank you Nathan so hunting the first one to early.

Yes, so thanks for the question so.

Percentage wise, if you look year over year.

Hi, Paul.

The decrease in gross margin.

The first element related to inflationary pressures. This is around two five points like half of the impact and this is mostly related as I mentioned in my prepared remarks through inventory.

We received the second households by 2022 that embedded interest rate cost.

And Thats actually went in we consumed and sold this quarter.

And Thats.

The main impact really it came with a.

Of course, and I would say cost of flavor and other elements related to direct material cost embedded in the.

Pricing and as well energy and freight now and we see freight and energy.

Bounding, we added successful hedging program last year on the energy that can help us to secure a certain rate and we see the benefit this year.

We're going to see very nice benefit as well in freight in terms of the combinations and how we're managing long and short lead time items in order to optimize more on the the auction versus the seat as oil composition of achievement and that for that and amend the other elements is around and I would say.

The product mix.

Between 1% to one five points and the rest is coming really from etch and ethics.

And so back.

Whereas when frame and thinking about that.

And as we look forward in terms of further questions about <unk>.

And inflationary pressures.

<unk>.

Some sausages on labor.

It happened in the industry in Q4 getting more ease now.

A lot of other elements starting to rebound and we see it in the pricing received in our sourcing and so we believe that this one with conifer trees are perfect.

Throughout the rest of the year as well.

Well, if you look on our product mix and the expected and revenue mostly in our innovative.

Portfolio. This one will rebound and be more accretive in margin going forward.

Thanks, and then to answer your questions.

Q1 said it was in line with our expectations, what we had forecast.

As I'm sure you're aware there was a swing factor between Q4, and Q1, largely because of speculative buying an inventory build that happens.

But if you look at the sort of fundamentals.

The metrics, leading indicators <unk> of 28% and our exit 30% so.

As I said in my opening remarks, very excited about steady on the potential.

Then your question about what is once a day too.

I think if we had any one slight weakness with a state owned as anyone it was once a day and now we have that I think the product profile.

As Barry.

Very strong and is accepted by physicians.

As a favorable product profile. So now with the once a day I think that strengthens that.

The other thing is we have reallocated resources and capital to instead of to match the expectations we place on it.

Allocated resource to make sure that can happen. So I think we're well set for setup for the rest of the year and is building a bit too Lisa.

Question and answer there on margins.

Do you see would be combination of you said the coming launch of that the growth of instead of the continued growth of the JV, that's going to change our product mix into the high margin innovative business. So.

Strong expectations and confident about the setup.

Thank you for your question.

Okay.

Thank you. Our next question comes from Chris Schott of JP Morgan.

Chris Your line is now open. Please go ahead.

Great. Thanks, so much just two questions for me I'm, just trying to get my hands around the gross margin update. So maybe you can just help us a little bit of what is a reasonable gross margin target for the year. When we kind of balance maybe some of the dynamics at <unk> with what sounds like kind of gradual improvement for the rest of the year. So is it something like 51 or 52% kind of the right ballpark.

It's going to bounce back more than that just be helpful. But just so we don't any more surprises there.

And the second question I have is a bigger picture one I think.

You are highlighting kind of pipeline capabilities is one of the underappreciated pieces of the <unk> story and took a number of pipeline assets that you're going to be talking in more depth next week. How do you think about the overall level of investment that Teva is making in R&D.

You have a kind of a hybrid business between generics and brands.

At what level of investment as a percent of sales and that's not a perfect metric but.

Is that kind of a low end of the industry on that front and I'm, just trying to kind of balance the resources, you're allocating to R&D versus the desire to maybe push this pipeline and maximize pipeline value appropriately going forward. Thanks, so much.

Thanks for the questions Chris.

Ali it's done on the gross margin and then.

Thanks for the question so yes, as I mentioned in the second half of 'twenty two most being.

The impact was actually coming from.

And what we call <unk>.

Cost.

Related to inflationary pressures.

And now it's really depend on the mix that's coming into quarter, one element that consumes referring inventory what we see for the rest of the year I would say that we are at the low of the 53 currently.

Considering on rebounding.

I would say at least half of the impact on the on the inflationary pressure pressures from the reason that starting from mid of Q2 start to actually to stores and as well in new inventories that actually embedded the different pricing now is more on the stocks are starting to ease.

So I always say is we'll actually move from the low 50.

Between.

Thank you Ali.

Moving on to the pipeline assets.

So if I understand your question correctly Chris.

A reallocation of capital and resources to execute on what we highlighted.

Good pipeline.

So it's a great question.

We'll give you a bit more flavor to that next week in New York, but.

Yes, and so we are we're making sure we prioritize and allocate capital to where are the opportunities to drive growth and profitable growth.

As Alex alluded to we have some really exciting assets, we think to a certain degree.

Our de risked to a validated so to allocate capital to that she was a very sensible thing to do so when it comes to that we are making sure those assets.

Sure.

Funded well, it's got you and then on a capital markets day.

Let me give you a better idea of how we're thinking about capital allocation across the different types of business you talked about the generics pipeline to our innovative pipeline and how we're managing that so it gets more detail next week.

So if that answers your question, Chris and thank you for it.

Thank you our final question for today comes from David <unk> of Piper Sandler David Your line is now open. Please go ahead.

Hey, Thanks, maybe just expanding upon the last question.

In the past.

You talked about.

505, two opportunities.

I guess I wanted to ask you about the balance between.

Volume of $5 two products brand products.

Versus new molecular entities, and how youre thinking about it.

Maybe asking differently.

How far along the innovation spectrum.

Are you looking to go and then secondly on <unk>.

Just talk about the mix between <unk>, and Huntington's Korea, and how youre thinking about the potential impact of government grants.

To the extent that it gets its label expansion for Huntington's. Thank you.

Thank you David Thank you for your question so.

If I understood. Your question correctly, it's sort of how do we balance that.

Focus for after the resource on pure innovation to fiber <unk>.

And I think we've balanced that based on.

The opportunities that we see that we have already and then going forward.

Apply resource and capital. So I think the 500 <unk>, we see as complex generics the difficult to make and so that tools in our wheelhouse nicely and from an innovative point of view leveraging our capability in neuroscience immunology.

A particular focus on this and to put engineering capability. We have so we don't think we have to sacrifice one for the other I think what it comes down to is how do we reallocate capital from other aspects of it are not fiber <unk> inhibition to make.

<unk>, which is on the opportunities we have.

Right now, we're doing that well and as Youll see from the strategy next week, we have a clear.

Strategic and operational plan as to how thats going to be done over the longer term.

I think that's how we're approaching it now.

And then with regards to Huntington's disease, and tardive dyskinesia and the mix of that in <unk> with potentially an upcoming label expansion I'll hand that back to spend in.

In the U S.

Yes. Thank you Richard So Huntington's disease is round about 50% of our sales so 85% is the tardive dyskinesia.

Look at the size of the patient population tardive dyskinesia is of course.

Larger market, which is significantly.

The underpenetrated and underserved so thats, our clearly our strategic focus for Huntington's disease of course.

We are here very established because that was the first indication that we launched we know that there are prescribed us data.

<unk> Huntington's disease.

Highly scientific debate the dose options that we provide that rotation ability and they also value the long term efficacy data combined with the safety profile.

For that reason we believe.

Our highly competitive category, despite the anticipated labor.

Expansion from Neurocrine on the other hand also how half of February .

The drug formulation with a once daily as Richard explained was missing we did extensive market research.

Prescriber segments that value of these convenience centers.

I think we will have a very competitive products going forward being an hour in tardive dyskinesia or in Huntington's disease. So for that reason, we are quite optimistic for the year.

2023, and our growth in both categories going forward.

Thank you Stan and thank you again, thanks for your question.

That concludes all the questions. We have time for today, so I want to thank everybody again for dialing in and listening in on the ones who asked the question as to do so.

Just like to remind you all of the Investor Day, we have on May 18th in New York next week, starting at 12 PM Eastern time and look forward to seeing some of you in person.

Look forward to hearing and senior online if you can't make it in person.

You again for your time and attention today.

It's catching up next week.

Thank you for joining today's call you may now disconnect your lines.

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Yes.

Okay.

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