Q3 2025 Teva Pharmaceutical Industries Ltd Earnings Call

Speaker #1: Hello and welcome to the Q3 2025 Teva Pharmaceutical Industries Limited Earnings Conference Call . My name is Alex and I'll be coordinating today's call .

Speaker #1: If you'd like to ask a question at the end of the presentation , please press star , followed by one on your telephone keypad .

Speaker #1: I'll now hand it over to Chris Steve-O , SVP , Investor Relations . Please go ahead .

Speaker #2: Thank you . Alex . Good morning and good afternoon , everyone . In a moment , I'll hand the call over to my CEO , Richard Francis .

Speaker #2: But before I do that , it is my duty and my honor to remind you of our forward looking statements today . On this call , we'll be making forward looking statements , and we undertake no obligation to update these statements after today's call .

Speaker #2: If you have any questions regarding forward looking statements , please feel free to see our SEC filings under forms 10-q and 10-K in the relevant sections .

Speaker #2: And with that , Richard Francis . Thanks ,

Speaker #3: Chris , and good morning . Good afternoon everybody . Thank you for joining the call today . On the call I'll be joined by Doctor Eric Hughes , head of R&D and Chief Medical officer , and today Califf , the CEO of Teva Pharmaceuticals .

Speaker #3: So starting with , as I always do , the pivot to growth strategy , this is a strategy that has guided Teva for the last three years , a strategy based on the four pillars deliver our growth engines , which is all about driving Austedo , UCD and Ajovy .

Speaker #3: Our innovative portfolio . Stepping up innovation , which Eric will talk to you about . But the great progress we're making across our innovative pipeline , sustained generics , powerhouse , and the work we've done to stabilize our generics business .

Speaker #3: And then focus the business and we'll give you an update on where we are with our transformation of Teva , our 700 million cost saving programs , as well as an update on Tapi .

Speaker #3: Now moving on to the actual results , are pleased to say this is our 11th quarter of consecutive growth , up 3% in revenue to 4.5 billion and Ali adjusted EBITDA up 6% .

Speaker #3: And our non-GAAP EPs up 14% . These all compared to Q3 2024 and our free cash flow is just above half a billion .

Speaker #3: I'm really pleased to say that our net debt to EBITDA is now below three times for the first time since 2016 . Now moving on to the next slide .

Speaker #3: One of my favorite slides I have to admit , this is our 11th quarter consecutive growth . After many years of sales decline , and it's worth noting that Q3 24 was a particularly difficult comparison year where we had growth of 15% .

Speaker #3: And so to grow 3% over that comp , I think is a testament to the work we've done on our portfolio . And a testament to the team's .

Speaker #3: Now , this puts us on track for our growth targets we set for 2027 to have mid-single digit growth . So congratulations to the whole team that have made this happen over the last , last 11 quarters .

Speaker #3: Now going down a bit more detail . What's behind this $4.5 billion revenue and 3% growth . Excuse me . This growth was spearheaded by our innovative products .

Speaker #3: And I'm really pleased to say that they are now worth over 800 million for the quarter . And the growth is 33% year on year .

Speaker #3: Austedo grew an impressive 38% , reaching 618 million . You said he performed strongly , up 24% , reaching 43 million , and a Jovi performed well , up 19% to 168 million .

Speaker #3: Global generics revenues was up 2% and Tapi was down 4% , reflecting some seasonal volatility . So now I'm going to double click and go into a bit more detail on all of these areas , starting with Austedo .

Speaker #3: Now , as you know , Austedo was selected earlier this year for CMS for the 2027 price negotiation . And I'm pleased to say that agreement that we've concluded is consistent with our mid-term expectations for Steato that we first laid out back in May 2023 .

Speaker #3: And this means that we can confirm with confidence our 2027 revenue target of 2.5 billion and our peak sales target of over 3 billion .

Speaker #3: Now , let's talk a bit more about Austedo in Q3 . It was another strong quarter for Austedo , where the team continues to perform incredibly well .

Speaker #3: The US reached 601 million in Q3 , 25 , grown at 38% year over year . And this is the first time we have passed 600 million .

Speaker #3: So congratulations to the team for all their hard work in making this happen . And it really reflects the understanding this team has of the market .

Speaker #3: We grew Trek's 11% and we continue to see the increasing penetration of Austedo XR , and it's worth reminding everybody again that Austedo XR requires fewer scripts compared to the original stereo .

Speaker #3: And that's why it's equally important to look at the milligrams dispensed . And as you can see , these were up 25% . As you see on this slide , we've highlighted that with 2026 approaching , we have a good sense of aesthetics , 20 2640 position .

Speaker #3: And we continue to reflect the balance between preserving value and maintaining access . So based on these strong results in Q3 , we can increase our revenue outlook for Austedo to 2,000,000,050 to 2,000,000,150 for the year .

Speaker #3: Now , moving on to UCD , another exciting member of our innovative family . You said he continues to perform well . Momentum remains strong as we continue to address the needs of the moderate patients and those beyond who take risperidone .

Speaker #3: Revenues are up 24% year over year and Trex was up a strong 119% . It is worth noting that revenue growth was partially impacted by a one time Medicaid gross debt adjustment .

Speaker #3: Now , this does not impact our long term LA franchise expectations , and we reiterate our peak sales target of 1.5 to 2 billion for the franchise .

Speaker #3: Now , this confidence is rooted in the data you studies . NBER is significantly above the TRH . As you know , in Q3 , we also had an expanded indication for bipolar one disorder .

Speaker #3: Now , to give you more guidance on how to forecast your study going forward . The Q4 implied guidance of 55 to 65 million provides a cleaner run rate for , for for forecasting , going forward .

Speaker #3: Due to that gross and net adjustment in Q3 . But I want to take a couple of slides just to talk about the excitement we have around our LA , our long acting franchise in schizophrenia , and why do we think this 1.5 and 2 billion is achievable ?

Speaker #3: Well , it really comes down to the great work that's been done with UCD already . The team here has created great traction , as you can see , with 119% TRH growth .

Speaker #3: We have a great product profile with UCD and we anticipate having a similar strong product profile with olanzapine , but more importantly , the capabilities and the knowledge that has been built here .

Speaker #3: We have the same people in front of key payers , the same people in front of these key physicians , these key nurse practitioners , healthcare providers , patient associations , the people who look after the forming committees .

Speaker #3: That puts us in a very strong position . And we know and believe there's a significant unmet need in the olanzapine for a long acting treatment .

Speaker #3: Now , if you put those two together on this slide , we have the ability with UCD and our long acting olanzapine to treat up to 80% of patients who suffer from schizophrenia , whether that's moderate with UCD or moderate to severe with long acting olanzapine and just to highlight , unfortunately , 4.7 million people suffer from schizophrenia in the US and Europe .

Speaker #3: So the opportunity brands is significant . That's hence the reason why our confidence in the 1.52 billion remains strong . Now moving on to Ajovy .

We've made significant progress with the Teva transformation program and this is something we started at the start of this year and we made a commitment to realize 2/3 of the 700 million by the end of 2026.

And I can tell you on track to do that. The reason why I can tell you that is because we're on schedule to hit our 2025 goals and that sets us up well for the start of the next year, but I'll leave Ellie to go into a bit more detail later on in this presentation.

Now, before I hand it over to Eric, I wanted to give you an update of how we're tracking for the 2027 targets, which we re reiterating today.

So from a revenue point of view with the IRA negotiations, now finalized our upcoming, I mean launches and the stabilization of our generic business, we we estimate the 2025 will end the year with a 3 to 4 percent growth range consistent with our 23 to 27 mid single digit, average growth.

On op because of the work we've done of driving our in Innovative portfolio, remind you up 33%. As well as the progress we made on organizational, Effectiveness, we are on track to our 30% margin and this year we will end around the 27% margin overall.

And then that debt to eidar drop below 3. As I mentioned earlier by the end of this year, we should be around 2.8. Well, on track to hit the 2 times by 2027. And with that, I will hand over to my colleague.

Eric.

Thank you, Richard.

Now, as Richard said, we have a healthy late stage development programs in our, uh, Innovative medicines and we're doubling down on our efforts to execute these studies on time and efficiently. Now, beginning with lonza Lei, we're on track for FDA submission later in this quarter, our Dari program for both adults and pediatric patients is on target for enrollment. By the end of this year, our duaa kit program in partnership with Sy is now initiated both are all sort of quite as in Crohn's disease phase 3 studies. Are emerald. Program is now enrolled at the 100 patients that will need for our futility analysis by the end of next year. And then enrollment continues to do very well and finally, our anti- 15 program. Very exciting program with multiple potential indications in the future, where be reading out our Celiac and our Vitiligo studies, uh, proof of Concepts, and the first half of next year. So exciting, late stage programs.

But before I go on to those, in more specific detail, I did want to, uh, have a celebration for the yedi team for bipolar 1 disorder. Uh, we had an approval and an expansion of our label, which were very proud of. This was an Innovative approach by the team using the known and well characterized pharmacology V plus the safety database that we have in conjunction with efficacy. Using a modelling and simulation approach to expand that label for patients suffering from bipolar 1 Disorder. So a great Innovative approach, very efficient execution and a great

Opportunity for patients to get treatment for their bipolar disease.

Now, on to Allan Lei, uh, as we've mentioned, uh, you know, we've actually presented the data about the safety and efficacy of the full full program in Phase 3 at the, 2025 site Congress annual meeting, it was very well received both the safety and efficacy was right where we expected it. And most importantly we had no, uh, cases of pdss. And that submission is planned for the late half of this quarter. So, on track and exciting opportunities for patients in the future.

Of the market. And also we'll have a dry powder inhaler, which is a simple device to use. Simply open, inhale, and close. This makes it much more convenient for both adults and particularly the Pediatric patients. So great program. Uh, right on track.

And as I mentioned before, we're very excited to announce that we have now initiated both the ulcerative crisis and Crohn's disease phase 3. Programs with our partner Santa Fe, uh, for our Dua Ki took program. This is very exciting program, very large effort by many people, uh, the ulcer request, uh, study is called Sunscape and the Crohn's disease program is called Starscape. And what we're really excited about with this, uh, program is the way we've designed phase 3. It includes an Open Lab label, feeder to arm that will enroll patients very rapidly, uh, since it's open label and they know they get treatment but that gets to our safety numbers very rapidly in the maintenance. We have a favorable randomization, uh, ratio for the patients to active. We have a rerandomization design, which is really a more feasible or favorable design for multiple Doses and it is more reflective of clinical practice. And finally. But possibly most important of all the entire program is based on subcutaneous injections that's loading dose.

Uh, induction meat and then maintenance throughout the entire program. So it's a really patient friendly program and it's designed to execute quickly and I would add, we were the fastest to transition this MOA from Phase 2 to phase 3. So it's all about execution, now with a great program, so kudos to the team

And on to emmer solman, I always like to start by saying, Emerson is enrolling. A patient, uh, population. That is a real unmet medical need. This is multiple systematically and our differentiated molecule is targeting. The very beginning of the alpha nuclean Aggregates. Uh, we have a very efficient design here. You can see that it's a 48 week design against Placebo and I mentioned, you know, enrollment is going very well and we've already got the first hundred and, uh, that will be involved in the futility analysis at the uh, end of next year. So we're right on track and it's going quickly, we're proud that this is received Fast Track designation and we've already got the orphan designation, so more to come.

And finally, I just want to touch base on the anti 15 program. This is another great homegrown antibody and programmed. Uh, from the Teva Laboratories, uh, right now we've got it in a proof of concept studies and select disease and importantly, also in Vitiligo, which will read out in the first half of next year.

But the upside possibility here is multiple different indications, remember aisle. 15 is a key Saito and the activation and proliferation of NK cells and T cells. That's believed to be involved in many different indications that you can see here. So, uh, I'll have to go, uh, with aisle 15, but very exciting program, and that also received Fast Track designation. And with that, I'm going to pass it off to my colleague, Ellie Khalif. Thank you, Eric, and good morning and good afternoon to everyone.

I would like to start today with the following key messages, that demonstrate our consistent execution, over the last few quarters including in Q3.

First here to a result were above solid driving once again by our fast. Growing Innovative portfolio.

As Richard said earlier, this was our 11th consecutive quarter of Revenue growth.

Second we continue to strengthen our balance sheet and specifically reduce our net debt to below 15 billion and expanded our ebida.

Leading to the net debt to ibida of below 3 times for the first time since Q3 2016.

Third. We have made significant progress in our transformation programs with approximately half of our plant Savings of 70 million. For 2025 already achieved by Q3, we are on track to deliver approximately 700 million of net savings by 2027 and Achieve our 30%, operating margin targets.

And lastly, the outcome of the IRA negotiation for Stow is largely in line with our model expectation and further emphasized on conviction. In achieving our Revenue Target of 2.5 billion in 2027. And More Than 3 billion at Peak forested,

Now, moving to slide 30 to review our Q3 2025 Financial results, starting with our Gap performance. Please note that throughout my remarks, I will refer to revenue growth in local currency terms, unless otherwise specified.

Would like to, like comparison of our financial results.

Our Q3 Revenue were approximately 4.5 billion growing 5%. In US dollars or 3% in local currency.

Revenue growth was mainly driven by continuous strong momentum in our key, Innovative products Osteo, ajobi and yetti, as well as our generic products in the US, including bio similar. This was partially offset by some softness in European generics, as well as lower proceeds from the sale of certain product, wise compared to Q3 2024.

Gaap, net income, Epps worth, 433 million and 377 cents respectively.

ethics movement during the quarter, including hedging, affect positively impact, the revenue by 106 million and operating income by 21 million compared to the third quarter of 2024

now, looking at our non-gaap performance,

Our non-gaap gross margin increased by 120 basis points year-over-year to 55.3%. This increase was slightly higher than our expectation driven mainly by strong growth in osteo leading to an ongoing positive shift in our portfolio. Mix.

Ghost margin also benefited. Although to a laser extent from a shift in an ordering patterns for generics Reid, in our us generics business leading to some volume shift from the second quarter to the third quarter as well. Farewell F6

This strong performance in a non-gaap gross margin largely carried through the non-gaap operating margin which increased by approximately 70 basis points year-over-year to 28.9%.

This was partially offset by higher planned investment in Opex and impact from foreign exchange movements.

Overall, we ended the quarter with a non-gaap earning per share of 78 cents and increase of 10 cents or 14% year-over-year.

To land Gap adjustment in the third quarter of 2025 with 478 million.

Our free cash flow in Q3 was far lower at $15 million compared to $922 million in Q3 2024. This decrease was mainly due to the timing of sales and collections, as well as higher legal settlement payments, which we have planned for this year and is reflected in our full-year free cash flow guidance.

Moving to slide 31.

We're making a significant progress in our Terra transformation programs through a well-defined and targeted efforts to deliver sustainable margin improvements without compromising, our ability to innovate and invest in our long-term growth.

This programs are expected to deliver approximately 700 million of net savings between 2025 and 2027 with roughly 2/3 of these savings. To be realized between 2025 and 2026.

We are well on track to achieve approximately 70 million of initial Savings in 2025, with the half of it already, achieved by end of Q3 demonstrating, solid, momentum and execution.

It's important to remember that the transformation we are. Driving is not just about reducing the spend. It's part of the journey to transform and modernize Teva into an Innovative bio for a company and prioritizing resources towards areas that drive growth and innovation.

This transformation efforts, along with the ongoing portfolio shift towards high growth and high margin Innovative products. Provide a clear and credible tax to achieving our 30% operating margin targets by 2027. Even as we continue to invest in the business.

in relation to these programs, we have recorded approximately 190 million year to date in restructuring costs, and expected, and overall cash outflow of 70 to 100 million in 2025, our guidance for 2025 already Incorporated the impact of both expected savings and this cash outflow

Now, moving to the next slide for an update regarding our strategic intent, and the progress, and the process to the best topping.

As we have consistently and transparently share with you all, we had been in exclusive discussions with the selected buyer for the sale of tapi. At this time, we have decided not to move forward with those discussions, as we were unable to reach an agreement aligned with ever long-term priorities and interests of our shareholders.

While this process did not result in a sale with this initial buyer.

For a potential buyers.

We continue to view tappy as a valuable asset but it's non strategic to our people to growth priorities. We are now initiating A Renewed sale process to explore alternative options and maximize potential value creation.

We will provide further updates pending a transaction or other determination.

Moving on to our 2025 non-gaap Outlook in slide 33.

Our performance here today. Reflects consistent execution at our pivot to growth priorities with a solid Revenue, growth margin expansion, and a cash flow generation, despite the tough power, your comparables in our generic business.

Based on our year-to-date results. And with a 2 months, left in the year, we are tightening our 2025 Outlook range for Revenue operating profit, adjusted DBA and DPS.

Starting with Revenue.

Consistent with the direction we shared last quarter. We are tightening the full year. Guidance range to be between 16.8 and 17 billion.

Our Innovative portfolio continues to perform very well.

Specifically your stereo driven by strong demand and our commercial execution.

With a strong year-to-date performance. We are increasing our full year outlook for Stow by 50 to 100 million. To a new range of 2 billion. 50 to 2,150 reflecting a full year growth of 21 to 27% year-over-year.

As we discussed last quarter, we expect our Global generic revenue for the full year to be flat in local currency.

Compared to 2024, this is mainly due to the tough year comparison.

Deals in the timing of certain launches, as well as softness in certain markets.

Moving to the other elements of our financial Outlook.

With a strong year-to-date performance. We now, expected our Nan, gaap gross margin to be at the higher end of our guidance range of 53 to 54%. This implies a slightly lower margin in Q4 compared to Q3 mainly due to a generic Revenue seasonality as the majority of our volume, allocation was sold, by the end of Q3.

We're also increasing the lower end of our non-gaap Outlook range for adjusted ibida, offering income and EPS consistent with our year-to-date results and expected ongoing strength in our Innovation Pro portfolio, along with a savings from our transformation programs.

While we continue to await clarity around potential U.S. tariffs on pharmaceuticals, including the outcome of the ongoing Section 232 investigation, we are encouraged by the statements so far from the administration regarding possible generic exemptions. Our 2025 guidance continues to already reflect confirmatory measures that are in place.

We continue to expect our operating expenses to be between 27% and 28% of revenue. Our free cash flow guidance range remains the same, between $1.6 billion and $1.9 billion.

I would like to reiterate that our full year. Guidance does not include the development Milestone related, the phase 3 initiation of Dua and hon. Indications that said to assist you with your modeling. We want to highlight that the expected contribution from this development. Milestones is dependent on the timing of each of these 2 studies.

Based on the current timelines. We expect to earn 1 development milestone in Q4 2025 with a reminder expected in q1 2026,

For Q4 2025, we expect the First Development milestone to contribute $250 million to revenue and approximately $200 million to EBITDA and free cash flow, net of certain transaction-related costs.

This first development, Milestone is expected to contribute approximately 40 cents, 14 cents to the eps.

Now, turning to the next slide.

On Capital, allocation.

Our Capital allocation approach remained disciplined and focused on supporting our pivot to grow strategy and threatening our balance sheet. As I mentioned in the beginning, we are consistently reducing our debt, while investing in our go-to Market capabilities, and Innovation with the ongoing improvement, in our free cash flow. We are on track to reach our net debt to a target of 2 times by 2027. And then to sustain around that level thereafter,

Graduating.

Our discipline execution, also positioned us well, softly evaluate additional ways of returning Capital to our shareholders.

Finally, before I conclude my review of our third quarter performance, I would like to reaffirm our 2027 Financial targets

The outcome of the IRA negotiation for Stow further emphasizes our conviction and provides additional clarity to deliver on these midterm goals.

With that, I will now hand it back to Richard for his closing remarks.

Thank you Ellie. Uh, before I conclude let me remind you of some of the growth drivers.

That we have here at Seva.

As we expect our innovative pipeline portfolio to continue to drive growth beyond 2027, you can see that we have a significant amount of opportunity to do this, currently anchored in the STO, for which we've reiterated our target of reaching more than $2.5 billion in 2027 and greater than $3 billion in peak sales, based on the conclusion of our IRA negotiations with CMS.

Along with the Innovative products, you you study at Jovi, we will continue to drive our product mix and profitability.

But also to build an axe remarks. We're preparing for the exciting Innovative product, launches in the next few years, which had set a foundation for growth in years to come.

If you move on to my final slide,

just some final thoughts in. Q3 in 25, we continue to deliver on our pivot to growth strategy with the 11th consecutive quarter of growth growing our Innovative franchise at 33%.

We have a clear path towards our 30%, operating margin and our other 2027 targets.

we advancing our Innovative Pipeline with near-term and long-term catalysts and ever transformation is, well on track to deliver the 700 million in savings, we committed to

And with that, I would like to open the floor for the Q&A. Thank you.

Thank you, Richard Alex. If you could oh sorry, Alex. If you could, please go ahead with the question queue. And we asked if you could limit yourself to 1, question and 1, brief follow-up. And of course, if there's additional time, we're happy to let you back in the queue for more questions.

Go ahead, Alex. Thanks.

Thank you as a reminder. If you'd like to ask a question that's star, followed by 1 on your telephone keypad.

Our first question for today comes from Dennis thing of Jeffrey's your line is now open. Please go ahead.

Hi, good morning, thanks for taking our questions. Um, maybe 1 on a sto and Ira. Uh, thanks for coming with glad to see that you're reiterating. The long-term osito guidance.

I'm curious what additional colors can give in terms of your own. Internal expectations going into the negotiations and how the negotiated price relates to the current Medicare. Net price. Thank

Hi, Dennis, thanks for the question. Um well

As as I mentioned on the call, how it met met with our expectations. It was in line with what we had forecast, when we set the uh, forecast back in May 2020, 23, so we had anticipated. Um,

That we would be in the list and we would be negotiating with CMS. And so because of that, that's why we remain very confident about hitting our 2.5 billion dollar Revenue.

With regard to the latter part of your question about. I think it was net price. Uh, we're not going to comment on that obviously, for competitive reasons. Um, but I'll just reiterate the fact that we believe it's a, that we have the ability to hit our 2.5 billion in Revenue 1 because it is in, in line with what we forecasted. But I would also like to remind everybody that title of disk is a remains, a highly underdiagnosed and undertreated condition, 85% of patients, who suffer from this condition are not on therapy. And so, we see a great opportunity to help them.

Those patients and continue to keep growing a set out in 26 and Beyond hence reiterating, the 3 billion greater than 3 billion pixels for a sto.

And so I think those are the things I'd keep in mind. As you think about the future for asteto?

Thank you.

Thanks, Dennis. Thank you.

Our next question comes from David amsalem of Piper Sandler.

Your line is now open. Please go ahead.

The pricing structure of aeto XR and if that's having ramifications, in terms of access to us that oxr that's number 1. And then secondly how is that going to inform how you're thinking about commercial Contracting, um, for 26? Um and the extent to which uh you might make more concessions on price just to get into a better access position. These would be your competitor. Thank you.

Thanks, David. Thanks for the question. Um, I I'm not going to talk about um, what the competitors are saying. Um, I'll focus on what we do here at Teva, and just to highlight, you know, instead of those growth is much more about treating this underserved Market. As I've said in the past and our ability as a team to constantly execute. And I remind everybody when we started this journey back in 2023, Peak sales of aesthetic, were forecast to be 1.4 billion. And as you see, we're going to, uh, Exceed 2 billion this year, and that's down to what we've done, uh, as a company. And the capability we have built. But when it goes to talking about the milligrams per dose, we've been very clear about the benefits of patients, taking a stereo XR and how how that helps them with compliance and adherence. And this is very much like in line with also what was put in our phase 3 trial uh to allow fishes efficient to have the flexibility to get to the patients on the optimal dose.

So what we're seeing is a just a natural progression, uh, from moving from B to a sto XR and the Physicians having that flexibility to get patients on the right dose.

The final part of your question. I think was about at about access and I think I highlighted in my presentation. The fact that we're always very thoughtful about how we manage access with the value and we've continued to do that with sta. We've done that very successfully, by the way, with our other brands. And you said in a JV, I think we have a really strong capability for doing that. But I'll go back to what is driving our confidence in instead of is 2 things.

The capability that we have.

Within this team, uh, within tether and the underserved Market 85% of patients, who could be on therapy are not on therapy and those are the 2 things that we focus on, but thank you for the question David.

Thank you. Our next question comes from Jason gerbi of Bank of America.

Your line is now open. Please go ahead.

Morning guys. Um uh so so my question is just on Opex in 2026 and you know, it looks like the consensus has combined R&D and sgna kind of at around 4.8 billion. So pretty much flat on a y on a year-on-year basis is that consistent with how you see the the cost and optimizations flowing, through the p&l to navigate the relevant rolloff. Um, and then my my brief follow-up.

it's just, can you comment at all if instead of XR was included or excluded in in Ira, I know that there was a litigation

Uh tied to that. And so I'm just wondering if you can offer any Clarity there. Thanks.

So, I'll hand the Opex question. So thank you. Jason for the question. I'll hand that to Ellie to answer.

Thanks, Jason for the question. So the, the way to think about the, the development of the Opex for 26, we always mentioned that, uh, from now onwards as part of the 700 million dollars and savings part of them will go into cogs and but the majority will go into the Optics and as much as we actually, um, keep growing and able to, um, Fuel and our profit, you will see us in the range between 27 to 28%, that will not change, but we will actually be able to expand our op as well, our ibida. And so the way to think about it is that around 2/3 of the 700 million dollars on savings will be able to accomplish by end of 26 already. But we will start to see also part of it, impacting our cogs, but the main element that will move with cogs will be actually in 27, but I can tell you that the most of the savings

We will be able to accomplish by end of 206 and most of them related to the Opex and therefore you should think about the 207 to 28% uh as a run rate.

Thanks. Thanks Ali. And to answer your second question, regard to a stereo xrp included in the ira negotiations. The answer is yes.

Our next question comes from Chris shot of JP Morgan. Chris, your line is now open. Please go ahead.

A little bit about your EU generic Dynamics. I know you're facing some tougher comps there this year, but I was wondering if anything's changed in those underlying markets, we should be thinking about, as we think about kind of the growth going forward and just a quick then follow up. I know, the tappy process just a little bit more color in terms of why restart the process here versus just deciding to keep the assets. It took a little bit about just kind of the the broader appetite for, for these API assets in the market right now. Thank you.

Thanks Chris. Uh, thanks for the question. So, uh, going to the EU generics business. Um,

If I can take you back to when we started talking about to have an agent business back in 23, um I can remember explain to everybody, this is a market leader of scaling Europe and so the ability to grow this uh business we should think of it growing around the 2% kagar, right? Just because of its scale and size.

Now, obviously I was proved wrong in the last 2 years as the business grew higher than that. Um, but that was down to a couple of factors 1 is we had more launches over those, uh, years, as well as we had competitors struggling to supply and because of our manufacturing capability, we could step in

And so those 2 things happen and I think what you're seeing versus this quarter versus the last year's is sort of a similar theme. What we have is more launches that we had in 2023, sorry Q3 2024. We also had some tender wins which are 2 year tender periods and we also had supply issues from competitors, uh, those were no longer, uh, the case. So that's why I think about it. And that's why I go back to think about our genetics business. So for a keigar, uh, to your keigar, because if you think about it, okay? You got these things, smooth out. And that's how we think about it. And as we've had conversations, I always remind people that we think about our generic business going forward.

in that 2% keigar period, uh, 1 because just of the scale we have now that said

1 thing, I do want to reiterate is our bio similar business. While getting Traction in the US, we will start now to launch and we have launched some products by some of us in the EU. And that will start to build momentum more so post 20727, but we have a good pipeline coming through in Europe and we know that's a mature by a similar market. And so those are the things that are going to start to maybe add to that growth in Europe uh, going forward. But I hope that answered your question with regard to the tapi. Uh, I'll give that question to to Ellie to talk about why uh why we restarted and not keep it so over to you early.

Uh, yes. Um, the question, thanks for the question. So look, we were, um, during all the process, we were very transparent. And and as we mentioned, we actually decided not to, uh, progress with uh, exclusive exclusive discussion that we had with a certain buyer. And the reason for that is that we see tapi as a strategic going forward, uh, for Teva, in terms of our ability to keep sourcing API, uh, uh, when it's actually moving as a standalone, we need to. Remember, it's not just kind of, you know, business that you have on the Shelf, a new diversity and you move forward. This is strategic for us going forward and our ability to make sure that we are providing additional value on short-term and long terms. Uh, to our, you know, future progress and growth. It's super important turn out that certain elements in terms of the discussion and didn't want according to the terms that we view how the deal should move on, and therefore, we made the decision and also, we need to remember that the market condition now changed since we,

Launched this sales process recently, geopolitical development, as I mentioned and some trade policies, highlight some, you know, continue attractiveness for tapping in terms of the landscape. So, therefore, you know, we we decided to initiate revised strategic review and, and review the sales process. And as I mentioned, we will keep all update and provide further updates pending the transaction or any other determination around this forces.

Maybe if I can add, just so Ellie's not misunderstood there. When he says it's strategic, what he means is they're one of our largest API suppliers. We need to ensure that any contract we have has the right terms, not just for the purchaser, but also for Teva going forward, both for foreign line products and our pipeline.

Thanks for the questions. Chris next question.

Thank you. Our next question comes from Ash Burma of UBS. The Line is now open. Please go ahead.

Song is this primarily like regular way underlying demand or? Is there any type of a 1 time benefit in this? Uh, normally you have like a pretty strong 4q, uh, but with this reiterated guide, it seems like it's indicating a down quarter in 4k.

Hi Ashen. Thanks for your question. So starting on the Abida, just to sort of remind you. And I think Ollie touched upon this in his remarks.

You know, the Avatar is driven by a couple of things next year and I think it's important to understand those 1 is our. And if it's a portfolio as will momentum, as I said it was up 33% in Q3, you know, and these are products were all growing, so we continue to see great growth rates in those. And by the way we've spoken about this in the past, these are very high gross margin products, so that really does help impact the evida. So that's 1. And then on the 1 of the slides, that Ali and I both showed is on the transformation of Teva and the organizational Effectiveness, you know, we're on track to do exactly what we set out to do in 25. And that means that our guide to 2/3 of the 700 million, net savings for 2026, we feel highly confident about. So if you just put those 2 things together, that really gives us confidence about our Abida. But I would probably take this opportunity to then talk about. Well we have some other things around our genetics business where now we've lost you know, rev limit. There are 3 components which help us drive uh our generic business going forward and that is our generic

RX a complex.

Customers and our OTC. As we've mentioned in the past, we have the ability to compensate for that generic revenue by the end of 2027 because we have those three different growth drivers and the scale we have in those three different businesses. So I think that answers that part of the question with regard to.

The one on a stereo, and I think you talked about the strong Q3 and how does that impact Q4? Was there anything behind that? I think there are just a couple of dynamics in that. Firstly, the fundamentals of Teva are really strong.

Uh, it's really important to understand. So, as you see with regard to our TRX, our milligrams, our growth rates, you know, I think the team has continued to excel at and execute at a high level consistently. And I think we've seen that for quarter on, quarter on quarter, Now 1 of the things I address would mention and I think I mentioned on the last call, you know, in queue Q3 2024 and Q2 2024, there was some, uh, Channel stocking with regard to a set of XR. So that created a slightly different, uh, comparison as well as we had some slight growth in that adjustments in the status, which are favorable in in, in uh, Q3 of this year.

But if you take those out it doesn't really change the directory much of a sto. Um, and so I'd always think about looking at a set of over a yearly period, uh, a multiple quarter period, because I think we've been consistent in hitting our numbers and hitting our targets and we're very accurate about that. So that's the way I think about it. So I don't anticipate anything of any significant quarter 4. You know, the 1 thing that we always

Managed as well as we can. But it's not completely down to us, is the channel and we've been very disciplined at making sure that channel has the right stock. But obviously that's something which we don't have complete control over, but we've shown good discipline there. So, I hope that answers your questions that and and thanks for the questions.

Thank you. Our next question comes from Les suski of trust security.

Your line is now open. Please go ahead.

Great, thank you for taking my questions. Um, so we saw the FDA proposed new guidance around bio similar to reduce comparative. I bet to see study and and, you know, potentially speed up the approval process. So 3 questions on this for you. Um, 1, uh, how will this updated guidance impact your long term by a similar strategy and then 2 and the opposing side, do you see a scenario of additional competition where we'll ultimately see bio, similar price erosion curves, for example, traditional generics. Um and then third, what further Investments do you think are needed to give you a more Competitive Edge? And I guess ultimately, you you see a scenario where the US reaches a point where the bla process and the

Uh, patient access becomes just as favorable versus the EU. Thank you.

1 of the largest portfolios of biosimilars going forward. And we're going to do that through Partnerships. We're going to do that through Partnerships because it allowed us to have the largest portfolio because it allowed an efficient allocation of capital.

We also believe at the time that there was going to be uncertainty around what the future regulation was going to be. And so we didn't want to be um, initiating and allocating Capital to things. That may long no longer be needed. An example is starting phase 3 is which and they're they're no longer needed going forward. So I think we sort of thought about where the puck was going. We made a strategy to where the puck was going and I'm pleased to say I think we've been proven right on that. But ultimately our strategy is about having a large portfolio. As I've just highlighted, we have 10 in the market, we have 6, we're going to launch by 27, and then we're going to have more going forward.

With regard to price erosion.

I think a good analogy is to look at Europe and Europe is a very mature, uh, by a similar market and 1. I know particularly well, and what you see, there is good penetration

You see there is some price erosion but it hits a steady state uh you know at a certain time which allows a high level of profitability still within this category.

But I'd also highlight that market because you did talk a bit about whether the US will replicate it is you also see an expansion of these molecules and these biologics used in patient population because they are less expensive. They use earlier in the treatment of these diseases. So you get an increase in volume, and obviously, upset, some of the decrease in price.

So those are just some of the Dynamics and I do believe the US will catch up to that. Um, but when you have a broad portfolio and we're launching more in Europe, you know, we're not necessarily beholden to exactly when that happens because of the scale and the size, but maybe, Eric you could give a bit more detail on your views on this. Yeah, I can just give a few uh, points to support what you just said. You know, we work closely with FCA and have frequent Communications with with regards to, you know, pretty large biosimilars portfolio. We really anticipated. The fact that they were going to be removing Pace 3 from the NEC requirement for most programs and and agree with the this decision. You know, the technical assessment really is been proven to be the most important thing when it comes to biosimilars something we do very well and you know this is going to decrease the cost of, you know, production of and and approval of biosimilars. It fits perfectly and facilitates, the pivot to growth strategy that we put together in in the past. And you know really this supports a lot of the good decisions we've made over the years about how we will do bio.

Tomorrows at Teva. So it was a welcome decision. It was something we were looking forward to and really fits perfectly into the plan. Thanks Jack. And maybe 1 thing. I would just like to add on. I forgot is obviously you're removing the phase 3. Uh need reduces costs significantly but I would also like to highlight the costs for developing our biosimilar are still high uh, a lot higher than any other generic, any other complex, you know. So I just think that the capital allocation doesn't disappear and the cost of it doesn't disappear. So, hence the number of people

Coming into the market will I still think be restricted based on that and the ultimate is not just, can you develop it and manufacture? Do you have an efficient go to market capability? And I think what we're starting to show in the US and we'll show in Europe? Is we do have that and that that front end is very important when maintaining a growth and a profitability in your bio portfolio.

So, thanks for the question alert.

Thank you. Our next question comes from Umar rafat of evercore isi. Your line is now open, please.

Morning guys, thanks for taking my question. Um you said CMS agreements in line with your modeling expectations? Um is it reasonable to assume that's about 50% or so in the ballpark. Um and then secondly to get to your 2027 2.5 billion in sales, are you assuming volume games because of this Ira cut versus in grezza to get to that number um or not and then finally um obviously olan's being I feel like it's taking a bit longer than we all anticipated. But at this point, is there any possibility that you could get a commissioner voucher uh, to accelerate that? Or should we not be thinking about that? Thank you very much.

I am at, thanks for your questions. Um, so with regard to CMS. It was in line with our expectations that we set out in 2023. Uh, you threw out a number there, which I'm not going to comment on, because I think that was maybe trying to

Tease me out to give you a number and I'm not going to do that. I just say it's in line and that's why we remain. Very confident about our 2.5 billion in 27, and I remind people greater than 3 billion Peak sales. Uh, you did try to touch a bit about, do we see volume gains within this? Um,

Say that we can understand a bit more in January as the first wave of drugs that were negotiated in CMS started to come through and play out and we'll see what other dynamics that happened there. And and we'll use that to adjust our modeling as we go forward. And I and I hope, you know you as others will agree. We're very thoughtful about how we model and how we forecast. And and at least over the last few years I think we've been pretty accurate in what has been quite a dynamic environment. Um, now with regard to Alan spin, I I'll hand that 1 to uh, Eric to comment on whether we could get Commissioners voucher. Yeah. Thank you for the question Omar. And to start off with, you know, we're right on track with what we plan for the submission of the ones being Lai, uh, in this quarter, you know, with regard to your question on the commissioner about your, you know, that's 1 of the things we've been reviewing, uh, within the te 1 of the great things about Teva is we have bio similars, a whole portfolio of generics and Innovative medicines. So the potential for where we could see a commissioner voucher is Broad. So, we're reviewing that

Now, and looking to see what the most optimal optimally timed. And valuable program is that we we seek 1 of those out for, but more to come on that in the future. Thanks. Eric, and thanks for your question. Numa.

Thank you. Our next question comes from, Matt delatore of Goldman Sachs, your line is now open. Please go ahead.

Hey, good morning, and congrats on the quarter and the Osteo agreement. Maybe first on Dubai to now that the phase 3 IBD studies are are up and running. How are you thinking about enrollment timelines and potential data readouts there? And then could you comment on any progress on the indication expansion strategy Beyond IBD? You know, for instance could we see proof of concept studies announced over the near term and then maybe just like my follow up on on Capital. Allocation could you talk about the key priorities in 2026? Um, and as we think about the free cash flow and flexion, what are the key points of focus to achieve that that full year, 27 guy, thank you.

Hi Matt, thanks for the questions. I'll hand the the first, 1 straight over to Eric on the face 3 and the potential phase 2's. Yeah, so uh thank you for the question. Uh, is this 1 of the things? I'm most excited about the design that we've uh, put together with Santa Fe. It's all about execution. Now, as I said it earlier in my comments, this has been the fastest transition from Phase 2 to phase 3 with regards to this MOA of all the programs out there, which were very proud of so it speaks to our executional abilities in this partnership. Um, the design itself is really designed to make sure that we maximize the enrollment with the, you know, the feeder, uh, arm that we'll get to our maintenance and increase, our safety numbers in the program.

It's a very convenient and patient Centric design with regards to subcutaneous treatment and the rerandomization. These are all things that will make it um, ideally suited for patients. And we're also putting a lot of effort in on, you know, how we execute the program with regards to the logistics and our vendors that we use. So it's been a really great collaboration with Santa Fe. I think we're building upon a lot of momentum and success that we have, you know, going into a phase 3 Program. You know with a phase 2 program that was probably had the highest numbers with regards to this epoche and it's the data set that we produced. These are all good signals of starting a phase 3 program. So when it comes to execution, that's what we're going to focus on right now, and I think that we're set up very well to, you know, be in the horse race, if not in the middle of it, but hopefully coming up very close to the beginning of it. So, uh, that's very well suited. Now, with regards to your question about other indications, it's in, it's great to see the excitement around this MLA. I mean 1 of the things about it.

Is the fact that it could touch so many different Pathways Saito, signaling Pathways and multiple indications. Um, you can see many different, uh, different Phase 2, Programs, initiating. Now, uh, we have a plan with Santa Fe and we'll let you know when those studies start. Um, for now we're going to keep it close to the chest, but that in addition to the excitement around different combinations in the future is also something we've been thinking about heavily, but right now to begin this discussion is all about the execution and of the study enrolling, the study

And making sure that we show the value and also the class and current disease. Now,

Thank you, Eric. And now on the, the next 2 questions, uh, Capital allocation

And vcash flow inflection. I'm going to hand those to Al before. I do, I do like the fact that you've highlighted our free cash flow inflection because that is something which we are. We are starting to, um, communicate and people are starting to see with the growth of the company. The growth of innovative, the decrease of the debt, the growth of the AA that this ultimately changes, our free cash flow position. So, so thanks for highlighting the m and seeing that. But I'll hand on to the hand, over to Ellie to talk about our Capital allocation, um, going forward.

First of all, I'll start with the free cash flow. Uh, you mentioned about you know, how we should think about that Trend that we mentioned Beyond 27, there are 3 main Dynamics there. First of all, it's the mix, right? If you look on the the top line and how we're progressing with the top line and how it's going to flow through and convert both for profit and to free cash flow with the Innovative. Um, I would say, uh, uh, portfolio that we have and we are keeping our investing in our growth driver.

And the fact that the 700 million dollars of savings is going to actually enable us to uh drive more efficient cogs with High ghost margin as well. And I would say to optimize our Opex, those 2 elements are already in progress. They're in another 2 that we need to remember 1.

Uh, we paid, um, we paid uh, for our that this quarter. Uh, from now until October 26th, like 13 months, we don't have any maturity. There is a 1.8 in October and there is a 2.8. Uh, in March May in 27 early 27, you think about 4.5 billion 4.6 billion with our current, uh, weighted cost of capital of our outstanding debt of 4.8%? You get 200 to 250 million dollars that we're going to take out from a run rate, both from Financial expenses going forward and uh pure free cash flow impact. And then on top of it, our progress on our working capital. You can actually see ourselves running V.

Low 4% going from 27 onwards on our Revenue. All these actually enable us to convert High free cash flow as far as related to next year Capital allocation. Um, we actually looking on uh, more. I would say, um, ability to uh, be able to compete on a certain opportunities related to business development that aligned strategically, uh, to our portfolio and to make sure that we're able to provide a value to our shareholders. And as we move forward to make synergetic activities around that piece, we'll keep looking on, of course, to reducing our debt. And and as we move forward, we might also look on some certain other elements related to Capital and shareholder returns and we will for sure and during a 26 and we hope also in our next, uh, earning calls and provide some more colors around that kind of a capital.

Return to shareholders.

Thanks Sally. Uh, thanks Matt. Thanks for your question.

Thank you at this time. We currently have no further questions. So I'll hand it back to Richard, Francis for any further remarks.

So um, thank you everybody for participating. In the call, we do appreciate your interest in tether and we look forward to giving you update of our full year results. Uh, early next year, thank you.

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