Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q1 2024 Earnings Call Transcript

Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q1 2024 Earnings Call Transcript May 8, 2024

Teva Pharmaceutical Industries Limited misses on earnings expectations. Reported EPS is $-0.12161 EPS, expectations were $0.51. Teva Pharmaceutical Industries Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the First Quarter 2024 Teva Pharmaceuticals Industries Limited Earnings Conference Call. My name is Alex. I’ll be coordinating the call today. [Operator Instructions] I’ll now hand it over to your host, Ran Meir, Head of Investor Relations. Please go ahead.

Ran Meir: Thank you Alex, and thank you everyone for joining us today. We hope you have had a chance to review our Q1 results press release along with the press release announcing positive Phase 3 results from olanzapine LAI trial, both issued earlier this morning. Copies of these press releases, along with the slides presented during this call, are available on our website at ir.tevapharm.com. Please review our forward-looking statements on Slide #2. Additional information on these statements and our non-GAAP financial measures can be found on our earnings release and in our SEC forms 10-K and 10-Q. To begin today’s call, Richard Francis, Teva’s CEO, will provide an overview of Teva’s first quarter results and business performance, recent events, and our focus and priorities going forward; then, Dr. Eric Hughes, our Head of R&D and Chief Medical Officer, will discuss progress on our innovative pipeline; our CFO, Eli Kalif, will follow up by reviewing the first quarter financial results in more detail.

Please note that today’s call will run approximately one hour. And with that, I will turn the call over to Richard. Richard, if you would, please.

Richard Francis: Thank you, Ran, and good morning, everybody. I’m glad you could join us this morning. I’m excited to talk to you about our results for Q1 2024. Just to remind you it’s a year today almost since we launched the Pivot to Growth strategy, a strategy designed to get Teva back to growth and I’m pleased to say that this is our fourth quarter in a row of continuous growth. So, the strategy is clearly having some effect and I’ll go into a bit of detail as to why that is and what’s driving it. But just to remind you a bit about the strategy. It’s based on four pillars: step up innovation — sorry, deliver on our growth engine, step up innovation, create a sustainable generics powerhouse and focus our business. I’ll walk you through what we’ve achieved on each of these areas.

But obviously, we are starting to show that we can really commercialize innovative products. We are starting to show that we can take products through the clinic. And I think we’ll talk a bit about olanzapine and the fact that we brought that to the clinic — through the clinic nine months ahead of schedule. And we’re showing good growth in our generics business. And then, I’ll finalize with a talk about TAPI and how we’ve got that back to growth. But before I do that, I wanted to start with some exciting news on olanzapine, our long-acting treatment for schizophrenia which is in the clinic. We had the data readout on the efficacy of this study and it met its primary and secondary endpoints on all dose groups versus placebo. So, we’re very excited about this.

And all doses were generally well tolerated, safe and there were no cases of PDSS. Obviously, the full submission of the safety data base will be available in the second half of this year. But this is a really important milestone for ourselves as well as the patients who suffer from this terrible condition. Now, just to reiterate why we are excited about it. If I move on to the next slide and just to sort of coordinate you, on the left hand side of this slide you’ll see all molecules that are used to treat schizophrenia. And as you can see the largest of these is olanzapine, which treats moderate to severe. But also you can see on the right-hand side of this slide, there is no effective long-acting treatment of olanzapine. So, there’s a significant unmet medical need.

And that’s why we’re so excited about this product and bringing this to the patients who clearly will benefit from it. So, more news on that from Eric later in the presentation. But now to dive into the results. So, the results, in constant currency, we are up 5% in revenue, up 12% in adjusted EBITDA, 18% in non-GAAP EPS, and our net debt now stands at 3.38. So good start to the year. Because of that, we are reconfirming our 2024 financial outlook. So, let’s go into a bit more detail on all of these numbers. So, when it comes to driving this revenue what I’m pleased to say is the fact that we’re hitting it in all our business sectors. So, whether it’s innovative medicines, whether it’s generics or whether it’s TAPI API, we’re seeing good growth.

And as you can see, AUSTEDO with 67% growth is a really good start to the year, 18% on AJOVY, and our global generics business is growing at a really healthy 9%, and TAPI API is back to growth at 2%. So, let me go into a bit more detail on all of these. So, starting with AUSTEDO. AUSTEDO continues to perform really well. $282 million for quarter one, up 67% versus quarter one 2023, and a good strong TRx growth of 28%. And because of this momentum, we are confirming our guidance of $1.5 billion for 2024. But this momentum gives me more confidence and more excitement around our long-term goal, which is to get to $2.5 billion of revenue by 2027. And I just wanted to use this slide to remind you everybody of the potential we have around this product unfortunately because so many patients are yet to get on treatment.

And that is why we started our direct-to-consumer campaign the start of this year to make those people aware that there is an opportunity to help address this difficult condition and they just need to seek help with their physician. So, very encouraging start to the year with AUSTEDO, and we look forward to that momentum continuing. Now, moving on to the second part of our innovative portfolio, which is AJOVY. Once again, good continued growth of 18%, and we’re growing particularly strongly in Europe and International Markets. But what pleases me about this product is we continue to show market share gains both in the U.S., Europe and in International Markets, showing the competitiveness of Teva sales and marketing when we have a product like this.

So, very pleased that. And once again, I’m reconfirming the guidance of $0.5 billion for 2024. Now, moving on to UZEDY, the newest member of our innovative family. So, we launched this product last year and the momentum continues to build. We continue to see good access when it comes to fee for service in Medicaid. We’re working with Medicare. The hospitals continue to expand their coverage and we’re seeing good order — reordering from our hospitals. And this is driven by, once again, this very favorable product profile. We recently had the Association of Psychiatrists meeting in the U.S. last week I believe it was, and the feedback continues to be really strong, particularly about this ability to therapeutic doses within 24 hours without any oral supplements.

So, good momentum. And once again, I can confirm that the guidance of $80 million we will be confident to achieving. Now, moving on to a slide which gives me a lot of pleasure to talk about, which is our generics business. Just to sort of orientate you, remember 65% of our business is outside the U.S., and we should continue to see continued good growth in Europe of 5% and International Market of 16%. But I am, I have to say, particularly pleased about the U.S. and the growth of 8% there. Now, I think this highlights, once again, the Pivot to Growth strategy and the focus we’ve placed on generics business to make sure we can bring products to the market more regularly on time and we have a good supply chain that has good cost of goods. I think this is the start.

We’ve got work to do, but this is very encouraging and I’m very pleased, and I want to congratulate the team on this. Now, moving on to another part of our business which we’re excited about and that’s our biosimilar business. We’re excited to be in a position in quarter two to be launching our biosimilar Humira and SIMLANDI, and we’re getting good interest from the payers, the PBMs and the channel with regard to this. Also pleased with the fact that our biosimilars Stelara is also approved and we’ll be launching that in February of 2025. But it is worth pointing out that we have a portfolio of biosimilars and we’ll be launching six by 2027. So, this is really an opportunity to support the Pivot to Growth strategy from a biosimilars perspective.

Now, moving on to step up innovation. I won’t go into this in great detail because Eric will, but on olanzapine, I’ve already touched upon. But the one thing I would like to highlight on this slide is the capability build and the execution ability that we have at Teva. Olanzapine was recruited nine months ahead of schedule. TL1A is recruiting incredibly well in UC and CD. And we’ve got ICS/SABA off to a good start, and that is now supported by the partnership we have with Launch Therapeutics and Abingworth. So, we understand these assets are important to the patients who need them and we’re focusing on them and then we’re showing that focus can deliver performance. But I want to take it a little minute now to talk to you a bit about our capabilities in CNS.

Because obviously, I do talk a lot about AUSTEDO, UZEDY and AJOVY, and rightly so. And olanzapine will get a lot of attention today, but we are building out a very good pipeline when it comes to CNS. And we’ll be giving you more and more information on this as we move forward. But once again, building a real foundation for Teva in CNS. Now, moving on to our final pillar, which is, focus the business around TAPI. Now, we obviously announced at the start of this year that we will be divesting TAPI, our API business. And I’m really pleased to see that the team with this freedom to operate outside of Teva and in the global $85 billion API market, they’ve really started to deliver, and got off to a good start with a 2% growth. I see this momentum growing and this performance increasing because of the interest we’ve got from CDMOs. And the interest is based on the fact that we have a broad technology base.

And our credibility of quality and supply reliability is clearly something that they are interested in. So, good news and more to come, I think, on TAPI throughout the year. To close on something that is important to us, which is about how we operate as a company and how we contribute to society. We launched our sustainability goals in 2023. And I just wanted to give you an update of how we progress. So, with regards to healthy people, we launched seven programs to increase access to medicine across the globe. Healthy planet, we have reduced our carbon emissions by 27% versus 2019. And when it comes to how we conduct ourselves in our business being ethical and in compliance, 100% of people have completed their training and that was achieved in 2023.

Now, with that, I’ll conclude my section, and I’d like to hand over to Eric Hughes, Head of R&D. Over to you, Eric.

Eric Hughes: Thank you, Richard. As Richard mentioned, we’re very excited that today we announced the positive primary endpoint readout of our olanzapine LAI program. It also met its secondary endpoints — key secondary endpoints. And I thought I’d start off today by describing and reminding you of the study design and where we are in executing the study today. Remember, the study has an eight-week period. It’s a randomized placebo-controlled study with three dose arms. And today we are talking about the primary readout at the end of that eight weeks. The study also includes a 48-week follow-up for safety that is now being executed with our full randomized patient size of about 675 subjects, slightly over-enrolled. So, it’s important to note that second half of the study will be read out for — in the second half of this year.

So, when it comes to the primary efficacy endpoints, we are very excited to see that we met clinical significance and statistical significance on our primary endpoint using the PANSS score. You can see that the score was between 9.7 points and 11.3 points in change from the baseline score. That’s the change from baseline to week eight. So, right where we expected the efficacy to be and clearly efficacious on all three dose groups. Importantly, we are also up to about 80% of our total target injections at this point and we see no PDSS. So, the injections were well-tolerated throughout the study. I should mention that the key secondary endpoints include the clinical global impressions for schizophrenia scale and the personal and social performance scale, which both, for all doses, achieved clinical significance.

I would like to also say that this study illustrates our ability to execute and accelerate our programs in the innovative space. We brought this study out, up by nine months. So, a real good job by the clinical team. Moving on to AUSTEDO. We continue to do great work, informing our patients and our investigators about TD. We are running a study, a real-world observational study called IMPACT-TD. And this is something that we’re very proud of, where it’s looking at both the patient voice and the caregiver perspective on what the impact of tardive dyskinesia is. This study is the largest study for tardive dyskinesia ever, and it includes a wide range of ages, race and ethnicity, severities and their baseline movements, and their treatment experience.

And it’s being run in 23 states in the United States. As I mentioned, we’re developing a scale that really is measuring both what the patients’ thoughts and what the caregivers see when it comes to tardive dyskinesia. So, understanding tardive dyskinesia is our goal and educating our patients and caregivers is our mission. The first set of data will be announced or presented at the Psych Elevate meeting later this month. Now, moving on to asthma. Asthma is a significant patient population. It’s a very important chronic illness in the U.S. and around the world. And the majority of these patients use rescue inhalers. There still is over 10 million asthma exacerbations every year. And we’ve learned now that combination rescue inhalers are what’s needed.

And in fact, the guidelines in providing — the GINA guidelines have changed to the point where that’s the recommendation for asthma exacerbation. That’s the combination of both a beta agonist and a steroid. And that’s why we’re excited about our program, TEV-‘248. This is a combination rescue inhaler using Albuterol and Fluticasone, two well-known medications by our treating physicians. And the important thing is that this is a differentiated device. It’s a dry powder inhaler. And that’s important for when it comes to taking care of pediatric patients and that’s what we’re targeting in this study. We’re excited that we started our Phase 3 study at this point. Enrollment is going well. But it’s great to have collaborated with Launch Therapeutics.

It will help to accelerate the program even further and importantly get those patients in the pediatric population going in the study. So, very exciting to be delivering in the future a new treatment for asthmatic exacerbations in accordance with the GINA guidelines. Moving on to my last topic, the anti-IL15 program. This is a very important program, because our first indication we’ll be taking this compound into is celiac disease. Now, IL15 is a key cytokine in the pathology of celiac disease. When these patients eat gluten, it causes inflammatory reaction that releases IL15 and activates intraepithelial lymphocytes. It’s a large patient burden in the U.S., about 2 million patients. Only about half of those patients are diagnosed. But the important thing to remember is that 50% of these patients still have symptoms even while taking a gluten-free diet, 20% of these patients never even respond to a gluten-free diet, and 50% of these patients still want treatment beyond a gluten-free diet.

So, that’s why I’m excited about our anti-IL15 program. I’ve shown you before that we have a very potent antibody that rapidly reduces free IL15 levels and keeps those levels suppressed up to almost 80 days. We’re exploring the compound in celiac patients right now. We’re enrolling a patient by the end of — study by the end of this year. Looking at a celiac challenge study, where we give a single dose of TEV-‘408, and then two weeks later, start a gluten-free diet for 14 weeks. So, we’re very encouraged to see the results of this study hopefully soon. And the important part about the study is really focused on the symptoms of the patients, really, are we impacting what they feel when they eat gluten-containing food? So, we think we have a potentially differentiated product.

It’s a high affinity anti IL15, it suppresses free IL15 rapidly, and it has low immunogenicity to-date. So, on my final slide, I just want to talk about, we’re achieving our milestones and accelerating them where we can. We’ve shown that our olanzapine LAI today has achieved its primary endpoint. We’ll be curious or hopeful to see the final set of the safety data on our injections the second half of this year. Our anti-TL1A program is right on target. The enrollment is going very well for both ulcerative colitis and Crohn’s disease, and we’ll be looking for that interim analysis in the second half of this year. I just mentioned our anti-IL15 program enrolling our celiac patients this year in our proof of concept study. I’m very excited for the end of this month or the next month where we see the first patient in our anti-PD1-IL2 program in oncology.

And finally, we’re enrolling our Phase 3 study now and working to accelerate our program for our dual action rescue inhaler for asthma. So, a lot coming and we’re looking forward to keeping you updated. So, with that, I’m going to pass it off to Eli, and take it away.

Eli Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I’ll begin my review of our Q1 2024 financial results with Slide 29 starting with our GAAP performance. Revenue for first quarter of 2024 were $3.8 billion, an increase of 4% in U.S. dollars and 5% in local currency terms compared to the first quarter of 2023. The increase was mainly driven by broad-based growth from generics products across all our segments globally, including strong contribution from generics revenue made in the U.S., continued strong growth in AUSTEDO as well as AJOVY in our Europe and International Market segments. This was partially offset by lower revenue from COPAXONE as well as from Anda, our distribution business in the U.S. In Q1 2024, we recorded a GAAP operating loss of $218 million compared to an operating loss of $13 million in the same quarter last year.

The increase in operating loss was mainly due to higher impairment of tangible assets and other items, as well as higher sales and marketing expenses in the first quarter of 2024, partially offset by higher gross profit, lower legal settlement and loss contingencies and lower intangible asset impairment in the first quarter of 2024. As part of Teva’s Pivot to Growth strategy, we have decided to divest our generics business in Japan, which is part of Teva’s International Market segment. The assets and liabilities in relation to this business were classified as held for sale in the first quarter of 2024 and resulted in an impairment charge of approximately $600 million this quarter. We currently expect the business to be sold within the next year.

Moving to GAAP net loss, which was $139 million and GAAP loss per share that was $0.12 this quarter compared to a loss per share of $0.20 in Q1 last year. The lower GAAP net loss was mainly due to higher net loss related to a non-controlling interest which resulted from higher tangible assets impairment related to the business that was classified as held for sale. Turning to Slide 30, you can see that total non-GAAP adjustments in the first quarter of 2024 were $688 million compared to $661 million in Q1 2023. A notable non-GAAP adjustment include legal expenses of $106 million mainly related to estimated provisions recorded in connection with the certain litigation cases in the U.S. Other notable adjustments include amortization, purchase intangible assets of $152 million, the majority of which is included in cost of sales, and as I just mentioned, the impairment of tangible assets of approximately $600 million related to the business held for sale.

Now moving to Slide 31 for a review of our non-GAAP performance. As I mentioned earlier, our first quarter revenues were approximately $3.8 billion, an increase of 4% in U.S. dollars or 5% in local currency terms compared to Q1 of last year. Our non-GAAP gross profit margin was 51.4% compared to 49.1% in Q1 2023. This increase in our gross margin was mainly driven by improvement in our portfolio mix, including strong continued growth in AUSTEDO as well as decrease in our operational costs. As expected and in line with the normal seasonality and revenue progression between the quarters, we started the year with a lower non-GAAP gross profit margin. For the full year of 2024, we continue to expect our non-GAAP gross margin to be between 53% to 54%.

Our gross margins will gradually improve as we progress throughout the year driven by continuous improvement in our portfolio mix with a strong growth in our innovative portfolio and continuation of the ongoing cost optimization program. Moving to non-GAAP operating margin in Q1 2024, which was 23.4% compared to 21.4% in Q1 2023. This increase was mainly driven by higher non-GAAP gross margin, as I just explained. This was partially offset by higher sales and marketing expenses as a percentage of revenue, reflecting our increased investments to support our key growth engines, including promotional activities related to AUSTEDO, in line with our Pivot to Growth strategy. We ended the quarter with a non-GAAP earnings per share of $0.48 compared to $0.40 in Q1 2023, mainly driven by higher operating income.

The next slide shows our continuing effort to transform and optimize our global manufacturing and operating footprint to drive efficiencies. During 2023, we closed three sites to bring our total footprint down to 49, and we have plans to continue this progress. By the end of 2025, we expect to close or divest four additional sites with a goal to bring down the total number of sites to between 40 to 42 sites by 2027. So, we are really focused on continuing to optimize our operations to drive efficiencies and improve margins. Turning to free cash flow on Slide 33. Our free cash flow in the first quarter of 2024 was $32 million. As a reminder, Teva’s free cash flow tends to face headwinds at the start of the year due to the timing of annual bonus payments paid out in the first quarter of every year.

In addition, our free cash flow for Q1 was also impacted by changes in certain working capital items. Today, we are reaffirming our 2024 free cash flow guidance, which we provided in January. Our 2024 free cash flow is expected to be in the range of $1.7 billion to $2 billion, and we expect it to pick up during the next three quarters driven by ramp up in our profitability, as I mentioned earlier, and as we continue to drive working capital improvement. Turning to Slide 34, our net debt at the end of Q1 2024 was $16.7 billion compared to $16.6 billion at the end of ’23. Our gross debt was $19.6 billion compared to $19.8 billion at the end of 2023. The decrease in our gross debt was mainly due to exchange rate fluctuations of $193 million. Our net-debt-to-EBITDA slightly improved coming at 3.38 times for Q1 2024, mainly due to higher EBITDA.

Subsequent to the quarter close, in April 2024, we repaid [$956 million] (ph) of our senior notes at maturity. At the end of March 31 and as of today, there is no amount outstanding under the $1.8 billion revolving credit facility. Last week, Teva entered into an amendment to our revolving credit facility to update the company’s maximum permitted leverage ratio under the RCF for a certain period. Under the amendment terms of the RCF, the company’s leverage ratio shall not exceed 4 times in ’24 and ’25 and in the first quarter of ’26, 3.75 times in the second, third and fourth quarter of 2026, and 3.5 times in the first quarter of 2027 and onwards. Now, let’s turn our attention to our 2024 non-GAAP outlook on Slide 35. As we guided in January, when we initially provided our full year outlook, we had expected our revenue and earnings to progress gradually throughout the year.

That continues to be our expectation as we reported today. For the full year of 2024, we continue to expect our revenue to be between $15.7 billion to $16.3 billion. We are also reaffirming our 2024 non-GAAP outlook for operating income, EBITDA, earnings per share and free cash flow as provided in January. Like I said earlier, our non-GAAP gross margin is expected to be between 53% to 54% for the full year, and we expected the gradual pickup in margins in the second quarter, with a further progress in the second half of the year, in line with the revenue trajectory and the portfolio mix, as well as improvement from our ongoing cost optimization program. In addition, we continue to make deliberate and thoughtful investments in our innovative portfolio and to progress our key pipeline assets to drive both the short- and long-term growth for the company.

Similar to gross margin improvement, we also expected to see leverage in operating expenses as a percentage of revenue in line with the ramp up in the revenue as we progress throughout the year. With this, I conclude my review of Teva’s results for the first quarter of 2024. And now, I will hand it back to Richard for a summary.

Richard Francis: Thank you, Eli. Thank you for that. And so, based on what we’ve told you today, we continue to be confident about hitting our 2027 guidance: 30% operating income margin; net debt, 2 times; and cash-to-earnings, 80%; and a CAGR of mid-single digit. The reason why we remain confident about that I can highlight on the next slide, it comes back to the execution of our strategy. As we laid out over a year ago, we had a plan to return to growth, accelerate growth and sustain growth. As you can see, we’ve made good progress on return to growth, focusing on our growth engines, our biosimilars and getting our generics business back to performance. To accelerate that we clearly have laid the foundation for that with the olanzapine readout today and our focus on ICS/SABA.

We also have highlighted the number of biosimilars we have coming by 2027. So, I think the momentum we’re getting around Pivot to Growth continues to grow and so that we remain optimistic about the future. With that, I welcome to take questions from people on the phone. Thank you.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question for today comes from Umer Raffat of Evercore ISI. Your line is now open. Please go ahead.

Umer Raffat: Good morning, guys. Thanks for taking my question. Congrats on the Phase 3 efficacy portion of the readout. I had three questions today, all three very trial specific, if that’s okay. First, I know the efficacy delta you’re showing, placebo-adjusted, is about 9% to 10%. I know when Lilly ran their long-acting olanzapine, they were more in the mid-teens camp. Can you perhaps speak to what it is that clinicians want to see? Obviously, PDSS far trumped any sort of trial to trial differences in placebo-adjusted efficacy, knowing that you also got the low-teens in one of the arms. Secondly, I know the trial that we just saw is acute phase of the study and patients roll over to the safety. Is there any separate plans for a maintenance study as well?

I think Lilly ran that when they ran the long-acting olanzapine. I’m curious if that impacts the indication. And then finally, I noticed when you guys developed UZEDY, which is a oral — which is a long-acting risperidone, there were some trial conduct issues which led to FDA issuing a CRL because of some dosing errors and documentation issues, et cetera, volume of injection. And at the time, all the efficacy analyses ended up having to get either sensitivity analyses or potentially have to run a trial all over. Could you speak to how the trial conduct look different in this study in the efficacy portion versus the way UZEDY Phase 3 was ran? Thank you very much.

Richard Francis: Thanks, Umer. Thanks for your questions. I’ll hand that straight to Eric. Over to you.

Eric Hughes: Yeah. So, Umer, thanks for the questions. Let me take the third one first, the CRL. So, that was an issue around common problems you see in schizophrenia problem studies where you sometimes get patients double counted. We learned a lot from that issue on that study. We corrected that and we actually monitor that extremely closely in the ongoing study. I would say that our ability to execute these studies is clearly one of the best in the industry. We brought this one up by nine months and accelerated it very, very well. And we’ve reviewed all the data very carefully. So that should not be an issue going forward. Now, with regards to the deltas that we saw on our primary endpoint, that’s the change in the PANSS score from baseline to week eight.

So, to be very blunt, these were deltas that exactly where we expect them to be. We were very pleased to see that the placebo behaved the way it should, which is something that is challenging in these studies every year, but ours seem to be run very well with regards to the lack of response in placebo and the delta we saw on each of the three doses. So, you’ll see that, that actually is very consistent with these exposures of olanzapine across many different studies. Now, with regards to what the HCP would look for, these are clinically significant changes. These are the expected deltas that a patient and an investigator would want to see to be able to treat their patients. The real benefit here is we’re getting the efficacy of olanzapine with just a single dose once a month in an easy subcutaneous injection.

So that’s the real benefit for the program and we’re excited to see the results today.

Umer Raffat: Super helpful. Thank you very much.

Richard Francis: Thanks, Umer.

Operator: Thank you. Our next question comes from David Amsellem from Piper Sandler. Your line is now open. Please go ahead.

David Amsellem: Hey, thanks. So, just a couple of questions on biosimilars. So, first, can you talk to — and I apologize if I missed this earlier, talk to the impact or how you’re thinking about the impact of SIMLANDI as we move through the year with the Evernorth/Accredo contract? So, how should we think about that? And then secondly, I know, AbbVie had talked about trying to enter into multi-year contracts. I think [their phrase was with teeth] (ph). How are you thinking about how aggressive they’re going to be over the long term in defending the brand? And what you think that means for adoption of Humira biosimilars? So that’s the second question. And then lastly on the Stelara biosim, can you talk to — and I know it’s early and this is sort of a next year question, but talk to how you’re thinking about how that market is going to behave in terms of how aggressive the innovator is going to be with contracting and how you’re thinking about adoption next year, particularly given that you’re going to be launching very early on in biosimilar market formation?

Thank you.

Richard Francis: Thank you, David. Thanks for the question. So, I’ll take those. So, how do we think about SIMLANDI this year? I think, firstly, we’re excited to bring this to the market in Q2. What I would say and it sort of builds a bit into your second question, the interest we’re getting from payers and PBMs is very high. And I think there’s been a change in the market versus last year where there’s an appetite to really utilize the benefit that biosimilars bring to the market with containing healthcare costs long term. So, I think that dynamic is playing out. We, obviously, built a certain amount of SIMLANDI into our forecast for the year. It was risk-adjusted, because there’s many uncertainties, and obviously, we are launching this at this moment not at the start of the year.

So, from a contracting point of view that is something to take into account. But I would say we remain optimistic about it. Let’s see how it plays out. And I think to your last question, how do we think about Stelara? Well, that’s interesting from two factors. One is internal. So, we have got the approval. So, we’re not going to be in the position where we are with biosimilar Humira coming to the market later. We’ll be coming to the market at the start, as you pointed out. That means we can have discussions with the payers, the PBMs six months ahead of coming to the market, which is obviously beneficial. The other factor is, and I think this just shows the dynamic nature of the market, we talked about no penetration to the market last year with biosimilar Humira, in general.

And now, we’re starting to see what I think is a more dynamic situation where things are changing and we’re definitely hearing that from the payers and the PBM. So, I believe there’s a change in appetite and there’s a change in strategic thinking. But we’ll have to see how that plays out. I think I’ve been consistent in saying I don’t have a crystal ball on that — on this. And that’s why I think having a broad portfolio that you bring to the market is a sensible approach. But I would say optimistic both for this year and optimistic for next year. Thanks for your question.

David Amsellem: Thank you.

Operator: Our next question comes from Ash Verma of UBS. Your line is now open. Please go ahead.

Ash Verma: Hi, thanks for taking our questions. Congrats on all the progress. So, I have two. Just a quick follow-up on biosimilar Humira. Do you think the Sandoz biosimilar Humira infection is primarily because of CVS using an exclusionary contracting against the branded drug? And do you believe you can drive similar level of uptake just based off Cigna offering a $0 co-pay for biosimilars and not necessarily getting into exclusionary contracting? And then, on TAPI, I see on your website, you do provide like the API for semaglutide and tirzepatide injectables. Like, what is your level of scale here? And is that something that could be off interests to the GLP-1 players that are looking for significant supply expansion? Thanks.

Richard Francis: Thanks, Ash. Thanks for your call. It was good to talk. So, with regard to the contracting and it sort of goes back to my comment earlier about, it’s just very dynamic. It’s really changed I think versus last year. So, there are many different opportunities that are emerging, both in the normal channel and in this private label, and that’s evolving almost weekly. So, I think for us that’s encouraging. I don’t want to try and predict how that’s going to play out, whether people are going to mirror other people, because I think it’s quite individual. I think the bigger picture, which I am encouraged by, is this appetite for biosimilars as a whole. And I think that plays out well for obviously us, it plays out well, I think, for patients and society in reducing costs long term.

And I think everybody was waiting to see if something like this could happen. I don’t think one swallow makes a summer, but I do think this is really interesting and good progress. So, that’s how I would probably phase that. But obviously, when we speak in the next quarter earnings, I think we’ll have more data and we’ll continuously update you. With regard to the API and what you just raised there, I think that we don’t go into specifics of each individual API and the potential for us to supply those and capacity. We obviously have hundreds of API that we manufacture and develop. So, it’s more complex than that. So that’s probably the best way I can answer that question. But thanks for the questions, Ash.

Ash Verma: Thanks.

Operator: Our next question comes from Balaji Prasad of Barclays. Your line is now open. Please go ahead.

Balaji Prasad: Hi, good morning, and thanks for the questions. So, a couple from me and apologies if some of these have been asked before. Richard, I had the opportunity to speak to half a dozen neurologists recently. The general feedback I got was that [docs] (ph) allowed to use AUSTEDO, and they do want to use it for some other indications, too. Generally, I think the feedback is that the insurance has been a challenge. And so, I want to get your experiences with payers and if there is scope for the commercial team to do better, one. And two, can you also speak about the areas where you see off-label use or off-label potential for AUSTEDO and any plans around it? That’s one. Two, on the biosimilar side, I couldn’t but have noticed that management commentary on biosimilars had softened in the last couple of months.

Now that you are — the approvals of SIMLANDI and SELARSDI are behind you, would you want to revisit your expectations around biosimilars? And how would SIMLANDI play through into your ’24 guidance, seeing that it’s been reaffirmed even after the approval? Thank you.

Richard Francis: Thanks, Balaji. Thanks for the questions and the interest. So, on the first question, the insurance challenge, actually we’re in a very good place with AUSTEDO and we’re actually in a very good place with XR. So, I don’t think insurance is an issue and access is an issue. Now there’s obviously pockets of that that can be different. So depending on who you speak to, there can be. And I think XR is still lagging a bit behind our BID, but it’s closing fast. But I think that’s not something that I discuss regularly with the team, and by the way, it’s not something I give them to make an excuse on when it comes to driving this business forward. So, hopefully that answers that question. With regards to off-label, obviously, I don’t want to get into any discussions on that.

I think we always want to make sure that our product is used within its label. So, probably that’s as much as I’ll say. With regard to biosimilars, I’m smiling here because I don’t think my language is interpreted as softening in the past. It’s more about — I think I consistently said this is an emerging market. This is dynamic. How this is going to play out? I don’t want to try and predict, because it can change all the time. It rarely happens but maybe I was right on that one because it changed very quickly, quite recently. So I think maybe I was more — my language was more around how this market will evolve. And as I said, I don’t have a crystal ball. That is becoming clearer now and that’s probably why you’re here. One, we have an approval of two of our biosimilars.

So that’s certainty, which I may not have had when we last spoke. The second thing is I do believe there’s a change in the market. Now, we’ll see how that plays out across the whole market, but it does seem to be people are making interesting moves and the conversations we’re having seem to have more purpose and energy than they’ve ever had. But we’ll have to see how that plays out. It’s interesting, but for us, it’s about, once we start to get contracts, once we start to shift volume and once we start to get revenue that’s meaningful then we know there’s been a significant change. And I think we’ll see how that evolves as we go through the quarters of this year. But Balaji, thanks for your questions.

Balaji Prasad: Thank you.

Operator: Our next question comes from Jason Gerberry of Bank of America. Your line is now open. Please go ahead.

Jason Gerberry: Hey, guys. Thanks for taking my questions. First one for me is just on your 2024 guide. And I’m wondering really sort of what are the key variables to getting to the high end or even blowing through your guidance. It seems like with Humira, there’s some upside optionality, but you guys are taking a conservative stance just on how that will get adopted. And I guess you have some exclusive generics that either haven’t launched yet or haven’t gotten market share on, like, Sandostatin LAR and Korlym. So that’s maybe an upside lever. So, just wondering if you can comment on those dynamics if you’d agree with that characterization. And then, secondly, just on the olanzapine LAI program, you have 20% of injections left.

I’m just curious, the agreement with the FDA, was there any margin for error if you had a single PDSS event? I think the background rate was like 0.1%. So, just kind of curious, like, if you got unlucky and there was like a single case, can you still avoid having the black box warning? Thanks.

Richard Francis: Thanks, Jason. I’ll take a stab at the first one and maybe Eli can join, and then I’ll hand over to Eric. So, look, I think you sort of actually framed it really well. We have a bit of a range because we need to see how the biosimilars plays out. We have some product launches coming up as you’ve highlighted in the U.S. Timing [indiscernible] those, we have to see how those play out. And then, we have to see how the momentum of our business plays out. So I think, all of those — some of those things we’re waiting to happen, and as they start to happen, we’ll get more clarity and I think that gives us more opportunity to narrow the range if that is what was required. But we think about in a similar way to risk-adjusted biosimilars.

We risk-adjusted some of our new product launches because they are based on timing and various other factors. And because of that we think that’s the prudent thing to do. As that changes and we get more certainty, we will come back very quickly and help you understand what that means and whether that means that the range narrows. Maybe, Eli, would you like to add anything more?

Eli Kalif: No, I don’t have anything to add. Thanks.

Richard Francis: I did a good job then. I’ll hand that one to Eric down on the second one.

Eric Hughes: Yes. And there was a question about the PDSS and what our discussions with the FDA. So, the discussions we had were around 3,600 injection. That would be the point at which FDA was open to the discussion around not having this as a black box warning. We monitor this very closely and I think it’s important to start by saying what’s the scientific support and rationale and then what’s the clinical data. Scientifically, it’s very important to note that this is a completely different formulation. It’s a subcutaneous formulation, not an intramuscular injection, which will might hit deep vessels. But on top of that, our formulation rapidly aggregates and keeps the API contained almost immediately after injection, then it has a slow release.

So that supports the notion that we should not see PDSS. We have not seen it. Now, as you mentioned, we’re up to about — let’s see, we’re up to about 2,700 injections now. So, we’re over the 80% mark. We haven’t seen it. If we see one, there would be a negotiation with FDA. The important thing is that we have an adjudication committee. So, we should not see accidental PDSS at this point. And I think the science supports no PDSS.

Jason Gerberry: Great. Thanks.

Operator: Our next question comes from Yifeng Liu of HSBC. Your line is now open. Please go ahead.

Yifeng Liu: Good morning. Thanks for taking my questions. I’ve got three questions. The first one is on olanzapine LAI. Could you just give us an update on the regulatory timelines and whether you have interest in filing outside the U.S.? Second one is on TL1A. Just could you talk about your kind of thinking about leveraging diagnostic tools and specifically companion diagnosis upon your product launch or as it goes later in the pipeline? And the third one is on biosimilar. Biden administration recently has some news about substitution without interchangeability. I just wonder upon your next probably six or more biosimilar launch, how that will play a role in your plan? And whether that’s going to change anything in the studies you run? Any color on that would be great. Thank you.

Richard Francis: Okay. Yifeng, thank you for the questions. I’ll hand the first two to Eric and then I’ll take the third one.

Eric Hughes: Sure. Thank you for the question. So, with regards to the olanzapine LAI program, plans in the future, we’re still running the long-term follow-up. We’ll hopefully be presenting that data at the Congress in the second half of this year. Other thing is to drive submissions. We’re planning to do the submission early in 2025 with our stability data and our product preparedness. So that’s the general timelines for olanzapine program. With regard to TL1A and diagnostic tools, so we’ll need to see the data. We’re going to have our interim analysis the second half of this year. We are including all different biomarkers that we could interrogate with regards to serum biomarkers, biopsy biomarkers, proteomics and genomics on predicting response at baseline or on treatment, and we also have the free TL1A.

So, we have lots of data that we’ll need to look at. If we find a diagnostic or a predictive value that could really help the program, we’ll certainly use that. But our goal is to treat all comers at this point because these patients need all the options they can get in both ulcerative colitis and Crohn’s disease. And the last question, I think you’re going to handle with regards to the changes in the biosimilars plans by the FDA.