Hello and welcome to the fourth quarter and full year 2023 Teva Pharmaceutical Industries earnings conference call. My name is Alex and I’ll be coordinating the call today. If you’d like to ask a question at the end of the presentation, you can press star followed by one on your telephone keypad.

If you’d like to remove your question, you may press star followed by two. I’ll now hand it over to your host, Ran Meir, Head of Investor Relations. Please go ahead..

Thank you Alex. Thank you everyone for joining us today. We hope you’ve had an opportunity to review our press release, which was issued earlier this morning. A copy of this press release, as well as a copy of the slides being presented on this call can be found on our website at tevapharm.com. Please review our forward-looking statement on Slide No. 2.

Additional information regarding this statement and our non-GAAP financial measures is available on our earnings release and in our SEC Forms 10-K and 10-Q.

To begin today’s call, Richard Francis, Teva’s CEO will provide an overview of Teva’s 2023 full year 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 fourth quarter financial results in more detail before providing an overview of Teva’s 2024 financial outlook. Please note that today’s call will run approximately one hour. With that, I will turn the call over to Richard.

Richard?.

making sure we have the right portfolio in the market that’s been executed by commercial teams, focusing our pipeline so we can bring high value products that grow the top and bottom line to the market on time more often, and also optimizing our network and actually the efficiency of our network.

I’ll talk you through the pipeline [indiscernible] but I wanted to just highlight the work we’ve done on our network. We have closed three sites in 2023, so we continue to rationalize and optimize that, and also we have kicked off an operational excellence plan for 2024, where our aim is to reduce COGS and to allow us to drive gross margin expansion.

Now let me talk a bit about the pipeline, because we have made some progress here. As you can see from this, when it comes to complex generics, I think we’re in a leading position in the U.S. Across multiple technologies and platforms, we have and we can launch complex generic products.

We launched 10 between 2022 and 2023, but I’m excited by the 13 that we’ll be launching between ’24 and ’25, and as you can see here highlighted on this slide with the green circles, there’s a number that we’ve already launched. This has an opportunity for us to drive growth and offset some of the price erosion that obviously is there in the U.S.

market. Now to move onto the final pillar, focusing on capital. Today, we announced the intention to divest Teva API.

This is in line with our Pivot strategy [indiscernible] and this will allow TAPI to realize its full potential in the world API market, which is valued at $85 billion, and subsequently allow Teva to focus its capital on driving the Pivot to Growth strategy, primarily focused on our innovative and generics portfolio.

Moving onto the next slide, we give you a guide to the milestones that we have in 2024.

It’s pretty much more of the same - keep executing on the strategy driving our innovative portfolio, as you see that $1.5 billion for Austedo, keep driving the pipeline through the clinic to bring it to market as soon as possible, and work on driving the efficiency in our launches and our manufacturing base in our generics business, and obviously the work we’ll be doing this year to divest TAPI at the end of this year, start of next.

Moving onto my final slide, I’d like to announce our Healthy Future plan, which is a continuation of our ESG journey at Teva.

Teva is focused on three main areas, and these are divided into Healthy People, and that’s making sure we create access to medicines across the planet, making sure people have the medicines they need at the right time, and also making sure we have an inclusive and diverse culture at Teva.

Secondly, Healthy Planet - this is really about Teva stepping up and helping minimize the impact of global warming with the many initiatives we’ve put in place. Finally, Healthy Business [indiscernible] everything we do at Teva is compliant and of the highest ethical standard.

With that, I’ll hand over this portion of the presentation to my colleague, Eric Hughes..

Thank you Richard. Moving onto the slide for Ajovy, we know physicians choose Ajovy because of its safety and efficacy, as well as its convenient auto-injector, monthly dosing [indiscernible]. But today, I’m excited to show you recent data that we’ve produced from two real world evidence studies, PEARL and FINESSE, showing the durability of Ajovy.

Migraine is a chronic disease and having durability of response is very important, and what we can see in this study is that the days that you’re free of migraines had been maintained for two years after starting Ajovy - this is very important, and this translates not only to just a simple reduction in monthly migraines but it really is eight full days for some patients to achieve a day without migraines, so each month a patient gets back about a week of their life without migraines, so very important.

Moving onto our slide for Uzedy, as Richard mentioned, we are very excited to get the approval last year and launch Uzedy, and we’re also happy to show more durability of Uzedy as well.

Here, following up on subjects from our pivotal study, we show that the quality of life in patients not only are maintained up to 56 weeks but also slightly improved, so this is very important as well for patients with schizophrenia, because we had patients with long durations of disease and short durations of disease, but we can show here that with a long acting injectable, we can actually not only maintain but improve their quality of life.

This is important for a long acting injectable because we believe this is important to maintain the exposure in the patient’s blood to the risperidone, so we think this is very important and we’re happy to see this durability of response.

Moving on to Austedo, one of the things that’s important for Austedo, and as Richard mentioned, there is very much room to grow and access patients who have tardive dyskinesia, and one of the things we need to do is make sure it’s as easy and convenient to use Austedo as possible.

We know in real world evidence that only about 50% of our patients without a titration pack can achieve the dose range that is necessary to get good [indiscernible], so we ran a study of [indiscernible] and we were pleased to see that 78% of the subjects finished the titration pack and were 97% adherent.

This is important because getting to the titration pack easily and simply for patients gets those patients up into the right dose range, that makes sure that we get our patients the right efficacy, and we hope this translates into durability and adherence for long term treatment, so very important and we’re glad to see this works so well for our patients.

Finally, I just want to review our milestones in the R&D organization. We are doing well in our enrollment for our Phase II study of TL1A, and it’s accelerating. We’re looking forward to that Phase II interim analysis in the second half of 2024.

We are fully enrolled in our olanzapine LAI Phase III globally and will be having our full clinical package of efficacy and safety in the second half of 2024.

Our anti-IL15 program is finishing up its Phase I SAD/MAD study in healthy volunteers, and we’ll present that data in the second half of this year, and we’ll also finish enrollment in our proof of concept study in celiac patients by the end of this year.

We’re excited to look forward to the first-in-human dosing of our anti-PD1 IL2 program the first half of this year, and finally we’re actively enrolling our Phase III study in ICS/SABA and looking forward to those results in the second half of 2026. With that, I’ll pass it off to Eli Kalif..

Thank you Eric, and good morning and good afternoon to everyone. I’ll begin a review of our 2023 financial results with a main focus being on fourth quarter performance. This will be followed by our non-GAAP outlook for 2024 and some of the important assumptions behind it.

Beginning on Slide 24, I would like to remind everyone that in October 2023, Teva entered into an exclusive collaboration with Sanofi to develop and commercialize Teva’s anti-TL1A asset.

As per the terms of the collaboration agreement, Teva received an upfront payment of $500 million in the fourth quarter of 2023 which was recognized as license arrangement revenue. This upfront payment had a positive contribution of $500 million to both our revenue and free cash flow.

After adjusting for certain transaction-related costs, this payment had a positive contribution of approximately $430 million. Now throughout the presentation, I will be discussing our results for the quarter and for the full year 2023 as reported.

Also, I want to draw your attention to the disclosure we included in the press release this morning regarding a revision to certain GAAP financial metrics in 2022 and 2023 to correct errors related to contingent consideration liability. This revision did not impact our non-GAAP results for either year.

Now starting with our Q4 GAAP performance, revenue in the fourth quarter of 2023 was $4.5 billion, an increase of 15% in U.S. dollars and 14% in local currency terms compared to the fourth quarter of 2022.

The increase was mainly driven by the upfront payment that I just mentioned, the sale of certain product rights in Europe segment, continued strong growth in Austedo, and higher revenue from generics products in international markets.

This was partially offset by lower revenue from generics products and our distribution business in North America and from Copaxone. In Q4 2023, we reported GAAP operating income of $765 million compared to an operating loss of $940 million in the same quarter last year.

The increase in operating income was mainly due to goodwill impairment charges in the fourth quarter of 2022 and higher gross profit for this year, partially offset by higher impairment, restructuring and other items in the fourth quarter of 2023.

We had net income of $461 million and a GAAP earnings per share of $0.41, which was higher than last year mainly driven by higher operating income, as I just explained. Turning to Slide 25, you can see the non-GAAP adjustments in the fourth quarter of 2023.

A notable adjustment this quarter included a contingent consideration expense of $408 million mainly related to the change in the estimated future royalty payments in connection with generics revenue.

Now moving to Slide 26 for a review of our non-GAAP performance, as I mentioned earlier, our fourth quarter revenues were approximately $4.5 billion, our annual revenue in 2023 were $15.8 billion, an increase of 6% in U.S. dollars or 7% in local currency terms compared to 2022.

Excluding the contribution from the upfront payment regarding our anti-TL1A collaboration, our revenue growth in 2023 was 3%. Now let’s move down the P&L, starting with the gross profit margin. Our non-GAAP gross profit margin was 68.2% compared to 54.2% in Q4 2022.

The increase in our gross margin was mainly due to the upfront payment, as I just mentioned, and a favorable portfolio mix as well as the sale of certain product rights in Europe as part of our portfolio rationalization. This was partially offset by higher costs related to inflationary and other macroeconomic pressures.

Excluding the impact of the upfront payment, our non-GAAP gross profit margin would have been consistent with levels of Q3.

This was slightly below our expectation mainly due to timing effects related to a certain element of our costs associated with inventory consumption, our portfolio mix, and better than expected performance of our low margin distribution business, as well as an unfavorable impact from hedging activities.

Overall, we saw sustainable improvement in our gross profit margin since the first quarter of 2023 with stabilization of the margins in the second half of 2023.

Going forward in 2024, we expect our gross margin to continue to improve driven by continuous improvement in our portfolio mix, with strong growth in our innovative portfolio as well as continuation of the optimization program we have initiated. We expect that our non-GAAP gross profit margin to be between 53% to 54% in 2024 full year.

Similar to 2023, we expect gross margin to gradually improve throughout this year. Moving to the non-GAAP operating margin in Q4 2023, which was 34.7% compared to 29.1% in Q4 2022, this decrease was mainly driven by higher non-GAAP gross profit margin, as I just explained, as well as lower operating expenses as a percentage of revenue.

On an absolute basis, our higher operating expenses this quarter were related to higher investment in R&D and sales and marketing in line with our Pivot to Growth strategy, partially offset by efficiencies in [indiscernible]. We ended the quarter with earnings per share of $1 compared to $0.71 in Q4 2022, mainly driven by higher operating income.

Turning to free cash flow on Slide 27, our free cash flow in the fourth quarter of 2023 was $1.5 billion compared to $1.1 billion in Q4 2022. In addition to the [indiscernible] driven by [indiscernible] items partially offset by sale of accounts receivable under our U.S. secured facility in the fourth quarter of 2022.

During the fourth quarter of 2023, we also initiated the first payment of the nationwide settlement in connection with the opioid litigation that increased our total payment of legal settlements by approximately $244 million compared to Q4 2022. Overall, the full year of 2023 free cash flow was $2.4 billion compared to $2.2 billion in 2022.

Turning to Slide 28, we continue to make strong progress in terms of reducing our debt. Our net debt at the end of Q4 2023 was $16.6 billion compared to $18.4 billion at the end of 2022. Our gross debt was $19.8 billion compared to $21.1 billion at the end of 2022.

The decrease in our gross debt was mainly due to $1.6 billion senior notes repaid at maturity, partially offset by $202 million of exchange rate fluctuations. During Q4 2023, we repaid the full $500 million under our $1.8 billion revolving credit facility, and as of December 31 and as of today, there is no amount outstanding under the revolver.

As a result, our net debt to EBITDA also improved, coming in at 3.45 times for Q4 2023. As part of our capital allocation strategy, we expect our net debt reduction to continue as we continue to progress towards our long term target of two times net debt to EBITDA by end of 2027. Now let’s turn our attention to 2024 non-GAAP outlook.

As Richard mentioned, 2023 was a pivotal year for Teva, and through the year our colleagues around the world worked very hard to execute on our Pivot to Growth strategy.

We made some deliberate choices and began investing in our growth drivers and our promising pipeline, while also navigating and addressing the impacts of the macroeconomic and geopolitical headwinds. As we move to 2024, we remain focused to continue to execute on our long term strategy.

With this in mind, we begin with 2024 total revenue which we expect to be between $15.7 billion and $16.3 billion. Compared to 2023, this represents a growth of 2% to 6% excluding the $500 million upfront payment received related to our TL1 asset.

As Richard mentioned earlier, our revenue growth will be driven by continued strong momentum in our innovative portfolio and stabilized generics business. Coming to our non-GAAP operating profit, we expect our gross margin to gradually improve throughout 2024 as we continue to execute our Pivot to Growth strategy.

We’ll also continue to make deliberate investments in our innovative portfolio and progress our key pipeline assets to drive both short and long term growth for the company. With that in mind, we expect our operating expenses to be approximately 27% to 27.5% for the full year, including R&D expenses between 6% to 6.5% of revenue.

As a result, our non-GAAP operating income is expected to be between $4 billion and $4.5 billion, and our non-GAAP adjusted EBITDA is expected to be between $4.5 billion to $5 billion, both growing over 2023 levels excluding the effects of the upfront payment.

We expect finance expenses to be approximately $1 billion in 2024, in line with 2023 levels. Looking at our tax rate, we expect our non-GAAP tax rate to be [indiscernible] slightly higher than the 2023 tax rate of 30%, which benefited partially due to intellectual property-related integration plans and carry-forward losses.

This brings us to expected non-GAAP earnings per share in the range of $2.20 to $2.50. We expect our 2024 free cash flow to be in the range to $1.7 billion to $2 billion. [Indiscernible] we do not provide quarterly guidance, but I thought it would be helpful to share how we are thinking about the progression throughout the year.

Overall based on our expectations today, we expect revenue and earnings to progress gradually during the year with revenue in the second half of 2024 to be slightly higher than the first half.

Our non-GAAP margins are also expected to [indiscernible] throughout the year in line with the revenue trajectory, as well as improvements from our optimization program we have initiated. With that, this concludes my review of Teva’s results for the fourth quarter and fiscal year of 2023, and now I will hand it back to Richard for a summary..

Thank you Eli. I would like to just reiterate the financial targets to 2027. Revenue growth will be mid single digit, operating margin of 30%, net debt and adjusted EBITDA two times, and cash to earnings ratio of 80%, so reconfirming these as we move forward, as we gain confidence on the Pivot to Growth strategy.

Moving onto the final slide, just to reiterate what the Pivot to Growth strategy will do to provide growth.

The main is to accelerate growth to return to growth in ’23 to ’24, to accelerate it in ’25 to ’27, and we believe this will be built on the momentum that Eric has in the pipeline and those products coming to the market, and also you’ll start to see the biosimilars gain traction as well, based on my earlier comments.

To me, it’s clear to see that we’re gaining momentum with Pivot to Growth, and now it’s about executing as we did in ’23, in ’24. With that, I’ll hand it over to the Operator to take some questions. Thank you for your attention..

Thank you. [Operator instructions] Our first question for today comes from Glen Santangelo from Jefferies. Your line is now open, please go ahead..

Yes, thanks for taking my questions. Eli, I just wanted to follow up on the guidance, because there’s a couple things that are sticking out to me. It looks like you’re assuming at the midpoint that revenues are going to be up a little bit less than 1%, but you’re assuming EBITDA at the midpoint is down almost 2%.

I think if I heard Richard correctly, you’re assuming gross margins are going to be up, perhaps due to product mix, and so it seems like you’re forecasting a much bigger ramp in operating expenses.

I wonder if you could just sort of flesh that out a little bit, if it’s coming more in the sales and marketing side or greater R&D spend, and then I maybe have just a quick follow-up. Thanks..

I think the question is directed to you..

Yes, thanks Glen for the question. First of all, we are looking on the midpoint, which is $16 billion, compared to the numbers we end up ’23 excluding the upfront payment, which means we are looking on 4.3% growth on the midpoint--on the top line. As far as related to some dynamics to the operating margin, we see ourselves keep growing the opex.

I mentioned that we are looking on the range between 27% to 27.5%, and that means that R&D between 66.5, stabilization around 6.2% in G&A, and sales and marketing around 14.5%, and that means that part of our growth will enable us to keep investing in the business.

For your question, when we line up our guidance, we look on our 2023 excluding the upfront payment..

Hm, okay. Maybe if I could just sort of follow up, because--I just want to make sure I understand the revenue guidance a little bit. You gave us a lot of the pieces, which is helpful. I just want to be clear about what you’re saying in terms of the generics business in 2024.

I mean, I can see--you know, you obviously cut the Copaxone assumption a fair amount, but I’m trying to figure out where the rest of the offset is, and I know you have a bunch of big launches on the generics side - you know, Korlym, teriparatide/Forteo.

Could you just sort of flesh out a little bit what you’re expecting in that generics business, so just so we’re clear on what you’re saying?.

Hi Glen, it’s Richard here. Thanks for the question. Yes, so once again, just to sort of reiterate, and I think your question is directed at the North American generics business, but just to highlight the fact that our European and international market business, we expect it to continue growing well, in line with what we did in ’23.

But to come back to your question about ’24, yes, we do have a number of launches that are coming through. We’re pleased that we’ve made progress on those.

I would like to highlight that some of those are coming in with competition as well, which you need to take into account when forecasting, and obviously when we launch products, part of the aim there is to offset some of the price degradation that we see every year in the U.S., and so net-net, we see a stabilization of our North American business going forward.

As we continue to build and improve on our launches and our supply chain, that’s why we believe in the medium to long term, we can drive the business back to growth. .

Okay, thank you..

Thanks for the question..

Thank you. Our next question comes from Ash Verma of UBS. Your line is now open, please go ahead..

Yes, thanks for taking my questions. Just to clarify on 2024 guidance, you’re including the partnership accounting here from Sanofi upfront. For 2024, is there any specific amount that you’re expecting to receive? I believe the next set of milestones is on Phase III initiation, which I believe it won’t happen this year. That’s the first one.

Then second, just curious on the North American generics, what you print seems like a step down from where the franchise has been run rating at. Is that because there wasn’t any kind of a benefit from generic revlimid, or are we starting to see any change to the price stabilization narrative? Thanks..

Hi Ash, thanks for those questions. I’ll tackle them. With regard to Sanofi, correct - we will not receive any payments in ’24 and ’25.

Based on, as Eric highlighted, a successful interim analysis this year of our Phase II data of TL1A, we’ll move into Phase III in ’25 and that will trigger some milestones from Sanofi, but in ’24, there won’t be anything. To go to your North American generics question, a couple of things, and I’ll try and answer all of your question there.

Part of, I think, what you saw was the fact that we don’t really have any significant revenue of revlimid in quarter four, so that’s worth noting.

Then if you think about the business, we do have--we have included in there Truxima, which is our biosimilar business, which as you know has performed well and generated good revenue over a number of years, but obviously is declining steadily now.

If you factor those factors in, then I think my comment about we see a stabilization of the North American generics business going forward, I think stands true.

Based on the number of launches we have coming out, I think we have the ability to offset a significant amount of the price erosion that we see yearly in the U.S., and so I think the way to think about it is stabilization, but on that quarterly change, it’s really primarily driven by a bit of the portfolio and a bit in relation to our biosimilar single product, Truxima.

Hopefully that helps, Ash..

Thanks..

Thank you. Our next question comes from Jason Gerberry with Bank of America. Jason, your line is now open. Please go ahead..

Hey guys, thanks for taking my question. My question is on the biosimilars. I’m wondering if you think you could potentially make hay with this biosimilar Humira if you get the interchangeability designation with the February approval.

Can you leverage that to get a big, chunky contract as a preferred biosimilar supplier? I know that the other non-interchangeable high concentrates have struggled to get share.

Then, how that maybe carries over into 2025, right? I mean, there’s a question about Stelara and is the PBM biosimilar space sort of broken, you know, with innovators playing the rebating game, or could you leverage a portfolio play with interchangeable Humira and then layering on top of that Stelara? So just kind of wondering your overall perspective on what you’ve observed with the PBM biosimilars and whether you think there’s an opportunity there.

Thanks..

one, that is has a lot less competitors, for one; and two, we have a clear line of sight of when we’re going to be approved or be launched, which is in February of 2025, so we’re very optimistic about that. We see that as a sizeable asset, and so we see that as something that can generate significant revenue.

Once again with regard to the speed of uptake, we’ll have to see how that plays out. I think the important thing for Teva is we’re not being very--we’re not hanging on the fact that these products need to come to market and deliver quick revenues, because we have a portfolio in play.

We have 13 assets to bring to market; as I mentioned, we’ve got five that we’re going to launch by 2027.

I think they’ll all generate good return and drive our top line and bottom line, but to be very specific about which ones will generate which revenue when, I think is something I don’t want to do because of the unpredictability that we’ve seen in the last year. Hopefully that goes some way to answer your question, Jason..

Got it, thank you..

Thank you. Our next question comes from Umer Raffat of Evercore. Your line is now open, please go ahead..

Hi guys, thanks for taking my question. A couple here, if I may.

First, maybe just on the design of your UC Crohn’s study at baseline, are you expecting mild to moderate or moderate to severe patients, and what percentage may be biologics experienced in your expectations? Secondly, I noticed for your Crohn’s study, the endpoint you’re using, which is endoscopic response, is actually different than what FDA wants for their co-primary.

There’s a couple of your secondary endpoints on CDI less than 150, or endoscopic remission, which is what FDA is very focused on for co-primary, so should we really be focused on those secondary end points as the primary basis of determining how the Crohn’s trial looked? Then finally, if you could just give a quick update on your recent generic launch of Korlym, given all the interest, and how the launch is going to date? Thank you.

.

Thank you Umer. Richard, I’ll take this question, if you don’t mind. With regard to the inclusion criteria for our study, we’re focused on the mild to moderate patients that we see coming into the study right now. That’s typical of the studies that have been run recently.

We’re happy to see that our inclusion criteria in the study has been able to enrol well; in fact, our inclusion criteria and our study execution has got an accelerated pace of not only the ulcerative colitis but actually the Crohn’s patients as well, which is very encouraging to see, because this is one of the first well controlled--placebo controlled study for Crohn’s in this new MOA.

The criteria is focused on those patients coming into the study right now. With regard to the end points, the end points that we’ve included in the study are the FDA accepted study end points that we’ve discussed with FDA. They’re pretty common across the different studies.

I think one of the criteria that you have to pay attention to is how you count some of the clinical end points, that might change how you see your placebo response compare to your active. We’re confident in the way we’ve designed the study, we’ve done this in conjunction with FDA.

Then your final question on Korlym, I know that--Richard, you want to take that?.

Yes, I’ll take that. Thanks for the question, Umer. We have launched Korlym, we launched that, I think a week ago, so that is launched in the market, so I think that answers your question. .

Thank you very much..

Thanks Umer..

Thank you. Our next question comes from David Amsellem of Piper Sandler. Your line is now open, please go ahead..

Hey, thanks. One question on Austedo and one on Uzedy. On Austedo, wanted to get a sense for the level of sales and marketing investment and DTC investment that you’re thinking about the product longer term.

Certainly your competitor has spent pretty heavily promoting and supporting Ingrezza, so how do you think about that and how does that tie into your long term thinking regarding the trajectory of operating margins? That’s number one. Then number two on Uzedy, I think you mentioned the $80 million for ’24.

Just wanted to drill down on where these patients are coming from, are these patients that are switching from other LAIs or are they naïve to LAIs? Are you getting switches from, say, Invega, one of the Invega products? Just wanted to get a sense for where your business on Uzedy is coming from in these early days. Thank you..

Thanks David. Thanks for the question. On Austedo, you’re right - we have invested significantly in Austedo. We have that capability, so it’s not just about self-source, it’s about bringing in pharmaceutical expertise, so we’ve done that and that, I think has been a significant contributor to the acceleration of the product’s continued performance.

We aim to make sure that we are competitive and maximizing the revenue of Austedo, but also knowing that, to the last part of your question, we want to be driving improvement in our operating margin, and we see the ability to do that definitively with Austedo and the sales and marketing we’ve put into it.

As we talk about the $2.5 billion in 2027, this is going to be a major contributor to us driving our top line, but particularly our OP, so we have modeled that out extensively.

With regard to Uzedy, what we’re seeing right now--and to highlight, this is relatively small data, but we’re seeing a considerable amount of patients coming from oral risperidone, so a lot of patients are going straight from the oral to our long acting Uzedy.

But when it comes to choosing a long acting risperidone, a significant proportion of those are going onto Uzedy as well, so I think that just highlights what Eric pointed out, how much the physicians like this product profile, primarily the fact that you can get onto therapeutic levels within six to 24 hours, which when you’re having a schizophrenic episode is really critical, so I think that’s why we’re seeing that enthusiasm.

’24 is about taking that enthusiasm and the access and converting it into scripts, so that’s what we’re doing. Hopefully that answers your question, David..

Yes, that’s helpful. Thank you..

Thank you..

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

Great, thanks so much. Just two questions for me. Just following up on that opex comment, you’ve obviously stepped up opex, you’re seeing really nice core growth in these core drivers, you’ve got pipeline that’s progressing.

I’m just trying to get my hands around opex beyond 2024, so I guess, is this kind of 27% to 27.5% range that we’re seeing this year a good level for the next few years, or are you now actually reaching an absolute spend level where we can maybe think about some opex leverage looking beyond ’24? My second question was just a little bit more color on the international generics growth drivers.

It seemed like that business was particularly strong in ’23. I think from your comments, you’re assuming similar growth this year, and would just love a little bit more color on the dynamics you’re seeing in those markets. Thank you. .

Okay, thanks for the questions, Chris. On the first one, I’ll tag team a bit with Eli.

I think just to give you a high level on the opex, one of the thing we’ve realized here at Teva, we have a significant opportunity in front of us here and now with our innovative portfolio on the market - Uzedy, Austedo and Ajovy, and a great pipeline that Eric just talked about.

It’s really important we invest in those to optimize them and bring them to market as soon as possible, so that’s what we’re doing.

Now, we absolutely commit and believe we’re going to hit our 30% margin in 2027, and investing now allows us to change the trajectory of those products, the speed that we bring them to the market - Olanzapine potentially end of ’25, early ’26, and that obviously changes once again not only our portfolio mix but the gross margin that they deliver, which obviously falls down to the OP.

We have thought this through very carefully about that and how we invest, and then when we actually start to see some significant pick-up on our bottom line. But I’ll maybe give the specifics to Eli as well..

Thanks Richard, and thanks Chris for the question. Just to continue Richard’s answer, in terms of absolute numbers, we don’t see that one too much expand dollar-wise more than what we have in ’24 to ’25 onwards, and as we grow with revenue, of course the percentage will go down but currently for this year, that’s the range.

We also would like to remind that there are certain elements in our R&D and our sales and marketing that are still considered a variable element, that we had some level of control in terms of prioritization and timing on that level, so this is still a controllable item from our perspective..

Then on the second question you asked, Chris, around international, pleased to see you’re seeing the good growth there in 2023 and the continued ambitions for 2024. That’s primarily driven by prioritization, continued market expansion, but really making sure we focus on the markets that can deliver.

Our team there has done a tremendous job in doing that, and so we’re making sure the prioritization of our resources goes to the markets that drive top line and also bottom line, which is a sub-component of our Pivot to Growth strategy. Hopefully that answers both of your questions, Chris, and thank you for them..

Thank you. Our next question comes from Balaji Prasad of Barclays. Your line is now open, please go ahead..

Hi, good morning everyone, and thank you for the questions. A couple, just firstly on both your Q4 performance and the 2024 outlook, which is very strong, midpoint higher than the highest Bloomberg estimate I see.

It looks like this has been drowned in the aftermath of the restatement, going by the stock reaction, so can you please provide more color on how this happened and the implications for this after this one-time restatement? Secondly on your partnership with Alvo, considering that Teva is having greater involvement in the biosimilars facility inspection, looking at the FDA letter that Alvotech has received, the 483 is related to FDA observing frequent sanitation of operators, so help us understand how easy or difficult it is to address this issue and in general, what is a normal resolution which the FDA can accept for such observation? Thank you..

Thanks Balaji, I appreciate the question. I’ll start with the second question and then I’ll hand the first question over to Eli. With regard to the Alvotech partnership, correct, we have been heavily involved in helping them.

I think I’ve said in the past, I think we have around about 30 FDA inspections a year across our 54 sites, so we’re very proficient at dealing with this and we’ve given that guidance and help to Alvotech. I think with regard to the observations that you’ve seen, the one observation, I think for us, that is considered a relatively small observation.

What I’d caution is with the FDA, it’s entirely up to them to give their view on whether that allow us or allows Alvotech to have that site cleared, but we think that is a good inspection which show the huge amount of work that’s being done at that site to make it approvable by the FDA.

But I must caution, the FDA have to approve the site first, so what I’d say, I think Alvotech have put themselves in a very good position, but we’ll have to see how that plays out. Then to answer the first question, I’ll hand it back to Eli..

Thanks Balaji for the question.

Yes, so as part of our preparation for the consolidation statement for ’23, we determined that there were errors in a single contingent consideration liability and related expenses, which connected to the estimated future of royalty payments, and those errors resulted from exclusions of some payments related to royalties, and in that way the fair value and the revision, we need to recalculate.

We assessed the materiality of those errors and determined that those errors were not material to each one of those periods, ’22 and ’23. About the revisions of the numbers, which is not a restatement, we actually implemented them in those financials.

I would like to mention that those errors did not impact at all our non-GAAP results, as well as not impacting at all our total cash flow from operating activities from financing activities, investing activities. As we speak, we are in progress and process to implement a remediation plan to address this internal control..

Thank you..

Thank you Balaji..

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

Great, good morning, and thanks for the questions. I wanted to follow up on the North America generics business. I think Richard, in response to an earlier question, you had talked about stabilization in the North American generics business in ’24.

I guess, does that mean we should be annualizing the 4Q revenue run rate, or is that more of a flat year-over-year relative to 2023 comment? Then maybe a longer term question on pricing. Some of the PBMs have talked about moving to cost-plus drug reimbursement.

Just curious if you would expect that to have any longer term impact on generic pricing for the industry..

Hi Nathan, thank you for your question. I think when it comes to North America, one thing--what we talk about is, and I think we talked about this early on in the Pivot to Growth, we want to stabilize the U.S. generic business in particular and then get it back to growth.

I think what you see here is with the number of launches we’ve had, that we have an opportunity to do that. Now, whether that tips into growth or whether it tips back into flat stabilization, we’ll have to see how it plays out.

The reason for the hesitation in being absolutely definitive is because of what you talked about around pricing and what the erosion will be next week--not next week, next year, and also with the number of launches we have, how many competitors come in and how they play out, so there’s a lot of variables within that.

I think for us, it’s about stability and building on that and getting it back to growth, and to be, I think thoughtful about how we communicate that. That’s the way to think about it. With regard to pricing and what you said about the PBMs, look - I welcome anybody that starts to look at generics pricing to make it sustainable.

I think right now, it’s a very challenging environment, continues to be, where the value that generics bring to the healthcare industry, to the hospitals, to society is not reflected in the price that we can sell them at, and I think that creates a very challenging environment.

I think probably that has led to the PBMs and the payors thinking about actually supply challenges and how do we mitigate those, and I think is what has raised this discussion. Would this be a solution? I think there’s many others I could also suggest.

I think ultimately you have to have a price that creates sustainability, that allows us to invest in not only launches but in capital in our manufacturing sites, and I think that requires people just to step back and understand a bit more about what it takes to achieve that.

So good the fact that it’s having a conversation now, but I don’t think that is the silver bullet necessarily to improve the market. Thanks for the question, Nathan..

Thank you..

Thank you. Our next question comes from Jason Gerberry of Bank of America. Your line is now open, please go ahead..

Thanks for taking my follow-up. Just curious, can you comment on at the margins, now that the planned divestiture, I think it was $700 million external, $300 million internal revenues, but just wondering how to think about how profitable that business is when we try to think about potential valuations.

Then with the Olanzapine LAI program, will you guys give any updates regarding number of injections without PDSS signal, or will the next update just be the second half 2024 pivotal top line update? Thanks..

Thank you Jason. Thanks for your questions coming back.

I think with regard to TAPI, I think the idea was what it’s going to do for margins, and I’ll hand that to Eli, but on the whole I think it’s pretty neutral with regard to what it does to margins, so don’t think of it impacting our margins in a positive or negative way - that’s probably the simplest way to think of that one.

Anything to add to that, Eli?.

No, I think it’s--I don’t have anything to add. .

Okay, and then going onto Olanzapine, I’ll hand that one to Eric and maybe get more specifics about the fact that we’ve fully recruited the study, and maybe how many injections we’ve had..

Yes, so I can give you up to the minute data on that right now. There’s 675 patients in the study - that’s fully enrolled globally at this point.

To date, we’ve 2,030 injections completed, no PDSS at this point - that’s 62% of our total target that we want for the clinical package for the submission, so we’re well on our way and we’ll monitor this very closely..

Thanks Eric. Thank you for the question, Nathan..

Thank you..

Thank you. Our next question comes from Oleksy Soroka of ING. Your line is now open, please go ahead..

Yes, hi. Thank you for taking my questions.

With regards to your debt, what are your plans for refinancing the upcoming maturities, including the bonds?.

Thank you, Oleksy, for the question.

Eli, could you take that one?.

Yes, thanks for the question. Yes, so if we’re looking on the coming year, we’ll have a maturity of around $950 million due in April and another approximately $700 million due in October on the euro maturity, and we are pretty, I would say, positioned very well to manage the maturities of ’24 and ’25 from our organic free cash flow.

We will have a tower of around $3.4 billion around October ’26, which is allowing us enough time to consider when we will need to make the next refinancing. We are constantly looking on the market in terms of capacity and trends, and we are calculating our strategy along this; but currently, we don’t have, I would say, any specific need to go early..

But would you expect to deal with ramp with this peak that you mentioned in October 2026 this year, to start prefunding it?.

Yes, so it really depends on the dynamics and the weighted average of, I would say, our maturities that we need to tear down, which is at the level at 3%-plus, that maturity in ’26, and the market now is doing 6% to 7%, so it really depends on how this one evolves because that will need to actually consider some capital allocation in terms of interest expenses and timing.

But as I mentioned, we are constantly looking on that one, and usually we would like to go between 12 to 16 months ahead in order to address those maturities, but we think there is enough time, but still we are reviewing all those strategies around it. .

Okay, all right. Thank you. .

Thanks Oleksy, thanks for the question..

Thank you. Our next question comes from Madison Aron from JP Morgan. Your line is now open, please go ahead..

Hi, thanks for taking my question. On your Page 14 on the generic pipeline, you include Nexplanon as one of your technology targets. Can you just walk us through as to what you’re planning there? Is that an ANDA filing that you’re planning? Just if you could give us some detail, thank you..

Hi Madison, thanks for the question. I’m glad you noticed Slide 14 and the numerous complex generics we’re bringing to the market. With regard to some of these, obviously it’s quite a competitive environment, so we don’t like to go into too much of the specifics because of the nature of that.

I think highlighting them gives a good insight to what we have and what’s coming, and I think that’s what we wanted to show here and the fact that we have a very broad portfolio across a number of technologies, so that’s our aim here.

But for competitive reasons, we really don’t want to get into the strategy and the details around that, and hopefully you can understand that. .

Thank you..

Thank you. At this time, we currently have no further questions, so I’ll hand back to Richard Francis for any further remarks..

Thank you, and thank you everybody for dialing in. I appreciate your interest in Teva and I appreciate the questions, and I look forward to catching up with many of you in the next couple of days and obviously look forward to speaking to you at quarter one earnings later in the year. Thank you very much. .

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