Teva Pharmaceutical Industries Ltd (TEVA) 2019 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Teva Pharmaceutical Industry's First Quarter 2019 Financial Results Call.

(Operator Instructions) I must advise you that this conference is being recorded today, on Thursday, the 2nd of May 2019.

I'd now like to hand the conference over to your first speaker today, Kevin Mannix, Senior Vice President, Investor Relations.

Please go ahead.

Thank you, Jenny, and thank you, everyone, for joining us today to discuss Teva's First Quarter 2019 Financial Results.

We hope you had an opportunity to review our earnings release, which was issued approximately 1 hour ago.

A copy of this release as well as a copy of the slides being presented on this call can be found on our website at www.tevapharm.com as well as through our Teva Investor Relations app.

Please note that the discussion on today's call includes certain non-GAAP measures as defined by the SEC.

Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the company's operations to better understand its business.

Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends.

The reconciliation of GAAP to non-GAAP measures is available in our earnings release and in today's presentation.

To begin today's call, Kåre Schultz, Teva's Chief Executive Officer, will touch on the highlights of the quarter; our Chief Financial Officer, Mike McClellan, will follow by reviewing the first quarter results in more detail; Brendan O'Grady, Teva's Head of North America Commercial, will join Kåre and Mike for the question-and-answer session that will follow the presentation.

And with that, I'll now turn the call over to Kåre Schultz.

Kåre, if you would, please.

Welcome, everybody, and thanks for dialing in.

The short message for the first quarter of 2019 is that everything is on track.

Basically, the revenue is on track, the launch is on track, the cost-reduction program is on track and the debt reduction is also on track.

And as a consequence of that, we are reaffirming our financial outlook for the year.

If we look a bit more at the details, our revenues came in at $4.3 billion, and that was after $200 million of headwind on the currencies.

The GAAP diluted loss per share was $0.10, and it was mainly related to write-downs on intangible assets.

The non-GAAP diluted EPS was coming in at $0.60, according with our plans.

Same thing for EBITDA, coming in at $1,150,000,000; and the free cash flow, which came in at $360 million.

We are seeing a stabilization of U.S. generics and European generics, so that means we're seeing a stabilization of our global generics business.

You probably remember a year ago, where we took significant actions to stop the declining value of the U.S. generic business by basically going out and saying that we would not be selling products at a loss and streamlining our whole portfolio of generics.

When we had the half year results last year, I was indicating that we were seeing signs of stabilization, but we couldn't be sure about it.

And when we shared the full year results 3 months ago, we confirmed that now we had seen a stabilization.

This is further confirmed by this first quarter.

We now have 5 quarters in a row where the North American generics businesses is around $1 billion in revenues per quarter and where the European revenue is around $900 million, and of course, with some exchange rate swings.

So that's important that it has worked.

We are now having stable business in our generics, of course, helped by ongoing launches and by strong key products.

In terms of products, we have good success with AJOVY.

It's growing nice now.

I'll get back to that.

And same thing for AUSTEDO.

Both products are growing nicely.

I'll comment on that.

I'll also comment on COPAXONE, where we, of course, see a continued loss of revenue due to the generic competition.

And then we are very excited about the launch of AJOVY that's coming off in the EU following the approval by EU in April of this year.

On the spend base, we will be achieving our 2-year target of $3 billion reduction.

I'll share some more details about that.

And that's, of course, partly due to the site consolidation, closing manufacturing sites all around the world, but it's also due to general savings in the whole P&L.

The net debt has been decreasing by $0.5 billion, and we are now at $26.7 billion, and we have $1.6 billion scheduled for repayment in the middle of this year.

Let's have a look at the spend base and restructuring progress we're making.

So this was a chart where we compare the starting point, the $16.3 billion we had in total spend in 2017.

That was the basis for our restructuring program where we said that during 2018/2019, we would reduce the spend base by $3 billion, getting to a full year spend of 2019 of $13.3 billion.

So that's the target, $13.3 billion.

Now in the middle here you have the MAT, which is, of course, constantly moving down as we reduce cost.

And MAT for the first quarter looking back 4 quarters is standing at $13.8 billion, and that indicates that we will hit the restructuring target.

But what indicated even more is that if you check the first quarter total spend, then it comes out at $3.3 billion, which basically indicates that we are at the restructuring target level right now, and that's, of course, very satisfying.

This has not been an easy exercise.

There's been a lot of site consolidation, both manufacturing sites, administration sites, and there's been a lot of good people leaving the company, more than 10,000 company since we initiated the restructuring plan.

More people will leave this year.

It's basically all announced, but it's a consequence of the delays in winding down factories and doing different changes at different sites.

So we'll see further reduction of several thousand employees during this year.

Now we can't succeed by just cutting costs.

We also need to grow our revenues.

And the 2 key drivers here are AJOVY and AUSTEDO.

And if we take a look at AJOVY first, then you can see we have a very steady increase in patients, in weekly scripts.

The weekly script count is approaching 10,000, which we hope to hit in a couple of months.

And you can see that the NBRx share, so the new-to-brand share, it's hovering just below 30%, between 28% and 30%.

That basically means that, of course, long term, the NBRx share gets translated into -- NRx gets translated into TRx.

So right now, we are sort of targeting somewhere between, you could say, 28% and 30%, if this stays the way it is right now.

We have sales of $20 million net sales in the first quarter.

That's, of course, only a fraction of, you could say, the nominal product sales.

And that's, as you know, because we are still supporting patients to get on the brand.

And for that reason, we have a low -- very low niche sales.

That's not the consequence of the discounting we're doing.

It's more a consequence of the fact that we pay for patients to get on brand.

And then if they have insurance, we will, on a gradual basis over the year, increase the cash that we're collecting for these patients.

8% of the scripts are on quarterly dosing, which roughly translates into some 20%, 25% of all our patients being using the product on a quarterly basis.

And we have strong growth in the number of prescribers, and we have good access by now.

So all in all, we are very, very happy about the progress of AJOVY, and we do very much look forward to launching this great product, which helps people with chronic migraine in Europe.

And I can just point to also that we just released long-term data on AJOVY, long-term clinical data, and it's really phenomenal good data.

We still see 60%-plus people having more than halving of their migraine days and on episodic migraine we even see 2/3 of people have more than halving of their migraine days.

So really good encouraging long-term clinical data also.

If we look at AUSTEDO.

AUSTEDO is growing very, very nicely as well.

You can see both the TRx numbers, the patient numbers and the revenue is growing nicely.

We do expect to hit our target for the year, which is $350 million in sales.

And we are having very favorable national formulary coverage both in commercial and Medicare Part D. So as you know, we've discussed before, in tardive dyskinesia, there's huge unmet need.

If you look at these TRx counts for quarter, then you should compare it to that in tardive dyskinesia alone that's probably 500,000 patients in the U.S. suffering from this condition.

They had no real efficacious therapy before.

But with this drug, they now have a drug that's indicated for it, and we are very optimistic about the future growth of AUSTEDO, both in patient numbers and in revenue.

If we take a look at COPAXONE, then we continue to see generic competition, of course, and we see a steady increase in the volume that goes to the generic brands.

Right now, we are sort of at the level where we had just below 70% share in the last couple of months.

Last year, we had around 75% share.

So we've lost on share points.

That typically happens when the managed care contracts reset, which is the 1st of January.

So what we saw in the first quarter was that we lost some volume in the market.

And then we had a double-dip because then the wholesalers reduced their inventories because they were seeing lower volumes.

So probably half the reduction you see here in quarterly sales is due to the ongoing reduction in volume and the other half is related to the blip of the first quarter, and we can see that it's more normalized in what we see in the beginning of the second quarter.

So all in all, we are now expecting to have some $800 million in U.S. revenues for COPAXONE in this year.

And of course, in the coming years, it will keep on sliding, and we maintain the level of reduction of around roughly 45% in revenue per year in reduction of COPAXONE revenues.

With that, I will hand over to Mike, who will give you some more details on the financials.

Thank you, Kåre, and good morning, everyone.

We'll start with the review of our GAAP performance on Slide 10.

Teva posted a quarterly GAAP loss of approximately $105 million and the loss per share on a GAAP basis of $0.10 for the first quarter of 2019.

As we'll detail on the next slide, the GAAP results were impacted mainly by impairment charges and recurring amortization.

So turning to Slide 11.

In the first quarter, we experienced non-GAAP adjustments amounting to an impact of $759 million on net income.

The adjustments primarily consists of the impairment of intangible assets and product rights amounting to $364 million and amortization charges of $283 million for the quarter, which is the new run rate level for amortization for the year.

Now turning to our non-GAAP performance on Slide 12.

Quarterly revenues were $4.3 billion, a decrease of 15% compared to the same period in 2018.

The decrease was mainly attributable to generic competition to COPAXONE totaling $310 million, a decline in our respiratory and oncology products totaling $223 million and a decline in our North American generic sales totaling $122 million.

This was partially offset by growth in Anda, AUSTEDO and AJOVY.

Compared to the same period in 2018, we experienced a negative foreign exchange impact of $177 million in revenues.

Net of FX, revenues for the quarter decreased 12%.

Gross margin was 50.1% compared to 51.7% for the same period in 2018.

The change in gross margin was driven by the decline in sales, which I just highlighted, partially offset by an increase in generic profitability and the discontinuation of our OTC joint venture, as a part of the profit share of the joint venture was previously recorded against cost of goods sold.

Operating profit in the quarter declined by 29% compared to the same period in 2018.

The decrease was mainly attributable to the decline in COPAXONE and other specialty brands, which I just mentioned, as well as other -- lower other income.

This declined by $104 million this year versus last.

The higher other income in the first quarter of 2018 was mainly due to Section 8 recoveries from multiple cases in Canada that did not repeat in 2019.

These declines are partially offset by our ongoing cost reduction program.

Non-GAAP earnings per share in the quarter was $0.60, 36% or $0.34 lower than the same period a year ago.

The decrease was mostly due to lower operating profit, partially offset by lower tax provision.

We'll talk a bit more about the trends in revenue and cash flow later in the presentation.

So turning to Slide 13.

We've been highlighting for several quarters now, including our 2019 guidance provided in February, the impact of the stronger U.S. dollar on our results has approximately 49% of our revenues come from sales denominated in non-U.

S. dollar currencies.

We see that the exchange rate movements during the first quarter of 2019 had a negative impact of $177 million on revenue, while the impact on operating profits was much more modest at $58 million.

The main currencies relevant to our operations that decreased the most in value against the U.S. dollar were the euro, Russian ruble, Argentinian peso and Israeli shekel.

So turning to Slide 14.

I'd like to highlight some of the revenue trends we've been seeing throughout the different segments and regions.

Starting with North America.

I'd first like to highlight again the performance of our 2 most recent launched franchises, AJOVY and AUSTEDO.

Both are on track to achieve our annual sales guidance of $150 million and $350 million, respectively.

Despite our North American generics business losing 2 exclusivities from the fourth quarter of 2018, the business generated $966 million in the sales and averaged approximately $1 billion in sales for the last 5 quarters.

North American COPAXONE sales experienced their second consecutive significant quarterly decline, dropping by more than 40% compared to the fourth quarter of 2018 to $208 million as the pace of generic erosion picked up leading to share loss and destocking at the wholesale and retail level.

In addition, we did see some price pressure in the first quarter compared to the end of 2018.

The current annual run rate is now expected to be around $800 million for the U.S. in 2019 versus our previous estimate of approximately $1 billion, as we see sales leveling out this year at about the first quarter level.

ProAir revenues rebounded in the first quarter compared to the fourth quarter, which had been impacted by higher sales reserves recorded in anticipation of generic competition, including the approved generic versions of Ventolin HFA and Proventil HFA.

We launched our own ProAir HFA, authorized generic, at the select customers in January 2019, and these sales are captured in North American generics.

QVAR recovered nicely in the first quarter to $64 million, a level which we see as a good quarterly run rate for 2019.

And sales of TREANDA, BENDEKA declined versus both 1 year ago and the fourth quarter, mainly due to the introduction of competing bendamustine solution or Big Bag in May 2018.

Revenues in Europe grew 5% compared to the fourth quarter on the strength of our generic sales, including OTC products.

They're historically strong in the first quarter due to the cough and cold season.

Our International Markets are down 10% sequentially from Q4 due to expected weakness in our sales of generics in Japan.

We do attribute some of the region's weakness to seasonality and would expect the business to pick up from this level later in the year but still be below our 2018 sales for the full year as we guided in February.

Lastly, other sales were down 16% sequentially.

This is primarily -- this line primarily consists of sales of APIs to third parties, certain contract manufacturing services and an outlicensing platform offering portfolio products to other pharmaceutical companies through our affiliate, Medis.

The decline is primarily due to a reduction of low-margin sales in our contract manufacturing business.

So turning to Slide 15.

Free cash flow for the quarter was $360 million, a decrease of $162 million versus the fourth quarter of 2018, primarily due to the annual incentive payments.

Looking to the remainder of the year, we expect free cash flow generation to be stronger in the second half versus the first half as we move through the current working capital drag on receivables and bonus payments that I highlighted in February.

Turning to Slide 16.

We ended the first quarter with a net debt of $26.7 billion and a net debt to EBITDA ratio of 5.45x.

We did use some excess cash in the first quarter to repurchase approximately $100 million of bonds, due later in 2019.

During April, we also entered into a new $2.3 billion unsecured syndicated revolving credit facility, which replaced the previous $3 billion revolving credit facility that we had.

So now turning to our financial outlook for 2019, on Slide 17.

Today, we are reaffirming our annual guidance that was presented in February, including an earnings per share in the range of $2.20 to $2.50.

This now concludes my remarks on the quarter.

We will open it up for Q&A.

So operator, if you would, please.

Thank you.

(Operator Instructions) And our first question today is from the line of Ken Cacciatore from Cowen and Co.

Just my question is on the cash flow.

Mike, you alluded to some of the puts and the takes.

But just wondering, as we are working through all the cost reduction, we do seem to be pretty tight on operating cash flow and what we're yielding.

Just wondering can you start giving us the sense to what degree this may drive deeper cost reductions.

Any urgency to continue to go beyond the $3 billion?

And can you give us any new road map to how you would achieve that?

Yes.

So let me start and say, the first quarter is affected by, of course, a few items that you don't see in the third and fourth quarter last year.

We have the annual incentive payments that are coming out, that's about $300 million.

You're also seeing, as normal in the first quarter, a little bit of an inventory increase as the factories get back to full capacity after the Q4 holiday shutdown.

We also continue to see a little bit of a drag on accounts receivable that I mentioned in the February guidance that we see this year.

So all in all, I think we'll see better cash flow in the second half than the first half.

Now of course, we monitor this very closely.

As we go into next year, we'll continue to look to make efficiencies in terms of our cost of goods and other places.

But at this point, it's a little early to tell you that we're going to have net savings beyond the $3 billion.

Maybe I'll let Kåre give you a little bit of his perspective on that as well.

Yes, of course, we have the aim to become as effective as any of our competitors, which means that longer-term we need to improve our margins, which is why we have a long-term financial target of an operating margin of 27%, which is higher than where we are right now.

So of course, in order to achieve that, we need to set plans in place so that this happens.

Our plan right now is to communicate more broadly on this once we finish this year.

So once we finish the restructuring of '18 and '19, we will communicate to you what is our strategy for manufacturing and for that part of the cost base.

Our next question is from the line of Navin Jacob from UBS.

Just on AUSTEDO, if you could, previously, you were highlighting patient, now you're highlighting prescriptions.

Just wondering, if you could give us a similar metric that you've done in the past with regards to patients?

Yes.

I'm sure, we can do that, at least give you a feel for.

There's, of course, a very close correlation between the two.

So I don't think there's a big difference.

But I'll just hand it over to Brendan to see what we think about the patient number.

So thanks for the question.

Now look, we see the patient number continue to grow.

We're very happy with where we are with AUSTEDO currently.

And the growth in AUSTEDO from Q4, Q1 continues.

We've seen very strong demand so far in Q2 as well.

So from a patient numbers perspective, I think the numbers continue to grow as well as the revenue, and we're headed towards achieving our goal of $350 million for the year.

And just a follow-up on U.S. generic pricing.

Are you seeing any acceleration in price erosion in Q1 relative to Q4?

And just some commentary on the overall landscape for 2019?

Yes.

I can give you overall and then Brendan can comment on.

If you take a macro view on it and that's confirmed by various external sources, then it is quite clear that we don't see any deterioration from Q4 to Q1.

If anything, we see a continued stabilization of the U.S. generic pricing levels.

Yes, the only thing that I would add to that, Kåre, is that our assumptions for pricing are exactly where we thought they would be, and so we continue to march along that path.

And as you annualized out of the portfolio optimization in the U.S., I know you're still doing optimization ex U.S. But in the U.S., it sounds like you're close to completing optimization here.

Will there be a rebound in price erosion after that's annualized?

So yes, we've completed the exercise here in the U.S. and we've gone through that.

I don't expect there to be a rebound.

We continue to have a competitive marketplace and we respond.

But I think we've seen most of that work its way through the system.

Our next question is from the line of Gary Nachman from BMO Capital Markets.

Kåre, after 1Q results, do you remain confident you could return to growth in 2020, both with revenue and EBITDA, even with the lower COPAXONE level that you highlighted?

And then just on AJOVY, how is this market shaking out relative to your expectations?

Lilly has stepped up their efforts recently with Emgality.

Just talk about the resources you're putting behind AJOVY to compete effectively with both Lilly and Amgen?

Thanks, Gary, I'll give it a shot at both questions, and I'm sure Brendan can give you some more color on AJOVY.

If we look at the earnings and the revenue, then you could say if COPAXONE comes in lower than we expected for this year, it's actually a benefit for next year because then there's less to lose.

So this is kind of like a negative scenario, moving faster you get out of it to get away from it.

So in that sense, it's not bad that we hit the earnings and revenue that we are projecting in the first quarter with less COPAXONE.

That's actually good for us.

So I still expect this year to be the trough year, which basically means that we expect to see better earnings in 2020 than 2019.

Whether we will exactly see it on revenue, could depend on what happens to, for instance, the orphan drug designation for BENDEKA.

Right now, we have it and looks good for TREANDA and BENDEKA.

We hope to keep it.

But, of course, there can be swing factors.

But I don't think there will be swing factors on the revenue that we cannot offset on the earnings.

So definitely, 2019, I still expect that to be the trough year for earnings.

And then revenue, we'll just have to wait and see the details.

But, of course, the lower COPAXONE comes out this year because of the chance that we also have this year as a trough year for revenue because COPAXONE then will lose less in 2020.

And we will have AJOVY and AUSTEDO growing.

As we explained many times, this year, we expect to hit $150 million for AJOVY, $350 million for AUSTEDO and, of course, substantially more in 2020.

In terms of the dynamics, I won't really comment on the competitor products because that you should ask competition.

But I can at least share with you that the dynamics are in a way very much as we expected for our product, AJOVY, but it's a little different from the whole market because the #1 to launch normally holds a good grip on the market.

That's not the case right now.

The neutral brand for the first launch is actually going down very fast, and the last to launch is actually doing very well.

So that's not the normal situation.

There is a slight difference in the mechanism of action between the first to launch and the 2 next ones, so AJOVY and the last one's launch.

We have the same basic mechanism of action, which is by the way why we think that there's a company that has to pay royalty to us, not just in Europe where they have agreed to do it, but also in the U.S. But that's a society issue.

So we are basically seeing that the product that we have and Lilly has seems to have some clinical benefits, which are helping us in the marketplace.

So we are very happy with these 28% to 30% we are holding right now.

And I think that's the kind of level you should expect that we will be holding going forward, maybe with some bigger dynamics between Amgen and Lilly.

But on what we're doing, maybe Brendan you can say a bit more about that.

Yes.

So thanks, Kåre.

So -- yes, as Kåre mentioned, we're very happy with where we are relative to the CGRP market.

The product's been well accepted by physicians.

We're doing very well in the headache centers and with neurologists, which is a big focus.

Of course, we have the prefilled syringe, the other 2 have the autoinjectors.

So while that isn't a significant issue in a once-a-month injection, I think that is a little bit of a drag on our new-to-brand share.

We hope to introduce the autoinjector later this year, so that I think will give us another catalyst.

And as Kåre mentioned, we're very happy with our overall product offering.

Once we get the autoinjector into the market, I think, that we'll have a profile that will be very competitive with our quarterly dosing, 2 different versions in a prefilled syringe and an autoinjector.

And from a commercial perspective, we have the right-sized sales force out there focusing both on neurologists as well as high decile I would call them non-neurology writers.

And so we've got a competitive share of voice.

We continue to monitor that very closely.

And we think that we're effectively resourced right now to compete, and we'll continue to do so.

So we're very bullish, as you know, on AJOVY and happy with where we are.

Our next question is from the line of Liav Abraham from Citi.

You noted $800 million of U.S. COPAXONE revenues this year.

Are your expectations for ex U.S. COPAXONE revenues the same as when you provided guidance in February?

So basically are you saying you are now assuming full year COPAXONE revenues of $1.3 billion?

If you can just confirm that.

And then as it relates to the gross margin, I'd be interested in the comments on gross margin developments in 2019 relative to your prior expectations given slightly lower expectations for U.S. COPAXONE revenues?

Thank you.

I'll answer the first question on COPAXONE revenues, and then Mike will explain what we expect for the gross margin.

So you're absolutely right that we have an expectation of around $500 million for the rest of the world on COPAXONE.

That is completely unchanged.

So that, of course, adds up to $1.3 billion.

There is a little color on it, which is only very positive, and that is, as you might have noticed, the European patent authorities have had a look at our COPAXONE patents and have upheld the patents.

Now it's a little complicated structure in Europe, because once the European authorities, they upheld the -- they uphold the patent, then of course, you need to go out and enforce that in each of the countries.

And we're in the process of doing that.

But this actually has the potential of securing our COPAXONE revenues at a higher level going forward in Europe than we were predicting a year ago.

So we're quite optimistic about the, you could say, the stickiness of the COPAXONE revenues outside of the U.S.

Yes.

So in terms of gross margin, Liav, I think, if you look at the full year, you're probably going to see something very similar to the first quarter, maybe some little swings in up and down.

But we do expect to cover the slight downside in COPAXONE with some other products.

And we're seeing a slightly better margin in our generics business.

So overall, I think, you're going to see us be somewhere in the range for the full year that you saw in the first quarter.

Our next question is from the line of Esther Rajavelu from Oppenheimer.

On AUSTEDO, can you share any prescriber feedback on potentially switching patients over to AUSTEDO in the second of the year?

And then more broadly, can you comment on the pricing environment for AUSTEDO and how you see that trending as the year progresses?

Sure.

I'd be happy to comment on both.

As far as the switching from, either -- from Ingrezza to AUSTEDO, which I'm guessing is the essence of the question.

I think that both of the products are competing in a very early market.

Tardive dyskinesia is a highly unserved -- unmet -- there's a high unmet need in that population, and there's a lot of market growth for both products.

I don't have any specific data to share with you about failures of one going on the other, and I would be just speculating if I did.

So I'll -- I will just reserve my comments to say that AUSTEDO is first-line therapy in doing well in competing with Ingrezza.

As far as the pricing environment, the pricing environment is relatively stable.

We have been proactively working with payers both in the commercial side and the Part D side since launch.

And I think, that goes to show, when you look at our access coverage, I think, 89 in Part D and 85 in commercial or maybe vice versa.

But certainly high in both, and we do enjoy some advantages and access that our competitor does not.

As far as their contracting strategy, I can't really say, but pricing is not really a concern as far as rapid continued erosion.

Got you.

And then, on AJOVY, maybe taking a step back on the larger migraine market, can you share your thoughts on potential impact on MAT usage, if and when oral CGRPs get to market for prevention.

How does that affect the access environment and your messaging to prescribers?

So I think that this is still a rapidly forming market.

There are still -- there's 36 million migraine patients, potential patients out there.

So there's still a huge unmet need, and we continue to see volume and demand grow for all 3 of these agents.

There is a potential infusion on the horizon as well as orals.

We'll wait and see what the oral profile looks like.

Will they have the same efficacy profile, the same side effect profile, I don't know.

We'll have to wait and see when that happens.

But I think that a monthly injection and, in our case, a quarterly regimen is an extremely convenient way to address this problem.

And remember, we competed with a daily injection (inaudible) oral world or even against weekly injections in now 3x a week.

So I don't think -- I think that the market will continue to expand and certainly if more competitors come into the market, those are potential threats.

But I think we're happy with the profile that we have with AJOVY, and we have plans for a significant future growth.

Our next question is from the line of David Maris from Wells Fargo.

First, you previously provided guidance for revenue, EPS and the EBITDA in the press release.

You say that you are reaffirming your revenue and EPS guidance.

I just wanted to confirm whether or not the previous EBITDA guidance of $4.4 billion to $4.8 billion still stands?

Secondly, if you could detail what the impairments were specifically just since you took impairments, large impairments on the Actavis business previously?

And then lastly, there is a lot of drama this quarter, especially related to the stock on opioid liability.

I know there's disclosure in the filings.

But is there any context that you can provide or commentary that you can provide to give us some context around this issue?

Thank you, David, for those questions.

I'll do the first answer because that's easy and then impairments, Mike will comment on that, and then I'll comment on the opioids.

So we are confirming the whole financial -- reaffirming the whole financial outlook, including the EBITDA.

And it's, of course, like you said, between $4.4 billion and $4.8 billion.

So it's a whole thing that we're confirming and that's also what you have on the slide that we just showed.

So that's a very straightforward answer.

Mike, on the impairments?

Yes.

So there was probably about an even split of that $350 million in the U.S. between IPR&D and assets on the market.

We could have a large amount of intangibles.

And every quarter, we look to see if there's changes in the market or changes in the development profile of the IP and R&D assets, and we make the determination for those who no longer can sustain their carrying value that we write them down.

So we had, like I said, $350 million.

Of course, the majority of that towards assets that were purchased in Actavis acquisition.

But as we have a large balance sheet, we will see this occasionally, and we've been seeing them almost on a quarterly basis as there's always fluctuations in timing and the impact of these kind of products in the market.

And then on the opioids, of course, we can't say that much about ongoing legal proceedings.

But I can share with you that, of course, we share the assessment that the misuse of opioids, both, you would say, prescription based, but also illegal opioids, is a significant health care problem and a significant problem for the U.S. And this problem has been created over a long period of time and is very difficult to tackle.

It is, from our point of view, sad to be accused of being a part of creating this problem, given the fact that what we do is we manufacture and provide generic products where we do not do any promotion whatsoever and where we have exact labeling that came from the originator products.

So we are not involved in any kind of promotion of our generic products.

And the few specialty products we have, they are actually for terminally ill cancer patients who are already on opioid therapy and who get breakthrough pains.

So these are people in a very, very tough and sad situation.

The products are covered by a very significant REMS, so risk mitigation mandated by FDA.

They are distributed under very, very strict control.

And we have always lived up to all the requirements, both on the REMS and on the restriction in how we sell the products, reporting everything to FDA and relevant authorities.

So really from my point of view, I can't see anything which we've done, which is wrong, given the law and the rules of pharmaceutical manufacturing and sales in the U.S. But, however, it is a political issue, and I would say, it's a very politically sensitive legal situation on the opioids.

I would not be surprised if these proceedings go all the way to the Supreme Court eventually because it is a principle thing whether you can, in any way, be sort of deemed responsible for something you are doing following all the laws and regulations of the land.

But that remains to be seen.

Our next question comes from the line of Randall Stanicky from RBC Capital Markets.

Brendan, last quarter, you called out Restasis and NuvaRing as potentially attractive opportunities.

And I think some of your competitors are probably thinking about that as well.

Any update on those products or any other potential big launches in the generic segment for the remainder of this year?

And then I have one follow-up for Kåre.

Yes.

So let me just -- I'll answer your question in a macro way, and then I'll boil down on to some of the more specific launches.

We have potential for 80-some launches this year, of which we will probably do about half.

So I think that we've got a nice opportunity in front of us this year.

If we look at some of the bigger launches, NuvaRing is still in our plan for second half of 2019 as -- and Restasis is also still in our plan.

We should know on Restasis I would think by early to mid-summer as to where we are.

So that is an attractive launch.

And I also mentioned that we have the potential for Forteo in the second half of the year, generic Forteo, teriparatide, in the second half of the year as well.

So those would be the kind of the 3 remaining, as you would phrase, the bigger opportunities.

But all of the others are good opportunities as well.

So that's kind of what the launch looks like through the rest of 2019.

That's helpful.

And then, Kåre, last quarter you talked about -- in the context of some additional cost savings opportunities, you talked about the ongoing COGS opportunity to take out cost there.

And you said a 50 to 100 basis point opportunity on a go-forward basis.

Can you just provide some context to that?

Is that 50 to 100 basis points of the overall business on an annual basis?

And where is that coming from?

Because if so that's a pretty meaningful EPS tailwind.

Thanks for that question, Randall.

Yes, it is from the overall business.

So it's based on my experience of optimizing total manufacturing systems in other companies.

And it's -- given at a level we are at right now, we have a roughly gross margin around the 50%, which means there's a big cost base there to work on.

And it's not something that comes easy.

It takes a long time to do it.

It's not something you do just by a few lucky moves.

It's something you do by optimizing thousands of processes and many, many factors.

But my experience is that when you do that in a structured way and you have a clear long-term strategy, then you can improve your gross margin for your entire business with some 50 to 100 basis points per year over a longer period.

So that I can just confirm.

So just to be clear, we should be think -- as we think about the next several years and we look at the Teva's consolidated gross margin, we should be thinking about that gross margin moving higher by perhaps 50 to 100 basis points annually?

You could say that -- we have a long-term target of the operating profit of 27%.

That's higher than where we are now.

Part of that improvement, of course, has to come from the COGS because if we don't improve the gross margin, then it's going to be very difficult to get a significant improvement of the total margin.

So yes, we will be targeting something like that.

We will give you some more details on what we are planning to do once we finish the restructuring.

That means, once we report on the full year of 2019, next February, we'll give you an outline of how we see the ongoing optimization of our manufacturing system.

Our next question is from the line of David Amsellem from Piper Jaffray.

So just on AJOVY, you've commented in the past that steady-state gross to net potentially would be in the 20s and maybe 30%.

And I was wondering if you could revisit or are you willing to revisit those assumptions.

And when do you think that spread will normalize given all the moving parts and, particularly, the heavy subsidization of out-of-pocket costs?

And then secondly, and I apologize if I missed this, but just on Forteo, what's your view on the competitive dynamics, not necessarily during the initial launch in generic market formation but over the long term in terms of the -- how significant the competitive landscape will be?

And what are your thoughts on number of entrants next year and beyond?

Sure.

So let me just comment on AJOVY first, around the gross to net.

So if you look at this market, I think that everybody would say now that demand has been significantly higher than expected and the gross to net has been more challenging, I guess, or deeper than one would expect.

I mentioned 20% to 30% before.

That was early on.

The market has been quite volatile, and I think it's going to be probably north of 40% for many of the players is probably where we're headed.

But I do think that things will start to stabilize.

As we've had conversations with many of the payers, many of them have said that, that the value now and the net price of these medications is to the point where, as we get to a 2020 marketplace, that it will be probably not uncommon to see all 3 products available on the formulary.

So we continue to work through that.

We have about 2/3, about 67% of our patients currently covered with some form of insurance reimbursement.

We ended last year with about 20% of our scripts getting reimbursement, and that number is now up to 50%, and that continues to climb and should converge as we get further along in the year with what our overall coverage is.

So I think that that's probably where we're headed on the growth, and that's probably going to settle out north of 40% somewhere.

I don't really want to comment any more than that, but we'll see where it goes.

As far as Forteo goes and how that products will form, I think that there are -- there is us and there's at least one other that we're aware of.

We don't have an exclusivity on it, but we believe from our own intelligence that, that we'll probably be first to market.

How long we'll maintain that first to market position, I'm not quite sure, but it's not an easy -- it's not an easy product.

It's one of the more difficult and challenging one.

So hopefully, we'll have a decent runway with it where we're either alone or with 1, maybe just 2 other entrants for a while.

Our next question is from the line of Greg Gilbert from SunTrust.

Brendan, another AJOVY question.

You've talked a lot about pricing and reimbursement, et cetera, and gross to net.

But on the SG&A front, are you confident that your SG&A footprint, that is reps and marketing spend and DTC, is adequate in light of some of your competitors being more primary care focused about how they attack this market?

And then, sorry, Kåre, back to the opioid -- the unfortunate opioid subject.

I hear you on your views on who's to blame.

But in the real world of the parties trying to come up with some numbers, I was curious if you think the people on the other side of the table have an understanding and in some ways I agree with you on the different levels of blame for say a branded versus a generic bucket or even the distributor, since you own one of those as well as the company's relative ability to pay.

So maybe you could comment on some of those concepts recognizing that you don't think Teva did anything wrong.

So I think we will go first with the AJOVY question, and Brendan will handle that.

And then Brendan and I will share the answer to the opioids.

Okay.

So as far as the SG&A expenses and being competitive, look, I'm a commercial guy, so I'd always like to spend more money in the marketplace.

But I think that we have to balance our spend with our goals.

And I think that the way that we've moved expenses off of older, less priority products to focus on AJOVY nonsteroid is appropriate.

I think we are satisfied with the market growth that we're seeing with where we are.

We're confident that we'll be able to hit our number by the end of the year, and we continue to look at creative ways to get to our share of voice out there.

So from a sales rep standpoint, I think we're competitive.

Right now, I think we're very competitive in the neurology and headache centers.

I think we are competitive, as I mentioned, with those high decile non-neurology writers.

Things will continue to evolve.

We continue to look at it.

We have not done significant DTC advertising to date.

We will -- we are evaluating that, of course.

The DTC advertising, it is going on benefits to some degree all of the parties out there.

And certainly, we're looking at different ways for multi-channel marketing, which is a little bit more cost effective to get your message out.

So the bottom line in answer your question is that, yes, we would also like to spend more, but I think, that we are appropriately resourced to achieve our goals.

And with regards to the opioids, it can be difficult, of course, to say what the other side of the table thinks.

You know there's more than 1,500 court cases and plaintiffs.

And I guess, in most of those cases, the real plaintiffs are the counties, the states and so on.

They are really not paying anything for starting the court cases.

It's probably being done by the plaintiffs' lawyers who are financing this on a no cure, no pay basis.

So it's a very serious societal issue, which is kind of the common legal game for a large group of lawyers.

And to me, somehow, it reminds me what about alcohol.

I mean, imagine we would say that all the alcohol-related traffic accidents, all the broken families, all the things that happen due to alcohol misuse in U.S., that, that bill should really be picked up by everybody selling alcohol, everybody manufacturing alcohol, all the microbreweries or the big distilleries.

They should really be blamed for the misuse of alcohol.

This is a bit like what you're seeing here.

If you follow all the laws and the rules of the land, how can you at the end of the day be held liable for misuse of products in an illegal and incorrect way.

But, of course, what you're getting at is that the plaintiff lawyers who really sort of run the game, how do they see this, I think they look at where they can get some money.

That's what they are looking at.

And as you know, we have a lot of debt.

So we don't have that much money.

So I think they'll have to find somebody else if they want big settlements.

It won't be with us.

Our next question is from the line of Umer Raffat from Evercore.

I just wanted to focus on 2 specific things.

First was on accounts receivable.

And I guess, my question is, it's clear that less is being recovered in the first half on accounts receivable side.

But I also noticed you're securitizing accounts receivables.

So I'm just trying to understand exactly what's happening there.

Is that a net cash positive or negative on a free cash flow basis?

And the second one is, one of the slides say, you've taken an impairment charge on Revlimid.

Can you lay out for us why that was?

Because presumably you have a settlement in place.

So is it because you don't think there's an approval coming on time or something else?

Yes.

So thanks, Umer.

I'll take both of those.

So there is a securitization program.

This is something that's been in place since 2011.

It's securing some European receivables, which were notoriously tricky to collect on.

So this is, you can see it in the footnotes of our 10-Q or 10-K.

It's a program about a size of $700 million, which turns over several times a year.

The reason you see it in operating cash flow and you see another piece in investing cash flow is, about 2 years ago, the accounting rules changed and the retained portion of these receivable sales, which is the piece that you collect later and not upfront, is now technically considered an investing cash flow.

So you see an exact reflecting mirror of reduction in operating cash flow and a positive investing cash flow.

It's $362 million for this quarter, but it's minus in operating and a plus in investing and no real change net.

There hasn't been really a net change in this program over the last couple of years.

So if you need more, we can always take that off-line and describe that to you a little bit better.

So in terms of the Revlimid, there's no change in our settlements.

But the initial assumptions when we valued this asset at the time of the Actavis acquisition, as it's a file that came in from that side, is that we would have a longer runway as a single agreement with Celgene.

And it appears now that they are starting to settle with some other players.

So we've taken a relook at that, and there is an impairment on that.

It is partially offset by a profit share in the agreement that we also have.

So you're not seeing a huge net number.

But that's the basis for that charge.

Got it.

But just to be clear, they haven't settled with anyone else in U.S.?

No.

But our expectations now are that they will.

So it's just an expectation change.

Our next question is from the line of Elliot Wilbur from Raymond James.

First question for Kåre or Brendan.

Just update us in terms of [spot] situation around generic EpiPen.

You're still expecting basically return to full capacity sometime over the course of the second quarter and any change in sort of your prior expectations of what you will ultimately capture at peak?

And then I want to ask a question around the fasinumab development program.

Looks like there's been a fairly significant change to the long-term safety study.

I just want to get a sense of what drove that?

Was it something you saw that was seen with the asset itself?

Or is there something that's coming out with respect to some of the other NGFs in development?

And maybe just give us a sense of what the time line looks like for that product at this point?

I think I'll do both of those.

EpiPen is pretty straightforward.

We are ramping up the volumes and providing EpiPen to anybody who needs to buy one.

We have the adult version on the shelves.

We're distributing it through Anda.

So any pharmacy who needs EpiPen can just call Anda, and they will get it within 24 hours.

And we're seeing a nice revenue coming in from that.

We will have the junior pen ready for the school start in August.

So we'll be able to supply EpiPen fully to the marketplace.

Right now, we are probably approaching some 20% share of the market that will be increasing.

And of course, we never know what competition will do.

But if there's no real change in the competitive situation, we could be approaching 50% share as we exit this year.

So that's very nice story for us.

On fasinumab, I don't know exactly what change you're alluding to.

There was a change, but that's some time ago, where we took out the high doses.

So we are now testing 1 milligram every 4 weeks or 1 milligram every 8 weeks.

And the reason why we took out the high doses was that we were seeing some safety issues, which is all about the joints, as you know, the narrowing of the joints, and we were seeing that on the high doses.

We have since then had data come out on the lower doses in terms of the short-term efficacy, which looked really good.

And we've also had some safety data coming out, which also looked acceptable on the short term for the low doses that we're continuing in our clinical development, together with Regeneron.

And we will expect to continue those safety studies that are of longer duration.

And then in due time, we will get the data from those and then we'll just have to wait and see.

It's anybody's guess whether this data will confirm that it is a product that can be approved based on its very good safety and clinical efficacy or whether there will be some challenges on the safety.

And that will, of course, be up to both us and the regulators to assist that once we have the long-term safety data.

But we don't have that yet.

The next question is from the line of Ronny Gal from Bernstein.

Couple for Brendan and I've got a follow-on for Kåre.

Brendan, first on AJOVY, the scripts that your physicians are currently providing, is this on a buy-and-bill?

Does it essentially goes into pharmacy benefit?

And will that change?

You expect that segment to continue to be strong because you kind of like alone there or essentially disappears to get the autoinjector?

And then, on AUSTEDO, I was going to spooked a little bit by ESI beginning to manage the category.

In your thinking, is this category going to begin to get managed longer term between you guys and Neurocrine?

Do you expect prices to flatten out and more broadly?

Initially, this all looks this might go to $2 billion range.

Is this more realistic kind of like between $500 billion and $1 billion for peak sales?

And am I supposed to ask the follow-on right away.

Kåre, your R&D is about 5% of your revenue, which is fine for generic company, but it looks like you need something more in the branded size on like the 3- to 5-year horizon to be able to grow.

And I was wondering, should we expect to see R&D at some point beginning to go higher as a percent of sales to accommodate that?

Okay.

So Ronny, I will go first, and I will answer the AJOVY question as far as the quarterly dosing and is it buy-and-bill or is it going to the retail channel.

The vast majority is going through the retail channel through the normal adjudication process.

And I don't expect that to change.

I think the fact that a physician can administer the quarterly dose in the office gives us an option and gives the physician or the patient an option for a buy-and-bill option.

But I don't expect that to become the norm and I don't expect that to significantly grow over time.

As I mentioned, this is -- I think, the original assumption, if you go back 2 years ago, before these products launched, was that this category would be more of a specialty category, but with the WACC pricing and with where the net is, this has really moved to retail, and I think the access will vastly fall for just kind of the regular pharmacy reimbursement.

So definitely a possibility and an advantage, I guess, that we have with the quarterly dosing, but not one that I expect will be real prevalent.

In regards to AUSTEDO, again, I don't want to speculate on our competitors' contracting strategy.

But I don't think this is a sense where payers are trying to pit 2 products against each other.

This is a population that has a significant unmet need and really 2 products in the marketplace that have similar but important differences to the product.

So I don't think this is where you'll see one be exclusive and the other be exclusive and then pivot back and forth.

My guess is, is that -- this is just part of Neurocrine's strategy in that they didn't reach an agreement with ESI and that's why they were excluded.

So we'll see where this goes, but I don't expect the type of price erosion as categories.

I think the original assumptions around AUSTEDO stay intact.

And just a little bit on those numbers.

I mean we did $200 million last year.

We expect to do $350 million this year.

So if it should stop at $500 million, then growth should stop at the end of 2020, which I think with the patient population not being treated out there, that's not realistic.

So we expect AUSTEDO to keep on growing nicely.

On the R&D side, we spent roughly $1 billion on R&D.

And you could see a big chunk of that is for innovative specialty products.

We have about 30 development projects ongoing, about 2/3 of those are biopharmaceuticals.

And we don't really want to share that with anybody right now.

The reason is that we are in the restructuring right now this year and last year.

But our plan is to share more with you once we finish this year.

So once we get to February of next year, we will share a bit more with you on what is our pipeline, what are the different projects we have.

We have some really exciting projects.

There's some overlap in the actual biopharmaceutical R&D machine in terms of pilot plans, clinical development, the early phases.

So we think we can do very efficient R&D, and we can keep supporting the specialty business at the size that we have it now.

Of course, it's only a part of our business, that's the specialty business, and that's what we need to renew and keep on supporting.

And we think we can do that with a total spend of around $1 billion.

Our final question today is from the line of Chris Schott from JPMorgan.

I just had 2 on AJOVY.

The first is just talking a little bit more about the EU opportunity for the drug.

I think historically, ex U.S. has been a smaller opportunity for some of the legacy migraine products.

I was wondering if you see the CGRP dynamics being different and how large of an opportunity could that be.

My second question on AJOVY was just on formulary.

It sounds like you are expecting broader coverage as we look up to 2020.

But as we think about the current environment, has your current coverage been a hurdle at all for physicians in your view?

And are you thinking about broader, kind of, national formulary coverages as further helping with uptake of AJOVY?

Thanks for those 2 questions, Chris.

I'll take the first one and Brendan will take the second one.

So when it comes to AJOVY and EU, then, of course, the unmet medical need is identical and the prevalence of migraine is identical to the U.S. So there is an enormous unmet medical need.

So the next question is reimbursement pricing.

And in the EU, there is an interesting dynamic, which is that biopharmaceutical injectables tends to have significantly higher pricing, more close to U.S. level than we see for tablet therapies.

Now this might sound kind of ironic, but that's actually how it's been for the last 20 years.

So biopharmaceuticals relatively do better on pricing in Europe than tablets do.

And since AJOVY is a biopharmaceutical sophisticated injectable product, we see now that the prices for the competitive launches in Europe are right now at about the same list price level as in the U.S., which means that actually slightly higher.

And of course, since a number of European markets have a net price, which is very close to the list price, this would indicate that the European market could actually end up having a net revenue per patient, which will be higher than the United States, which is something that often doesn't happen that often.

So in terms of the pricing, I think there's a good outlook in terms of unmet medical need.

There's good outlook.

Of course, there are certain hurdles to overcome in order to get access in some of the markets.

So what we expect is to see a gradual rollout with easier markets to get started in which are like -- places like Germany, Scandinavia and so on where we will see the early launches and then Southern Europe coming on later once we work our way through the different authorities that are gatekeepers for launches.

But definitely a very exciting and good opportunity for us.

Brendan, on AJOVY?

Yes.

So as far as coverage in U.S. and formulary coverage, I think, If you look across the 3 CGRP agents, Emgality is in the lead, and that I think was part of their strategy was to get access quickly and work pretty comparable to Aimovig across the spectrum.

So we're on it, Caremark with Emgality.

Aimovig's not.

We're not on the UnitedHealthcare.

We just gained access to Express Scripts National Preferred Formulary April 1. Cigna is also reimbursing AJOVY.

So our coverage continues to expand.

And as I mentioned in previous calls, it's going to be a continued discussion with payers throughout '19 and probably even into the first quarter of 2020.

But I think this eventually settles.

So where we don't have coverage, we continue to have those discussions and try to improve our position.

As I mentioned, I think the 67% that we do have is adequate for us to achieve our goals this year and continue to keep AJOVY growing.

But getting to your question, has it been a hindrance for physicians, I don't think it has been.

The way that we designed our program has been really to make it easy for physicians to write the product and easy for patients to access the product.

And that's somewhat of the lag in gross to net that you saw as we came out of the fourth quarter and into the first quarter is that we designed it so that patients had basically a copay card that would take insurance out of the equation.

So we had time to build the formulary coverage.

And you're seeing that now transition.

As I mentioned that we exited the year at 20% of patients getting a reimbursed script.

That's now up to 15%.

It continues to climb.

So access will continue to be a goal.

We'll continue to improve the access as we go through the year, but the problems that physicians are having, it really isn't that we designed a program to be very efficient for them and hopefully we be able to treat patients with AJOVY.

Okay.

Well, thank you, everybody, for joining us today and participating on the call.

All the materials are on our website and we'll be available throughout the day and tomorrow to speak to you if you have questions.

So take care.

Thank you.

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