Teva Pharmaceutical Industries Ltd (TEVA) 2023 Q4 法說會逐字稿

Hello, and welcome to the Fourth Quarter and Full Year 2023 Teva Pharmaceutical Industries Earnings Conference Call. My name is Alex. I'll be coordinating the call today.

(Operator Instructions)

I'll now hand it over to your host, Ran Meir, Head of Investor Relations. Please go ahead.

Thank you, Alex. Thank you, everyone, for joining us today. We hope you 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 statements on Slide #2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC Forms 10-K and 10-Q.

To begin today's call, Richard Francis, 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 1 hour.

And with that, I will turn the call over to Richard. Richard?

Thank you, Ran, and welcome, everybody. Thank you for joining the call today. 2023 was a transformational year for Teva. We launched the Pivot to Growth strategy to get Teva back to growth. And I'm pleased to say it did exactly that. Moving on to the next slide, here we are. Go back to slide, please. I'd like to remind you that the Pivot to Growth strategy was based on 4 pillars. This is one of our growth engines. Step up innovation, create Generics powerhouse and focus our business. And we're delivering on all 4 of these pillars as I will go through the presentation today. And obviously, you saw today that we've decided to divest our TAPI business, and I'll go into more detail later in the presentation.

Now I will walk you through the numbers on this slide. I'm pleased to say, as I said, we got back to growth in Teva. I would also like to highlight the numbers include the Sanofi upfront payment as part of this collaboration, the ongoing development and commercialization of TL1-A. So terms of growth was 7% and got the sales revenue of $15.85 billion or if we take out Sanofi, it would be 3%. Adjusted EBITDA was up 5%, non-GAAP EPS up 2% and free cash flow up 6%. I'm also pleased to say we made progress on our net debt to EBITDA, and that now stands at 3.45%.

Now on the next slide, I want to go to a bit more detail as to what was driving this performance. So I'm pleased to say that the innovative business performed well. AUSTEDO in particular, grew strongly at 28%, and AJOVY continues to show impressive performance with an 18% growth. With regards to our Generics business, we saw solid performance with Europe growing at 3% and international markets at 14%. And I'm pleased to see the stabilization of our North American Generics business as well.

Now a bit more detail on what's driving behind these numbers, I'll start with AUSTEDO on the next slide. AUSTEDO hit its $1.2 billion guidance that we gave in the U.S., up 20-some percent and strong TRx was contributing to that. I'm pleased with this performance as it shows and clearly highlights the benefit of the additional resources we put behind the brand and the extra capabilities that we built.

And this gives you more confidence that as we move on to the next slide that I can reaffirm the guidance for 2027 to hit $2.5 billion. And a step in that direction is the guidance we're giving for 2024, which is a $1.5 billion revenue number. It's worth pointing out and remembering there are a significant amount of patients and people suffering from tardive dyskinesia that go undiagnosed. And we launched a direct-to-consumer campaign early January to help raise awareness and give these people an opportunity to get help and therapy.

Now moving on to the newest member of our family, UZEDY. We have good growth plan for UZEDY for 2024, and we're giving guidance of $80 million. And this is possible because of the work we did in 2023, where we drove awareness and access. We made good progress across the commercial payers as well as Medicare and Medicaid and ensuring (inaudible) awareness is good as feedback about the product profile and the fact that this fits the patient profile that they will be seeing.

I'd also highlight the size of this market, it's a $4 billion market growing at 6%. So once again, I think UZEDY will contribute to growth this year and in the coming years as well.

Now to move on to the last member of our innovative portfolio. That's AJOVY. We are very pleased with the continued momentum with 18% growth. And you see this growth across all of our regions.

In many geographies, we are gaining market share, which shows the true competitiveness of Teva. It is based on this good performance that we're giving a guidance for 2024, $0.5 billion for AJOVY.

Now another aspect of our delivery on our growth engines and our strategies, our Biolojic Design portfolio, which I'd like to move on to now. I'd just like to highlight the fact that we will be launching 5 biosimilars in the next 4 years, which have an opportunity to contribute to our top and bottom line growth. Now when it comes to biosimilar HUMIRA, we are awaiting an FDA inspection result with our partner site that's based with our partner, Alvotech, it's a site based in Iceland. And based on the successful outcome here, we aim to launch biosimilar HUMIRA this year.

Now moving on to the second pillar of our Pivot to Growth strategy and our pipeline. Eli Kalif will walk you through this in greater detail. Once again, with the strategy and the focus I've mentioned, we've really moved the needle. Olanzapine is completed, the recruitment is starting, and we expect the results in H2 of this year.

ICS/SABA entered the clinic in Q4 of last year. And as you can see, this is an attractive market where we think we have a differentiated product and there's only 1 other competitor. We have good momentum around TL1-A, and we're very excited about the partnership we have with Sanofi to really maximize this asset going forward.

Now moving on to the third pillar of our strategy, our Generics and making this a Generics powerhouse. As I've said in the past, this is based on 3 specific areas we're focused on, 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 to 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, but I just want to just highlight the work we've done on our network. We have closed 3 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.

But now let me talk a bit about the pipeline because we have made some progress here. As you can see for 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 Generics 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. So 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 on to the final pillar and focusing our capital. Today, we announced the intention to divest Teva api. This is in line with our strategy and this will allow TAPI to realize its full potential in the world api market, which is valued at $85 billion. And subsequently allowed Teva to focus its capital on driving the Pivot to Growth strategy primarily focused on our innovative and Generics portfolio.

Moving on to the next slide to give you a guide of 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 year.

Moving on to 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 3 main areas, and these divided are healthy people, and that's making sure we create access to medicines across the planet, making sure people have their medicines they needed 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. And finally, healthy (technical difficulty) everything we do at Teva is compliant and has the highest ethical standards.

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

Thank you, Richard. Moving on to the slide for AJOVY. We know physicians choose AJOVY because of its safety and efficacy as well as its convenient auto-injector, monthly dosing (technical difficulty) but today, I'm excited to show you our recent data that we produced from 2 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 migraine has been maintained for 2 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 8 full days for some patients to achieve a day without migraine. So each month, a patient gets back about a week of their life without migraine. So very important.

Moving on to 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 duration of disease, the short durations of disease but we can show here that the long acting injectable, we could actually not only maintain but improve their quality of life.

This is important for long-acting injectables 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. 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's very much a room to grow and access patients who have tardive dyskinesia. And one of the things we need to do is make sure it is 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 at.

So we ran a study (technical difficulty) and we were pleased to see that 78% of the subjects could finish the titration pack, and we're 90% and 87% adherent. And this is important because getting to the titration pack easily and simply for patients gets those patients up into the right dose ring 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 TL1-A, 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 we'll be having our full clinical package of efficacy and safety in the second half of 2024.

Our anti IL-15 program is finishing up its Phase I SAD and MAD study in healthy volunteers, and we'll present that data in the second half of this year, and we'll also finish enrollment of a 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-PD-1 IL-2 program in 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.

And 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 our main focus being on fourth quarter performance. This will be followed by our non-GAAP outlook for 2024 and same -- and some of the important assumptions behind it.

Beginning on Slide 24, I would like to remind everyone that in October 2023, Teva entered to an exclusive collaboration with Sanofi to develop and commercialize Teva's anti-TL1-A 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 revenues. This upfront payment had a positive contribution of $500 million to both our revenue and free cash flow.

After adjusting for certain transactions-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 the revision to certain GAAP financial metrics in 2022 and 2023 to correct errors related to contingent consideration liability. This provision did not impact our non-GAAP results for either year.

Now starting with our Q4 GAAP performance. Revenue in the fourth quarter of 2023 were $45 million, 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 payments 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 recorded a GAAP operating income of $755 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 (technical difficulty) this year, partially offset by higher impairments, restructuring and other items in the fourth quarter of 2023 with a net income of $461 million and 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 adjustment in the fourth quarter of 2023 and notable adjustments this quarter included a contingent consideration expenses 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 revenue 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 upfront payments regarding our anti-TL1-A 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 58.2% 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 products drive in Europe and 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 the levels of Q3. This was slightly below our expectation, mainly due to timing effects related to a certain element of our costs associated with the 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 a 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 a 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 increase 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 marketing, in line with our Pivot to Growth strategy, partially offset by efficiencies in our (technical difficulty). 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 (technical difficulty) sales driven by EBITDA items, partially offset by the sale of accounts receivable under our U.S. -- 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 (inaudible) litigation that increased our total payments 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 $21.2 billion at the end of 2022. The decrease in our gross debt was mainly due to $1.6 billion repaid maturity partially offset by $102 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 3.45x for Q4 2023. As part of our capital allocation strategy, we expect our net debt reduction to continue as we continue to grow progress towards our long-term target of 2x 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 throughout the year, our products 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 impact 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 began 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, the upfront payment receipt related to our TL1-A assets.

As Richard mentioned earlier, our revenue growth will be driven by continued strong momentum in our innovation -- innovative portfolio and stabilize 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, was to 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 effect 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 (technical difficulty) slightly higher than the tax rate of 13%, which benefited partially due to intellectual property-related integration plan and carryforward losses. This brings us to expected a 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 of $1.7 billion to $2 billion. We do not provide quarterly guidance, but I thought it will be helpful to share how we are thinking about the progression throughout the year.

Overall, based on our expectation today, we expect revenue and earnings to progress gradually during the year, with the revenue in the second half of 2024 to be slightly higher than the first half. Our non-GAAP margins are also expected to (technical difficulty) 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. If you go to the next slide, yes, I would like to just reiterate the financial targets for 2027. Revenue growth mid-single digit, operating margin of 30%, net debt adjusted EBITDA 2x and cash earnings ratio of 80% and reconfirming these as we move forward as we gain confidence on the Pivot to Growth strategy.

Moving on to the final slide. Just to reiterate on the Pivot to Growth strategy will do it to drive growth. Aim was to accelerate growth -- to return to growth in '23 to '24 to accelerate it in '25 to '27. 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. So 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 and '24.

With that, I'll hand it over to the operator to take some questions. Thank you for your attention.

(Operator Instructions)

Our first question for today comes from Glen Santangelo from Jefferies.

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

And I think if I heard Richard correctly, you're assuming gross margin is going to be up perhaps due to product mix. And so it seems like you're forecasting a much bigger ramp in operating expenses, and I could -- 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.

Eli, I think the question is directed to you.

Thanks, Glen, for the question. And so first of all, we are looking on the midpoint, which is $16 million 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. And as far as related to some dynamics to the operating margin, we see ourselves keep growing the OpEx. I mentioned that we are working on the range between 27% to 27.5%.

And that means that R&D between 6% to 6.5%, stabilization around 6.2% in G&A and sales marketing was around 14.5%. And that means that part of our growth will enable us to keep investing in the business. So for your question, when we line up our guidance, we look on our 2023 excluding the upfront payment.

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, and you gave us a lot of the pieces which is helpful. I just want to be clear about what you're seeing in terms of the Generics business in 2024. I mean I could see 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 Generic side, Korlym, teriparatide, Forteo. Can you just sort of flesh out a little bit what you're expecting in that Generics business, just so we're clear on what you're seeing?

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 to the North America Generics business. But just to highlight the fact that our European and international market business, we expect to continue growing well in line with what we did in '23. But to come back to your question about '24 yet, we do have a number of launches that are coming through. We're pleased that we 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. And as we continue to build and improve in 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.

Our next question comes from Ash Verma of UBS.

So just to clarify on 2024 guidance, 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 wouldn't happen this year. That's the first one.

And then secondly, I was just curious like on the North America Generics, I mean, the 4Q 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?

Ash, thanks for those questions. I'll tackle them. So with regard to Sanofi, correct, there is no -- we will not receive any payments in '24. In '25, based on, as Eric highlighted, on a successful interim analysis this year of our Phase II data TL1-A, 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 America Generics question, a couple of things and I'll try and answer all of your questions there. Part of, I think, what you saw was the fact that we don't really have any significant revenue of Revlimid in quarter 4. So that's worth noting. And then if you think about the business, we do have -- we have included in TRUXIMA, which is our biosimilar business, which, as you know, has performed well and generated good revenue over a number of years, but obviously, it's declining steadily now.

So if you factor those things -- those factors in, then I think my comment about we see a stabilization of the North America Generics business going forward, I think it 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 early in the U.S. And so I think the way to think about it is the stabilization. But on that quarterly change, it's really primarily driven by a bit of the portfolio and a bit of relation to our biosimilar single product TRUXIMA. So hopefully that helps, Ash.

Our next question comes from Jason Gerberry of Bank of America.

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 like a big chunky contract as a preferred biosimilar supplier? I know that the other noninterchangeable high concentrates have struggled to get share.

And 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 with innovators playing the rebating game. Or could you leverage like a portfolio play with like an interchangeable HUMIRA, and then layering on top of that, Stelara? So just kind of wondering your overall perspective on what you've observed at the PBM biosimilars and whether you think that there's an opportunity there.

Yes. Thanks, Jason. Thanks for the question. So on the biosimilar one, starting with biosimilar HUMIRA, it really obviously depends on the FDA, given a successful inspection of our partner Alvotech facility in Iceland. Now if that does happen, and we'll hopefully know relatively soon, then it does give us an opportunity to launch. I think there's obviously a lot to play for there still because 2023 was a slope with regard to penetration of the biosimilars. That said, there are a lot of uncertain variables.

Will we get the FDA approval of the site and then be able to launch it and then the timing of that launch. And to your point, how we can penetrate with the PBMs. What I would say is we're having good conversations. People are very interested in hearing about when our product can come to the market. I think a lot of that is based on the product profile, not just the interchangeability, the auto-injector. So I see opportunity here.

The way I've always characterized it is its opportunity over short, medium and long term. I think HUMIRA could add revenue to our business this year. I think it definitely will in '25, '26 and '27. I think the direction of travel will be very clear for biosimilars. I think HUMIRA doesn't define in '23, what happens going forward. So that's why I think about HUMIRA, but we have some (inaudible) there with regard to when we actually get this product approved. I think to talk about Stelara, I think that what I've learned in biosimilars and I've been here quite a long time is 1 product doesn't set the precedent for the next one. And I think Stelara is many things that are different around it.

One, that it has a lot less competitors, for one. And two, we have a clear line of sight of when we're going to be approved, which is -- or we launched which is in February of 2025. So we're very optimistic about that. We see that as a sizable 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 at play. We have 13 assets to bring to the market.

As I mentioned, we've got 5 that we're going to launch by 2027. I think they'll all generate a good return and drive our top line and bottom line. But to be very specific about which ones will generate which revenue and when, I think is we don't want to do because of the unpredictability that we've seen in the last year. So I hope with that, there's some way to answer your question, Jason.

Our next question comes from Umer Raffat of Evercore.

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 maybe 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 CDAI 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 endpoints as the primary basis of determining how the Crohn's trial looked? And 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, Umer. Richard, I'll take those questions, if you don't mind. So 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 enroll 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.

So the criteria is focused on those patients coming into the study right now. With regard to the endpoint, so the endpoints that we've included in the study are the FDA-accepted study endpoints that we 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 endpoints that might change how you see your placebo response compared to your active. So we're confident in the way we've designed the study. We've done this in conjunction with FDA. And then your final question on Korlym, I know that -- Richard, do you want to take that?

I can take that. Thanks for the question, Umer. So we have launched -- commenced -- we launched that, I think, a week ago. So that is launched in the market. And so I think that answers your question.

Our next question comes from David Amsellem of Piper Sandler.

So 1 question on AUSTEDO and 1 on UZEDY. So on AUSTEDO, I 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? So that's the number one.

The 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? Are they naive 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.

Thanks, David. Thanks for the question. So on study, you're right, we have invested significantly from AUSTEDO. We have built capabilities. So it's not just about sales force is about bringing in pharmaceutical expertise. And so we've done that, and that, I think, has been a significant contributors to the acceleration of the product and continued performance.

We aim to make sure that we are competitive in maximizing the revenue of AUSTEDO. But also knowing that to your 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. So as we talk about the $2.5 billion in 2027, this is going to be a major contributor to us driving up our top line, but particularly (inaudible). So we have modeled that out extensively.

With regard to UZEDY, so 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 all risperidone. So it's -- 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 on to UZEDY as well.

So I think that just highlights, I think, what Eric pointed out, how much the physicians like this product profile, primarily the fact that you can get on to therapeutic levels within 6 to 24 hours, which when you 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. So hopefully, that answers your question, David.

Our next question comes from Chris Schott of JPMorgan.

Just 2 questions for me. Maybe just following up on that OpEx comment. You've obviously stepped up OpEx. You're seeing really nice growth in these core drivers. Your pipeline is 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 kind of looking beyond '24?

And then my second question was just a little bit more color on the international Generic 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 if you could just give a little bit more color on the dynamics you're seeing in those markets.

Okay. Thanks for the questions, Chris. The first one, I'll tag team a bit with Eli. I think just to give you sort of a high level on the OpEx, one of the things we 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. And it's really important we invest in those to optimize them and bring them to the 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 investee now allows us to change the trajectory of those products, the speed that we bring them to the market, olanzapine potentially the end of '25, early '26, and that obviously changed, once again, not only our portfolio mix, but the gross margin that they deliver, which obviously falls down to [OP]. So we have thought this through very carefully about that and how we invest and then when we actually start to see some significant pickup in 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. And 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 in our sales and marketing that's still considered a viable element that we had some level of control in terms of prioritization and timing on this level. So this is been controllable items from our perspective.

And then on the second question you asked, Chris, around the international, pleased to see you've seen a good growth there. And 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 and our team have done a tremendous job in doing that. And so we're making sure the prioritization of our resources goes to the markets and drive top line and also bottom line, which is a subcomponent of our Pivot to Growth strategy. So hoping that answers both your questions, Chris, and thank you for them.

Our next question comes from Balaji Prasad of Barclays.

Thank you for the questions. So a couple -- just firstly, on the both your Q4 performance and 2024 outlook, which is pretty strong, midpoint higher than the highest Bloomberg estimate I see. It looks like this has been drowned in the aftermath of the restatement, going with a stock reaction. So can you please provide more color on how this happened and the implications for this after this onetime risk statement?

Secondly, on your partnership with Alvo, considering that Teva has had a greater involvement in the biosimilar 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 to address this issue? And in general, what is the normal resolution which the FDA can accept for such observations?

Balaji, appreciate the questions. So I'll start with the second question, and then I'll hand the first question over to Eli. So 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 1 observation, I think it's -- for us, that is considered a relatively small observation.

What I caution is with the FDA, it's entirely up to them to give their view on whether that allows us -- or allows Alvotech to have that site cleared, but we think that is a good inspection, which shows the huge amount of work that's been done at that site to make it approvable by the FDA. But I was cautioned the FDA has to approve the site first. And so what I'd say, I think Alvotech had put themselves in a very good position, but we'll have to see how that plays out.

And 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 and we determined that there were errors in a single contingent consideration liability and related expenses, which connected to the estimated future of royalty payments. Those errors resulted from exclusions of some payments related to the royalties. And in that way, the fair value and the [remanagement] we need to recalculate.

We set the materiality of those errors and determined that those errors are not material to each one of those periods, '22 and '23. And about this revision of the numbers, which is not restatement, and we actually implement them in those financials. I would like to mention that those errors did not impact at all our non-GAAP results as well as notable results. Our total cash flow from operating activities from financing activities, investing activities. As we speak, we are in progress and a process to implement remediation plan to address this internal control.

Our next question comes from Nathan Rich of Goldman Sachs.

Great. I wanted to follow up on the North American Generics business. I think, Richard, in response to an earlier question, you talked about stabilization in the North America 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?

And then maybe a longer-term question on pricing. Some of the PBMs have talked about moving to kind of cost-plus-drug reimbursement. Just curious if you would expect that to have any longer-term impact on Generic pricing for the industry?

Nathan, thank you for your questions. So I think when it comes to North American. One thing -- what we talk about is, and I think we talked about this early on in the Pivot to Growth. We want to first 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 it back into flat stabilization, we have to see how it plays out. And 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 also -- 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. So that's the way to think about it.

With regard to pricing and what you said about the PBMs saying that, 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 of the Generics bring to the health care industry, to the hospital, to society is not reflected in the price that we can sell them at. And I think that makes a very challenging environment. And I think probably that has led to the PBMs and the payers thinking about actually supply challenges and how do we mitigate those.

And I think this is what this has raised this discussion. With this being a solution, I think there's many others I could also suggest. I think ultimately, you have to have a price that creates a sustainability that allows us to invest in not any 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.

Our next question comes from Jason Gerberry of Bank of America.

Just curious, can you comment on a margin 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 and we try to like think about potential valuations? And 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?

Thank you, Jason. Thanks for your question coming back. So I think with regard to TAPI, I think the idea is what it's going to do for margins. And I'll hand that to Eli. But on the whole, I think pretty neutral with regard to what it does to margin. So I don't think of it as impacting our margins in a positive or negative way. That's probably the simplest way. So 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 on to olanzapine. I'll hand that one to Eric and maybe get more specific about the fact that we fully recruited the study and maybe how many injections we've had.

So I can give you an updated date on that right now. So there's 675 patients in the study that's fully enrolled globally at this point. To date, we've got 2,030 injections completed, no PDSS at this point. That's 62% of our total target that we want for the proper package for this submission so we're well on our way, and we'll monitor this very closely.

Our next question comes from Oleksiy Soroka of ING.

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

Thank you, Oleksiy, 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 maturities. And we are pretty, I would say, positioned very well to manage the maturities of '24 and '25 from our organic free cash flow. And we will have a tower of around $3.4 billion and around October '26, which 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 around it. And -- but currently, we don't have, I would say, any specific needs to go early.

But would you expect to deal with this peak that you mentioned in October 2026 this year? Just prefunded it.

Yes. So it really depends on the dynamics and the weighted average of, I would say, are maturities that we need to turn down, which is at the level of 3-plus percent, that's maturity in '26 and the market now is in the range of 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 that there is kind of enough time, but still, we are reviewing all those strategies around it.

Our next question comes from Madison Aron from JPMorgan.

On your slide, 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?

Madison, thanks for the question. I'm glad you noticed the Slide 14 and the numerous complex generics where 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 into 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.

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. 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 our quarter 1 earnings later in the year. Thank you very much.

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