Teva Pharmaceutical Industries (TASE:TEVA) Q1 2021 Earnings Call

0:00 Good day and thank you for standing by and welcome to the Terra Pharmaceutical first quarter 2021 financial results conference call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session you will need to press star and one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and zero. I would now like to hand the conference over to your speaker today, Kevin Monix, Senior Vice President, Head of Investor Relations. Please go ahead, sir. Thank you, Annette, and thank you everyone for joining us today to discuss Teva's first quarter 2021 financial results. We hope you've had an opportunity to review our press release, which was issued about an hour ago.

0:56 A copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevafarm.com. 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. A reconciliation of GAAP to non-GAAP measures is available in our earnings release and in today's presentation.

1:44 To begin today's call, Cor Schultz, Teva's Chief Executive Officer, will provide an overview of the first quarter, recent events, and priorities going forward. Our Chief Financial Officer, Eli Kalif, will then review the results in more detail, including our 2021 financial outlook. Joining Cor and Eli on the call today is Brendan O'Grady, Teva's Head of North America Commercial, who will be available during the question and answer session that will follow the presentation. Please note that today's call will run approximately one hour. And with that, I'll now turn the call over to Cor. Cor, if you would, please. Good morning, good afternoon to all of you, and thank you for dialing in. We are presenting today Q1 2021, the financial highlights, and we have a set of solid numbers to present to you.

2:32 Our revenues came in at $4 billion, which we see is a good result given the Thank you for joining us today. We had one pay down of some convertible bonds in the period and net debt is now reduced to 23.2 billion US dollars. And then last but not least, we reaffirm our 2021 outlook and Eliyahu will show you some more details on that later in the presentation. Next slide, please.

3:26 Now, if we take a look at the quarterly revenue, then I'd like to remind you of a couple of things that's been happening when we look back and compare. We have a normal run rate of around 2 billion in North America and around 1.2 billion in Europe. But if you go back to the first quarter of last year, then you see on the dark green that the European numbers, they were significantly higher than normally coming in at 1.4 billion. Now that was the 200 million patient level hoarding of products related to the start of the COVID-19 pandemic. That reversed in Q2 last year, so you see Europe dropping down to 1 billion instead of the normal sort of 1.2 billion. So that swing factor, of course, means that our comparator is more challenging in the first quarter of 2020 than it is in the second quarter of 2020.

4:19 Apart from that, we have a couple of special cases that you can also see in the numbers, and that's really both in North America. That's the first quarter of 19. That was the very successful launch of Troxema. and the fourth quarter of 20. That was a very successful launch of the generics to Truvada and Atripla. So those things kept in mind. We see a good result for the first quarter of 21. We still see that the underlying volume is reduced in Europe simply due to the fact that less people go to the doctor, less people go to the hospital due to the continued lockdowns in the first quarter of this year. We do expect the COVID-19 lockdowns to slowly ease here during the second quarter, but really see the hopeful return to normal volumes in the third and the fourth quarter of this year in Europe.

5:13 If we move to the next slide, please. On Osteto, we saw US sales of 146 million in the first quarter. This is an increase of 20% versus last year. We always have a dip in the first quarter. You can see that also happening in 20 and in 19. And that's a consequence really of the insurance system in the US where you have these resets of deductibles and other elements that typically lead to lower script volumes in the first quarter and then a resumption of growth once you get into the second, third, and fourth quarter. We are expecting to see that also this year. We are seeing more than 35,000 prescriptions now in the first quarter, and we continue to see future growth of this number. We're also focusing on expanding access and availability of Osteto, especially to the tardive dyskinesia patient population.

6:07 As you know, there's around 500,000 patients suffering from tardive dyskinesia in U.S., and we are so far only delivering Osteto to a fraction of this population. So we will be starting DTC advertising in the coming months, and hopefully this will be a further driver behind the strong growth of Osteru that we foresee for this year. Next slide, please. With regard to Adobe, as you can see here, we continue to see a growth in our TRX count. Of course, some small variations, but underlying a strong development of the total number of TRX. and we do see sales globally of 48 million in the first quarter.

6:54 31 million in North America and 16 in Europe. We've seen a uptick in our neutral brand script rate in BRX and it's right now around 25%. We wanna try and drive this higher and we'll be working hard to do so in the coming months. In January this year, we just launched a triple pack which is a further sort of example of our quarterly dosing and the convenience that we offer to patients who are seeking preventive therapy for their migraine by taking adjovi once a quarter. Next slide, please. We're also now at a stage where we have launched in the majority of European markets.

7:39 So we have now launched in 19 European markets. And as you can see from this slide, The European market is now growing. You have it to the left, the total market. It has basically doubled within the last year, and we expect it to continue to grow. We are seeing a nice growth in our share. We did not launch as the first company in this class in Europe, but we can see that when we launch, we start taking share, and it's been growing very, very steadily, and we expect it to continue to grow. We have especially strong positions in Germany, Nordic, UK, and some of the other main markets. So with regard to Adobe, I'll just repeat what I said last time that we are still bullish on our market share and we do have an aim to have one third of this market as a target over the coming years.

8:32 Next slide, please. I showed you the nice effect we had on sales when we launched Truxema and we continue to see a very strong penetration of Truxema. We are now up to more than a quarter of the market. 26% is the latest data point we have on our share of the market. And as you know, we are the only retoximate biosimilar that also has the indication for RA. So we are very optimistic there will continue to be a strong position for Troxema in the market in the coming years. Next slide, please. Our portfolio, as we've discussed earlier, we see it as nicely balanced between biosimilars, novel biologics, and different improved versions of small molecules.

9:24 And I'm especially happy that we got such good results on risperidone-LAI. This is a long-acting novel therapy where you can subcutaneously dose for a month or two with risperidone. and this will be very, very beneficial for people suffering from schizophrenia, lead to better compliance and a better therapy for these people. So very much looking forward to filing this very soon and hopefully launching it next year. Apart from that, we have, as you know, a long list of biosimilars moving into the market over the coming years and some exciting lifecycle management, both for Feminesimab and for Osteto. Next slide, please. One of our key targets, long-term financial targets, that we've set for the end of 2023 is our operating margin. And as I'm sure most of you know, the target is 28%, and we're also showing this here at the end of the line, so to speak, on this graph.

10:26 The reason why the margin came down, as you probably also all know, was really the significant loss of revenue from Copaxone going generic in the US and in Europe. and that really drove our margin down from the level of around 28 down to 24.5% in 19 where it bottomed out. We continue to see a nice improvement. We are still standing firm on the target for 2023 and this quarter, as an example, we had a actual margin of 27.1. Next slide, please. So talking about the long-term financial targets, not much new here. They're completely unchanged. The target for operating income margin is 28%, cash to earnings above 80, and net debt to be down below three times.

11:14 So nothing new here. We're still committed to utilizing cash flow to pay down debt, and we do not plan to raise equity. Next slide, please. Now, at Tether, ESG is everyone's business, and it actually always has been. We've always been very focused on both environmental, social, and others. But we are getting better at reporting what we are actually doing. And our next report on this, our next ESG report will come out soon on May 4th and I can only encourage you to take a look at it. It will explain in much more detail how we are minimizing our impact on the environment, how we are taking a lot of steps to secure equity and good access to our medicines. how we're dedicating ourselves to quality ethics and transparency and a lot of other good topics.

12:07 You can see some of them here, but it's a whole long report that will be coming out in a week's time that shows our strong progress and dedication to ESG. With that, I'll hand over to Eliyahu who will give us some more details on the numbers. Thank you, Cor, and good morning and afternoon to everyone. I hope you are all having a great start to 2021. I begin my review of the first quarter 2021 financial results on slide 15, starting with our GAAP performance. Revenue in the first quarter of 2021 were approximately $4 billion, a decrease of 9% compared to the first quarter of 2020. This decrease was mainly due to a lower revenue from generics, OTC, respiratory, and Copaxone in our Europe segment as well as lower revenue from our distribution business Copactone and Bendecca Trianda in our North America segments.

13:02 This was partially offset by higher revenue from generics in our North America segment as well as from OSTEDO. Revenues were also affected by the impact of COVID-19 pandemic. I would like to remind you that when comparing the year over year performance, please note that the first quarter of 2020 benefited significantly from the high COVID-19 related revenues. Furthermore, Please note that Q1 2020 included the generic product sales in Japan totaling 41 million and approximately 240 million for the full year 2020. As we communicated on our Q4 2020 earning calls, as of February 1st, 2021, these products were divested along with the manufacturing site in Japan.

13:50 Exchange rate movements during the first quarter of 2021, net of hedging effects positively impacted revenue by 74 million compared to the first quarter of 2020. In Q1 2021, we recorded a GAAP operating income of 434 million versus 191 million in Q1 2020, GAAP net income of 77 million versus 69 million in Q1 2020, and a GAAP earning per share of 7 cents versus 6 cents in the same period a year ago. The year-over-year improvement in GAAP operating income Net income and earning per share was mainly due to a lower intangible assets impairment charges partially offset by lower profit in Europe along with a higher legal settlement and loss contingencies.

14:41 Turning to slide 16, you can see that the net gap adjustment in the first quarter of 2021 were 621 million versus 766 million in the first quarter of 2020. Non-Gap Net Income of Non-Gap EPS for the first quarter of 2021 were adjusted to exclude these items, with the largest being amortization of purchased intangible assets totaling $242 million, the majority of which is included in cost of goods sold. This quarterly amount for amortization is slightly below the range of $250 to $260 million per quarter that we guided today at the start of the year. Impairment of assets and accelerated depreciation totaled $134 million in the first quarter of 2021.

15:31 This includes an expense of $79 million for identifiable intangible assets impairments compared to expenses of $69 million in the first quarter of 2020. I would also note that in the first quarter of 2021, we recorded an expense of $104 million in legal settlement and a loss at the lowest contingencies. The expenses in the quarter was mainly related to a provision for a potential patent settlement. Now moving to slide 17. We review our non-GAAP performance. Corey and I have already reviewed the first quarter revenues, which total approximately $4 billion. So let's move down to the P&L and look at the margins.

16:17 Despite a 7% year-over-year decline in total non-GAAP gross profit, Our gross profit margin improved to 53.8% compared to 53.1% in the first quarter. The year-over-year increase in a non-GAAP gross profit margin was due to a favorable product mix as well as our ongoing efforts to improve our cost of goods sold. A relatively flat operating expenses-based health to partially counter $167 million declined in our non-GAAP operating profit versus Q120. and resulted in a non-GAAP operating margin of 27.1%. We ended the quarter with a non-GAAP earning per share of 63 cents, a decrease of 70% versus Q1 2020, mostly due to the lower operating profit.

17:11 While I will touch on the guidance later in my presentation, I would note that the first quarter came in as we had expected it to and as we guided in February. Now let's take a brief look at our spend base on slide 18. Year over year, our quarterly spend base declined by more than $200 million. The main driver for this change was a reduction in our cost of goods sold as operating expenses were flat. Decline in sales had the greatest impact on the reduced cost of goods sold, supported partially by our ongoing efforts to improve our gross margin through the transformation of our network. Based on the first quarter as well as an expected modest uptick in operating expenses in the second half of the year, we believe our spend base will come in at approximately $12 billion for 2021.

18:06 Now turning to free cash flow on slide 19. Teva's free cash flow in the first quarter was $59 million versus $551 million in Q1 2020. As you know, Teva's free cash flow tends to face headwinds at the start of the year due to usual timing of annual bonus payments paid out in the first quarter. But the headwind was especially large in the first quarter mainly due to timing of working capital items resulting from increase in net accounts receivable and inventories as well as lower profit in our Europe segment. Please recall our 2021 free cash flow guidance which we provided in February and are reaffirming today. 2021 free cash flow is expected to be in the range of 2 billion to 2.3 billion. We expect this free cash flow pick up during the next three quarters as we are driving inventory improvements as part of other working capital items. While our free cash flow was relatively lower for the first quarter, we remain on our objective of 80% or greater free cash flow conversion as part of our long-term financial targets.

19:19 Turning to our outstanding debts on slide 20. Net debt declined to 23.2 billion versus 23.7 billion at the end of 2020. Our net debt to EBITDA slightly increased to 4.9 times versus 4.83 times at the end of 2020. It's worth noting The sequential drop in EBITDA moving average totaled from 4.9 billion in Q4 2020 to 4.7 billion in Q1 2021. Recall that the first and fourth quarters of 2020 were particularly strong, benefiting from higher COVID-related cells in Q1 and the launch of generic Truvada in Q4. The second quarter of 2020 saw reversal of the COVID-related stocking, and the first quarter of 2021 saw a lower sales of Generic Trovada resulting in the sequential decline in EBITDA moving annual total.

20:16 Debt reduction continues to be our primary focus and main use of cash as we continue to push forward in our efforts to bring our net debt to EBITDA ratio under three times by the end of 2023. Upcoming maturities include $1.5 billion in the third quarter and $1.2 billion in the fourth quarter. which will be covered by our liquidity and expected cash flow. So now turning to our financial outlook for 2021 on slide 21. Today, we are reaffirming all components of our annual guidance that was presented in February, including total revenues between 16.4 billion to 16.8 billion and earnings per share of $2.5 to $2.7.

21:05 Looking at the progression of both sales and earnings throughout the year, we are not changing the color that we provided in February. We still expect a gradual pickup in the second quarter following the first quarter, which is expected to be the lowest of the four quarters for the sales and earnings. Overall, we will expect that approximately 48% of our 2021 sales will be generated in the first half of the year and approximately 52% in the second half. For annual earnings per share, approximately 45% will come in the first half of 2021 and approximately 55% in the second half of the year. And this concludes our review of Stevel's first quarter 2021 results. We will now open up the call for questions and answers.

21:53 Operator, if you will please. Thank you. As a reminder, to ask a question, you will need to press star and 1 on your telephone. To withdraw your question, press the hush key. Please stand by while we compile the Q&A roster. As a reminder, one question per questioner followed by a follow-up question. Your question will be taken in the order they have been received. And the first question comes from the line of Balaja Prasadu from Barclays. Please ask your question. Your line is now open. All right, good morning and thanks for the question. There's Balaji from Barclays. So firstly, on Ejo, we just want to understand the sense of what will be the key growth drivers in Europe, considering that you have touched almost all the core markets there and what's going to drive the market share from 22% to 33% goal and by what timeframe.

22:50 And on Generic's side, just one quick question on deflationary comments, which have come through from the likes of Walgreens and Sandals yesterday. and Teva doesn't seem to have been touched by it, especially this quarter. So can you kind of help us understand what were the offsetting factors here which helped you weather any generic deflationary trends recently? Thank you. Thank you very much for those two questions. So if we start with the first one on Europe and Jovi and how do we see the growth drivers, Then the key growth driver is, or that two key growth driver, one is the underlying market growth. As you saw, the market grew more than 100% in volume over the last year. We expect this to continue. There's a nice uptake in almost all markets of this class.

23:40 So that's one element. Then, as you know, in Europe, you have quite stable, quite good pricing. That doesn't really matter so much. It just means that there's no real change there expected. And then we really have a very, very good product offering. We have the fact that we have the longest acting product, which basically means that it's possible to take it once a month or once every three months. The experts, they like that. We have the fact that we have a really nice auto-injector. and many more. basically means that we see that market shares continues to tick up.

24:41 So when I say we expect to reach 33%, it's really a continuation of that graph you're seeing in our deck. And I expected that with some smaller deviations, we'll see a continued uptick in market share over the coming years. And that means that it will not be very many years before we will hit those 33% in the European market. With regard to your second question, Then I'll get back to the ice machine that I introduced before the previous call. So it's so that with all generics in the U.S. market, it is this ice machine where the new ice cubes in the machine drops down. and they're big and they contribute a lot to revenue and profitability because they're brand new and if you're lucky you had a first to file so you're alone for 180 days otherwise you're maybe one out of one two three companies that hit the market with a new generic once it goes off patent and then gradually more competitive competition comes in the ice cube starts to melt and becomes less and less significant and there's price erosion as more competitors enter into the marketplace Now, we had some classical ice cubes, you could say, in the fourth quarter of last year with the generics of Truvada and Tripla that we launched.

26:07 And they made a good contribution in the fourth quarter. They also made a nice contribution in the first quarter. And then we have some, I would say, slower melting ice cubes. And that's typically what you see within what I would call complex generics. When you talk complex generics then you will sometimes see that the products will not get as much competition because it's simply complicated to make the product. and that's the case for instance for EpiPen. So we have a generic version of EpiPen and that is still having nice revenue, nice market share. We also have a generic version, an authorized generic of ProWare. That's also a complicated product because it's an inhalator, a respiratory product. So that also has a good position.

26:55 So you can say that there's a little difference in how fast the ice cube melts. If it's a traditional solid oil dosage form generic, then typically you get a lot of competition, which means a relatively faster price erosion. If it's a complex generic, it goes a little slower. So it's really a combination of these factors that meant that we had a nice performance of our generic business in the first quarter. Thanks for the question. Thanks, Dr. Thank you. And the next question comes from the line of Gary Nachman from BMO Capital Markets. Please ask your question. Your line is now open. Hi, good morning. What have you been doing to help make the Truxema launch successful?

27:41 So talk about the dynamics behind the scenes, how you've been able to navigate with the payers and physicians, which gives you more confidence. Biosimilars can be big contributors for you going forward. and then a follow-up. Just the much lower free cash flow in the first quarter, could you explain some more how the working capital impacted that and what you're doing to change that throughout the year to get to the target that you talked about in the guidance? Thank you. Thanks, Gary, for those two questions. Brendan will answer the first one and then Eli will answer the second one. So over to you, Brendan. So thank you. You know, I don't want to give away too much of our commercial strategy really on Truxima, but I will just comment in general to say when you think about Truxima or you think about biosimilars in general, there's biosimilars that will go through kind of a medical channel and there will be biosimilars that go through more of a retail pharmacy channel. So the strategies are somewhat different.

28:43 as to how you navigate that. And if you think about Teva, Teva has a strong specialty business and of course obviously we have a very strong I think it's the capabilities of both of those organizations, the way we're structured, bringing those together that have made us successful in the way that we've approached the biosimilar launches of recently with Truxema. So I think I'd probably leave it there. I think that we are well positioned to continue to do well with Truxema. We'll grow Truxema in 2021 over 2020. will probably flatten out in the out years and then a slow decline, which will replace as we launch new biosimilars. So I think that probably answers the question.

29:28 Over to you, Eli. Thanks, Brendan. Let's have Eli's comment on the cash flow. Eliyahu, are you on mute? Sorry. Thanks for the question. I would say that if we will trend the working capital in average versus our revenue, I would say that we are up by 1% to 2% of our annual revenue, and this is mainly due to sequential increase between the inventories due to demand behavior and also the mix in Q1 in terms of revenue and how this one resulted with actually payment terms inside revenue that actually contribute to that one. Although those one we consider it as a non-recurring event swing that we're actually working to stabilize it already with a lot of actions underway.

30:27 Thank you, Eli. Thanks for the questions. Thank you. Thank you. And the next question comes from Jason from the Bank of America. Please ask your question. Your line is now open. Okay, guys. Thanks for taking my questions. I guess first question was just on gross margins. Just kind of curious if you could talk about conceptually how you're thinking about quarterly phasing. It seems like Truvada was an offset against the seasonally soft Afito, which has the 1Q pharma seasonality dynamics. So just curious how you're thinking about progression gross margins as the Truvada exclusivity comes off. And then my second question is just coming back to from a biosimilar perspective. Can you give us a sense right now what proportion of the U.S. oncology market where prescribers aren't operating to prescribe the drug with the highest average selling price given the markup dynamics effectively where providers participate in sort of capitated or value-based constructs where lower cost alternatives could potentially gain traction?

31:37 Thanks. Thanks Jason for those two questions. I'll address the gross margin and then we'll get back to Brendan on Truxima again. So on the gross margin, just to clarify, Truvada is not a main element to the gross margin in the first quarter. And basically the reason is, just to explain a little bit again about the ice cubes, that Truvada launched in the fourth quarter with 180 days exclusivity. but technically how that works in the marketplace is that then you know after the 180 days you will get competition and then in order to make sure you have a steady flow of products in the market you sell the product and some of the sales you have you don't record because you know that the moment that the generics number 2345 launch then you will have to give a rebate to the wholesalers who bought your Truvada and a Tripta for that matter.

32:36 So that means that the Truvada sales, they are there in the first quarter, but they are more significant in the fourth quarter. That's why I mentioned them in the beginning, that you could see the bump up in U.S. sales in the fourth quarter, and then of course there's something in the first quarter, but not really something that dramatically influences the gross margin. So I would rather say that the underlying performance is driven by the constant Thank you very much. is really because we know that the thousands of small sub-projects we have in manufacturing is improving our gross margin and the way we handle our total product portfolio is improving our gross margin. This is something that doesn't come easy.

33:45 It doesn't come overnight. And I've said many times that you should expect that we can do this to the tune of 50 to 100 basis points per year. But you could also expect that once we get to 23 and we hit the 28% operating margin, Then, of course, we don't really want to stop there. We want to keep on improving the way we operate and keep on improving our gross margin as we go further. So some quarterly fluctuations, nothing dramatic. Underlying steady improvements, 50 to 100 basis points per year. With that, over to you, Brendan, on Truxima. Sure, so when you look at biosimilars and you think about the commercialization of those products, launch order matters. So if you launch first or second, you're going to get significant value.

34:32 You launch third or fourth, you're going to get some value. You launch after fourth and, you know, the value declines rapidly. So Tarxima launched first. We were able to make significant inroads in the market. and then when the second product came out they had some difficulty getting traction but then of course we got an ASP they didn't have ASP as you talked about so they had an advantage grew share and it cost us more to keep the share that we had so that's really the dynamic it's very much like generic each time a new entrant comes into the market there will be a period of time where they have an ASP advantage where they don't have one of the others do That allows them to gain traction and share in the market. And it makes it more expensive to keep your share because it erodes your price and your discount, so to speak. So that's really just the dynamic. It works very much like a generic market.

35:24 I think when you look at Truxema, again, we'll continue to grow share as we go through 2021. and as we get into 2022 and 2023, we'll see that flatten and then probably decline slowly over time. Thanks for the question. Thanks for that question. Thank you. And the next question comes from the line of Umrah Fahd from Evacor. Please ask your question. Your line is now open. Hi, thanks so much for taking my question. Yes, Uma, I'm sure you're keenly aware of we are in active litigation in California with four entities there. So I can't really make any specific comments due to the fact that we are in active litigation. I can tell you that we have all the time since we sort of went into the framework agreement

36:59 have been supporting a settlement to the benefit of people suffering from substance abuse in the United States. And we're still seeing that as the only good solution to this issue. So that's really how much I can say. Sorry that I can't give you more details on that. With regard to generics in Europe, then as I commented at the beginning of this call, we are seeing here in the first quarter A continued volume reduction in Europe OTC and generics, as we also saw in the third and fourth quarter of last year. So we have not come out of lockdowns in the big markets. That's still the case here in the second quarter. So we're still seeing, for instance, France, Italy, Germany having some level of lockdowns. However, we are also seeing vaccination rates come up. Thank you very much.

38:12 such that third and fourth quarter this year will see more normal patterns of doctor visits, hospital visits, and so on, and a more normal volume of OTC and generics in Europe. Thanks for the questions. Thank you. Thank you. And the next question comes from the line of Greg Gilbert from Trust. Please ask your question. Your line is now open. Thank you. My first one is perhaps for Brendan on generic Narcan. Can you update us on the opportunity and what happens next there and whether that could become part of a broader settlement framework discussion given its sort of potential benefit? And then Cora, a bigger picture question. With the turnaround phase of the company well underway and the margin progression and the good progress we've seen, I'm curious how much time and energy you and the board are spending on thinking about positioning Teva for growth Later in the decade, beyond the assets you've already identified as worthy of your investment, are you considering licensing, bolt-ons, et cetera, things that you can bring to the party beyond what you already have?

39:23 And as part of that, I'm curious as to whether your answer would be different if you had a settlement in hand with a set amount of cash outflows over X number of years. Is it sort of a We can make a list now, but we can't execute on it because of that uncertainty. Just curious if your answer would be different if you had the bird in hand in terms of knowledge of liability size and pacing. Thank you. Thanks for the questions, Greg. So the first one goes to Brendan on Narcan. Yeah, so I really don't have much of an update on Narcan. We continue to work on it. I think we still have some legal issues that we're working through with it, but as to whether it could be part of a broader settlement or not, I'll leave that to court to answer.

40:11 But just real basically, you know, we continue to work on Narcan, and when we're ready to introduce it into the market, I will certainly let you know. Yes, and with regard to potential settlements and Narcan, it's the same boring answer that really due to the fact that we're in active litigation, I can't comment on it. I can comment on your second question about how do we see the strategy going forward. And as you probably know, it's really our vision for the company to continue to be leaders in generics. and many more. Our financial position, and that is really not related to whether we have a settlement on opioids or not. Our financial position is such that we are totally committed to reducing net debt below three times EBITDA.

41:15 And once we get past that point, then you'll probably see that we will continue to be very capital disciplined, very cash disciplined, and probably want the debt to continue further down Thank you very much. To the extent it's possible within those targets, we do, of course, do in-licensing. We have been in-licensing early-stage assets. We have been in-licensing different biosimilars. So it's not that we don't do it, but we just don't do any M&A.

42:05 We don't go out and buy Phase III products or already-launched products. So we are very disciplined in how we allocate the capital, and we will stay in the course of that at least until we hit the end of 2023. where we will hit our long-term financial targets. Thanks for those questions, Greg. Thanks. Thank you. And the next question comes from the line of Ronnie Gull from Bernstein. Please ask your question. Your line is now open. Thank you very much, guys, and thanks for taking my question. Just a quick clarification and then a couple of questions. The clarification is on QBAR. Have you stopped reporting that and why? Then the two questions I have is what's happening with the CGRP market? It looks like Two of the three companies, the way we track the scripts, look like had a significant reduction in the price we see by dividing revenue by scripts in the first quarter. I was wondering if this is just inventory or an agreement of their agreements that drove that down, if you can comment on that.

43:03 And then more broadly, Cor, you know, some of your peers have adopted that strategy of licensing second wave products in established markets from from China, for example, you know, that Coheris adopted there with the PD-1. And that seems to be a logical strategy if you have a sales force in the oncology market. And I was kind of wondering if you guys considered doing those kind of licensing deals for, you know, second wave branded products as opposed to biosimilars, or is there a reason why that strategy does not match that law? Thanks for those questions, Ronnie. Could you just clarify once more exactly your first question? I didn't completely get it.

43:48 No, QVAR. QVAR is not anyone you're reporting, and I was wondering if you could just simply stop reporting that number. Okay, so I don't have a firm answer to that. I guess it's something to do with the thresholds of revenue and so on. That's my guess, but I'll just refer to Eli and he can maybe fill us in on what the thresholds are and why it really isn't there. But it's not something that I've been involved in discussing, just to let you know. So, Eli, do you have any comments to that? Why is it not specified? Yeah, Ronnie, this is Kevin. It is really just a threshold and we are still supporting the product. but the sales have dropped to a level we just did not include it.

44:34 Okay, got it. Okay, so nothing dramatic happening there. Then on the licensing, We're really not pursuing this, you could say, second wave of patent protected specialty products. It's really not within our strategy. So what we are pursuing is our own specialty products and, of course, given the size of our portfolio, that is a limited number of launches that you'll be seeing, you know, once a year, once every second year, we'll have probably a product that we can launch. And then we are pursuing biosimilars and generics. It is a possible strategy you could have adopted, but that's really not what we're trying to aim at. Thanks for the questions, Ronnie.

45:20 Thank you. And the next question comes from the line of Elliot Weaver from Raymond James. Please ask your question. Your line is now open. Good morning. First question for Cor and perhaps Brendan, just thinking about for your guidance for Ajovi, Asteto in light of 1Q performance and recent prescription trends, particularly with Asteto, seems like obviously there has to be a significant acceleration in the back half of the year to kind of get to those numbers. Just help us think about your confidence in those numbers given what we've seen sort of year to date. I guess, you know, what has to happen there? Is it just mainly script volume or is there something that I might not be thinking about in terms of that may swing in your favor fairly substantially in the second half. And then for core, just maybe thinking about potential hidden pockets of value in the company's proprietary pipeline, you have a couple of novel biologics programs in the respiratory area, 48574 and 53275.

46:26 Anything you can say about where those fit kind of in the current asthma treatment paradigm and what maybe some of the Thanks for those two questions. The first one, I'll just say I'm very confident in our Thank you very much. Suga get the approval and do the launch of Jovi in Japan at the end of this year. But of course, the bulk of the business for Jovi will still be in the US. This is also the case, of course, with Osteo.

47:26 But over to you, Brendan. Yeah, sure. Take Jovi first. So if you think about Jovi. We continue to grow the share nicely. I mean, we're up to, we basically, since the launch of Auto Injector, we've doubled the total prescription share as well as the new-to-brand share. And new-to-brand share right now is hovering at around 25%. We think we can get that into the 28 to 30 range. But to do that, as we've grown share, we made significant investments in access and in patient assistance to facilitate that share growth. As we move to the back half of 2021 and into 2022, as we improve our access, then we'll have a more balanced approach in regards to share growth as well as revenue generation. So I think you can think of it that way.

48:14 And as Horst said, we still believe that the guidance that we put out is certainly achievable. If you think about Assetto, Assetto also had a 20% share growth quarter over quarter. It started out maybe a little bit slow in January, February, which is not unusual. Typically, you see increased demand in the fourth quarter. People's benefits, they know they're going to change in the first quarter. So you see somewhat of a slow start but we do think that the 950 is an achievable target and something that is built into that number which you're not aware of and I'll make you aware of it here is that we're starting a DTC campaign, a direct-to-consumer campaign around tardive dyskinesia and osteto that will kick off with Mental Health Awareness Month here in the month of May just starting here in the next couple of weeks. We think that that will be a significant catalyst to helping us get to that guide that we put out. Thank you for the question.

49:12 Thanks, Brendan. With regard to the two products you mentioned in respiratory, these two products are biologics that are in phase two clinical development. And the thinking behind them is really that what they offer is better efficacy and better convenience for patients. So what we're hoping to do with them, and it's too early to give any details on it, but what we're hoping to do is really to be able to position them in a way where they're both Thank you very much. on these, but we hope to see some of it. I can't remember the exact dates, but I think some of it in 22 and some of it in 23.

50:18 Thanks for the questions, Elliot. Thank you. And the next question comes from the line of David Anzern from Piper Sandler. Please ask your question. Your line is now open. Thank you. So high-level question as a starting point. As the business evolves into more of a focus on biosimilars and complex generics, and we hear those terms thrown around a lot by the U.S. majors, including yourself, how do you think about the potential for divestitures? And I'm asking that question broadly, you know, given how you're thinking about the evolution of the business. So that's number one. And then number two on Osteto, I just wanted to drill down on the direct-to-consumer campaign.

51:09 To be clear, is that a function of any sort of worry about maturation and volume trends? And is that a signal that even though penetration rates for VMAT2s are low, Perhaps, you know, there's needs to be more heavy lifting in terms of winning over hearts and minds in the psychiatry community. Just help me understand the thought process there. Thank you. Thanks, David. I'll answer the first one and then I'll pass the question on to Brendan. So when we talk about divestitures, then it's important to explain the process we've been through in connection with our restructure and really look at all our businesses and we have basically sold everything that we thought was not strategic.

52:06 There might be some small bits and pieces left and we've just sold a few bits and pieces. The old generics we had in Japan, we've sold those. We've sold a few OTC products in Scandinavia. But there's nothing major left. So don't expect us to announce all of a sudden that we're selling a big chunk of the business. We are committed both to the complex generics and biosimilars, but we're also committed to solid oral dosage forms, classical generics. And we have to remember that Biologics will be an increasing part of what goes off patent over the coming years as it has been the last five years. Thank you.

52:57 And we will now take our next question from the line of Nathan Rich from Goldman Sachs. Please ask your question. Your line is now open. Thank you and good morning. Cora, could you remind us your expectations for generic price erosion in the U.S. that's assumed in guidance this year? And do you expect this to be fairly stable over the course of this year? Just, you know, wondering if you think there'll be any change in the competitive dynamics in the U.S. as the FDA gets back to kind of more normalized inspection activity. And then I wanted to ask a follow-up on gross margin. Eli, do you think that you guys can kind of continue to build off of this level that you set in the U.S.? You've made nice progress on gross margins over the past several quarters. I think you also called out some mixed dynamics that were favorable in the first quarter here. And so I just wanted to get a sense of kind of what the key moving pieces are on the gross margin line over the balance of the year. Thank you.

53:58 Please, operator, we need to answer the questions from David. We answered about the divestitures, and then we got cut off by you introducing the next question before we answered the question about Osteto and the DTC in the U.S. So, David, you'll get your answer now on Osteto DTC in the U.S. I'll introduce by saying we're not doing this due to any weakness in Osteto, but simply to reach more people with tardive dyskinesia. But, Brendan, please fill us in on the DTC for Osteto in the U.S. Yeah, Cora, I think that's exactly right. The reason for the DTC and OSPEDA, we've been looking at DTC for a period of time, and the real reason is we see strength in this market and we see a lot of opportunity in this market.

54:48 There are 500,000 patients estimated with tardive dyskinesia in the U.S. We've got about 30,000 patients currently treated, about 6%. So the upswing and the potential is huge. So it has been shown to be sensitive to DTC advertising and it's really just a matter of resource allocation. You know, we think that the trends that we've seen with Anstetta are strong. We think it makes a significant impact on patients' lives. And to be able to put some direct-to-consumer advertising out there to educate patients who may not even be aware necessarily that they have it, that there's something available for this treatment, could be of tremendous value. So that's really the rationale behind the DTC, and we look forward to seeing those results, which will probably start to show up in Q3 and Q4 this year.

55:41 Thank you, Brendan. Now we'll move to the next two questions that were asked. And the first one is about the erosion on generics. And I'll answer this one and just reiterate that in our two key markets, it's of course different. So in Europe, we don't see much price erosion. It's really a question of when things go off pattern, they shift to another price level. And then that price level is relatively stable. So no dramatic changes there. In the US, of course, we do see price erosion, and I won't repeat the whole ice machine analogy, but just say that some ice cubes melt a little faster than others, and it's basically like we've been discussing, so that the complex generics often get less competition, so they keep an attractive pricing for a longer period of time, where more simple products...

56:31 In a few years they get, you know, two, three, four, five competitors and the price goes down significantly. There's no dramatic change from the way we analyze the business this year compared to last year. We see, of course, the normal level of erosion of pricing on generic products as they get older. But we also see good launch prices for new launches of generics. So all in all, no big changes there. Then we have a question on the gross margin, and I'll refer that question to Eli. Yes, so on the gross margin, as we did in 2020, when we topped 1% on the gross margin, that actually contributed an additional one point to our operating margin. This is what we see now in our planning for the year.

57:18 So we expect it to be at least by 1% versus 2020, so call it like 53.5, and that will actually contribute to the level of 27 plus in OPI. Thank you, Ellis. I think we have time for one more question. Thank you. And the last question is from Daniel Busby from RBC Capital Markets. Please ask your question. Your line is now open. Sorry about that. Can you hear me? Yes. Yeah, connection issue. Thanks for squeezing me in. First question on Sizinumab. Just curious if your plans or outlook for that product have changed following last month's advisory committee meeting for Tenezumab.

58:08 And we're still waiting on long-term safety data there. When should we expect that data? And second, just on generic price fixing litigation, could you remind us what the next steps are here and when's the earliest date we could see a potential trial whether that be on the civil side or the DOJ side. Thank you. Thank you for those two questions. So, of course, we were watching the Tenesumab adcom and the vote that came out there was, of course, disappointing. It was a vote on the REMS, whether it was sufficient for Tenesumab. There hasn't been any sort of complete clarification on FDA's point of view on the product itself, so to speak, with the different REMS, but it's definitely a negative for the product class.

58:55 and right now with Fasinomab, we are having, you could say, all non-essential costs are on hold and we are looking forward to discussing the product together with Regeneron. We are looking forward to discussing the product with FDA. So it remains to be seen, but of course we're disappointed about the results of the outcome for Tanezomab as an indirect indicator that it is a difficult path forward for Fasinomab. On the generic price-fixing litigation, I think it's fair to say that the COVID-19 pandemic in the US has slowed down proceedings in the legal system, and it basically means that on the criminal side, we don't have any clear time schedule for when this will move to trial, but it will be a, I would say, significant period of time before that happens.

59:50 and I think on the civil side, it's pretty much the same. So no real updates on the timing. We'll just have to wait and see how things progress with the legal system in the US getting back in gear now as the pandemic is reducing its impact in the US. So thanks for those two questions, Daniel. Thank you everybody for joining us. As always, we'll be available to take questions throughout the day, rest of the week, and we look forward to connecting with you all soon. Take care.