Teva Pharmaceutical Industries (TASE:TEVA) Q3 2019 Earnings Call

0:00 at this time all participants are in listen only mode. There will be a presentation followed by a question and answer session at which time if you wish to ask a question you will need to press star 1 on your telephone. I must advise you the conference is being recorded today. I would now like to hand the conference over to your first speaker today, Kevin Mannix. Please go ahead. Thank you Laura and thank you everyone for joining us today to discuss Tevis third quarter 2019 financial results. Thank you very much. Thank you for joining us.

1:18 To begin today's call, Cor Schultz, Teva's Chief Executive Officer, and Mike McClellan, Teva's Chief Financial Officer, will review the third quarter results. Question and answer session will follow their presentation. Joining Cor and Mike on the call today is Brendan O'Grady, Teva's Head of North America Commercial. And with that, I'll now turn the call over to Cor. Cor, if you would, please. Thank you, Kevin, and welcome, everybody. It's a pleasure to review the third quarter highlights. Our revenues came in at a bit more than $4 billion, very much in line with the last three quarters as we've been discussing before. We are seeing now a nice stable development of our revenues. Our gap diluted loss per share was $0.29 in the third quarter. This was primarily affected by the cruel for the opioid litigation.

2:10 On a non-gap basis, our diluted earnings per share were $0.58. The primary change there was a change to the tax, estimated tax for the full year, and that reduced the EPS by around $0.04. The non-GAAP EBITDA is around a bit more than $1 billion. It's very stable, again, the last three quarters. So really the take-home message here is we are seeing the operational stabilization we've been talking about. We can see that the run rate on the operating profit is stable, and we also saw a nice cash flow of some $550 million in the third quarter. So all in all, we're very happy about the financial results.

2:55 Commercially, I'll touch upon a few topics. I'll touch upon North American generics. the nice growth we see on Osteto, Trixima, which is a new launch we're having in biosimilars. And then of course also on the restructuring program and then positive development on NETDEAD. But let's go first to the restructuring and take a status on that. So if we can take a look here at the actual spent base in 2017, it was $16.3 billion. As some of you might recall when we announced the restructuring nearly two years ago, we promised we would bring this down by $3 billion to an absolute number of $13.3 billion in 2019. We are perfectly on track to doing that.

3:43 You can see here that the MAT right now is $13.4 billion. but of course as we swap the fourth quarter last year with the fourth quarter this year, when we complete the year, we can see from all indications that we will hit the 3 billion cost reduction. This has of course come through thousands of actions and initiatives around the world. We've seen the number of FTEs go down by more than 11,500 and we're also in the continued process of restructuring our manufacturing network and right now we have in the period closed down or sold 11 sites and we have five more sites where we have announced that they are in the process of being closed or divested by the end of 2019. So we are approaching just above 60 manufacturing sites and that's of course a very complex and ongoing process but that's the background also for the reduction in the spend level which we are very of course satisfied with.

4:41 The long-term target remains a reduction of our net debt CVDA below three. There's no change there. And we continue to allocate by far most of our cash flow to the reduction in debt. And I'm happy to show you here that in the same restructuring period, we have so far been able to reduce the debt by 8.3 billion US dollars. If we look at the global generic sales, then you can also see a stabilization here. Of course, these sales will always swing a little bit quarter by quarter, depending on the actual launches that we're seeing. But we've seen a very high number of launches this year. I think year to date in the U.S. alone, we have about 40 launches. So we see a very healthy business, basically driven by the fact that we have more generic projects in the pipeline than anyone else.

5:36 and that naturally leads to a high level of launch activity both in the US and in Europe and in the international markets. So I'm very satisfied with that stabilization and it goes hand in hand with an overall stabilization of the pricing environment both in North America and in Europe on generics. If we look at Osteto, then the successful penetration of the market continues both for Huntington's Dyskinesia and for Tardive Dyskinesia. And if you look at the revenue, it's a little up and down per quarter, but that's more due to random elements of shipments and so on. And we continue to see a strong growth and we expect the product to keep growing.

6:23 I've told you before that in Tardive Dyskinesia, we have an estimated patient population potentially of some 500,000 Americans suffering from Tardive Dyskinesia. and we have one competitor, but between us and that one competitor, we are still only at a very low level of patients receiving treatment in the US. So we're quite convinced that this product can keep on growing for the foreseeable future. If we move to Adobe, then Adobe is off to a very good start. We see increased revenues. We have a normalized TRX share right now of around 19%. We've seen a weakening of the neutral branch here. We contribute this to the lack of us having an auto-injector and as the class is penetrating more and more, we see patients deciding to go for products that have an auto-injector.

7:19 We're expecting a positive clarification with FDA on the approval of our auto-injector for the US in the coming months and we've just received a positive opinion from CHMP in Europe So we will be launching the auto-injector in Europe also in the coming months. On Copaxone, I'm happy to share with you the sales numbers for the third quarter. We saw a very stable development both in North America as well as in Europe. So this is of course very positive. We continue to see a slow erosion in the TRX count in North America. and we are optimistic that we will maintain a significant business in capacity both in North America and in Europe.

8:13 One announcement we've made today is the anticipated launch of Truxima, the first approved rituximab biosimilar in the US. We'll be launching on November 11 and this will be with the full oncology label. This is very exciting because, as you know, part of our strategy is leadership in biopharmaceuticals, including biologics such as biosimilars. And so far, we have seen biosimilars penetrate less in the United States than they have been penetrating in Europe. We believe that there are several reasons for that. And one of the reasons is that in order to penetrate, you need, of course, competitive but you also need dedicated patient support and services and you also need a good commercial footprint in the area where you're penetrating and due to our long experience and strong position in oncology we believe that we know how to penetrate this market to the benefit of both patients and payers in the oncology space in the United States.

9:21 So this is going to be very exciting and I'll be sharing with you in three months how we actually end up performing. I'm sure that one thing that's on everybody's mind is the opioid litigation situation. We were happy to settle the track one, but we were even more happy to see an agreement in principle with a group of Attorney Generals. We believe that the agreement in principle is the best way forward for the Patients, the people in the United States suffering from addiction. We believe our commitment to supplying Suboption Generic for the next 10 years to all the people suffering from addiction who can use this product to get out of their addiction and can be an element in that whole process. That's the best way forward.

10:19 We hope that this framework will materialize and that in materializing together with other defendants, we will be able to help alleviate some of the burden from the misuse of opioids in the United States. If we look to the future focus and the present focus, then of course we remain focused on maximizing the profits from our existing core businesses. We remain focused on increasing the sales our new brands such as Osteto and Adjovi and I should add that we are working on the launches. We are launching Osteto and Adjovi in more countries as we speak and also in the coming period. We are executing on our biopharmaceutical R&D strategy and I'll be sharing more of that with you in February and as well in February I'll share with you our manufacturing strategy which will of course be focusing on delivering efficiencies and optimization.

11:24 And all of this we do to secure a strong free cash flow and of course secure the debt repayment. And before I turn over to Mike, I would like to add a few extra elements. One is a warm thanks to Mike for the great collaboration I've had with him over the last two years and for everything he's done for Tether. As you know, Mike is leaving the company for personal reasons, and he committed to stay on until today, and I'm very grateful for that. We have announced today also that we have appointed a new CFO, Eli Kalif, who has a strong background in finance and manufacturing, as well as other relevant elements for us. He will be starting on the 27th of December, and until then, I'll be your interim CFO. So with that, I'll hand it over to Mike.

12:23 Thank you, Cora, and good morning, everyone. As always, we start with a review of the GAAP performance on slide 15. Teva posted a quarterly GAAP loss of $314 million and a loss per share on a GAAP basis of $0.29 for the third quarter of 2019. As I'll detail in the next slide, the GAAP results were impacted mainly by an update to our legal provision associated with the ongoing opioid litigation. So turning to slide 16, in the third quarter of 2019, non-GAAP adjustments amounted to $951 million impact on net income. The adjustments came primarily from three items, $460 million provision for legal settlements, generally related to the opioid litigation, amortization charges of $255 million, which is a normal quarterly run rate for us, and $204 million impairment to intangible assets.

13:16 I'd like to take a minute and give you some insight into how we calculated the legal settlement provision as it relates to ongoing opioid litigation. As you recall that in Q2, after considering the 85 million settlement we had with Oklahoma and its unique characteristics, we further evaluated the potential settlement scenarios and outcomes for the purpose of determining the size of the provision we would take. And in accordance with accounting requirements As no single scenario was considered to be most probable at that time, we recorded the minimum of these estimates, which in Q2 was approximately 500 million. Since then, we've had two additional data points, which are A, our Track 1 settlement with the two counties in Ohio, and B, the not-yet-finalized agreement in principle on a nationwide settlement framework announced on October 21st.

14:06 These data points and other factors were taken into consideration in our ongoing evaluation of potential settlement scenarios and the outcomes which resulted in increasing the provision by about $450 million to its total of approximately $1 billion. As in accordance with the accounting requirements, when no scenario is considered most probable, we are required to record the minimum of these range of estimates. In addition, this quarter we took an impairment of $204 million, which brings the year-to-date impairment number to approximately $1.2 billion on intangible assets. These are mostly comprised of intangible assets and product rights, as well as IPR&D assets related to the activist generics acquisition.

14:52 Now turning to our non-GAAP performance on slide 17. Quarterly revenues were $4.3 billion, a decrease of $265 million, or 6%, compared to the third quarter of 2018. The decrease was mainly due to generic competition to Copaxone, a decline in revenues from Trianda and Vendeka, and lower sales in Russia and Japan. This was partially offset by higher revenues from the progress of our launches of Estado and Ejovi in the U.S., a recovery in QVAR, and strong trends in our end of business in the U.S. Gross margin was 49.3% compared to 49.9% for the same period in 2018. The change in gross margin was driven by the decline in Copaxone and Vindamustine revenues in the U.S., which were partially offset by improved profitability of our North American generics business and growing sales of Estado and Jovi.

15:46 Operating income in the quarter declined by 5% compared to the same period of 2018. The decrease was mainly attributable to the decline of Copaxone and other specialty brands. These declines were partially offset by cost reductions in Europe as well as increased sales of Estado in the U.S. Non-GAAP earnings per share in the quarter were $0.58, $0.10 lower than the same period of last year. The decrease was mainly due to operating profits and higher tax expense, partially offset by lower financial expenses. I'd like to take a minute, though, to describe what we're seeing in the development of our expected tax rate for 2019. At the start of the year, we guided for an expected tax rate of approximately 16%. We now expect our annual tax rate for 2019 to be closer to 18%. The increase, which is mainly driven by U.S.

16:37 losses which do not have a tax benefit, Interest expense disallowance coming from the further development of the U.S. tax reform in our accounts and other changes to tax positions. The change in the tax rate in Q3 plus the catch-up for the first two quarters of 2019 reduced our Q3 EPS by approximately 4 cents, as Cora mentioned earlier. Turning to slide 18, we have been highlighting for several quarters now, including in our 2019 guidance provided in February, the impact of the stronger U.S. dollar on our results since approximately 50% of our revenues come from sales denominated non-U.S. dollar currencies. We see that the exchange rate movements during the third quarter of 2019 had a negative impact of $55 million on revenues, while the impact on operating profit was smaller at $22 million. The main currencies relevant to our operations that decreased the most in value against the U.S.

17:35 dollar were the euro at 4% and the pound at about 5%. We expect that the U.S. dollar will remain strong for the remainder of the year. Turning to slide 19, free cash flow for the quarter came in at $551 million, an increase of $383 million versus the second quarter of 2019. The significant increase in free cash flow in the year was mainly attributable to the expected improvements in working capital that I previously guided to. I'd remind you that the working capital was a drag on cash in the amount of $365 million and $345 million in the first and second quarters, respectively. However, working capital was basically neutral in the third quarter of 2019. So turning to slide 20, we ended the third quarter with a net debt of $25.7 billion and a net debt to EBITDA ratio of 5.62.

18:29 We are especially pleased to see a reversal of the upward trend of the ratio from the previous four quarters, as this is the first time since the activist acquisition that we've seen a decline in this ratio. In the course of Q3 2019, we did borrow $500 million under our revolving credit facility and we subsequently repaid $400 million of such borrowings. During the month of October, we repaid the remaining $100 million and as of today, we have no outstanding draw on our revolving credit facility. So turning to the financial outlook for 2019. Today we are advising our five main financial targets based on the performance of the first nine months and what we're seeing for the fourth quarter. As you can see on the updated outlook, we've basically brought up the bottom end of the ranges of all of our parameters. Where we end up in these ranges will be determined mainly by the penetration of the Trixima launch in the U.S., Copaxone trends, foreign exchange effects, and our product mix in our generic business for the rest of the year.

19:33 Lastly, on a personal note, as you know today remarks my final earnings call as Teva CFO. I'd like to say that it's been a real honor and privilege to serve in this position the last two years. I'm especially proud of the work that my talented and dedicated group of employees in this great company have accomplished, and I believe the company will only grow stronger in the future. I wish Eli Kalif great success as he takes over this important role. and to the members of the investment community, I've always appreciated your thoughtful questions and helpful feedback and our investor goal and relations goal has always been and will continue to be to communicate with the investors clearly and concisely as we possibly can. Thank you and now we'll open the floor up for questions and answers.

20:18 Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Please be advised you will be limited to two questions. If you have more than two questions, we kindly request you go back to the queue. Your first question comes from the line of Elliot Wilbur. Please ask your question. Thanks and good morning and best wishes to you, Mike, and thanks for all your help over the past couple of years. Question specifically with respect to gross margin performance in the quarter, a little bit lighter than expected, and I know there's been quite a bit of focus on that this morning, sort of given how important that is to ultimately reaching your operating margin target. I guess drilling down through the numbers a little bit, it looks like everything in terms of segments was essentially flat sequentially with the exception of the international business.

21:12 down about 200 basis points. So I don't know if that's a function of exchange or just plant utilization, but maybe you could just drill down on those dynamics a little bit more and sort of talk about what accounted for the relative softness there. And then as a follow-up for, I guess, Cora and Brendan, just maybe some thoughts on kind of overall CGRP market dynamics in the U.S., Thank you very much for those questions. I think Mike will take the first ones, and then I'll give it a go at the second one, and then Brendan will add to that. So, Mike, you go first. Yeah, so we did have a sequential dip if you look Q2 to Q3 in the gross margin percentage, but we also had that last year, so it's a little bit of a normal pattern in the year. We do expect that the full year and the Q4 will get back towards the 50%. If we actually look at what drives that in the Q3, a couple things. You're right, the international markets, we saw a little bit of a lower gross profit percentage there. Mainly related to Japan, we've seen some product mix there that's a little bit light in the quarter.

22:41 We also have a little bit higher write-offs in the quarter versus what we've had in Q2. That tends to happen in the summer months as you have some planned shutdowns and they reevaluate the write-offs of products. But we still feel good that we're on track for roughly 50% for the year, and you should see around that level in Q4. and on the overall CGRP dynamics in the U.S., I would just say that from an overall perspective, we're still very optimistic about this segment. We see very good reception in the marketplace in terms of efficacy. We see a constant good flow in, as you mentioned yourself, of NBRX. which means that the market continues to accumulate so we're still very optimistic on this segment and also internationally we are only just starting to launch in Europe and in the rest of the world but we believe this will be a strong worldwide segment. Brendan, do you have any further comments?

23:40 Yeah, I would just comment, Cor, that I think if you look at this segment, as Cor mentioned, it's a very effective class of medications and I think you saw a lot of early pent-up demand and I've said since the beginning 2019 it was going to be a bit of a roller coaster. I do think that the market levels out a little bit and continues to grow and I think that we'll play a significant part in that growth. Thank you, Brian. The next question comes from the line of Ken Cacciatore. Please go ahead. Your line is open. Thanks so much. Court, you're doing a great job trying to resolve this litigation but can you just give us a sense of are we making any progress with those that are not part of this early agreement that you have so is there any progress being made as you try to bring the rest of them under the tent and then also in terms of the upcoming debt that you have due in the next couple years can you just talk about Thank you very much for that question.

24:45 I'm sure that it's on everybody's mind. The litigation on opioids and what I'll say on that is that the framework has of course been developed together with the four AGs that have been sort of been party to this and it was started based on the track one case that was coming up as you know in Cleveland and the way it's developing is basically that there's a framework that everybody agrees to and that will serve, you could say, the American public and will serve the people suffering from addiction very well.

25:32 We have made a 10-year commitment to supply a key component in the treatment pattern for people suffering from addiction. Some of the other defendants have made commitments to provide significant financial resources also over a longer period of time and I feel this will be a very, very good way to move on because at the end of the day what matters is really if we alleviate some of the burden from the people who have problems with addiction. Now that being said, of course, I realize that this will only work if everybody comes together. I very much hope that everybody will come together. That was the whole idea behind it. That's what the AGs have been signaling to us. It's a process that's ongoing. I'm sure it's an interesting and dynamic process, but I have high hopes that we will succeed in the end to the best of the American public but also to the best of everybody involved.

26:29 Now, when it comes to the ongoing, you could say, challenge we have that we need to secure refinancing in order to serve our debt, then I don't think it's a major issue. I think what matters here is that there's a willingness to look at a longer period here, to look at like a 10-year period in order to resolve the issue. And that of course means that on a short-term basis, given the fact that as we just discussed, we have a high debt and we have a high net debt to EBITDA ratio, then the fact that we were looking at a longer-term solution is a positive for our ability to, on an ongoing basis, refinance our debt. And maybe, Mike, you have a comment. Yes, you know, we regularly assess the market conditions as they relate to refinance or debt. And at this point, we can't comment on specific refinancing plans, but I think we've mentioned in the past that we would like to get out in front of the 21 maturity sometime, you know, latest in the first half of next year.

27:31 So we'll continue to monitor the market conditions and look at refinancing when it makes sense. We have been encouraged by the recent moves, both in the broader market interest rates as well as in our own secondary rates. So, you know, there is some things that we will look at and assess the market as the time comes. Thank you. We will now take our next question from the line of Esther Rajavelu of Oppenheimer. Please go ahead. Good morning. A couple quick ones. On Osteto, can you update us on the Tourette's Syndrome readout? Yes, sure. So we expect to have the final results of Tourette's in the first half of next year. And, of course, as soon as we have the final results, we will communicate them to the market. At this point in time, we don't really have any further information.

28:25 But, of course, we very much hope for a positive outcome to the benefit of patients suffering from Tourette's. Gotcha. And then you mentioned in the press release on investing in some early-stage R&D projects. Can you help us understand what they are and when we might be able to see some of the new flow on those? Yes, we have a strategy where we are pursuing R&D in biopharmaceuticals. Now that's innovative biopharmaceuticals and it's also biologics such as biosimilars. And we will be communicating more in depth on the R&D strategy and the portfolio in February in connection with our full year announcement. Right now, all I can say is that we have approximately 25 pharmaceutical projects, and it's a very, I think, exciting portfolio that fits with our commercial footprint as well.

29:21 But I don't have any further comments today. Okay. And then lastly, any updates on the price-fixing litigation? There's no real update there. We are in ongoing dialogue with the Department of Justice. We have, of course, shared more than a million documents with them. We have not found any evidence that we were in any way part of any structured collusion or price fixing. But we remain, of course, in dialogue with the Department of Justice. Thank you. Thank you. The next question comes from the line of Greg Gilbert from SunTrust. Please ask your question. Thank you. Cora, I know you plan to update in February on this, but you did replace your head of global ops a few weeks ago, so I was hoping you could provide a little more color on that and update us on your progress to streamline your global operations and reduce cost of goods. It seems like cost of goods is the next frontier in terms of cost reduction at Teva, given the low-hanging fruit you probably already picked in the other lines.

30:27 My second question is for Brendan. When do you expect approval for generic versions of Forteo and NuvaRing, and can you update us on expected launch activity in general in the coming months? Thanks. So thanks for that question. You're absolutely right. Of course, it's a key topic for us to ensure that we can long-term improve our operating margin and our gross margin. And you could say that... Thank you very much. in global complex manufacturing and margin improvements.

31:21 So I'm convinced that the management team will be able to Thank you very much. by far the biggest cost element in our P&L on the manufacturing. So that's, of course, a key focus area for us going forward. But more details on it in February. And then on to you, Brendan. Yes, so as Cora mentioned, we've launched 40 generic products year-to-date. We have another five to eight that we'll complete by the end of the year.

32:10 NuvaRing, Forteo, and Restasis, none of those are in the 2019 plan. We likely won't launch Forteo before the second half of 2020. Nuber Ring has been moved out to 2020 and Restasis could be any day. We just don't really know kind of on that one. So whenever the FDA approves it, we're operationally ready to go. Thank you for the call. Thank you. We will now take our next question from David Welsinger from Morgan Stanley. Please go ahead. Your line is open. Thanks very much. Two questions, please. First, with respect to the proposed opioid settlement, could you just explain how Teva accounts for the $23 billion in free Suboxone over 10 years from a financial exposure standpoint in reserves?

33:09 So how you book that into reserves or do not book that into reserves? and then with respect to Jovi, could you talk about potential formulary changes in 2020 and any opportunities to improve its position that we should know about? Thank you. Thank you very much. I'll take the first one and then Mike will probably add something to it and then Brendan will address the Adobe formulary question. So if you go back to the half year announcement, then at that point in time, as you know, we have had the first settlement in Oklahoma. and the way the accounting rules are that if you have a settlement but you don't know really what the end result will be for the whole issue, you have a partial settlement, then what you're supposed to do is you're supposed to assess what the likely outcomes are.

34:03 And if there's not one outcome which is the most likely, then you'll pick the lower end of the range of outcomes that are sort of within the likely scenario. So since then, of course, we've had two things happening. We've been settling the track one in Cleveland, and then we have the framework, which still has not been finalized, meaning that we don't have it sort of in a final form, and we don't know exactly how it's going to play out. So we've taken all these things into account, including the commitment under the framework, which we hope very much will come to fruition, under the framework to commit to at WAC pricing deliver 23 billion of Suboxone.

34:48 And all those elements have been taken into account, and that has then led to a range of possible outcomes, and we have then made an accrual which matches the lower end of the range. But, Mike, I'm sure I didn't get it all right, but if you have some further comments, please. No, I think you got the substance right. Let me just get some of the mechanics to expand on it. So our expectation is that we will book a reserve for the future cost of this settlement, whether it be the cash costs or the cost of goods. Some of those elements will be discounted using an appropriate discount rate back to a present value. Over time, what you will see is as inventory is produced and released, It will be taken against that reserve as well as cash settlements as part of a future cash outflow. And over the years, the reserve will then, of course, be evaluated on an ongoing basis for changes in cost of goods, changes in interest rates.

35:52 or any other thing that may change that liability. But our expectation is to eventually, once there is a final settlement with everyone, that you will see a much more clear number. As CORE mentioned, we've got a range of estimates at this point. And as nothing is more probable than any other point on the range at this point, we've booked the minimum of what we expect. So as far as the Jovi formula access for 2020, We don't expect any major negative changes to our formulary position going into 2020. We have currently about 70% what we would call acceptable access or acceptable coverage, and we hope to continue to improve that, especially as we go into 2020. We have one major blues plan coming on that we know is in January 1st, so that will help.

36:43 Although there's not a lot of volume in Medicaid and Medicare Part D, we're looking at those segments as well and improving our coverage there also. Thank you. Thank you. The next question comes from the line of Ronnie Gao from Bernstein. Please ask your question. Good morning, everybody. Congratulations on the nice quarter. And Michael, yeah, we'll miss you. We always enjoyed working with you. If you don't mind, I'm going to have you get through about all the same topic, which is raster pricing. I was wondering, at Proxima, if you can let us know what pricing came with. Is it the same whack as the innovators and the current ASP? And now that you're launching this product commercially, I was wondering if you could share with us a bit more about the margin that you'll be making on sale from your partnership with Celtrion.

37:34 Then just following up on a couple of the questions that just came in, on the LPA settlement. Can you let us know, or share with us roughly, what will be the drag on cash flows if the agreement with the four AGs will actually end up being the agreement that passes the entire country as is, just so we can kind of model the probability? And the question of the project for 2019, Stida and Ajovi, now that we have the contracts for 2019, can you give us a feel For the pricing grant, are we going up moderately or is it more of a flat or step down given the contracting situation? Okay, thank you everyone for those questions. The Trixina question and the Osteo question I'll leave for Brendan, but I'll just handle the opioids first. And with regard to the opioid framework, it's really too early to give you a firm answer to this on the cash flow.

38:31 And that's simply because we haven't really, you could say, got to the fine print on it. And there's a lot of details about how will the ramp up on volumes be and how will it actually be executed. So it's too early for us to give you a number for the actual cash flow. Assuming that the framework results in a firm agreement, which I very much hope, as I said, to the benefit of the American people and people suffering from addiction, we will, of course, update you as soon as that has happened with a more precise number, both on the accrual and on the effect on cash flow. And then, Brendan, over to you. Sure. So, Ronnie, the press release on Truck Schema has the WAC prices listed in there.

39:17 So it's $845.55 for the 100-milligram vial. It's $42,2775 for the 500 milligram vial, which represents, I believe, about a 10% below the reference brand WACC. Of course, we will likely sell it for something less than that. I won't get into the exact specifics of how we're going to do that in the channels. We're going to do that and so forth. But I think you're kind of aware of how this will go. As far as the margin, this is a profit split between us and Celtrion. Seltrion were the developers. They submitted the BLA to the FDA, and our deal and our profit split acknowledges the partnership that we have with Seltrion. So that's all coming about that.

40:05 In regards to Osteto and Adjovi, you know, I think as we convert patients off of the coupon cards, we have more patients in paid prescriptions, and we continue to improve our formulary accessibility. You'll see the margins on Adobe have improved and I don't see any real significant change to the margin on Osteto as we head into 2020. And maybe just add that on Osteto, if we take price adjustments on Osteto, it will be modest. Thank you. Thank you. Our next question comes from the line of Amir Fadia from SCB Lear Inc. Please ask your question. Good morning, this is Ethan Lee on Forami. Thank you for taking my questions. Just a couple sort of on the biosimilars.

40:51 You know, we've seen some different biosimilars, you know, New Last or Remicade launches in the U.S. partly, and, you know, they've gone off to different ramps and acknowledged that sort of they're, you know, different patient populations and durations. So just given these dynamics, you know, how are you sort of thinking about the launch curve of, you know, biosimilar Rituxan versus some of these? And then just on... some of the other biosimilars in your pipeline, Herceptin, when is this expected to hit the market? And then maybe a broader question, longer term, what is your appetite to sort of bringing on additional biosimilars into the pipeline? Thank you. So I think I'll address the last one, the broader question, and then I'll leave the two specific ones for Brendan. So longer term, We actually have an appetite for bringing specific biosimilars to the marketplace.

41:42 We realize that it's a unique situation, product by product, and we firmly believe that in order to be successful with a biosimilar in the U.S. marketplace, you need to have the, you would say, commercial footprint and commercial insight in order to penetrate the market. In this case, as I said before, with Truxima, we believe that due to our long experience in the oncology space in the U.S. with several products in the marketplace and long-standing relationships with all the different parts of the commercial value chain, that we have a very good chance of doing so. And we also believe that in the future we'll be able to do the same with many different biosimilars. So that's a part of our, you could say, biopharmaceutical R&D strategy that we both work on innovative new biologics but also on biosimilars. But on the specifics, over to you, Brendan.

42:36 As you can imagine, there's been a lot of interest in the biosimilar launch of Rituxan. So there's been a lot of interest in Truxema. And then, of course, Pfizer will follow on after us. So there will be two in the market here in the not-too-distant future. I think it still remains to be determined how pricing shakes out and what the uptake is on share. But we're fairly optimistic that we have the right mix to take advantage of it. If you think about who Teva is as an organization – We have an oncology business that we're very familiar with, and we have a product in that portfolio, Granix, that very much acts like a biosomal. And then we have, of course, the generic business, and the biosomals are somewhere between a brand and generic. So we think we have the right commercial structure. and the right strategy to fully take advantage of this marketplace, maybe uniquely better than most. So we'll see where it all goes.

43:27 We look forward to showing you the results when we get there to February, but we're optimistic that we'll see fairly good uptake in this market, maybe better than what we've seen with some past biosimilars. In regards to Herceptin, I think you asked when we were planning to launch Herceptin, and it'll be late Q1, I believe, is the date for Herceptin, which is our product is Herzuma. Thank you. The next question comes from the line of Dana Flanders of Guggenheim. Please ask your question. Hi. Thank you very much for the questions. My first is, Kara, I know you've talked about the U.S. generic business being about $4 billion in annual sales, and I know it can be lumpy. It seems to be trending lower this year, and you've pushed out some launches. So just can you comment on how much wiggle room you see to that $4 billion number, and would you expect launches – Next year to take that U.S. number back to that annualized $4 billion run rate.

44:31 And then just my second quick follow-up on Jovi, and I recognize the importance of having an auto-rejector. Can you just talk about the need or lack thereof of a primary care presence to really help drive NRX back to where you'd like to see it go? Thanks. Thank you for the questions. I'll take the first one, then I think Brent and I will share the second one. So in terms of the $4 billion, it's important just to remember what we've been saying all the time. We are saying North America. So if you look into detailed numbers, it's not the United States alone, it's United States and Canada. And as you know, we have a very strong generic business in Canada as well. So the North American business, Thank you very much.

45:47 Better Than Expected, when they finally get there, like EpiPen and EpiPen Jr., and others will be disappointed that they get delayed. So that's just the name of the game in generics. And with regards to Adobe, I think I'll let you go with that one, Brendan. Sure. So, you know, we've always looked at the CGRP market, and specifically the Adobe launch is a two-phase launch for us. So we launched the pre-filled syringe into the market. Thank you for joining us. Thank you for joining us.

46:58 and the auto injector over the pre-filled syringe. So I think that that's largely what we're seeing and that's the reason for the decrease in the new to brand share. So I think when we launch the auto injector here in the coming months, we'll see a continued bump and kind of the second curve up in the launch of a Jovi. But in regards to your comment about the primary care sales force, We actually do have a primary care sales force selling Adobe. We have two sales forces selling Adobe. We have our neurology sales force, which is calling on headache centers and neurologists. And then we have what we call our specialty sales force that's calling on high-decile primary care writers as well as non-neurology high-decile headache specialists. So we feel that we've got the right promotional mix from a sales rep standpoint.

47:46 but certainly we don't have as deeper relationships with primary care as some of our competitors. So I think it's going to take us a little bit longer to penetrate that market. Thank you. Thank you. The next question comes from the line of Chris Schott from J.P. Morgan. Please ask your question. Great. Thanks very much for the questions. Just to follow up on a few topics from before, maybe the first on Jovi, you're obviously highlighting the auto injector as driving receleration for the franchise. Just help us understand a little bit, how quickly post the auto-injector launch do you expect we'll see that uptake? So is your monitoring kind of how important that's going to be for the franchise? Is that something that happens almost immediately, or do we need to give this a quarter or two to evaluate? My second question was on Truxema and that opportunity.

48:31 Is this largely a new start opportunity or do you think there is the potential to convert existing patients as well? And just a really quick one on taxes. You stepped up the tax rate to 18%. Is that a decent run rate to think about for Teva on a go-forward basis? Thanks very much. Thank you for the questions. I think, Brendan, you'll take the first two and then, Mike, you'll take the last one. Sure. So as far as the auto-injector with the Jovi, I don't expect that we'll launch the auto injector and all of a sudden we'll pop up to 30, 40, 50 in new to brand share. I do think that we will see a steepening of the curve and I think that we'll continue to see growth in Adobe kind of back to the 20, 25, 30% that we're looking for as far as new to brand share.

49:16 How long that takes, I don't know. I don't expect it to be immediate, but I expect it to continue to grow and climb into that 20 to 30% new to brand share that we're looking for. As far as Truxema goes, I would expect that you won't see many conversions of patients currently on therapy. I think that whether it's Truxema or whether it is any biosimilar in an oncology setting is probably going to be mostly driven by new patient starts. Yes, when it comes to the tax rate, I did say in the past that we would see some pressure on the tax rate and we would eventually get towards the 18%. We have gotten there a little quicker than we thought. We thought we'd be more in the 16 range this year, but I think 18 is not a bad range for the next couple of years. In the outer years, of course, maybe we'll be able to bring it back down a little bit. but given our business and given the rules that we're dealing with, with no significant new changes in tax legislation, 18 is a reasonable run rate for the next couple of years.

50:18 Thank you. Thank you. The next question comes from the line of Akash Tiwari from Wolf Research. Please ask your question. Hey, thanks so much. So if we look at your long-term guidance projections for your operating margin, and let's just say we put in consensus top line revenue projections. There seems to be an embedded off-ex cut that's baked in over the next few years, maybe to the order of $500 to $1 billion. Can you give us a sense of how much cost can still be cut out of Teva's current cost structure? And given kind of the pricing wars we're seeing on CGRPs, is that kind of possible? and maybe on the other line for Tubba's U.S. business, can you give us a sense of what the growth trajectory of that line is over the next few years and what the margins are for those products?

51:11 Thanks. So I'll try and handle the first part and then I don't think we have much comments on the margin for others, but we'll see what Mike will comment on that. So if you look at our long-term products, Thank you very much. Thank you very much. and the generic business is stable, then of course your gross margin goes down.

52:05 When Copaxone has sort of flattened out and Osteto and Ajovia are increasing and your generic is roughly flat, then your gross margin goes up. So those two elements, of course, they help us. And then, of course, you have the ongoing optimization of the rest of your operational costs. and you're right, we've just taken out $3 billion of the spend base and we can't do that once more, but of course we can keep on looking for optimization and improvements and we'll be doing so going forward. On the other line, in the U.S., Do we comment on that? I don't think so, Mike. No, I think you can see the basic sales trends there. This is all the remaining products, many of which are already facing generic competition.

52:50 So you will see them slowly decline. They tend to have good operating margins because we don't invest behind these products. So that is something. But you can see over the course of the last couple of years, that number has gotten down to a reasonable amount, and it's been pretty stable throughout the year. You'll see a slow drag, but it's not going to fall off the face of the earth. Great. Thanks so much. Thank you. The next question comes from the line of Jason Gerbery of Banks America. Please ask your question. Okay. Thanks for taking my questions. Just first, Cor, just curious if you can comment at all on a Wall Street Journal report that came out a few months ago about the possibility that opioid manufacturers are contemplating Opting into Purdue's bankruptcy proceeding while not filing for bankruptcy themselves, but leveraging that legal proceeding, which would seem to us to potentially offer you expedience and a consolidated legal mechanism to work with your counterparties. So just curious, what are the impediments to that?

53:52 And then just secondly, on November 22nd, I think there's a deadline for parties, municipalities to opt into a negotiating class. Curious if you view that. Thank you for that question. So you're absolutely right that there's a theoretical opportunity of seeing the Purdue bankruptcy sort of being expanded to cover the whole crusade situation on opioid litigation. However, as of today, that's not what we're pursuing. As of today, we strongly hope and believe that the framework we have developed together with other defendants and together with the state AGs that that is the most likely and the best way forward as I've said before in this call for the American population and also for the people who suffer from addiction this will be in my mind the most constructive way to move forward in the event that this would not work out of course you're right there's another legal framework which would be some kind of participation from the, you could say, from a legal point of view of all the defendants in some overall resolution under the bankruptcy proceedings of Purdue.

55:22 But that's really not what I see as the best solution right now. I think there's more momentum behind the general framework that we have developed together with the state AGs. Thank you. The next question comes from the line of David Antrim of Piper Jeffery. Please ask your question. Thanks. So on Jovi, just irrespective of the auto injector, do you think you need to contract more aggressively longer term given how your competitors have contracted, particularly Lilly with Ungality being pretty aggressive in terms in year one. So that's number one. And then number two on Aspido, your competitor is now going to be running a trial in Huntington's Choreo.

56:15 So with that in mind, how do you see the competitive landscape, particularly in Huntington's where you do have a unique label there, how do you see that evolving to the extent that Ingressa gets a label expansion for Huntington's Choreo longer term? Thanks. Okay, so I'll take obviously the Adobe question first. I think that if you look at our focus on Adobe, it has been on profitability as well as access and share. And I think that we've taken a little bit different approach in regards to access. But as I said earlier, we have 70% acceptable access and we hope to continue to grow that. So I don't think that we necessarily need a more aggressive contracting approach Thank you for joining us.

57:37 We'll see where Ingresa goes, and we'll cross that bridge when we get to it. You're right, right now we're the only ones with the HD indication. Whether Ingresa gets that indication or not, we'll see. If they do, Osteto certainly has a foothold in that market. Physicians seem to be fairly pleased with the way that Osteto is working. So while it will increase competition and likely take some share, I have no idea how they'll perform in that market. Thank you. Next question comes from the line of Uma Raffert from Evercore ISI. Please go ahead. Your line is now open. Hi. Thanks so much for taking my question. Cor, I wanted to ask a two-part question on opioid settlement framework, and I see two possible layers of alignment that still need to happen and would really appreciate if you could give us color on each of them. So the first one would be the rest of the 46 state AGs, and there's a lot of feedback that they're not fully aligned, they're not comfortable, and I was curious if you could catch us up on what exactly is a holdup there.

58:35 Second is the cities and counties, and I'm particularly interested in them because it seems to me that state AGs do appear to be focused on addressing the opioid crisis, so they're okay with taking Suboxone supply, whereas cities and counties are being represented by trial lawyers who are primarily focused on their cut on the dollar settlement size. So in theory, those trial lawyers have no incentive to get the cities and counties to align unless there's dollars coming their way. Wouldn't that theoretically imply a deadlock? I'm just trying to understand, is there a credible path towards resolution in the next six months or so? Yes, that's, of course, a very interesting question, which I can't completely answer in all detail since I'm not a party to all those discussions. But if we start from the overall situation, and as I said before, I believe that the framework that's on the table now, that's the best possible way forward to serve the purpose of helping companies Thank you very much.

59:56 It is not resolved this way, just like the state AGs outlined it. It becomes a complete random game for which county, which city goes first in the sort of sequence of suing and how much money do they actually get until potentially, you know, some people stop settling or stop paying. So I think we need a holistic solution here. I think it's to the benefit of everybody to do it that way. And I very much hope that that will be the case. Thank you. Next question comes from the line of Gary Nachman from BMO Capital Markets. Please go ahead. Thanks. Cor, I know you'll give guidance in February, but with most of the year behind you, how are you thinking about 2019 as a potential trough year and an ability to return to growth next year, both in terms of revenue and EBITDA?

1:00:52 Just give some of the major pushes and pulls on that front. And then just... Yeah, just one follow-up. Part of that is that Copaxone is holding up better than expected. So explain the dynamics there behind the scenes, and can that be maintained into next year? What sort of declines should we be thinking about with that franchise? Thanks. Thanks. Very interesting question. You're absolutely right. As I've said, I guess since I joined, Thank you very much. and, you know, we're having the operating profit at the level of just above 1 billion and the revenues at the level of above 4 billion.

1:01:58 Now, if we then think about next year, it's too early for us to give guidance and then you might ask, why can't you give guidance? And one of the elements is, of course, your second question, Copaxone, because you're right, we're seeing a stabilization. Basically, the last three quarters of Copaxone have been very stable. We see a marginal decline in the TRX volume. We see a very stable development in Europe. And there's a lot of moving parts in this. And if we take the U.S. first, then you can say there's the unknown factor of are we going to have one more generic competitor in the 40-milligram Capaxon? Right now, we don't have any evidence that we will have short-term, but we don't know when that will happen. So that's one swing factor.

1:02:44 Now that situation will also affect the contracting and the pricing. If there is no new competitor coming in, then there's a high likelihood that the pricing environment will stay relatively stable. Now that will have a positive effect on the outlook for Capaxon from next year. If all of a sudden there's an approval of a third competitor, then of course that has a negative effect on the pricing environment. In terms of share development, it looks pretty steady. I don't expect any major upsets there. In terms of Europe, we have a situation where we have a patent that's been confirmed in the European patent system, which basically means that the 40 milligram is covered by a European patent as we speak, and that's of course a positive. On the other hand, you have a lot of dynamics on the actual country level in Europe. But all in all, I would say that there are some swing factors there, but right now they look positive.

1:03:39 and then you have other elements where you can speculate on the exact gross to net we'll have on Adobe, how will that whole thing develop, the exact progression path of Stato, it will for sure grow, but exactly how much will it grow, and you have currencies, how will they develop. But everything else being equal, unless we don't have a major negative happening, then I still firmly believe that we have the trough here and we'll see a marginal improvement next year in our operating profit. We also have things that could happen such as, you know, we have the orphan drug designation that Eagle got on Bendecca which is protecting both Bendecca and Triander from generic competition and that has been appealed and it has actually, the court proceedings have happened and we are waiting for the outcome of that litigation We hope it will go Eagle's way so that there will be no change to the situation that Bendega has often brought designation, but that could also be a swing factor. So a lot of backs and forth, but I would say everything else being equal, I totally confirm that we expect this to be the trough year and that we'll see a marginal improvement in the operating profit next year.

1:04:56 Okay, thank you. So this completes our quarterly earnings call for the third quarter. I very much look forward to hopefully talking to most of you three months from now when we will announce the full year results and also share with you our look on our future manufacturing strategy and biopharmaceutical R&D strategy. Thank you so much for listening in. Thank you. That does conclude the conference for today. If you wish to listen to the replay of this conference, please dial plus 443333009785 and type in the on-call replay code 5965257H. Thank you for participating. You may all disconnect.