Teva Pharmaceutical Industries Limited (NYSE:TEVA) 6th Annual Evercore ISI HealthCONx Conference November 28, 2023 8:20 AM ET
Company Participants
Richard Francis – President and Chief Executive Officer
Eric Hughes – Executive Vice President, Global R&D and Chief Medical Officer
Conference Call Participants
Umer Raffat – Evercore ISI
Umer Raffat
Excellent. Well listen, thank you guys for joining us. Pleasure to have the new Teva management on the new Teva story, hopefully. So looking forward to this discussion.
But just before we begin, maybe turning it over to you, Richard, to kick things off, and we will jump right into it.
Richard Francis
Yes. Firstly, Umer, thank you for having us. Really appreciate that, and thank you, everybody, if you are interested in Teva. So I think maybe as a way of introduction, obviously, Teva, we launched a new strategy, a pivot to growth strategy in May of this year, and that was a strategy that was a strategy to obviously get Teva back to growth, and that was based on four pillars: deliver on our growth engines, step-up innovation, create generics powerhouse, and then focus the business, and I think we will go into some of those details of those pillars.
But primarily, it centers around making sure, we maximize the opportunity we have in our innovative business. Our innovative business is somebody who from the outside came in I think a very attractive business. We have products on the market, which I think are going to drive growth, and we have a great pipeline, which Eric can help me to talk a bit about.
So I think from a perspective of Teva going forward, there is a really interesting narrative around our innovation business. And obviously, our generics business, which we are known for being one in the world, I think there is a lot of capability to get this business back to more stability and to growth going forward as well.
So for me, I think Teva is well-positioned, and we have had two quarters of growth. And that growth has come from the areas that we said, we are going to allocate capital, which is innovation. So what we said we are going to do, we are doing. And that’s delivering, the results. Now it is early days. But I think that’s important when you put a strategy together, that you that strategy, and then that strategy starts to deliver what you hoped it would.
Question-and-Answer Session
Q – Umer Raffat
Excellent. Excellent. So I know there is a lot to go through, and we will go through it step-by-step. But maybe let’s kick things off and ask, broadly speaking, because a lot of folks still think, it is a very levered situation from a balance sheet perspective. Could you just remind us where leverage stands now and where’s your head at in terms of how you can think about uses of capital with all the cash that’s still being generated?
Richard Francis
So, I think, we’re roughly around net debt is about 17.6 billion. And so, a ratio of net debt to EBITDA we want to get to is investment grade so below 2 by 2027. We said that, and we’re on track to do that, and we’re paying off about 1.6 billion a year, and we have free cash flow to do that. So, I think that’s very important is this debt is on a downward trajectory, and I think we’re very, very comfortable about how we can manage that to 2027.
Now for us about, because we have this growth opportunity, which is, I think very unique in that we have, these products which we’re going to talk about today that we’ve already launched, AUSTEDO, UZEDY and AJOVY that can drive significant growth for the Company. How do we, with some of the constraints we have on the balance sheet as well as in the P&L financing this debt, make sure we can maximize these opportunities? And that’s where we’re spending a lot of time on making sure we allocate capital correctly. So, we have reduced investment in certain parts of the business to make sure we can allocate investment in other parts of the business.
Now from a BD point of view, we are actively back in the BD world. But because of that balance sheet, we have constraints about what we can do. And so most of what we’re looking at is in licensing because we have a very capable commercial infrastructure, both in the U.S. and in the rest of the world, particularly Europe, which is under optimized right now, I believe. And so, we can bring some products in. We want those to be late stage. We want those to be de-risked because we don’t want to carry risk with our situation we’re in right now.
We don’t need to, but we can create — we can leverage that infrastructure. So that’s we’re looking at right now. And that also allows us to do deals which are more in line financially with what we can manage from a balance sheet point of view as well as a P&L point of view.
Umer Raffat
So Richard, I know you mentioned, I think you guys are a little above three times the leverage right now, and the goal is two times, but for a lot of investors, below three is a critical threshold because a lot of them can own the fares more. Is that a realistic possibility in the next, let’s say, 24 months where you guys could be just below three times in terms of leverage?
Richard Francis
Yes.
Umer Raffat
Maybe as we think about sort of numbers a little, okay. Actually, just before I get into numbers, the other question that’s also come up sort of high level again. So we talked about balance sheet. You could be at sub-three times leverage in the next, 24 months, presumably. There’s a lot of buzz around the API business. What exactly is happening is that being divested. There’s a new management team there. Could you just catch us up on sort of the thought process there?
Richard Francis
No, and it goes back to the dollars, pivot to growth strategy. And I’ll always come back to that because a good strategy should direct decision-making, capital allocation and focus. And so, when you think about the four pillars, the fourth pillar was focused the Company. And when we looked to that, there are two primary goals, which is to make sure capital is allocated to the things that are going to drive growth top and bottom-line. It also allowed us to look at the tapping. When we came in, I came in and the executive team looked at the tapping business. We thought it was virtually integrated, and it’s not.
So, in separating it, its primary goal is to drive growth in the Company. The API business is not growing. The API market globally is growing at mid-single-digit. So for us, it’s about to get it back to mid-single-digit growth, potentially more. Thus, that will help us get Teva back to growth. It’ll be another opportunity for us to drive growth in the top-line of the Company. We want to start to do that next year. And does that give us as we create a standalone business with its own CEO, it’s single mindedly focused. It’s to sell our API and to do our R&D on API to the market. That gives us growth as a company and it gives us it helps drive the pivot to growth. But it potentially gives us strategic optionality, which I think is what people are asking for.
I don’t want to get ahead of myself. Let’s get the business back to growth. If we start to see a clear line of sight for that, then we’ve got optionality. Do we do we keep it? Do we build it? Do we, expand it or look at alternative?
Umer Raffat
And remind me I think it’s 1.5 billion in the top line and in the margin profile?
Richard Francis
It’s a 1 billion on the top line. I think the margin it’s accretive to the Company. So that’s what I think that’s as much as we’ve said. And it’s probably the second largest API manufacturer in the world. And what’s interesting is we did a bit of research in our strategy because we’re very detailed as to what people think of our API business. And it’s rated as the customer satisfaction is very high. People like what we do. It’s complex. Our service levels are very good. So, it’s not a business that we’re having to sort of — the core components of it are very good. What it needs to be is allowed to be free to operate in a bigger market and have a management team that’s job is grow this business, grow at the top line and help it be accretive to the Company.
Umer Raffat
Got it. AUSTEDO franchise, I know you guys are right around 1 billion to a run rate or so by the end of this year. And obviously, you’ve talked about over doubling of that franchise over time. But as you can imagine, that’s never going to be linear. Consensus has about sort of 15% year-over-year. And I wonder, if you think this is going to double over time, presumably the growth near-term is more than it will be in the outer years. So, is the momentum much more accelerated than how sell side models that are carrying it right now?
Richard Francis
Yes. No, look, so in short, yes. Look, I go back to the first pillar on the pivot to growth is deliver on your growth engines. AUSTEDO is a great asset we have. It’s a great opportunity. It’s an under treated market. There’s 780,000 people who have tardive dyskinesia, a fraction of those on treatment. So there’s a big opportunity.
What we’ve done is we focused more resources on it. We’ve built capability in this innovative side, so we brought people in. And we’ve seen, as you pointed out that we’re going to do we believe we’re going to do $1.2 billion this year, which is a lot different from what people thought we could do.
And so, I see this as an opportunity we need to keep focusing on. And so, there’s still a disconnect I think it’s going to 2 billion, 2.5 billion in ’27, and I think other people think it’s going to do less. But I think that goes back to a lot of what Teva has to do is we need to be clear about what we’re trying to do, and we need to execute and show we can do it.
And as we do that, maybe people will model it differently. And right now, people modeling in a way where there’s maybe a bit more they take into account a bit more what we have or haven’t done in the past. But for me, this product, it’s going to continue to grow and grow well, and I think it’s going to be a big driver for our top and bottom line.
Umer Raffat
Got it. In terms of gross margin, I know there’s an expectation that there’s slight improvement, not meaningful, but about 100, 120 bps into next year. But this has been under such focus because of that 1Q choppiness that happened. Do you see sort of modest gross margin improvements, generally speaking, as you ever think about next year?
Richard Francis
Well, I think definitely, the gross margin is going to continue to improve. I think one of the things to consider when people think about by how much is, the portfolio mix is really important. So as AUSTEDO continues to drive, as you said, long-acting treatment for schizophrenia starts to get traction next year, and we continue to drive AJOVY. Q3, it was still double-digit in the 20s, so still good growth. That’s going to continue to happen. That portfolio mix drives gross margin massively.
At the same time, there’s a lot of things we’re doing operationally at Teva, just to improve our performance in maybe the hard yards. And this comes down to cost of goods. This comes down to procurement. This comes back down to networking capital. All the things we need to do. Now as we do that, what I did mention on one of the strategy on one of the pillars, which is creating generics powerhouse, to do that, we want to improve our manufacturing capability. And what we’re going to do is we’re going to take some of the dilutive or non-profitable products out. Now what ultimately does is create more efficient manufacturing network, which improves your gross margin.
But the year you do it, you’re taking a bit of revenue out, which has its consequences as you create the efficiencies. So we have things that are definitely going to drive our gross margin, and then things that are going to maybe slow that growth down a bit because we are driving long-term gross margin improvements, and you just have to get on and do it, and don’t delay it. But yes, I think the short answer is, our gross margin is going to continue to improve, primarily driven by the fact that we are expanding our in our Innovative portfolio, which is a very different gross margin and number than our generics business.
Umer Raffat
So, I want to get to the Innovative in a little more detail. But just before that, in terms of mix, there was — there is a general perception in the marketplace right now that, things are stabilizing in the generics landscape. I saw, Rajiv at Viatris recently say that. And after so many years, generics have finally stabilized. Is that a perception at Teva as well that, things in the Generics land are in a much more stable spot, even relative to, let’s say, your time at Sandoz when things were not so much in a stable spot?
Richard Francis
Yes. And I am trying to block out those early years. But no, so let me go back to the principles of what makes a stable market and what makes it an unstable market. The reality is there are three purchases of generic products in the U.S. As somebody launches a generic product, they will do an RFP straight away regardless if they did an RFP the week before, that’s just the power they have. So they have all the purchasing power. The only thing that creates stability is, that are either less launches coming through. So if we have a product and we have an agreement, if a new company comes out and launches that product, there is another contracting cycle even if it was just done a week ago. That’s not going to change.
So for me, when we did our strategy, did we anticipate or forecast any stability into the Generics market in the U.S.? No because we don’t control that. What we said is that’s okay because we have a very big pipeline in the U.S. and we are improving our manufacturing capabilities. If we execute our pipeline and bring it to the market on time more often than we have done in the past, it doesn’t really matter what the market does.
If it’s stable, it becomes a bit unstable, because we can weather that because launches are what drive the opportunity to drive growth and value in generics in the U.S. particularly, and that’s what we can control because we have a big pipeline. Now whether there are courses where the price erosion is 5%, the price erosion is 2%, the price erosion is 10% it will be what it will be. What we need to set up strategically is a way that we can manage that, and you do that through launching on a continuous basis more high-value products and then whatever rose in the ridge, you are compensated for launches.
So I always say, and I am doing the numbers for next year, I do not forecast anything getting better over short-term or long-term, it is what it is. But we could still have a very good business in the U.S. because we have all three capabilities. We have a great pipeline of which Eric has put new sort of focus and capability around. We have a great go-to-market model and we have a supply chain, which is good and we are going to make it even better. Those are the three things you need. We have got them. We just need to execute better on them. The market can do what it needs to do, but we will still grow the business.
Umer Raffat
And outside of biosimilars, is there a big launch over the next couple of years in Generics?
Richard Francis
So, look, we cover 85% of drugs that lose their pattern, right? Now we are going to not do that cover as much going forward, because we want to be more focused and focused on the high value. So yes, we cover pretty much everything in the next few years because…
Umer Raffat
But there’s not a Revlimid like opportunity, for example.
Richard Francis
I don’t think we communicate what’s coming because of competition, settlements or legal issues. That said we are going to be a bit more clear and communicative about helping people understand what is coming, because I realize that sort of unknown creates people, it makes it difficult for people to model and to forecast. So maybe next year, we are going to be a bit clear on that. What I would say is, and you mentioned my prior life, the one thing we have is an enormous pipeline.
We have enormous pipeline, which is what you want. We just got to execute it better. And then as we start to sort of wrap the narrative around, I think we can be a bit clear on what’s coming when and help people understand what we’ve done in the past as well. I don’t think we communicate maybe as well as what we have launched even this year. So, we’d be a bit more clear to help people model and also how to hold us accountable for what we said we were going to launch and have we launched it.
Umer Raffat
This is the last one on this sort of generics broad topic, but on the biosimilar Humira, I realize there’s been some how are you thinking about that into next year now? And has the commercial, potential odds changed in your mind on what that looks like? Partially because of the market formation, how it’s been so far, but also partially because of the delay?
Richard Francis
Yes. And by the way, I apologize for talking about generics. It’s $8 billion off, $15 billion business. It’s a great business. And outside the U.S., which is 62% of our generics business. It’s growing mid-single-digit, and it’s growing very well. So we’re very proud of it. We just know we can make it better.
Now to answer your question on Humira and biosimilars, firstly, our strategy on biosimilars is to bring a large portfolio of biosimilars to the market, predominantly through partnerships. The reason why, and I’ve been in biosimilars a long time, is I believe portfolio is really important. Because we can try and predict which is going to be the big one, which is going to come on time, where you’re going to get the money, but it’s hard, right. What I do know is every biosimilar we bring to the market will create value, some a lot of value, some less value.
But the secret for a company this size of Teva is to bring a portfolio, 15 to 20 of those to the market over time. What we’ve shown with Truxima or rituximab product, we’ve accumulated a $1.4 billion plus of revenue over that period of time, and that’s really helped us fuel other things.
So for me, it’s about the portfolio. And the reason why we’ve done it through partnerships is because Eric’s got so much innovation to drive. Then we think, well, capital allocation, where’s our real capability line? Can other people do R&D and biosimilars? They can, so why not let them do that stuff that only Eric’s team can do in CNS and immunology, we should focus on that.
To answer your question on Humira, look, I think, it’s sort of — for me, firstly, what I would say is last year was a tough year in that because everybody launched midyear, I think contracting, I think perhaps probably thought about, let’s just plan for what we can plan for. And so, I think ’24 is going to be more of a year where you will see actually how Humira develops.
Where we play in that, I think, is still open for debate because we have to have a successful site inspection of our partner, Alvotech, in Iceland, which is going to happen, I think, early January, and then based on that whether we launch in H1 or midsummer also as far as variability around forecasting. What I would say is we’re not relying on Humira to drive growth next year for Teva.
So what’s important for us is Stelara, which comes out of the same site, which is in February 2025, which no one talks about because Humira is the big one everyone talks about. Stelara is a very big product. There’s not many people coming to the market with a biosimilar, so we see that as a really attractive one.
And we’ll see how Humira plays out. But it goes back to that strategy is — are we — is Humira so critical for us to develop to drive growth at Teva that we’re all over it operationally, but we’re not reliant upon it because we have a portfolio play. So that’s how we sort of think about it, and that goes back to why our strategy is the right strategy.
Umer Raffat
And on Humira, especially as it relates to the manufacturing side of it, do you get, like, what’s the level of visibility that you have on how that manufacturing side is going? And is the confidence going up into that January inspection or not?
Richard Francis
So, when we — so obviously, what we’ve done is we’ve really strengthened operationally our partnership with Alvotech. So just to give you some idea, so Teva, we have about 30 FDA inspections a year, 30, 54 sites, and we pretty much get through them all, I think since I’ve been here, everyone.
So, we know about FDA inspections. What we’ve set up is a joint steering committee on manufacturing, with Alvotech. So going forward now, we’re far more involved in that to help them become what is necessary to get through FDA inspections and to be a good reliable commercial manufacturer because we’ve done it for, we’ve been around for 22 years and we’ve been manufacturing drugs for a long time.
So, we’re really leaning into that. So when it comes to are they ready, the more coding inspections we do for them, we’ve done all of that. So, we think they’re set up for a really good inspection, but you never know because each inspection is about what happens that week to a certain degree, but we feel very confident that the team in place know what they’re doing, how to do it, not just get through an inspection but to be a good, reliable commercial supplier.
Umer Raffat
So, I want to start to get into R&D a little more specifically now and maybe my opening question would be how this Eric, Richard conversation goes internally? So, he comes to you and says, well, our R&D budget is flat as per consensus next year, but we have all this pipeline. How do you think about that? But I realize it’s a more complex question because Sanofi will be kicking in on some of the spend on TL1A? Is it realistic to expect there’s not a whole lot of R&D build into next year?
Richard Francis
So, firstly, it’s really important to understand we developed the strategy together, Eric and the rest of the executive management. And by the way, it’s modeled in great detail the numbers, everybody knew or can build. And so one of the big parts of that that Eric really leaned into is that as much as we are spending more, a little bit more, we have taken a significant amount out of our generics R&D budget and we’ve allocated it to innovative. We’ve taken chunk out of biosimilars and we’re out it. So part of this goes back to that four pillar. Focus the business allocate capital to what’s going to drive growth.
So now the reason why we’ve done it in generics is because we’re not going after 85% of every drug that loses its patent. We’re going after the high value ones, which think is about 60%. So Eric can still have a, obviously, the biggest pipeline maybe it’s got and have the right amount of funding to do it. But it is something that we — we do talk about because we made it very clear that big part of our strategy is to drive our innovative portfolio. We have a great small, but I think high assurance happens. Part of that’s taken from other parts of the business. Part of that’s partnerships where we get money and capability. But it is a good discussion.
What I would say, and I’ll let Eric talk is, and this is what when you develop a strategy across an executive team, when the executives understand the strategy, some people will say, actually, Eric needs more, so I’m going to have to cut back because we don’t want him to cut back on what he’s trying to do that pipeline because I want that pipeline to come out because it’s going to fuel my growth. And so it’s far more we’re less siloed as an organization. We’re far more interconnected from a financial point-of-view. And I think that’s allowed some really good collaborative support, which I haven’t seen to be honest at some other companies.
Umer Raffat
But it sounds like you’re comfortable with roughly flattish R&D year-over-year just because of the way structure was, the deal structure was with Sanofi?
Richard Francis
It’ll probably go up a bit, but I mean, it’s percentagewise. So in absolute terms, we’ll probably go up a bit. But when we think about percentage because I believe we’re going to grow the Company. We’re going to grow the Company on the top line — you tend to do — you spend as percentage of your revenue and so we start to grow the Company this year. We’re going to continue to grow the Company next year. Because of that that allows a certain level of increase in spend. But we’re very mindful of that. And so, we spend a lot of time on the expenses because we don’t want to let that.
Umer Raffat
So percent wise, it’s flat year-over-year is what you’re saying?
Richard Francis
Roughly, I think he may get a little bit more. It’s not just because we have all this Phase 3 come together, but it’s not something which is, I think, is hugely significant.
Umer Raffat
Right. And I keep coming back to this mostly because I’m a little confused on how the mechanics work. Now that it’s 50/50 with Sanofi on TL1A, does that mean they pay a little more next year to make up for the prior expenses, or how does that work? Or is it 50-50 going forward?
Richard Francis
That would be a good idea. So I can make them pay for what we do in the past. I should have said that on Friday. It’s not. It’s pretty much going forward.
Umer Raffat
Going forward, okay, but it starts immediately.
Richard Francis
So, as and when we get clearance, the FTC and things like that, then theoretically, we could start to invoice them this year. But it is just going forward.
Umer Raffat
Okay. Excellent. Which then takes me into a little more specifics of the trials so I think, ulcerative colitis Phase 2 second half next year, that’s pretty clear. I always get a question or two. Is Crohn’s also due in second half next year? I know it is one big study, but they will be reported separately.
Richard Francis
Yes. So they are both on the study. It is both…
Umer Raffat
TL1A just to be clear?
Richard Francis
The TL1A also requires a clean Crohn’s disease on one basket study. They are both placebo-controlled with various doses and both running simultaneously. Actually, our Crohn’s is doing a little bit better than our ulcerative colitis most recently. But, yes, they are both in the same study we are targeting for the second half of both, end of next year.
Umer Raffat
Got it. I think Eric, and I talked to you about it previously as well. There were some questions on, there were initially three dose arms in there, and then the third was discontinued. And that sort of came out right when the collaboration with Sanofi got announced. So, A, did you guys have that discussion with Sanofi folks on the planned changes on doses? And also what sort of prompted that?
Richard Francis
Yes. So, there was a great opportunity here with our evolving biomarker data, as we know more about the molecule and how well ours works. We were able to optimize the study, take out a dose. Sanofi was well aware of it because we are working on that as we are having our discussions with them. So, it was a good opportunity to get it done now so that we can have more patients in the arms account and that we can have better data when we have the readout.
Umer Raffat
Got it. And, I mean, if I think out loud, I would be thinking, you know what? There are probably — you guys probably think at a certain dose, let’s call it 500 milligram, what have you. You are hitting all what you want from a TL1A knockdown perspective. Anything above that may not have had incremental efficacy could have had higher ADAs? Was there any blinded observation of ADAs that prompted this third dose?
Richard Francis
No. This is all based on our Phase 1 work and our in vitro work and our relative potency work. Remember, ours is when we do those head-to-head comparisons in vitro with the molecules we have made in house, we have a greater potency, we have a better clearance, we believe, and it is greater selectivity. So, all those things add up to optimizing the study that we have got going right now.
Umer Raffat
And I guess what happens to those patients, like, how enrolled was it? Like, 10% enrolled that arm that got dropped? That will not be counted in anything else?
Richard Francis
It was just the very beginning. So we will have those in the analysis because we dosed the patients. But that’s not going to be a major component of the interim analysis.
Umer Raffat
Got it. And when you say interim analysis, you are talking about the induction readout second half of next year.
Richard Francis
The induction in any available maintenance that we have, so when you do the cut, usually have what your primary statistical analysis plan has, and then whatever is available from the maintenance, we should have.
Umer Raffat
Got it. And the arm that you did discontinue, you can’t, do you?
Richard Francis
No. Not at the beginning. We didn’t want to unblind any of this.
Umer Raffat
Okay. Got it. Also from a maintenance perspective I know there is two different maintenance regimens every two weeks and every four weeks. So, can you remind us in induction, is it all monthly or is it every two?
Richard Francis
So, we always don’t want to comment on doses and schedules before we do the presentation. But right now it’s based on, what we are seeing in the biomarker data that we have seen in preclinical studies, based on the selectivity of the compound, the longevity of our effect that we think we see. So,, we want to make it competitive, and we want to optimize it now at the earliest phase of the study. So, that’s how we have come to design now.
Umer Raffat
Got it. And Eric, one thing that did stand out to me is, Prometheus and in the Pfizer work. Doses were basically approaching somewhere between 500 milligrams to 1,000 milligrams? Did you sort of have that in mind as you were thinking about the dose plans for your trial? Because I think one question that does come up is, is it under dosed in any shape or form?
Richard Francis
No. When we early days, we designed it on the PK exposure that we’ve seen in our own studies and the potency that we have. So based on the potency of the selectivity and the fact that we want to have this in a single injection auto injector that’s the key part of it, so relative doses doesn’t really actually matter. It depends on the performance of the compound. But having a convenient auto injector is the key.
Umer Raffat
So wouldn’t that put you at sub-400 milligram from a dose perspective?
Richard Francis
I mean, if you envision a 2 mL auto injector with 100 about 200 mgs. I can think about what you get per mL. It’s all based on the science, the viscosity, and what you can get in the auto injector.
Umer Raffat
But my understanding is you don’t have an auto injector in Phase 2 right now.
Richard Francis
Yes, all of our all of our Phase 2 is already subcutaneous. So the transition of subcutaneous is not going to be a big deal.
Umer Raffat
Well, Phase 2 is subcu?
Richard Francis
Phase 2 is all subcu.
Umer Raffat
Also, there’s questions on biomarker. I believe you guys are, nobody’s really definitively established a biomarker in this space, but my understanding is you have one to the extent there?
Richard Francis
No, I think that’s a — I’m glad you brought that up, and I’m glad that you state that there’s no really good definition of a biomarker. We’ve actually put a lot of effort into looking at free TL1A assay, which we developed early on. I think we’re on our third generation of the assay at this point. We’ll present some of that data, coming in February and from our asthma study and from our SAD and our MAD study, just to level set, what we’re looking for in the clearance of free TL1A.
Umer Raffat
Have we seen any of that work published for Prometheus or Pfizer free TL1A knockdowns?
Richard Francis
I don’t know what their full programs are. I haven’t necessarily seen that of free TL1A from the other competitors. We’ve been looking at that for a while.
Umer Raffat
And you are referring specifically to your, I think, N equals 70 asthma study and you’re evaluating free TL1A knockdown in the serum of those patients?
Richard Francis
Yes. So we’re looking at the, that’s a Phase 2 proof of concept study that was in asthma. It failed, but we want to do — we want to look at the biomarker work that we have as an ad-hoc, post-hoc analysis. We’ll also look at the SAD and the MAD data. So, remember, there’s single dose and multiple dose…
Umer Raffat
From Phase 1? So there will be a Phase 1 and a Phase 2 evaluation of free TL1A knockout.
Richard Francis
Correct.
Umer Raffat
And that’s in February where?
Richard Francis
I always forget the name of the conference. It’s been submitted, but it’s in February.
Umer Raffat
That’s submitted because we got to find the abstract. Okay, excellent that makes sense. And any additional changes or any feedback in terms of the scope of the TL1A program, I know it’s been referred to as a pipeline within drug as part of the new collaboration now?
Richard Francis
No. Yes. We’re excited about the potential of the compound. I always like to say it’s a pleiotropic cytokine that affects many different pathways. One of the other interesting scientific components of it is it’s an amplifier. It’s not one that’s blocking a single thing. Absolutely, it’s blocking the amplification.
So, whether there’s a potential safety benefit to that in the long-term future, that’s one aspect. But given its large effect, other indications will be important. Once the deal is closed with Sanofi, we’re chomping up the bit to think about those other indications.
Umer Raffat
I have two more on TL1A, one for you. The one for you is easy. Is it a real TL1A, because everybody asks so I mean, like.
Richard Francis
Umer, I love when you asked this question. Yes. It’s very real. We’ve been working on it for 10 years, and we have head-to-head stuff that we look at in vitro because we created the other antibodies ourselves. So, we’re confident in this activity.
Umer Raffat
If you were at Vertex, would they also call it a TL1A?
Eric Hughes
Yes. I don’t want to comment on Vertex, but, yes, they would probably call a real one.
Umer Raffat
Alright. Excellent. And, Richard, one for you is, I think there was a broad perception in the marketplace that the running price was $10 billion for a TL1A. So when you guys did 500 million upfront plus the some backend. There was a lot of confusion that is it a real TL1A why would it go for so cheap? So maybe just your thought process on that, not just the upfront but also the backend. People thought the backend could have been a little more significant, but how are you thinking about that?
Richard Francis
So yes. So, look, it goes back to the strategy, what is our strategy and that should direct every decision. Our strategy is to get Teva back to growth over a long period, return to growth, accelerate growth and maintain growth. To do that, we need assets and the bigger assets we can get. So for us, yes, TL1A was a great one.
So, if you think about it as something which we truly believe in then how do we maximize it? Maximize it by pipelining asset, how do we bring it to the market quicker in broader indications? And then when we get to the market, how do we make sure it gets peak cells really quickly, and those peak cells are high.
Think about all those things. And you think, well, actually, a partnership could help us, but it’s got to be a company that gives us 50% of the economics because otherwise, we’ll just get money and then we’ve got to go out and find it TL1A or we won’t find it TL1A or something else.
And second, we want to know that, that partnership it brings capability both in R&D and potentially commercialization. So, although, we have commercialization rights in Europe and a bit of U.S., we want to make sure we’re in it to win it, so we’re not messing around with this product. So having the right partner with the right immunology capability, right commercial and R&D, and we get 50% of the economics. So when you think about it from a strategic point of view, I actually think it’s a great deal, very clearly thought through.
Now if you think about it what can you get upfront then I can understand people having that perspective. But we put together a strategy over it. It’s actually a 10-year strategy. We want to execute on to get the Company back to sustainable growth in high value innovative product. We have something which is really valuable there. And so for us, that’s how we thought about it.
And I think people discount the 50% of the economics. So if we believe, which we do, this is a multibillion dollar product and probably a bigger product with Sanofi. And speed to peak cells, which is another thing that I’ve always focused on is, it’s not what peak cells are. It’s how quickly you get to them, because that puts real value. So you think all those things together, you think, okay, what do we need to do?
So I think this works out really well for us. And I think those — that’s how we make the decision. I don’t want to say it’s right or it’s wrong, but hopefully, it’s really clear and it’s strategically aligned with our pivot to growth. So it’s not anything that should be confusing. So that’s why we did.
And that’s why I think we’ve got a great partner who, by the way, from an immunology point of view and capability and understanding came in and really the product we have even though it’s early and saw the value in it. And also, they have a desire to make this as big a product as they can because the timing when this comes to the market obviously fits in with a time in where they also want to be driving growth.
Umer Raffat
Got it. You mean in terms of the immunology infrastructure they have?
Richard Francis
Yes.
Umer Raffat
Got it. So I guess I didn’t realize this, but what you’re saying is had you gone down the path out of outright selling it, the valuations could have been very, very different, and the strategic interest could have been very different?
Richard Francis
Potentially, but then you have to understand we are earlier than everybody else. So to sell it at this I think if you look at the actual numbers. We actually got a really good deal here for where we are in the stage of development.
Now think the question then is, well, why don’t you wait till you have your full Phase 2 data and then look at the following there. Once again, I go back to, makes sense. You get better valuation, you get more money. But how we slow things down if we believe this is a big driver for our strategy in waiting 18 months two years to do that when we really want to be all in right now, not all in just from a money point of view, but a capability build. And Sanofi bring a lot to the party on that.
So for us, you have to weigh all those up together and go, okay, we want to do this now, because we believe in it and going back to the pivot to growth. We are not dealing the margins here. We have gone all in on Aesthetic resource allocation. We have gone in on your study. We have accelerated the Olanzapine six months in the Phase 3 clinical study because we focused on it, allocated capital to it, and we are doing the same with TL1A. It’s a very deliberate strategy.
And so that’s how it plays out. But it is interesting that the baseline around TL1A, is it a TL1A? Do you have any data? Is it in a subcu? I didn’t know it was subcu. All these the reality is the one thing that is fact is we were and are behind the others. So the data we have wasn’t Phase 2 data, so that created a different valuation as well.
Umer Raffat
Got it.
Richard Francis
So then if you have to wait till that that Phase 2 data comes to get that valuation, that’s if you want to either sell it or you want to improve those economics a bit. One is we are not waiting for this strategy. We are executing this strategy now. So, we are dealing with the opportunity in front of us now, and that’s how we got to that.
Umer Raffat
Got it. And has there been where does the consensus stand in your conversations with your partner on Phase 3 plans? Are you ready to start late next year, with some interim maintenance data and the induction data as well as the time lines? Could you have your Phase 3 done in a year or so behind Merck as well as Roche?
Richard Francis
So look, I mean, firstly, we can’t do anything on us until we get FTC clearance. So we can’t really have any conversations.
Umer Raffat
That’s not done yet. I didn’t realize.
Richard Francis
It’s sort of any day, but just from a — we are not — you can’t go to that debate. We had that debate before the deal was signed. They said, look, this is a pipeline of product, we want to go broad and we want to go faster, so that’s what we want to do as well. So we are set up. But as soon as that clears, we do want to leverage that capability they have. We have done a huge amount of thinking. We weren’t waiting for this, by the way, because we always had the optionality going on our own. We had many conversations. I said, we have set this up to go on our own.
So, We would already been thinking about, and Eric’s team, about the transition from Phase 2 to Phase 3, what we needed to do, what with other indications are? So we have done a huge amount of work. Now we can, obviously, I don’t know if you saw that when they did the due diligence, but now we can start to really partner on that. And my hope is that, with us combined that we can move quicker, and we can think more broadly, but we need to sit around the table and have our discussions operationally.
Umer Raffat
And has there been any discussions on some sort of high risk, high reward opportunities now that Sanofi is paying half of the bill? For example, let’s say you start Entyvio [ph] refractory trial. Nobody else is going to do that. Everyone is going to do their standard first line UC trials, but something along those lines which creates a pocket where no one else can catch-up. Maybe the base case can be the trial may have failed, but you explore ideas like that.
Unidentified Company Representative
So look, regardless, Sanofi and Eric, you can comment as well. The great thing about people need sense and when it comes to Teva, we have so much focus on this program and some of our others, but we are very focused. Eric and I talk about it a lot. The Company talk about it so we think about this in that way. We think about it in all aspects of where this product could go because, we’re sort of a big pharma, but acting with a bit of a biotech mindset on this, which is how do we make this as big as we can? And we are obsessed with it, right?
The good thing is, our partner has with the product that they have got, and I just saw another indication come out, they have got a product which they have seen can keep on giving, right? So they understand what success looks like. So they are not sort of trying to it is not a theory for them. So I think we want to leverage that as well. So absolutely, we think across all of those because going back to our strategy, the reason why we kept it because we truly believe in it. If we believe in it, we need to think about all of those things whether consider it high risk or more, I’d say, opportunistic than high risk.
Umer Raffat
Any questions from the audience, I know I have a couple of Olanzapine questions. Okay. So, maybe on Olanzapine front, so again, this is not a generic play. This is a long acting, Olanzapine. Phase 3 data, Phase 3 trial ongoing. I know you’ve spoken to 2025 readouts. However, we also know that the eight-week efficacy portion reads out potentially second quarter next year. So could you speak to, Eric, the dynamics around, A, will that be press released? Is that a plan for you, Richard, as well? When the efficacy portion is done, you put that press release out and speak to the blinded safety?
Eric Hughes
Yes. So first of all, I got to correct you. We’re going to have a readout in 2020, for the second half of 2024 for the full data set. And you’re bringing up a good point. So, there’s a primary endpoint, but then there’s the safety database. So, the real value is going to be in how we define the safety of the program.
So, we plan to have a readout in the second half of 2024 that includes the primary endpoint and the 3,600 injections we always talk about because we’re really excited about this program. It’s a great formulation. It’s based on the science that we have and on our UZEDY program, it’s got a subcutaneous injection.
It’s not a deep injection, like the Zyprexa Relprevv. It rapidly aggregates and this, we’ve shown in vitro that this is going to be something that doesn’t have these a release of high PK exposures. But we have to show that. And that’s the purpose of having the full data set with safety in the second half of 2024.
Umer Raffat
So, as obviously, there was a prominent issue with Lily’s, Zyprexa Relprevv, but PDSS. Can you speak to your safety data to date? And also, is the definition of PDSS well established? It’s a standard definition that all the trials have used?
Eric Hughes
Yes. So, it’s been pretty much well documented that it’s exposure with high PK the results in an immediate effect within the first 24 hours after an injection where you get severe sedation and lethargy after the shot. So, we’re — fortunately, these are actually patients that we have in a hospital who get these initial injections of Zyprexa’s of Olanzapine. So, we have a really good data set observed patients in the study.
To date, we’re over 600 patients in the study. We’re over 1,400 injections at this point. We haven’t seen any PDSS. We’ll continue to monitor this very closely. It’s great to have this many people already enrolled in the study, so we’re getting data every day.
Richard Francis
Yes, maybe I’d just add that, I mean, because it goes back to, there are, and I can understand it, some question marks can Teva really drive innovation both in the commercial products and in the pipeline. The study, we focused on it, we allocated capital, Eric built some capability in the team, and it’s, we put it forward six months. And that’s about trial executions, recruiting centers, recruiting patients.
So I think that just shows that we have pivoted to being able to execute on innovation probably quicker than people thought. And the data readout in H2 2024 as opposed to ‘25 as you thought, that’s a significant difference, which I think also people maybe not have really understood.
Umer Raffat
When I saw you guys early this year, you may recall, I would not have guessed 600 patients by the end of the year. So clearly, it’s tracking so strong. But it also then makes me wonder, has there been discussion with FDA on alignment around what exactly they need to see to grant you that label, which is different than the Zyprexa Relprevv label, because to the extent they want any additional data, you could potentially enroll a couple 100 more patients in a separate cell, you whatever have you.
Richard Francis
So it all depends on the data, but we have had the discussions with the FDA about the study of design. They know what their study of design is. They know, we know what we need to show, and get that good label. So, we’ll see what today…
Eric Hughes
These were label specific discussions, not just approvability.
Richard Francis
These were Phase 3 design discussions about what we would need to show for a label.
Umer Raffat
Got it. Okay, excellent. Well, that’s all I have. Good luck to you guys into pretty important clinical data year coming up and we’ll certainly be in touch.
Richard Francis
Thanks so much for joining us.
Richard Francis
Thank you.
Richard Francis
Appreciate the time. Thank you everybody.
Umer Raffat
Thanks.
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