Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q3 2023 Earnings Call Transcript

Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Hello, and welcome to the Q3 2023 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex. I’ll be coordinating the call today. [Operator instructions] I will now hand over to your host, Ran Meir, SVP of Investor Relations. Please go ahead.

Ran Meir: Thank you, Alex. Thank you, everyone, for joining us today. We hope you have had the opportunity to review our press release, which was issued earlier this morning. A copy of this press release, as well as a copy of the slides being presented on this call, can be found on our website at tevapharm.com. Please review our forward-looking statements on Slide no. 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC Forms 10-K and 10-Q. To being today’s call, Richard Francis, Teva’s CEO, will provide an overview of Teva’s Q3 results and business performance, recent events and our priorities going forward. Then Dr. Eric Hughes, our Head of R&D and Chief Medical Officer, will discuss progress on our innovative pipeline.

Our CFO, Eli Kalif, will follow up by reviewing the financial results in more detail including our 2023 financial outlook. Joining Richard, Eric, and Eli on the call today is Sven Dethlefs, Head of North America business, who will be available during the question-and-answer session that will follow the presentation. Please note that today’s call will run approximately one hour. And with that, I will now turn the call over to Richard. Richard?

Richard Francis: Thank you. Ran. And thank you everybody for joining us today. I like to begin by saying that we are deeply saddened by the terror attack in Israel on October 7. Since that day, Teva’s board, leadership team and I have made the safety and wellbeing of our Israeli colleagues our upmost priority. I visited and met employees of the facility in Israel immediately after the attack. Many have families and friends who have perished or being kidnapped. What really stood out and inspired me was that despite all the difficulties, they are running together to bring medicines to the patients who need them, especially now. I am personally humbled by their incredible resilience, care and sense of purpose. Now we have increased support of our emergency supply of medicines to hospitals, pharmacies and patients, and we have partnered with our longstanding partners to donate products and provide other humanitarian aid.

Through it all, our production remains largely unaffected, and gratefully none of our sites have incurred direct damage as a result of the war. We continue to secure continuity plans to be certain we can maintain our business continuity, while most importantly taking care to ensure that our colleagues are safe and well in these difficult times. Now moving on to Slide 5, I’d like to update you on strong performance in Q3 as we continue to execute our Pivot to Growth strategy. Now our strong performance of our growth was delivered by our growth engines, AUSTEDO, AJOVY and generic business. Revenues were up 7% in US and in local currency. Our gross margin continues to improve. We sort of increased by 50 basis points versus Q3 2022. We’re pleased to announce an exciting partnership with Sanofi in Q3, the deal to really maximize our TL1A asset.

Because of these results, I’m pleased to announce that we’re going to increase our outlook of revenue to $15.1 billion to $15.5 billion for 2023. Now to move on to the next slide, to continue to maybe update you on our Pivot to Growth strategy. As you’ll remember, this was based on four pillars. Deliver on our growth engines, step up innovation, sustaining generics powerhouse, and focus our business. So we’re just going to touch on some of the progress we’ve made in Q3. As I’ve just mentioned, AUSTEDO is performing well and is on track to hit $1.2 billion for 2023. And we remain committed and confident of hitting the target of $2.5 billion in 2027. UZEDY was launched earlier in the year. I’ll give you an update on that we’re pleased to announce with our partner, Alvotech, that we’re doing an FDA inspection in early Q1 in 2024.

It raises the opportunity that we may be able to launch Humira next year. With regard to innovation, I’m joined on this call by Eric Hughes who will go into more detail, but a couple of highlights are obviously around a Olanza team, long-act team, for treatment for schizophrenia in Phase 3 study. This is progressing really well ahead of schedule. So we’re confident we’ll be able to report results in that in the second half of next year. To create such a generic power house, we make good progress and as you’ll see, we have growth across all of our regions. And then finally, on pillar four, focus our business. We continue to do the work to create a standalone business unit for Teva api. I’m pleased to announce the appointment of our CEO for that business that allows them to complete in the global market.

And moving on to the next slide, just a touch upon one of that the news we had in Q3, the exciting collaboration with Sanofi. I’m pleased with this collaboration, because it really strengthens our Pivot to Growth strategy. It allows us to partner with a global leader in immunology, both from an R&D and commercial perspective, while retaining 50% of the economics going forward, which is important as we want to drive long-term growth to Teva. We see this asset as an asset that can drive long-term growth because of the size of the market we’ll be operating in. I’ll come to that a bit later on. Now back to performance. On the next slide, as I said, we had strong performance in Q3. Revenue was $3.9 billion, up 7%. That was driven by both our innovative business, as well as our generic business.

Instead of continued its impressive growth up 30%, while AJOVY continued to grow well at 22%. Pleased to show that we saw growth across all of our regions with particular strong performance in the US and international markets. Now, to double-click and dive a bit deeper, I’d like to move on to AUSTEDO. AUSTEDO, once again, we confirm we are committed to the $1.2 billion target for 2023. Revenue was up to $339 million for Q3, up 30%, and supported and underpinned by good, strong TRx growth of 29%. Now, on the next slide, I want to reiterate our commitment to the $2.5 billion target for 2027. We’re doing this by investing in our brand and building capability in the company. As we mentioned earlier in the year, we have increased our salesforce, we have invested in improving our patient support services, as well as looking to launch this brand into the European market by 2026.

Now, we see the opportunity, not only because we’re investing in building capability, but there’s a significant unmet medical need when it comes to patients suffering from tardive dyskinesia. And tragically, there’s a lot of patients who still need to benefit from AUSTEDO, so we have work to do there and an ability to improve patient’s lives. Now moving on to the next slide, AJOVY. We’re on track to reach or even exceed the $400 million for 2023, with good growth in Q3 and revenues of $114 million. As I said, revenue, sorry, as I said, growth was 22%. What I like about a AJOVY is not the fact that we’re just growing it in all of our regions, but we remain very competitive in what is a competitive sector and segment of the market, highlighting our sales and marketing and medical commercial capabilities.

Now moving on to the next slide, the newest member of our innovative family is UZEDY, a long-acting treatment for risperidone launched in May of this year. Now we’re pleased with the launch, and as you can see, UZEDY is capturing over 55% of all NBRx in the risperidone long-acting market. And this is driven by the strong feedback we’re receiving from physicians and patients. Patients obviously appreciate the subcutaneous injection versus intramuscular. I think the physicians find the fact that UZEDY can reach therapeutic doses within six to 24 hours to be really helpful when they’re treating patients who have a relapse. This market is an attractive market. It’s a $4 billion market, and we think UZEDY will have a real part to play in that market.

Now as I’ve said before, 2023 is a set-up year for 2024. We need to make sure we get access or we’ll look for more inclusions in our hospitals, and we’re making very good progress on that. So look forward to updating on UZEDY as we near the end of the year. Now, moving away from our innovative portfolio to our generic business, and as I said earlier, I’m pleased to show that we’re growing our generic business across all of our regions, US included. And as you can see, strong growth in the US is 15%, solid growth in Europe, and good growth in emerging markets and local currencies of 17%. Now, to move on to our pipeline, which is obviously a key pillar of our strategy, our Pivot to Growth strategy, and step up innovation, just to look at the late stage assets we have.

I’ve talked about Olanzapine, and how we encouraged we are with the recruitment of our patients into that Phase 3 trial, and we look to be announcing, what Eric and his team will look to be announcing those results in the second half of next year. Once again, to reiterate, this is a significant market, and with Olanzapine that really isn’t a satisfactory long-act team, a version of this product, this molecule in the market. So we’re excited about this and the help we can now bring to this patient population. Moving on to ICS/SABA, another product that entered Phase 3 clinical trial in Q3. We’ve started to recruit patients already. And this is a significant opportunity. As I mentioned on previous calls, based on the guidelines in the US, there are 10 million patients who should be on an ICS/SABA combination.

And so if you just take 30% of these, the market is still significant at $2.5 billion. So a real opportunity to continue to drive growth at Teva in our innovative business. And then finally, on Anti-TLA1, I have spoken a bit about it, and I’m sure Eric will touch on this as well, but just to highlight the size of the opportunity in UC/CD, which we see as around $28 billion, for what we think we have a best-in-class product. And then on my final slide, I’d just like to close out with our recent progress on our ESG strategy and initiatives. Now Q3, we make good progress on executing our ESG strategy, and we make good progress against some of our ESG targets. And I’m pleased to announce on behalf of the team that the company received some awards.

We are winner of the Best Company for ESG Reporting in the Healthcare sector. And also in 2023, Best Corporate Social Responsibility Initiative. So really highlighting the work and the progress we’ve made on our ESG strategy. Now with that, I would like to hand over to my colleague, Eric Hughes, who will walk you through some of our pipeline news.

Eric Hughes: Thank you, Richard. Can I have the next slide? So as Richard mentioned, we’re excited by the improved sales of AUSTEDO, which is a testament to AUSTEDO’s safety and efficacy. To build on what we’ve already achieved with AUSTEDO, we want to make sure that the flexibility and the convenience of AUSTEDO is improved with our patients and we’re happy to present this data from our real-world studies called START. This study was a real-world study to look at how our four-week titration pack is used. What we see in this study is that 78% of the subjects completed the study, 97% were adherent to the medication, 76 reached the optimal dose, and 95% reached a dose greater than 24 milligrams per day. But why is this important?

Well, the important thing is to get patients on the right dose that’s optimal for them, use the flexibility of our set-o, and maintain patients on effective treatment. And you can see that in this study, we had actually a very good response rate in the Abnormal Involuntary Movement Scale of 4.8, which is actually numerically better than our pivotal studies. So we believe with the titration pack, the flexibility of the dosing, and these adherence rates that we see in our START study, we will maximize the ability of patients to recede and obtain the proper dose and stay on treatment. Okay, next slide. As Richard mentioned, we’re also excited to see the improved sales of AJOVY. AJOVY is a program that we have for migraine, and we can recapitulate our Phase 3 studies in its effect on the monthly migraine days that we improved.

So in this study called UNITE, there’s a prospective study, but the uniqueness of this study was that we looked at patients with migraine who also had depressive symptoms. And this is important because depression is a comorbidity with migraine, that eats chronic migraine, increase disabilities, and decreases in quality of life. So we designed UNITE to prospectively look at both the effects on monthly migraine treatment and as well as depressive symptoms. And we’re pleased to show that the primary endpoint was achieved and recapitulated our good results and the monthly migraine rates, but also in the secondary endpoint on depressive symptoms. So this is the first study to show, in fact, that we have a significant effect not only on monthly migraine, but also on depressive symptoms in a CDRP, either subcutaneous or oral.

So very excited to see this. I think there’s a great benefit to patients. Go to the next slide. Now we’re also excited to present more data on UZEDY from our pivotal studies in the sub-analysis. In the RISE study, our pivotal study, we looked at the disease duration across all the patients that we enrolled. And here you can see that we had patients that were less than five years, all the way up to greater than 20 years. And why is this sub-analysis important? Well, there is the thought that after many years, greater than 20 years, the treatment of schizophrenia becomes slightly resistant to treatment. But here we can see that clearly there’s no impact on disease duration on the effectiveness of this disease. So greater than 20 years is a very good population to have shown treatment effect in.

Equally as important is those patients that are less than five years duration of their treatment. Here again, even in this population which has a higher relapse rate, early in treatment, we also had a great effect, which is important because in LEIs, this is a continuing theory that LEIs are an effective way of starting treatment. Thank you. Next slide, please. Now, Richard mentioned the Olanzapine LAI study. It’s going very well. We’ve enrolled over 550 patients to date. And I just want to review quickly what the study design is for our Phase 3 program. We do have three doses against placebo for eight weeks to the primary endpoint. And then we’ll roll those subjects over into three doses again for up to 48 weeks to build our safety database.

This study is enrolled very quickly. And I’ll go over timelines of the readout. But we’re excited to see that a study enrolls quickly. This is obviously a testament to the capabilities of the R&D organization as well as the desire of investigators to use an injectable Olanzapine. And the next slide. Finally, I just want to touch base on our TL1A program. Richard mentioned that we had a deal signed with Sanofi to advance this very important product forward. As I mentioned many times in the past, this is a very important underserved market. There are over 4 million patients diagnosed, about 2.7 million are treated. However, the treatments have good effects that only last for so long, people frequently cycle through treatments, and many of these patients actually end up still getting surgery as their disease progresses.

So more treatments are important in this disease area. We believe we have the best-in-class potential for TL1A. We have a potent compound with great selectivity. We’ve shown good safety in our asthma study, and we’ve shown low anti-drug antibodies today. The collaboration with Sanofi is going to capitalize on the potential of this target. This target has a potential to go across many different disease indications. It’s a pleiotropic cytokine that affects many different pathways, so the possibilities are large for this group. As I’ve mentioned, we’ve accelerated the program, and we’re putting all our effort on getting our interim analysis read out in 2024. So looking forward to more in collaboration with Sanofi. And just to review our milestones in development, so I mentioned TL1A, we’re moving forward, we’re putting resources and investment in making sure that we achieve our interim analysis in the second half of 2024.

I have been talking about Olanzapine LAI and its acceleration. We have been reporting that we were going to report the results out in the first half of 2025, but I’m happy to say we’ve accelerated that to the second half of 2024. We’ve enrolled patients in our Anti-IL15 POC study for celiac disease, and we will have our PK from our SAV and MAD studies coming out in the second half of 2024. We are well on our path to have our first patient dose in our Anti-PD1 IL2 program in the first half of 2024 as and when we submit our IND. And as Richard mentioned, ICS/SABA has now launched into our Phase III program, and we’re looking for results in first half of, or second half of 2026. So lots of things going on. I’m glad to see that we’re accelerating our programs and keeping to our timelines.

And with that, I’m going to pass it off to Eli.

Eli Kalif: Thank you, Eric, and good morning, and good afternoon to everyone. I’ll begin my review of our Q3 2023 financial result with slide 25. Starting with our GAAP performance. Revenues in the third quarter of 2023 were $3.9 billion, representing an increase of 7% compared to Q3 2022, both in reported terms and in local currency. To provide you some color on our revenue performance in the region. In North America, with overall strong performance was 11% growth in Q3 2023, compared to third quarter last year, this growth was mainly driven by higher revenue from generic products AUSTEDO and AJOVY partially offset by lower revenue from BENDEKA and TREANDA. As Richard mentioned, revenues in our generic business in North America increased by 15% in Q3 2023, mainly due to revenues from generic 0:20:54.2, partially offset by increased competition to other generic products.

Revenues in our Europe segment was flat in local currency terms. We continue to see strong growth in AJOVY and a solid growth in our generic business in the third quarter. This was, however, largely offset by lower revenues from our legacy brand including COPAXONE. Revenues from our international market segment increased by 20% in local currency terms. This was mainly driven by higher revenue from our generic products, largely coming from price increases as measured to AUSTEDO higher costs due to inflationary pressures. This increase was partially offset by regulatory price reduction and generic competition to off-patent products in Japan. GAAP operating income was $355 million in the third quarter of 2023 compared to an operating income of $419 million in the third quarter of 2022.

The lower operating income in the third quarter of 2023 was mainly due to higher legal settlements and lost contingencies, higher R&D and S&M expenses, partially offset by higher gross profit. Our higher R&D expenses in the third quarter of 2023 compared to the third quarter of 2022 were mainly due to an increase to support our late-stage innovation pipeline that Richard and Eric mentioned earlier in line with our Pivot to Growth strategy. In addition, last year in the third quarter of 2022, our R&D expenses were lower due to an adjustment in payments related to a contract with one of our R&D partners. We also saw an increase in our S&M expenses compared to the third quarter last year, mainly due to promotional activities related to AUSTEDO and UZEDY, as well as exchange rate fluctuations in our Europe segments.

We had a GAAP income of $80 million compared to the net income of $56 million in Q3 2022, and a GAAP earning per share of $0.07 compared to GAAP earning per share of $0.05 in the same period a year ago. The higher net income in the third quarter of 2023 was mainly due to reduced tax expenses in 2023 compared to Q3 2022. Our tax rate in Q3 2023 was mainly affected by increased deferred tax assets resulting IP-related integration plans. Such integration plans have been adopted, among others, in an effort of addressing the global adoption of OECD Pillar Two minimum effective corporate tax, commencing in 2024. The increase in our net income was partially offset by lower operating income, as discussed above. Foreign exchange rate movements during the third quarter of 2023, net of hedging effects, negatively impacted our revenues, and GAAP operating income by $9 million and $53 million respectively, compared to the third quarter of 2022.

This was primarily result of the impact of the stronger US dollars against currencies of certain international markets in which we operate partially offset by the benefit from Europe appreciation. Approximately 46% of our revenue in Q3 2023 came from sales denominated in non-US dollar currency. Turning to slide 26. You can see that the total non-GAAP adjustment in the third quarter of 2023 were approximately $598 million compared to $602 million in Q3 2022. Notable GAAP adjustment this quarter include legal settlement, loss continuances of $314 million, mainly related to estimated provision recorded in connection with certain litigation cases in US. Additional notable adjustments included amortization of purchase and tangible assets of $145 million, the majority of which is included in cost of sale.

Now moving to slide 27 for review of our non-GAAP performance. As I mentioned, our third quarter revenue were total approximately $3.9 billion, represented growth of 7% compared to the third quarter of 2022. Now let’s move down to the P&L starting with a gross profit margin. Our non-GAAP gross profit margin was 53.5% in the third quarter of 2023 compared to 53% in Q3 2022. This improvement in non-GAAP gross profit margin was mainly driven by a favorable mix of products, including higher revenue from AUSTEDO in our North America segment, partially offset by higher costs due to inflationary and other macroeconomic pressures. As I mentioned last quarter and as expected, this was an approximate 130 basis points sequential improvement in our non-GAAP gross profit margin in Q3 2023 compared to the second quarter of 2023.

This sequential improvement in gross margin was driven by continuous shift towards a more normalized portfolio mix, mainly driven by strong growth in AUSTEDO, continued growth in AJOVY as well as improvement in our cost of goods sold due to the expected easing of the inflationary pressures and other measures, we are taking to drive productivity in our supply chain. Our non-GAAP operating margin in Q3 2023 was 26.5% versus 27.2% in Q3 2022. This decrease in operating margin was mainly due to an increase in R&D expenses, partially offset by higher gross profit margins, as I just mentioned, as well as lower G&A expenses. We entered the third quarter with non-GAAP earning per share of $0.60, compared to $0.59 in Q3 2022, mainly due to a higher non-GAAP operating income, partially offset by higher financial expenses in Q3 2023.

Now, let’s take a look at our spend base on slide 28. As you can see, our quarterly spends base increased by $213 million or $171 million on a local currency basis. This increase was due to a higher cost of goods sold related to a higher revenue, compared to the third quarter of 2022, as well as higher operating expenses related to higher R&D and S&M that I just mentioned earlier, partially offset efficiency in our G&A expenses. As we move forward, we expect our operating expenses to be approximately from $1 billion to $1.50 billion in the fourth quarter, including a quarterly run rate of R&D expenses to be in the range of $230 million to $250 million as we continue to progress our product line including the late stage [inaudible] as this. This is in line with our Pivot to Growth strategy to position the business for long-term growth and success.

Turning to free cash flow on slide 29. In the first three quarters of 2023, we generated $0.9 billion of free cash flow versus $1.1 billion during the same period last year, a decrease of $200 million. This resulted mainly from changes in working capital items including on average higher inventory levels as well as lower net income as a result of lower gross profit and higher operating and finance expenses. Today, we are reframing our 2023 free cash flow guidance. Our 2023 free cash flow is expected to be in the range of $1.7 billion to $2.1 billion. Our fourth quarter free cash flow expectation includes a sequential ramp up in our revenue and profitability with a meaningful contribution from AUSTEDO. In addition, we continue to drive working capital improvements including significant inventory efficiencies and continuation of the positive impacts from accounts payable as a result of expansion in our vendor payment program which we launched earlier this year.

This free cash flow outlook range does not include the first upfront milestone payment payable to us under the exclusive collaboration with Sanofi for our Anti-TLA1 which we announced in October. Turning to slide 30. Our net debt at the end of Q3 2023 was $17.7 billion compared to $18.4 billion at the end of 2022. Our gross debt was $20 billion compared to $21.2 billion at the end of 2022. The decrease in our gross debt was mainly due to $1.6 billion senior notes repaid at maturity and $64 million of exchange rate fluctuations, partially offset by $500 million outstanding under the revolving credit facility as of September 30th, 2023. As I mentioned last quarter, in July 2023, we withdraw a total amount of $700 million under our $1.8 billion revolving credit facility.

The proceeds of which were used to repay $1 billion of our senior notes at maturity in July. In September 2023, we repaid $200 million, and as of today, $500 million is outstanding under the revolver credit facility. Our net debt-to-EBITDA improved compared to Q2 2023, coming now at 4.03x for Q3 2023 due to foreign exchange rate movement as well as free cash flow generation in the third quarter. As part of our capital allocation strategy, debt reductions continue to be our focus, and we expect to continue to work towards our long-term financial target of being 2x net debt-to- EBITDA by end of 2027. Turning to slide 31, which presents our upcoming debt maturities. As I mentioned, we have already repaid $1 billion of our 2.8% senior note at maturity in July 2023, so there are currently no additional maturity payments due in 2023.

Following our successful refinancing of approximately $2.5 billion of debt through our stability-linked senior notes during the first quarter of 2023, we have aligned our near-term debt maturities with our annual free cash flow guidance for this year. We believe we are well positioned to continue to serve our debt, and with these upcoming maturities over the next couple of years with our ongoing cash flow generation. Now, turning to our 2023 non-GAAP outlook on slide 32. As Richard highlighted earlier, we had a solid third quarter and year-to-date performance in terms of our revenues across all regions. This includes continuous strong momentum in our key growth engines, especially AUSTEDO, continued growth in AJOVY as well as solid performance in our core generic business globally.

In addition, we are seeing relatively high revenue from COPAXONE compared to our initial expectations, which we now expect to be approximately $550 million for the full year. To reflect this revenue performance in the first nine months, along with the expected development in the fourth quarter, we are increasing our full year revenue guidance range by $100 million. We are now expecting our revenue to be between $15.1 billion to $15.5 billion for the full year of 2023. We also continue to expect sequential improvement in our margins in the fourth quarter. As previously communicated, we are driving and continuing the shifts in our portfolio mix, mainly driven by strong growth in AUSTEDO, as well as further improvement in our cost of goods sold.

To reflect our year-to-date tax performance that I referred earlier, we are now expecting our annual non-GAAP tax rate for the full year 2023 to be in the range of 12% to 15%. And we expect our fully diluted share count to be approximately 1.123 billion shares for the full year of 2023. Today, we are also reaffirming our 2023 non-GAAP outlook for operating income, EBITDA, earning per share, and free cash flow as provided in February. I want to reiterate that our full year revenue, operating income, adjusted EBITDA, diluted EPS and free cash flow outlook ranges do not include the first upfront milestone payment payable to us under the exclusive collaboration with Sanofi for our Anti-TLA1, which we announced in October. With that, this concludes my review of Teva results for the third quarter of 2023.

And now I will hand it back to Richard for a summary.

Richard Francis: Thank you, Eli and thank you, Eric. So in summary, strong Q3 performance driven by AUSTEDO, the launch of UZEDY and AJOVY and good performance across our generic business in all three regions. Through that, as you heard from Eli, we’re increasing our guidance and revenues this year. And I’m pleased to show that the Pivot to Growth strategy is starting to get traction as I’ve highlighted with the AUSTEDO and collaboration with TLA1 with the capability build that Eric and his team have done that’s allowed us to accelerate our landscape along that team product in Phase 3 studies as well as with the Teva api, the recruitment of our CEO. With that, I’ll hand it over to people to ask questions.

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Q&A Session

Operator: [Operator Instructions] Our first question for today comes from Umer Raffat of Evercore ISI.

Umer Raffat : Hi, guys. Thanks for taking my question. I noticed a dose level C was dropped in your TL1A trial. I’m assuming that was the highest dose. So I have a two-part question. One, can you confirm that among the dose level A and B that was kept, you have at least a 500-milligram dose in there? And secondly, I understand that the decision to drop the dose level C was informed by optimizing, evolving biomarker data. Could you please elaborate on that as well? Thank you.

Richard Francis: Hi, Umer. Thanks for the call. Thanks for the question. Eric, I’ll hand over to you.

Eric Hughes: Thank you, Umer. So yes, we amended our study design and we dropped the dose. This was driven largely in part by our comparative in-vitro data. As I mentioned, the potency of the compound is, we believe, is best-in-class. We think the selectivity drives a lot of our potential biomarker movement. We were looking at free TL1A levels, which I think are important in dose selection. And we used this in combination with RPK and what we observed in other development programs when we look at exposures in the programs. So we took advantage of this. And we optimized the study by dropping a dose and increasing actually the size slightly in the other arms. So we’re happy with the changes. I think that makes the program more efficient and more useful data that will come out of it. And I can’t comment on dosing or which dose was removed at this time.

Operator: Our next question comes from Balaji Prasad from Specialty Pharma Equity Research.

Balaji Prasad: Hi, good morning. This is Balaji from Barclays. Couple of questions from me. Richard, just want to get your sense if you think that Teva has reached a spot where you are comfortable or actively seeking to expand your pipeline or portfolio either with BD or in licensing. Second, you’re in the guidance. I still see a $400 million spread so late into the year, which is rather interesting. Is it fair to assume that you are still expecting some large one-offs so late in the year that can still impact to the extent of a few hundred million dollars if approved? Thank you.

Richard Francis: Thanks, Balaji. Thanks for the call and the question. I appreciate that. So on the BD, to ask that question, yes, we are actively looking to do BD and in license. We started that and we’ve been doing that actively. I think we are excited about the products we have in innovation within the market and in our pipeline. That said, as we committed in the Pivot to Growth, we want to build on that. And we think we have capacity to add products both in our pipeline and also commercially. So we are actively doing that. But we want to be very selective, make sure it fits to our portfolio, our TA strategy. So that does take some time. With regard to the guidance, I think the question was the 15.1 to the 15.5 bit of a range there. Do we expect to one-off to drive that? I’ll let Eli answer that. So, over to you, Eli?

Eli Kalif: Yes, thanks, Balaji, for the call, for the question. Sorry. And basically, we are actually keeping the guidance, of course, for AUSTEDO so you can actually look on the first three quarters and understand the growth there, year-over-year Q4, just on AUSTEDO. But, namely, in terms of the other elements and the other lines on the revenue, there is nothing there in specific that is going to be changed versus the next. And considering this is an analogy of Q4 that we have each year.

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

Jason Gerberry: Hey guys, thank you for taking my questions. I guess firstly, just on the TL1A partnership, I actually had a follow-up question regarding the $600 million milestone for starting Phase 3. Is that contingent just on showing something static as a benefit, or do you actually need to generate data that are competitive with the more advanced TL1A programs? Just wondering how much risk there is to kind of capturing that $600 million milestone and moving forward. And then my second question, just on your EBITDA guide for the year. I guess to get to the midpoint or the high end of the range, it’s a pretty substantial, sequential step up. I get that there’s going to be more brand revenue, better mix, better margin in the fourth quarter, but you presumably won’t have the generic Revlimid contribution.

So, how should we think about OpEx swings here in fourth quarter versus sort of the run rate in the three quarters leading into 4Q? Like would we expect a step down in OpEx or is there some other factor that can drive this big sequential uptick?

Richard Francis: Okay, Jason, thanks for the question. I’ll start and answering them and I’ll let my colleagues contribute. So, on the TL1A, the Phase 3, there were no conditions around the Phase 3. The Phase 3 is about completing the Phase 2 — sorry, Phase 2, complete the Phase 2 and having to get approval to move into the Phase 3. So, that’s what the deal is on. There are no criteria around that. So, I think hopefully that’s very clear. With regard to the EBITDA range, I think it was, and a bit about OpEx. So, maybe I’ll start this and then Eli can contribute. So, you have seen and Eli did talk about our OpEx guide but this is in line with our strategy. This is in line with what we plan to execute. We’re driving AUSTEDO, making sure that brand is supported, appropriately the same for UZEDY product we just launched in schizophrenia.

And obviously, Eric and his team have started to hit the ground running, particularly on the Olanzapine and also TL1A recruiting, faster than we expected. So, that obviously incurs cost, but I think that’s a good thing, particularly if that’s part of our Pivot to Growth strategy. So, those are the reasons why the OpEx has probably gone up. There’s a reason why it’s gone up, but we’re pleased with them because it’s in line with what we want to do. Now, obviously going forward, just to give a bit of flavor for the OpEx and the R&D, obviously TL1A in partnership with Sanofi will have a 50% of that cost taken by Sanofi. So as we move into next year and possibly depending on where it closes this year, we’ll have a contribution from Sanofi. So I think that we’ve thought about that, that allows us to manage our pipeline and to be very thoughtful, but also think big about what we want to do at TL1A.

Now we have this collaboration. So and then the final part I’ll say is as we commented before, Revlimid was a contributor in Q3. We see that as a significantly less contributor in Q4, a very, very smaller part of that. So you take that into account. But Eli, maybe you like to add a bit more flavor to that as well.