Teva Pharmaceutical Industries Limited (NYSE:TEVA) Goldman Sachs 45th Annual Global Healthcare Conference Call June 11, 2024 8:00 AM ET
Company Participants
Richard Francis – President & Chief Executive Officer
Conference Call Participants
Nathan Rich – Goldman Sachs
Nathan Rich
Good morning, everyone. My name is Nathan Rich. I cover the generic and specialty pharma space for Goldman Sachs. We’re very pleased to have Teva here with us this morning, Richard Francis, President and CEO. Thanks very much for being with us and joining us today.
Question-and-Answer Session
Q – Nathan Rich
Richard, I wanted to start high level. I think kind of one of the biggest changes since you launched Pivot to Growth was really bringing innovative products to the forefront of the messaging for the company, and I think you’re starting to get more credit for that. I guess maybe how would you evaluate maybe the progress that you’ve made on Pivot to Growth so far in the first year? And I guess how have you changed how capital and resources internally are deployed as you kind of build/buy in to this strategy?
Richard Francis
Yeah. Well, firstly, thank you for having me. Appreciate it. And great to be here in Miami. A lot better weather I thought than England, but I opened the…
Nathan Rich
Not today so far.
Nathan Rich
I opened the blinds this morning, it’s exactly the same.
So, Pivot to Growth has been a really important part of Teva’s transition. As much as it’s a bit of a tagline, there’s a huge amount of detail below it. And we have four pillars, which I often talk about, and those four pillars are all about allocating capital.
So, you talked about innovation. Innovation is a key part of the growth of the company going forward. And we’ve outlined that from ’23 to ’30. And we’ve really clearly identified how we’re going to grow the business over that period of time.
And when we think about capital allocation, the four pillars, deliver on our growth engine, step up innovation, create a sustainable generics powerhouse, and focus the business, the last part of that is allocating capital. And so, we’ve been pretty ruthless at allocating capital. And to do that and to keep our operating expenses at the right level, we’ve had to just stop doing stuff.
And so, if you think about the first one, deliver on our growth engines, we’ve obviously shown we can grow AUSTEDO significantly, AJOVY and now UZEDY. And we’ve done that by building capability, because some of it’s about capability and some of it’s about allocating resources.
And we’ve driven and step up innovation, TL1A. Olanzapine is obviously, we’ll probably talk about in the results, but that study was completed in the clinic nine months ahead of schedule. We’ve launched ICS/SABA. We’ve moved TL1A through the clinic a lot quicker than people thought. And now in the clinic with IL15. That’s a capability build and a resource capital allocation. And so, how do we find the money?
The third pillar, which is to create generics sustainable powerhouse, was — Teva has everything to be excellent generics, but we haven’t been excellent. So, we have a great pipeline, we have good manufacturing and we have a good commercial footprint across the world. What we realized is that we were basically covering every molecule that lost its patent. And so, we’re covering 85% to 90%. And obviously, if you look at those from a value creation point of view, they’re all very different. And there’s a tail on that, which creates a lot of work, but a lot less values than some of the others.
So, we’ve reduced our pipeline around down to 65%. And that throws up a significant amount of resources, capital that we’ve allocated to the innovative pipeline. And then, in some of our businesses, we’ve just taken sales and marketing away from certain older elements of our business and reallocated it to the AUSTEDOs, AJOVYs and UZEDYs. So, we’re being ruthless, and it’s not a little trim here, trim there, it’s — we’re not doing that, we’re doing this.
Now, that’s good, because it allows us to allocate capital, make prioritization. What it does do though is that means the company has to perform, because when you place a lot more bets, then you may not end up with the returns, but you probably don’t end up with maybe the downside. So, I think what I’d be most pleased about in the year is we’ve been that clarity of focus on capital allocation capability build, what we measure has driven performance.
And so, I think people are realizing, well, Teva can sell innovative products really well, it can move innovative products through the clinic really well, and it can do some good partnerships. And at the same time, it seems to be creating a more focused generics business, which delivers good returns and more consistency than we’ve seen in a long time.
So, I think, yeah, you had to make some choices and we made them. And that focus has helped us, I think, deliver performance, which has maybe surprised a few people.
Nathan Rich
I think there’s also been a fair amount of investment, like you said, along the lines you just talked about. You have the long-term targets out there, returning to revenue growth, 30% EBIT margins by 2027. I guess, how are you thinking about that path? Because if you look at the P&L, sales and marketing as a percent of revenue up a little bit, R&D as a percent of revenue up a little bit, suggests that you’re investing. When do you kind of see that [start to be leveraged] (ph) and see that path to 30% operating margin?
Richard Francis
Yeah, that’s a really good question. I get asked a lot as you know. The growth is good, because we returned to growth last year after five or six years of declining growth. So that was quite a pivotal moment. And — but then the worry is, I can understand is, are you going to just spend all the money generating revenue and use it in expenses and not drop anything to the bottom line?
So, what I’ve been telling people is we’ll get to 30%, but it will not be linear, because the reason it won’t be is we have so much opportunity right in front of us. We have AUSTEDO, AJOVY, UZEDY. We have a pipeline that is in Phase 3 that we want to get to the market as quick as possible to drive growth. So, we have to be really mindful about investing and executing, because when they happen when — obviously, olanzapine, we hope to get to the market in the start of ’26. UZEDY is getting good momentum. AUSTEDO continue to perform. Without those investment, you get a return.
So that’s what we’re doing. We’re investing. We’re still improving our bottom-line, but it’s not that linear. It’ll be more of a slower growth and then an acceleration towards ’27, because that lines up with as we launch our innovative products. It lines up with as we start to get our generics business in the US performing more consistently.
So, I think all the reasons to believe are there, and because we execute and we keep executing. I think people are starting to understand that and understand that if we don’t invest, then we’re leaving, I think, future mid- to long-term growth — profitable growth on the table.
Nathan Rich
Yeah. And I guess one more high-level one and then getting into some of the specific products. But you talked about having a pretty robust pipeline in Phase 3 right now. I guess, how do you think about the future? You obviously have other assets in the pipeline. How do you think about either trying to accelerate those or maybe adding additional assets into the pipeline and that being a source of investment or allocation of resources?
Richard Francis
Yeah. So look, I mean, when I came to Teva, I mean, I did quite a bit of due diligence from the outside, and — but I didn’t see all the pipeline, because we didn’t really talk about it much. And when I came in, I was pretty surprised at, okay, it’s low in quantity, but high in quality. And when you think about olanzapine, ICS/SABA, which now people are talking about a lot because obviously AstraZeneca have launched theirs, TL1A, we can talk a lot about that, IL15, PD1-IL2, we can talk about MSA. So, we’ve got a lot in there that I think has a high probability of succeeding and we can talk about why I think that.
But then, we want to do, we want to supplement that with — and we’re looking — continuously, we have been looking for a year at opportunities to in-license. And we did a biologic design deal end of last year or maybe at the start of this year, I couldn’t remember, to bring in an antibody for multiple indications. And we’ll keep doing that. We probably want to build in-license in more late stage, because we want to drive revenue, top- and bottom-line, but we are also starting to look at build out the pipeline where we think we understand the opportunity that’s there, but it won’t be excessive.
The way I think about our innovative business, it’s — I’m really excited about it, because it is — the business is growing very fast with products which have the potential to, I think, continue that growth. It will be supplemented by new ones being launched in the short term. So, ’26 with olanzapine, ’26, ’27 with ICS/SABA, and you’ve got TL1A, then the IL15. So, there’s reason to be — there’s not really a patent cliff anywhere on the horizon.
Because of our size of our innovative business, as we add these products to it, they can drive significant growth, because maybe our weakness is our strength, we don’t have a huge base business of innovation, innovative business. So, when you put in AUSTEDO or UZEDY and AJOVY on top of that and you grow it, it really accelerates the top-line, which by the way from a gross margin point of view falls down really nicely.
Nathan Rich
And you’ve talked about the kind of foundation that the company has in CNS. Is that sort of where you would look to kind of further bolster the pipeline? And/or are there other areas where you feel like could be complementary to some of the assets that you currently have?
Richard Francis
Yeah. So, on the whole, we’ve got a very clear BD strategy of what we’re going after, which is mainly CNS and immunology because then we can leverage the infrastructure we have, both the capability in research and development and the capability in our go-to-market model. So obviously, with AUSTEDO and UZEDY and AJOVY, there’s a lot of synergies there and we can still have capacity to put more products into that. So that’s the perfect — that’s the sweet spot.
And obviously, the same [to be true] (ph) with immunology, because with TL1A, we’ll have IL15 behind it. That’s not — but we don’t want to be so restricted to that. We have a lot of capability in Teva that is sort of, I would say, a bit agnostic. Our supply chain are managed markets, I mean, we’re a huge supply of medicines, so we can really leverage that. And so, because of that, I think that gives us a slight bit of freedom. Obviously, in CNS and immunology, we have a huge opportunity for so many diseases. I’d like to think we can build on that. But we’ll always be a bit speculative outside of that as well.
Nathan Rich
Yeah. I wanted to ask about olanzapine, maybe go through some of the key products now. So, I guess, what do you kind of feel like will help move the market to long-acting injectables? I mean, because I feel like there’s kind of broad acknowledgment that it should help compliance and that’s very beneficial to patients. But the market has been a little bit slow to move. I don’t know if you kind of have a sense of what the current kind of hesitation is from providers, whether it’s saving it for maybe the more severe patients. I’d be just curious to get your perspective there, because I think if you look at some other markets in Europe, penetration of long-acting injectables is a lot higher, like 40%, 50%. Do you think the US can ever kind of get towards that?
Richard Francis
I don’t know. It’s rare we use Europe as an example.
Nathan Rich
Yeah, right.
Richard Francis
The way I — so, look, I think about it, I think it can move in that direction. The question is, does it need to from our perspective? So, I always think about what you can change and what you can control. And look, so firstly, I think with olanzapine, the great thing is there is no long-acting olanzapine that’s used. So, there’s nothing. So, if olanzapine is used or long-acting olanzapine in the same way that the long-acting of the other antipsychotics are used, then that market is pretty big for one product. And so for me, if it gets to Europe, that’s amazing. If it doesn’t, then this is still a very meaningful product for us to drive growth. And because its profile is so attractive, potentially attractive, we’ll have to wait till the full safety database gets locked, but so far we haven’t seen any PDSS. But I think that itself can be a significant driver for us.
But what is interesting is UZEDY, which we launched last year, which in a way is — people thought you’ve moved UZEDY, a long-acting risperidone, to market that has long-acting risperidone, so how are you going to really differentiate? And the two things which we thought were important, which are because we use this technology, it’s Medincell technology, when you inject it, it’s subcu for one and it aggregates straight away. And it allows you to get to therapeutic dose within six to 24 hours. And we thought that was an important attribute.
But it’s only when we spoke to physicians that we realized that a lot of these physicians are dealing with people who have breakthrough episodes. And so, when they see them, they need to get them under control pretty quickly. If they don’t, they have to hospitalize them, or they’re trying to juggle an oral supplement of other medications that they’re using with the other long-acting. And then, they see them every day or every few days to see, did I get it right, that’s a concern. And what we’ve realized is the fact that we can get to therapy [actually within] (ph) 24 hours means they can — six to 24 hours, they can inject it and they either keep them throughout the day or they can allow the patient to go really quickly for them from just being able to manage their practice, that’s a huge advantage.
So, I think that’s why we’ve seen UZEDY gaining some good momentum. So, I think it just shows maybe the products that are on offer in the past weren’t meeting all the needs of the physicians and the patients. So, with these two products, maybe we could grow the long-acting. The way we think about it, it’s Teva and you’ll hear this a lot from me is, we don’t look to revolutionize things that we don’t control too much, because otherwise the questions you’ll ask me is why do you think you can move long-acting to the level of Europe, and I’ll have to come up with some idea and you’ll go, “Well, okay, it sounds good, but no one’s ever done it. So, why would you do it?” So, I think what we’re trying to be is, can we achieve our 27 goals and beyond by not fundamentally changing the dynamics of some of the markets we’re in.
And we’ll talk about generics. I do not believe pricing will — we’re not planning for pricing to get better in generics. So, it’ll allow us to hit our numbers. Pricing will do whatever it does and we’ll still hit our numbers. So, I think the same way with the long-acting. But I think it’s really exciting. And I think it’s interesting to go back to your opening remarks. I thought olanzapine was exciting in May 2023. And it was only when we announced the Phase 3 data that people started to believe maybe more. And maybe that was because they just didn’t believe Teva could develop an innovative product. And that’s the sort of skepticism we’re having to overcome, which is fine and we’ll overcome it.
Nathan Rich
Yeah. TL1A, I think there’s another one where there’s been a lot of kind of debate on sort of what the future opportunity is. I think you kind of talked about potentially being best in class with potency and selectivity of your drug versus the others that are out there. I guess, maybe how do you see your drug positioned relative to the competition? And you guys have kind of taken this like all-comers approach. Why do you think that was sort of the right way to go about development?
Richard Francis
So, look, I think the reason why people ask us a lot about — so first let me go back. So, we developed our first TL1A about 12 years ago internally. And this is our third TL1A. So, I think it’s important, because it goes to show that we kept improving and we understand this target very well. And because of that, we kept improving it to make sure it had more specificity, selectivity and low neutralized antibodies, because we thought those were important from dose/dose frequency and patient population. Neutralized antibodies, I think, is a very important part, which people don’t talk about, because I know from other diseases I’ve operated in, physicians will use something with a low level of neutralizing antibodies, because if it doesn’t work, they want to be able to move on to another therapy. They want to give that optionality to the patient.
So, I think — and the other reason why it’s been talked about is, because people said we are way behind everybody. And I always answer that the same way, which is, it doesn’t matter where you are in the race, it’s where you are at the end of the race that’s important. And we’re trying to predict the end of the race a long time away. And I’ll say, look, are they ahead? Maybe they’re ahead. I don’t know. I mean, it’s not one of those where you’re watching the scoreboard and you see the distance between the Grand Prix cars. But for me — I thought I’d mention that for Miami…
Nathan Rich
We’re in Miami, right.
Richard Francis
The Great Grand Prix, I think it was won by an English person as well. But — so for me, it’s about, are we executing that study really fast, and we are. And we’ve done full [improvement] (ph). We have the interim analysis that’s second part of this year. We’ll move into Phase 3 with the FDA approval first half of next year. I don’t think that’s going to put us that far behind. And because we’ve designed our study on the basis that I think we are capturing UC and CD, we are taking all comers that will give us potentially an advantage on time going forward.
But if it all doesn’t, and we do end up coming to market third, then one is, how far behind are you? And if it’s six months, a year, in my experience, 30 years, that makes no difference. And if you come to the market and you’re differentiated, then I think it doesn’t make much difference. I mean — and I do remind, because I’m sure we’ll talk about HUMIRA. HUMIRA, I think, was third to the market by quite a long way. And I’m not saying we can emulate HUMIRA, so don’t forecast that in your models, please. But…
Nathan Rich
[indiscernible] drug.
Richard Francis
Yeah, exactly. But I think it just goes to show, and I was — back in the day, launched TECFIDERA, which was late to the market there, I think, from an oral point of view. But it’s how you put the market together, how you prepare yourself and the segmentation and the positioning. So, I feel very confident about it. Look, first of all, we’ve got the efficacy data. We’ve got to prove that profile. And once we do, I think we’ve got a great partner in Sanofi that allows us to go to the market with a real intent. This is not — we’ll try and do our best. By then, I think they’ll want to see some revenue growth as well because of their portfolio aging a bit.
Nathan Rich
And when you say end of the race, that FDA approval is end of the race, or you just kind of need to be around that finish line at the same time, it’s really what happens after that?
Richard Francis
Yeah, I think that’s what I think by that. And then, look, I would say — the other thing I’d say is who’s first in the third indication, in the fourth indication, in the fifth indication. So…
Nathan Rich
Yeah, makes sense. ICS/SABA hasn’t been talked about a lot previously.
Richard Francis
The hidden gem.
Nathan Rich
What will take it to kind of make it that gem that’s not hidden anymore? I kind of feel like you kind of talked about this as a new standard of care. AstraZeneca has a product relatively small so far, it kind of remains to be seen, but we started to see a pickup in scripts for their product. Do you kind of feel like you’re starting to see that momentum?
Richard Francis
So, look, here’s an interesting one. So, I just previously said that getting close to being first to market is the best thing, and we want to catch up with them. And in this one, it’s a bit of a strange one, because AstraZeneca going ahead is probably not a bad thing for us. There’s a couple of reasons why I like ICS/SABA is, one, I think it has a high POS to get through the clinic. I think everybody would agree with that. And we have a differentiation, and we have — are going to have a pediatric label. The 25% of the patients are pediatric. 10 million — the guidelines in America that 10 million people should be on the combination. And so that’s a market that has to be creative.
So, I think having AstraZeneca, who has also a very rich history in respiratory, has gone out there, and they’ve really, I think, gone at it. And so, they’ll help, I think, create the awareness in the market. And I think we’ll come in. I’d like us both to be closer, which is why we’re trying to move it through the clinic quicker. But we’ll both come through and say, okay, but in children, we’re only one who’s syndicated. And I think we will have a — you speak to Eric Hughes, my Head of R&D and CMO, our device is a very simple device. It’s the one that kids use and it’s very easy to use, because we’ve been making devices for 30 years. So, I think there’ll be also a patient population of people who maybe find the AZ one a bit more complicated, and so, we’ll pick up that one.
So, I like that, because that potentially kicks into our growth around ’27, maybe even get it earlier. It’s about how quick do we move it through the clinic. But it’s a market that I think will become a big market, because the way I communicate it is, it’s 10 million patients, if only 2 million to 3 million move on to these therapies, then it’s a significant value market. Now, why would only 2 million to 3 million move out of 10 million if it’s guideline? I think it will probably follow what you see in Europe, which is most people do move across pretty quickly. So, I think that’s exciting. And we’ll talk more about that.
But right now, our focus is we’ve got to execute the clinical trial in the clinic. These are not easy studies to do in children. We’ve got to move it fast, which is one of the reasons why we did the deal in partnership with Launch Therapeutics and Abingworth, because one, we want to go faster, we probably don’t want to have any constraints on money and expenses, which we talked about, but also Launch Therapeutics have skills and competency and experience in recruiting in asthma study. So, we want to leverage that, because we want to move fast.
That’s the thing about — what’s been going on at Teva in the last year is, we’re really focused. And so, I follow the recruitment of all the Phase 2 studies every two weeks, and I speak to the team every two weeks. And so that creates a really galvanized company who realizes that we don’t sort of put a slide up and go, yes, we’re a bit behind, but this is quite normal, well, we want to accelerate everything. So, how do we — everything’s about beating the curve, beating the recruitment, and that’s a mentality that’s starting to really live in Teva. And I think that gives me a lot of confidence about how we keep moving forward on executing this pipeline, which I think people are still skeptical that we can actually just execute it.
I think we’re showing — we probably executed olanzapine in schizophrenia faster than any company. I mean, I don’t know, I haven’t looked at the data on that, but everybody’s surprised, because schizophrenia is really hard to recruit. We’ve done it nine months ahead. And people say, “How do you do that when you had no experience in it?” So, we had [build it with] (ph) UZEDY, but we build capability and we just focused on it. So, we just made sure it had to happen. And when you do that, it’s remarkable. We don’t have that luxury of having 20 things in Phase 3.
Nathan Rich
Just a lot more disciplined and targeted with that.
Richard Francis
Yeah.
Nathan Rich
Yeah. I guess another product where I think there’s been a pretty significant turnaround is AUSTEDO, too. Can you maybe just talk about what’s driven the reacceleration in that growth? And kind of — you made a ton of progress so far, you saw $1 billion-plus to go to get to your 2027 target. What’s the key to kind of achieving that?
Richard Francis
Do you think that I’ll hit the target?
Nathan Rich
We do actually.
Richard Francis
Yeah, that’s good. Believer. Thank you. So, what we’ve done is, it’s the same thing. We’ve got focus. We saw the opportunity. We understood quite quickly, because obviously my background is a lot of it specialty in the US. It’s what’s it going to take to realize that opportunity? What does that plan involve? What resources, what capability can we execute? And then, I’m a big believer in you work back.
So, when I started last year, I said to the team, we’re going to go for $1.2 billion. That’s what we’re going to go for. And they didn’t want to do that. And I said, let’s make sure we get the resources, let’s build the plan, and let’s just go for it. And I think, so part of it’s about setting targets and understanding and building plans to hit those targets. And obviously, once we hit the $1.2 billion, internally, people start to believe, okay, and we build muscle, we build capability, we build belief, we build ambition. And those are really important in the company. And so, now going after the target we set this year, we’re very focused on that and delivering that. And the $2.5 billion is something the company absolutely believes they can do. So that’s the focus.
And obviously, I spend a lot of time where we measure a lot of things. We have a big belief in what measure gets done, but we measure I say a lot of things on our pillars. We measure everything every month of how we’re executing, and there are not many critical things. So, AUSTEDO, UZEDY and AJOVY are the critical things we measure on pillar one. On pillar two, it’s our Phase 3 and Phase 2. We measure the recruitment of those.
And so that discipline — and on AUSTEDA, I think what we’ve shown is Teva does have a legacy of innovation. I mean, COPAXONE — I was at Biogen a long time. Teva were annoyingly good at selling COPAXONE, really good. So, that’s still in the DNA. And I think with AUSTEDO we pulled it out and we’ve sort of gone back to that and we can be a leader in this. We can be good. And so, apply the resources, but with resources go expectation and responsibility to deliver. So, it’s not free money. If you get the money, you got to deliver.
And so, there’s a performance-based culture that’s really being built there now, which is we understand the responsibility we have, the team in the US in selling AUSTEDO, and we need to deliver on it. And when you get a galvanized team focused like that, these things happen. And I think it has happened really quickly and surprised people.
Nathan Rich
And you’re starting DTC advertising. What type of — is there any way to frame like the potential lift from that just in terms of awareness and like what that could lead to down the line?
Richard Francis
Well, it’s just sort of part of the armamentarium you use, and we started that in January. The way I think about AUSTEDO, and I obviously had to convince people that the ’27 target was doable, because everybody said it was ridiculous, you’ll never hit that.
Nathan Rich
Yeah.
Richard Francis
And we have modeled it. And I personally have modeled everything, because I knew if we put a number out there and we don’t hit it, then it’s not going to be good.
Nathan Rich
Right.
Richard Francis
So, when you think about it, there’s a huge untreated patient population of people who suffer from tardive dyskinesia. So, part of it is getting those to get prescribed. But then there’s so many other levels we can pull. How many of those are prescribed end up on therapy? So, how many drop out before they get therapy? How many start on therapy don’t titrate to the optimal dose, then on suboptimal and then they drop out, or they just stay on suboptimal? How many titrate up get on the optimal dose, but then don’t adhere or drop out? And we put programs at every single step of that, which we didn’t have before.
So, yes, DTC fills we have more patients coming to the office and AUSTEDO is getting — XR is getting prescribed more. But then as they come through, we’ve got to make sure they get on the right dose, they get the titration pack, they stay on it, they’re part of the adherence programs. We’ve partnered with specialty pharmacy to help them out. So, we’re pulling a lot of the levers. And all of those levers, by the way, not all of them are at sort of optimum, because we started them last year and sales force we increased, but that’s now running I think at a high level. But some of the other things I’ve just described we can improve those year-on-year.
Nathan Rich
Yeah. Maybe wanted to go over to biosimilars. I think that’s been another area of surprise being relatively late to market with biosimilar HUMIRA. But I think having that relationship with Evernorth and Cigna for the unbranded product, I guess, can you talk about maybe just what your expectations are around kind of pace of uptake? I think that their strategy has kind of been their clients will tell them kind of what sort of formulary they want. So, I guess, what are your expectations for how many people might adopt or how many of their clients might adopt that unbranded biosimilar in a preferred position as you think about just like the general uptake of biosimilar HUMIRA?
Richard Francis
I don’t know.
Nathan Rich
Or when do you get that visibility?
Richard Francis
Yeah. And the reason why I say don’t know is like I don’t want to pretend I do know. Look, I think we said on the Pivot to Growth strategy, our biosimilars strategy was bring as many biosimilars to the market as we can, but be mindful about how much capital we invest to do that, because the future looks good. But when it will actually happen, we’re not sure. So — but we’re very sure about some other aspects where we can allocate capital. So, I think the world has changed dramatically it seems from biosimilar HUMIRA to last year to this year.
But I think it’s still got to play out. So, I think it’s a lot more positive, but it still has to play out. It has to go through, I think, the whole value chain on a larger scale. But it looks promising. And I think we have an opportunity to play in all of that despite the fact that we’re late, because then we have a great product, we have interchangeability. So, there’s some things that still hold true. So, I feel optimistic, but until we start to get some data points, then these are great conversations. We’re having a huge amount of interest, but that has to be contracted and then executed. And once again, I think I’m always measured in this, because I think the biosimilar strategy we have is really good for the next years, could all play out well.
But to specifically say for a quarter or two, what’s going to play out now right at the start of this journey, I think what I’d say is it’s too hard to call. And for us, we’re super focused on maximizing it, like absolutely, but we’re not reliant on it to hit our numbers. So, to hit our 2027 numbers, we’re expecting the market to be more measured. If it does to really start to open up, then that’s great for us. But we go after it as if it’s our life depends on it, but we don’t — we can’t control every single aspect of that.
Nathan Rich
So I guess, is that something then that kind of happens with these annual contracting cycles where payers make formulary decisions and just over time, over that multiyear period, you kind of just see biosimilar adoption build and that should be part of it?
Richard Francis
I think it’s probably more dynamic than that. Look, I think we’ve seen with the private label, people are trying to take control now.
Nathan Rich
Yeah.
Richard Francis
It’s interesting what’s going to play out, but my view is they’ve gone from this, I’ll live off the rebate, which by the way I negotiate, so I can’t always control. So, I mean, if you’re trying to plan five years, do you plan the same rebate, a bigger rebate, and when the point comes, they don’t give you the rebate. So, I think what we’re seeing with biosimilars is actually we can take control and we can really manage this. And part of it is private label, part of it is using interchangeability, the pharmacy can switch. There’s lots of aspects.
But I think, for me, it comes back to, I think they want more control. And they realize this is an opportunity to drive more control, more predictability, and more value, whether they can execute it. And if they can, then I think they start to follow Europe. And Europe executes really well on this, but the margins stay really well, because everybody realize it has to be sustainable. So, if the US replicates Europe on this one, then I think that’ll be good for us, and it’d be good for the healthcare system in the US, and it’d be good for payers and patients and policyholders, but a long way to go.
Nathan Rich
Do you think this can move faster with the drug like Stelara, where you don’t have this initial hesitation to I think kind of force switching or adopt these low list biosimilars? So, maybe like for future biosimilars that come to market [Technical Difficulty] over two years, like maybe you can [Technical Difficulty].
Richard Francis
And we saw in Europe, where we launched I’ve been part of launching a lot of biosimilars [Technical Difficulty] people started working out in the second one. And then now, I mean, we’re launching six before ’27, so there’s a lot coming. So, payers and the PBMs need to get their minds to get, like, “There’s a huge amount here. What do we want to do?” And I don’t think they will be playing the same playbook as they played with HUMIRA in ’23, in ’24, or ’25, or ’26 or ’27. I think that’s going to evolve. So absolutely, I think it will change.
Nathan Rich
Yeah. And I guess one last question on this. There’s pretty significant changes being made to the Part D program in Medicare that increases plan liability that I think [Technical Difficulty] adoption of biosimilars is payers don’t have that same rebate incentive than they had in the past. And they want to slow people’s progression through the Part D benefit. Do you think that that will help kind of push biosimilar adoption further along kind of a more step change type of…
Richard Francis
It potentially could. I think we’re still trying to understand how all these [Technical Difficulty] play out, because it’s quite a dynamic situation with that and the IRAs. So, I think we’ll see. But we constantly look at it and model, is it advantage? Is it disadvantage? If it is advantage, what part of our business is disadvantage? But it hasn’t really become super crystal on how this is going to play out. But we’ve still got to be a bit agile.
Nathan Rich
So, we’ve gone almost the entire time without talking about generics, so maybe just hit that the rest…
Richard Francis
What a difference a year makes?
Nathan Rich
Yeah, right. You kind of…
Richard Francis
Or debt. Do you want to throw in a bit of debt?
Nathan Rich
Yeah. You talked about not assuming improvement in generics. Maybe what’s the baseline assumption when you say that in terms of what’s baked into the long-term plan?
Richard Francis
So look, what we did, so firstly on our generics business, we’re still world leader in generics. So, we’re very proud, we’re #1. And outside the US, which is 65% of our business, we grow mid-single digit to high-double digit every year. It’s super profitable, it’s great. We had a challenge with the US business, which is why we’re talking about it. And but we have everything to drive that business to long-term growth, because we have a great pipeline, we have good manufacturing, a good go-to-market model. We just need to get them all working well together. And that’s what we’re working on.
Now pricing, everybody keeps asking whether pricing is going to get better. It’s sort of like the discussion on sort of inflation and the Fed, isn’t it?
Nathan Rich
Right.
Richard Francis
When Fed is going to reduce it? What’s inflation going to be? So, for me, pricing is something that we did never predict as a positive. So, if you look at [Technical Difficulty] growth, we launched it last year, we said generics would contribute very, very small amount to our growth to ’27. [Technical Difficulty] our US business quickly, and we didn’t know what the market was going to do. Now, we believe the only way to — so pricing is all about competition. I can’t control competition. The only way I can control pricing is I launch new products, which have less competition. I improve manufacturing cost of goods to offset some of the price erosion with cost of goods improvement. Those are the things we focus on.
Will the world get better? I don’t know. If I was one of the purchasers, I would not. I would keep trying to drive down prices as much [Technical Difficulty] make more money. [Technical Difficulty] quarters where it’s better, we’ll take that. But I don’t think I’ll ever — I never say this, I think I’m always told not to say this, but I don’t think I’ll ever say we didn’t hit our targets because the pricing in the US went down so much — too much, I wouldn’t say that.
Nathan Rich
But I guess on the flip side, do you feel like there have been structural changes to the…
Richard Francis
No.
Nathan Rich
No?
Richard Francis
No. Everybody keeps asking me that. No. The three buyers are still living ferociously hand to mouth and one of the least price. Some quarters, less people come into the market with new molecules, some quarters more come in. But to look at that in a positive way, I think is — for us, we think it’s dangerous. We just assume it’s going to be super hard every year. And if it’s not, we’ll take it. But if it is, we’re prepared for it. And we don’t make excuses internally. We say, well, we make them — we need to make our stuff cheaper every year, and we need to launch better every year. If we do those, we can handle whatever comes with it.
Nathan Rich
Yeah. Great. Well, that’s all the time we had. Richard, thanks so much. Really appreciate it.
Richard Francis
Really appreciate it. Thanks for your time. Thank you.
Read the full article here
