Earnings Call Transcript - TEVA Q4 2025

Operator, Operator

Hello, and welcome to the Teva Pharmaceuticals Industries Limited Q4 2025 Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead.

Christopher Stevo, SVP, Investor Relations

Thank you, Alex. Good morning, and good afternoon, everyone. Thank you for joining us on our fourth quarter call. Before I turn it over to our CEO, Richard Francis, I just want to remind everyone that we will be making forward-looking statements on this call. Any statements we make are only as of today, and we undertake no obligation to update those statements subsequently. And if you have any questions about our forward-looking statements, feel free to see the appropriate sections in our SEC Forms 10-K and 10-Q. With that, Richard Francis.

Richard Francis, CEO

Thank you, Chris. Good morning, good afternoon, everybody. Great to have you on the call. Also on the call with me today will be Dr. Eric Hughes, Head of R&D and Chief Medical Officer, who will be walking you through some exciting developments in our pipeline. And then Eli Kalif, my CFO, who will go through the Q4 and the full year results. So starting with, as I always do, the Pivot to Growth strategy and the progress we've made over the last three years. As you know, the foundation is the four pillars: deliver on our growth engines, I think you'll see in the results that we continue to have great momentum around our innovative portfolio of AUSTEDO, UZEDY, and AJOVY and some great progress on our innovation, so step-up innovation. You'll see that we filed olanzapine last year, completed the recruitment of the DARI study, dual-action rescue inhaler, and started our Phase III study for duvakitug in UC and CD. And then sustained generics powerhouse, good progress. Our aim is to get this business back to stability, and we have done that. And now we see some exciting growth emerging from our biosimilars portfolio, and I'll talk a bit about that. And then focus the business. This is all about making sure we allocate capital to the correct areas to give the best return. And we'll walk you through a bit of the progress we've had on our transformation program, which aims to have $700 million of net savings by 2027. We made excellent progress in '25, and we're on track to hit two-thirds by the end of this year 2026. So now moving on to the actual results. So I'm pleased with these results. Now just to orient you on this slide, the numbers on the left include the Sanofi milestones and the numbers on the right do not. So starting with the revenues. We saw a 5% increase in revenues at $17.3 billion. EBITDA grew 12% up to $5.3 billion. EPS grew 19% to $2.93, and free cash flow was up 16% to $2.4 billion. Our net debt to EBITDA is now at 2.5x, which is, as you know, our goal for 2027 is 2x. So we're well on our way to do that. Now, a slide that I've shown over the last 12 quarters actually, to show that our return to growth, which was our strategy, part of the Pivot to Growth strategy when we launched it in 2023. And as you see, we've consecutively done this. And we did that in Q4, where the growth was up 11%. Now that did include the milestone from Sanofi. If you take that away, we were slightly down at 1%. But let's look at it over a three-year period. So over a three-year period, these are impressive results, once again, reminding you that we had multiple years of sales decline. And so in 2023, we actually grew the business 4%, in '24, 11%, and then last year, 2%. So we're well on track for our CAGR of mid-single digits, as you can see from the slide there. Now let's get into a bit of detail as to what's driving these good results. So on the next slide, you'll see the innovative performance is one of the key areas of growth for us. And AUSTEDO, UZEDY, and AJOVY hit $3.1 billion for the year. This is up about 35%. So excellent results there. And I'm really pleased to tell you that in Q4, we surpassed $1 billion for our innovative portfolio that you see on the screen here. But in a bit more detail, AUSTEDO grew at 34% at $2.26 billion. UZEDY was up 63% at $191 million, and AJOVY continues to perform, was up 30% at $673 million. Our generics business was flat, worth noting this excludes Japan from these numbers. Now I've talked a lot about moving from a pure-play generics company to a biopharma company. I think these results show we clearly have done that. And now it's a question of just how much we can keep driving this innovative portfolio and the pipeline that comes through. Now moving on to a bit more detail. I wanted to talk to you a bit about AUSTEDO. So AUSTEDO had a really strong quarter in Q4, as you can see, $725 million, which is up 40% for the quarter. And for the full year, $2.2 billion, up 35%. And this was delivered with good underlying growth. As you can see, TRx is 10%, and there's a 19% rise in milligram volume. This is driven by both new patients and better adherence. It's worth noting that AUSTEDO XR now accounts for 60% of new patients. Now, very impressive results here. Now we did have in Q4, these numbers did reflect some year-end inventory stocking and some favorable gross-to-net. And Eli will talk a bit more detail about that. But if you actually take that out, then we still grew at 20% in Q4. So once again, the underlying growth of this product is very strong. And because of that, we're giving the guidance of $2.4 billion to $2.55 billion for 2026. I think it's worth noting that if we do hit the upper end of that, then that means we've hit the $2.5 billion a year ahead of schedule. But we'll talk in a bit more detail of the puts and takes to that range. Now moving on to UZEDY. UZEDY also had another strong quarter at $55 million, which is up 28%, and for the full year, up an impressive 63% to $191 million. TRx volume grew an impressive 123% year-over-year. And it's worth noting that more than 83% of the NBRx generated was generated by patients transitioning from oral therapies or treatment-naive, which confirms that UZEDY is expanding the long-acting injectable market, not just taking share. Now another impressive fact on UZEDY is that it is the fastest-growing long-acting injectable in its category. And because of this momentum, our guidance reflects this. And as you see, we have guidance of $250 million to $280 million for 2026. Now moving on to AJOVY. AJOVY had a strong quarter as well, up 43% year-on-year at $211 million. And for the full year, it's $673 million, up 30%. So once again, for a product that's fairly mature, really strong growth. AJOVY continues to be the number one preventative anti-CGRP injectable in the top U.S. headache centers, and it leads in 30 markets across Europe and internationally. This continued growth is driven by our commercial excellence, our ability to continue to take market share, manage the pricing and the payer environment in the U.S., and continue to expand in new geographies. Because of this strength, we're giving guidance of $750 million to $790 million. Now moving on to the pipeline. We talked about the products we have in the market and the excellent progress we made on those, but the pipeline is really exciting here. Every product we're going to launch has a potential of over $1 billion. The size of the markets we're entering into are significant, and our entry points into these markets are in the short term. If you look at the total, the total of the portfolio can be over $10 billion of peak sales. There's an addition to this slide that some of you may not have seen, which is we will be announcing two new indications for duvakitug later this year, once again, highlighting that this is a pipeline in a product. Now moving on to our generics business. Our generics business, our aim was to get this back to stability, and we've done that. The generics business was flat in 2025 versus 2024. One of the things that I do always highlight is that you need to look at the generics business over a multiyear period because some years you have more launches than others as part of the business. As you see here, our two-year CAGR is 6%. For 2025, the U.S. grew at 2%, international markets, 1%, and Europe declined 2%. We continue to see good performance from our biosimilars business, and I think I'll move on to that now to talk you through that. Over the last three years, we’ve made tremendous progress with our biosimilars. It’s worth noting that we now have 10 assets in the market globally, and we're going to launch six additional between now and the end of 2027. We have another 10 assets that are going to start launching from ’28 and beyond. Some impressive numbers here, and our aim was to build a world-leading portfolio, and we've done that. In fact, I think we have the second largest portfolio of biosimilars now in the industry, and we've launched the most biosimilars since 2020. We're well on track to grow our biosimilars business by $400 million by 2027. To close out, as you've seen by some of the numbers we've talked about, we're well on track to hit our 2027 guidance. The CAGR I talked about, we currently stand at 6%. The operating margin will go into a bit more detail, but with the success of our innovative portfolio, we're very confident about 30%. Net debt to EBITDA at 2x, we're already at 2.5x, and cash to earnings is 80%. Eli will walk you through a bit more detail on that. With that, I'll hand you over to Eric to talk about our exciting pipeline.

Eric Hughes, Head of R&D and Chief Medical Officer

Thank you, Richard. Starting with the slide that Richard went over briefly. One of the things about this pipeline is there are three Phase III programs and two burgeoning Phase II programs. The market potential is big, like Richard mentioned, but more importantly, it's the unmet medical need that we take pride in and what we're potentially going to address. And finally, I'd like to say that we've planned over five years for submissions. We're very proud of the fact that we've turned around this innovative pipeline and moved it forward so quickly. But I first want to highlight olanzapine LAI. We got the submission in on December 9, and we're looking forward to the EU submission in the second quarter of this year. We’ve shown that this olanzapine LAI can address an unmet medical need in schizophrenia with great safety and efficacy, and we want to discuss that with the health authorities and hopefully get that approval at the end of this year. So something very exciting to look forward to. Next, on our DARI program, our dual-action rescue inhaler, we're very proud of the fact that we've finished the targeted enrollment of this study at the end of 2025. In fact, we're going to continue enrolling it to accelerate the back end of the study. The most important thing about that enrollment is that it includes pediatrics, adolescents, and adult patients. So I think that the opportunity here for a differentiated product of a dry powder inhaler and the fact that we have the potential to have adolescents and pediatrics in the label is a true differentiator for this program, addressing a large unmet medical need in asthma. And then moving on to duvakitug, a very exciting brand-new biologic class that's in development. A year ago, we showed really exciting Phase II data in both ulcerative colitis and Crohn's disease, posting very good numbers in both with a nice dose response. Now we're excited to be looking forward to the maintenance data in the first half of this year. The important thing about the maintenance data is that we will hopefully show durability of response. That's really what people need in ulcerative colitis and Crohn’s disease. These are chronic diseases that people frequently fail on their advanced therapies and need alternatives. So durability in the long term is most important. To review, this represents 58 weeks of exposure, looking at two different doses given subcutaneously every four weeks. Richard also mentioned that we started our Phase III programs with our partner, Sanofi, the SUNSCAPE and STARSCAPE, started right on time, and we're accelerating those programs and executing very well. We'll be looking forward to new indications this year. Then moving on to anti-IL-15. We had a very exciting announcement at JPMorgan that Royalty Pharma provided funding for our program in vitiligo for a Phase II/III program. This is real external validation of our program, which we believe is a very differentiated product to address several unmet medical needs. First, vitiligo, where systemic therapies are needed, with results expected in the first half of this year. Also, in celiac disease, we are running our second proof-of-concept study with a biopsy endpoint that will be available in the second half of this year. In addition to that, alopecia areata, atopic dermatitis, and eosinophilic esophagitis are all possible targets for this very important cytokine. Then on to emrusolmin. One of the things I've been very impressed with is the rate at which we’ve been enrolling this study. This is a Phase II study looking at critical endpoints of an important unmet medical need. I always like to remind people the mean survival in this disease after diagnosis is 6 to 10 years, making this a critical unmet medical need. We are working hard to ensure that this study not only enrolls quickly, but we will over-enroll to make sure that this Phase II program is powerful and pristine, potentially capitalizing on the ability to accelerate this approval. Before I get on to my last slide, I just wanted to give a shout-out for the AJOVY team at Teva. They've done a great job in generating data in migraine, and it's very satisfying to see our innovation recognized by the New England Journal of Medicine with a publication this month. This is great work by the team and really got that sort of the approval for the only and first CGRP antagonist to be approved for pediatrics with episodic migraine. I'm very proud and grateful to the team. Finally, I just want to go over what we take great pride in: we have a very exciting 2026 coming up with many different milestones in the R&D organization. The duvakitug data, as I mentioned, will come out in the first half. For anti-IL-15, we expect vitiligo data in the first half and celiac data in the second half of 2026. We'll be looking for that final event in the asthma exacerbation study of DARI by the end of the year, which would complete the Phase III study. Emrusolmin will target a futility analysis at the end of this year, even as we accelerate enrollment in that Phase II study. We anticipate approval of olanzapine LAI at the end of the year, and we'll be discussing our first human data for our anti-PD-1 IL-2. A really exciting year full of catalysts. We're looking forward to all these milestones, and with that, I'm going to pass it off to Eli Kalif.

Eliyahu Kalif, CFO

Thank you, Eric, and good morning and good afternoon to everyone. I will review our 2025 financial results, focusing on our fourth quarter performance, followed by our outlook for 2026. I would like to start with the following key messages that highlight our consistent execution throughout 2025. First, we delivered solid Q4 and full year results, driven once again by our fast-growing innovative portfolio, which is also driving a meaningful shift in our margin profile. This was our third consecutive year of growth since we launched our Pivot to Growth strategy. Second, we continue to strengthen our balance sheet, with net debt reduced to approximately $13 billion and a net debt-to-EBITDA ratio of 2.5x, well on track to achieve our target of 2x and our journey to investment-grade ratings. Third, we made significant progress on our transformation programs, achieving $70 million of our planned savings in 2025, staying on track to deliver approximately $700 million in savings by 2027, achieving our 30% non-GAAP operating margin targets. Lastly, with our performance in 2025 and outlook for 2026, we are well-positioned to achieve our long-term financial targets for 2030. Now moving to Slide 28. Before I start with the results, I would like to remind everyone that in the fourth quarter of 2025, Teva initiated a Phase III study of the UC and Crohn's indication for our duvakitug program. As per the collaboration agreement with Sanofi, we received $500 million in Q4 of 2025 for this development milestone. This payment positively contributed $500 million to both our revenue and free cash flow and had a positive contributor to our adjusted EBITDA of approximately $410 million. During this presentation, I will be discussing our results for the quarter and for the full year of 2025, excluding the impact of these milestone payments. In addition to these payments, I will also be excluding any contribution from the Japan business venture, which we divested on March 31, 2025, to help provide you with a like-to-like comparison of our financial results. Now starting with our Q4 GAAP performance. Our Q4 revenues were approximately $4.2 billion, up 2% in U.S. dollars or down 1% in local currency year-over-year. Our key innovative products, AUSTEDO, AJOVY, and UZEDY continued strong momentum, all meeting or exceeding our guidance for the full year. This strong growth in our innovative portfolio and stable generics was offset by lower proceeds from the sale of certain product rights compared to Q4 2024. GAAP net income and EPS were $480 million and $0.41, respectively, including the payments for the development milestones. Now looking to our non-GAAP performance. Our non-GAAP gross margin increased by 80 basis points year-over-year to 56.2%, resulting in our full year gross margin at 54.7%, well above the top end of our guidance range. This increase was mainly driven by stronger-than-expected growth in our key innovative products, mainly AUSTEDO. Non-GAAP operating margin decreased by approximately 120 basis points year-over-year to 26.7%, mainly because of the higher planned investment in OpEx to support our innovative growth. Overall, we ended the quarter with a non-GAAP earnings per share of $0.68 compared to $0.70 in Q4 2024. Total non-GAAP adjustments in Q4 were $649 million. This included an impairment charge of $77.3 million, mainly related to a manufacturing facility in Europe. Our free cash flow in Q4 was approximately $800 million and $1.9 billion for the full year, coming at the higher end of our guidance range, excluding the development milestones related to duvakitug. Moving to Slide 29. We are making significant progress in our Teva transformation programs to deliver targeted savings of approximately $700 million by 2027 through well-defined and planned efforts. During 2025, we achieved $70 million of initial savings, demonstrating solid momentum and execution. We continue to expect roughly two-thirds of our total savings target to be realized by the end of 2026. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products, provide a clear path to achieving our 30% operating margin target by 2027, even as we continue to invest in our business for long-term growth. Now let me turn to our 2026 outlook. As I mentioned earlier, 2025 was a year of strong progress on our Pivot to Growth strategy. We delivered revenue growth, expanded profits and margin, invested in our innovative products and pipeline, and made significant progress towards our journey to investment-grade ratings. In 2026, we remain focused on continuing this momentum and executing on an accelerated growth path to our strategy. Starting with our revenue guidance for 2026, we expect full-year revenue of $16.4 billion to $16.8 billion. This represents a range of approximately 1% growth to 2% decline compared to 2025 on a normal base, excluding the $500 million development milestone payments and $75 million contribution in 2025 for the Japan business venture. This guidance is consistent with our previous communication and reflects continued strong momentum in our innovative portfolio, including AUSTEDO, AJOVY, and UZEDY, combined with low single-digit growth in the global generics business. It's expected to offset revenue headwinds of approximately $1.1 billion from generic Revlimid in 2026. We expect the non-GAAP gross margin in 2026 to be in the range of 54.5% to 55.5%, showing a further improvement over a strong 2025, driven again by the ongoing positive shift in our portfolio mix and cost savings from our ongoing transformation programs. As a result, we expect our non-GAAP operating income and adjusted EBITDA to both grow in absolute dollars and as a percentage of revenue compared to 2025. Our operating expenses are expected to be in the range of 27% to 28% of revenue, with a higher impact of the transformation program cost savings in the second half of the year. We expect finance expenses to be approximately $800 million in 2026, lower than 2025, reflecting the reduced debt levels and ongoing deleveraging. Our non-GAAP tax rate is expected to be in the range of 16% to 19%, slightly higher than 2025, which benefited partially from IP-related integration plans and the recognition of certain U.S. tax attributes. This brings us to an expected non-GAAP earnings per share range of $2.57 to $2.77. Our 2026 free cash flow is expected to be in the range of $2 billion to $2.4 billion, representing a strong ongoing improvement in our cash conversion profile and consistent with our long-term targets. Now lastly, let me provide you with some directions on how we think about quarterly progression in 2026. We expect revenue to gradually increase over the course of the year, with revenue in the second half of 2026 slightly higher than the first half. Q1 is expected to be light, primarily due to the following: First, a year-over-year decline in our U.S. generics revenue, mainly because of approximately $300 million in generic Revlimid revenue from Q1 of 2025 that is going away. Second, for AUSTEDO, during Q4 of 2025, on top of AUSTEDO's strong underlying performance, we had the benefit of a year-end inventory build and a one-time gross to net of approximately $100 million. While we expect a strong year-over-year growth for AUSTEDO in Q1 2026, we expect Q1 revenue to reflect the sequential impact of these one-time benefits. We also expect AUSTEDO revenue in Q4 '26 to be potentially down year-over-year due to different purchasing patterns and the pricing environment ahead of the IRA implementation in January 2027. Our non-GAAP margins are also expected to ramp up gradually over 2026, in line with the revenue trajectory and savings from the ongoing transformation programs. The one-time revenue dynamics that I just talked about will also impact gross margin in Q1 beyond the normal seasonality we see going from Q4 to Q1. Free cash flow is also expected to ramp up over the course of the year. Now on the next slide, I would like to highlight the strong free cash flow trajectory that we are on. There are three main elements that will continue to drive incremental free cash flow, going from approximately $1.9 billion in 2025, excluding duvakitug milestone payments, to more than $3.5 billion by 2030. First, our innovative portfolio is uniquely positioned to continue to grow strongly, driving higher margins and free cash flow. In addition, we are on track to achieve $700 million in savings from transformation programs by 2027. We don't stop here, and we'll continue to drive modernization of Teva beyond 2027. Second, we continue to strengthen our balance sheet through working capital and CapEx optimization. Lastly, we continue to deleverage, with a reduction in our debt expected to result in lower finance expenses by approximately 50% by 2030, and we expect to see a reduction in our legal payments over time. Now turning to the next slide on capital allocation. Our capital allocation strategy focuses on driving our Pivot to Growth strategy. This means keeping investing in our key growth drivers and our world-class innovative pipeline. We are also making significant progress toward our target of 2x net debt-to-EBITDA and investment-grade credit ratings. This progress has been recognized consistently by the major credit rating agencies, including the recent upgrade by S&P and an improved outlook by Moody's. With the progress we've made, I expect to see us achieving these goals in the not-too-distant future, which will position us very well to thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our 2025 performance, I would like to reiterate our long-term targets. We are clearly on the journey to be a leading innovative biopharma company. With our growing innovative mix, a number of key pipeline developments this year, and our free cash flow trajectory, we are confident about the direction we are on to achieve our 2027 and 2030 financial targets. With that, I will now hand it back to Richard for his closing remarks.

Richard Francis, CEO

Thank you, Eli, and thank you, Eric. The next slide I’m going to discuss is the one Eric presented, but I believe it deserves to be revisited. This has been an exciting year for Teva in terms of milestones related to our innovative portfolio. We have seven milestones highlighted, and I take great pride in what the team has accomplished. We are looking forward to some promising data regarding vitiligo and anti-IL-15 as well as celiac disease. The olanzapine launch is scheduled for later this year, along with the duvakitug maintenance data, and the futility analysis could expedite our market entry with emrusolmin for this serious condition. There are numerous opportunities to enhance our transition into a world-class biopharma company. Congratulations again to the R&D team for advancing this quickly. In just three years, we have advanced this pipeline at record speed. Thanks to this pipeline and the continued strong performance in our innovative offerings, we are optimistic about our ability to grow Teva's top and bottom line, making it an appealing investment opportunity. We have significant growth potential for AUSTEDO and AJOVY, and the LAI franchise with UZEDY is performing well, with olanzapine set to join it this year. I also noted the number of biosimilars that are scheduled for launch in the coming years. Looking ahead, the pipeline and the readouts I mentioned will begin to materialize, allowing us to maintain this momentum. To wrap up, our growth journey is ongoing. We have recorded three consecutive years of growth with a 6% compound annual growth rate. Our innovative brands are growing at double-digit rates and have the room to continue expanding. We anticipate seven near-term milestone readouts in 2026, along with a stable outlook for our generics business. We remain dedicated to accelerating our Pivot to Growth strategy. With that, I will open the floor to questions. Thank you.

Christopher Stevo, SVP, Investor Relations

Thanks, Richard. Alex, before you line up the question queue, I just want to remind callers to limit yourself to one question and one follow-up. If time permits, we will be more than happy to answer additional questions from you if you get back in the queue. Thank you.

Operator, Operator

Our first question for today comes from David Amsellem of Piper Sandler.

David Amsellem, Analyst

So I have one question on AUSTEDO and one on UZEDY. So helpful color on the guide, but I wanted to dig more deeply into the various pushes and pulls regarding AUSTEDO in 2026. Can you talk about net pricing dynamics and what's baked into your assumptions ex the gross-to-net favorability in Q4 and ex stocking? How should we be thinking about what your assumptions are regarding net pricing as we move through the year? And then how should we be thinking about what your assumptions are regarding volume growth, particularly on a per milligram basis. So that's number one. And on UZEDY, kind of a similar question. There's a lot of volume growth, obviously, but there's obviously significant government exposure, particularly Medicaid. So how should we be thinking about net pricing there? And what kind of assumptions you baked into your UZEDY guidance?

Richard Francis, CEO

Thank you for the questions, David. I'll begin with AUSTEDO. The key point to highlight is our satisfaction with the momentum we are experiencing regarding TRx growth, the adoption of XR, and the continuing increase in milligrams at 19%. The fundamentals are solid, and we see a significant opportunity for further TRx growth, especially since there are still many untreated patients. This strong fundamental is crucial. Regarding pricing, as we mentioned last year, our goal has always been to ensure value and access. We have been very careful about this this year. While the competition has increased, we have taken a disciplined approach and believe we have upheld that value and access. There shouldn't be any significant concerns in that area. The brand's growth, after excluding the inventory build from Q4, ranges from 11% to 18%, indicating very strong growth on a considerably larger base. As for UZEDY, we have observed strong growth and favorable dynamics reflecting the product's quality. It's important to recognize that we have both Medicaid and Medicare, and we understand that one is more profitable than the other. We have factored this mix into our guidance and range, and we believe this product will continue to gain momentum. We are quite enthusiastic about it, and we have taken the pricing fundamentals into account, which primarily revolve around those two channels. Thank you for your question, David.

Louise Chen, Analyst

Congrats on the quarter. My first question was, I wanted to ask you where you see the greatest disconnect between what you're excited about in your pipeline and what the Street is really missing on those products? And then second one, just a follow-up on AUSTEDO, I wanted to ask you how we should think about modeling 2027 in light of IRA and any other pushes and pulls you see here?

Richard Francis, CEO

Thanks for the questions there. On the pipeline, I'll probably tag team this a bit with Eric. Look, I'll never say anybody is missing anything because everyone is very experienced in this business. I do think that our pipeline has come along very fast; think of the fast side; maybe that's caught people unaware. The quality of our antibodies, anti-TL1, and duvakitug will show out in the data. So I think probably what's going to happen is as we turn over these cards and we see the data, Teva will be recognized for what is a world-class pipeline. Eric, do you want to add anything?

Eric Hughes, Head of R&D and Chief Medical Officer

Yes. Thank you, Richard, and thank you, Louise, for the question. I would emphasize something Richard said. I think the speed at which we turn around the innovative portfolio has caught people by surprise. We've turned on a brand-new biologic for duvakitug, which is probably the best-in-class product for TL1A. We’ve launched or will launch, hopefully, olanzapine LAI this year. But don't take our word for it. We've had external validation on four of these five programs. Olanzapine LAI got Royalty Pharma funding. Duvakitug was partnered with Sanofi, who saw the value. The DARI program was acknowledged by Abingworth, and the anti-IL-15 program was recently acknowledged again by Royalty Pharma. Even emrusolmin has received Fast Track and orphan designation. So across the entire innovative pipeline, we've accelerated them, I think, a little bit to the surprise of investors. Just look at the external validation that we've had in the pipeline and take that into consideration of your valuation.

Richard Francis, CEO

Thank you, Eric. Moving on to your final question about guidance on AUSTEDO in 2027, which I'm not going to give. We've said we're going to do $2.5 billion for AUSTEDO in 2027. We remain very committed to that. As you see in the range that we announced today, there's potential that we will hit $2.5 billion in 2026, but we’ll see how this plays out. I think the most important thing is that 85% of people who suffer from tardive dyskinesia are still not treated. The opportunity to help these patients, to bring them therapy, is a significant growth driver for AUSTEDO. We also have work we're doing on ensuring that people can benefit from AUSTEDO XR. As you can see, 60% of new patients go on to AUSTEDO XR, and we know that helps with compliance and adherence, which obviously also increases value. So we have a lot of value drivers for AUSTEDO, but I really don't want to get drawn into 2027 guidance at this moment. What I'm hoping people will see is that we have great momentum from '25, and we're carrying that into '26, and we'll talk about '27 maybe this time next year.

Ashwani Verma, Analyst

Congrats on all the progress. First, how are you thinking about funding the R&D? We're increasingly seeing more royalties and/or profit share. When you think about it strategically, how do you balance not giving away attractive economics to your partner versus seeing a meaningful increase in your internal R&D spend as you fund the growing pipeline? Secondly, on the TL1A upcoming maintenance data, we've seen some competitors where the maintenance data versus induction went up on efficacy measures by high single digits to mid-teens in terms of percentage points. Is that a fair expectation to have as you look towards your upcoming results?

Richard Francis, CEO

Ash, thanks for the question. I'll tag team this with Eric again. On the R&D funding, how are you going to fund this? Are you giving away value? I think the way we think about it is we have a big late-stage pipeline. We have a lot of opportunities to drive significant value creation. When you have a good pipeline, in my experience, it's about moving it faster to the market to have patients benefit from it and to get revenue. We're moving a big pipeline really quickly here. How does it impact the economics? It doesn’t impact the economics in any meaningful way. These brands will be above $1 billion, and some will be multiple billion brands. Secondly, we are launching so many products over a short period that this is the focus we're on. We're going to have a potential to launch four products in five years and will announce more indications!

Eric Hughes, Head of R&D and Chief Medical Officer

Thank you, Ash, for the question regarding expectations from the maintenance data of TL1A. I'd start by saying what's the history we've been telling regarding duvakitug at Teva. We started by saying that we found in our in vitro work that we had the most potent antibody, most selective antibody, and the one that probably has the lowest antidrug antibodies. I think it's about 3% to 5% in our Phase II study. So with that, we went into our Phase II program that we executed very well with speed. We came up with the highest reported numbers for both ulcerative colitis and Crohn's disease in two very well-controlled studies. If you think we have the most potent, the most selective, the lowest antidrug antibodies and can execute the study well, I would hope that when we lock the database, we see great results. I'm bullish on it, but we’ll see what the data shows.

Jason Gerberry, Analyst

One for Eli, just I didn't catch this, but can you talk about in 2026 guidance, sort of what's the gross margin outlook versus the OpEx spend ratio? I think the latter would be in that 27% to 28% range you guys have talked about historically, but I just wanted to make sure that it was confirmed from a modeling perspective. For my follow-up, on vitiligo, I was trying to understand what we're going to get with this upcoming Phase Ib. Will we get VASI75 scores through the full evaluable period? Are you expecting most of these 30-plus patients to make it through the full evaluable period? Just kind of wondering how robust that data will be.

Eliyahu Kalif, CFO

Jason, thanks for the question. On gross margin, we end up the year, if we exclude the two milestone payments, at a 54.7% gross margin. We expect to be in the range of 54.5% to 55.5% in 2026. In terms of OpEx, we will see a bit higher OpEx in the range between 27% to 28% in the first half versus the second half due to revenue dynamics during the year. There's another element inside the OpEx: we're going to see more reduction in G&A and actually shifting that reduction between R&D and sales and marketing, stabilizing around 27% to 28%. There’s no change versus our prior communication.

Richard Francis, CEO

And the thing I'd add on to that is gross margin is really an exciting story for us. As we continue to grow our innovative portfolio, we continue to launch products; that gross margin will just keep going up. It’s just a question of how much, but it will keep going up because of the fact that we're changing our portfolio significantly. Regarding the vitiligo data, I'll hand over to Eric.

Eric Hughes, Head of R&D and Chief Medical Officer

Thank you, Jason, for the question. The data we're presenting in the first half of 2026 is a single-arm study for patients with vitiligo, approximately 38 patients in total, and it will have traditional and known endpoints, which is facial VASI and total VASI. This will be easily comparable to other treatments out there. It’s important because there are limited treatments for vitiligo today. One approved is a topical covering only 10% of the body. The systemic therapies are what patients need. We believe our anti-IL-15 program has the potential to be a once quarterly shot in treating a systemic disease. We're looking forward to that.

Christopher Schott, Analyst

Just sticking on IL-15. On the development timelines in vitiligo, can you elaborate what you need for that 2031 pathway versus '34? Is there a similar opportunity in celiac there as well? A really quick one: coming back to AUSTEDO. I think you were talking about roughly $100 million benefit in Q4, and it sounds like that's between rebate and inventory. Just when we think about destocking in Q1, can you clarify how much of that was inventory and how much was kind of this reversal of rebates?

Eric Hughes, Head of R&D and Chief Medical Officer

Sure. Thank you for the question on IL-15. For vitiligo, we can move quickly with precedents for the regulatory endpoint, and we have meaningful unmet needs. We're accelerating this program in a clever pathway through Phase II and Phase III studies. We can quickly work with regulators for vitiligo and have opportunity, whereas celiac is a bit longer. I don’t mind talking more about that if you want to, Chris.

Richard Francis, CEO

Chris, the way to think about that $100 million is the vast majority, pretty much, was inventory. That's why we have a lot of confidence about 2026 in our numbers. Hopefully, that helps.

Umer Raffat, Analyst

If I look at the delta versus consensus this quarter, it looks like it's driven by sales and marketing when I take out the one-time impact of the milestone. This is probably the highest sales and marketing spend quarter we've seen in the last three years. I'm curious why that is, especially because it's happening in the middle of the transformation that's underway. For '26 guidance, is it fair to say that the Royalty Pharma $75 million payment for Phase IIb is embedded within the EBITDA? Any other milestones baked into the EBITDA guidance from TL1A or anything else?

Eliyahu Kalif, CFO

Okay. Umer. Regarding Royalty Pharma, out of the $75 million, we're viewing it to spread over '26 and '27 with one-third of that going to happen in '26. It's more backloaded for the '26 year. That’s the only thing embedded there; we don't have other assumptions in our EBITDA related to TL1A milestones. Regarding sales and marketing, if you back out the higher revenue due to the milestone, you get to 15.4% on sales and marketing. Forward, next year, we're looking at approximately 16% but keeping investing in our growth engine, especially AUSTEDO and preparing for the olanzapine launch.

Richard Francis, CEO

I’ll add that our EBITDA starts with a 5 in front of it, which I think is important. We're mindful of how we spend and allocate capital; as you've seen, there’s a good balance with our transformation programs. I think our EBITDA performance reflects that well. Looking to UZEDY and its performance against other treatments, we aim to be competitive, looking forward to results.

Leszek Sulewski, Analyst

Congrats on the progress. I just wanted to focus on the biosimilars side. What's the launch cadence and expected profitability profile, given the U.S. channel and PBM dynamics? What are prerequisites for targeting the ten new products beyond 2028? You've mentioned reevaluating BD within that space; what type of in-licensing, co-development, or tuck-ins fits your leverage and margin profile today?

Richard Francis, CEO

Thanks for the questions. We built the second-largest portfolio and continue to add to it in a short time, which highlights the focus behind it. We have six launches coming through between now and '27, across both the U.S. and Europe. The majority of these markets will provide quicker uptake and predictability. For potential launches, we currently have 10 in the market, which we’ll continue to expand. For partnerships, we’ll still be able to manage accretively regarding margin profiles.

Christopher Stevo, SVP, Investor Relations

Les, could you repeat your BD question, please?

Leszek Sulewski, Analyst

Essentially, I wanted to get a sense of if there's a potential for you to dive deeper within BD in the biosimilars space. What’s your strategy for that area?

Richard Francis, CEO

We'll continue to do partnerships; we have good partnerships that can expand. We've seen approaches from other companies given our performance. We will actively pursue those but remain disciplined. We're focusing on appropriate investments that align with our portfolio transformation.

Yuchen Ding, Analyst

I had two if I may. Number one, sort of a big picture question on R&D. What is your R&D philosophy at Teva? How much derisking do you think we'll get around the R&D platform from the data readouts this year? I'm curious what else could be planned for 2027 as you advance some of these newer drugs forward. For my second question around BD, I'm curious if your transition to a novel biopharma company has changed your BD approach. Would Teva be interested in classic biotech space acquisitions rather than what’s historically been spec pharma?

Richard Francis, CEO

Thanks, Dennis. On the philosophy of R&D, I'll tag team with Eric. The philosophy is driven by data; we have a pipeline in Phase III and Phase II that’s relatively derisked. We use known science combined to execute well and quickly with regulatory approvals. We pivot and move based on data, highlighting our commitment to derisked assets. Our strategy is built around internal innovation but continues to evaluate BD opportunities that fit into our target areas.

Eric Hughes, Head of R&D and Chief Medical Officer

Yes. Thank you for the question, Yuchen. The philosophy in our operations emphasizes speed and execution driven by data. We’ll move forward with known science and derisked assets, which means we’re confident about our pipeline’s prospects moving toward future value. We will evaluate BD opportunities but focus on targeted acquisitions that align strategically with our growth and innovation.

Richard Francis, CEO

With that, we've covered a lot today. Thank you for your questions and your interest in Teva. I look forward to following this up later with our Q1 results.

Operator, Operator

Thank you all for joining today's call. You may now disconnect your lines.