Teva Pharmaceutical Industries Limited (TEVA) Q2 2025 Earnings Call Transcript

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Overview

The earnings call summary reveals mixed signals: strong financial metrics with a record high revenue and optimistic guidance, but also uncertainties due to ongoing negotiations and tariff impacts. The Q&A section highlights management's vagueness on certain issues, which could create uncertainty. No new partnerships or significant shareholder return announcements were made. While the strategic plan suggests long-term growth, the immediate outlook remains uncertain, leading to a neutral sentiment for the stock price movement over the next two weeks.

Key Financial Performance

Revenue $4.2 billion, up 1% year-over-year. Growth driven by innovative portfolio of AUSTEDO, AJOVY, and UZEDY.

Adjusted EBITDA Up 7% year-over-year. Growth attributed to strong performance of innovative products.

Non-GAAP EPS Up 10% year-over-year. Reflects improved profitability from innovative portfolio.

AUSTEDO Revenue $495 million, up 19% year-over-year. Growth driven by good TRx growth and particularly growth of XR formulation.

UZEDY Revenue $54 million, up 120% year-over-year. Growth attributed to strong execution by U.S. team and favorable product profile.

AJOVY Revenue $155 million, up 31% year-over-year. Growth driven by competitive execution in the CGRP and injectable markets.

Global Generics Business Declined 2% year-over-year. Decline due to strong prior year comparison and phasing/timing of shipments.

TAPI Revenue Down 11% year-over-year. Decline attributed to seasonality and timing of shipments, considered an anomaly.

Non-GAAP Gross Margin 54.6%, up 130 basis points year-over-year. Increase driven by portfolio mix shift towards innovative products and sale of certain product rights in Europe.

Non-GAAP Operating Margin 27.1%, up 170 basis points year-over-year. Improvement due to lower R&D expenses and portfolio mix shift.

Free Cash Flow $476 million, up 47% year-over-year. Growth driven by higher net income and working capital improvements.

Net Debt $15.1 billion, with net debt to EBITDA just over 3x. Reflects repayments of $1.4 billion of notes and exchange rate fluctuations.

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Operating Highlights

AUSTEDO: Revenue grew 19% to just below $500 million in Q2 2025, driven by strong TRx growth and XR adoption. Guidance for 2025 raised to $2 billion.

UZEDY: Revenue increased 120% to $54 million in Q2 2025. Guidance raised to $190-$200 million for 2025. Plans to expand into broader schizophrenia market with new molecules.

AJOVY: Revenue grew 31% to $155 million in Q2 2025. Guidance raised to $630-$640 million for 2025. Strong performance in competitive injectable market.

Biosimilars: Strong sales momentum in the U.S. with established brands and new launches like SELARSDI and generic SOLARIS. Five additional launches planned by 2027, targeting $400 million in additional sales.

Generics: Global generics revenue declined 2% in Q2 2025 due to tough prior year comparisons. U.S. generics grew excluding timing effects. 15 complex generics and 8 biosimilars planned for launch by 2027.

Teva Transformation Program: On track to deliver $700 million in net savings by 2027, with 20% of the target already achieved. Focused on modernization and operational efficiency.

Debt Management: Refinanced $2.3 billion of near-term debt maturities, reducing gross debt to $17.2 billion and net debt to $15.1 billion. Net debt-to-EBITDA remains just over 3x.

Pipeline Development: Late-stage pipeline with potential peak sales over $10 billion. Key programs include olanzapine LAI, DARI asthma inhaler, and duvakitug for ulcerative colitis and Crohn's disease.

Partnerships: Strategic partnership with Fosun Pharma to advance PD-1 IL-2 in China, leveraging local infrastructure and unmet medical needs.

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Risk or Challenges

Global Generics Business Decline: The global generics business declined by 2%, attributed to strong prior year comparisons and phasing issues. This reflects challenges in maintaining growth in a competitive market.

TAPI Revenue Decline: TAPI revenue declined by 11%, attributed to seasonality and timing of shipments. This anomaly raises concerns about the stability of this revenue stream.

Regulatory and Tariff Risks: Potential U.S. tariffs on pharmaceuticals and confirmed European tariffs have been absorbed into the 2025 guidance, but they pose risks to cost structures and profitability.

Generics Market Competition: Increased competition in the generics market, including delays in generic launches and tough prior year comparables, is impacting revenue growth.

Debt and Leverage: Although debt has been reduced, the company still has a net debt of $15.1 billion and a net debt-to-EBITDA ratio just over 3x, which could limit financial flexibility.

Transformation Program Execution: The company is undergoing a transformation program to achieve $700 million in savings by 2027, but execution risks remain, especially in achieving 2/3 of the savings by 2026.

Innovative Portfolio Dependency: The company’s growth heavily depends on its innovative portfolio (AUSTEDO, AJOVY, UZEDY), which, while performing well, could face risks from market competition and execution challenges.

Biosimilars and Complex Generics Launch Risks: The company plans to launch 15 complex generics and 8 biosimilars by 2027, but delays or failures in these launches could impact revenue targets.

Pipeline Development Risks: The late-stage pipeline, while promising, carries inherent risks of clinical trial failures or delays, which could impact future revenue projections.

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Guidance & Outlook

Revenue Guidance for 2025: Teva expects its revenue for 2025 to be in the range of $16.8 billion to $17.2 billion, with a likely outcome around or slightly below the midpoint of this range.

Innovative Portfolio Growth: The company has raised its combined guidance for AUSTEDO, AJOVY, and UZEDY by approximately $100 million at the midpoint, with an expected combined revenue of $2.9 billion in 2025, reflecting a 23% year-over-year growth.

Generics Business Outlook: Teva anticipates its global generics revenue for 2025 to be flat to modestly growing in local currency compared to 2024, despite tough prior year comparables and increased competition.

Operating Margin Target: The company remains on track to achieve a 30% operating margin by 2027, supported by transformation programs expected to deliver $700 million in net savings by 2027.

Innovative Pipeline Projections: Teva projects its innovative pipeline to generate over $10 billion in peak sales, with key contributions from products like olanzapine LAI, DARI Dual-action Asthma Rescue Inhaler, and duvakitug.

Biosimilars Growth: The company aims to double its biosimilar business by 2027, with five additional launches planned between the second half of 2025 and 2027, targeting $400 million in additional sales by 2027.

Long-Acting Franchise in Schizophrenia: Teva plans to launch olanzapine LAI in 2026, aiming for $1.5 billion to $2 billion in peak sales for its long-acting schizophrenia franchise.

Free Cash Flow Guidance for 2025: The company expects free cash flow in the range of $1.6 billion to $1.9 billion for 2025.

Debt Reduction and Leverage Target: Teva is on track to achieve a net debt-to-EBITDA ratio of 2x by 2027, supported by ongoing debt reduction and refinancing efforts.

Phase III Programs: Teva's Phase III programs, including olanzapine LAI, DARI, and duvakitug, are progressing on track, with significant patient impact expected.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What is the expected range of discounts for AUSTEDO in the IRA negotiation?

A:Management did not provide any details, stating they are in the middle of negotiations with CMS and will make an announcement once concluded.

Q:Do you expect any impact from the tariffs announced in Europe this year?

A:Management stated that they have done comprehensive work to mitigate the impact of tariffs. They noted ambiguity about the details of the tariffs and are trying to understand their scope and timing. They currently do not see any meaningful impact.

Q:When can the BID to XR conversion for AUSTEDO be replicated in all patients, not just new patients?

A:Management stated that the transition to AUSTEDO XR is progressing, with new patients moving to XR and some stable patients remaining on BID. They expect XR to become the predominant drug over time but did not provide a specific timeline.

Q:What is the impact of tariffs on the U.S. versus Europe, and what does the exclusion of certain generics constitute?

A:Management reiterated uncertainty about the specifics of the tariffs and their impact. They are waiting for more clarity and are prepared to mitigate the impact. They did not fully understand the exclusion of certain generics and are seeking more details.

Q:Can you share updates on the broader development program for duvakitug and the Phase IIb IBD maintenance data?

A:Management is working with their partner Sanofi on choosing indications for duvakitug and will announce them once studies are initiated. Phase IIb IBD maintenance data will be presented in the first half of 2026, focusing on durability of effect.

Q:Is there a possibility for a priority review for the long-acting olanzapine program?

A:Management does not anticipate a priority review for the long-acting olanzapine program and is focused on completing the study and submitting it for approval, expected in 2026.

Q:Why is AUSTEDO revenue growth not reflecting the benefit of mix in the milligram shift?

A:Management explained that the transition to XR and timing issues are affecting the correlation between TRx milligrams and revenue. They are confident in the data and expect it to play out as anticipated.

Q:What percent of key starting materials come from China, and is 1.5 years sufficient to move reliance away from China?

A:Management stated that they have almost no reliance on China for key starting materials, having sold their API business there four years ago.

Q:How much of the total revenue guidance is influenced by generic Revlimid, and what are the dynamics for the second half of the year?

A:Management noted that generic Revlimid's ordering patterns have changed, leading to potential phasing impacts in Q3 and Q4. They emphasized the robustness of their generics business and other growth factors.

Q:Is the updated guidance for UZEDY conservative given its growth trajectory?

A:Management believes the updated guidance is appropriate, noting that UZEDY has become the long-acting risperidone of choice but faces challenges in penetrating other parts of the schizophrenia market.

Q:What is the outlook for the generics business in 2026 and beyond?

A:Management remains confident in achieving their 2027 targets for the generics business, citing a strong pipeline, biosimilar growth, and OTC performance.

Q:What are the expectations for gross margins in the second half of the year?

A:Management expects gross margins to be above the midpoint and close to 54%, driven by innovative product growth and operational efficiencies.

Q:Are there additional opportunities for cost savings beyond the $700 million target?

A:Management is continuously looking for opportunities to optimize costs but did not change the $700 million target.

Q:What is the approach to capital allocation, including share buybacks and M&A?

A:Management is focused on business development through in-licensing and is reviewing opportunities for share buybacks and capital returns, emphasizing the need to enhance free cash flow first.

Q:How is the rollout of SELARSDI progressing, and is it similar to HUMIRA's biosimilar uptake?

A:Management noted that each biosimilar rollout is different. They are confident in their strategy and see good momentum for SELARSDI, emphasizing a portfolio approach to biosimilars.

Q:Review of Unclear Management Responses

A:Management avoided giving direct answers to questions about the expected range of discounts for AUSTEDO in the IRA negotiation and the specifics of the exclusion of certain generics in the tariff announcement. They also used vague language regarding the timeline for the BID to XR conversion for AUSTEDO and the impact of tariffs on the U.S. versus Europe.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call indicates positive sentiment due to operational efficiencies, strong AUSTEDO growth, and effective cost management. Despite revenue decline, gross and operating margins improved. Management's confidence in achieving targets, especially for AUSTEDO, and strategic focus on biosimilars and innovative pipeline add to positive sentiment. Q&A insights support growth and strategic alignment with market dynamics. Positive guidance on cost savings and debt reduction further enhances the outlook. Given these factors, the stock is likely to experience a positive impact, despite some uncertainties around Medicare pricing and CMS agreements.

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