Executive Summary / Key Takeaways

• Teva has successfully executed the initial phase of its Pivot to Growth strategy, achieving nine consecutive quarters of revenue growth, driven by strong performance in its innovative portfolio (AUSTEDO, AJOVY, UZEDY) and a return to growth in its global generics business.
• Key innovative products like AUSTEDO and UZEDY are demonstrating significant momentum, with AUSTEDO's 2025 guidance raised to $1.95 - $2.05 billion and UZEDY exceeding initial launch targets, fueled by differentiated product profiles and effective commercial execution.
• The innovative pipeline is advancing rapidly, with key catalysts including the planned H2 2025 NDA submission for olanzapine LAI, Phase 3 initiation for duvakitug (anti-TL1A) in H2 2025 with Sanofi, and progress in other promising assets like DARI and emrusolmin.
• Teva is implementing targeted transformation programs expected to yield approximately $700 million in net savings by 2027, focusing on organizational modernization, resource prioritization, and operational efficiencies, particularly within manufacturing.
• Strong financial performance and disciplined capital allocation have led to significant debt reduction, improving the net debt-to-EBITDA ratio to just over 3x, with a clear target of 2x by 2027, supported by increased free cash flow generation despite legal settlement outflows.

Setting the Scene: A Legacy Reimagined

For over a century, Teva Pharmaceutical Industries has been a cornerstone of the global pharmaceutical landscape, built upon a foundation of providing accessible medicines worldwide. Tracing its roots back to 1901, Teva established itself as a generics powerhouse, leveraging its deep expertise in pharmaceutical development and manufacturing to bring cost-effective alternatives to market. This legacy, while providing broad market reach and operational scale, also presented challenges, including managing a complex global footprint and navigating intense price competition.

In response to past headwinds and to chart a course for sustainable, profitable expansion, Teva launched its comprehensive "Pivot to Growth" strategy in May 2023. This strategic evolution marks a deliberate shift, aiming to transform the company from primarily a generics leader into a more balanced biopharmaceutical entity. The strategy is built on four pillars: delivering on growth engines, stepping up innovation, sustaining the generics powerhouse, and focusing the business through disciplined capital allocation and operational efficiency.

A core, albeit often understated, aspect of Teva's capability lies in its diverse technological expertise spanning the full spectrum of pharmaceutical modalities. Beyond conventional oral solids, Teva possesses significant know-how in complex generics, including sterile injectables and modified-release formulations. Its growing focus on innovative and biosimilar medicines leverages sophisticated biologic development and manufacturing platforms. A key differentiator lies in its long-acting injectable (LAI) technology, exemplified by UZEDY and the pipeline asset olanzapine LAI. This technology enables sustained drug release, offering tangible benefits like reduced dosing frequency and potentially improved patient adherence compared to daily oral regimens. For UZEDY, the formulation allows for therapeutic levels within 8-24 hours without oral supplementation, a critical advantage for physicians treating acute schizophrenia episodes. The olanzapine LAI aims to provide the efficacy of olanzapine with a favorable safety profile, specifically designed to mitigate risks associated with post-injection delirium sedation syndrome (PDSS) seen with other formulations. While specific quantifiable metrics like manufacturing cost advantages per unit for these complex technologies are not detailed, the strategic intent is clear: these capabilities support premium pricing and differentiation in specialty markets, contributing to higher gross margins compared to traditional generics.

Within the competitive landscape, Teva operates against a backdrop of diverse players. In the generics space, it competes with large-scale manufacturers like Sandoz (SDZ.SW) and Viatris (VTRS), as well as numerous smaller regional players. Teva's strengths here lie in its vast portfolio, global supply chain, and regulatory expertise, positioning it as one of the largest suppliers in the U.S. generics market, accounting for a significant portion of total prescriptions. However, this segment faces ongoing price pressure. In the innovative and biosimilar markets, Teva competes with major biopharmaceutical companies such as AbbVie (ABBV), Pfizer (PFE), Novartis (NVS), Johnson & Johnson (JNJ), and Sanofi (SNY). These competitors often boast deeper pipelines, higher R&D spending as a percentage of revenue, and significantly higher profitability margins (e.g., AbbVie's gross margin around 83% vs. Teva's 48% in Q1 2025). Teva's strategic response is to leverage its existing commercial infrastructure, particularly in CNS, and focus its R&D on differentiated assets and biosimilars where it can achieve competitive positioning through product profile or market access. Its cost leadership in manufacturing, while foundational to generics, also supports competitive pricing strategies for biosimilars and can contribute to better margins on innovative products compared to some peers, although its overall financial metrics like net margin (-7.74% TTM) lag significantly behind profitable large pharma companies.

Execution on the Pivot: Driving Growth Engines and Operational Strength

The initial phase of Teva's Pivot to Growth has demonstrably yielded results, marked by a consistent return to top-line expansion. The company has now achieved nine consecutive quarters of revenue growth, signaling a clear shift in trajectory after a period of decline. This momentum is being driven by focused execution across its core business segments and strategic priorities.

The primary engines of this growth are Teva's innovative medicines. AUSTEDO, indicated for tardive dyskinesia and Huntington's disease chorea, continues its impressive trajectory. In Q1 2025, AUSTEDO generated $396 million in the U.S., a 40% increase year-over-year, contributing significantly to the U.S. segment's robust 11% revenue growth and 52% profit increase. This performance is fueled by strong volume growth and the successful penetration of the once-daily AUSTEDO XR formulation, with over 60% of new patients now starting on the XR version, highlighting the clinical and practical benefits of this technological enhancement. The strong start to the year prompted management to raise the low end of AUSTEDO's 2025 guidance to $1.95 billion, narrowing the range to $1.95 - $2.05 billion.

AJOVY, Teva's anti-CGRP treatment for migraine prevention, also continues to contribute, with global revenues up 26% in Q1 2025. Despite operating in a highly competitive market, AJOVY is gaining market share across the U.S., Europe, and International Markets, demonstrating the effectiveness of Teva's commercial teams and the product's positioning. Management confirmed AJOVY's 2025 guidance at $600 million.

UZEDY, the long-acting risperidone injectable launched in the U.S. in May 2023, is exceeding expectations. Q1 2025 revenues doubled to $39 million, and the product has captured over 60% share of the risperidone LAI market. This rapid uptake is attributed to UZEDY's favorable product profile, including subcutaneous administration, no refrigeration requirement, and the ability to reach therapeutic levels quickly without oral supplementation – key technological advantages that resonate with physicians and patients.

Beyond innovative brands, Teva's generics business has returned to growth across all regions, increasing 3% globally in Q1 2025. While this was a slower pace than prior quarters due to tough comparisons and moderating inflationary price increases in some markets, it reflects underlying strength from new launches, including lenalidomide capsules (generic Revlimid) and the initial contribution from biosimilars like SIMLANDI (biosimilar Humira) and SELARSDI (biosimilar Stelara) in the U.S. Management noted that Q1 2025 is likely the high-watermark for generic growth in 2025, suggesting a more normalized growth profile going forward.

The API business (TAPI) also contributed positively, showing its second consecutive quarter of growth in Q1 2025. This business unit, classified as held for sale, is undergoing a divestiture process targeted for completion in H1 2025, aligning with the strategy to focus the business and optimize capital.

Operationally, Teva is driving efficiencies to support margin expansion. Efforts are underway to modernize the organization, leverage regional hubs, and optimize external spend. These initiatives, particularly improvements within the manufacturing network, are aimed at reducing costs and improving overall operational effectiveness, contributing to the targeted $700 million in net savings by 2027.

Stepping Up Innovation: Fueling Future Growth and Differentiation

A critical component of Teva's transformation is the acceleration and maturation of its innovative pipeline, which is poised to fuel growth beyond the current key products and further differentiate the company. Eric Hughes highlighted significant progress across several late-stage and early-stage assets.

The long-acting injectable (LAI) franchise is set to expand with olanzapine LAI (TEV-749). Following positive Phase 3 results, the program is on track for NDA submission in the second half of 2025. Olanzapine is considered one of the most efficacious treatments for schizophrenia, and a long-acting formulation with a favorable safety profile, leveraging Teva's LAI technology to potentially avoid PDSS and enable rapid therapeutic levels, addresses a significant unmet need in the $5 billion long-acting antipsychotics market. This asset is expected to launch in 2026 and will complement the successful UZEDY launch, creating a strong LAI franchise in schizophrenia.

In immunology, the anti-TL1A asset, duvakitug (TEV-574), partnered with Sanofi, is on target to initiate Phase 3 development in inflammatory bowel disease (ulcerative colitis and Crohn's disease) in the second half of 2025, pending regulatory discussions. Positive Phase 2b data announced in late 2024 demonstrated promising results, and the collaboration with Sanofi provides shared development costs and commercialization expertise. The anti-TL1A mechanism is viewed as having potential across multiple inflammatory and fibrotic diseases, representing a significant long-term opportunity.

The respiratory pipeline includes the Dual-Action Asthma Rescue Inhaler (DARI ICS-SABA, TEV-248), currently in Phase 3. Enrollment is targeted for completion by the end of 2025, with results expected in the second half of 2026. This product aims to address the significant population of asthma patients still using single-agent SABAs, offering a combination therapy in a patient-friendly dry powder inhaler device, including a pediatric indication.

In neuroscience, Teva is advancing emrusolmin (TEV-286) into Phase 2 for Multiple System Atrophy (MSA), a devastating neurodegenerative disease with high unmet need. This orally administered small molecule targets alpha-synuclein aggregates, with the potential for disease modification.

The biosimilar pipeline is also gaining momentum, with launches expected to contribute to growth. Following the U.S. launch of SIMLANDI (biosimilar Humira) in Q2 2024 and SELARSDI (biosimilar Stelara) in February 2025, Teva has several other biosimilar candidates in development, including proposed biosimilars to Prolia/Xgeva (denosumab), Simponi/Simponi Aria (golimumab), and Eylea (aflibercept), with regulatory submissions underway in the U.S. and Europe. The biosimilar portfolio, totaling 18 assets, represents a significant opportunity to leverage Teva's manufacturing scale and market access capabilities in high-value biologic markets.

Financial Health and Deleveraging: Strengthening the Foundation

Teva's recent financial performance reflects the positive impact of its strategic execution and operational focus, particularly in improving profitability and strengthening its balance sheet. In Q1 2025, the company reported operating income of $519 million, a significant turnaround from an operating loss of $218 million in Q1 2024. This improvement was largely driven by a higher gross profit ($1,877 million in Q1 2025 vs. $1,771 million in Q1 2024) and the absence of large impairment and restructuring charges seen in the prior year.

The gross profit margin improved to 48.2% in Q1 2025 from 46.4% in Q1 2024. This expansion is a direct result of the favorable shift in product mix towards higher-margin innovative products like AUSTEDO, partially offset by negative foreign exchange impacts. While operating expenses (R&D, S&M, G&A) saw some increases in absolute terms, reflecting investments in growth drivers and the pipeline, the overall operating margin improved significantly.

A key focus of the Pivot to Growth strategy is deleveraging. Teva has made substantial progress in reducing its debt burden. Total debt decreased to $16.65 billion as of March 31, 2025, down from $17.78 billion at the end of 2024, primarily due to the repayment of $1.37 billion in senior notes that matured in Q1 2025. This has significantly reduced the portion of debt classified as short-term (3% in Q1 2025 vs. 10% in Q4 2024) and improved the financial leverage ratio to 73%. The net debt-to-EBITDA ratio stands just over 3x, and the company remains firmly on track towards its target of 2x by 2027.

Cash flow generation, while subject to quarterly fluctuations influenced by working capital dynamics and legal settlements, shows underlying improvement. Cash flow used in operating activities decreased in Q1 2025 compared to the prior year period, and free cash flow increased to $107 million. Management highlighted that efforts to streamline the accounts receivable securitization program and scheduled legal settlement outflows (including opioid payments) will impact free cash flow in 2025, but the underlying cash generation capability remains strong, supporting the deleveraging path and investment needs.

Outlook and Path to 2027: Accelerating Towards Targets

Teva's updated 2025 guidance reflects the positive momentum from Q1 and provides a clearer view of the near-term trajectory within the Acceleration phase of the Pivot to Growth strategy. The company now expects 2025 revenue between $16.8 billion and $17.2 billion. This revised range incorporates the strong performance of key products like AUSTEDO (with raised guidance) and the impact of the divestiture of the Japan business venture completed in March 2025. At the midpoint, this represents approximately 4% growth compared to the 2024 pro forma results (excluding the divested Japan business), indicating continued top-line expansion.

Non-GAAP operating income is projected to be between $4.1 billion and $4.6 billion, and non-GAAP adjusted EBITDA between $4.5 billion and $5.0 billion. The lower end of these ranges was raised by $200 million, reflecting confidence in profitability despite absorbing the impact of confirmed U.S. tariffs and continued investment. Non-GAAP EPS guidance was also increased by $0.10 to a range of $2.45 to $2.65.

The path to the ambitious 2027 targets – mid-single-digit revenue growth, 30% operating margin, 2x net debt/EBITDA, and 80% cash conversion – is underpinned by specific strategic initiatives. The targeted $700 million in net savings from transformation programs are expected to materialize primarily between 2026 and 2027, contributing significantly to margin expansion. Management explicitly stated that these savings, combined with the continued growth of the higher-margin innovative portfolio, are expected to more than offset the profit headwinds related to the generic Revlimid impact in 2026 and the initial effects of IRA price negotiation on AUSTEDO in 2027. Operating margin is projected to expand by 125-200 basis points in 2026 and another 125-250 basis points in 2027.

The outlook is supported by the maturing pipeline, with key launches like olanzapine LAI expected in 2026 and DARI in 2027, adding new revenue streams and contributing to the favorable portfolio mix shift. The biosimilar portfolio launches through 2027 are also anticipated to play a role in offsetting generic Revlimid impacts and driving growth.

Risks and Challenges

Despite the positive momentum, Teva faces significant risks and challenges that could impact its ability to achieve its targets. Extensive litigation remains a material concern, particularly ongoing opioid lawsuits from third-party payers, where the potential range of loss is not estimable and could have a material adverse effect. Antitrust litigation related to past patent settlements also continues, with potential for substantial damages.

Macroeconomic and geopolitical factors, including foreign exchange rate fluctuations and the ongoing conflict in Israel, where key facilities are located, pose risks to revenues, costs, and operations. While the impact has been immaterial to date, escalation or expansion could be material.

Competition across all segments remains intense, particularly for generics facing price erosion and innovative products competing with established and emerging therapies. The successful launch and uptake of new products like UZEDY and pipeline assets like olanzapine LAI are critical but not guaranteed.

Regulatory and political developments, such as the implementation of the Inflation Reduction Act's drug price negotiation program (which Teva is challenging in court), could negatively impact revenues and profitability for key products like AUSTEDO.

The successful execution of the transformation programs and achievement of targeted cost savings are crucial assumptions underlying the margin expansion outlook. Delays or failure to realize these efficiencies could impede progress towards the 2027 targets.

Conclusion

Teva Pharmaceutical Industries is demonstrating tangible progress in its strategic transformation, successfully pivoting towards sustainable growth driven by its innovative portfolio and operational discipline. The Acceleration phase of the Pivot to Growth strategy is yielding positive financial results, marked by consistent revenue growth, improving margins, and significant debt reduction. Key innovative products like AUSTEDO and UZEDY are performing strongly, supported by differentiated technological profiles and effective commercial execution.

The robust and advancing innovative pipeline, particularly assets like olanzapine LAI and duvakitug, holds significant potential to fuel future growth and further shift the portfolio mix towards higher-margin products. Coupled with a growing biosimilar portfolio and a revitalized generics business, Teva is building multiple levers for top-line expansion.

Crucially, the company has laid out a clear path to achieving its 2027 financial targets, including a 30% operating margin and 2x net debt-to-EBITDA, underpinned by targeted cost savings and expected operating leverage. While significant risks persist, particularly related to litigation and market dynamics, Teva's recent execution and strategic focus suggest a company successfully navigating its challenges and positioning itself for a more profitable and sustainable future. The investment thesis hinges on the continued successful execution of this strategy, translating pipeline potential and operational efficiencies into sustained financial performance and value creation.