Teva Pharmaceutical Industries (TEVA) Q4 2022 Earnings Call Transcript

Teva Pharmaceutical Industries (TEVA 1.85%)
Q4 2022 Earnings Call
Feb 08, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Teva's fourth-quarter and full-year 2022 earnings call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Ran Meir, senior vice president, head of investor relations.

Please go ahead.

Ran Meir -- Senior Vice President, Investor Relations

Thank you, Nadia. Thank you, everyone, for joining us today. We hope you have an opportunity to review our press release, which was issued earlier this morning. A copy of the press release, as well as a copy of the slide being presented on this call, can be found on the website at tevapharm.com.

Please review our forward-looking statements on Slide number 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC Form 10-K and 10-Q. To begin today's call, Richard Francis, Teva's CEO, will provide an overview of Teva's 2022 results and business performance, recent events, and priorities going forward. Our CFO, Eli Kalif, will follow up with a review of the financial results in more detail, including our 2022 financial outlook.

Joining Richard and Eli on the call today is Sven Dethlefs, head of North America business, who will be available during the question-and-answer session that will follow the presentation. Please note that today's call will last approximately one hour. And with that, I will now turn the call over to Richard. Richard, if you would, please.

Richard Francis -- President and Chief Executive Officer

Thank you, Ran. And welcome, everyone. I'm excited to be here today. I'd like to start by saying it was great meeting many of you in San Francisco J.P.

Morgan last month, and I look forward to getting to know Teva shareholders, investors, and analysts so that we can have an open dialogue going forward. I'm excited to be here because there's a lot of opportunity at Teva. The team has done a tremendous work to get the company back to a solid foundation, and now, there's an opportunity to get back to growth. Before I start my review of Teva's 2022 results and discuss our guidance for 2023, I would like to update you that I've already initiated a strict strategic review process with my leadership team.

Our teams are already hitting the ground running, and we are working hard on analyzing some of the core strategic questions, and the segments we operate in are going to evolve over time. And we like understand what options we have. It's going to be a very clear, purposeful strategy with real intent behind it. Every function, every dollar should follow that strategy going forward.

Once the work is done around midyear, I'll come back with the team and will present that to the market. Now, let's move on to some highlights for 2022. We ended 2022 with revenues of 14.9 billion and adjusted EBITDA of 4.6 billion. GAAP diluted loss per share was $2.12, and non-GAAP diluted earnings per share was $2.52.

You should note that our revenues were still affected by the strengthening of the U.S. dollar during the fourth quarter, and we, therefore, still see significant headwinds from exchange rate movements on our revenues. We had a net impact of 780 million for the full year compared to 2021. Free cash flow in 2022 was 2.2 billion, and we continue to reduce our debt in accordance with our strategic targets.

Our debt is now down to 18.4 billion. Moving to the business overview. Austedo, our leading brand, is growing very nicely, up 20% year over year. And Ajovy also grew across all three geographies: U.S., Europe, and international markets.

I'll further discuss these two products in a few minutes. We've also seen nice growth in our generics and OTC revenues in Europe, which reflected our strong position there and also some successful product launches. We've also seen good growth in generics and OTC in our international markets through a combination of volume growth, as well as price adjustments to address inflation. So, good to see 9% growth in Europe and 5% in international in local currency terms.

We're also excited about the progress we're making on our pipeline. We recently initiated the phase 3 trial of subcutaneous long-acting olanzapine for schizophrenia, together with the study of risperidone long-acting product, which I'll talk about in a few minutes. We're developing an exciting franchise for patients suffering from schizophrenia. At the nationwide opioids litigation settlement, we announced last month that we are moving on with the settlements after receiving broad support from the state attorney generals.

We already settled with 49 of the 50 states, and the title sign-on for the state subdivisions has begun. And given the very positive response from states, we remain optimistic that the settlements will garner similar support for them. Moving on to the next slide, look at our revenue and how it's developing. Overall, you'll see a fairly stable business with a portfolio of products and geographical spread that are well balanced.

I'd like to point out that, in 2022, Q4 was the strongest quarter in terms of revenue, similar to previous years. If you exclude the impact of FX, revenues in Q4 2022 were actually up 1% compared to the fourth quarter of 2021. So, in local currency terms, we had a nice single-digit growth in both Europe and international markets. Moving to the next slide and expanding the comment I just made on Europe.

It's a market that I'm very positive about. Europe is good, stable business for Teva. In markets like Europe, if you have a good pipeline with a good go-to-market model, the business is predictable and it can drive continued growth. And we believe we have all of those elements in our European business.

We have a good portfolio, good pipeline, and strong leadership in many of the markets. And this also supports a good margin profile, as you can see from the slide. Ad this all paid out well. As you can see, revenues grew in Europe in the fourth quarter, 4% in local currency terms, which we're very pleased about.

Now, moving on to Austedo on the next slide. Fourth quarter is a record quarter for Austedo, as we continue to see strong growth in both total and new prescriptions. Revenues grew 20% for the full year and 22% in the fourth quarter. I'm happy to see strong, continued development with nice increases in both revenue and the numbers of prescriptions.

So, all in all, the trajectory looks positive. Now, we will elaborate on it when we talk about our 2023 outlook. Now, to better understand the potential of Austedo, I'd like to take a look at the next slide. As you can see, there are approximately 785,000 patients suffering from tardive dyskinesia in the U.S., but unfortunately, only 15% of these patients are diagnosed.

And then, even more disappointing, 5% are getting treatment. So, clearly, there is a lot of unmet need. And of course, we're working hard to broaden that base, making sure they can benefit, that the product reaches more patients who need this therapy. This will drive increased prescriptions and also presents a significant long-term growth potential for Austedo.

Now, moving on to Ajovy. Full-year revenues grew more than 20% globally. This was despite the foreign exchange headwinds we faced in Europe and international markets. And I think Ajovy is a great example of Teva's strong commercial and execution capabilities.

As you know, Ajovy was not first to market in the U.S. in Europe, but we're still capturing really strong market share and actually second in Europe. So, that's very impressive and another proof point, for me, that the innovative and commercial go-to-market capabilities of Teva are strong. What we see now in the U.S.

is really about slow growth of these injectable anti-CGRP therapies. And while most of the growth in migraine space is driven by the oral therapies, outside the U.S., we expected Ajovy to benefit from continued patient growth and launches in additional countries in Europe and international markets. Now, moving on to the pipeline. The next slide, please.

In my six weeks in Teva, I've met with R&D teams. I have to say I'm very impressed with the capabilities and the people we have. I was also pleasantly surprised by an innovative pipeline. We plan on sharing more details on it when we discuss our updated strategy around midyear.

Now, let me highlight a couple of exciting assets that are under regulatory review. Firstly, our biosimilar to Humira is expected to launch in July 2023 pending FDA approval, which I'll talk about in a bit more detail in a few minutes. I'm also happy that the FDA has accepted for review the BLA for our biosimilar to Stelara, and we anticipate that the review will be completed in the second half of this year. Moving to our innovative medicines pipeline.

As I said before, we are building a strong foundation for the schizophrenia franchise: Uzedy, an important product for patients suffering from schizophrenia, which I'll elaborate on in the next slide; and olanzapine long-acting, another exciting prospect in the treatment of schizophrenia, we recently moved into a patient trial. Both olanzapine and Uzedy represent complementary approaches to schizophrenia patient management by addressing unmet needs in the long-acting market. And together with Austedo, which treats tardive dyskinesia, a side effect of the schizophrenia treatment, we're building a strong franchise of schizophrenia therapies. So, moving on to the next slide to talk about this study.

As you know, we have resubmitted the file to the FDA for review and expect to have a decision in the first half of this year. So, just to frame the market landscape, there are approximately 2 million treated schizophrenia patients in the U.S., and approximately 10% of them receive long-acting injectable products. This long-acting category is growing steadily. In terms of sales, the overall schizophrenia long-acting market in 2021 was estimated to be 4 billion.

Now, relative to other therapies in the market, Uzedy, our product, will have more patient-friendly injection mechanism, which is subcutaneous, a small needle, and is lower volume. And it comes in a ready-to-use prefilled syringe, basically, an easy and effective way to get your therapy. And we're very much looking forward to bringing these benefits to the patients who's suffering from schizophrenia and who need stable therapy to avoid relapses. Given these proper advantages we have in Uzedy, we are talking about a 20% market share over time.

Now, let's talk about Humira, which I know has been getting a lot of attention recently and is the largest product in the history to face biosimilar competition with annual revenues of over 17 billion. Now, based on most recent updates from our partner, Alvotech, we're preparing for the launch on the 1st of July this year. The FDA has confirmed that the target date for the decision on Alvotech's application is April the 13th of this year. The FDA has also confirmed that the data provided by Alvotech is sufficient to support a determination of interchangeability.

An approval, of course, requires a satisfactory outcome from the upcoming facility inspection -- or reinspection, should I say, which is scheduled for March. It should be noted that while we are still waiting for the approval in the U.S., Alvotech's biosimilar Humira can only be marketed in 17 countries around the world, including Canada and numerous markets across Europe. Now, to be clear, we risk-adjusted its contribution to our 2023 guidance, similar to the way we risk-adjust other significant launches in the U.S. market.

That said, we believe the biosimilar to Humira, like other biosimilar products, will continue to be an important product in our portfolio beyond 2023. Now, moving on to the next slide. ESG is everyone's business at Teva. Let me be clear about that.

The board and the executive management team firmly believe that ESG is critical and inseparable to our long-term sustainability and success. Over the last few teams -- last few years, the team has worked hard to lay strong ESG foundations and formalized our ESG strategy. We have set ambitious and meaningful targets that are tied to our business, enhance the reporting and disclosures, and strengthen our governance. Our ESG strategy focuses on advancing health and equity through our medicines, minimizing the impact of our operations and products on the planet, and dedicating the company to quality ethics and transparency.

So, now, let's talk about our 2027 long-term targets. First of all, I'd like to say, as I said in the beginning, I do think the management team has done a great job over the last few years to get the company back to a solid foundation. As we define our strategy going forward over the next few months, we will look for the opportunities to prioritize and to reallocate to best position to have a long-term growth and success. We'll come back and share that with you with our new strategy around midyear.

Please stay tuned. I'm very much looking forward to it. But with regard to these long-term financial targets, these will remain in place. And with that, I will hand it over to Eli to walk you through the financials.

Eli Kalif -- Chief Financial Officer

Thank you, Richard, and good morning and good afternoon to everyone. I'll begin my review of our 2022 financial results with my main focus being on the fourth-quarter performance. This will be followed by an introduction to our 2023 non-GAAP outlook and some of the important assumptions behind it. Beginning on Slide 16.

I would like to start with our Q4 GAAP performance. Revenues in the fourth quarter of 2022 were 3.9 billion, representing a decrease of 5%, or increase of 1% in local currency terms, compared to the fourth quarter of 2021. This increase was mainly due to higher revenue from Anda generic products in our Europe segment, Austedo, and Ajovy, partially offset by lower revenue from generics products and certain respiratory products in our North America segment, as well as copaxone. In Q4 2022, we recorded a GAAP operating loss of 855 million, compared to operating income of 78 million in Q4 2021, with a net loss of 1.2 billion, compared to 159 million in Q4 2021, and a GAAP loss per share of $1.10 compared to $0.14 in the same period a year ago.

GAAP operating loss, net loss, and loss per share were mainly due to goodwill impairment charges in the fourth quarter of 2022, partially offset by lower legal settlements and loss contingencies. The goodwill impairment charges were mainly related to exchange rate fluctuations in our international market and updated projections in our Teva TAPI business. The strengthening of the U.S. dollar versus other currencies during the fourth quarter of 2022, including hedging effects, negatively impacted our revenue and GAAP operating income by 270 million and 132 million, respectively, compared to the fourth quarter of 2021.

Turning to Slide 17. You can see that the total non-GAAP adjustment in the fourth quarter of 2022 were 2 billion, and this is versus 1 billion in Q4 2021. The most notable non-GAAP adjustment was the goodwill impairment charges of 1.3 billion, which I just mentioned. Now, moving to Slide 18 for a review of our non-GAAP performance.

I've already discussed our fourth-quarter revenue, which totaled approximately 3.9 billion. Annual revenues were 14.9 billion, a decrease of 6%, or 1% in local currency terms, compared to 2021. For the full year, we saw the same trend regarding U.S. dollar appreciation, which, including hedging effects, negatively impacted revenue by 780 million compared to 2021.

Now, let's move down to the P&L and look at the margin. Our non-GAAP gross profit margin was 54.2%, compared to 56.1% in Q4 2021. The decrease in non-GAAP gross profit margin was mainly due to the higher revenue with the lower profitability from the Anda in our North America segment, partially offset by higher revenue from Austedo in our North America segment, and the favorable mix of generics products in our Europe segment. Our non-GAAP operating margin in Q4 '22 was 29.1% versus 30.4% in Q4 21.

This decrease was mainly driven by lower gross profit margin mentioned above, partially offset by lower operating expenses, which I will discuss in the next slide. 2022, for year non-GAAP operating margin, was 27.7%, similar level as in 2021. We ended the quarter with a non-GAAP earnings per share of $0.71, compared to $0.77 in Q4 2021, mainly due to the negative impact from foreign exchange fluctuations and the lower gross profit, partially offset by lower operating expenses, as well as lower tax rate. Now, let's take a look at our spend base on Slide 19.

And you can see, our quarterly spend base declined by 97 million and increased by 38 million, net of FX. For the full-year 2022, our total spend base declined by 691 million, or 174 million, net of FX. Annual decrease in our spend base was due to a lower cost of goods sold related to a lower annual revenue, as well as ongoing active management of operating expenses. Looking ahead to 2023, we expect the overall spend base to remain at the level of 11 billion as we continue with our ongoing efforts to transform our global operation network with an ongoing active management of operating expenses.

If you look at Slide 20, we continue our journey to improve margins by reaching 28% operating margin by end of 2023 despite of some of the macroeconomic headwinds related to the inflationary pressures. And while we continue to face this pressure, our ongoing efforts to reduce and optimize our cost of goods sold and operating expenses are expected to continue to help partially mitigate these global macroeconomic headwinds. As Richard mentioned earlier, we continue to target 30% operating margin by end of 2027. Turning to free cash flow on Slide 21.

Our free cash flow in the fourth quarter of 2022 was 1.1 billion. The increase in our free cash flow in the fourth quarter of 2022 compared to the fourth quarter of 2021 resulted mainly from the sale of accounts receivable under a U.S. securitization facility entered into November 2022, partially offset by changes in working capital terms. For the full-year 2022, free cash flow was 2.2 billion, an increase of 2% compared to 2021 and on the high end of our 2022 guidance.

Free cash flow into 2022 was largely affected by the sale of accounts receivable under a new U.S. securitization facility entered into in November 2022, partially offset by an increase in inventory levels, lower proceeds from divestitures of business and other assets, as well as higher payments of legal settlements in connection with the opioids litigation. Turning to Slide 22. Our progress continues in terms of reducing down our debt.

The net debt at the end of Q4 2022 was 18.4 billion, compared to 20.9 billion at the end of 2021. The decrease in our gross debt in 2022 was mainly due to the debt repayments, partially offset by exchange rate fluctuation. The decrease in our net debt was mainly due to our free cash flow generation during the year. Our net-debt-to-EBITDA ratio continued to decrease, coming in four times for Q4 2022.

Looking at Slide 23. Debt reduction continues to be our primary focus. As you can see, we have made significant progress in the last six years as we have committed to reduce the level of the debt we had on our balance sheet. During these six years, we have paid back approximately 20 billion to our bondholders, including interest payments.

And we expect our net debt to further decline as we continue to make progress toward 2027 long-term targets. Turning to Slide 24, which represents our upcoming debt maturities. If you recall, we did a 5 billion SLB refinancing to address the '22, '23, and '24 maturities back in November 2021. We continue to assess market conditions for opportunities to refinance upcoming maturities.

Given the interest rate environment, we expect this to result in higher financial expenses in 2023, which I will discuss in a few moments. Looking at the cash conversion on Slide 25. We stablished a target of 80% by end of 2023. In 2022, we made further progress on this.

And as we keep focusing on our net working capital enhancement, our efforts to optimize our working capital term, in light of our revenue mix, is key for our liquidity. We're really happy to see that it came in at 80%, up from 77% in 2021. As Richard mentioned earlier, we'll continue to manage our business and working capital with a focus on generating cash to earnings at this level. Now, let's turn our attention to our 2023 non-GAAP outlook, which we are introducing for the first time today.

Here in Slide 26, you will find the five main components of our revenues, operating income, adjusted EBITDA, earnings per share, and our free cash flow, as well as additional components, including expected revenue range for our key products. Our company worked hard throughout 2022, navigating and addressing the ongoing impact of the geopolitical and macroeconomic headwinds. We expect this volatile environment in the market to continue in 2023 based on leading global financial institutions' forecast. With this in mind, we begin with 2023 total revenue, which we expect to be between 14.8 billion and 15.4 billion.

This is very much in line with our revenue level in 2022. We expect continuum of momentum of Austedo, with total annual revenue to grow to approximately 1.2 billion, or 24%, in 2023. Furthermore, Ajovy is expected to benefit from continued patient growth in the U.S., Europe, and international market. Global sales for Ajovy are expected to be approximately 400 million in 2023.

We have factored into our guidance the continued erosion of global Copaxone revenue, which we expect to decline during 2023 to approximately 500 million. The majority of the decline is expected in the U.S. The expected ongoing growth of Austedo and Ajovy is greater than the offset effect by the decline in Copaxone sales. Our non-GAAP operating income is expected to be between 4 billion and 4.4 billion.

And our non-GAAP adjusted EBITDA is expected to be between 4.5 billion and 4.9 billion. As discussed earlier, we continue to explore opportunities to refinance the upcoming debt maturities to align our debt maturity profile for the coming years with our core financial performance. There could be a meaningful step-up in our finance expenses if we were to pursue any refinancing due to the higher interest rate environment. We expect an increase of approximately 100 million, reaching 1 billion in 2023.

Looking at our tax rate in 2022. Our non-GAAP tax rate was 11.7%. As we look ahead to 2023, we expect our tax rate to be in the range of 14% to 17%. You might recall that our non-GAAP tax rate in 2022 was below our initial guidance as it was mainly affected by realization of loss related to an investment in one of our U.S.

subsidiaries. This expected increase in our finance expenses, the tax rate is expected to have a significant impact on our EPS 2023 outlook in comparison to 2022. This brings us to the expected earnings per share in the range of $2.25 to $2.55, using a share count of approximately 1.1 billion shares. 2023 free cash flow is expected to be in the range of 1.7 billion to 2.1 billion.

This guidance reflects our expected higher finance expenses, which I have outlined before, as well as increased legal expenses related to the nationwide opioids settlement. As you know, we do not provide quarterly guidance, but I thought it would be helpful to share with you our thinking about the progression of both the revenue and earnings throughout the year. Based on our expectation today, we anticipate that, similar to the progress in 2022, the first quarter will be the lowest of our four quarters of revenue earnings with a gradual pick up in the second quarter. I hope this color will assist you with your modeling.

This concludes my review of Teva's results for the fourth-quarter and fiscal year 2022. And now, I will hand it back to Richard for a summary.

Richard Francis -- President and Chief Executive Officer

Thanks, Eli. Before moving to the Q&A, I'd just like to summarize some key points. So, I'm happy with the progress that has been made so far, and I want to congratulate the entire team, all my colleagues across the globe, on a solid Q4 and full-year 2022. Austedo and Ajovy continued to drive growth.

And as I mentioned before, there's still a large unmet need that will drive growth in the future for Austedo in the U.S. Ajovy continues to see good traction, particularly in Europe and international markets. We had strong performance in Europe and international markets, and our European business is steadily growing with leadership positions in most markets. We have an exciting pipeline across innovative medicines, biosimilars, and generics, and these interesting and differentiated assets will set us up for future growth.

We remain committed to our long-term financial goals around growth of improving margins and driving down debt. And finally, I look forward to sharing with you sometime in mid-year our updated strategy to show how we can position Teva for long-term success. With that, thank you for listening. And I'll now hand you back to the operator for a Q&A.

Nadia, we're ready for the Q&A, please.

Ran Meir -- Senior Vice President, Investor Relations

Hi, everybody. We have some technical issues with the operator. We are working to fix it.

Questions & Answers:

Operator

The speakers, please accept my apologies for the delay. Now, we'll start the Q&A session. The first question comes now from the line of Umer Raffat from Evercore ISI. Your line is open.

Please ask your question.

Umer Raffat -- Evercore ISI -- Analyst

Hi, guys. Thanks for taking my question over here. A couple of things if I may. First, on guidance, I think there's a little bit of confusion on how much Humira is in the number.

And I guess, said differently, what we are really focused on is, is it still a growth year off of '22 if there was no Humira? That was first. Second, I want to touch up on the TL1A program a little bit. Could you tell us if the asthma trial was a complete zero? I know it was terminated. And also, for the IBD phase 2 you initiated in August last year, how's it recruiting tracking? And could you be in a position to take an interim analysis on 14-week data, perhaps later in 2022, which could inform a more accelerated phase 3 start, just given how competitive this could get? Thank you.

Richard Francis -- President and Chief Executive Officer

Hi, Umer. Thanks for the question. So, on guidance, as I mentioned, we do have a very nice risk adjusted. And I think your question was if we don't have Humira, will we still be able to drive growth? And I think I'll let Eli contribute.

But what I would say is we have a number of opportunities to drive revenue in 2023. Humira is part of that. But obviously, we also talked about Austedo. We've also got Uzedy, and we have other pipeline products that we haven't highlighted in this call.

It is an important part, but we've risk-adjusted it to take into account the uncertainty. But maybe I'll let Eli give some more color.

Eli Kalif -- Chief Financial Officer

Yes, Umer, you see the range that we have there and look on the midpoint versus the '22 revenue, you can see that's a modest increase. And I would say that to echo Richard, what he mentioned, Humira, in the guidance, and it's risk-adjusted, and we have a few other elements that might potentially hedge that element if it will not come through.

Richard Francis -- President and Chief Executive Officer

Thanks, Eli. I think, then, going on to your question on TL1A, I was glad you put it up because I think it highlights some of the interesting assets we do have in our pipeline, which will, as I said, fully discussed in midyear when we do a review of our pipeline and let people see some of the things that I'm excited about. But to try and answer your question, we have initiated a clinical phase 2 basket trial that started in August of 2022 in ulcerative colitis and Crohn's disease. So, that is underway.

I can't give much more information than that. But as I said, midyear, we'll probably be able to go into a lot more detail on the clinical development plans for that asset and some of the others. Thanks for your question.

Operator

Thank you. Now, we're going to take our next question.

Ran Meir -- Senior Vice President, Investor Relations

Nadia, can we get to the next question, please?

Operator

Yes, of course. And the next question comes from the line of Gary Nachman from BMO. Your line is open. Please ask a question.

Gary Nachman -- BMO Capital Markets -- Analyst

OK, great. Good morning. Thanks. So, Richard, you have a clear strategy of building out your biosimilar capabilities while a competitor decided to sell off its biosimilars.

Operator

Gary, your line is open.

Gary Nachman -- BMO Capital Markets -- Analyst

Yes. Can you hear me?

Richard Francis -- President and Chief Executive Officer

Nadia -- yeah, yeah, Gary. I don't know what's going on. Please stick with it.

Gary Nachman -- BMO Capital Markets -- Analyst

Oh. No, that's OK. I'll start over. So, you have a clear strategy of building out your biosimilar capabilities while a competitor decided to sell off its biosimilar business.

So, how much more a critical mass do you need to maximize value in that market long term? And then, how do you see market formation, particularly with Humira biosimilars? And the benefit of having an interchangeable available, how does that impact your payor discussions? If you could give us some color on that. And then, just on the generics business, Richard, will you be able to get back to a billion per quarter or so in North America? You know, that was previously a target the company had. Just talk about some of the dynamics there. And do you think you'll be able to stabilize that business? Will it continue to decline? Maybe talk a little bit at high level about the pipeline and maybe how that could return that business to growth over time.

Thank you.

Richard Francis -- President and Chief Executive Officer

Thanks, Gary. Thanks for your questions and sticking with us on the technical issues. So, on the biosimilar one, I'll take a stab at these questions and also maybe tag it with some of my colleagues. So, on the biosimilar, I don't want to comment on other companies' strategies.

We're focused on our own. But what I would say, and I've got a history here, I do believe in the biosimilar opportunity in the market, and I think it's significant. And I think it's significant in the U.S., and I think it's significant in Europe and the rest of the world. I do believe it has an opportunity to drive growth over the short, medium, and potential long term.

I do think, to answer one of the parts of your question, it does require you to have a deep pipeline. And I think one of the things is you've got to be able to continuously launch biosimilar products as they become available. And so, I think the team have done a good job here in building out a pipeline. We want to make sure we continue to do that.

We want to make sure we continue to have a geographical spread of that pipeline as we go forward. But yeah, I see biosimilars as an opportunity to drive growth in the short, medium term. Now, when we talk about the market formation of biosimilar Humira, you know, what I would say is let's not forget the size of the price here. You know, this is over 17 billion in the US.

I was part of the introduction of Humira into the European market. So, this is a big asset where I think peers and healthcare authorities can garner some significant savings. I think that's going to bear out over time. I'll let Sven talk a bit about how quickly that can happen.

I personally believe the interchangeability in some of the product profile characteristics we have in biosimilar of Humira really differentiate us and allow payers to think about actually switching and transferring patients a bit more easily than they would on other products that don't have those characteristics. But I'll let Sven answer a bit of that. And then, on the Gx, I'll take a stab at that as well. In the -- look, I obviously don't have history with this 1 billion comment, and so I can leave that behind.

From my perspective, what I would say is, in the U.S., stability of biosimilar -- of generics business should be driven about by pipeline, what we launch, when we launch, and the ability to do that. And what we've focused on and what we'll continue to focus on is complex generics. Now, obviously, they have unpredictability, but when you do get into the market, they are very profitable and sustainable. So, I think, for me, it's not so much about getting back to a revenue number.

It's about making sure you have a Gx business that is profitable, predictable, and allows you to get growth in the right areas, and that comes back to profitability. But I'll hand over to Sven to give his view on those two questions.

Sven Dethlefs -- Head of North America Commercial

Thanks, Gary. I think you were interested in the Humira market formation and the benefit of interchangeability. So, in what concerns market formation, I think we will go through three phases. Phase 1 is right now because Amgen already entered the market with an interchangeable Humira biosimilar.

Then, we have the next inflection point, which will be our market entry. It's July 1st. And then, we see a clear transition toward biosimilars with the formulary changes that come in 2024. So, there will be basically four -- three phases for Humira market formation.

I believe we're well positioned. We have discussions with all of our customers on the July 1 date. Our customers very well recognize the importance of interchangeability. And I believe it has become even more important since AbbVie has guided to this year staying on formulary.

And if you have AbbVie, the originator on formulary, of course, you need an interchangeable biosimilar to really drive uptake of biosimilar generics in this space. And we also did recently market research of the question of pull-through with pharmacists and HCPs. And here, we also saw that interchangeability is actually well-known in this professional community and, especially HCPs, look for interchangeability designation when writing a biosimilar other than Humira. So, I believe, overall, our product profile is quite strong.

We have high concentrations in the three interchangeable product. We are working toward FDA approval. And for that reason, I believe we can participate in this phase 2 market formation starting in July. And adding to Richard's comments about the complex generics, or the U.S.

generics business, and our run rate. So, the run rate was $3.75 billion in 2021 and 3.55 billion in 2022. Our focus is now, this year, on creating a Humira success and, of course, to bring more complex generics to the market, because what we've seen in our portfolio is, despite the hurdles that you have for FDA approval with complex generics, they show themselves to be very resilient and drive longer-term value. And especially when you look at our gross margin structure, you can see how important complex generics became over the last few years.

So, for this year, we talk about, especially, Forteo as an opportunity, Xulane as a second opportunity, and then the other complex generics that we also talked about in the previous years, such as restasis or sandostatin. And then, we have a couple of other complex generics in the pipeline potentially to be launched in 2023 if we get FDA approval. Thank you.

Gary Nachman -- BMO Capital Markets -- Analyst

Great. Thank you very much.

Richard Francis -- President and Chief Executive Officer

Thanks, Gary.

Operator

Thank you. We'll now take our next question, please stand by. This is from the line of Glen Santangelo from Jefferies. Please go ahead.

Glen Santangelo -- Jefferies -- Analyst

Oh, yeah. Thanks for taking my question. Hey, Eli, I just wanted to unpack the revenue guidance a little bit more if I could. I mean, essentially, last quarter, you guided fiscal '22 revenues of 14.8 to 15.4.

And now, you kind of just roll on that same guidance on '23. And obviously, you're building in some contributions from the growth in Austedo and some risk-adjusted contributions from Uzedy and Humira. So, I was wondering if you could just talk about the offsets to that, to those numbers, to that growth. It will be the same, you know, in '23 as it was in '22? Should we expect sort of a similar type of deceleration in the U.S.

generics business and a similar type of runoff in Copaxone? Or is there something else we should be thinking about, for example, like, FX playing a bigger role?

Eli Kalif -- Chief Financial Officer

OK. Thank you, Glen, for the question. So, a few dynamics in that range. And first of all, if you look on the midpoint of 15.1, you will see, versus '22, kind of a modest growth, call it, like 2%.

And this is based on, you know, a risk-adjusted in terms of several launches mostly related with North America. Now, if you think about the combination of Austedo, Ajovy, and Copaxone, that's actually around 70 million higher than how we came in '22. And we believe that there is still a modest opportunity both in Ajovy and Austedo as we're actually running now the trends now on the TRx. And so, that's one element.

And then, a few other elements really related to our stabilized business in Europe in terms of the generics. And obviously, we see there are also kind of a modest growth. And, you know, we live in a kind of environment which is very volatile in terms of FX. And we keep kind of enough spread in order to make sure that we're capturing any potential rebounding in terms of mostly on the euro appreciation versus dollars.

Glen Santangelo -- Jefferies -- Analyst

OK. Thank you for all those details. Maybe I just have one quick follow-up question on the balance sheet. Richard, you sort of seem to suggest that debt reduction remains a primary focus, but how do you think more broadly about the leverage situation? Right, because, you know, as Eli sort of talked about in his prepared remarks, right, there's significant maturities coming up in the next sort of few years that are at or above the level of free cash flow you're generating now.

And ultimately, you know, there's going to be some opioid payments that are going to have to be made. So, how do you think about getting that debt down, you know, to those sort of 2027 targets? You know, just sort of given the current level of cash flow that you're generating, how should we think about that over the next couple of years and '23 in particular? Thanks.

Richard Francis -- President and Chief Executive Officer

Hey. Thanks for the follow-on question, Glen. And what I'd say before I hand it over to Eli is we think and plan about our debt and repayment of that debt thoroughly and long term. So, the way we think about some of the payments we have to pay in '23, '24, and '25, we've been working on for some time.

So, firstly, just to give you that background. And maybe, Eli, if you could go to more specifics about that.

Eli Kalif -- Chief Financial Officer

OK. Yes, Glen. So, looking mostly on liquidity and free cash flow and the debt. So, I would start by, if you look on the guidance we gave for the free cash flow, 1.72 and the 2.1, that midpoint, 1.9, if you compare it to where we actually end at '22, call it, around 15% and kind of a reduction, this is mostly related to the fact that we are considering coming back to the market to address our '25 maturity debt state.

And that means that we will -- according to the current interest rate environment, we'll need to step up in our funds. So, this element that I mentioned already in my prepared remarks, this is a third out of these -- I would say it decreased. Other elements according to the ongoing and development with the timelines of the settlement, we see ourselves paying the first payment. And that's actually modeled in our free cash flow generation into Q3 and '23.

And this is around the incremental -- additional 12 million versus what we paid in '22. So, this is kind of the dynamic on that point. Now, if you look on the door and it's like a 1.7, part of the refinancing that we're planning in 2023, actually planning to actually get a bit lower debt stake for '23, '24, '25 to the level of 1.7, 1.8 in order to make sure that we have, you know, enough cushions to drive the business and mostly because of those two elements that I mentioned. And as I mentioned in my prepared remarks, we have ongoing actions going on our working capital, and, you know, that cash conversion improvements in the last three years mainly coming from those elements.

So, high level, in terms of liquidity, we see ourselves really strongly positioned in order to have the ability to serve the debt as well and to meet our commitments in terms of obligations, mostly with the coming opioids settlement.

Glen Santangelo -- Jefferies -- Analyst

OK. Thanks for the details.

Operator

Thank you. We'll now take our next question. Please stand by. This is from the line of Jason Gerberry from Bank of America.

Please go ahead.

Jason Gerberry -- Bank of America Merrill Lynch -- Analyst

Oh, hi, guys. Thanks for taking my question. Just wanted to follow up on that free cash flow comment. I think that you use the term incremental for the 300 million of added opioid costs, but I think you had some payments for opioids in 2022.

So, should we think about that as, like, the 300-plus? You know, what was kind of the run rate of payments in 2022, or just the total of about 300 million of opioid-related payments? And then on the '23 guidance element, just wanted to ask the Humira question a little bit differently. So, everybody's saying '23 is going to be more of a modest year of biosimilar Humira uptake. But, you know, if you were able to get the interchangeability, mindful that you're giving guidance on a risk-adjusted basis, but is there a big upside scenario? Or is it too early to say and you need to kind of get to July contracting before you can kind of comment on that? Thanks.

Richard Francis -- President and Chief Executive Officer

OK. Thanks, Jason. Thanks for the question. I think I'll hand, obviously, the opioids and the cash to Eli.

And then I could talk about the opportunity with Humira and some of the variables in that. So, Eli, first.

Eli Kalif -- Chief Financial Officer

Yes. So, Jason, thanks for the questions. I will clarify. And if you recall, we had already -- before getting to that mature development on the nationwide but already state that we settled.

And during 2022, we paid already around 130 million in our free cash flow. And that amount would have kind of carryover of around 150 million for next year. Now, this is not including the 200 million nationwide that we would need to pay in -- according to the current trajectory of the profit in Q3 2023. So, you can actually model around 430 million to 450 million that's going to be paid for opioids this year.

Is it clear?

Jason Gerberry -- Bank of America Merrill Lynch -- Analyst

Yeah, that's clear. Thank you for clarifying that.

Eli Kalif -- Chief Financial Officer

Yeah. OK.

Sven Dethlefs -- Head of North America Commercial

OK, Humira. Humira, our plan and the risk adjustment that we took, I think that was the topic. So, first of all, we plan on having an interchangeable product in July so that we get approval for it. Just as a reminder, the review process by the FDA for the interchangeable Humira from our partner, I would say, has been concluded.

And the outstanding issue for approval is now the site inspection that was scheduled for March 6th. So, we expect if the site inspection will be successful, we get approval for both BLAs that are with the FDA. [Audio gap] the guidance that we have. So, is there an upside? Of course, there's an upside.

If we sign all the contracts and we have a limited number of competition within these contracts, we are quite confident that we can generate pull-through because of the product profile. But we have to wait and see for the next step. And I would say we take it step by step, but quite confident in approval. We also are quite confident in our ability to supply the market with the required volumes.

So, that's all on track.

Jason Gerberry -- Bank of America Merrill Lynch -- Analyst

OK. Thanks.

Richard Francis -- President and Chief Executive Officer

Jason, I know we were all down for -- Is that -- got what you need?

Jason Gerberry -- Bank of America Merrill Lynch -- Analyst

Yep. No, it was great. Thanks.

Richard Francis -- President and Chief Executive Officer

[Inaudible]

Operator

Thank you.

Richard Francis -- President and Chief Executive Officer

[Inaudible]

Operator

Yeah. So, now, moving to our next question. Please stand by. This is from Balaji Prasad from Barclays.

Please go ahead.

Balaji Prasad -- Barclays -- Analyst

Hi. Good morning, everyone. Richard, you've articulated the importance of biosimilars for Teva over the next few years. And as I look at the long-term guidance that you provided of mid-single-digits, I want to understand the role of specialty segments within this, especially as we look at the pipeline and the late-stage assets and specialty as parts.

And secondly, coming to this year's guidance, excluding FX and biosimilar Humira, are there any other major variables which influence the $600 million revenue or $400 million EBITDA spread? Thanks.

Richard Francis -- President and Chief Executive Officer

Thanks for the question. I'll take the first part and then maybe tag to Eli on the second part. So, I think your question was around sort of driving growth to our specialty portfolio going forward. So, let me sort of touch a bit of on that.

I think I highlighted within the call already the opportunity we still see around Austedo and Ajovy. Austedo, particularly, when you look at the patient numbers that are still not being treated, I think the opportunity is significant to bring that therapy to a lot more patients. So, I see that as a major driver. And Ajovy, as you see, as a driver, that can probably be worthwhile outside the U.S.

as we expand more to Europe and the international markets because of the introduction of the oral therapies into the U.S. But then, I would touch upon the pipeline as well. So, Uzedy, the risperidone product we have, olanzapine, that product has gone into phase 3 clinical trials. So, I think -- and then we have our innovative pipeline, which we'll talk about midyear, which I see more as the medium term, but excited about it.

I think that could bring some significant growth going forward, obviously, if that gets through the clinical development phase. So, I think we have, you know, a number of assets already. And I'll just mention some of the complex generics that Sven spoke about earlier, which were still waiting for FDA approval. So, I think we're well positioned with our pipeline across specialty, biosimilars, and complex generics.

Obviously, the challenge always is making sure we get those two markets in a timely fashion, and that's what we're going to be working hard on. Now with regard to the spread on the revenue, I'll let Eli take that. And I think your comments were about you understand the FX, you understand the biosimilars, but what else is driving that. So, Eli, if you could help clarity them.

Eli Kalif -- Chief Financial Officer

Yes. Balaji, thanks for the question. Yes, you know, when you drive this kind of range when you start the year and you look on -- mostly on programs that require converted -- adjustment, so, in addition to Humira and U.S. generics, we have a few of them that we risk-adjusted, so they might come and be better than what we expected.

So. this is part of that -- part of that range. And also, the solid business that we have with Europe generics and OTC, even considering, I would say, the average of current run rate in '22 that we see this one also with a good potential. So, this is -- those two elements, I would say, were still part of those range.

Richard Francis -- President and Chief Executive Officer

Thank you for the question.

Operator

Thank you. We'll now take our next question. Please stand by. This is from the line of Elliot Wilbur from Raymond James.

Please go ahead.

Elliot Wilbur -- Raymond James -- Analyst

Thanks. Good morning. Maybe I could ask Sven to just follow up on the last question with respect to sort of the range of possibilities within the North American generic segment in 2023 and specifically thinking about new product launch opportunities. If there's anything you can highlight in terms of date-certain items or launches with certainty pursuant to settlements.

And then, maybe specifically, just some of the complex generics that could enter the equation in 2023. I know we've been -- feel like we've been talking about teriparatide and cyclosporine for three presidential administrations here. And obviously, the FDA has been slow on complex generics. But any additional clarity you could add there with respect to the new product dynamic in 2023 would be helpful.

And then, for Richard, you know, outside of the reiteration of the company's prior long-term financial targets, you know, wondering if the strategic review or the updated strategic plan, in fact, could modify any of those parameters. And thinking specifically about the 2027 debt-to-EBITDA target of 2x, certainly seems like financial markets equity holders would be much more comfortable with a higher leverage ratio 2.5 to 3 times if they were comfortable with the company's use of discretionary capital in terms of pursuing pipeline enhancement initiatives and additional strategic investments. So, I'm wondering if there's maybe some flexibility, particularly with respect to that parameter that would free up quite a bit of cash flow for reinvestment into pipeline and longer-term growth assets. Thanks.

Richard Francis -- President and Chief Executive Officer

Thank you. Thank you for those two questions, Elliot. So, I'm going with the order you delivered them. So, I'll ask Sven to answer the one around the almost complex generics approvals that you've been experiencing through the last three presidential campaigns.

Sven Dethlefs -- Head of North America Commercial

Yes. So, the usual suspects. Thanks for the question, Elliot. So, U.S.

generics this year, overall, we'll see a weak patent expiry year. So, this year doesn't have a lot of, let's say, launches that are naturally driven by patent expiry dates. It will be more driven by approval -- by FDA approvals and settlement entries. And as you also pointed out, Humira, we already talked about, for Teva, we received this year, that we answer to the FDA.

We are working with them closely to sort out this issue. Just as a reminder, this product has been launched many years ago in Europe already with EMA approval, and we know how to manufacture of it, of course, and I believe the product is high quality and that we will get the FDA around to give us approval. Then we have the reentry of relevant costs due to our settlement date. That is working on an annual cycle.

So, we enter this market with higher-volume allocations within the settlement with BMS. And then, we have, of course, Xulane, which is a new drug on the list for launch this year. And then, I have a couple of other products that we say -- prepare for launch assuming that we get FDA approval. But since we have made some experiences with the FDA about how difficult it is to get complex generics approved, I don't want to give you certain -- the same name now.

I think once we get approval, we will communicate more on that. But -- although I can say complex generics are still quite attractive for us because if you analyze, in a classic 80-20 analysis, our gross margin and the cash contribution within the generics portfolio, complex generics are certainly a major stabilizer in our business in North America. You also see that our price decline is quite stable in the base business. So, that has improved over the last year, and we don't expect the value changes in that space.

So, overall, I would say U.S. generics would really build up if we get all the approvals that we discussed on a regular basis in this quarter.

Richard Francis -- President and Chief Executive Officer

Thank you, Sven. And then, to answer your question about the payment of debt and the EBITDA target we gave for 2027, and flexibility around that, if I heard you correct me earlier, so, look, we are in the midst of doing our strategic review and understanding our plan going forward. And that's a strategy that's going to deliver growth. That's the whole point of putting that strategy together.

I think what we think is important and what is the team has worked hard on is to get credibility around our debt and all the repayments over the last few years. And so, we don't want to squander that too quickly. So, I think as we work through the strategic review and understand the opportunities and the need for capital, both within the company to allocate resources to drive some of our pipeline and our in-market products, as well as to do some BD&L, we need to think about that. But I'd also like to say that I think we think we have the ability to pay down that debt in the fashion that we've outlined and still be able to have some capital to allocate to drive the company back to growth.

But we're in the midst of that. But I appreciate your point of view and your job -- your question to challenge that. And we'll be able to give a bit more clarity on that midyear.

Operator

Thank you.

Richard Francis -- President and Chief Executive Officer

Thank you.

Operator

We'll now take our next question. Please stand by. This is from the line of Chris Schott from J.P. Morgan.

Please go ahead.

Chris Schott -- JPMorgan Chase and Company -- Analyst

Great. Thanks so much for the questions. Just two for me. I guess, first, maybe, Eli, how should we be thinking about gross margins this year? I know you're targeting flat opex, but just maybe a little bit more color on the components of opex as we think about '23.

And the second one was just kind of a bigger-picture question on the biosimilar business. You know, as you talk about this, as it continues to ramp and it's an important growth driver for Teva, I guess, does a continued kind of partner-centric approach make the most sense for the company? Or would these be capabilities you would want to develop, I guess, to be more in-house over time as you think about kind of really trying to maximize the value of this opportunity? Thanks so much.

Richard Francis -- President and Chief Executive Officer

Thanks, Chris. Thanks for the question. So, Eli, you take the first one and then I can chime in with you on the second.

Eli Kalif -- Chief Financial Officer

Thanks, Chris, for the question. So, we ended up '22 around 54% gross margin. And actually, when we are actually looking on '23, we are going to see a bit higher. And I would say additional is 0.3%.

And one of the things that we need to remember that the macroeconomic headwinds actually, overall, if we look on the numbers, hit us around 2% on our revenues, so, call it, around 300 million. With all the activities that we've already done and all those the optimization that were part of our long-term financial targets to expand our margin there, help us, as I mentioned in my prepared remarks, to partially offset that element. Now, there is also kind of element on the revenue mix. And then, you can actually see that with the growth of Austedo and as well on Ajovy and a few other elements that we are actually working on, we're going to see a very modest increase but not more to the level of 54.25%.

That would stay in '23, which means that our ability to keep -- and the current level in the opex will stay the same. And there is a residual amount of flow-through there of the margin.

Richard Francis -- President and Chief Executive Officer

Thanks. Thanks, Eli. So, on the biosimilar, so I think the question, Chris, was around, you know, as we move forward, we see it as a growth driver, is this continued part of the strategy or not. So, firstly, let me clarify that, although we have a good and productive partnership with Alvotech, which is delivering a nice pipeline, we also have, I think, six in-house biosimilars that we've developed ourselves.

You know, I'm going back to a comment I made on an earlier question. What I think is important with biosimilars is that we have a broad and deep pipeline that we can address most of these large biologics when they come off patent. And to do that effectively, from a capital allocation point of view, I think it's a combination. It's a combination of partnering and it's a combination of doing some things in-house.

And so, that's what I see going forward, that combination, just to make sure we have the right pipeline and we launch the products at the right time. Thanks for your question, Chris.

Operator

Thank you. And we'll now take our final question. Please stand by. And the last question is from Rishi Parekh from J.P.

Morgan. Please go ahead.

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

Hi, how are you doing? Thanks for taking my questions. I just want to confirm a few things and then talk about -- or ask a few questions on your balance sheet. With regards to your free cash flow at 1.7 and 2.1, I want to confirm that that includes the 450 million of opioid payments, or is it a different number?

Eli Kalif -- Chief Financial Officer

Yes, it's including.

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

OK, great. And then, with regard to your maturities, if I heard you correctly, I think you said that you're going to address your '23, '24, and '25 maturities, which is different than what you had said at the J.P. Morgan conference. I was hoping that you could just walk us through what led to that change.

Is it something related to your free cash flow or, you know, something related just to the interest rate environment? But we'd love to just have you walk through that.

Eli Kalif -- Chief Financial Officer

Yeah. So, you know, when are -- we actually assess the market and, you know, you appreciate that the interest rate environment is higher than what's expected to tender on our debt date. And that means that we will have impact on our fund -- that will flow through impact on our free cash flow. This is one.

And the second thing is that, you know, as we move forward and we see ourselves now more instead of positive momentum with the off-year, and we actually want to make sure that we have enough cushion to manage that liability. And coming back to your first question, and that's actually already embedded there. So, you know, we used to have kind of a 2.1 to a 1.9 range on the debt take. Currently, the '23 is 2.1, '24 is 1.9.

We're going to take it lower a bit in order to make sure that we have enough cushion there to manage it. And it will be part of the coming refinancing and which majority will be focused on the debt take of '25.

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

And, you know, with the drop-down in your AR financing next year, the 500 million, one, can you walk us through why it's declining by 500 million next year? And is that also affecting your thoughts around how you're looking to address your debt maturities this year?

Eli Kalif -- Chief Financial Officer

Yeah, so, I don't understand the drop on the AR for next year or where you're actually considering that one, but I can mention the dynamics. This year, in terms of working capital, we were able to optimize our days outstanding payables, as well as DSO. And that's actually offset part of inventory increase in order to support our production plan for -- mostly for the first half of the year.

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

Yeah. Sorry, I was just referring to the new AR facility that you entered into. I think it's $1 billion through -- November of this year and then it drops to 500 million from November '23 onwards to November '25. And I was just hoping for an explanation behind that drop.

Eli Kalif -- Chief Financial Officer

Yes. So, actually, the facility is around 1 billion. We are not using the full of it. We use the 800 as the opportunity for us to be flexible on that program by actually initiating further enhancement on other elements under the working capital that will allow us to be more flexible and reduce that program going forward.

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

OK, great. I'll follow my direct questions later. Thanks.

Eli Kalif -- Chief Financial Officer

Yeah, thanks.

Richard Francis -- President and Chief Executive Officer

Thank you. Thank you for your questions. I'd like to thank everybody for the questions and interest on the call today. And I'd also like to apologize for some of the technical issues at the start.

That's always not in somebody's control, but I appreciate you bearing with us. And on that, I'd like to close the call. Once again, thank you for your interest and look forward to talking to you on future calls.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Ran Meir -- Senior Vice President, Investor Relations

Richard Francis -- President and Chief Executive Officer

Eli Kalif -- Chief Financial Officer

Umer Raffat -- Evercore ISI -- Analyst

Gary Nachman -- BMO Capital Markets -- Analyst

Sven Dethlefs -- Head of North America Commercial

Glen Santangelo -- Jefferies -- Analyst

Jason Gerberry -- Bank of America Merrill Lynch -- Analyst

Balaji Prasad -- Barclays -- Analyst

Elliot Wilbur -- Raymond James -- Analyst

Chris Schott -- JPMorgan Chase and Company -- Analyst

Rishi Parekh -- JPMorgan Chase and Company -- Analyst

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