Teva Pharmaceutical Industries Ltd (TEVA) 2001 Q1 法說會逐字稿

TEVA PHARMACEUTICAL INDUSTRIES LTD. CONFERENCE CALL

Good morning, my name is Patricia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the number 1 on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press the # key. For those in the U.K., press "1" and "4" to ask a question and "1" and "5" to withdraw your question. For those in Israel, press * and 1 to ask a question and * and 2 to withdraw your question. Thank you Ms. Meltzer, you may begin your conference.

Thank you operator. Good afternoon to all of our guests. We hope you all have had a chance to review our release, and thanks for joining us to discuss Teva's first quarter of 2001 financial results. Before I will turn the call to Eli Hurvitz, President and Chief Executive Officer for his opening remarks, I would like to remind everyone that the safe harbor language contained in today's press release also pertains to this call and to the web casting. Eli would you like to begin please?

Thank-you. Welcome to all of you. Today's call will be a little different. Israel Makov, our Chief Operating Officer will report on the quarter, and I would like to congratulate you Israel on the very good start. Afterwards, following a lot of confusion in the marketplace, I have asked Dr. Aaron Schwartz, on short notice to give you a brief update on Copaxone. That done, we will go into the figures and together with Bill who is joining us today from Teva Neuroscience in Kansas City, we will take your questions. Israel, please.

Thank you Eli, and good morning and good afternoon to all our participants. I am proud to report on our quarterly results, which show continuing progress in the various sectors of our business. These results fully met our goals and support our expectations for a very good 2001, as Eli conveyed to you at the beginning of this year. With increases in sales and net income of 46% and 56% respectively over the comparable period of last year, Teva continues to demonstrate strong profitable growth. The significant increase in sales reflects more than just growth across the slate. It reflects a widening and deepening of our global presence, providing us with a level of geographic reach and product depth, that significantly adds to our strengths. This growth is another indication of the success of our strategy to double our sales every 4 to 6 years, both through organic growth and through acquisitions. Even without the acquisition of Novopharm, our growth rate was 21% putting us on track to achieve this goal. I will take this opportunity to note that our combined sales for the last two quarters exceeded $1 billion, making us a $2 billion company on an annualized basis. I believe Teva's current business mix and geographic spread, provides us with a stable platform with which to continue our rapid growth. North American sales significantly increased versus the first quarter of 2000. This increase was due to organic growth and to the successful integration of Novopharm. In the first quarter,

Teva received seven FDA approvals, three of which were final with the rest tentative. The U.S. continues to reflect a period of consolidation, both in distributors and manufacturers, a situation that is challenging but also provides us with [_______________] performance. In the first quarter of 2001, European pharmaceutical sales reached an all time high of nearly $100 million. This was achieved under very challenging market conditions in the U.K. and Hungary. In the U.K., despite a difficult competitive environment and government price intervention, we are increasing our market share certainly from the volume standpoint. Transfer of U.K. production to our Hungarian facilities has lowered production cost and enhanced our competitive edge in what may be the world's most competitive generic marketplace. In Hungary, governmental price freezes have hurt business. However, we expect the Hungarian market to improve starting in July, when the first price increases in three years come into effect. In the Netherlands one of our primary European market, we had a very good quarter. Sales in the Israeli market decreased slightly primarily due to lower sales to the Palestinian authority. In spite of the tense times we are living through, we foresee a relatively stable business environment for the remainder of the year. Our Active Pharmaceutical Ingredients or API division also enjoyed increased sales over the same period in 2000. With an impressive growing pipeline, API represents an important contributor to our

P&L and we consider it a key strategic asset and a major growth driver of the company. Our global pharmaceutical operations continue to extract synergies and achieve cost savings from our manufacturing activities. In the first quarter, we completed the shutdown of the [_______________] plant of Copley a major achievement. In only 18 months, we transferred the entire production of Copley products to alternative sites in the U.S. and Israel. The successful accomplishment of such a complex task is the result of the expertise we have developed in the integration of our acquisitions and constitutes one of our core competencies. And now to our single most important product Copaxone, global Copaxone in-market sales reached an all time high of $74 million. This quarter represented the first quarter of Teva Neuroscience operating as a fully owned subsidiary of Teva Pharmaceuticals. We have now merged the U.S. arm of our innovative R&D operation with Teva Neuroscience. This will enable Teva Neuroscience to work more closely with our R&D division and will permit them to better leverage R&D's results for the marketing of our innovative products. Although, injectable Copaxone is our only marketed innovative product, we hope to submit oral Copaxone to the FDA in the first half of 2002, and we also expect that in the second half of 2002, we will submit two additional products for Parkinson's to the FDA for approval. Finally, our R&D operation continues to improve its effectiveness in both

the generic and innovative spheres, and we feel that we are beginning to reap the fruit of the globalization of our R&D activities. Our global efficiencies in generic R&D development has enabled Teva to become the most powerful player in the generic industry. In the first quarter, we received approvals for 22 generic products, 7 in the U.S., 2 in Canada, 11 in Europe, 2 in Israel, and probably many more in other territories outside of these territories. And now I will turn the things over to Dr. Schwartz, who will discuss Copaxone in greater detail. Dr. Schwartz, please.

Thank you Israel, and good day to you all. I would like to begin with a few remarks on the development of the global and U.S. MS market. Compared to year 1998, the global MS market has grown by 49% in 1999, and by an additional 28% in year 2000. The U.S. growth was slightly lower by 42% and 26% respectively. Based on these figures and our estimation of therapy penetration, we forecasted growth this year compared to last year to be about 15%. The actual growth for Q1 of this year surprised us on the positive side. We now believe that the global and the U.S. market in this quarter will be higher than the comparable quarter by about 27%. In fact this year, the first quarter of global oral therapy sales were higher by $42 million compared to the previous quarter, while the year before, this increase was only $9 million. This Q1 quarterly growth, corresponds very nicely to the 21% increase in monthly total prescriptions in the US. In conclusion, and contrary to some recent comment, the market continues to grow quite strongly. This as a background to Copaxone in-market sales improved in Q1 of $74 million, higher by 50% compared to Q1 of last year. Interestingly, contrary to the traditional trends, the first quarter sales are either equal or lower than previous Q4 sales. This year's sales were 2%

higher. This slow increase is both in dollar and unit sales reflecting a real increase, and we're also looking forward to a strong second quarter sales. This 50% increase is double the market increase. This is also reflected very nicely in the 41% increase in total and new monthly prescriptions in the US. Again, that was a 20% increase in oral therapy prescription, and the outcome is an increase in our market share from 22.3% at the end of the first quarter of last year to 26% this year, and this is in total prescriptions and from 23.9% to 29.8% in new prescriptions. Naturally, our increase in market share has drawn the attention of our competitors. Frankly, [_______________] coming from the generic side of the business we are surprised and uncomfortable with the use of some unethical tactics of some of our so-called ethical competitors. A recent reminder was given only yesterday evening by an FDA warning letter, and it is not the first one that this company has received in the last six months. Let me assure you that we are not deterred by the challenge. We however, prefer to concentrate our efforts on developing new evidence about the safety and efficacy of Copaxone in relapsing-remitting MS and developing the oral formulation in the use of Copaxone in primary progressive MS. The two Colloral [_______________] phase III studies continue as planned. In the spring round of International Congresses, over 30 papers were accepted for platform and poster presentation. Important new information is being released about the effect of Copaxone on clinical, MRI, and the neurological characteristics of the product. And last but not

least, Teva has recently submitted Copaxone for approval in the EU for the initial recognition process. Decision is expected in Q3 followed by national approvals and launches thereafter. Thank-you and it is over to you, Dan.

Good day to our global audience. We are very pleased with this quarter results, and if I may use the words of one of the analysts who published something on the quarter [_______________] this morning, an excellent start for the year. As we have indicated when we reported our record Q4 2000 results, our expectations were that the quarterly developments in 2001 will be consistent with experience of year 2000. Q1 was somewhat lower than the preceding Q4, and a gradual quarterly improvement during the year. As you can see from the figures we released earlier this morning, this is true. However, it turned out to be somewhat better than we initially expected. Net income in the quarter reached $55 million, up 56% from the comparable quarter of 2000. EPS fully diluted at 40 cents was 2 cents ahead of consensus and 43% up from the comparable quarter. The number of shares used in the calculation of fully diluted EPS increased between the two comparable quarters by about 13%, mainly due to the allotment of shares to the previous shareholders of Novopharm, and the dilutive effect of the converts we have issued in October 2000. Total sales for the quarter were $491 million, up 46% from the comparable quarter, and as mentioned the two past quarters' sales exceeded combined $1 billion. In comparing the quarters, one should remember that Novopharm was not included in Q1 of 2000, but net of Novopharm, we still increased sales by 21%. We actually achieved our long-term growth target of 20% annually even before the impact of acquisitions. Most of this increase came

obviously from our largest market, the North American Pharmaceutical market where sales were up 76% to $267 million. More than half of this growth was organic, driven by new products introduced in late 2000 and early 2001, increased sales of Copaxone, and as well as increased sales of our other existing products. First quarter [_______________] Pharmaceuticals in dollar terms were up 41% to $98 million, while without Human this sales was slightly down in terms of local currencies that were up 3%, reflecting a 7.5% devaluation of the local currencies. We are covered to a large extent by various hedging instruments but these obviously do not show up in the sales line item. U.K. and Hungary recorded lower sales, as Israel mentioned, but these were more than offset by increased sales in Holland and Germany. Total in-market sales of Copaxone in the quarter, as you heard, was $74 million, up 50% from the comparable quarter, about 88% of these sales were in North America. API was up 16% including an 8% increase in third party sales, and a steep 27% increase in the strategic inter-company sales. The latter accounted for 44% of API sales in the quarter. Our gross margin for the quarter was just over 40%, six basis points higher than the average for 2000. Without Novopharm, the growth margin would have been significantly better than the one we achieved in Q1 2000. It is mainly the Hungarian Human, which was acquired as part of the Novopharm deal in April 2000, that was it's last trade business, decreased this margin. We

increased our spending on R&D by 73% to over $38 million. Net R&D increased by 41% to $28 million. A substantially higher share of these costs, 27% compared with 10% last year, was covered by participations of others reflecting our strategy of limiting the investment in the advanced stages of the clinical to leave the needed resources for our core generic R&D. Financial expenses were substantially lower from the comparable quarter in spite of the consolidation of Novopharm mainly as a result of the lower interest converts we issued in October 2000. Net income, that amounted to $54.8 million, an increase of 56% over the comparable quarter. Fully diluted EPS 40 cents, compared with 28 cents for Q1 2000, up 43%. Yes, for Q1 2000, we originally reported EPS of 30 cents but the adjustment to US GAAP that we have adopted, late last year, took off 2 cents of the comparable quarter. This equals to the adjustment to US GAAP made for the full first 9 months of 2000. The reported quarter was also a good one in terms of cash generation. Cash flow from operations in the quarter amounted to $87 million compared with $166 million for the whole of 2000. We invested in capex $23 million, about half of it in North America and API. This compares with $18 million of depreciation charged to the quarter. To this one should add the amortization of goodwill recorded under SG&A, which amounted in the quarter to $9.5 million compared with $4.2 million in the 2000 comparable quarter. Working capital at the end of the quarter amounted to $870 million. In spite of

the Rationalization, inventory decreased slightly from December 2000. The dividend recommended for the quarter will be at the increased level of Q4 of 2000, of approximately 6.5 cents per ADR. Before we open the call for questions, some housekeeping by Dorit.

Thanks Dan. I would like to remind all our friends from New York that we will host our quarterly luncheon tomorrow, Thursday May 3, 2001, in New York, and we kindly invite you to join us. For those who did not receive our invitation or did not get confirmed, please call us in Israel at 972-3-9267281 or New York at 212-510-9286, thanks. Also this call is being taped and will be available until Monday, May 7, 2001, midnight, Eastern Time and archived on our web site. For the replay please dial from the USA and Canada 1800-642-1687. For international callers please dial 1706-645-7291. The pass code access for both numbers is 778275. For the web cast replay, please enter to our website, it is www.tevapharm.com and click the replay button, and now we are open to questions.

At this time I would like to remind everyone, in order to ask a question press the number 1 on your telephone keypad. For those in the UK, press "1" and "4," and those in Israel, press * and 1. Our first question comes from Richard B. Silver from Lehman Brothers.

Couple of questions, first for Aaron. You mentioned timetable on NDA submissions or may be it was Israel who mentioned it, and you said first half for oral Copaxone and second half of 2002 for the two Parkinson's drugs. Is that any kind of change from previous expectations, for some reason I thought that the Parkinson's drug might be in the first half of next year? Second question is on the growth for the MS market, you were kind of going back and forth between US growth projection and worldwide growth. Can you just repeat what your expectation would be for the US market growth for the MS drugs and worldwide as well, and then for Dan, just on the line items on the revenues, can you give us a little bit more color on Teva North America, what accounted for the strength there and Europe as well, and what we should be looking for going forward, given that the first quarter is traditionally a little weaker, whether we can expect as you had mentioned earlier, improving trends in the third quarter for this year? Thanks very much.

Okay thank you Rich. I think that with regard to the Parkinson submission, I don't think that we see any delay really. We are still in the middle of the recruitment stage and because of that it would be difficult to say, recruitment, you know, is something, which is not entirely at our hands, and because of that I would be a bit hesitant to be very firm about the date, and the date that Israel mentioned seems to be reasonable and we certainly are doing our best to live up towards those dates. With regard to the Copaxone global market, in a nutshell, what I would say is that initially when we made some forecast for the development of this year, we thought that probably the increase in the global market of oral MS therapies would be around the 15%, probably slightly more in Europe, but not more than 15% in the US. As I have said, we have been required to positively surprise, but we have now final numbers for Q1, which shows 27% increase in the US and almost exactly the same increase in the rest of the world and because of that my bias would be that the whole year will be certainly not lower than 20%, which is a nice surprise for all of us in general, for Copaxone in particular.

And that is 20% U.S. and 20% worldwide, not lower than that?

I would believe so, yeah.

And that's volume or sales?

I am talking about sales, but I don't see any further price increases, so I don't think that this would make a drastic change anyway.

And then.

I will let Bill answer the developments we see for North American sales going forward. Regarding Europe, I think it is worthwhile to mention two points looking forward. One is that I hope that in the U.K. we saw the bottom of the impact of lower prices on one side, and in Hungary, it was announced that as of July 1st, the price freeze, which was there for almost 2 years imposed by the government would be lifted. The prices can be adjusted to up to 70% of inflation, and even the less expensive drugs I think below the $2 mark or so can be raised even more. I think that it's known that prices will increase as of July 1st, there may be an impact already of prophylactic buyers in Q2. Bill, as to North America?

Good morning Rich. We are seeing strong organic growth in Teva USA, without Novopharm, something over 30% in the core business, which we expect to continue in dollar terms certainly. In percentage terms, we will have next quarter, of course, our first comparison with including Novopharm in both quarters. Our Canadian business, we don't expect to grow top-line, just yet, but certainly in terms of bottom-line they are actually slightly ahead of their profit targets up until now, and in the US, we will continue to see as I say, strong growth. It will not be obviously 30% quarter-to-quarter. We also cannot predict when we will get FDA approvals, but quite frankly if you look at our pipeline now with 51 ANDA's and just under $16 billion worth of market value in those applications. We are very bullish on the year, quarter-to-quarter will vary of course slightly.

And in North America, you mentioned growth without Novopharm is up 30% for Teva USA, what about for North America, since that's the number you reported in the quarterly release. What's the growth ex-Novopharm for Teva North America?

It was over 40% for Teva, North America.

Without Novopharm.

Without Novopharm.

And can you point to certain things that, where there price increases, what products were really driving that growth?

Well as Aaron has already mentioned obviously Copaxone.

Bill, sorry, ex-Copaxone I am talking about.

Ex-Copaxone, North America without Novopharm as I said was up well over 30%.

Okay. I am sorry, without Novopharm and without Copaxone what sort of growth are we seeing and what's been driving that growth, and have we seen any price increases in the first quarter? Is there anything that would lead to lower sales in the second quarter obviously sequentially?

No there isn't. We do not expect lower sales in the second quarter, is that your question Rich?

Yeah. And again what's driving that growth?

Clearly, new product approvals coming from our internal research and from our co-operation with Biovail.

And pricing?

Pricing is relatively stable. There may be a slight positive increase overall, but very slight, I mean, may be at the 1% level. We were optimistic, as you know, going forward but that positive trend will continue.

Okay. And Dan, can you give us any guidance on the operating expenses, SG&A, and R&D going forward.

Regarding R&D, the level of this quarter which is fairly close to the level of last quarter, this is a level we see going forward through the year. Regarding SG&A, I would say that, as total SG&A in dollar terms is somewhat lower this quarter than in the previous quarter, we see that more or less as the level adjusted, probably somewhat, we would say some of the SG&A is closely related to sales.

And you mentioned European sales that you think this is the good base for going forward, and so we could see higher sales also going forward in Europe.

I mentioned that recently the Hungarian side, with the lifting of freeze should be better.

Thank-you.

Your next question comes from Elliot Wilbur with CIBC World Markets.

Good afternoon and congratulations on a very impressive quarter.

Thank you, Elliot.

First question is for Bill and/or Dan. Can you update us on your nabumetone expectations in terms of when you expect a decision there, and exactly how important that product is to your financial expectations for the second half of the year?

Elliot, the trial completed in the first quarter, and all posttrial briefs were submitted, and now we wait for the judge to make his determination. That can be any time and it can be a long time. We, in our internal planning expect the nabumetone will contribute in the second half of the year, but as I said, it could be a little bit earlier, it could be later in the year. But clearly, I think that we feel that we have the ability to still reach our numbers even without nabumetone.

Okay, Thanks Bill, if you have the numbers in front of you can you just may be update us on how many of the 51 ANDAs were actually tentative approvals.

The answer is 12.

Okay, let me ask another question on oral Copaxone. Can you just remind us when we may get a first peek of the data.?

The first peek of the data and the last peek of the data will be when we finish the trial towards the end of the year, and as we have announced a number of times, we expect to have results by very early next year.

Okay, let me ask Dan an additional question on sales trends in the U.K. market. Excluding the impact of the pricing rollbacks instituted late last year, are you seeing additional pricing pressures in that market better or perhaps offsetting the volume gains that you are making and again excluding the pricing rollbacks or volume gains and allowing you to exceed some of the additional pricing pressures such that you are still showing some positive sales growth.

Our experience in this quarter and in the previous one showed very substantial increases in volumes, and I assume because we can continue to increase our market shares, we have done in the last 2 quarters, I would say that there is more than a good chance that these will make up for any further price erosion, if any.

Okay, and Dan let me ask you another follow up on Richard's question on the SG&A line. I know you are encountering some higher legal expenses particularly in the U.S. and some of your filings which may be looking for SG&A as a percentage of sales to fall under the 18% range in the second half of the year, that still is kind of a reasonable......

With the increase of sales, I assume that we will get below the 18% level.

Okay, let me ask you one final question here. In your last conference call, you were very optimistic about your ability to hit the current street consensus for the year which I think was around $1.76, and the numbers have moved up a little bit, since then I think the current consensus is around $1.79. Can I just get you to comment on that particular number given first quarter results and I assume you are still feeling optimistic about the optimistic projections out there.

I think that with us as with the street, probably the first quarter results increased the level of confidence in the consensus.

Okay. Thank-you.

Thank-you. Bye.

Your next question comes from Jerry Treppel from Banc of America Securities.

Yeah, let me just talk some few other things. I understand there is going to be various proposals to have German price reductions in the latter part of this year. Have you figured that in to your expectations?

Jerry, I am sorry you have to speak up. We hardly hear you.

Is that better?

Much better.

Okay. There are proposals in Germany to reduce the drug prices in the latter half of this year, have you figured that into your expectations?

We did not include that in our expectations but our sales in Germany [_______________] they cannot have their total sales in terms of price effects.

Say that again I am again sorry.

Our sales in Germany, you know, we have very little sales in Germany in terms of our total sales and if we are going to have price reduction in Germany, it's not going to affect our results.

Your overall results, okay.

Yes.

Is it possible for you to breakup by country on the percentage basis where the sales come from in Europe. You know, like what percent of your total European sales come from UK, come from Hungary, come from the Netherlands?

We usually don't do that.

Yeah, okay.

And well I don't see any reason why to deviate from the usual.

Well, I thought today could be a special day.

Yeah, you know it was a good try. I appreciate your effort.

In the US you've articulated a goal of getting to a 20% market share, and you are going at I think at 12 or 13. How do you envision getting there and over what time period? Bill.

Jerry, clearly, we believe that it's going to be a combination of our internal organic growth coming from a very effective R&D program and a very strong sales and marketing presence. Teva USA, now in the last 5 months has been the largest company in the United States in terms of total prescriptions and seems to be moving away, in fact, a little bit from our major competitors, and we think that with our new products, we can gain more than the 12% or 13% market share that our existing position shows. On the other hand of course, as Israel mentioned, we believe that we are very effective in terms of acquisitions and in terms of global integration of our business, and we can leverage that globality, so acquisitions may well play a part in our growth.

And that would be within what time frame 5 years, 3 years?

Oh, we have expressed the wish to double our business in the next 4 years, then clearly it is going to be in the 3 to 4 year time frame.

And what impact, as there has been some concern about the impact on the U.S. MS market of the entry of the Indian [_______________] companies, I guess it is from the [_______________] and Dr. Reddy Labs. How you see that point out?

You know, I happen to know that back in Pennsylvania, George is on the line, so he is in the front line. Why don't I let him answer that question. George, are you there?

Ah! I guess he got killed in the front line.

Well, let me answer that question then. We probably have been used to Indian competition earlier than some of our competitors, because some of those companies came in first in to the bulk chemical market and then secondly into the antibiotic market, in which as you know we are very strong in both of those segments. And yes, they are competitors, but at the moment, I wouldn't classify them, certainly not as strong as [_______________] or Watson for instance. So I am not too worried about the future. I don't think they have our pipeline. We're continuing, as Israel said, to see consolidation among our customers. They want to deal with companies that provide them with a whole host of what we call value added service oriented items, and we believe that puts us in a very strong position.

And finally, how many sales people are currently in Teva Neuroscience? And what are your plans in terms of expanding that?

Larry Downey is with me, the President. So, he can answer that question.

Hope, we can get some more front line, good day.

Jerry, we currently have 80 sales representatives and 9 professional education people spread across the country in the US, and we have 6 or 7 in Canada.

And any plans to expand that?

We have no plans right now. However, we are looking at that in terms of, as we expand into the other Teva innovative products, we are evaluating what the need will be for those products.

Okay. Thank-you.

Your next question comes from Steven Valiquette from UBS Warburg.

Okay, thanks. Basically the one question I have here is I am just curious in terms of the areas Aaron was talking this morning about. The fact that they still think they can get on the US market before May 2003 with a [_______________]? I am curious if this is something that really keeps you up at night? Would your business plans change dramatically if they got into the market sooner? Does your business plan right now also, assume that, they will have to wait till May 2003. So, I am curious what your general thoughts are on that, the potential entrance of [_______________] in to the market before May 2003.

First of all, I would like to state that we don't have much sleep anyway because of other things that keeps up awake anyway. So, this is not a big change. But to be serious, we anticipate [_______________] coming to the market before that. I think that the main effect will be seen by the interferon companies, because this is another interferon and probably changing the balance between the other two that are on the market. We present no interferon alternative, which is appreciated as such by the patients and the physicians, and naturally, we believe that, if at all our market share may just increase because of the additional confusion that this will bring to the market, which dose to take, which route of administration to use, how many times per week etc., etc., and this you know, there is a lot of confusing evidence coming out practically every other month and because of that, I don't think that if at all, we will see an improvement in our position rather than a problem.

Okay.

And we don't have to tell you Steve that our product is better than the competitor.

That is true. Okay. So, one another question. Is everything on track with our European launch of Copaxone? I guess there was some confusion last week about maybe [_______________] has been delayed? And your [_______________] filings? Can you just sort of address that topic?

We put it in the release and I mentioned that as the last part of my presentation. The other thing is that, as planned on time and as I have said we expect the decision in Q3 and after that national approvals and the launch is immediately thereafter.

Okay. All right, thanks.

Your next question comes from Paul Woodhouse with Merrill Lynch.

Good afternoon. Two questions from me, first on Copaxone, if you look at the sequential sales performance through last year and the year before, in Q2, Q3, and in Q4, you saw a sequential growth of a roughly 10% to 11% quarter-on-quarter. Going from Q4 into Q1, both last year and this year, it's been your +1% to +2%. First of all what is the reason behind that?

It's actually a very good question and we tried to figure it out, and not very successful to be honest, but we see the same trend with our products as with the other products. So, we take it as one of those forces of nature that people look at wondering but not really understanding. But this is a fact, it is coming again and again for the last 3 or 4 years, and this is it. I mean, I don't have a very good answer to that.

All right. Going forward, should we expect the 10% or 11% quarterly sequential growth through the rest of this year?

I won't like to comment on the exact figure, but I did say and I did mean that we are looking for a strong Q2 performance. Putting another color into your question Paul, there may be financial issues involved, may even be tax issues, tax deductions that patients get for very expensive drug, budget of health providers and insurers, it may be things unrelated to the treatment itself, which in a very expensive treatment like that may put some noise into the quarterly sequential data.

Okay. And my other question relates to the gross margin. In the first quarter, the gross margin you achieved was certainly higher than the level I was looking for and the most other people were looking for?

So, have we disappointed you?

Can you talk us through some of the key components to that in terms of the cost savings coming through in overall magnitude and speed. Are you looking for greater cost savings now than you were six months ago? And could you give us an indication through Q2 in the second half correspond to...?

We don't look at more savings than we expect the quarter to grow. Our savings grow according to plan and they are adding up. One thing that we have done in Q1 is closing down the Copley plant and you know the closing down is such, you can be 90% out of there with your production but the 10% production keeps a lot of costs with it. So, that we have completed in Q1. The next thing that we see in our Rationalization program will may be coming out of Canada, which is now going into, the Rationalization there goes into a high gear now. I would say that going forward regarding our gross margin, I don't see why this shouldn't be a good indication, although certainly much is based on expectations of new approvals globally but mainly the U.S., and hopefully that will come in the sequence and the phase that we expecting.

Thank you very much.

Thank-you Paul.

Your next question comes from [_______________] from SMS [_______________].

Hi, good afternoon. If you don't mind, can I return one more time to the issue of Europe. It will be very useful if you could may be talk through Q1, nothing comparison to Q1 last year, but in comparison to Q4 last year. And just looking at the 3 main markets the UK, the Netherlands, and Hungary, if could you say something about what the sales growth was across that period? I mean, for instance, were Q1 sales in UK higher than Q4 and [_______________] in Hungary and the Netherlands?

The answer is that we are higher in the UK and the Netherlands and was somewhat lower in Hungary.

Okay.

These are the 3 key markets.

And assuming that the biggest, growth as you indicated, previously was in the Netherlands. Is it possible to say why that was? I mean were there any new product launches coming on suddenly? Was there some element of stock pilings of some [_______________], or what?

I am not sure there is one specific reason, which [_______________]. I think it's the combination of a few factors. Certainly Hurvitz is [_______________].

I would add to that that it's not only new product, it's also marketing. And we have an [_______________] position in the market of Netherlands, in the generic market of Netherlands, and we are quite aggressive in defending our position and increasing our position there. So, some of the sales increase, also in the UK, is not due to new products but rather due to more aggressive marketing.

Okay, could I ask a second totally unrelated question to do with Copaxone. When you made the agreement with Aventis to take an option to build to buy back the right to the injectable version for Europe, did you have any specific timescale in mind over which you might actually do this, or any criteria for what sort of an operation you will have to have in Europe before you want to do?

The criteria for buying back the rights for the injectable Copaxone is the approval of the oral Copaxone.

Okay.

Once the oral Copaxone is approved in Europe we can exercise our options.

Okay. And do you think you will?

Well. In fact, we will make the decision that is why it is an option, not a commitment. At that time, we will make a decision.

Okay, thanks.

All right.

Your next question from Elliot Wilbur from CIBC World Markets. This is a followup question.

Hi. A followup question for Dan, you made it pretty clear in the past that your next likely acquisition would come in the European market and you reported on the tape today that an acquisition could be announced in the second quarter. It's still reasonable to assume that Europe is the most likely territory and why don't you, if you could maybe give us some insight into how significant this may be relative to your current European operations?

I think you quoted me with a slight variation. We said that if we could plan it perfectly, it would be Europe because the last acquisitions were in North America. Certainly, the USA, the North American opportunity will come up, which suits us, we won't stick to our wishes, to our basic wishes, our long-term wishes, and take it up. We reflect that we didn't do an acquisition now for a year or so, that doesn't mean that we didn't work on it, and we worked on it very hectically and proactively. We didn't find so far something, which suits our needs and wishes, but we are certainly working on it hard and I would be disappointed in the next few quarters we won't do a deal. There is certainly no way that we can do a deal still in Q2. I hope that answers the question and correct the small misquote.

Okay, fair enough Dan. Thanks.

At this time there are no further questions.

So, we would like to take the opportunity, and thank you all for your patience and for your good questions. I assume that quite a few of you we will see tomorrow for lunch in New York, and we will see you then, and until then good-bye and good night.

Good-bye.