Teva Pharmaceutical Industries Ltd (TEVA) 2003 Q1 法說會逐字稿

Good day.

All sites are now on the conference line in a listen-only mode.

My name is Emily and I will be the lead coordinator for today's call.

Should you require any assistance throughout the conference, please feel free to press the star and zero on your touch-tone phone.

And at this time I would now like to turn the program over to your host today, Director of Investor Relations, Ms. Doret Milford.

Go ahead.

Thank you, operator.

Good morning and good afternoon to all of our guests.

We hope you all have had a chance to review our press release and thank you for joining us to discuss TEVA's first quarter 2003 financial results.

Our hosts today are lsrael Makov, President and CEO, Dan Suesskind, CFO, Bill Fletcher, President and CEO of Teva North America, George Barrett, President and CEO of Teva USA, and Moshe Manor, Vice President Global Product Division, Mr. (inaudible) and (inaudible).

I would like to remind our friends in North America that our CEO, Israel Makov and other members of management will host a special quarterly luncheon on Monday, May 5.

For those of you who haven't received our invitation or have not yet confirmed, please call us in New York at 212-807-5007, or in Israel at 972-3-9267-281.

Before I turn the call over to Israel Makov, 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 webcasting.

Israel, would you like to begin, please?

Thank you, Doret.

Good morning to everyone and welcome.

Q1 was an exciting quarter for TEVA, both in our core U.S. generic business where mirtazapine added to our excellent AmoxiClav performance as well as in the innovative arena with strong sales of Copaxone and the success of our Rasagiline trials.

Our European group continues to demonstrate steady growth, moving to both our goal of European generic market leadership.

Record API sales, both internal and external again contributed to our overall success.

Our strong top line growth was reinforced with all-time high profit margins.

Gross profit of 46%, operating profit of 24%, and net income of 18%.

These record figures are the confirmation of the synergies in our global business model.

We had an especially strong quarter in the U.S. with 28% growth in generic sales.

U.S. generic sales continued to be driven by our AmoxiClav which has now reached approximately 40% market share and by mirtazapine.

In just over three months TEVA has already captured 74% of the market for mirtazapine 50 milligram and 30 milligram tablets.

Quarterly growth was also fueled by 10 other products not sold in the comparable period of 2002.

Once again, we demonstrated the strength of our market leadership in the U.S. and our uncompromising commitment to better serve our customers by offering a new and broader range of generic products.

Thanks to our successful strategy for product development and market leadership, eight of the 12 new products launched in the U.S. in the last 12 months, at least of 25 top selling products.

One element of this strategy is to leverage our API resources.

Vertically integrated products offer higher profitability, consistency of quality and supply, and early market entry.

In our U.S. portfolio, we have 36 vertically integrated products.

We applied the same strategy to our European markets.

A good example of this is silvestetin which we already helped launch in Hungary and we intend to launch in the U.K. and Holland shortly.

Since our market penetration in Europe has now been primarily through acquisitions and since the market in Europe are relatively small and varied, the share of new products in our European sales is lower in than in the U.S., but this ratio is constantly improving.

European pharmaceutical sales rose to nearly $163 million, up 56%, partly as a result of currency appreciation but principally due to increased sales, including Copaxone in several important countries, and the inclusion of tibaclassic in trials.

Our global R&D operations are continuing to develop a richer pipeline of products for the European markets, many of which are vertically integrated with our API.

To date we have a total of 385 marketing applications pending in the various European markets.

API sales reached an all-time high of $169 million of which $81 million were internal sales.

Our API leadership has increased as evidence by the fact that in the U.S., we now have 28 products with a market share of more than 50% compared to 18 products last year.

The strategic value of our API business, both as a stand-alone and as a key link in our vertically integrated supply chain has been validated through its consistent contribution to our growth.

And now to Copaxone.

Copaxone in global market sales increased by 44% over Q1 '02, totaling $156 million.

In the U.S., Copaxone in market sales increased by 27%.

More importantly, in spite of heightened competition in the MS market, we continued to grow at the faster pace than the market.

Of the 30,000 or so increasing total prescriptions in the quarter over last year, Copaxone gained 31%, making Copaxone the only product with increased TRA share post [INAUDIBLE]-launch.

Outside the U.S., end market sales of Copaxone increased by 109%.

Our sales in Europe continue to grow nicely and we expect to make the last major European launch in France later this quarter.

Three new studies were recently presented supporting Copaxone's superiority in treating patients with MS.

One demonstrates the safety of Copaxone in pregnant women.

Another confirms that Copaxone significantly slows accumulation of disability.

However, the most significant study demonstrated Copaxone's early on set of clinical effect and the superiority of Copaxone over interferons in reducing the relapse rate at both 12 and 24 months.

These studies continue to support our assertion that Copaxone is the most appropriate therapy for relaxing or remitting MS patients who need sustained long-term efficacy and unmet safety and quality of life.

We are encouraged by the strong demand for Copaxone and expect another year of significant growth.

While it is difficult to forecast the growth of individual MS markets, we are confident that global end market sales of Copaxone will increase this year, well over 20%, which is in line with the current market analyst expectations.

Another new development which we are extremely excited about is the success of our Rasagiline Phase 3 clinical trials.

The previous Phase 3 mono-therapy trial proved the efficacy of Rasagiline in early stage Parkinson's disease.

The recently completed phase 3 abjunctive studies demonstrated the benefits in advanced stage patients, thus making Rasagiline a promise for the full spectrum for Parkinson's patients.

We expect to submit our files for regulatory approval in North America and the EU during the second half of 2003.

We are also excited by Rasagiline's potential as an effective treatment for Alzheimer's, as well as other neural degenerative diseases.

We are actively reviewing our opportunities in this area.

And now to conclude.

We had a very strong quarter and an excellent beginning for 2003.

In Q4 of 2002, we made a substantial leap to a new level of quarterly sales.

This quarter we ramped up to a new level of profitability.

As I mentioned earlier, we achieved all-time highs in all profitability margins.

These results once again demonstrate the success of our strategy of profitable growth which I reviewed with you recently.

The results of the first quarter, as were the results of the last few quarters, are fully concurrent with our work there.

Based on this plan, we have guided you on our overall expected 2003 performance and indicated to you that we expected 2003 to get off to a strong start.

Our excellent Q1 numbers confirm that and give us momentum as we enter the mid year, and we fully anticipate meeting our annual targets.

As you can appreciate, in our business and in our planning, there are ample moving parts, many of them with upside potential, but I urge you not to speculate now about this.

Should any significant upside materialize, we will, of course, let you know as we did last year.

On this optimistic note, I would like to turn the call over to Dan who will review the figures with you.

Thank you very much, Israel, and good day to all our friends, wherever you are.

So here we are again after another excellent quarter.

We mentioned in today's release that we created value for our shareholders, and it really shows.

Since January 1st your stock has appreciated about 20%, and almost 70% in the last 12 months.

Better than the major indices and the index of our peers by a very high margin.

We knew it would be an excellent quarter, and we share this with you previously.

And now first to the quarter at a snapshot.

Sales increased by 39% to $767 million, second in sales in TEVA's history after Q4 of last year.

More significantly, we were more profitable this quarter than in our previous record Q4 '02 quarter.

Net income for the quarter reached $138 million, an all-time high, in spite of the high operation for taxes, considerably higher than in many of the past quarters.

Earnings paid the hour reached 50 cents, up 56% from the comparative quarter of '02.

In the trailing 12 months, our sales have exceeded $2.7 billion, up 28%, and the EPS has reached $1.70, up 38%.

Again, the bottom line grew at a faster pace than top line and that's how we like it to be.

We are on track to cross in '03 the $3 billion mark in sales and on track with our EPS guidance of $1.85 to $1.90.

By the way, this EPS guidance may have to be adjusted downwards once our share price exceeds $51.50.

At that point the contingent conversion feature of our two most recent converts will kick in.

Before I go into the P&L line-by-line analysis, one more first quarter achievement deserves being mentioned, another all-time high, the generation of $204 million of cash from operations.

So consolidated sales increased 39% for a Delta of $212 million over the comparable quarter of '02.

About 75% of this growth is organic and currency neutral.

Less than 10% of the increase represents the sales of the two companies in France and Italy that we were consolidating since Q3 of last year.

In addition, sales were positively affected and that's obviously part of the increase by an approximate $30 million by the strengthening of European currencies relative to the U.S. dollar.

In this connection you should know that in spite of the material impact of the (INAUDIBLE) and European currencies on our top line, on the bottom line it is rather limited, the impact.

The North American generic pharmaceutical business accounted for about half the growth.

The European business accounted for about one quarter of the growth, including the consolidation of tabaclassics and currencies with Copaxone and API accounting together for the balance of 25% of the growth.

Copaxone in market sales grew 44% over the comparable quarter.

Sales more than doubled outside the U.S. grew more than 27% in the increasingly competitive U.S. market.

The U.S. market accounted for 70% of our total global end market sales and the non-U.S. accounts already for 30%.

Total sales of our API business grew 56% to $169 million.

Close to half of that were intercompany sales.

These intercompany sales accounted for one third of all the raw material consumption of our global pharm operations.

The active ingredients for many of our products, this includes mirtazapine, the products launched during the quarter with a [INAUDIBLE].

This combination obviously showed in the gross profit margin we achieved in the quarter.

Overall we reached a 46% gross profit margin compared with 43.8% in the comparable quarter and 43.5% for the whole of 2002.

We spent $50 million gross on R&D, up 24%, more than in any other quarter, but Q4 of 2002 when we experienced a high concentration of activity, mainly in bell studies as part of our generic efforts.

Net R&D after participation from others grew at a higher pace of 32% before the $46 million due to relatively low participation from others.

Also our SG&A expenses grew at the lower rate in sales as they should and represented just over 16% of sales.

Finance expenses were down to $4 million, being a combination of generally low interest rates and the low coupon of the convert issued late last year and due to our excellent cash generation and successful hedging activities.

As we have indicated previously, the rate of income tax was expected to increase as of this quarter due to the partial expiration of the tax break we enjoyed on Copaxone.

Starting in '04, we expect to graduate again back part of this tax holiday from incremental Copaxone output arising from our new manufacturing plant in the southern part of Israel.

We feel the 21.5% rate provided for taxes in this quarter is a fair level, indicative for 2003, which may move slightly with changes in our income mix.

All of this led to a net income for the quarter of roughly $138 million, or 50 cents per share.

This net income represents 18.2% on sales and a 29% annualized return on average equity boast new records.

Cash flow operations amounted to $204 million.

This compares to $103 million in the comparable quarter, or $354 million for the whole of 2002.

While we expect to generate in '03 by far more cash than the quarterly average in 2002, the 204 million level will probably turn out to be extraordinarily high for the year.

Overall cash balances, including cash, cash equivalence, and other liquid short and long-term investments amounted to over $1.3 billion.

We regard these balances as an important strategic asset.

An impressive war chest that allows us to compete on attractive business opportunities if there otherwise.

We spent $37 million on cap ex, in line with our 2002 quarterly average and paid an increased dividend of $18 million.

We first increased our level of our inventories.

This increased from December in finished goods, reflects our strategy of ensuring high levels of customer service and the changing situation and conditions.

We improved the gain of our financial ratios this quarter.

Total equity at the end of the quarter was touching the $2 billion mark and our debt-to-equity ratio exceeds 1.

Close to $1.2 billion of our total interest-bearing debt of $1.9 billion is long term.

Most of our short-term debt which amounted to $770 million represents the $550 million converts due 2005 since it includes a put option dated October '03.

Today's share price is approximately 6% above the exercised price.

To sum up, we discuss with you today the results of an excellent quarter and we feel that we are in the middle of another excellent one, part of what we expect to be another record year.

Most of you remember that I usually close my remarks saying "See you tomorrow at our lunch in New York."

Unfortunately not this time.

Next Monday for our Memorial Day, and that will keep me in Israel.

Sorry about that, but I hope to be with you by phone.

We are now open for questions.

Thank you.

At this time if you would like to register your site for a question, please press the star and 1 on your touch-tone phone.

To withdraw your question at any time, you may press the pound sign if you are dialing in from the U.S., you may press the star 2 if you are an international site to withdraw your question.

And once again, to ask a question, at this time please press the star and 1.

We will now go to our first question from the site of Richard Silver with Lehman Brothers.

Please go ahead, sir.

Yeah, a couple of questions.

Dan, if you can just give us some sense of the run rate again on SG&A and R&D in the coming three quarters and then also on your last conference call you did discuss the potential for choppiness, particularly with regard to Augmentin and how that might affect the quarterly progression of earnings.

If you could comment on that again and what we might look for in this quarter or the coming quarters.

And then I just have one or two more.

Thanks.

Okay.

We got the SG&A and R&D.

We were just over 16% of sales in this quarter, and we think that our normalized SG&A should be in the region, in the range of 16% to 17%, and it obviously depends -- it will balance in this range I guess for the next few quarters.

As to R&D, our gross R&D this quarter was roughly $50million, and I will say that this is a fairly good indication for the next quarters of this year.

It may be somewhat more, but I would say that it's a good indication.

Regarding Augmentin, obviously our Q4 of last year was so far our best Augmentin quarter.

It was both a winter quarter and a quarter where we started to sell and fill the pipelines.

This quarter we sold less at about the same prices.

We expect to sell even less in the next quarter, hopefully with about the same prices.

And coming to the next season, winter season, we will again see increased quantities of Augmentin.

Okay.

Now just a couple of others.

On the gross margin, I would assume that some part of that gross margin improvement on a sequential basis was the introduction of mirtazapine.

Can you give us some sense of once the exclusivity on mirtazapine ends mid year, would we see that gross margin come down noticeably or would the reserving that you are doing smooth that out somewhat?

First of all, I support your assumption that mirtazapine contributed to the gross margin of this quarter.

Sales next -- almost through the end of this quarter will still be covered by exclusivity.

We expect the price to decrease subsequent to that, but we feel that we have other things to cover up for that, which should keep the gross margin in the order of magnitude of what we have today, although you have to remember that once you achieve a new high, it is not always kept in the following quarters.

But I would say that generally speaking we shouldn't be far from this gross margin going forward.

Okay.

And would you just comment again on the sequential EPS and what -- give us some idea of what we should expect versus this quarter?

I think that we gave guidance in February when we presented our annual figures, and this guidance is still valid today.

Once you give a good guidance, it doesn't change every quarter.

Would you want to remind us what that was on a sequential basis?

We said that we spoke about an annual -- on the annual basis.

We said we expect it to be $1.85 to $1.90, and we said that we expect the first and the last quarter to be strong.

Okay.

Thanks, Dan.

Thanks, Rich.

Thank you.

Our next question comes from the site of David Moskowitz with FBR.

Please go ahead, sir.

Yes good morning.

Thank you, and congratulations on a great quarter.

Thank you, David.

You're welcome.

A couple of questions.

Number one, could you give us some discussion on the wellbutrin SS and ANDA that you have in partnership with Impacts Labs.

In regard to the timing of litigation or where it is as well as the regulatory timing.

That's number one.

Number 2, can you talk about your exclusivity on Vicoprofin, as well as Univasc which I believe you got a favorable court decision on and additionally would you talk about any Copaxone price increases in the quarter, please.

Bill or George, will you take it?

Yeah, I'll take the last part, the Copaxone part.

We have not increased Copaxone for over a year.

We are instituting a price increase which will take effect really at the end of June.

Thanks.

And on Vicoprofin, Univasc and Wellbutrin.

I'm sorry, David.

The question on them specifically?

Well, in terms of Wellbutrin Sr, any comment on the litigation as well as --

yeah, just a couple of things.

As you know, Impact's motion for summary judgment was granted sometime ago.

Impacts, there is an appeal.

Oral arguments on the appeal are scheduled at this point for June 2nd, and beyond that, you asked about the regulatory.

It's hard to give too much color on that other than that the progress is good and we continue to feel very good about where that follows.

Okay.

And on vicoprofin in exclusivity and Univasc.

Yeah, in both cases we have launched - not both cases.

On one case.

On Vicoprofin the product is launched and in the market and doing very nicely.

On Univasc, we are awaiting regulatory approval.

Again, giving exact timing on that, David, is very difficult except to say that we are very late stage and those clocks in both cases did start prior to launch.

This is one of the byproducts of the new interpretation, as you know.

So we did lose some period of exclusivity.

Right now we do not see, at least on the Vicoprofin, a competitor immediately on our heels, which is fortunate, and hard to predict the effect on moexipril but again our hope is that we get to market very quickly and our basic job is once get out there to do an effective job in the marketplace and we feel very confident about that.

Great.

Thank you very much.

Thank you.

Our next question now comes from the site of David Steinberg with Deutsche Bank.

Please go ahead.

Yeah, a quick question on your European generics business which recorded very strong growth.

Last year you had indicated that there was some legislative changes which would increase generic adoption in Europe starting this year and I was wondering, I know that you made a few acquisitions which partially impacted that growth, but as part of that growth, part of this scenario emerging with greater adoption overseas, could you give us some color on what's going on in Europe with generics?

Yes.

We made the progress in certain countries because the legislations allow us to sell generics.

In France you couldn't sell generics three years ago and in Italy you couldn't sell generics two years ago, and specifically both of these countries, the legislations allow us to increase sales and our changing in the legislation in Germany, in Holland and in Spain and in other places, and the change in the legislation is varied from one country to another, but the purpose of all this legislation is to increase the consumption and the use of generic drugs.

So we are optimistic that we can -- we will be able to continue to increase our sales in the existing markets and where we operate in a new market.

So would a 50%-plus growth rate for the next year or two in Europe be a reasonable assumption?

Well, we don't give specific guidance per country, and the 55% increase, you have to take also -- you have to take into account also currency appreciation, but we definitely see Europe growing at a fast rate.

Thank you.

Thank you.

Our next question now comes from the site of Ken Cacciatore from S G Cowen.

Please go ahead.

Thanks for taking the question.

Dan, on the API business, obviously good strength there.

This Q1 number a good number we can use going forward?

And then after you answer that, I have another question for you.

The number is yes.

Okay.

Also on the cash flow, you indicated coming out of Q4 that you had some fairly significant receivables out for Augmentin.

Can you just let us know what kind of ex-collecting those receivables that are cash flow, what it looked like on a more normalized basis?

I would say that in Q1, we would have done more than the average of those quarters.

Okay.

And one last question.

In Alpharma's 10K it disclosed that they are going to be sharing in their profitability during their exclusivity with their API supplier of gabapentin.

One, wondering if that was you and, and two, if it is you, i you could tell us how that would booked on your P&L.

I think you have to ask them who their partner is.

Fair enough.

Thank you.

Thank you.

Our next question comes from the site of Michael Tong with Wachovia Securities.

Please go ahead.

Thank you.

Dan, I was wondering if you could quantify the FX impact as far as the bottom line effect is concerned and also if Bill or George could update us on the size of your pipeline right now and how many AMDAs were submitted during Q1 and finally for Dan, inventory level at the end of Q1, please.

I'm sorry.

I didn't get the first question.

I think it was directed to me.

Oh, FX impact as far as how much of that dropped to the bottom line.

The capex?

FX, foreign currency.

Oh, I would say that would be very limited and the explanation for that is, that obviously it had the full impact and as I mentioned, $30 million on the top line.

Before it flows to the bottom line, first of all the expenses are obviously impacted by the same magnitude, by the same magnitude and so actually only on the added value you make the currency.

If you add to that that in other places we also have expenses in European currencies.

Like, for example, production in Israel is sourcing quite a lot of raw materials from Europe.

If you take all that together on the bottom line, it's really minimal.

Regarding the inventory, we increased our inventory from December to March by about $50million and practically all that was concentrated in increasing our finished goods part of the inventory.

Great.

Thank you.

And on the pipeline?

Are you taking it, Bill?

Yeah.

Michael, I'll cover that for the U.S.

For the U.S. we have total products filed of about 61, made up of 12 tentatives and 49 pending.

The market value of the total files is just short of $44billion.

So again there are in that group about 40, four paragraph 4 filings, representing $35billion or thereabouts and first to file, we believe again, we continue to use that word, about 17 products representing $7.5billion.

You had asked about our filings in the early part of the year and as you probably know, we usually don't break that down as we go, but we have said -- and I think Israel said as we began the year that we anticipated filing in excess of 30 ANDAs for the U.S. market during 2003 and we would stick to that and our progress looks good on that account.

Thank you.

Thank you.

Our next registrant comes from an international site and it is the site of Haim Israel of (INAUDIBLE).

Please go ahead.

Yeah.

Good afternoon, guys, and congratulations on the quarter.

Thank you very much.

Two questions.

One follow-up question, so I know on the revenues, just said that they increased prices regarding the Rasagiline Did you see any kind of changes in the market, shuffling or anything how the market reacted to the 4% increase in prices that you have mentioned?

Another question that I have is regarding the -- your agreement with Schering on their Ribavirin, can you give us some kind of timetable or your projection regarding the litigation process or any kind of competition that you expect while after this process will be over?

Bill, why don't you take these questions.

Yeah.

I mean, I think it's too early to say whether there's any impact in the market from Serrono's price increase.

You know, it will -- I don't expect there will be, quite frankly.

Betaseron increased their prices earlier this year as well.

I think Avonex did the same.

So I don't expect it will be any significant market change.

In terms of Ribavirin, we did the agreement with Schering, as you know, as only part of the resolution of this problem and, quite frankly, the exclusivity on that product, the exclusivity situation has yet to be determined, I think, but there will be -- do you remember, George, when the case is scheduled?

Yeah.

We have -- let's see.

The date is scheduled June 24.

June 24.

And, of course, after June the judge can take as long as they like.

Okay.

Thanks.

Thank you.

Our next question also comes from an international site, and it is the site of Ori Herschowitz of Leder.

Please go ahead.

Thank you, ma'am.

Congratulations, guys, on another dynamite quarter.

Thank you.

A couple of questions.

First of all, a couple of things I didn't catch because the line was bad.

How much of Europe was organic growth and the price increase implemented in Copaxone and what else planned for the next year.

Later on, another follow-up question regarding your relationship with small company.

Batic General, you previously announced that you are going to be launching tetrapine in Q2.

Is it still like this?

And the second question, regarding Bentley, they said they are going to launch Paxil, Zestril and Augmentin in May.

Are we seeing a new face for Europe?

Is this the real deal?

Are we going to start seeing real patent expiration going forward?

Thank you.

I'll take this question.

First of all regarding organic and other growth, we didn't break it down on a regional basis, but we said that currency neutral and - organic growth currency neutral was about 70% of our growth this quarter.

I'm sorry, Dan.

The increase, what will help me is the contribution of the new acquired companies.

That was about 10% of our total growth.

Thank you.

What's the question on Bentley?

The Bentley is like, they announced they are going to be launching a lot of product in May.

Paxil, zestril and Augmentin and my question is, like, 2002 was relatively weak patent expiration-wise.

Are we seeing a new phase in Europe of big names besides Omeprazole coming off patent?

There are a number of products coming off patent in Europe.

One of them, which is quite large one, is sillvestiteen.

Bentley is -- and you know when they say that the patent expires in Europe, the patent expires in Europe in a different base.

In each country it expires normally in a different date.

In Spain we had the joint -- we have a joint venture with Bentley, and we introduced a number of products together with Bentley through the market.

Okay.

The last question was regarding -- two more questions.

The price increase on Copaxone and the biotechnology Tetrapine which you previously said was going to be launched in Q 2.

Thank you.

I don't think we did say that it was going to be launched Q2, but with respect to the price increase on Copaxone, as I said, you won't see any effect from that until the third quarter.

And related to HDH, there is a trial date scheduled.

You may remember that this was a federal circuit court reversed the injunction that had been imposed on BTG.

We decided at this point since we had a trial date for late July to wait for the outcome of that trial and that's where we are at this point.

So late July you are going to have a summary judgment or --

a trial.

What legal term it is?

This would be a trial.

A trial?

And it might take a couple of months, or is it going to be go, no-go at one day?

No, that will not be a one-day event.

Do you have any maybe, you can tell me how long will it take?

It will be very hard to characterize that.

It varies, as you probably know, from judge to judge.

So it's hard to predict.

All right.

Thank you guys and keep up the good work.

Thank you.

Thank you.

Thank you, sir.

Our next question comes from the site of Steve Valliquette with UBS Warburg.

Please go ahead.

Hi.

Thanks.

Actually a couple of questions for you that kind of relate to your convertible issues.

I know, Israel, you mentioned that you thought there could be upside to the EPS guidance.

Dan, you were a little more cautious because you mentioned the potential conversions.

I was wanting to get some clarity.

On the three convertible issues you have outstanding, the first question is I want to find out is of the roughly 282 million shares outstanding you had for this quarter, which of the three convertible issues are already accounted for in that share count?

Only the first.

Only the 550 due 05.

That's 12.5 million shares, that's already in so you have another 8.4 million from the August '01 issue and another 10.5 million shares from the November '02 issue that could get folded in.

So question 2 is if we have another roughly 19 million shares that could get added in and now the stock is above the strike price on both of those, those are both around 42 and change, then does the accounting dictate that you would add those shares in only for the ones that are converted, or do you add in everything going forward now, now that we're above the strike price?

No.

It's only if the -- first of all, on the first, it's already concluded.

In the other two, it has to pass the 51.50 threshold which is roughly 20% above the conversion price in order to kick in.

Okay.

So -- okay.

So in your 20 up when it shows the strike prices, it's actually triggered the conversion by a 20% premium over that strike price.

That's right.

So the question still would hold then, would they all go into your share count or just the people that actually convert?

In other words, would the entire 19 million shares go in all at once or would it be just the ones that convert?

As we said, regarding the first, there is no issue.

Regarding the other two, it is not connected to the actual conversion.

It's connected to once we pass this threshold.

So it sounds like they would all automatically go in at once?

Okay.

So that's why you were a little more cautious, depending on where your stock is.

If the stock goes about $51 and change, then we might have to add in another 19 million shares.

That's the way I'm understanding it.

Okay.

I got it.

Thanks.

Yeah, by going over $51.50, I'm not sure if that's close or not.

That's definitely a good problem to have.

Believe me, I'm not complaining if the stock goes there.

No complaint on that probably.

Thanks.

Thanks.

Thank you.

Our next question comes from the site of David Myers with Banc of America.

Please go ahead.

Good morning.

Or good afternoon, depending on where you are.

A couple of questions.

First, Dan, some market speculation yesterday was that there is a pending convert soon to be announced.

Given the strong cash flow in the quarter, is this just more inane chatter?

And can you talk a little bit about free cash flow or just breakout D&A for the quarter?

And then I have a follow-up.

The rumor yesterday was that we were going to do it yesterday overnight.

So the rumor is gone.

Okay.

Regarding free cash flow, as I mentioned, we had a cash flow in this quarter of about $200 million and the two major items which, where we spent money on was the dividend, and cap ex which accounted together for about $50 million.

But as I said, you shouldn't see the $200million as a normalized cash flow for a quarterly cash flow of this year but we'll certainly do better than last year.

Great.

And my follow-up is, can you just give an update on the next data points for Rasagiline and then Bill or George, maybe an update on the status of Tricor.

In Rasagiline it's very simple we are preparing now the file and the application, and we expect to file in the second half of this year, both in the U.S. and in Europe.

David, I guess I'm covering Tricor, doing the do-si-do here.

I assume again we're talking about the tablets, the capsules are sort of a bit of history here at this point.

On the capsules we have - as you know there's some relationship here to the case on the capsules where we won on the motion for rehearing.

So there are three patents here involved in the Tricor tablets, one of which was related to the capsule.

We've moved to transfer this case to an Illinois judge.

We don't know how that's going to happen.

That's where we had the favorable ruling on the capsule.

And the case is scheduled for trial, and it's a fairly extended date out, out to January '05.

So we got some time to go here.

Okay.

Thank you.

Thank you.

Our next question now comes from the site of (inaudible) with Citigroup.

Please go ahead.

Good afternoon, everyone.

Congratulations on a good quarter.

I have three questions.

First of all, can you give a little bit of an outlook on working capital management?

I had been under the impression at the end of last year that you said the working capital would get better and there was a seasonal effect that would get better in 1Q and I'm not sure that quite happened that way.

Second question was in the financial expenses, are there any currency gains?

In your 20F you reported that last year you had $13million, a bit less than $13million in currency gains offset against the interest expense.

I just wanted to know what happened in the quarter.

And the third and last question is, can you give a bit of visibility on the trend of options for management?

Again, the 20F showed us that you had a trend of the past three years has been $13million in 2000, $29million in 2001 and $59million in 2002.

First of all, regarding what we mentioned in Q4 on our working capital was related to the high amount of receivables we had at the end of the year which obviously had an impact on our working capital and on our cash flow for the quarter.

This came actually from very high sales of Augmentin towards the end of the quarter which were not collected.

Obviously by now all of them were collected and we are back to normal.

So essentially back to normal.

Yeah, back to normal.

Regarding financial expenses as I mentioned in my opening remarks, we had a success -- we had successful hedging activities which actually means that our hedging was doing fine this quarter.

You can't give a number on that?

No.

We usually give it on an annual basis.

Okay.

Was there a third question?

Yeah.

The third question was just on the options for management.

Again I was just looking at your 20F, which gave us a three-year trend and I'm just wondering if this is the level that should be in the numbers or if it will continue to rise at what rate.

I am not familiar with the numbers you are quoting but I can only tell you that the options given to management are certainly too little.

Okay.

Thank you very much.

Our next question now comes from the site of Jeffrey Long-McGie with A.G. Edwards.

Please go ahead.

Thank you.

The first question is it appears that the U.S. inert business had a buyout this last quarter.

Could you just kind of quantify where your inventory levels are?

Also, with the Verapanil Sr settlement that Biovail entered into with Myolin, do you get any piece of that?

Are there any plans to, with biovail, to start manufacturing that product again?

And then the third question is with the avalat CC, has the manufacturing switch over from myolin, has that been taken care of, or are we to expect that there is going to be a glitch with the biovail manufacturing of the product?

I'll do the Biovail first.

The transfer I think is taking place around about now, but it's proceeding smoothly and there won't be any glitches.

With respect to the biovail settlement with Myelin, we do not have any part of that.

You had used an expression "Buyout" and I don't -- didn't know what you were referring to.

Specifically it looks like the inventory levels that you have at the wholesalers are down from the fourth quarter levels, excluding the Augmentin type impact.

I would say this.

We generally, you know, manage, try to make sure that our inventories in the marketplace are at appropriate levels and so we're very, very happy with where they are at the moment, but essentially the inventory levels of the customers are largely their business.

Of course, we manage as carefully as we can to make sure we don't get ever too deep in any situation.

So yeah, inventory levels from what we can tell at this point are looking good and certainly looks like the wholesale component is probably down a little bit.

Don't forget for us the majority -- not -- yeah, the majority of our sales in general go to accounts other than wholesalers.

Right, a direct account.

We have lots of direct accounts that we ship directly to.

Thank you.

To -- if I may, to follow up answers, one to Steve Valliquette regarding the convert.

Obviously when the share count is increasing due to the convert.

On the other hand, the bottom line is compensated by the expenses you have on those converts which, for fully diluted purposes, you add to net income which mitigates the impact of this dilution.

To Robert, are you sure that you are not looking at numbers which take into account the splits that we have done over time?

When you talked about the increase in options?

Okay, I guess you can't answer, but I assume that's part of the story.

Don, I think what Robert may be looking at is the Black-Scholes, and Black-Scholes changes according to the share price and the volatility and all the other things.

So it's not the volume of shares.

It's the --

value.

The Black-Scholes he is looking at.

All right.

So the value, which is a theoretical value which we are not booking.

Exactly.

So we get high value options in there.

We get high value options, okay, yeah.

Right.

Thank you.

We'll take one more question, if there is one.

Hello?

Hello?

Thank you.

Our next question shall now come from the site of Al Rauch with A.G. Edwards.

Please go ahead.

Thank you.

Congratulations on a great quarter.

Thank you.

In regards to Wellbutrin, we're looking for Androix to have some type of judgment with Glaxo's appeal of the summary judgment.

I'm assuming that after that judgment is given it will start the six-month market exclusivity for Andrex and you'll be able to launch six months after that decision.

Am I correct in my thinking there?

I'm sorry.

Can you repeat that?

Basically after the final decision between Glaxo and Andrex, that will start the six months of market exclusivity for Andrex whether they launch or not?

Therefore you would be able to launch six months after the decision?

I think in general terms that is correct.

This product, like many these days, has a lot of moving parts, and there may be patent -- you need to be aware that there may be patents for which a company may not be sued and where there may not yet be a final court judgment and so that can confound this equation.

Okay.

So you are talking about their patent that they have for keeping impurity levels low in the Wellbutrin may become a factor?

Unfortunately I'm not, again, knowledgeable at the moment on the specific nature of the patent except to tell you that -- and we've seen this in a number of cases, where there are multiple patents, and occasionally there are patents in which the generic company is not sued and that could prevent there from being a trigger on a judgment on another patent.

Okay.

Well, thank you.

Another question is, could you give us the status of the paragraph 4 filings on monopril, acupril and Serizone?

You have to come to our luncheon on Monday, Al, because George will be giving a review of a number of the legal cases.

Okay.

One more question then.

If the currency exchange remains favorable, will you -- will that be hedged out in the second quarter, or will you still be able to get those better revenues?

We very often base our hedging on callers.

So in any case we'll get some benefit from that.

Okay.

I'm just wondering whether the collar will move up because the currency exchange rate has moved up.

We adjust our hedging to the current market situations.

Is that done on a quarter-by-quarter basis, a month-by-month or --

it is done periodically.

Okay.

Thank you very much and congratulations on your quarter.

Thank you very much.

Thank you.

Ladies and gentlemen, this does conclude the allotted time for questioning today.

I would now like to turn the program back over to our management team for further and concluding remarks.

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