Teva Pharmaceutical Industries Ltd (TEVA) 2004 Q1 法說會逐字稿

Good morning and welcome to the Teva Pharmaceutical's Inc. first-quarter earnings conference call.

My name is Janeka and I will be facilitating the audio portion of today's interactive broadcast.

All lines have been placed on mute to prevent any background noise. (OPERATOR INSTRUCTIONS) At this time I would like to turn the show over to Ms. Dorit Meltzer, Director of Investor Relations.

Good morning and good afternoon to all of our guests.

I am pleased to welcome you all to our first quarter of 2004 financial results conference call.

And I'm pleased, as well, that we are able to speak to you this quarter from the New York time zone.

We hope you all have had a chance to review our press release.

Your host today will be Israel Makov, President and CEO, Dan Suesskind CFO, Bill Fletcher, President and CEO of Teva North America and George Barrett, President and CEO of TEVA USA.

I would like to remind our friends in North America that our CEO Israel Makov and other members of the management team will host a special quarterly luncheon today, May 4 in New York.

For those of you who have not received our invitation or have not yet confirmed, please call us in Teva USA at 215-591-8584.

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?

Good morning and good day to everyone, and welcome to Teva's quarterly conference call.

I am excited to report another record quarter for Teva.

One of the highlights of this quarter was the start of the integration process between Teva and Sicor, which began on January 23rd, the day after we closed the transaction.

We invested a great deal of time in planning this process, and I'm pleased to report that it is going extremely well.

One reason for the smooth integration is that we have mobilized our vast experience in managing acquisitions to this end.

In addition the enthusiasm of both Sicor's and Teva's management and employees and excitement generated throughout Teva by this transaction have been instrumental in propelling this integration forward.

As you may appreciate, a compelling reason for this acquisition was the natural fit between the two companies.

For example, our U.S. pharmaceutical businesses are organized around similar principles and processes.

And our API businesses share not only common customers, but many common ways of doing business.

Yet each of the parties brings to the table different and complimentary qualities, which together will enable us to maximize the value generated by the combined operation.

Our Q1 financials reflect not only the addition of the Sicor business, but also the strengths of our core business.

We crossed the $1 billion mark in quarterly sales for the first time in our history, putting us on track to achieve our sales target of over $4.5 billion for the year.

Eliminating onetime charges, we achieved all-time high records in both operating margin and net income.

Of the $294 million increase in sales quarter-over-quarter, Sicor contributed $129 million.

The majority, however, of our overall increase in sales this quarter is attributable to Teva's core portfolio, including new product launches in Copaxone sales.

We showed particular strengths in the quarter in both our U.S. and European pharma businesses, as well as in strong API sales.

Copaxone also provided an outstanding performance, especially for a first quarter.

Our U.S. generic business had another excellent quarter with sales growth of 43 percent over Q1 '03, supported by robust sales of base products, this increase was fueled by the contribution of new products, launches in the last 12 months and the addition of Sicor's portfolio.

New launches in Q1 included Bupropion, Benazepril and Oxycodone which was launched at the very end of the quarter.

The launch of Oxycodone a highly controlled substance was another testament to our ability to timely develop, manufacture and distribute products with special characteristics and which require unique management systems.

European generic sales in dollar terms were also at an all-time high this quarter, driven by new product launches such as Ramipril and Gabapentin and by favorable exchange rate fluctuations.

We are especially encouraged by the continuing efforts of European governments to enhance and promote the use of generic products through varied legislation.

As I have said time and again, our primary commitment is to our core generic business.

As part of this commitment we continue to invest in increasing the scale of our generic R&D, the early development of APIs, the scope of our patent challenges, and the pace of development of our own intellectual property in generics.

Discontinued investments will be reflected in an increase in our overall R&D expenditures this year.

Currently, our generic pipeline in the U.S. has 109 pending product applications with total annual U.S. branded sales of over $67 billion, 18 of which we believe are first to file with annual U.S. brand sales of over $15 billion.

We believe that this pipeline is by far the deepest in the industry.

In addition, in order to enable us to reach the market as early as possible, we invest in developing creative strategic solutions whenever appropriate.

In the last few days we announced strategic agreements with BMS for Carboplatin and Alpharma for Gabapentin.

You may appreciate this is a win-win situation which creates additional value that both parties share.

We will continue to seek such unique opportunities to enable us to fulfill our commitment to bring affordable generic products to market as early as possible.

And now let me review the innovative side of our business.

Global in market Copaxone sales surpassed $207 million in Q1, an increase of 33 percent over Q1 '03.

Copaxone's U.S. market share had a record quarter in terms of total prescriptions reaching 29.4 percent.

Thus continuing the trend of closing the gap between Teva and the current market leader.

Copaxone sales outside the U.S. reached a new high of $69 million, an increase of 48 percent over the same quarter last year.

We are pleased with the progress that Copaxone is making in many of these countries.

We are committed to broadening the understanding of the clinical benefits of treatment with Copaxone.

To that end, we intend to continue with global clinical research and the generation of medical data to support this important product in its future.

To highlight these efforts, a few days ago we published additional data from the ten-year follow-up to the original Copaxone pivotal study.

This follow-up of 108 patients is the longest clinical follow-up of any treatment cohort for MS.

The study compares patients on Copaxone for ten years to those who stopped therapy.

More than 90 percent of the Copaxone patients did not show disease progression to a level of disability requiring a cane to ambulate or walk.

While 50 percent of those who withdrew from a Copaxone therapy did.

The study is now in its 12th year, and we have committed to extend it to 15 years.

With respect to Rasagiline, the recently published TEMPO trial data suggests that Rasagiline may delay the impairment associated with the progression of Parkinson disease.

We are encouraged by these findings and are planning to initiate additional studies to this end.

We continue to believe that we should receive marketing approval in the second half of this year, which will enable us to launch this promising new product sometimes this year.

API quarterly sales, including internal sales, reached an all-time high of over $200 million, of which 119 were to external customers.

These sales are benefiting from the integration of Sicor's API activities which are adding a new layer of expertise, both in terms of technologies and in terms of access to new customers.

In addition, we have created together with Sicor what we believe is the largest API product portfolio in the industry with nearly 180 product offerings.

This further increases the depth of our API pipeline and significantly enhances the opportunity for our pharmaceutical business to benefit from vertical integration.

We have consolidated all our bio generic activities into one business unit led by Marvin Samson which incorporates our activities in Mexico, Lithuania and China and of course, Israel.

While this growing high potential business is still in its early stages, several products are already commercialized in a few markets and are starting to contribute to our sales.

This is an exciting time for Teva.

We are enjoying the momentum we have generated in our overall business and the successful commencement of the integration of Sicor.

With strengths in all aspects of our business we are confident in our ability to continue to generate sustainable profitable growth.

Furthermore, we believe that the condition around the world which drive the increasing demand for generic drugs remains strong, yet the generic landscape is highly competitive.

Over the years Teva has built a large-scale global operation, a broad product portfolio and a deep pipeline which together with vertical integration enabled Teva to benefit from the growing demand for generics, within the competitive landscape.

Therefore, we reiterate our strategic goal of doubling our sales every four years and our net income in an even shorter period of time.

In fact, 2004 is shaping up to be our best year ever in terms of sales and profits.

Sales growth will be around 40 percent, and net income growth should be around 50 percent.

While it is difficult to pinpoint precisely the quarter in which Sicor's contribution is accretive, as we indicated at the beginning of when we acquired the company, we know enough today and this is ahead of schedule, to be able to say the Sicor acquisition will not be dilutive this year.

Because we integrate business it will be difficult to quantify the distinct contributions of each company's as we go forward.

Specifically, we expect our sales to exceed $4.5 billion and after factoring out onetime charges, EPS to be between 2.70 to $2.74.

This includes all planned product launches for the year, and if we have an upside as we may have, we will revise our guidance accordingly.

And now I would like to turn the call over to Dan who will review the financials.

Good day to all our friends in whatever time zone you are.

I hope you had a chance to review the figures we released this morning as they are more complex than usual due mainly to the Sicor acquisition.

This quarter we have recorded onetime charges amounting to $633 million after tax.

Without these various charges, our adjusted net income reached $205 million.

These onetime charges include $598 million of charges resulting from the accounting treatment of the acquisition of Sicor, of which $584 million is in process R&D and $14 million represents a step up in inventories that increases cost of goods by this amount.

In addition, we have recorded two additional onetime charges of in process R&D totaling $13 million relating to two collaboration agreements and $30 million, relating to the partial impairment of Purinethol, the product rights that we received from GlaxoSmithKline in June of '03.

These onetime expenses other than the inventory step up are detailed as separate line items in our reported P&L.

As a result, we are reporting for the first time quarterly sales exceeding $1 billion, with a GAAP loss of $428 million compared with the adjusted net income of $205 million.

When we speak of adjusted results this quarter we refer to the reported figures before onetime items.

For reconciliation of net income and EPS to these adjusted numbers, please see appendix 1 to our press release which is available on our website.

As we feel that the adjusted results are more indicative of Teva's results than the reported GAAP results, my analysis below will be based on the adjusted results, i.e., the reported figures before the onetime charges.

One additional point relating to the first time consolidation of Sicor, Sicor's numbers are consolidated only as of January 23, '04 after we have closed the Sicor acquisition.

So we are effectively incorporating slightly above two-thirds of a quarter of Sicor.

Now I'll try to walk you through the adjusted results line by line and first to sales.

As mentioned, sales reached $1 billion and 52 million, an increase of 294 million or 39 percent.

Eighty-five percent of this growth is currency neutral.

So 86 percent of this growth is currency neutral.

Less than half of the increase reflects the Sicor consolidation, leaving aside Sicor, the majority of the increase in sales was contributed by U.S. generic sales, European generic sales and Copaxone.

In connection with the currency impact, it should be noted that we are trying to mitigate such impact on our bottom line through currency hedging, the outcome of which is recorded in the finance expenses line item, which I've calculated.

As a result, in spite of the full year appreciation impact on our top line, the effect of currency movements on our bottom line in the first quarter is actually rather minimal.

Thirty-three percent of our quarter's consolidated sales were in North America, 25 percent in Europe and 12 percent in the rest of the world.

Approximately 60 percent of what we classify as the rest of the world were sales made in Israel.

The other rest-of-the-world sales benefited this quarter from Sicor sales to these regions.

In the U.S. this quarter we sold 14 products that we had not sold in the comparable quarter, including Bupropion, Benazepril and in the last two days of the quarter Oxycodone.

As you know we had to respond to the loss of exclusivity on Fosinopril which was launched in Q4 of last year as a result of an authorized generic.

We more than met this challenge and demonstrated once again the importance of our deep pipeline, our collaborations with other companies as well as Teva's broad product basket.

U.S. generic sales also benefited from the first time inclusion of Sicor's U.S. injectable sales.

In Europe we continued to benefit this quarter mainly in the UK from products launched towards the end of '03, including Ramipril and based on our own API, Gabapentin and Simvastatin.

Our overall European generic sales increased by about 38 percent with growth in most of the major markets in which we operate.

Our profitability continued to be positively impacted by these new product sales.

Global in market sales of Copaxone amounted to $207 million.

This is a 33 percent increase.

U.S. sales increased 26 percent to $138 million, and non-U.S. sales increased faster to 48 percent or $69 million.

Non U.S. sales now account for one-third of our total global in market sales.

We continue to increase market share in both North America and Europe.

As to API, sales to third parties which also benefited from the first time inclusion of Sicor's API business amounted to $119 million, up 35 percent.

In addition, the API business sold $86 million worth of raw materials internally to the pharmaceutical business of Teva.

The API business portfolio now includes almost 180 products.

One step down in the P&L to adjusted gross profits.

Net of the onetime inventory step up of $14 million in connection with the Sicor acquisition.

This gross profit amounted to $494 million.

The adjusted margin reached 47 percent in the reported quarter compared to 46 percent in the comparable quarter of last year.

And from gross margin to R&D.

Gross R&D, the best way to measure our actual R&D efforts, reached $72 million compared to $50 million in the first quarter of '03.

As a percentage of sales, gross R&D represented this quarter close to 7 percent.

Due to a lower growth rate of participations from our strategic partners and Israel’s chief scientists, net R&D increased by 47 percent, a higher rate than gross R&D and represented 6 percent of sales.

We expect R&D to grow more than proportionately with the sales over the coming quarters.

With the sharp increase in sales, SG&A as a percentage of sales this quarter amounted to a relatively low rate of 15 percent.

We still believe that the sustainable level of SG&A expenditures will be somewhat higher than that experienced during the first quarter of this year.

This quarter financial income almost offset financial expenses so that financial expenses line item is showing a small expense of about $1 million.

On the financial expense side we placed a 1.5 percent $550 million convert which was fully converted in October '03 with a blended 4 and 35 percent (ph) 1.1 billion convert issued at the end of January '04.

It should be noted that with the new low coupon of these new bonds, total cost by quarter the combination of interest expenses, plus amortization of issuing expenses on the 1.1 billion is lower than on the $550 million.

On the financial income side the average yield on our fixed income portfolio was somewhat lower; on a somewhat reduced portfolio which reflects the past utilization of the portfolio as part of our Sicor acquisition.

Offset by the increase in the portfolio due to the positive cash flow generated during '03.

In addition, this quarter we made substantial gains in hedging activities, which are recorded on the financial expenses as an income item and appear in the other line items as a cost in the P&L.

The provision for income tax amounts to 23 percent of adjusted pretax income.

The increased tax rate reflects Sicor's consolidation.

Most of Sicor's income is taxed in the U.S. at rates higher than the Teva's pre-acquisition average.

This rate is our best estimate for the annual rates, annual '04, obviously.

All that leads us to our all-time high adjusted net income of $205 million, up 49 percent from last year.

Adjusted EPS based on this adjusted income works out at 64 cents on the largest share base.

Cash flow from operations amounted to $224 million which is substantially higher than the quarterly average generated in '03.

Some of this amount is related to a tax benefit -- sorry -- over a quarter of this amount is connected to a tax refund.

In the first quarter we spent $64 million on CAPEX, about half of which was covered by depreciation.

And only yesterday we approved a first quarter dividend amounting to approximately $30 million.

On a per share basis our dividend base on today's rate of exchange amounts to approximately 10 cents.

If we were to single out one exceptional figure from our first quarter balance sheet, it would be our shareholders equity, which reached $4.3 billion in March 31st.

This increase of 31 percent or $1 billion is a combination of our all-time high adjusted net income.

The issuance of stock of Sicor shareholders, obviously net of the end process R&D and impairments and impairment write-offs, and positive translation differences stemming from the fact that most currencies strengthened against the U.S. dollar.

We have almost doubled our shareholders' equity in two quarters.

Inventories increased during the quarter by $260 million, about half of which is due to the first time consolidation of Sicor.

The balance reflects build up of inventories for products launched, the ratio day sales and the inventory returned to the mid '03 level of 200 days. $1.9 billion or 73 percent of our total interest-bearing debt at March 31 is long-term.

The major portion of the short-term debt which amounted to over $700 million at the same date, represents the $360 million convert although due in 2021 is putable and callable in August '04.

As you will remember we raised this quarter $1.1 billion through two series on the same day of convertible debentures with a blended coupon of 4 and 35 (ph) percent.

In a very successful offering and reduced our liquid portfolio of mainly fixed income securities by $880 million to finance part of the cash portion of Sicor's acquisition.

Working capital at March 31st amounted to $1.7 billion compared to $2 billion at the end of '03 but higher than in most of '03.

For the convenience of our audience I would like to mention three figures before we open up for Q and A so that all of us are on the same page.

These relate to our share counts.

As for the first quarter of '04 our share count for the purpose of calculating fully diluted EPS is about 326 million shares.

And for calculating our market cap, it is 304 million shares.

At the end of the first quarter our share counts for calculating fully diluted earnings per share is 332 million shares.

And with this I would like to thank you for your patience and open it up for Q&A.

(OPERATOR INSTRUCTIONS) Rich Silver from Lehman Brothers.

On the gross margin, Dan, can you give us some sense of where you expect that to go going forward and what might have accounted for the strength of that number in the first quarter?

As usual, our gross margin is mostly affected by our product mix.

And the same happened to us also in this quarter.

We have indicated in the past that because of that our gross margin is moving on a quarterly basis in a certain band, which we said in the past is somewhere between 45 to 47.

We may be perhaps today be a little bit more aggressive and say it is first between 46 and 48, it is somewhere in this region.

And it's basically based on the level of contribution of two new introductions; we have to remember today that it is predominantly U.S. but not only U.S.

Europe is certainly showing more and more contribution to our gross margin.

Second question on the tax rate.

You mentioned that the estimate or the actual in the first quarter is your best estimate of the annual rate.

Is that correct?

It is correct that I said it.

And what I want to add to that that with the year unfolding we will have to see better how this estimate if it remains or changes.

As you know for example it takes -- it is closely related to if we produce more products in Israel or we produce more products in the States.

And this is obviously something which we have to see when the year unfolds.

But our best estimate as of today is 23 percent.

Twenty-three percent, but there as always could be some quarterly fluctuation depending upon where the products are produced?

It is not a quarterly fluctuation.

It is a change in our annual view of things.

Okay, and then on Copaxone, could you give us some additional detail as to what accounted for the strength in the quarter?

And maybe just also better understanding of differences between what Aventis reports and what we see in your earnings release?

Rich, I think that Copaxone sales have benefited from the fact that we have increased our sales force in the U.S.

Prescription growth has been very strong, and we are now significantly over 29 percent for the quarter, I think 29.4 percent of the market for the quarter.

And we continue to gain market share.

And when were the additional I think it was additional 50 reps, when did all 50 reps come on board?

They were all on board certainly by late January.

Would you attribute that as probably the biggest swing factor?

We started the increase in Q4.

No, I think we said all along that the growing recognition of the long-term efficacy of Copaxone is what is driving the growth in market share.

It doesn't hurt of course to increase our sales force.

But the increase in the sales force was primarily for the preparation for the launch of Rasagiline later this year.

And then just two more questions; in the past you stated what the number of products in the pipeline that have not yet been filed and I think the number you said was at least double what has been filed in the U.S.

Is that still a number that you're using?

I think, Rich, just to clarify the pipeline of products that we are working on is significantly in excess of the number of products were filed but that is a function of time.

It takes several years to develop a generic product.

So when we say there are in the pipeline some of them are at the idea stage, and some of them are at the close to filing stage.

And I'm not sure that it is a significant number of any importance.

Okay.

And one maybe this is slicing things a little too thinly, but Israel's comments that the Sicor deal would not be dilutive this year, is that pretty much the same as saying your previous guidance of accretion in twelve months one and the same thing?

No, no, no.

Its completely different, but I am not sure if our initial guidance on this subject was really understood.

What we meant to say when we first talked about that that we expect it not later than the fourth quarter of this year on a stand-alone basis for the quarter to the increases.

It means that for the full year it could be dilutive, and if we meet our indication even if the full year is dilutive but at least in the last quarter it is accretive.

Now we say for the full year we don't expect it to be dilutive, which is by far a more aggressive guidance than we have given before we learned fully Sicor and integrated Sicor into our (indiscernible).

Right, and just the last question is on Rasagiline in Alzheimer's with Eisai what is the earliest there could be some disclosure of the Phase II results, and exactly where are you in the development in the Phase II and number of patients that are being studied?

We have started the Phase II trial, and it will take another year or two before we can report on that.

On the Phase II?

Yes.

Rich, there are two trials in the Phase II, one is in combination therapy and one is in monotherapy.

The combination therapy is underway.

Doing a monotherapy is more difficult and is taking us longer to start.

And it would be combo with?

With the Eisai product, with Aciphex. (multiple speakers) Aricept, sorry.

Yep, okay.

Thanks very much.

Greg Gilbert for Merrill Lynch.

I have a couple North America questions.

First, if we exclude Copaxone and Sicor it looks like the U.S. generic business was down sequentially.

I was hoping you could discuss any pricing or inventory issues that may have affected that quarter given that you had a couple significant launches.

Second, can you review the variables that you're assessing for the U.S.

Gabapentin launch and comment on whether an '04 launch is possible?

Finally, when do you expect to find out if Bristol gets pediatric exclusivity for Carboplatin.

The sequential change would be fairly typical of our business Q4 to Q1.

If you look back you will see that as a regular pattern.

You asked whether or not there was impact from inventory issues, and I would say no.

We would see in our business no particular effect from any inventory additions or policies.

As relates to the Gaba the number of variables is probably more than can be touched on in a simple program here.

Obviously a lot of issues are watching to see how the court case unfolds.

We have got multiple some rejudgement (ph) motions where we're waiting for ruling.

Obviously there are some other market conditions happening, including with the innovator (ph) which we will watch very carefully.

So at this stage there is very little that we can say in terms of capturing all the variables.

In terms of popular launch as we have said it is certainly very difficult at this point to give any direction.

Is it possible?

Yes, but any more clarity than that would be very much premature.

The Carboplatin issue on pediatric is in the FDA's hands.

I think they are technically allowed 90 days to come back with their ruling on the qualification for pediatric exclusivity.

So we couldn't possibly give any prediction on the timing other than that looks like the out date.

Is June 24th the out date?

Yeah.

90-day date?

No.

Actually it is not.

It is the end of March -- I think it is March 24th, 90 days from that.

It actually does not coincide with the April 24th date.

And do you have an actual FDA action date on Rasagiline at this point?

We filed September 5th, I think it was.

And so theoretically ten months after September.

September 4th and I think that would be July 4th, so just after sometime after July 4th.

So for an '04 launch you are obviously assuming that you have a very quick turnaround after you get your questions from FDA, or a tier 1 submission with a two-month turnaround?

So far the interactions with the agency have been very positive.

We think.

And we are still planning for a launch this year.

And one last housekeeping question for Dan if you could provide a specific interest add-back number in the quarter and what it ought to be going forward, that would be terrific.

It is roughly $2 million.

This quarter and going forward?

Yes.

And Greg, I just want to say -- you commented we had a number of significant launches in the quarter.

I said a couple and I certainly recognize that one was extremely late in the quarter.

Because there was really only one which was the Bupropion which was significant in the quarter.

Thanks.

I would really appreciate if the participants will cut the number of questions because we want to have as many listeners having access to this conference call.

Thank you.

David Maris from Bank of America.

I am going to cut mine from seven to two if that's okay.

First on during the quarter Elan, Biogen IDEC had some information out on Antegren.

Can you comment on what you think that is shaping up to be from a competitive standpoint to both the base sales and to growth?

And maybe from the U.S. standpoint a few companies have mentioned a slightly changing pricing environment.

Teva has been fairly consistent in saying that you are really not just not seeing that.

Is that from a business mix standpoint?

Are you seeing it at the margin but it is just since you have so many products that you can absorb it differently, or what are you seeing directionally from a pricing environment vis-a-vis the last couple years?

I'll answer the Antegren question and George will talk about the pricing environment.

Obviously we are treating Antegren as a potentially serious competitor although it is relatively early in terms of data that is available to us.

What we do know of course is that this is a market that is relatively slowly changing.

And so we do not at this time see any significant impact on Copaxone.

I know that Serono made particular mention that they thought Copaxone would be affected more than the interferons, but we don't actually see that logic at the moment, and in addition of course they have two trials ongoing, one where they compare with Avonex and one without Avonex and I'll be very interested to see what the results are of those trials and whether there is any difference between the two trials.

And as yet they have released no data I think on those trials.

Also as you know FDA has, we understand requested Biogen to complete a study combining Antegren with Copaxone.

And of course that will be an interesting data point for us, as well.

So for the moment, obviously we are very confident that we continue to gain market share.

And we will cope with the introduction of Antegren when and if it occurs.

But obviously we don't think that that’s certainly not this year.

Do you think the if portion of that is a significant if?

I didn't understand that.

You said if and when it appears as a competitor do you think the if portion of that, do you think that there is an approvability risk?

We haven't seen data so I can't comment on that.

Okay.

Thank you.

David, I will take the question on the pricing environment.

Yes, you have heard us say on a number of occasions that we think the pricing environment tends to be largely product-specific.

If we went back ten years ago perhaps we would have had moments were there are systemic changes but I would say we're not in such an environment so that what you do find is on any given day, any given product will be experiencing greater competitive forces.

And we see that today as we did six months ago, as we saw a year ago.

So I would say from a general standpoint we are not seeing an overwhelming or general systemic change in the pricing environment, but rather we see product by product competition and companies are affected intermittently when particular products involve them.

We happen to have a very broad product line as you mentioned, and we are well-positioned to tolerate any product erosion, in a particular product.

And we are offsetting that with something that is going in the right direction.

Elliott Wilbur of CIBC.

Congratulations on a very strong quarter.

I have a follow on question on some of the early commentary regarding Copaxone, if the relative growth rate of Copaxone continues to increase versus the overall market?

I think it’s just over 13 percent in the first quarter.

Wondering if you think it’s reasonable for us to assume a growth rate in the low teens could continue throughout the year?

Or do you think its more reasonable to assume we will see growth closer to the ten percent range?

I am trying to get a sense for what may be embedded in your guidance in terms of overall Rx growth for Copaxone in the U.S. market.

I got into trouble once before.

Clearly we are happy with the present rate of growth.

Not happy enough, I must say, always room for improvement.

It's very difficult for us to forecast (technical difficulty) going to change in the next quarter, but obviously we are very happy with the growth of Copaxone.

Thanks, Bill.

A question for Bill or George on Gabapentin in your agreement with Alpharma, am I correct in assuming that for you to enter the market it would also require Alpharma to launch their product or is it possible that you could launch your product independently, outside of your financial and risk sharing obligations to them?

We probably would not go into any detail here on the specifics of that agreement other than to say the assumption that is reasonable to make is that both companies will enter the market for modeling purpose but the details I think are still internal.

And then one final question for Dan on the micaptaprurin (ph) write-down in the quarter.

How does the write-down impact amortization expense?

Does it decrease proportionately, or does it just shorten the amortization period on that gain?

It’s shortening the period, and in some of the years it also decreased the amortization.

Okay, thanks.

Thank you for the complement about the quarter, in spite of the short time you had, you really read them well.

Ken Cacciatore from SG Cowen.

Following up some of the Antegren and Rasagiline commentary, can you speak broadly?

I don't know if I should direct it to Bill about the branded strategy, how it is altering in terms of maybe product acquisitions in light of maybe a post-Antegren competitive world and if you're accelerating that strategy and maybe talk about some of the therapeutic areas you may be focused on.

We are focusing, we make an investment in a number of our vertical areas.

We made an investment recently in a number of startup companies in Israel and outside of Israel which developed new technologies in the field of cancer, in the field of CNS.

And also in the field of cell therapy.

We are also increasing our pipeline of our own R&D products in which we have also opportunities and (indiscernible) to other treatment for MS, and we are also examining a number of opportunities to acquire products for the treatment of MS.

I mean in development stage, not Phase IV.

Have you moved up looking maybe a bit at currently marketed or near marketed products, or is that still not part of the plan?

Part of the plan is to look at any product which is, would be useful in the treatment to bring benefit in the treatment of MS.

It doesn't matter if it is in Phase I or Phase III or in the market.

We are committed to this field, and we are developing a leadership in this field and therefore as a leader we will look for other products to expand our pipeline in this field.

Thank you very much.

David Moskowitz from Friedman, Billings, Ramsey.

Good morning and congratulations on a great quarter.

A couple questions.

First of all there is a shift in a large contract, a government contract on the VA around the end of the first quarter from AmeriSource to McKesson.

Can you talk about that impact on the generic business?

We saw AmeriSource I think destocking in the first quarter and McKesson I think is just beginning to buy in in the second quarter.

Can you comment on that?

And just the second question is what more can we read into the Alpharma Gabapentin agreement?

Obviously they get raw material supply from you.

Why would Alpharma want to give up this kind of economic potential for this type of agreement?

Thank you.

I would say we have not seen actually any significant effect from the shift in the government contract you've been describing.

These movements perhaps less dramatic for our business mix, but I would say we've actually not seen any real effect, and I am not sure that we necessarily would anticipate anything that we would describe as material in that shift of the VA contract.

I can only answer again you asked for sort of underlying issues on the Gaba deal and obviously we will leave much of that to you.

But in general terms the benefit that Alpharma was seeking was some increased flexibility from a risk management standpoint.

And beyond that I probably should not go into a lot of detail but that really was their goal, and we were able to achieve that through this interesting structure that we've put together.

One last question overall, the outlook for products coming off patent some are looking at '05 as sort of a weaker year and then '06 really the peak, can you sort of comment on what you see and the opportunity going forward?

Thanks.

I guess the caution I would give you David is that when you look at these charts and if you look at them historically you would find this phenomenon.

The numbers as they chart out on a piece of paper never seem exactly to work.

The highs are never quite as high in terms of number, and volume of products going off patent -- excuse me, experiencing generic competition and the lows are never as low.

So in fact we tend to see a more normalized rate of generic product entries over the next couple of years and we continue to feel bullish about the number of opportunities and our pipeline obviously contains many of those.

Thanks a lot, George.

David, also let's not forget we do have a growing European operation with an increasing new product flow in Europe.

We just introduced Ramipril in Europe and it's going very well and I think we are going to see more and more a repeat of the success we have in North America.

I should also include Canada, of course.

Where we have also now started to introduce new products; we were first to market with Fosinopril in Canada for instance, and we were first to market with Ramipril in Europe and I think you're seeing the depth of our new product development across several markets.

That is a good point, and just last one, I will just stick one in, Pravachol, coming off patent now, you guys have been leaders in the statin raw material area.

Is that a pretty good opportunity for you guys?

We love the statins.

Ken Kulju from CSFB.

My questions do relate to Europe, I was wondering if you could talk about the Gabapentin launch?

As I understand it you are available in the UK but you have also other country launches pending in Europe.

Perhaps just to get a little bit more color on the Pravastatin opportunity, when you would expect to have generic Pravachol on the European market sometime later this year.

And also just other European launches that are contemplated for '04.

Thank you very much.

We had very successful launching of Gabapentin in the UK and a few other European countries.

We are currently the sales are concentrated in UK and in Germany.

And we are going to, we are about to launch it in a few other countries.

Pravastatin in the generic a generic formulation is ready.

What we need to do is to launch the product and we will launch the product as soon as we can in Europe.

As you may appreciate the patent expires on different dates in different European countries.

And we will definitely be a major, major player in this field in Europe maybe the dominant one, is what we want to be.

Regarding other launches we will give you the same details that we gave you for the U.S.

Thank you.

Corey Davis from J.P. Morgan.

(technical difficulty) guidance how do you think about some of the unknowns?

In other words is it a probability weighted estimate for new launches, or are you so big that you can hit those numbers even if you do not launch something like Neurontin if that were included in your guidance in the first place.

I'm trying to gauge the probability that earnings could fall either above or below that range depending on when certain events happen.

When we make the guidance it’s based on our estimates, which includes all the product which have a potential to be launching in all the countries, not only in the U.S.

And we give them the probabilities, and we base our estimate on these probabilities.

And the other deals we learned that we are doing it very, very well because even if one product you make a mistake and normally on each product you make a small mistake, these mistakes balance each other.

So we are pretty sure that we are going to at this moment we are pretty sure we are going to achieve the numbers that we gave you as a guidance.

And there might be even an upside to that.

Of course there are always horror stories that may cause a downside.

But I believe that the likelihood of an upside is higher than the likelihood of a downside.

And is the corporate philosophy such that if everything went your way and you had a huge upside in revenues is there flexibility to spend more to maybe offset that, and that it would be to unwise to grow too fast just for difficult comps in the next year?

Our corporate philosophy is to spend what we need to spend -- and not to spend one penny more just because we make more profits.

If we make more profit we increase the dividend and we give it to our shareholders.

Great.

Thanks very much.

I want to reiterate because of this question something that Israel said before, since this is probability (ph) adjusted when we get an approval even if it's an important one, people shouldn't see it as a straight upside.

And the other side, if we don't get an approval it’s not a straight downside.

What we are committed to do is that if something like that happens either up or down we feel ourselves committed; if it has a meaningful impact on our guidance to come up with a new guidance.

And the Street should rely on this philosophy that we have.

Tim Chang from Bleichroeder.

I wanted to get an update if possible on generic Lovenox.

What low molecular weight heparin?

It seems like there is one patent that expires this year at the very end of the year and Aventis is trying to get another patent listed.

What are your thoughts on the challenges of making low molecular heparin and also getting the raw material?

Do you think in a best case scenario this is an '05 or an '06 event?

This is obviously one we're not going to be able to talk a lot about.

It is an active case.

There's a trial date set for I believe April 2005.

This is a challenging product; everybody is well aware of that both on a scientific, regulatory and legal basis.

It's an opportunity that of course because of those complexities is interesting to us.

So beyond that I don't think I could give predictions of other than to say this is not an imminent situation.

This has to unfold.

Great.

Thanks.

Henry Cobbe, Thames River Capital

Actually my question has been answered.

But perhaps you could just quickly just do a recap on what the sales figure was excluding Sicor.

Can you repeat the question please?

What the first-quarter sales was excluding Sicor.

We said that Sicor was close to $130 million in this quarter.

Thank you very much.

David Abraham from Titanium Capital. (ph)

I understand that you along with somebody else has filed an ANDA for Protonix in February.

Could you firstly confirm that and secondly could you give us an update on that please?

We don't actually comment on products that we have filed, and I didn't even understand the product.

Its Protonix.

I think there is nothing to comment on at this point.

But are you confirming that you have filed or not at all?

We are not confirming anything.

Or denying, okay.

Richard Watson.

Good morning and thanks.

Just one of the things I think that was said initially after the Sicor acquisition was that it may not be the bio generic platform that you needed, and I was just wondering after kind of having some time to assess it whether that position has changed at all?

And then if I could follow that up with any update on the Biovail arbitration and maybe if you could provide any color if you feel it's appropriate regarding what your expectations of the outcome might be and what you might have built into your guidance.

Thank you.

I think what we said with Sicor was that it was a platform, it was not a complete platform for us.

And I think obviously that is still the situation.

And as it relates to the Biovail arbitration, obviously we are in a process now which is legal and which will unfold.

So I think there is really nothing to add to that other than the fact that we are in the arbitration process.

I would like to add a word about bio generics with Sicor.

I think that the more we see, the more we like what we see on bio generics in Sicor.

They have a very interesting operation, and I think that we value this operation in a different way maybe than we did before the acquisition to the better.

I think they have a very interesting operation and will give us definitely a very good platform to go from there.

We will take one more question if there is one.

Jim Dawson.

He withdrew his question.

At this time there are no further questions.

Thank you.

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