Teva Pharmaceutical Industries Ltd (TEVA) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

My name is Paul and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Teva Pharmaceutical Industries Limited third-quarter 2004 financial results conference. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Ms. Dorit Meltzer, Director of Investor Relations.

Please go ahead, ma'am.

Thank you, Operator.

Good morning and good afternoon to all of our guests.

I am pleased to welcome you all to our third-quarter 2004 financial results conference call.

And I'm pleased as well that we're able to speak you this quarter from New York.

We are releasing our figures just 2 days after another exciting US presidential election, and we are glad to wish the American people prosperity and peace in the next 4 years.

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

Your host today will be Israel Makov, President and Chief Executive Officer;

Dan Suesskind, Chief Financial Officer, Bill Fletcher, President and Chief Executive Officer of Teva North America;

George Barrett, President and Chief Executive Officer of Teva USA; and Moshe Manor, Vice President of Global Products.

I would like to remind our friends in North America that we will host a special quarterly luncheon today in New York.

The presentation at the luncheon will be given by Israel Makov with opening remarks.

Moshe Manor will take us through Copaxone in the MS market.

George Barrett will walk us through the US market.

And Dan Suesskind will walk us through the numbers.

This time for the benefit of our friends who are outside the New York area and will not be able to attend the luncheon, we will webcast our luncheon presentation starting at 12.45 Eastern time and can be accessed through our website at www.tevapharm.com.

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 webcast of today.

Israel, would you like to begin please?

Thank you, Dorit.

Good morning to our participants in the US and good afternoon to our participants in Israel and elsewhere.

I'm pleased to report yet another exceptional quarter for Teva with record sales and profits.

Q3 growth in sales to 1 billion in the quarter is attributable to the strength of Teva's core competencies expressed in the scope of our generic portfolio, our broad geographic reach, global-scale operation, unsurpassed generic pipeline, diverse product and customer mix, and the success of our API operations and of Copaxone.

US generic sales grew this quarter by 70 percent over Q3 '03, fueled by the contribution of 24 new products launched in the last 12 months, stable base products, and the inclusion of Sicor's sales this quarter.

New launches in Q3 included Medroxyprogesterone vials, Amoxiclav ES suspension and Fluconazole.

In addition, we enjoyed a full quarter of Carboplatin exclusivity.

We believe that the forces driving the increased global demand for generic drugs remain strong and are likely to increase.

Generic drugs have become integral to the health care landscape and vital to the delivery of affordable medications.

The competitive landscape for generic drugs has been the subject of considerable scrutiny, and I would like to make a few comments about this.

The first is that the pricing environment on our base business has remained relatively unchanged with the normal pricing responses as new competitors come into individual product markets.

Second is the use of authorized generics by the brand companies.

We continue to believe that authorized generics are illegitimate undermining the intent of the law, and therefore anti-competitive.

Nevertheless, while we continue to fight against this phenomenon, we now factor authorized generics into our plans as a given.

We have complete confidence that the scale of our operations and the value that we bring to our customers outweighs the short-term disturbances resulting from this practice.

We also believe that a complete commitment to R&D and a consistent flow of new products is a powerful way to mitigate the effect of authorized generics.

Our generic pipeline in the US currently has 120 pending product applications with total annual US brand sales of over $75 billion.

We believe we're first to file on 25 of these, representing annual US brand sales of over $20 billion.

This pipeline is by far the deepest in the industry.

Integration with Sicor is progressing nicely, and the inclusion of Sicor continues to be accretive to our results as we benefit from new products such as Medroxyprogesterone vials and Carboplatin, and as we drive the synergy between our hospital and retail sales efforts.

In conclusion, our generic business in the US continues to be robust and performing extremely well.

And I would like to draw your attention to the fact that our US business is twice as big as that of our closest competitor.

In Canada, sales were at an all-time high this quarter, supported by the launch of a large number of new products, including 6 in this quarter alone.

At Novopharm we're beginning to reap the benefits of our global R&D efforts.

This has resulted in a broadening of our product offerings and the strengthening of our position in the Canadian market.

We are extremely pleased with this progress.

Europeans sales grew substantially during this quarter. 1 of the drivers of this growth was the sales of vertically-integrated products such as Gabapentin in the UK, Germany and Italy and Pravastatin in the UK and Holland.

As we do in North America, we are increasingly taking advantage of our vertically-integrated products in the European markets to strengthen and expand our leadership position. 1 example is Italy.

Since launching Gabapentin in the last days of Q2, we have become the number 1 generic company in Italy. (indiscernible) which will be finalized during this quarter, that means Q4, will further strengthen this position.

Speaking of leadership position, I'm pleased to report that Copaxone was the fastest-growing MS treatment worldwide this quarter in dollar terms.

Global in-market Copaxone sales reached $242 million, a 34 percent increase, paving the way to reach a new quarterly sales threshold of $250 million, which is an annual run rate of $1 billion.

Today we see the MS market as divided into 2 major classes of therapies -- specific immunomodulators such as Copaxone that operate in the central nervous system, CNS; and generalizing immunomodulators such as Interferons (ph), operating only outside the CNS.

As compared to Q3 '03, the MS market in the US grew by 15,000 prescriptions, while Copaxone added 13,000 prescriptions and the interferons as a group added 2000.

The impressive gains of Copaxone are not only attributable to new patients, but also add substantial power to the many patients who have chosen to switch from interferon-based treatment to Copaxone.

The fact that Copaxone prescriptions growth rate was 3 times that of the US market growth rate this quarter is further evidence that Copaxone is becoming the preferred MS treatment.

We also saw continued penetration of pre-filled syringe sales in Europe with launches in several countries.

We are of course carefully planning for a potential launch of Antegren, another general immunomodulator.

While there is no new data on Antegren, Moshe Manor, our VP of Global Product Division, will present at our quarterly luncheon meeting later today on why we believe that if and when Antegren comes to the market it is likely to compete most directly with interferon drugs less than with Copaxone.

Let me now address our new and promising product, Agilect.

In October we met with both the FDA and EMEA to discuss Agilect in the US and Azilect, as the product has been named, in Europe.

In both of these meetings, Teva responded to questions raised and provided additional information and analysis.

We are submitting a written response to the FDA approvable letter.

The FDA has up to 6 months to respond, and we hope they will respond sooner rather than later.

Also we're hopeful that the EMEA will respond relatively quickly, which may permit a launch in Europe earlier than in the USA.

All in all, we are making very good progress in our discussions with these regulatory bodies.

Our API division had an exceptionally strong quarter, with sales, including internal sales, of $263 million, reflecting growth of 81 percent over Q3 '03.

Teva API, or TAPI as we call it, has the largest product portfolio in the industry with 188 product offerings.

In addition, TAPI as a broad range of products in various stages of development, which should add 20 to 25 additional products to our TAPI portfolio every year for the next several years.

The depths of the TAPI pipeline significantly enhances the opportunity for our pharmaceutical business to benefit from vertical integration.

TAPI is currently the most important supplier of Gabapentin worldwide, already benefiting in Q3 from the strong demand for the generic finished-dosage version of the product in the US and Europe.

Gabapentin was developed by TAPI many years ago in anticipation of the generic introduction.

Developing the product well in advance, including development of strong IP protection as TAPI has done in and continues to do with many other products, enhances our global potential for this product.

As you may appreciate, the growth in our industry is neither linear, nor completely predictable on a short-term basis as the number of variables is very high.

Having said this, we continue to benefit from the growing global demand for generics, and we reiterate our strategic goal of doubling our sales every (indiscernible) and our net income in a shorter period.

With this goal in mind, we are now in the midst of preparing our 3-year work plan for 2005-2007.

After we complete our work plan, we will be able to give you general guidance for the next 3 years and a more specific 1 for 2005.

Over the past 3 years we have substantially surpassed our all strategic goals, more than doubling our sales and tripling our profits.

We would of course like to believe that this will happen again, and it may if we have the right combination of launches and acquisitions.

As to 2004, we had a strong Q3 and we also expect a strong Q4.

Our top line for the entire year is expected to exceed $4.7 billion and our EPS should reach $1.43 to $1.44.

With these results, Teva is on track to have its best year ever.

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

Thank you, Israel, and good day to all our friends everywhere, in whatever time zone you are.

I hope you had a chance to review the excellent results, top and bottom, that we released this morning.

Before walking you through the first line items, here are the critical success indicators this quarter.

Sales, net income, EPS and cash flow, all records -- sales practically at $1.25 billion with record gross margins; net income of practically $0.25 billion, resenting a 20 percent margin on sales;

EPS of 38 cents; and cash flow from operations of $391 million.

When doing the comparison with '03 figures one should remember that Sicor is consolidated only in 2004.

Now down the P&L line items.

As mentioned, sales reached in $1,247,000,000, an increase of $435 million or 53 percent over the comparable quarter.

Less than half of the increase is related to Sicor consolidation, which added sales mainly to the US generic business, but also to API and rest of the world sales.

But the balance of the increase in sales, more than 50 percent, comes from the historically Teva, certainly a quarter with nice growth.

Most of this increase was contributed by newly-launched generics, predominately US, but also in Europe, as well as the growth of Copaxone and API sales. 93 percent of the overall growth in sales is currency neutral.

In connection with the currency effect, it should be noted that the impact on our bottom line is mitigated through natural hedging, which is supplemented by hedging instruments.

The outcome of the latter (ph) is recorded in the (indiscernible) expense line item which I will address later.

As a result, while depreciation of the euro (indiscernible) and the Canadian dollar fully impacted our top-line, the effect of currency movements on our bottom-line was rather moderate.

64 of this quarter's consolidated sales were in North America, 26 percent in Europe and 10 percent in the rest of the world.

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

The other rest of the world sales benefited mainly from Sicor sales to these regions, mostly in Mexico.

In the US, where we increased our generic sales by 70 percent this quarter, Teva USA and Sicor sold 24 products that were not sold in the comparable quarter, the most significant being Oxycodone, Carboplatin and the recently launched Medroxyprogesterone vials.

We once again demonstrated the importance of our deep pipeline, our collaboration with other companies, as well as Teva's broad product portfolio.

In the Canadian market we have benefited from the launch of 6 new products.

In Europe, we continued to benefit this quarter from products we launched in the UK, Italy and the Netherlands that were not included in the comparable quarter. 2 of the major products, Gabapentin and Pravastatin, use our own API.

Our overall European generic sales increased at a high rate with growth in most of the major markets in which we operate.

Global in-market sales of Copaxone amounted to $242 million or an annual rate of just under $1 billion.

This is a 34 percent increase globally, which positions Copaxone this quarter for the first time as the fastest-growing MS therapy worldwide.

US sales increased 32 percent over the comparable quarter to 163 million.

And non-US sales, mainly in Europe, increased faster at 39 percent to $79 million.

Non-US sales of Copaxone account now for one-third of total global in-market sales.

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

In the US, after we reached in June for the first time a monthly market share in terms of total prescriptions of 30 percent, our overall Q3 market share reached 30.5 percent, the first quarter in which our market share figures started with a figure 3.

As to API, sales to third parties which also benefited from the inclusion of Sicor's API business amounted to $146 million, up 54 percent.

We particularly benefited in the quarter from Gabapentin sales to third parties.

A significant portion of our overall Gabapentin profitability is embedded in its API.

In addition, the API business sold 117 million (indiscernible) internally to Teva's own pharmaceutical businesses.

The API business (indiscernible) products, about one-third coming from Sicor.

One line down in the P&L to gross profit, which amounted to $590 million, or a gross profit margin of 47.3 percent in the quarter compared to 46.4 percent in the third quarter of '03 and the whole of fiscal '03.

As I've indicated in past quarters, the gross margin varies from quarter-to-quarter due to changes in the product and geographical mix.

Although slightly higher than in previous quarters, this quarter's margin is still within the range we've indicated in the past.

And from gross margin to R&D.

Gross R&D -- our gross R&D first.

Our gross targets require allocating increasing resources to R&D.

In this quarter, gross R&D, the best way to measure our actual R&D efforts, again reached an overall high of $95 million compared to $62 million in Q3 of '03, up 54 percent.

As a percentage of sales, gross R&D represented 7.6 percent this quarter, similar to the comparable quarter.

Due to a lower rate of participation from our strategic partners and Israel's chief scientists, net R&D increased by 65 percent, a higher growth rate than gross R&D, and represented 7.2 percent of sales.

While we expected to maintain this 7 percent plus or minus rate going forward in Q4, as the last quarter of the year, the rate may be somewhat higher.

With a sharp increase in sales, SG&A as a percentage of sales this quarter amounted to 14.6 percent compared to 15.4 percent in the comparable quarter.

This is also the rate for the first 9 months of '04.

We believe that the sustainable level of SG&A expenditure is along this range.

Next, to the financial expenses line items.

Our substantial financial income of almost $9 million this quarter deserves some discussion.

First, while this is not the first quarter that we show such high financial income -- in the last quarter of '03 we also recorded $9 million in financial income -- this is certainly not going to be the result in a typical quarter.

Since then, since the last quarter of '03, we recorded in '04 $1.3 million (indiscernible) as an expense in the first quarter, and income of close to $2 million in the second quarter.

So then in the first half of '04, we practically had no financial expenses.

In Q3, we enjoyed the strengthening of currencies (indiscernible) and the Canadian dollar.

We increased our investment portfolio (indiscernible) of issuances expenses associated with the debentures that having been converted and started the benefit from higher interest rates.

As mentioned earlier, the financial income does not flow directly into the bottom line, as it is partially offset by the negative impact the currencies had on various expense items.

We provided for income tax in this quarter at a rate of 22.6 percent of pre-tax income, higher than the 20 percent provided for in the comparable quarter.

The increased level of tax reflects Sicor's consolidation.

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

This way, adjust our provision to our current best estimate for the annual '04 rate, and is slightly lower than the 23 percent we provided for in the first 2 quarters of this year.

All that leads us to our all-time high net income of 252 million, up 61 percent from last year.

EPS based on this net income works out at 38 percent on the cost split share base (ph).

Cash flow.

Cash flow from operations amounted to $391 million, which is another all-time high achieved this quarter.

The main reasons for this figure are the high net income this quarter, together with some favorable changes in certain working capital items, including a decrease in inventories.

In this quarter we have spent $75 million on CapEx, close to half of which was covered by depreciation.

We paid a second quarterly dividend amounting to approximately $30 million.

And as (indiscernible) the CapEx and the dividend from our cash flow from operations, our free cash flow reached 286 million.

Out of the free cash flow we used about $50 million to buy back Teva's shares and converts.

Sharholders' equity reached $5.1 million on September 30, '04.

This is an increase of 13 percent or $591 million from June '04, resulting from the recent conversion of the $360 million of converts end of (ph) this quarter income and positive translation differences net of the dividend paid.

Inventory decreased in the quarter by $25 million and trade receivables increased by 90 million.

The ratio of days in the inventory shows a decrease compared to June '04 from 186 to 175 days.

As to day's sales outstanding, DSO, this remained in September at the June '04 level of 64 days.

We have calculated this after netting out the sales reserves and allowances from the receivables.

Although we record the receivables on a gross basis and record the SR&A as a liability elsewhere on the balance sheet, in order to facilitate the more meaningful comparison with some of our peers who records receivables net of these reserves, we have used the net figure.

1.7 billion or 80 percent of our total interest-bearing debt at September 30th is long-term.

Our short-term debt decreased during the quarter from 0.7 billion to 0.4 billion, representing the conversion of the $360 million of converts due 2021.

The approximately $1.4 billion in cash and quasi-cash on our books at September 30th, plus the extended (indiscernible) capacity resulting from our improved balance sheet, provides us with a substantial war chest that will enable us to taken advantage of opportunities in our consolidated industry.

For the convenience of our audience I would like to mention a few figures which relate to our share count so that all of us are on the same page.

In the third quarter of '04 our share count was split.

For the purpose of calculating fully diluted EPS it is 664 million shares.

And for calculating our market cap it is now 627 million shares.

Going forward, as of the first quarter of '04 new accounting rules relating to converts in this contingent conversion feature will become effective.

As it relates to Teva, it makes our $1.1 billion convert issue generally this year dilutive.

The dilutive effect is less than 4 percent, or approximately 4 cents, on an annual basis, reflecting a 30 (ph) million increase in the share count to 694 million and an add-back of interest and issues (ph) expenses to income of approximately $5 million on an annual basis.

As to our guidance, our most recent guidance was 70 cents for the second half of 2004 before the above-mentioned dilutive effect of the news (ph).

The results we have released today, together with Israel's guidance for Q4, increase this by 9 to 10 percent to 76 to 77 cents, of which 38 to 39 cents will fall into Q4.

In the old days we used to characterize this by being comfortable with the consensus.

To sum up, we completed another excellent quarter with superb results, both top and bottom line.

And we look forward to another strong quarter, which enables us to increase our guidance.

With this I would like to finish my formal remarks.

And we are now open to Q&A.

Thank you very much.

(OPERATOR INSTRUCTIONS) Elliot Wilbur, CIBC World Markets.

I will be the first to congratulate you on another very impressive quarterly performance.

I want to ask a general question on pricing on the base business.

I know Israel addressed this in his earlier comments.

But in terms of looking at your seasoned generic base in the US, are you seeing signs that competitors maybe are looking more and more at older products and coming back into product markets that maybe they've left in the past couple of years, trying to pick up some incremental dollars?

And maybe just in terms of the dollars that are being generated on these products we're seeing declines as opposed to more aggressive pricing discounts being offered?

I think what I'd say on the base business is that the pricing environment looks very much as it did when we discussed it in the last call.

And on a broad base I would say our base business pricing is tracking in the way which is very consistent with historical trends.

So I would not describe any particular change as it relates to the base products.

Obviously going forward your modeling assumes a certain price discount for a given number of players.

I guess it's safe to assume that you don't see any reason to change that.

Actually, our modeling has been very much on target with our base and with new products.

And we're doing that based on a projected number of competitors.

1 additional follow-up question here on Wellbutrin SR sales in the period.

Obviously it looks like there's been some additional price discounting since launch.

It looks like both you and Eon reported some shelf stock adjustments in the quarter.

Obviously that would suggest 1 other player in the marketplace has been more aggressive on pricing.

Is that a fair characterization?

Or has everybody been a little bit more aggressive on pricing, trying to get business from each other?

I would say the pricing stabilized sometime ago.

So during the first period after launch there was what I would describe as the normal flurry of competitive moves.

But I'd say over recent periods it has relatively stabilized.

Thank you.

Rich Silver, Lehman Brothers.

I understand that you're obviously still in the process of your 3-year plan, and obviously can't provide a whole lot of insight on '05.

But you did say that you're now factoring in authorized generics in the plan.

Would that change long-term plan?

And when you say now, is that now in the last few months or now more recently?

I think there certainly been a lot of attention on this topic, and anything that you can do before you actually provide formal 2005 guidance would be helpful.

As I said, we factor the authorized generics in our plans, and this is not just for now.

We have started to do it as soon as the authorized generics reappeared (ph) on the market.

And remember that the results that you are seeing today of Teva are in environment of authorized generics.

We have a number of authorized generics competing with a number of our products already.

And this is the case in the last year.

So whenever we talk about the future, we talk about the future where we see just another competitor during exclusivity time periods.

Just 1 follow-up on both the European business and API; both very strong in the quarter.

Do you think that these are reasonable bases to grow from going forward?

Or is there anything in the third quarter, such as new product launches, that might lead to either flat or a sequential decline going forward on either of those line items?

In Europe we have a continued growth.

And the growth and our business is always fueled by the launches of new products.

And indeed, we will launch 2 new products in Q2.

And also, when we're talking about Europe, the launches there are not launches in Europe; they are launches in several countries, depending of course on the package (ph) situation.

And Europe is growing and will continue to grow.

And we have a large pipeline of new products.

And actually we are expanding and substantiating our leadership position in many of the European countries in which we operate.

As for API, API is growing.

It is growing all the time.

We have 188 product offerings.

And we intend to add 20 to 25 new products every year.

This is the productivity of our R&D.

This is actually a phenomenal growth for this type of business.

We will continue to grow.

Of course the growth might change -- the rate of growth might change from a quarter to a quarter.

But basically it's going to continue to grow in line with our guidance.

Is it reasonable to assume that API growth might actually even accelerate given all these new introductions?

Yes, but you know.

I think that --

Not on a quarterly basis.

I mean on an annual basis.

On an annual basis it is possible that the rate of growth will accelerate.

Last question is just on the share repurchase authorization.

Assume that the window has been closed up until today when you reported your earnings.

Is that correct?

And if so, it's now open until when?

It is open until the end of the next quarter -- until the end of this quarter.

Okay, thank you.

Corey Davis, J.P. Morgan.

Did you say that the Gabapentin produced by the API is more profitable than the Gabapentin that you will recognize as revenue starting in Q4?

And what I'm getting at is just sequentially would you expect your API division to be up in Q4 or was everything that was shipped in Q4 ordered in Q3?

As you appreciate, API is being purchased before the launch of the product.

And what we meant to say is that now a complex (ph) Gabapentin total in global business.

And we have various arrangements, and in some of them a larger part of the profit is embedded in the API; in others, it is in the finished dosage form.

So what we meant to say, that the part of the profit of our total Gabapentin business is already in our API sales of Q3.

And of course we're going to continue sales in pieces of API in Q4.

And we have also profited Q3 from the sales of the finished dosage form in Europe.

We are the largest -- actually in Q3 we were the only supplier of Gabapentin in Europe, in several countries in Europe.

But obviously in Q4 when we sell our finished dosage form we will recognize also the profit of the API which is included in this -- of our own API which is included in this final dosage form.

Next question is would you want to highlight any new launches over the next 6 months.

And if you don't want to disclose anything specific, maybe a rough number of new products.

That's kind of in the context of a general outlook for '05.

I think many of your peers in the market is considering '05 to be a bleak year for the industry.

And would you say that that's not the case for Teva?

I don't think that we don't see it as a bleak year, but obviously we're not going to -- in the era of authorized generics, we're not going to detail which products we think we will be launching.

How about raw numbers?

No.

We've launched 25 so far this year.

You know that we're putting product into both Europe and US and Canada at a higher rate than we're getting out.

So our pipeline gets better and better.

David Moskowitz, Friedman Billings Ramsey.

Good morning, guys.

Excellent quarter.

Just a couple of questions. 1 of your competitors had announced earlier this week talk about pricing pressure in the EU environment.

Can you talk about anything going on there specifically, and any countries in which you're optimistic on and some that you might be more frustrated in?

I guess the other question I have is you guys talk about your leadership index and 40 percent market share in those on average and the products that you participate in.

Does faster erosion of these commodity markets, does that actually help you in that you get a shakeout much sooner and then the players better left end up with a better share and ultimately better pricing?

I will refer to Europe.

The price erosion in Europe varies from country to country.

And there are countries where the erosion was higher and some with slower erosion.

When I speak about erosion, I'm not speaking about the last quarter or the last 2 quarters;

I'm talking about the general trend, because there was nothing specific which happened (indiscernible) quarter or the last 2 quarters in terms of price erosion, except for the normal erosion of a newly-launched product.

We believe that the key success factors in the generic business are the broad range of products and the introduction of new products.

This is exactly what we're building in the various European countries.

I know that UK, for example, is considered to be a country where the price competition is very, very high.

Actually our business there is very, very good.

And we have become now number 1 generic Company in the UK.

In Italy I have already mentioned that we became number 1 generic Company.

The price erosion in Italy is different and slower than in the UK, and so on and so forth.

I don't want to review all the countries, but basically we are making progress in Europe.

And we're substantiating our leadership position.

And in each country we use different tactics, but the strategy is the same -- broad range of products and launches of new products.

George, do you want to (indiscernible)

On your second question, I'm not completely sure I understood.

Certainly the speed of generic conversion helps us, no question that as a market leader the faster we get generic penetration, the better for us.

As it relates to the other part of it, I think there might be as an assumption I'm not sure I agree with, which is that the rate of competition is increasing, I thought you said.

I think what I can say is this -- as players enter the market, depending on the product, if it happens quickly, share does stabilize very quickly.

That I think I can say, although again I'm not sure that's particularly new.

And the fact that we've got a large basket of products tends to help us all the time when people are looking at which companies to source their products from.

I think in general terms we are driving an environment in which companies want to do business with large players with large baskets of products and large pipeline.

Just for clarification, what I meant was in these commodity-type markets where you have multiple players coming in, whether it's post-exclusivity or not, does faster erosion of price leading to ultimate stabilization in the shakeout of marginal players help you guys over time as you guys -- your philosophy essentially is be last in these markets.

First, I'm not sure there is fast erosion of price.

Again, that depends on the market.

If it's 1 in which price erodes very quickly, the fact that we're in many cases vertically integrated is an enormous help to us. (multiple speakers) to add that.

Just 1 other question on the injectable side of things.

In terms of the Prothanal (ph) business, I noticed AstraZeneca's Diprivan continues to hang in there pretty well.

As a matter of fact, it increased sequentially.

Do you have any plans to get a little bit more aggressive in the market?

It seems to me there's a nice opportunity out there.

Could you speak about that?

And then also, your early entry into Carboplatin, does that give you a competitive advantage, given that there probably were some hospital contracts involved?

In Prothanal we're actually pleased with the way the Prothanal market is playing out at the moment.

You will see occasionally movement of share back and forth on individual and smaller contracts.

But in general I would actually say we're pleased with the positioning on Prothanal.

That's a very strong market for us with strong shares and good price.

Yes, sure launching a Carboplatin prior to the entry of the other generics was helpful; absolutely gives us the position to hold.

And certainly other companies will have to break into the contracting part of that segment.

So yes, having the launch of it early was beneficial to us.

Thanks for your help, George.

David Buch, Buckingham Research.

Good morning.

Thanks for taking the question.

First 1 is on a follow-up on the injectable business and Prothanal.

Are you expecting competition as we get into 2005?

Secondly, on generic Rosafin (ph) or Cetreaxone (ph) is that a product that interests you on the injectable side?

And where is Sicor in terms of having more of a broader and antibiotic platform matching your solid dose?

And I have got a follow-up question.

On the Bupropion, there's nothing specific to report as it relates to the competitive landscape.

Of course, we recognize that at some point someone will enter this market, but there's nothing that we're seeing that is saying to us it's imminent.

I'm sorry, that was Prothanal.

What did I say? (multiple speakers) Prothanal -- excuse me.

Same answer?

(multiple speakers) right answer, wrong product.

As it relates to your question about products, as you know we will not disclose our plans for R&D programs of specific products, so I would have to duck that David.

Broadly speaking, we're evaluating the overall positioning of Sicor, and at the moment very pleased with the way it's unfolding.

This is 1 for Dan.

Last quarter you had mentioned an issue in Hungary that was sort of a onetime issue with pricing.

Has that been corrected, repeated in this quarter?

And can you give us some sense of any other European markets where pricing may have been more or less positive?

I think that Israel covered already most of the pricing issues in Europe.

Specifically regarding Hungary, it was a 3-month special order of the government which ended in June.

And prices are back to where they were.

Obviously people took advantage of the lower prices in Q2 and had some early purchases.

But the prices are back to normal.

Thank you.

Ken Cacciatore, SG Cowen.

Just a couple of quick questions.

On Gabapentin, if you could just discuss what's been happening in that market in terms of your share, in terms of pricing, and specifically has pricing now stabilized.

And then a follow-up question.

Yes.

Some of this we're going to cover, of course, during lunch.

But we're very pleased with the initial share signs.

That's probably still selling out a bit.

But we're pleased with the share.

IMS has us at this point at about 40 percent, a little north of that.

And I would say right now price is relatively stable.

Following up to that, in the discussion of authorized generics I think some of the concern around Gabapentin is not necessarily that it is an authorized generic, i.e. it didn't get farmed out to another generic manufacture; it is that it was the branded company, Pfizer, kept it on their on their own.

It's a subtle but distinct difference, and probably important difference.

How do you feel?

Is this kind of an on-off or is this a harbinger of things to come, where the branded company actually releases it on their own and doesn't give it up to what would be considered a rational competitor?

If you could just discuss the differences.

You're going to steal my whole lunch.

In general terms at the moment we're not seeing any particular difference between those who launch through a partner and those who launch through their own sub.

I will put it that way.

I will wait for lunch.

Thanks.

Robert Bonefrenton (ph), Citigroup.

Good afternoon, everyone, and congratulations for a strong quarter.

A couple of quick questions.

First of all, the FDA, you say you're going to write a letter on Agilect to the FDA.

They have 6 months to respond.

Can you give us an estimated timing of launch of Agilect?

Do you think it's reasonable to assume that you launch it in 6 months or might shall we be waiting longer?

Our plan is to launch the product within 2 months after obtaining the approval from the FDA.

And regarding -- I can't forecast when the FDA will respond to us, whether this will be in 1 month or in 6 months.

Legally they have 6 months.

Last time, Israel, you told us that if the label wouldn't be to your satisfaction, you would do more clinical work.

Are we now in a situation where you're happy with the label or the label you're discussing?

We're still discussing the label.

And I have no comments regarding additional clinical work, which currently I don't see it.

But I don't want to commit to anything before we finish everything with the FDA.

Thank you.

Next question.

Dan, were there any provisions that you released in the third quarter?

Nothing which would interest you in terms of size (ph), if at all.

Thank you.

A question on Wellbutrin.

We had yesterday both Andrex (ph) and Empath (ph) have sort of had great -- Wellbutrin has become an issue all of a sudden I think for them.

Can you give us some idea about whether that's sales in the market or is it in accounting?

Or can you give us any insight at all into what it is happening on Wellbutrin?

Now we get to say Bupropion.

I don't think anything extraordinary.

The product launched with multiple competitors.

There's been a follow-on product which has actually been doing relatively well from GSK taking some of the share of the category.

But from our standpoint it is happening largely as expected.

Certainly in terms of price I think what is probably noted (ph) in the product is that the follow-on product is doing reasonably well.

Got you.

Okay, just 1 question, maybe back to Dan.

If you could give us a bit of a sense on what were in this quarter the gross margin drivers, because I think you've said in the past that -- I think previous quarter was a bit below where we had hoped for it on the gross margin side.

And this quarter with more pricing pressure, a bit sort of around everywhere, especially the larger contribution of Europe, which you have previously said is a lower margin part of your business, how were you able to offset the margin pressures in the quarter?

By our mix.

Thank you very much.

We would like to limit it to 2 more people, and please limit it to 1 question each.

David Maris, Banc of America Securities.

A 2-part question -- 1 question, 2 parts, unrelated to each other.

Can you provide approximately how much Sicor sales were in the quarter?

You gave a less than 50 percent number.

But just some amount?

And then more broadly, do you thank that Mylan-King merger creates a tougher environment in the US generic business or creates more opportunities for Teva to gain share in the US market?

You're asking us 2 questions we don't want to answer.

Obviously we're not going to comment on the Mylan-King merger.

And unfortunately we (multiple speakers)

If I can rephrase it then, does consolidation (multiple speakers) the rephrase is part A and B. Does consolidation in the sector of generic companies, generic competitors with branded companies, make it easier to gain share with either chains or retailers and wholesalers?

Or does it make it more difficult because they can pair up with other branded products and the like?

We don't think that economies of scale between generic companies and branded companies are evident or easy by and large.

And what we've tried to do very much of course is look at our 2 businesses and try and get synergies from them, but without distracting from what we consider our core business, which is our generics business.

And I think the risk is always that combining 2 different businesses takes ones eye off the major priorities.

And we try very hard not to do that.

And the Sicor sales, any more detail other than less than 100 percent (multiple speakers)

They are very good.

We don't want to split out Sicor sales, because we are getting a lot of synergies between Teva and Sicor sales forces in the segments, the different segments.

And you're starting to see products that cross between those 2 segments, like Medroxyprogesterone for instance.

And it's kind of meaningless.

And for us it's an artificial distinction that we don't want to prolong.

Thank you very much.

Rich Watson, William Blair & Co.

Hopefully a quick and easy 1 here.

Can you just update us on the launch of Tevtropin (ph), when we can expect that and maybe, assuming you have maybe been looking at the market a little bit, what you're seeing and how the product might be positioned?

We can't give you an exact date at this point.

What we had said, I think during our last quarter, was hopefully late this year, possibly early next year.

We're still working through our launch plan, and so we couldn't give any backdate today.

In terms of positioning, I'd like to again continue to hold that back a little bit.

We're still putting together our launch plans and our marketing plans.

And those are progressing very nicely.

So as we get closer we will probably be able to provide more updates.

Thanks.

Thank you very much.

And Dorit has some closing remarks.

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