Teva Pharmaceutical Industries Ltd (TEVA) 2009 Q1 法說會逐字稿

Greetings and welcome to the Teva Pharmaceutical Industries first quarter 2009 results conference call.

At this time, all participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Elana Holzman.

Thank you.

Ms Holzman, you may begin.

Good morning and good afternoon everyone.

Welcome to Teva's first quarter 2009 earnings call.

We hope you have had a chance to review our earnings press release, which we issued earlier this morning.

A copy of the press release is available on our website at www.tevapharm.com.

Additionally, we are conducting a live webcast of this call that is also available on our website.

Today, we are joined by Shlomo Yanai, President and CEO, Eyal Desheh, Chief Financial Officer, Bill Marth, President and CEO of Teva North America, Moshe Manor, Group Vice President, Global Branded products, and Gerard Van Odijk, President and CEO of Teva Europe.

Shlomo and Eyal will begin by providing an overview of our results.

Please note that Shlomo will be referring in his prepared comments to non-GAAP gross margin, operating profit, net income, and EPS.

Eyal will provide additional detail on the items excluded from our non-GAAP results.

We will then open the call for a question and answer period.

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release, also pertains to this conference call and webcast.

Shlomo?

Thank you, Elana.

Welcome everyone, and thank you for joining us today, as we review Teva's results for the first quarter of 2009.

I am very pleased to report that the year is off to a strong start for Teva.

In fact, we exceeded even our own expectations, and we did so despite the negative foreign exchange effect of approximately $200 million on our top line.

And as you will hear in a moment, this has had no impact on our operating income.

The year is also off to a strong start strategically.

We are making great progress on the Barr integration, and we continue to run ahead of schedule, as we work to combine our two companies.

Teva's net sales in Q1 reached a record $3.1 billion, with gross margins of 58.4%.

Our operating profit was $826 million, with net income of $634 million, and all of this ultimately brought us to EPS of $0.71.

Our results in Q1 were driven by increased sales in all of our major businesses and across our many geographies, as well as by excellent progress we have made in the Barr integration.

Once again in Q1, all of our global units continued to grow.

In North America, we had a very good quarter, with sales up 36% over Q1 '08.

Led both by sales of our branded products, and by our US generics unit, which achieved total sales of approximately $1.1 billion.

Despite the absence of any major product launches in the first three months of 2009, we enjoyed strong sales of products from Teva's and Barr's portfolios, and the progress we have made in the integration, enabled us to leverage Teva's marketing, sales, and distribution capabilities, to further enhance sales of Barr's products and files.

I would like to remind you that the comparable quarter, Q1 '08, was an exceptional quarter during which we delivered the balance of 2007's Pantoprazole launch, introduced alendronate and sold the balance of our OxyContin quota, all major products.

I would also like to note that we are especially pleased with the initial results of our recent launch of generic Adderall XL, which will be reflected in our Q2 results.

In just four weeks Teva has already captured 47% of the market share of this important product, and we anticipate growing our share significantly.

In Europe, sales were up by 24% on a local currency basis over Q1 '08.

I am speaking in terms of local currencies, because we believe that this is the proper way to measure business performance these days.

When currencies are so volatile, it is difficult to get a true picture of operating results, which are naturally measured in local environment and in local currencies.

Despite the slowdown in market growth, in certain European markets, such as France, Italy and Spain, we managed to increase our market share in major markets.

We increased our leading market share in the UK, in the important markets of France, Spain and Poland where we are now the #3 player, and in Germany where we are making significant progress.

This was an outstanding quarter for our international business which grew by 25% in local currencies, supported by especially strong results in Latin America, and our generics business in Russia, in Israel and in Croatia, a new market for Teva.

As you know, Pliva is Croatia's largest pharmaceutical company, and sales in that country are quite substantial.

Teva's innovative business began the year on an especially strong note, as in-market global sales of Copaxone grew 15% over the first quarter of 2008.

In the US, in-market sales increased by 38%, and Copaxone's market share reached over 27%, further widening the gap between Copaxone and the #2 product.

In terms of NRx, our market share reached 37%, and our TRx market share reached a new record high of just over 37%.

Outside the US, despite continued unit growth, the foreign exchange effect resulted in a decline of 17% in in-market sales compared to Q1 '08.

We view this decline outside the US as an anomaly, and expect Copaxone to continue to outpace the market's growth and perform extremely well.

In early March, FDA approved an expanded indication for Copaxone, to include the treatment of patients who have experienced a first clinical episode, and have MRI features consistent with MS.

The FDA's approval follows a similar decision by the MHRA in Europe, under which 24 EU member states have mutually recognized an expanded label for Copaxone.

Based on the success of the Copaxone brand, we are continuing to advance our research, to ensure its position as the first line gold standard MS therapy well into the future.

I am pleased to announce that Teva is developing a number of product enhancements, aimed at improving the administration of Copaxone for our patients.

Our latest formulation contains 20 milligrams of glatiramer acetate in much smaller injection volume.

In June, we will begin a study to assess whether decreasing the injection volume can improve the injection experience for patients.

This was also a strong quarter for Azilect.

In-market sales of which grew 50% over Q1 '08, with growth in the US over 90%.

We are very optimistic about Azilect's future, and are excited about the promising results of the ADAGIO and tyramine studies, which may lead to Azilect's label being modified, and allow it to be more broadly prescribed.

Turning now to our global respiratory business, sales reached $185 million, up 9% over Q1 '08.

The increase was driven primarily by strong sales of ProAir in the US, while the conversion from CFC to HFA based inhalers is now complete.

ProAir maintained around 60% market share in Q1.

Meanwhile, our second respiratory brand in the US, QVAR, increased market share, and has now moved into the #2 position in the inhaled corticosteroid market.

As you know, we expanded our specialty pharma portfolio through the addition of Barr women's health business, where in Q1 sales grew 39% to reach $97 million.

We believe that this unit has excellent prospects for growth, and have set our sights on growing it into a $1 billion business, and becoming the leader in women's health in the US.

As I mentioned earlier, we are continuing ahead of schedule in integrating Barr.

With each of Teva's acquisitions, we have become more and more effective at integration, so that when it came time to integrate Barr, we were able to hit the ground running.

The integration has been going so well that after only one quarter, we are operating as one unified organization, in key markets such as the US, Germany, Poland, Russia, and Croatia.

As I told you in February, we now expect to realize cross-synergies from this acquisition of over $400 million in the third year, and we expect the acquisition to become accretive to GAAP earnings in the third quarter of this year, three quarters after closing.

Based on our strong start to the year, I am very optimistic about our results for 2009 and 2010.

We expect net sales in 2009 to be between $14.1 billion and $14.6 billion, with non-GAAP EPS in the range of $3.20 to $3.40.

We expect the second half of 2009 to be stronger than the first half, with quarterly net sales and EPS results improving sequentially.

Looking to 2010, we believe that EPS will increase 30% to 35% over our 2009 projected EPS, on the strength of venlafaxine, our generic version of Effexor XR launch, as well as additional launches in the US, the completion of the takeback of Copaxone from Sanofi-Aventis in North America, and synergies from Barr integration, both sales and cross-synergies.

And now, I would like to turn the call over to Eyal for a more detailed financial review.

Eyal?

Thank you very much, Shlomo, and good day to everyone.

I hope you have had the opportunity to review the press release we issued this morning.

We are indeed off to a good start for the year.

In fact, the results are better than our original expectation.

We presented strong sales and GAAP, as well as non-GAAP earnings.

Results were driven by a good product mix, excellent expense control, and major progress made with our integration of Barr, which is ahead of plan and schedule.

We once again witnessed Teva's tremendous capability to identify an acquisition target, execute on our plans, and drive added value from this acquisition faster than expected.

The devaluation of foreign currency relative to the US dollar reduced our top line by approximately $200 million compared to Q1 2008, and by approximately $70 million compared to Q4 2008.

However, unlike most of 2008, foreign currency's effect were neutral to operating income, which benefited from a very good currency balance.

I would like to reiterate what we initially said about Q1 and 2009 in general.

We did not expect this to be a linear year.

Sales and synergies from the Barr integration are expected to improve from one quarter to the next, with most of the new product launches planned for the second half.

In light of this, we are very pleased with our good start of 2009.

Before I delve into the numbers, I would like to remind everyone that we are presenting GAAP and non-GAAP results for the first quarter.

In our non-GAAP presentation we have excluded the following items this quarter, which are primarily related to our acquisition of Barr, which was completed towards the end of December.

$220 million of inventory step-up, amortization of purchased intangible assets totaling $54 million, divided between cost of goods sold $46 million, and remaining $8 million in sales and marketing expenses, and $14 million in restructuring and impairment charges.

In addition, the related tax effect of $105 million.

You should note that the items excluded in arriving at our non-GAAP results in the first quarter of 2008, are not identical to those in the current quarter, as in Q1 2008 we excluded in-process R&D resulting from the acquisition of CoGenesys, and the write-down of auction rate securities that did not appear this quarter.

As indicated in the past, we present non-GAAP figures, to show you how we as management and our Board, look at our financial results.

Before going into some more details, let me highlight two major elements that affected our results this quarter, foreign exchange differences, and our North American distribution of Copaxone.

Foreign exchange differences continue to play a significant role throughout this quarter, impacting sales and our balance sheet, but not operating profit.

Similar to Q4 last year, foreign currency differences continued to adversely affect sales this quarter by approximately 8%, or $200 million, as the dollar strengthened against certain foreign currencies, primarily the Euro, the British pound, the Hungarian forint, the Canadian dollar, and the Russian ruble, compared to the first quarter of 2008.

When we eliminate the foreign currency impact for the quarter, consolidated sales actually grew by 30%, with sales in Europe growing 24% in real terms, and sales in our international markets growing by 25%.

We managed the countries in the local functional currencies, and measured their sales and profits accordingly.

Operating profit on the other hand, was not impacted this quarter by foreign currencies.

As we mentioned in the past, Teva's diverse geographical presence, continues to provide us with a good natural hedge, that mitigates much of the risk involved in currency fluctuation, and minimizes the impact on our bottom line.

Our well-balanced currency structure is also a part of our long-term and a jury review of creating a balanced business model, which protects our operating results.

Now as for Copaxone, similar to the past three quarters, the change we made in the distribution of Copaxone in North America increased sales in this quarter compared to Q1 last year by $200 million, and was practically neutral to operating income.

Now let's look at our consolidated results.

Sales totaled $3.1 billion, an increase of 22% compared to Q1 last year.

Exclusive of the items detailed above, non-GAAP net income was strong, up 4% compared to Q1 2008, despite higher finance expenses, and higher tax rates as planned, both resulting from the acquisition of Barr.

Non-GAAP operating income was up 14% compared to Q1 2008, and benefited from strong gross margin and tight expense control.

Non-GAAP gross profit margin which excludes amortization of intangible assets and inventory step-up was 58.4% in the reported quarter, compared to 54.9% in the comparable quarter of 2008.

The improvement in gross profit margin is attributable to many parts of our business.

But mostly, higher Copaxone sales, partially resulting from the fact that we now record 100% of Copaxone sales in North America, higher respiratory sales, especially ProAir, and the addition of Barr, whose generics' gross margin this quarter is a bit higher.

Net R&D expenses reached $219 million, or 7% of sales, up 22% compared to Q1 last year.

As you know, the higher spending rate on R&D is consistent with our strategic plan to double R&D output, and in Q1 2009, we already more than doubled the number of our submissions.

Sales and marketing expenses excluding amortization of intangible assets totaled $596 million this quarter, or 19% of sales, compared with 13% of sales in Q1 2008.

The higher sales and marketing expenses are in-line with our plan, and resulted primarily from the termination of our distribution agreement with Sanofi-Aventis, regarding Copaxone in North America, as of April 1st, 2008.

The net impact of the termination of the distribution agreement on sales and marketing totaled $196 million in the first quarter.

We recorded $63 million of financial expenses in our Q1 2009 results, compared with $14 million of non-GAAP financial expenses in the comparable quarter of 2008.

The higher finance expenses resulted from debt incurred in connection with the Barr acquisition.

In Q1 this year, we adopted staff position number ABP 14-1.

Under this rule we are required to bifurcate the equity from the debt component within some of our convertible debentures.

This results in an increase in financial expenses, but with no impact to fully diluted earnings per share.

The tax rate provided for in Q1 2009 was 17% of pretax non-GAAP income.

This represents our current estimate of the annual tax rate for 2009, compared with a rate of 10% for the entire 2008.

The increase in tax rate resulted primarily from the fact that Barr's corporate tax is higher than Teva's.

Now let's have a look at our cash flow.

Cash generated from operations amounted to $733 million.

Our free cash flow, which includes $23 million received this quarter in connection with the sale of our veterinary business in Israel, less capital expenditure of $159 million, and cash dividend of $127 million, amounted to a total of $470 million in free cash flow.

On March 31st, we had $2.5 billion in cash and financial investments.

Our total loan, bonds and convertible debenture stood at $8.4 billion, similar to December 31st, 2008.

During the quarter, we paid down our bridge financing loan by approximately $350 million, and at the same time borrowed a six year $200 million loan from the European investment bank, as part of our effort to extend maturity of our borrowing portfolio.

During the second quarter, we plan to continue to pay down the bridge loan and other short-term borrowing by close to $1 billion.

Some of this has already happened.

DSO, or Days Sales Outstanding, amounted to 51 days this quarter, unchanged from December, and down from 62 days in Q1 2008.

We have calculated the DSO as we always do after netting out from the receivable the sales reserve and allowances, so called SR&A, whereas our Accounts Receivable and SR&A did not materially change, the decline in DSO resulted primarily from higher sales.

Inventory days were 191, down from 206 in December 2008.

Part of the decline is due to the sale of products which included inventory step-up from the Barr acquisition.

Capital expenditures reached $159 million this quarter, down from $181 million in Q1 2008.

As the acquisition of Barr reduces our needs to invest in plant and equipment.

And last, dividend.

Yesterday, Teva's Board approved a quarterly dividend amounting to approximately $120 million.

On a per share basis, our dividend, which is declared in Israeli sheqel, was 0.6 sheqels, based on the rate of exchange of May 4, 2008, of the sheqel to the US dollar, this translates into approximately $0.144 per share.

Thank you all for your time and attention today, and now we will be glad to take your questions.

Operator please go ahead.

Thank you.

We will now be conducting the question-and-answer session.

(Operator Instructions).

Our first question comes from Randall Stanicky with Goldman Sachs.

Please state your question.

Great, thanks guys.

Just a couple questions.

First, more of a housekeeping.

Should we think about the components of the guidance being generally intact, as we think about gross margin, SG&A and R&D?

The thought here is that the gross margin performed obviously above trend, and it looks like there are some recent launches that could support that going forward, so how do we think about that?

You remember last quarter we said that the gross margin for the year, or the guidance that we get for the year, would be somewhere between 56 to 58%.

We started the year with the high end of that range.

Let's not forget the full year ahead of us.

I think that the range that we gave, and if you look at all of the numbers, they are all more or less around that range.

That is the same thing for SG&A, sales and marketing is a little higher than that, than what we have guided, but again, there is a full year and more revenues to be gained, that impacted the margins.

So I think that that structure is well in place.

Okay.

And then secondly, just as we look at European sales, can you help us think about the constant currency organic growth?

I assume obviously Bentley is in that number, and I assume you have some Pliva, at least Germany, if not some other countries in there.

If we think about the 24% constant currency growth, if we were to think about that number on an organic basis, where would that be?

Gerard, maybe you want to comment on that?

Could you say it again?

Sure.

How do we think about the organic constant currency growth for Europe?

Obviously Bentley is in that number, that 24% growth number, and I assume that there is some Pliva contribution allocated to that.

So if we were to think about the Teva legacy business over there, can you talk maybe about growth trends in that business?

Yes, I think in general what you could say of course it has been in our strategy to be inquisitive, so to a certain extent, whether organic or acquisitive, it is part of our strategy of growth in Europe anyway, so that is the first point of course.

Second point, if you look at underlying growth outside of the markets where we have acquired sales through Bentley or Pliva, we are showing some nice performances as well in local currencies, whether you take UK or France, or other markets like Italy, we are doing relatively well.

The markets in these places of course has been less buoyant compared to last year, that is probably related to the economic pressure that is on the governments and on the payors.

But within that concept, we are doing quite well, and without exception we are growing faster in those markets than the underlying market growth.

So we are gaining share in virtually every market in the EU.

Are you growing across each country?

Some places.

Some places we grow very, very little, and some others we are growing very, very well.

As I said, it's related to the dynamics of the market, and as I said, there is no market in Europe today in the first quarter, where we have not been able to follow the dynamics of the market, or beat it.

Okay.

And then just the last question.

Can you give us a relative split on how much of the Pliva business in terms of allocation, revenue allocation, went into EU versus international?

Maybe I can take that.

Pliva basically added sales, by and large to four countries.

For instance, Croatia and Russia is part of our International business, Germany and Poland are part of our European business.

Croatia we had no, virtually no presence before, so this is almost full, and in addition, in the other countries, there is organic growth in addition to the Pliva in the three other countries, which Gerard had mentioned before.

Let me follow on on that, because I know where we are heading, and actually it is very difficult now to do this kind of analysis, due to the fact that as I said in my part, we are now operating as one organization, and it is very difficult to see what was contributed by Teva, or by Pliva, or what, because of the synergies between the two, and we have many nice examples, that have already worked through the first quarter.

Having said that, I have can provide you with some numbers that will show you part of the contribution of the Pliva part to Teva operations in the international, and in the European regions.

But first of all, I would like to touch base on the bottom line.

Pliva as you well know is a public Company, was a losing money company.

After the first quarter, we actually did a turnaround, and now the bottom line on Pliva is positive by $27 million.

The growth contribution in each country where we had a previous Teva organization, and a Pliva, is better than it used to be before.

Okay.

That is helpful.

Thanks, guys.

Thank you.

(Operator Instructions).

Our next question comes from Ken Cacciatore with Cowen and Company.

Please state your question.

Yes.

Thanks, guys.

Earlier this quarter you mentioned that in your branded franchise, you are interested in maybe looking at the pain area.

So I wanted to know what steps you're taking right now at this point to expand that effort, or if you have started to expand that effort or would we be thinking about maybe acquisitions, and the follow-up on that would be also just from an R&D perspective, your R&D looks roughly as if flat quarter-over-quarter, and Barr was running about 60 million to $70 million in R&D spending per quarter.

So I wanted to understand how you could have gotten that much leverage that quickly, and what should we be thinking about that line moving forward?

Thanks.

Bill, you want to take that?

Bill?

Yes.

Hey, how are you, Ken?

Just a couple of quick points.

We are constantly evaluating different divisions.

One of the divisions that we talked about, as we talk about branching out our specialty pharma, and as Shlomo broke out, the Women's Health performed very well this quarter, and we are looking to grow that business into a $1 billion business here.

We are looking at other areas such as pain management, such as oncology.

All of those will come into review as we begin to think about acquisitions again.

Right now though, of course, the main emphasis for Teva will be looking essentially at getting Barr integrated as quickly as possible, and as Shlomo has said, we are doing such a good job, it is beginning to be difficult to decide what was Barr and what is Teva.

With respect to the R&D spend, I think you can look at that very pragmatically.

As we get going, and we start to integrate with Barr, the first thing you look at is the R&D, and you kind of have to freeze it a bit for a while, until you can decide which file to push forward, because you have a certain amount of overlap in the R&D.

So I think you will see the R&D numbers ramp up and normalize over time, so I just think that this is a bit of an anomaly right now.

Just following up from Shlomo's comments about, or Eyal's comments in terms of guidance, if you take the Q1 revenue run rate here, and take your low end of your range, it looks like a recovery to about 3.6 to 3.7 on the top line, if I'm doing my math correctly, and I wanted to understand the components of that?

Is it going to be US centric or is it going to be European/International centric or should we think kind of equal growth in both?

And what from a European standpoint or an International standpoint, would drive such a dramatic recovery in the back half of the year?

First of all, yes, we said this, if you remember, we said it already when we provided guidance for 2009 about three months ago.

We said exactly the same thing.

Most of the large launches for the year, particularly in the US generic market, but also in European and International markets, which they are smaller by definition than a very large prior port.

In the US, our targeted to Q3 and Q4, and Bill maybe could add some information to that, give you some clarity and visibility as to why the second half is going to be so much stronger than the first.

But remember that Q2 should be better than Q1.

There is also some sequential improvement quarter-over-quarter.

Bill, do you want to take that?

Yes.

Just to follow up on that.

Although in the first quarter we launched nine products, none were really significant.

The largest ones were Sumatriptan and Solodyn.

We are still looking at the potential to launch approximately 30 more additional products yet this year, with innovator value of about $25 billion.

We have got a number of cases outstanding.

We are waiting for decisions.

Everything from [donepezil] to Montelukast, but we are also very excited about Oxaliplatin, Reloxifen is still out there, Tamidar, Ortho Tri-Cyclen, low there are a number of cases that are still awaiting decisions.

So we see quite a bit of opportunity especially though around the back half, and don't forget we are still talking about, there is still the discussion around enoxaparin, and regardless of what happens, Prevacid will launch in November, and that we expect to be a rather large market, along with the, again, that is lansoprazole, and the ODT will launch as well.

Great.

Thank you.

Thank you.

Our next question comes from Rich Silver with Barclays Capital.

Please state your question.

Just a couple.

The respiratory revenues in the US appear to be down sequentially, and just wondering if you could comment on what drove the revenues on a sequential basis?

Bill?

Yes.

Hey, good morning, Rich.

Hey, Bill.

With respect to the respiratory, really we didn't see it as an issue at all.

It is actually performing quite well.

Don't forget that you have two aspects with respect to respiratory.

You have a seasonality aspect, and we had the conversion happening in the fourth quarter.

So we saw some real buying that occurred in the fourth quarter, as most people didn't want to miss this conversion.

They wanted to make sure that they didn't dispense CFC, so there was quite a bit of purchasing there.

So the quarters look good.

Our share is sitting at almost 60%, although for the longer run I think that that is a bit aggressive, but we are doing very well with respiratory, and we are very pleased with the number.

Just one follow-up, which is back on to the gross margin.

So can you maybe help us here?

It appears to us that perhaps the Euro to Hungarian foreign exchange rate played a role in the cost of goods, and maybe that had some outsized impact on the gross margin improvement from a cost of goods standpoint?

Can you help us out a little bit on that?

Yes.

Yes.

It is Eyal.

Absolutely.

It is not just Hungarian forint, it is also the Israeli sheqel.

Also the sheqel, yes, of course.

Yes.

Between Israel and Hungary, that is more than half of our pharmaceutical and API production in the Company, and definitely two countries where we spend more than we sell, and the weakness of these two currencies had an impact on gross margins, as well as R&D expenses.

One of the earlier questions talked about expenses in R&D.

Don't forget that we also have R&D in these two countries, and the weakness of the currencies when you convert it to dollars, also reduce R&D expenses.

You can find it mostly in the growth, in the cost of sales, and R&D, and these two currencies were major in reducing expenses.

I want to reiterate the numbers.

I mean, it looks like magic, but the numbers are exactly identical.

There are $200 million of reduction in sales, and $200 million in reduction of expenses, both resulting from currencies, so exactly identical.

Eyal, if that is the case, Eyal, if it remains constant, then shouldn't we assume that later in the year you have these launches, which are presumably higher margin products, because they are new, couldn't we expect the gross margin to actually exceed that guidance range?

Can you promise me that it remains constant?

No, no, I am just saying if it did, obviously you are looking for margin improvement, all else equal, because of the new product introductions?

Yes, it could have an impact.

Our business is not to forecast currencies.

We are trying to balance it.

It will have an impact on the top line as well.

But let's not forget that.

It is balanced.

Okay.

Thank you.

Thank you.

Our next question comes from Greg Gilbert with Bank of America-Merrill Lynch.

Please state your question.

Thank you.

My first one is on the new form of Copaxone.

What prompted that announcement today, and can you describe the steps and timeline between now and potential filing?

Yes.

This is Moshe.

As we said, we are starting the low volume formulation, with the objective to improve the injection experience for patients.

So a patient, as we know, it is very important for Copaxone, being a daily injection.

We are planning to embark a starter study in June, and actually to conclude the study by year end, and based on the findings we will take it from there, based on the finding of the study, how to go about the data, around the finding of these new formulation results.

And should we think about this as a potential complete replacement strategy for the current form of Copaxone?

I believe it is too early, or premature to comment on that.

We are just embarking on the study, and we can discuss it probably when we see the results of the study.

Okay.

My follow-up question is for Bill.

Bill, can you take out the crystal ball, and make any predictions about patent settlement legislation, and this a scenario in which Teva could be supportive, if certain things were changed or tweaked there?

Thanks.

Good morning, Greg.

Yes, I mean, I think that patent legislation is still a real hot issue in DC.

That said, you are now running into the Obama administration trying to move on healthcare.

And so although the FTC really wants this, and there is a lot of talk about it, I am just not so sure with all of, with what needs to be done, what the Obama and administration wants to do around healthcare, whether it is really going to get traction or not this year.

And as I have said before, Greg, the way that this has had a chilling effect on settlements, I am not so sure that I would be afraid of a settlement bill at this point in time.

Because at least it would define I think in the context of how a Bill should be done, certain Safe Harbors for us to be able to settle.

And we think that settlements between branded companies and generic companies like in all other businesses should be allowed.

Thanks.

Our next question comes from Chris Schott with JPMorgan.

Please state your question.

Great.

And just maybe following on to the kind of DC environment.

Can you talk a little bit about where you see the state of follow-on biologic legislation in the US now, with this broader healthcare reform discussion we have seen emerge this quarter?

From your perspective does that accelerate the follow-on of Biologic?

Or is there risk that the legislation gets delayed, or lost in the mix with these broader healthcare reform discussions?

And just a quick follow-up from there.

I think this is actually something that might get tagged onto some other larger healthcare legislation, remember, it is a saver, and I think that most of the legislation designed around healthcare, could very likely become costers, or actually cost the system, and I think the Administration will be looking for areas to save money.

So I think it is very likely, or very possible that this bill gets tagged onto something, along a broader healthcare discussion in the back half of the year, and we are hopeful that healthcare can pass.

Great.

Thanks.

And then just a follow-up.

Copaxone ex US, can you elaborate a little bit more on the sales timing issue that you referenced in the press release?

How large of an impact was that in the quarter?

This timing issue does that have any bump for second quarter sales, or was that just purely a first quarter issue?

Thanks.

This is Moshe.

As we said, two effects, one is the foreign exchange, and the other is the sales in some of the international markets, that are not equally spread across the year, due to the nature of the purchasing.

Ordinarily, if you look at that, we see solid goals in units and based on the result and the trend in the market, we believe that the Copaxone outside the US will continue to grow in '09.

Thank you.

Our next question comes from Scott Hirsch with Credit Suisse.

Please state your question.

Hi, there.

Just wanted to get a sense of what you guys are thinking about managing the risk exposure profile to potential damages.

Clearly Solodyn was settled.

Protonix questions still are out there.

You noted that you planned to launch Evista at-risk if it came before the PI.

What are your thoughts now with the overall profile?

Bill, would you like to take it and then I will follow on?

Yes, Scott.

Thanks for the question.

I think that we have always taken risk with a very pragmatic approach.

We take a very stringent review of a product before we launch, and as you know, we previously have not launched where we believe that there would be an adverse court decision, and so even in the case of pantoprazole, the one you called out there, We did I wouldn't say win, a PI was not put in place, and we felt that that of course gives us the kind of coverage we need to go into the market, which is what we did.

All that aside, we have always reminded the market that we carry P4 insurance, and that is something that we think is very important for us to be able to continue the strategy.

Okay.

And then just one quick follow-up.

You mentioned Duragesic was a contributor in the quarter.

Can you give us some color on your patch capabilities and the manufacturing scale at this point?

I think you are confusing the Fentanyl Citrate, which is actually the lollipop, if you will.

Okay.

As opposed to the Fentanyl patch.

Fentanyl patch is doing quite well, but we are still up to 6% of the market and we are growing, and we are doing it the way we had always said we would do it, which would be the slower Teva way, and we are trying not to affect price in the market, and gathering share when we can.

Thank you.

Our next question comes from Adam Greene with RBC Capital Markets.

Please state your question.

Thanks, good morning.

Shlomo, your $1 billion women's healthcare goal, is that just for the branded women's healthcare, or does that include the generic side of the business, and does that also include acquisitions, or do you think you can hit that organically, and then I have a follow-up question?

It is too early to answer this question with practicalities.

I would say that we recognize the potential of this branded segment, and we believe that part of our future growth, could be heavily related on some of the specialties, which is a very interesting segment in the pharmaceutical business, and once we acquire the very interesting franchise which is doing very well, which is the Women's Health franchise, we believe that we could make it into a $1 billion market and of course we will have to draw our plans, and that will be probably a part of almost every tool that we are using, once we would like to grow our business, mainly organic, and of course if there is a relevant acquisition, we would consider it as well.

Thanks.

And then a follow-up.

Perhaps for Bill on Actiq.

What is your understanding of your arrangement with Cephalon, in terms of supply agreement there?

When are you planning for that to I guess terminate?

Adam, we have supply through September.

They need to supply us through September, so that is clear.

We have plenty of supply on hand, and we anticipate our approval any time.

So the guidance assumes that you have it through September, then that is it, or you are assuming that you have approval?

No, no, no, no, no.

We have supply that will take us past September now.

So we don't feel any problem.

Right now, Cephalon has a requirement to supply us through September.

Okay.

Thank you.

Our next question comes from Elliot Wilbur with Needham & Company.

Please state your question.

Thank you.

Maybe just shifting gears a little bit, wanted to just ask a couple of questions around Azilect.

First, could you break down for us the sales split between US and ex US, and also if possible, if you could give us some idea of where you are seeing the greatest usage of the product, whether as monotherapy or combination therapy?

And then with respect to the ADAGIO study, can you update us on the timing of the NDA submission for potential expanded indication?

And what should we think about that, if in fact you are successful in getting that approved, in terms of what it really does for the market potential of that product?

Would it be essentially opening up more newly diagnosed patients, or would you expect to see greater utilization across the spectrum of all indications, if you were to able to get that label expansion?

Thank you.

This is Moshe.

I will try to answer your questions.

Based on the results of, when we announced the results of the ADAGIO, we already saw the trend, both in mono, and both in adjunct indications.

Naturally, ADAGIO is supporting the mono indication more than the adjunct, but definitely we see the spillover for both, in adjunct and the mono.

We believe that the result of ADAGIO, as well as the other activities that we are doing with Azilect, will continue to grow the business, both in the US and outside of the US.

As far as the ADAGIO study and results, you have to remember this result is taking us into a new area, and when I say us, it means Teva and the FDA, and we are discussing that with the FDA, as we need to combine the data that we have from the ADAGIO study, as well the data from the Tempo you study on the mono, and based on that, based on the result of the discussions with the FDA, we will make a decision about the submission of the ADAGIO result to the authorities.

Okay.

I mean, I guess in trying to get to the bottom of it.

Do you see more usage in adjunct therapy, or you think greater usage as a monotherapy?

All-in-all, I think it is on average I could say that it is around the 50/50 between mono and adjunct.

Definitely it varies market by market.

Depends on the prescription pattern in every market.

But the growth, we definitely see the growth in both indications, mono and adjunct as well.

And then if possible if you could give us some rough sense of what the sales split is between US and ex US?

Thanks.

The split between US and non-US, these are not numbers that we have provided in the past, so the product is still not at the level of providing that resolution, so we are not starting today.

Thank you.

Our next question comes from Dave Windley with Jefferies & Company.

Please state your question.

Thanks for taking the questions.

A couple of clarifications.

Today in your comments about synergies, from the Barr acquisition looking better, are you indicating that you now believe that synergies will be above $400 million, or are you reiterating the $400 million number, higher than the original 300 that you first commented on a few months ago?

Let me say it in this way.

First of all, we reiterate the numbers that we gave you in February, but it is my strong belief, even if I am not providing you a new number, that the more we dip into this integration, the better the number is going to be, and I believe that maybe next time we would come with another number, which probably will be higher.

Okay.

That is helpful.

Thank you.

And in terms of the FX impact, I guess as I look at the differences between, say Copaxone in Europe and generic business in Europe, the FX impact seemed to be greater on the generic business.

Am I looking at that correctly?

And is there a currency explanation for that, or is the explanation more the underlying constant currency performance of those different businesses, different products?

Well, the truth is, we didn't analyze this from that angle, whether the currency, an adverse currency impact both on Copaxone and on generic business in Europe, of course they are not sold in the same percentages in the same countries, so it varies based on different countries.

Again, this is not an educated answer based on a thorough analysis, but I think they were very similar inputs.

If I could just slip in one more.

Are you seeing, you indicate that the economy is having some effect, but the pursuit of generics is perhaps offsetting that.

Can you put any color around economic effects on patients' filling of prescriptions, and are there differences in that by geography?

Yes, to a certain degree there are some impact of the current economy situation.

But before I elaborate on that, generally speaking, as you well know, demand for pharmaceuticals are relatively stable.

People probably have to use their medicine, and this is probably one of the last things, besides food, that they would give up.

But having said all of that, in some European countries, we see that the market has actually flattened, or even to a certain degree we saw some decrease in consumption.

For example, France, to a certain degree, there is a cultural issue involved here as well.

But exactly as I mentioned in my part, we managed to grow our market share, in this decreasing or declining market so-to-speak.

Okay.

Thank you very much.

Thank you.

Our next question comes from Michael Tong with Wachovia Securities.

Please state your question.

Hi, good morning.

Just a quick follow-up on, you mentioned $200 million in expense reduction offsetting the revenue hit.

Could you give us an idea of how much of that was attributable to COGS, and how much of that was attributable to R&D?

Yes.

Absolutely the impact on COGS in terms of dollars and cents was higher, because it is a much bigger expense.

But it wasn't just attributable to COGS and to R&D.

You can also find this in G&A and sales and marketing.

Approximately 60% of our expenses are in non-dollar environments.

Exactly the opposite picture of our revenues, as you have seen from the press release.

60% of revenues are in dollars, 40% are in other currencies.

On expenses it is the opposite.

And it is across all line items.

I don't think this is the right place to break it down by every line item.

We have it of course analyzed, but it is across all line items.

Okay.

And quick follow-up on the Copaxone line extension product.

The study that you are starting in June, and expect to complete in December, what is the end point, or what are you looking for there?

And can it reasonably be done in six months?

This is Moshe.

Yes, it is a six month study.

We are looking at improving the injection experience, mainly on looking at some empowerment of injection, site direction, and pain, and as we said all-in-all, a six month study, so we will have the result by year end.

Okay.

Thank you.

Our next question comes from Tim Chiang with FTN Equity Capital.

Please state your question.

Hi, thanks.

Just a follow-up on the Copaxone line extension.

Is it just a new needle system, or is it a much lower amount of active ingredient in the product?

Well, as we said, it is a lower volume formulation, and I guess that due to all of the reasons, competitive reasons, I don't think we need to get into more details at this point of time.

Just one quick follow-up for Bill.

Bill, could you just comment quickly on Shire's aggressive rebating program on Adderall XR, how is that impacting your launch of Adderall XR generic?

Actually, it doesn't seem to be affecting at all our share at this point in time.

We are four weeks in, we have 47% share.

As you know, this is a controlled release medication, generally used for children, and obviously, sometimes you won't see quite as much penetration in this.

We had only modeled this out to be a peak of around 75% or so.

But we are three-quarters of the way there already.

And any thoughts on the Solodyn launch?

It seems like it is slowing.

I mean, do you expect that to come back up, or is it just going to sit here?

No, if you remember right, Tim, Solodyn was a launch and a settlement.

So we put a certain amount of product into the environment, into the market, and then we stopped, and settled with Medisys for a later launch date.

Okay.

Great.

Thanks.

Our next question comes from John Newman with Oppenheimer.

Please state your question.

Hi, guys.

Thanks for taking the question On Adderall XR would you expect the CP to remain in place after the first six months of the launch, and if it does, would you expect just one additional competitor by the end of the year, or possibly two?

Thanks.

Good morning, John.

Just with respect to the XR, we know the Citizen's Petition is out there.

We know the Citizen's Petition doesn't affect us.

Beyond that it is hard for us to say.

We would like to say that the FDA, or in case OGG, is going to resolve the Citizen's Petition, and that will open up the market, but we don't know if that will happen or not, and how that is related to other products, such as Concerta.

If they answer XR, how are they going to answer with not answering Concerta, and other, or maybe they will answer them all at one time.

I don't know.

So as a concerned generic company, we would definitely like to see them obviously answer this Citizen's Petition.

To the extent that they don't, we don't know what will happen.

I can't tell what happens with impacts, or whether Shire puts in another product.

Those things are not part of an agreement that I would have details on.

Great.

Thanks.

Next question comes from John Boris with Citi.

Please state your question.

Thanks for taking the questions.

Just on the gross margin improvement year-over-year of about 350 bips, can you just help us understand what percent of that improvement came from mix versus FX?

And then on Copaxone, the lower volume formulation, I don't think I heard you mention anything about any intellectual property or patent that you might have on that formulation, if you could just give some commentary there?

Thanks.

On the gross margin improvement, now again, not exact formulated numbers that you guys are always expecting to see, but the FX impact on that was about 1.3%.

And Q1 last year, exchange rate was 1.3% less.

So that was one major part.

We have of course the change in Copaxone that had an impact on that, and then a product mix.

This quarter we had more in terms of percentage.

We had more branded and innovative products in generics, and they come with higher gross margins.

But just on the FX it was exactly a 1.3% impact.

And this is Moshe.

Regarding the low volume formulation, your question, I think that again at this point of time, we can't get into more details due to competitive reasons.

Thank you.

Our next question comes from David Steinberg with Deutsche Bank.

Please state your question.

Thanks.

Couple of questions on your Multiple Sclerosis business.

With regards to Copaxone, you have obviously had torrid growth in the US, in part supported by ample pricing.

I was wondering if you think this type of pricing flexibility will continue going forward, as you have had in the recent past?

And then secondly, in the near term there will be a couple filings for new oral medications collaborating from Merck KGA, and one from Novartis.

I was wondering if these new products if approved, would have any impact on your Copaxone business, and if so, what type of impact?

Bill, will you take the pricing issue and then we will talk from here on the oral product for MS?

Yes, David.

Good morning.

With respect to the pricing environment here, pricing has continued to climb.

We believe that there obviously is a ceiling here at some point in time.

We have just tried to keep what is the leading therapy in the market.

We have a 37% share, and in fact our 37.3% share this quarter was a new record high.

We feel that a product that is the leader in the market, what we believe is the standard of care shouldn't be at the bottom of the pricing rung.

So we have had to take action to effect that.

Most of the pricing has been driven by our competitors.

From this point again, I share the concern that pricing can't continue to go up like this.

But I have been saying that for quite a while.

On the future competitive arena, I think if you look at the some of the oral product that is being developed you now, one thing you can see is a lot of questions to see what is the right balance between the extra benefit, mainly on the convenience, versus the safety issues and concerns.

So as it looks now, I am not sure that this product will actually take a larger share in the market going forward.

This of course is too early to determine, as there are a few products still in development.

As far as Copaxone, I think what Copaxone is offering for the patient is really a good combination of efficacy and safety.

We believe it is extremely important, as it will be a major factor going forward as well.

Okay.

Thanks.

Thank you.

Our next question comes from [Robbie Neurotra] with Credit Suisse.

Please state your question.

Thanks for taking my questions.

Specifically in the European and EMEA markets, a large number of acquisition targets have come available over the last year, of more sizable opportunity than has been around historically.

Do you see any of these targets?

And obviously we are not getting into specifics as attractive strategically to get inorganic growth, rather than more greenfield progression, and the pricing of those targets, have they become more realistic?

Thank you.

Well, Teva as you well know is a global Company with a long record of acquisitions, is always exploring and the market opportunities, so generally speaking we are always looking for opportunities, including the time or the current time and as you said, it's about opportunity, which part of it of course is whether it's a fit to our strategic needs.

Part of our global strategic growth program.

And in addition of course what are the economics of the potential acquisition, and here as you stated it, we believe that under the current market situation, definitely prices exactly as our Company's prices should go down, and the right opportunity we definitely will be there.

Okay.

As a follow-up to that, obviously large cap pharma companies have also expressed interest in strategically accelerating their pathway into some of the emerging markets.

Does that put timing pressure on you guys, or do you see that world as separate from yours?

Could you repeat your last part?

I couldn't hear you.

Large cap pharma also obviously expressed a recent interest also in the emerging markets, in at least the branded generics fields.

Do you see their new drive into the marketplace as accelerating your need to get into some of those, or strengthen your position in some of those markets, or do you see their strategic pathway as discretely different than yours in the EMEA markets?

Well, first of all, the big pharma companies or the innovative pharma companies, showed or expressed their interest, both in generics and emerging markets for many years.

I don't think it is a new phenomenon.

We believe that there is room for many companies to act in this interesting emerging markets, and in generic as well.

As a matter of fact, to be a generic company, as long as, as far as we can see from our experience, or from our humble point of view, it is a different model, and it is a different culture.

But as you well know, there are some examples of innovative pharma companies, of having also some generic arms, or at least try to get into this business.

So I don't see anything changed in the longer term history in this regard.

Thank you for taking my questions.

Thank you.

Ladies and gentlemen, there are no further questions at this time.

I will now turn the floor back over to Mr.

Yanai for closing comments.

Thank you.

Thank you everyone for joining us today.

As you have heard, 2009 is off to a very strong and exciting start for Teva, and we have many reasons to be optimistic about the rest of the year, and 2010 as well.

Thank you, and have a good day.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you all for your participation.