Teva Pharmaceutical Industries Ltd (TEVA) 2009 Q2 法說會逐字稿

Greetings and welcome to the Teva Pharmaceuticals Industries second quarter 2009 results conference call.

(Operator Instructions) A question-and-answer section will follow the formal presentation.

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.

Thank you, Diego.

Good morning and good afternoon, everyone.

Welcome to Teva's second quarter 2009 earnings call.

We hope you've had a chance to review our 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 Odrijk, 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 profits, 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 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 second quarter of 2009.

This was a very good quarter for Teva with record-breaking results, including record sales, gross margin, operating profit, net income and EPS.

Teva's net sales in Q2 reached a record $3.4 billion, with a gross margin of 58.5%.

Our operating profit was $981 million, with net income of $742 million.

And all of this ultimately brought us to EPS of $0.83.

Eyal will provide the rest of the details and the numbers.

I would just like to add that we are especially pleased with our growth in sales in Q2, despite the ongoing negative foreign exchange attack, which in Q2 took nearly $0.25 billion from our pipeline.

Overall, I believe our results this quarter provide quite a clear demonstration of the strength of Teva's growth momentum.

Our growth in Q2 was driven by a contribution from across our many businesses and geographies, as well as by the excellent progress we are continuing to make in the Barr integration.

In North America, we had a very good quarter with sales of $2.1 billion, up 36% over Q2 '08, led both by our sales of branded products and by our US generics units.

We are especially pleased with the results of our exclusive launch of generic Adderall XR, which has already 68% market share and is continuing to grow.

Our product offering in the US is the strongest it has ever been.

We are continuing to enjoy strong sales of products from both Teva and Barr generics portfolio.

And we have made great progress in integrating the two portfolios and in leveraging Teva's marketing, sales and distribution capabilities to further enhance the performance of the combined portfolio.

In Europe, sales were up by 20% in local currencies over Q2 '08, to reach $732 million.

Sales were especially strong in Germany, Spain and Poland.

Despite the turbulence that we are experiencing this quarter in individual European markets, such as Italy and France, as we look to the future, we remain very optimistic about our Europe business.

Our growth strategy is focused on achieving market leadership and we believe that Teva is uniquely well positioned to succeed in Europe, which has a total population of over 490 million and where there is still relatively low generic penetration in many markets.

For Teva international business, Q2 was another excellent and record-breaking quarter, with sales growing by 35% in local currency to reach $481 million.

Results were especially strong in Russia and Latin America.

Teva's International business is a major growth driver and I believe that our strong results, quarter after quarter, give us good reason to be extremely optimistic about the potential and the future of this business.

Teva's innovative business continued to grow in Q2, once again achieving record-breaking sales.

Copaxone grew 21% over the second quarter of 2008.

In the US, in-market sales increased by 32%, further widening the gaps between Copaxone and the number two product.

According to IMS data, our market share in [ForEx] reached a new record high of just over 38%.

Outside the US, Copaxone grew by 5% or in terms of local currency by 26% over Q2 of '08.

We expect Copaxone to continue to outpace the market's growth and perform extremely well.

And of course, Teva remains strongly committed to continuous research and development of our innovative neurology portfolio.

In June, we announced completion of patient enrollment in the BRAVO trial, in the second Phase III clinical trial to evaluate the effects of oral Laquinimod on the treatment of multiple sclerosis.

Oral Laquinimod is a level once-daily oral immunomodulateral, that if successful, has the potential to become the preferred therapy for relaxing MS patients, offering the best benefit to risk ratio in terms of efficacy, safety and tolerability.

This was also an exciting quarter for Azilect, which had in-market sales of $55 million, growing 31% over Q2 '08.

Turning now to our global respiratory business.

Sales reached $189 million, up 13% over Q2 '08.

The increase was driven primarily by strong sales of ProAir in the US, which maintained its market leadership position with 58% market share.

We are continuing to work very hard on developing mobile brands for our global respiratory franchise to further strengthen our position in this key area.

Later this year, we plan to begin Phase III trials for nasal beclomethasone dipropionate HFA for the treatment of allergic rhinitis, the most common allergic disease in the US and abroad.

As you know, we extended our specialty pharma portfolio through the addition of vast women's health business, where in Q2, sales grew 4% to reach $80 million.

During the quarter, we introduced our extended pack and oral contraceptive LoSEASONIQUE.

And just this month, we introduced the one pill emergency contraceptive Plan B one-step.

We believe that this business has outstanding prospects for growth.

We are targeting various means by which we can extend our offerings, both in the area of oral contraceptives and in other areas of women's health.

And also plan to leverage Teva's global footprint to take much of this franchise to Europe and to our international markets.

I am pleased to report that our integration of Barr is continuing to run ahead of schedule and as I previously reported, we are realizing more synergies from this combination than we had initially focused.

And we are realizing them more quickly than we expected.

Rather than $300 million of synergies, which we initially announced or the $400 million, which we announced in February, we now expect to realize closer to $500 million in cost synergies in the third year.

I am also pleased to report that in the second quarter, the acquisition became accretive.

Before turning to our outlook for 2009 and 2010, I would like to say a word about Teva's financial strength.

During the second quarter, we improved our financial position by paying down approximately $1 billion of our debt.

In addition, holders of our convertible debt elected to convert over $700 million of those convertible bonds during the quarter.

This brought our financial leverage down from 34% to 27%.

And we expect by the end of the year to reach the same financial leverage that we had before the bond acquisition or even better.

Finally, I would like to review our outlook for the remainder of 2009, 2010 and beyond.

As you know, of course, legal and regulatory complexities make the timing of all product launches somewhat uncertain.

That said, we are extremely pleased with the results of the first half of this year, which have yielded revenues of more than $6.5 billion and EPS of $1.54.

And we continue to be excited about the potential launch of [Procuretine] in the second half of this year.

Therefore, we are reaffirming our guidance for 2009, which we provided at the beginning of the year.

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

We expect EPS in 2009 to be in the range of $3.20 to $3.40.

Looking forward to 2010.

Last quarter, we provided guidance of EPS of 40% 45% over our 2009 projected guidance.

Now that we have greater visibility to 2010, we believe that we will be at the higher end of this range and that EPS will increase at least 35%.

This is on the strength of a number of factors, including our launch of Venlafaxine, our generic version of Effexor XR; as well as additional launches in the US; the completion of the take back of Copaxone from Sanofi Aventis in North America; and enhanced synergies from the Barr integration, which as I just mentioned, we now expect to be approximately $500 million.

But our goals do not stop there.

Later this year, we intend to provide you with an updated long-term outlook for the Company.

We are looking forward to the opportunity not only to update the 2012 outlook we provided in February 2008 but to take a different look at the year 2013 to 2015.

A significant amount of analysis and planning, already been conducted by all of our units, gives us great confidence that Teva will continue its growth momentum.

Thank you very much.

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

Eyal?

Thank you, Shlomo and good day to everyone.

I hope you have had an opportunity to review the press release we issued earlier today.

Following a strong first quarter, the positive momentum in our business continues and we are reporting today a record quarter for Teva in terms of sales and non-GAAP operating income, net income and earnings per share.

Similar to the first quarter, results were driven by a good product mix, tight expense control and continued progress with our integration of Barr.

During this quarter, we strengthened the balance sheet and improved financial leverage with the reduction of our debt by $1.7 billion.

Note that this reduction was achieved by paying down approximately $1 billion in short-term debt and by conversion of $719 million of convertible debentures to equity.

This brings our financial leverage down to approximately 27%.

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

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

$76 million of inventory step-ups.

Amortization of purchased intangible assets totaling $151 million, of which $143 million are included in costs of goods sold and the remaining $8 million in sales and marketing.

$42 million in legal settlements.

$10 million in restructuring charges.

And in addition, the related tax effect of $58 million.

You should note, that the items excluded in arriving at our non-GAAP result in the second quarter of 2008 are not identical to those in the current quarter.

On the one hand in Q2, 2008, we did not have a inventory step-up expense and we had a lower level of amortization.

While on the other hand, we wrote down auction rate securities.

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.

Let me begin by highlighting how foreign exchange differences continue to play a significant role in our results throughout this quarter.

Similar to Q1, foreign currency differences greatly affected sales.

This quarter, it was by $256 million or 9%, as the dollar strengthened against certain foreign currencies, primarily the euro, the Hungarian Forint, the British pound and the Polish zloty, the Russian ruble, the Israeli shekel and the Canadian dollar.

All compared to the second quarter of 2008.

When we eliminate the foreign currency impact for the quarter, consolidated sales actually grew by 29%, which [in-market] sales in Europe growing by 20% in local currencies and pharmaceutical sales in our international markets growing by 35% in local currencies.

As I mentioned to you last quarter, we believe that this is an important measure of our business as we manage the countries either in local currency and measure those sales and profits accordingly.

However, it is important to note that foreign currency has a negligible impact, less than 1%, on operating profits.

Teva's diverse geographical presence continued to provide with us a good natural hedge that mitigates much of the work involved in currency fluctuations and minimizes the impact on our bottom line.

Looking at consolidated results in US dollars.

Sales totaled $3.4 billion, an increase of 20% compared to Q2 last year.

Non-GAAP operating income was up 44% compared to Q2 2008 and benefited from strong growth margin and tight expense control.

Excluding the items mentioned above, non-GAAP net income was strong, up 25% compared to Q2, 2008, despite higher [integration] expenses and higher tax rates, as planned, (Inaudible) resulting from the acquisition of Barr.

Non-GAAP fully diluted earnings per share were at $0.83, up 15% from Q2 2008.

In the second quarter of 2009, we had approximately 75 million more shares than in the second quarter of 2008, which are part of our earnings per share calculation, grew primarily through the issues in connection with the Barr acquisition.

Now let's discuss profit margins, which were directly level this quarter, and operating expenses.

Non-GAAP profit gross margin, which includes amortization of intangible assets and the inventory step-up was 58.5% in the reported quarter, compared with 54.7% in the comparable quarter of 2008 but similar to the non-GAAP gross profit in Q1 this year.

The improvement in gross profit margin is attributable to the successful launch of generic Adderall XR and a higher contribution to sales from our branded and innovative franchises, including, Copaxone, Azilect respiratory sales, especially ProAir, and women's health products.

Operating margins reached 28.9%, up from 24.2% in the comparable quarter last year.

The increase resulted from three main factors; strong gross margin, as I just discussed; positive effect of foreign currencies; and lower R&D expenses.

Sticking with R&D.

Net R&D expenses reached $169 million or 5% of sales.

The low net R&D number this quarter resulted from reimbursements of approximately $40 million from our joint venture with Lonza.

We announced a joint venture with Lonza earlier this year to develop, manufacture and market a portfolio of biosimilars.

This joint venture became operational during the second quarter.

And as part of the agreement, related to R&D expenses incurred by Teva prior to the finalization of the agreement, were contributed and reimbursed by the joint venture.

Despite the design in net R&D, gross R&D expenses this quarter increased compared to Q2 last year and we remain committed to a plan to double R&D output from its 2007 level by 2012.

For the full year, factoring out the reimbursement from the joint venture, Teva's R&D expenses are at the run rate of approximately 7% of sales.

I would also like to point out that Teva's share in the joint venture expenses, approximately $20 million is reflected in the line item called "share in losses from associated companies," which is below the operating profit line.

Sales and marketing expenses, including the amortization of intangible assets, totaled $641 million in the quarter or 18.9% of sales, compared to 17.5% of sales in Q2, 2008.

And a similar percentage in the first quarter of this year.

Similar to the higher gross margin, these higher sales and marketing expenses, are the result of higher contribution to sales of our innovative and branded franchises.

Total SG&A expenses this quarter were $197 million or 5.8% of sales, compared with 6% of sales in Q2 last year.

We recorded $61 million of financial expenses in our Q2, 2009 results, compared with $9 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.

Similar to Q1, the tax rate provided in Q2, 2009 was 17% of pretax non-GAAP income.

We continue to estimate our annual tax rate for 2009 at 17%, compared with a rate of 10% in 2008.

The increase in the tax rate resulted primarily from the fact that Barr's Corporate tax rate is higher than Teva's and in 2008, we did not include Barr.

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

Cash generated operations amounted to $658 million.

Our free cash flow, excluding capital expenditure of $148 million and cash dividend of $134 million, amounted to $376 million.

The lower cash flow from operations was driven by two main factors.

First, timing of significant US launches versus collection, which will come in the third quarter.

And second, during the second quarter, we paid approximately $80 million of Barr integration related expenses, which we provided for as part of the Barr purchase price accounting and were not reflected in the income statement.

On June 30, we had approximately $2 billion in cash and marketable securities.

Our total outstanding loans and convertible debenture was at $6.7 billion, down from $8.4 billion at the end of March.

During the quarter, we paid approximately $1 billion of our debt, approximately $800 million of our bridge financing loan and approximately $200 million in other short and long-term debt.

As of June 30, the remaining bridge loan amounted to $630 million.

We remain committed to paying down the full amount of the bridge loan by the end of the year and expect to pay down most of it by the end of the third quarter.

During the quarter, the 0.5% and 0.25% convertible debenture, issued in 2004, passed a conversion window.

Through June 30, approximately $354 million of the 0.5% bond and $365 million of the 0.25% bond were converted.

Leaving the principal amount of these bonds at approximately $350 million, combined for the two series.

Subsequent to the end of the quarter, an additional $90 million were converted.

So now, it's below $300 million, which is left to be converted.

I would like to remind you again, that a conversion did not impact the fully diluted share count and earnings per share calculation.

And these shares were already included in the diluted share count calculation.

In total, we reduced debt by $1.7 billion during the quarter, improving our financial leverage for 34% at the end of March, to 27% at June 30.

We now believe that by the end of the year, our financial leverage may stand at 23%, lower than our pre-Barr position, which was 24%.

Days sales outstanding amounted to 47 days this quarter, compared to 51 days in Q1, 2009 and 54 days in Q2, 2008.

This small sequential decline does not reflect significant differences in collection levels.

Rather, our DSO is impacted by foreign currency changes resulting in these small changes from one quarter to another.

We have calculated DSO, as we always do, after netting out from the receivables, the sales reserve and allowances.

Whereas, our accounts receivables and SR&A did not change materially, the decline in DSO resulted primarily from higher sales.

Inventory days were 188 days, down from 191 days in March 2009 and down from 228 days in December.

Similar to DSO, there isn't a demonstratable difference in inventory level, rather the sequential decline, which [streamed] in the past two quarters, in inventory base resulting from the sale of Barr inventory, which was recorded in our books at market value rather than cost.

Known as the inventory step-up.

Gross capital expenditures reached $151 million this quarter, compared with $180 million in Q2, 2008 and down to $160 million in Q1, 2009.

The acquisition of Barr add productive capacity and reduced investment in capital expenditures compared to the 2008 levels.

Dividends.

Yesterday Teva's Board approved a quarterly dividend amounting to approximately $144 million.

On a per share basis, our dividend, which is declared in Israeli shekels, was ILS0.6 per share.

On the rate of exchange on July 27, which was yesterday of the shekel to the US dollar, this translates into approximately $0.157 per share.

That concludes my comments.

Thank you all for your time and attention today.

Now, we'll be glad to take your questions.

Thank you.

(Operator Instructions) Our first question comes from Randall Stanicky with Goldman Sachs.

Please state your question.

Great, thanks very much, guys, for the question.

Just on, the Barr synergies have been a lot more than even you initially expected.

Can you maybe comment on an additional acquisition that you've been talking about?

If it's not on the generic side, can you talk about maybe where those synergies would come from, your ability to drive top line and we should think of about any potential cost synergies?

And then, I have a follow-up.

Randall, hi, it's Shlomo.

I am not sure if I understand the second part of your question.

Could you be so kind to make it more clear?

Sure.

First, is your interest still -- the update is on where your interest from the acquisition perspective is?

And then, how should we think about any possible accretions from a deal if it happens to be on the branded side versus the generic side?

Randall, I think your question is centered more about; Are we going to continue bouncing around the generic space or will we move more towards specialty or some other area?

And I think what Shlomo has much clearly said before is that we believe that the same type of capabilities that we have developed in the generic markets, we can also apply to specialty or some other area that we might go after.

Now, this doesn't mean that Teva is going to necessarily run out tomorrow and chase down specialty companies.

We've always said that we're going to be looking at products, technologies and companies.

But I think as you think of companies moving forward, you should not limit your thinking to just generic companies.

And then so -- on that, if you think about the new outlook for [generics,] which is now better than 35%.

Is there anything for deals factored into that number or is that still organic?

Nope.

Still organic?

Yes, it's still organic.

And just my final question.

Should we still think of the current or your previous revenue range for the year, I think it was $14.1 billion to $14.6 billion, as the appropriate range as we think about top line?

Well, first of all, as I went through our guidance at the beginning of the year, it, of course, referred to the guidance.

But what we should and what you should try to look for, of course, is how we are going to see the foreign exchange in the coming six months.

With the uncertainties that are related to foreign exchange, this is where we are heading and that's what we should adjust in case things are going to be changed in our turbulent world today.

But I'd like also to add to your previous question and just to make sure we are on the same page.

Teva's strategy is consistent and we are going to continue with our strategy as we see, it's now a focused strategy.

And we actually have a very balanced model, which we tried to, of course, enhance in coming years with continuing momentum of growth in sales.

And with that, we are exploring and we are examining many different possible opportunities.

But as I always used to say when it comes to acquisitions, Teva acquires companies only if it fits our strategies.

Okay and I'll jump out.

But there's been no change then, to your previous stated areas of interest for possible deals then?

This is exactly as I said.

We are sticking to our strategy and when we are going to have some modification, we'll definitely let you know.

And I just said toward the end of the year, we are going to add the few on our strategy for the coming years.

So, we'll have another opportunity to dive into the strategy of Teva for the coming nears.

Okay, great.

Thanks, Shlomo

Thank you.

Our next question comes from Ronny Gal with Bernstein.

Please state your question.

Good morning and thank you for taking my question.

A couple of quick ones on the branded side.

And just to follow-on on Randall's point.

On the branded side, I know you guys can pretty much can handle any kind of a proposition on the generics side.

But when you think about branded side, which is an area where did not make a large acquisition before, how big of an acquisition do you think is appropriate for you, just in terms of the amount of money you're willing to put at risk in one deal?

Is this essentially as big as the generic businesses or would you be looking to do something smaller?

Well, first of all, I think that part of our balanced business model is the current ratio.

It could, of course, move a little bit here and there but generally speaking, the 70%/30% or the 65%/35% doesn't matter.

The real [baking] point on section point, that's how we see the business of Teva.

This is our strength.

This is our competence.

Having said that one of or core competence is acquisitions and integration and the knowhow of how to do things.

And I believe that we can do the same that we did for so many years in so-called generic companies, also in specialties and some other businesses that we would be interested in.

Okay.

And a quick follow-on regarding 2011 and 2012.

I know that you are still working on your numbers but one of the things that I was -- when I talk to investors is, if you're going to have such a wonderful growth in 2010, will it not be exceedingly hard to get a better number in say 2011?

We saw a similar instance a few years ago after the wonderful development in '06, there were a lot of concerns about 2007.

I don't know if you can at this point comment about this?

That's why we would -- the differentiation will come with the whole big whole picture and we'll give you an holistic overview on how we see the coming years.

And this is more than one subject to refer to and we will be more than happy to do it toward the end of the year.

Okay.

Thank you very much.

Thank you.

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

Please state your question.

Thank you, guys.

I wasn't going to ask an M&A question but your comments have piqued my interest, in that you talked about interest in generics and specialty and potentially other areas.

What are the so-called other areas that would you consider other than biologic?

Well, for the time being I think it's about generic, specialties and biosimilars, first off.

Okay.

Thanks for that clarification.

For Eyal, first of all, do you have a number for sales growth for the total Company, excluding the Barr acquisition, at this point for the quarter?

No but I'm sure you can the exercise with last year's base but we don't measure the Teva part separate from the Barr part.

It's fully integrated six months into the closing of the production.

It's almost hard to distinguish between the different companies.

So there are no two parts.

If you want to take the base for last year, don't forget to add -- to reduce from that base about $100 million, which included products that we stopped selling as a result of the transaction and at one-time $53 million that Barr had into the future of 2008.

And then, of course, add the impact of foreign exchange for the comparison.

That's an easier compare.

But as to the two parts, there are no parts.

It's one Company.

And on the Lonza JV, given this is a new part of the model going forward.

First, why wasn't the $40 million reimbursement excluded from non-GAAP?

And is the $20 million loss below a line the good run rate to use in the next few quarters?

All right, well, first of all, for the $40 million, we declined when we moved into our, what you guys call the [cash-and-carry] model, we defined very clearly what we were going to exclude for the non-GAAP results.

And we followed this very strictly.

So these kind of one-time pluses or minuses are not included and we will continue to report them in our non-GAAP results.

As to the number, it's a one-time item.

In the future, -- most of the R&D was done in Teva and that will belong to the combined joint venture was already contributed.

We might have a few more millions down the road but not as many.

But you see below the line, the $20 million our share and associate companies that were not consolidated, that is a direct result of this one time.

This is our 50% part of that $40 million.

In the future, at least for the rest of 2009, we're not going to see these kind of numbers.

The numbers that will be our share of the extent of the joint venture are going to be significantly lower.

Now, if accounting treatment was not a little crazier, these numbers could be included -- to be acquired of Teva R&D expenses and that's how you have to look at it.

Okay, thanks, guys.

Our next question comes from rich Silver with Barclay's.

Please state your question.

Hi, just a couple.

Back on R&D, Eyal, to make sure I heard correctly.

Did you say going forward that a 7% of revenue ratio was the correct number?

Yes, you heard me correctly.

Approximately -- again, it could be 6.8% or 7.2% because it is not rocket science but this is where we believe our average will be for the year.

Okay.

And then, you mentioned certain areas of Europe, Spain and Italy there have been some challenges.

Can you elaborate and provide a little bit more of an outlook for those countries?

Gerard, would you take this one?

Yes, I am happy to do so.

Across Europe, you've seen that the governments have been trying to counter the impact of some of the economic crisis by pushing on their health care budgets.

You also see consumers holding back on their spend in particular markets where co-payment is a relevant issue.

And on top of that, we've seen quite aggressive and active competition from our competitors.

So, to be specific on Spain and what we see there is that the growth of the generic market has been less because of some competitive elements in there and some pressure on price, both from government and competition.

It you look at Italy, the government has implemented on the 30 of April a whole new way of discount schemes and controlling the dynamics of the Italian market, which has made everybody very unsecure in the market.

In France, there is fierce competition between the top five companies.

In the UK, going relatively well.

In Germany, you are aware of the business that's kicking in now.

So, just to give you the flavor of that.

Central Europe has a lot of impact from the crisis as well.

Within all of that, we've done very well.

We've grown our share, despite all the pressure on prices and from competition, we've grown our share and we held our share in many of these places.

We are growing our top line but of course, it's in an environment that is slightly less [pliant] than it was previewed to be about 12 months ago.

In terms of recovery, we believe that in Italy it will take a few months before it's all cleared out and then, I'll be in a better position to comment and that and really happened.

As a matter of fact, given the situation in Italy, it can only improve.

The penetration of generics is so low that there must be a way out forward in getting more generics in the market.

The same story applies for Spain.

To these two markets are very optimistic that they will recover.

And in France, outside of the competition on which, I course, I cannot comment, is saying that these things happen.

The underlying demand for the generics in that market is still very healthy, so we should expect it to pick up as well.

So when you're talking about competition in France, are you referring to some price competition that could continue?

Yes, the question is about whether it will continue or not.

That would be speculative.

But there are a few companies that are -- and there some launch molecules that are coming on site and it's about the share income.

I think there are four or five companies currently competing for the share.

We're clearly number three.

We overtook number three about six months ago and we stayed there.

We are increasing the gap and after a local player in Ireland, we are number three.

So it's difficult to predict whether this technique of gaining share will stay in place.

I don't expect that but it's a bit unpredictable to speculate on the strategies and tactics of our competitors, of course.

Just one last one on women's health.

It seems like quarter to quarter there was a decline.

Is that a function of buying patterns, which we had previously seen when Barr was a stand-alone company?

Rich, it's Bill Marth.

With respect to it being a decline, no, we don't really see it that way.

There was a little bit of destocking with respect to some of the nonpromoted grams, a small amount.

And we did slow down Plan B a bit because of the anticipated launch of Plan B one-step.

But other than that, there was a gain year-over-year.

Thank you.

Rich, if I may add on Europe because I think it's important.

Europe is the greatest potential for growth for the future of both because of the size of this region and for the lower level of generic penetration.

It is important to look at it from an overall perspective.

If you look on our position in Europe, we are right now the number one player.

Out of the seven or eight key countries of Europe, we are the number one in UK, Italy and Netherlands.

We are number three, as Gerard just said, in France, Spain, Poland and lately also in Hungary.

So we are strengthening and enhancing our position market share-wise in this important region of the world.

And at the end of the day, the economy is going to recover and generics will prevail there because of the same attachment that we see in every developed country and Europe is not excluded.

So we believe that we are strengthening and we're gaining market share and definitely the future for growth there is there and we are going to grab it.

Thank you.

Thank you.

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

Please state your question.

Great, thanks.

I just had a question on the Adderall XR Citizens Petition.

If there's been any new communications between yourself and the FDA?

Any thoughts you can give us and whether you've included or not included it in the 2010 guidance?

And Shire has publicly talked about maybe divesting the product.

Maybe thoughts you can add to that or maybe any of your interests?

And then, also, if you can comment on -- your Fentanyl share seems to be remaining relatively low and some thoughts on when you might see some further penetration in that market?

Yes, Ken, just a quick one.

With respect Adderall, of course, we're really happy with the share.

I think for the last weeklies I saw, which are now two weeks old, are about 58.6% share on its to the 70% share.

So I think that's exactly where we want it to be.

With respect to the Citizens Petition, we really don't want to comment on the Citizens Petition.

I don't really have any more knowledge on the Citizens Petition that you do or anyone else does at that this point in time.

And with -- the other question was --?

The Fentanyl.

The Fentanyl, as we've been telling you, we're going to move up that share.

We have so far business at the [Captain] and Rite Aid.

We also are pursuing some other business currently.

I don't have it secured yet.

I wish I had it in the numbers but I don't have it secured yet.

But I believe we will we will be there at the shares we said we would be.

And then, for Gerard, as you talk about the different various countries, there's different competitors in each country and it still seems like a pretty fragmented market.

Can you -- it sounds a bit like the US in the mid-90's and eventually that -- the marketplace got consolidated.

Should we just be continuing to assume you're going to be selective in how you put together your European strategy?

We might see quite a bit more consolidation and smaller players fall out or how should we look five years forward in this European market?

Yes, I think it will be unavoidable to see some of the smaller players disappear or being eaten by the bigger players.

What you will end up seeing in five years in Europe is three or four main players.

You'll see a handful of more [uniform] players that are specialized in a few markets or that are specialized into a few sort of specific technologies.

And so that will take, which has a lot in common of what you've seen in the US.

I think the main element of time influence here is the fact that the unification and the harmonization of markets across Europe is just taking its time.

So, we're still dealing with products that were, as I said before, the change of the century.

And therefore, there's a lot of diverged way of filings and stuff going on.

Since the late 90's, early this century, you see that there is much more stratification and comparability and discipline on how the legislation has been implemented in terms of regulatory procedure.

So, you will see much more of that coming together in the next few years.

And people will, therefore, either stop selling or they will sell their business to someone else or you will see people specializing and surviving the cut.

Thank you.

(Operator Instructions) Our next question comes from Elliot Wilbur from Needham and Company.

Please state your question.

Thanks, good morning.

Maybe just following up on the acquisition team here and specifically for Bill.

You've talked in the past about basically expanding your women's health care business to roughly a $1 billion sales market.

I'm just wondering maybe if you could just give us a little bit color in terms of how you plan to get there?

Is this more of an organic or inorganic target?

You're talking about expanding your therapeutic footprint across women's health and does this include sort of a combination of brand and generic initiatives?

Well, it doesn't include generic initiatives.

It's really branded.

Elliot.

I think the issue really is about developing with a broad basket across the market.

And in that market segment, when you're thinking of women's health care and you have a GYN's office, there are many areas for us to look into besides just contraception.

Hormone replacement therapy and you can go farther afield into fertility.

You can also think about urinary incontinence and a variety of other areas that are in this particular basket.

Women, in general, will use their OBGYN as their, per se, general practitioner.

So, I think we can get broader reach with our reps in that particular division.

Okay.

And then a follow-up question and probably for you as well, Bill.

Recently, we've seen more and more occurrences of systemic G&P issues across the generic industry.

And obviously, in certain product situations, you're kind of a direct beneficiary there.

But in thinking about the customer base, do you think that there is -- has been a shift or is there potentially going to be a shift in terms of the supply chain focusing more on quality and reliability vis-a-vis price?

And we might actually see sort of a reflection of the quality per unit?

Yes, I think the only thing you can say is that quality is issue.

Price has been a predominant factor for quite some time.

But we've always talked about the fact that you need to have price combined with the ability to supply and quality.

And I think that all of our purchasers today are really thinking about all those aspects, when they're making their purchases.

Thank you,

Our next question comes from Mark Goodman with UBS.

Please state your questions.

Bill, could you please give us a sense of US new product launches that we should expect in the second half?

And could you give us a sense of what to look for?

And then secondly, just respiratory pipeline, can you give us a sense of how many products are in the pipeline?

You mentioned one, which is really the first time you've kind of mentioned something, which actually started my interest in the respiratory.

And so, is there a pipeline of 10 products across the board that we should expect to be launching in the next five years?

Or just give us a sense of the magnitude of what's going on in the respiratory pipeline.

Okay.

Well, let's start off, of course, with the generic launches.

Of course, I can't and won't list for you all the products.

When you think about the total launches that remain that we can potentially launch in 2009, you still have about 25 that we can do, worth about $23 billion of innovative value.

About 10 of which are active Paragraph 4, so never know exactly when they're going to come.

Some of the things you absolutely know, the enoxaparins.

The enoxaparin, of course, is not a Paragraph 4 but that is situation where everyone is waiting for the FDA to act.

But there's products in litigation like gemcitabine.

Other products like lansoprazole that are not in litigation that we know, only of the date certain of November 10.

We also know the ODT, of course, is in litigation and that we expect --we hope to get a ruling before that.

We also hope to get through oxaliplatin before then.

Montelukast sodium is out there, [nazerapine].

There's a whole bunch of others, Relaxane and [selanene] out there.

And we still believe there's a number of launches that are still very likely within 2009.

The second question with respiratory.

I don't think we're going to go out and disclose coming Phase III's yet.

We've disclosed one.

We've told you they're there.

We are going to do this one at a time.

All right, thank you.

Thank you.

Our next question comes from John Boris with Citi.

Please state your question.

Thanks for taking the question.

Along the lines of the M&A team and the balanced business model that you're looking to create, Shlomo, going forward.

The question may be more directed towards Bill and America.

As far as your percent of branded sales, can you just comment on what percent of your products come from branded sales?

And then, is a certain percent of your business going forward that you would like to see coming from branded products going forward?

Also on the North American revenue, can you provide any color as far as the percent of generic sales that were sold in the quarter and the growth on generics in North America?

On then, on the international side of the business, Gerard, can you speak at all to the breakout of the international sales and the growth in some of those markets in constant currency?

Thanks.

Yes, John, I think they're going to limit to you 12 questions.

So, we'll start -- I think Shlomo wants to start here and then we will move along.

Before I turn to Bill, I think it's important to get back to our fundamentals, what I call the Teva balanced business model.

When it comes to segments of business, it's about 75 generics, including the API business that we have and 25 branded business where we have, of course, now our own brand of Copaxone.

But we also developed some other brands regarding our respiratory and women's health businesses.

And we look at this ratio on the business because we believe the business is a good balance between the two different business models that actually have synergies and more than that in between.

When it comes to geography, as you know, 60% of our business is, roughly speaking, coming from North America.

And we have about 15% from Europe.

And we've developing the international business, as we see this as our growth -- or one of the most successful growth drivers of the future.

So you may expect that our international business should grow and take more part of the pie in the coming years.

And with that, I would return to Bill.

Yes, John, we're not going to necessarily break out the numbers here on the branded business for North America.

I think that Shlomo has said it well in the sense that our brand of business is -- we are about a 75%/25% business today.

The larger portion of the sales today in the US are definitely generic.

That's for sure.

But I don't think, as Shlomo has said, we want to look at this as a North American thing.

As we move forward, whether the ratio for Teva is 70%/30% or 65%/35%, it really doesn't matter.

We need to expand it not just to North America.

It's not just a North American business.

It's a global business.

Thank you.

Our next question comes from Corey Davis with Natixis.

Please state your question.

Thanks.

First, on Copaxone, what I"m seeing for the quarter was 15% volume growth and if revenue grew -- is just viewed as revenue grew 21%, that would 6% on price.

A, is that close?

And B, is that similar in Europe?

And C, tying into the last question, is the contribution from Copaxone to net income in this quarter above or below the revenue contribution at about 20%?

Yes, Corey , you were saying that you were looking at the growth on Copaxone at being about 15% on a -- are you looking at a unit basis, dollar basis, what were you

Sorry.

I'm trying to build up the components of the revenue growth in the US of 21%.

And from volume growth, it looks it's like around 15%, which would leave 6% on price.

Is that correct?

No.

The units were -- units shipped were about 10.8% up.

If you look at GRX, that's about 11% up.

So the rest is on price?

The rest is price, the balance would be price.

And is it similar in Europe?

In Europe, actually this is more so.

Most of the growth is units.

But we don't see any effect on the prices other than the FX, of course.

Yes, there's a 20% headwind on FX.

And then, a lot of -- most of the increase was on the quantity and not on price.

In Europe, we grow by unit by 28% in Europe.

The gist of the question is how much longer is the price growth sustainable as all the MS therapies come closer to Tysabri in price?

Well, Corey, I think the answer to that question is that we can't answer that.

And at this point in time, we have always been a price follower and not price leader and so we continue to do that.

We have the number one therapy, both globally and of course, in North America.

So, we don't think it is appropriate that we'd be the lowest priced product.

So, we'll continue to follow where the market goes.

And then, the last part of that question is combination to yet income versus revenue.

Is it higher or lower?

Yes, Corey, you know that we do not provide separate product line by their profitability or contribution for commercial reasons.

But you could assume, obviously, that our branded business, and that includes Copaxone and Azilect is more profitable than the generic business.

So, its contribution to profit is higher than its contribution to sales and as we said before, it's about 25%/75% in sales.

The proportion in the profit during operating profit leans little more towards the branded in day to day.

But we're not breaking the numbers out precisely.

And presumably, that will go up as the Sanofi royalty goes down over time?

Can you say is again, please?

Can you repeat?

Well, the profitability presumably will go up as payments to Sanofi will go down?

Well next year, as you know, there is a paid back from Sanofi Aventis and we stop paying their royalties in the US market, of course, that will improve profitability of Copaxone.

2011 and 2012, our agreement in them, in the Azilect territories comes to an end.

And that will again improve the profitability.

But this is something that you can calculate.

We're paying them in the US today 25% royalties on sales.

And sales we have disclosed and they're published.

This exactly the number, of course, it's 2010 numbers, not 2008.

Great, that helps.

Thank you.

You're welcome.

Our next question comes from Scott Hirsch with Credit Suisse.

Please state your question.

Hi there.

What are your thoughts on the future of settlements a la [Soladine] this past quarter?

Are we going to see more creative solutions in the future?

Hi, Scott.

This is Bill Marth.

With respect to settlements, again, we're just reacting to the market.

There are many settlement bills that exist today within both the Senate and the House.

Considering the settlement, which has had a chilling effect on settlements today.

All of the settlements that we have just recently done, being [Udethanide,] Soladine and now [Ortho-trilo] have all been gate of entry settlements, which of been -- would be legal within the toughest of the provisions that are offered out there there today.

So, the answer -- it's kind of long answer to simply to be say that whatever the rules that are put in place by the government or the FTC, the market will adapt to that.

And that's what we're doing.

Okay.

And then, just secondly, is there any update on the (Inaudible) versus file status, and if not, what are your thoughts on brands just going forward to be listing patents.

Yes, I think you know that we argued that rather recently and we feel pretty good about the argument.

We think the judge understood the issues very, very well.

I think the judge understands the brand's tactics here.

So, we feel pretty good about that argument and we hope to get a response fairly quickly.

Okay.

Thank you.

Our next question comes from Tim Chiang with FTN Equities.

Please state your question.

Hi, thanks.

I wanted to ask you about the Singulair patent challenge case.

When do you expect a decision out of that court?

Your guess is as good as ours.

At this point in time, there's no way of telling.

Okay.

And then, just one follow-up.

I wanted to get your thoughts on this whole exclusivity with biologics.

Looking back at the exclusivity periods for just pharmaceuticals, it took a long time to sort of work out all the details.

What inning do you guys think we're in with this whole exclusivity debate for biologics?

Well, I would say to that that I think we're still very much in the early innings.

This was the first bill that came out and so, there are several other bills and junctures for us pass.

The White House over over the weekend, again, advocated seven years.

Waxman is out there with five years.

FTC says zero.

And of course, we got out of the Senate Health Committee at 12.

So, I think there's a lot of the balancing act yet to occur but I think it's early in the game.

Great.

Thanks.

Our next question comes from Chris Schott with JPMorgan.

Please state your question.

Great.

Thanks.

Just a quick question following up on that patent settlement discussion earlier.

From an industry perspective, does the prospect of patent settlement legislation slow down near term settlement activity, accelerate near term activity or usually have no impact?

And I just have a quick follow-up from there.

Well, Chris, I think the answer to that is kind of what I said in the sense that the industry will adopt whatever standard is set.

If the rules say, with a bright line, with date of entry settlement, it almost seems like Teva will be about the only company that can settle because we can launch at risk.

We do launch at risk.

And then, we get to a point of a date of entry settlement.

So, that almost doesn't seem like a pretty good place to go.

And again, we're looking for a settlement bill that is really rights for the American consumer.

And we don't think a bright line bill is right for the American consumer.

Great.

And just a quick follow-up.

Just on the new formulation for Copaxone you mentioned on the last quarter's call, can you give just us a sense of where that study is in terms of enrollment?

And are you on track to sell data with that by year end?

Thanks.

Yes, we had mentioned in our previous quarter, we embarking to the study of Copaxone at 25 ML.

And things are going as planned and we are planning to conclude it in the coming months and to expose it to the market in 2010.

Thank you.

Our next question comes from David Risinger with Morgan Stanley.

Please state your question.

Sorry about that.

Thank you very much.

Could you just discuss your gross margin trend in the United States?

You mentioned 58% is the gross margin this quarter for the total Company but could you talk about US trends?

And then, for the total Company, I don't know if you provide this but if you could provide some perspective in your generics business, so excluding the branded side of the Company, what the medium term outlook is for the gross margin?

Thank you.

We -- I can refer to our consolidated overall gross margin.

We don't break it on a geographical basis or we don't break it, as we said before, on a product line basis.

But I could give you some some information regarding the gross margin.

The combined gross margin was 58.5%, which is the highest that we have reported, in the past few years at least.

Resulting mostly from a very good product mix.

We had more branded, innovative and new launches as part of our product mix, which we've created higher gross margin.

There was some impact of foreign exchange where we -- we produce -- many of our products are being produced in on non-seller environment.

But on a gross margin, that input was relatively small.

But it's mostly driven by the right product mix and by efficiency measures that we've been taking from the middle of last year.

Many of them are general and of course, the Barr integration with all the actions that we have taken is helping us also to reduce our costs of sales.

But, again, specifically for your geography, this is -- we are not breaking that out.

And, therefore, could refer to how we see the generic business in the US but not in terms of the gross margin.

Yes, David.

It's really tough for us to comment on that.

And we don't want to be coy here because the issue really becomes, we have a good solid base business but we also have a very active Paragraph 4 business, which carries with it a disproportionate margin.

And it's really dependent on how successful we are in a particular year, in a particular quarter on our Paragraph 4 business.

So there is -- as Eyal rightly said there are mix issues.

There are mix with engineering.

And it's not always just Paragraph 4's.

It may be those that are difficult or complex products.

Recently, we came to market with Ursodiol tablets.

We happened to get there first, ahead of other people.

And so, that helped us on the margin side.

If we were to get a more difficult product like enoxaparin, that we hope at some point in time it is approved.

We think the margins there are more favorable.

So, it is a balancing act and it is definitely a mix.

Thank you.

Thank you, ladies and gentlemen.

I will now turn the conference over to Mr.

Yanai for some concluding remarks.

Thank you.

Thank you, Diego and thank you all very much for joining us today.

Thanks.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you all for your participation.