Teva Pharmaceutical Industries Ltd (TEVA) 2009 Q3 法說會逐字稿

Greetings and welcome to the Teva Pharmaceutical Industries third 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, you may begin.

Thank you, Diego.

Good morning, and good afternoon, everyone.

Welcome to Teva's third quarter 2009 earnings call.

We hope you 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 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 refer in his prepared comments to non-GAAP gross margins, 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 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.

Thank you for joining us today as we review Teva's results for the third quarter of 2009.

This was a superb quarter for Teva with record breaking results across-the-board, including record sales, growth and operating profit, net income, cash flow, and EPS.

Teva's net sales in Q3 reached a record $3.6 billion with gross margin of 68.2%.

We approached the $1 billion mark in quarterly operating profit, reaching $997 million, a 32% increase over the third quarter of 2008, and for the first time we crossed the $1 billion mark in quarterly cash flow from operations.

Net income through the quarter reached $806 million, and all of this ultimately brought us to EPS of $0.89.

Teva's growth in both the top and bottom line in Q3 was driven by contributions from the [cross-sell] of diverse businesses and geographies as well as by the continued speed and efficiency of the Barr integration, a subject that we will say more about after a quick review of the performance of our major businesses during the quarter.

In North America, we had an excellent quarter with pharma sales of $2.2 billion, up 34% over the third quarter of 2008.

Sales were lead by our US generic business, which benefited from the launch of generic Ortho Tri-Cyclen Lo and generic Elotaxin and as well as by continued sales of the generic version of Lotrel and Adderall XR and a solid performance from our base business.

Since the start of the year, we have launched 17 new products in the US, representing annual brand sales of $11.5 billion.

This has increased our product portfolio to a level in excess of 400 molecules.

Our pipeline now totals 210 files, representing $113 billion of brand sales.

83 of these files are certified, representing brand sales of [$67 million].

The unparalleled breadth of our product portfolio and pipeline is a great strategic advantage for Teva, enabling us to offer our customers by far the largest number of products under one roof.

In Europe, pharma sales in local currency were up by 28%, and in US dollars by 15% over Q3 of 2008, reaching a record $787 million.

Sales were especially strong in Germany, Spain, Poland, and countries in Central and Eastern Europe.

The European market remains a turbulent one -- something you can see, for instance, when it comes to market growth.

Major markets like France, Spain, and Italy were exceptions that had grown by 15%.

In actuality, they grew only around 5%.

Despite this challenging condition in Europe, Teva managed the overall market share in key markets, and I'm pleased to report that our portfolio of products in Europe continues to strengthen and grow.

As of September 30, we have received 880 generic approvals in Europe during 2009.

Q3 was another excellent quarter for Teva's international business, with sales in local currencies growing by 33% or 17% in US dollar, to reach $463 million.

Results were especially good in Russia, where we enjoyed gross sales of product from Teva and Barr combined portfolios, and in Latin America, while sales of seasonal medication were very strong.

Teva's innovative business continued to grow in Q3, once again achieving record breaking sales of Copaxone, the world's leading therapy for the treatment of multiple sclerosis.

Global in market sales of Copaxone grew by 38% over the third quarter of 2008, reaching $776 million.

Over 50% of this growth came from an increase in unit sales.

Our global market share reached 30% in revenue terms, and the gap between Copaxone and the next closest competitor has risen to 8 percentage points.

In the US, in market sales increased by 53%.

Outside the US, Copaxone grew by 23% in local currency over Q3 2008.

Copaxone has demonstrated unsurpassed efficacy, safety, and tolerability over more than 930,000 patient years of exposure, and we continue to advance our research to insure Copaxone's position is the first line growth stand up MS therapy ready for the future.

I know many of you have questioned about the possibility of a generic version of Copaxone.

We remain confident that Copaxone [with] generic competition of the product's life cycle is minimal.

To begin with, Copaxone is protected by multiple patents that will not expire until 2014 and 2015.

As you know, Copaxone is an extremely complex drug, the active ingredients of which are difficult to fully characterize.

We therefore believe that just like biology, any potential generic version of Copaxone must be evaluated in placebo controlled clinical trials with clinical endpoints for multiple sclerosis patients to establish the efficacy and safety to measure immunogenicity.

Let's turn now to Azilect, which had an excellent sales quarter.

Sales in Azilect grew 39% over Q3 2008, led by strong sales in the US and major European markets.

Global in market sales grew by 45% in local currency.

In September, the New England Journal of Medicine published results from the ADAGIO trial, and the article also concluded that the benefits of early start treatment with Azilect, benefits were not achieved when the start of treatment was delayed, and 1 milligram per day of Azilect may have a disease modifying effect.

We will be working with the FDA and [footprint] and in view of these findings and other results in the study, we expect to file a supplemental NDA with the FDA in 2010.

Of course, the [quote] and timing of any notification to Azilect's label is subject to the FDA review and the proven process.

Turning now to our global respiratory business, sales reached a record $243 million, up 37% over Q3 2008.

The increase was driven primarily by strong sales of ProAir and Qvar in the US.

As the US [served] market continues to grow, growing by 7% in Q3, ProAir maintains its leadership position with a 56% share of its market.

We're also excited about Qvar's worldview in 2009.

Qvar achieved the number two market position in its class, with the market share in NRx of 17%, up from 13% to 2008.

And I am pleased to report that in October, we began Phase III trial of nasal beclomethasone dipropionate HSA for the treatment of allergic rhinitis, the most common allergic disease in the US and abroad.

Teva's women's health business reached sales of $103 million, a decrease of 10% over [Barr] comparable sales in the third quarter of 2008, supported by our introduction of Plan B One Step in July.

As I mentioned earlier, we are continuing to make great progress in the integration of Barr, a transaction that closed only 10 months ago.

At the outset of the quarter, we set very ambitious goals including an ambitious timetable for the integration.

Thanks to the outstanding work of the combined Teva and Barr teams, we are exceeding many of these goals -- working more quickly, more efficiently, and ultimately realizing even more synergies than we had targeted.

As of close of last quarter, we now expect to realize $500 million in annual synergies on the acquisition by 2011.

We have made great progress in integrating Barr's supply chain and many geographies into Teva's global supply chain, something that is also enabling us to eliminate production overlap and streamline operation.

As the Barr integration and our other successful acquisitions although the years demonstrate, business development is one of Teva's core competencies.

I know that there has been a great deal of speculation about what Teva's next move might be when it comes to merger acquisitions.

So I would like to take a moment to address the question that I think lies at the heart of this speculation, and thus that is -- what is Teva's approach for acquisitions today?

The short answer is that our approach has not changed.

As always, we continue to see opportunities to enhance Teva's growth and improve our competitive position -- whether it's through expanding our existing activities or through entering the new geographies, businesses, or market segments, or offering new products.

And a new acquisition, our criteria remains true.

Any acquisition must be outstanding strategic fit supporting our leadership position.

It must contribute to positive growth.

It must offer opportunities of significant synergies.

And most importantly, any acquisition must have strong financial justification and must become accretive to EPS within a reasonable time, which for Teva means by the end of the first year after closing.

Our expertise in targeting, acquiring, and integrating companies has been a key driver of our success and will continue to be so in the future.

Finally today, I would like to review our financial outlook.

We are very proud of the results of the first nine months of the year, which have yielded the revenues of more than $10 billion and EPS of $2.43.

Based on our performance during the first three quarters and our outlook for the fourth quarter, we now expect 2009 EPS in the range of $3.30 to $3.40 compared to the previous range of $3.20 to $3.40.

Looking forward to 2010, we expect EPS to be between $4.40 to $4.60.

This is on the strength of a number of factors including our generic launches in the United States which will kick off on January 1 with the launch of generic Imitrex.

The most visible generic launch opportunity as you know is the exclusive launch of venlafaxine, our generic version of Effexor XR, which is scheduled for July 1.

Other important drivers for 2010 will be the completion of the takeback of Copaxone from some North America and enabling synergies from the Barr integration.

And last but not least, I would like to take this opportunity to invite you to join us in New York on January 5, where we will be discussing our updated strategic outlook.

We are very excited about what both the near and long term future holds for Teva and are looking forward to sharing our vision with you.

Thank you very much and now I will 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 mentioned earlier today.

As you can see, the positive momentum in our business continues into the third quarter of the year and we have another record quarter for Teva in terms of sales, GAAP and non-GAAP operating income, net income, and non-GAAP EPS.

That's a lot of records.

Equally important, cash flow and free cash flow reached record highs.

These results were driven by a good product mix, tight expense control, and continued progress in our integration with Barr.

During the quarter, we also worked to strengthen the balance sheet and to improve our financial leverage even further.

Before we 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 -- amortization of purchase intangible assets and inventory set up step up totaling $147 million, of which $138 million are included in COGS and the remaining $9 million are in sales and marketing; $37 million in restructuring costs, partially reflecting the integration of our facilities in Germany with Barr's operation in Germany.

Since we moved our operations into Barr and closed down our offices and reduced headcount of the Teva employees, these expenses are part of the P&L and not part of the EPA as we do when we closed down the Barr facility.

$37 million in impairment of assets, and these amounts result primarily from the write-off of product rights; $13 million in legal settlement in connection with the [Paragraph 4] litigation; and in addition, the related tax benefits of $87 million.

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

On the one hand, in Q3 2008 we did not have legal settlement, impairment and restructuring expenses, and we had a lower level of amortization.

But on the other hand, we excluded a payment of $100 million we received as a settlement from an institution, which was offset by acquisitions of in process R&D and the writedown of option rate securities.

As indicated in the past, we presented non-GAAP figures to show you how we, the management team and our board, look at our financial results.

Looking at consolidated results, sales of $3.55 billion, an increase of 25% compared to Q3 last year.

The Barr acquisition contributed to growth in sales in all of Teva's geographies, particularly in the US, Russia, Poland, Germany, and Croatia.

Similar to the first six months of the year, foreign currency differences grossly affected sales this quarter by $160 million or 6% as the dollar strengthens against certain foreign currency compared to the third quarter of 2008, primarily the Hungarian forint, the Russian ruble, the Euro, the British pound, the Polish zloty, and the Israeli shekel.

When we eliminate the foreign currency impact for the quarter, consolidated sales actually grew by 31% in local currency.

Pharmaceutical sales in Europe grew 16% in US dollars and 28% in local currency, while pharmaceutical sales in our international markets grew 17% in US dollars and 33% in local currency.

Non-GAAP operating income was up 42% compared to Q3 2008, reaching $1 billion, and benefited from strong gross margin and tight expense controls.

This quarter, foreign currency differences, also had an adverse effect on operating profit of approximately $25 million.

The negative impact on operating profit resulted primarily from the strengthening of the US dollar relative to the Russian ruble, the British pound, and the Polish zloty geographies in which we have higher sales than expenses, partially offset by modest devaluation of the Israeli shekel against the US dollar, where we have higher expenses than sales.

Non-GAAP net income was up 28% compared to Q3 2008, despite higher finance expenses and a higher tax rate, which was planned, both resulting from the acquisition of Barr.

Non-GAAP fully diluted EPS were $0.89 per share, up 16% compared to Q3 2008.

Similar to the previous quarter, we had approximately 78 million more shares this quarter than in the third quarter of 2008 in our earnings per share calculation, due primarily to shares issued in connection with the Barr acquisition.

Some housekeeping points related to the EPS calculation.

You will find share count detailed in the press release we issued today and the addback for the non-GAAP EPS calculation is $10 million.

Now let's discuss corporate margins and operating expenses.

Non-GAAP gross profit margin, which excludes amortization of intangible assets and the inventory step up of 58.2% in the reported quarter compared to 54% in the comparable quarter of 2008, but similar to non-GAAP gross profit and the first two quarters this year.

The improvement in gross margin was attributable to higher contribution of sales from our branded and Teva [rented] franchises as well as the improved gross margin in the US generic base business.

Non-GAAP operating margin reached 28.1%, up from 24.6% in the comparable quarter last year, driven primarily from strong gross margin and partially offset by higher sales and marketing expenses.

Net R&D expenses reached $195 million or 5.5% of sales.

Despite lower net R&D expenses as percent of sales, the number of our generic [class] submissions has substantially grown this year compared to 2008 in the US as well as in Europe and international markets.

However, this is not just volume, but also value.

A year ago, we had 58 Paragraph 4 with the FDA, which we believe to be first to file, representing a value of $42 billion.

Today, we have 82 submissions of Paragraph 4s which we believe to be first to file, representing brand value of $54 billion.

The pipeline has also enabled us to keep R&D expenses lower than we had originally anticipated, when we committed to a plant we double our generic R&D input and output for 2007 levels by 2012 and we expect Q4 R&D investment to be higher than in the past two quarters.

Sales and marketing expenses excluding amortization of intangible assets totaled $662 million in the quarter or 18.6% of sales compared to 17.1% of sales in Q3 2008.

These higher sales and marketing expenses are the results of two main factors -- a contribution of Barr business which is characterized by higher sales and marketing expenses, and higher contribution to sales of Copaxone, which resulted in higher payment with Sanofi-Aventis.

Further G&A expenses this quarter were $212 million or 6% of sales compared to 5.5% of sales in Q3 last year.

The increase in cases resulted primarily from litigation expenses.

The reported $52 million of financial expenses in Q3 compared with $17 million in non-GAAP financial expenses in the comparable quarter of 2008.

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

Financial expenses were down $9 million from the second quarter this year as the result of decrease in our debt over the past two quarters.

The non-GAAP tax expense provided for Q3 is $136 million compared to $52 million in the third quarter of 2008.

We now estimate our annual rate of tax for 2009 on a non-GAAP basis to reach 16%, compared with the rate of 10% in 2008.

The increase in the tax rate from 2008 to 2009 resulted primarily from the fact that Barr's effective tax rate is higher than Teva's.

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

Cash generated from operations exceeded $1 billion for the first time.

Our free cash flow, excluding capital expenditures of $195 million and cash dividends of $126 million, amounted to a record of $704 million.

The strong cash flow was driven by a reduction in working capital.

On September 30, our cash remained unchanged from three months ago at about $2 billion in cash and marketable securities.

Our total outstanding loans, bonds, and convertible debentures were $5.8 billion, down $1 billion from the balance as of the end of June.

During the quarter, we repaid approximately $800 million of debt, including the remaining balance of the bridge loan we took from the Israeli Bank to finance the acquisition of Barr.

This quarter, an additional $168 million of of our 0.5% and 0.25% of convertible debenture doing 2024 converted, given the principal amount of these bonds at approximately $182 million.

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 before.

The $1 billion debt reduction during the quarter, together with our equity growth, includes our financial leverage from 34% as of December 31, 2008 to 23% as of September 30, a level that is lower than our leverage as of September 30 last year, which was prior to the acquisition of Barr.

DSO, days sales outstanding, amounted to 60 days this quarter compared with 47 days in Q2 2009 and 55 days in Q3 2008.

We calculate DSO as we always do -- after netting out from the receivables, the sales reserves and allowance provision.

Inventory days were 195 days, similar to the comparable quarter last year.

The June 2009 figure of 188 inventory days was distorted by the inventory step up release.

Net capital expenditures reached $195 million this quarter compared with $170 million in Q3 2008 and $148 million in the previous quarter.

During this quarter, we executed on a number of plans to expand [service] utilities, especially in Israel and the Czech Republic.

We continuously evaluate our facilities, moving production from one location to another, closing down inefficient and expensive facilities, and expanding others to maximize production efficiency and profitability.

For example, during the quarter we announced closing the facility in Ireland and the Barr facility in the Czech Republic, while investing in the others I just mentioned.

And last but not least, dividends, yesterday Teva's Board approved a quarterly dividend amounting to approximately $140 million.

On a per share basis, our dividend, which is declared in Israeli shekel, was ILS0.6 per share, and based on the rate of exchange yesterday of the shekel to the US dollar, this translates into approximately $0.0159 per share.

That concludes my comments.

Thank you all for your time and attention today and 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 guys.

Just one question and a follow-up.

Shlomo, based on your comments today around M&A, should we read that to see any change in your interest in either a generic versus brand deal or the size of potential deal?

No, my message was actually nothing has been changed.

Our strategy is, as I explain many times, that our major business is in the generic arena.

This is where we see more potential to grow.

We have in addition a very interesting and very profitable branded business, which we are going to grow as well, and a lot of important things of how we are evaluating and how we are targeting and later how we are integrating the acquisition.

And Teva is an accretive company.

We continue to acquire companies in due time, so I don't want to raise any speculation on any other kinds of misunderstanding about the Teva future.

And then a follow-up for Eyal.

On the lines of R&D spending, how do you think about the JV investment and the reimbursement, that line items that ran from the last quarter to this quarter, so as we think about modeling for the next several quarters, how should we think about the contribution from those two angles?

This quarter, we had a much smaller reimbursement.

It was about $8 million, which reduced our R&D expenses quarterly.

And as far as I know, there's nothing much left for reimbursement and everything in the future will be done jointly by the contribution for the two companies equally.

The last of the two statements.

So how much should we expect you to contribute to the JV going forward on a quarterly basis?

In terms of our investment and our share in the investment?

Correct.

I don't think that we ever communicated on a product line by product line level, but on an annual basis we're talking about tens of millions of dollars, not hundreds.

Okay, thank you.

Our next question comes from Scott Hirsch with Credit Suisse.

Please state your question.

First, you noted that in the gross margin expansion or in the gross margin in general you saw at least partly -- part of that was driven by better gross margin in the US based generic business and I'm curious how the pricing situation is overall.

Bill, will you take this?

Sure, thanks for the questions, Scott.

Right now, the base business has been very strong.

Obviously you do know that some of our competitors have had issues in the market, so we have been able to pick up some of those products and we've picked those up in our pricing and not at previous pricing.

So we're looking for both share growth as well as some positive pricing trend, as well as the things that Teva does every day with driving down its API cost and driving up the sufficiency.

So all of those have combined to make the base a little bit more profitable.

And what is your flexibility in pricing for Copaxone compared to I guess Avonex and Betaseron, Rebif?

Is there still more room for pricing flexibility?

Well, I think at this point in time that we are priced competitively.

We don't want to be the lowest price in the market nor are we necessarily the highest, so we'll wait and take our time and see what happens with the market.

And then just lastly, does settlement legislation here change the way you think about at risk launches, post 30 month stays?

Does this model change in the future in any way?

The thing about the legislation that's currently out there is it almost favors Teva in the situation that we are able to launch our product at risk, and at that point in time all of the settlements we have recently entered, you go back to [edethenine, soledine], Ortho Tri-Cyclen Lo, they had been the same sort of settlement which is totally appropriate within the current legislation, which is a date of entry settlement.

So in a strange sort of way, if the settlement bill goes through, I'm pretty well convinced the only people who will be able to settle will be Teva.

Interesting.

Okay, thank you.

Our next question comes from Rich Silver with Barclays Capital.

Please state your question.

Just on Copaxone, it seems like it's increasingly difficult to forecast, at least for us -- year-over-year we're looking at 11% growth and you reported 53% year-over-year growth and there was only about a 10% price increase.

Can you help us reconcile the script in the sales growth and what might account for this other than price?

And I have one follow-up.

Hi, Rich.

First of all, you should see that a different quarter of 50% of the Copaxone growth came from quantity, not from price.

And I think that this is a very good example to show the quality of the Copaxone in the long term with more holistic point of looking.

And I think that Copaxone, we'll continue to increase the gap as to safety which is a very important part, again and again by different products to certain patients.

And now on the other hand, I don't think that you should take this quarter, which we are very proud of as the kind of quarter that will give you a newer VAR of our growth rate for Copaxone.

I think Copaxone has continued to grow, but sometimes and again as you will know a quarter is not the right way to measure Copaxone future.

Moshe if you would like to add-on to that, please jump in.

I think the growth in Copaxone as we see it in the US and also in Europe is mainly driven by quantities and share growth, and I think Copaxone has the uniqueness.

We believe Copaxone will continue to grow and continue to outpace market growth in all of the rest of the year and in 2010 as well.

And historically, the inventory levels have been relatively low, so can we still assume that again, this difference which doesn't seem to be accounted for by price has nothing to do with any inventory changes?

Yes, Rich, this is Bill Marth.

No, we haven't seen any inventory changes.

Right now we're in the 20 days area and 21 to 22 days in inventories out there that's remained fairly constant, so we're pretty happy with that.

Just one follow-up on R&D.

Eyal, on the last call, when R&D spending seemed to come in a little lower because of the longer reimbursement, you said for the year a 6.8% to 7.2% range for full year R&D spend, net R&D spend as a percentage of revenues was a good number.

Is that still the case?

No, I don't think so.

And I think -- I mentioned that in my opening comments what we have done during the year, we looked at R&D and the throughput of R&D and what we got from the Barr acquisition, the level of performance that we have, how can we deliver more without expanding resources.

And I think that the 7% average we predicted for the year, our strategic plan we are planning to peak at around this time and I think we peaked a little earlier and the number is good but could be somewhat lower.

And having said that, Q4 is going to be definitely higher than Q3 in absolute numbers and probably also in percentage of sales because we have, we're planning a lot of activity both on the generic and beyond generic part for Q2, but we do not make up to 7% R&D.

And for next year do you think that that would be still at 7% or below that number?

We are not yet on the 2010 because we are in a planning process.

But let me jump in here by emphasizing one thing that I believe that it's important to say when we are talking about Teva's R&D.

We remain committed to our plan to double our generic R&D out groups from the 2007 level when we initially launched our strategy for the next years.

And as for this year, I can assure you that we doubled the number of our submissions and what counts or what really counts is the output and not the expense.

As the out put, part of the Barr pipeline has enabled us to keep the R&D expenses lower.

Now to a certain degree in the R&D, we will double the output of our R&D so our future is safe and actually even bright, but when it comes to the other part of our R&D, that could ramp up the level of investment or expenses in R&D because as Eyal said, we have also innovative R&D part and biology part and some specialty R&D activities as well.

Thank you.

Our next question comes from Chris Schott with JPMorgan.

Great.

Thanks.

First question -- can you offer a little bit on the trends you're seeing in your western European business?

I know you said a bit of turbulence in the French market, and specifically what are you looking at to turn these markets around for Teva?

And I had a follow-up from there.

Eyal, would you take this question please?

Yes, it's a pleasure.

First of all, let me say if you look at what the role European dynamics has been has been turbulent, but there's a clear spot of good news in there as well.

Altogether we could say that we're very happy with the performance as mentioned of our business in Poland, which is by the way the only European market that hasn't gone into recession.

We are very happy with what's happening in Germany.

We're growing our business there and we're seeing our position in around about the number five position in the marketplace being cemented there.

Three, we see our Central European business taking up extremely well, the branded part of that business, branded generics markets, we are really performing very well and growing our share in places like Hungary.

But in many other markets in that area we are doing extremely well.

And although there is a slowdown of the economy in some places, even a bad situation with negative growth, we continue to grow our share there.

We are continuing to build on the success of the acquisition last year in Spain of Bentley and we're growing our business there, and although the total market is slightly behind our expectations, we expect that to pick up because there is a clear growing demand for the medicine that we bring to the market.

The generics market is clearly under developed there.

But then turn to markets like the UK and the Netherlands where there is much more of price competition.

We see in these markets that in particular in the trade and the wholesale there is a lot of tension and there's a lot of margin being squeezed out.

And in those circumstances, we are doing very well.

We're growing our share in both of these countries because our offer to the market is exactly the right blend between pure commodity and more specialty products and our customers' share in all of these markets is going up.

Our pharmacy share is going up and our overall market share is growing.

France is a case where the market has gone down, has not been growing as fast as we hoped it would be.

We expect some changes in the next year from the government, which would give more focus to growth there again.

And in that circumstance, we have taken a very firm number three position now where we have been pitching for that for the last 1.5 years.

We took it, we've taken it, and we are now stable on the number three position and are looking up for the next on.

And we finally we will take the market which is the most difficult one to assess at this stage which is Italy.

In April, there was a change of policy.

Before April there was very turbulent, unmanageable, and unpredictable situation in the Italian market and since April, there has been a fix of discount regimens and retail and there's also been a low penetration of generics and where it is today is good in terms of stability of the market.

We have captured our market share back to about 17%.

We're the number one position although is very fluctuating month by month, and we expect from that position onward that the Italian government should set out clear direction for the future of those markets, and we're in a good position to benefit from that when that market goes and picks up again.

All in all, you can say on the European business that we have the good combination of our commercial presence in all of these places I just mentioned to capture the changes, but we also have the R&D machine that is helping us to launch at a high frequency yield needed product, and I think that's one of the main drivers for our success in doing it better than our competitors.

Great, thank you.

And just a follow-up on just the US side, on the US generic business, can you comment specifically, did you see any benefit from EpiDex supply interruptions with the Q3 results or is that more of an opportunity we should think about in Q4 and beyond?

Thanks for the question, Chris.

The EpiDex share, you don't see it show up in our share right now.

EpiDex did have products in the market.

They were blocked in bringing further products into the market.

And we overlapped on 60 some different products, and we did pretty well there -- I think you'll see gains in the future.

And we're now looking to drive our share in the US generic market around 25%, up from where it currently is, so we think that we've done pretty well with that.

Great, thank you.

Our next question comes from Gregg Gilbert from Banc of America Merrill Lynch.

Please state your question.

Thanks.

First for Eyal and Shlomo, to avoid any speculation, can you tell us which financial metrics and time periods you will specifically be discussing on January 5?

Yes, we talk about our strategic plan between January 6 and the end of 2016.

And in terms of financial metrics, I'm afraid we're not going to be very innovative.

We're going to talk about sales, expenses, profit, business drivers, how the company is going to look like, engines of growth, and everything you talk about when you discuss strategy.

I hope that answered.

Yes, certainly and then my follow-up is about Copaxone.

Do you have any update on the high concentration Copaxone, and if not, when will we get that?

And Shlomo, you talked about Copaxone patents in 2014 and 2015.

The 2014 ones are in the Orange Book -- can you expound on the patent or patents that go to 2015 and are those non-Orange Book patents or patents in other countries?

Thanks.

Moshe, would you lend a voice on the patent issue in 2014 and 2015 and then we'll get back to the rest of your question.

So the question on the patent outside the US, that's for 2010 and 2015 and there was another question on the (inaudible).

I'm sorry I was just making sure there were no patents in the US that you were alluding to that go past 2014, is that correct?

Yes.

Definitely and above the injection volume, actually, we already completed the enrollment of the study with 15 patients and we'll have the results at the end of this year or the beginning of next year, and based on the results we'll make a decision out and move forward with the project as well.

Thanks.

Our next question comes from John Boris with Citi.

Please state your question.

Thanks for taking the questions.

First question just back to M&A.

I think in your criteria, Shlomo, that you laid out one of them was to offer new products.

Can you be a little bit more specific?

You had indicated a preference for branded products relative to generic products, so is that a bit of a change from your last commentary and can you provide any insight into the size of the deal -- you've in the past collared the size of the type of the deal you'd like to do but can you provide any insight into that?

And then I have a follow-up for Bill.

Can you be so kind and repeat the first part of the question, because we hear the call very badly.

Sure.

It has to do with M&A, the criteria that you outlined as far as your approach to acquisitions, I think you indicated, Shlomo, to offer new products.

Can you be a bit more specific about your preference for branded products relative to generic products?

And again your former statement you've indicated you wanted to drive your branded share as a percent of total sales higher.

And then on size of deal, you've collared the size of the type of the deal that you're interested in doing.

Can you provide any commentary as to whether your previous statement about size of deal is still intact or whether you've changed that?

And then I have a follow-up for Bill Marth.

Okay, first of all, the criteria mentioned are the same criteria for buying or acquiring the companies or acquiring products, and they are the same -- the rationale is the same rationale.

As I said, we are going to discuss more about our strategy on the January meeting and we will cover of course an update, a strategic vision for the timetables, the time range that Eyal just said, i.e.

to 2015.

But generally speaking I can say that we see even in the non-current future, Teva major business, the generic business will grow in percentage and we're obviously keeping the same ratio of the blended business.

In the blended business, we will have more focus on what we call the specialty segment, where we believe that there is a good future for Teva, and because we maintain our growth strategy and I'm sure that we will enhance and do some enhancement in both parts of the business.

But this is generally what I can comment on acquisition now.

Regarding the size, the size is not a real issue.

The real issue is the strategic fit and the economics and the accretion element as I mentioned before, these are the three major components that we are looking for, and definitely based on our capabilities and our strategy, we will hit or try to stick to these criteria.

Okay, thanks and for Bill, on Prevacid, how are you thinking about that opportunity, how it's shaping up in terms of how you're going to capitalize on not only the capsule formation but an update on the legal situation around the OTT formulation?

Yes, as you may know, right now on the OTT, that is still before the Judge and we have not heard from her yet, so we are hopeful that we will hear before November 10, and that's probably about all we can say on that.

With respect to the capsules of course, we do expect it will launch on November 10.

We have the tentative at this point in time.

Of course we have heard that Sandos is going to be the AG.

That's about all we've heard, so it's a very fluid situation.

We hope it will be favorable for us and we're cautiously optimistic.

Thank you.

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

Please state your question.

Hi, guys, thanks.

Bill, can you comment on the Shire litigation concerning Adderall XR, if you can put context around that -- seems like you aren't satisfied with the amount of product you're getting.

And also could you give us a regulatory update on Lovenox for both you and you if you're aware of anything surrounding your competitor.

And Eyal I believe original revenue guidance was $14.1 billion to $14.6 billion in 2009, and that clearly seems like -- if you're falling below the range, can you just give us some sense as to why that is?

I think that was even currency adjusted -- did we just miss a launch you thought you would have in your numbers or maybe put a little context around that?

Thank you.

Maybe we'll start with the revenue.

Shlomo, do you want to take that one?

Ken, let me first take the one on the top line forecast.

I'm sure as you know this has been and continues to be a very volatile year, especially when it comes to a foreign exchange rate.

As you'vejust seen just the first three quarters of this year, we experienced a negative effect of our top line of $670 million, only this quarter we said $160 million negative impact, so this volatility makes it very difficult to provide a precise projection regarding the top line this year.

But back to your question, I would say that we expect to be in the neighborhood of $14 billion and definitely we do our best even though the Dow is moving [to zero] and FX and others as you mentioned that would be our numbers.

Great, and then maybe Bill's question maybe?

Yes, Ken, good morning.

On the Adderall, right now, obviously we don't like to comment on ongoing litigation.

But what I would say is that it's a very simple situation of we think the agreement is quite clear that Shire needs to supply us what we've requested and we don't think they're doing a very good job at that.

So I think I'll leave it at that.

And your second question was with respect to Lovenox, and again I wish I had a crystal ball and could tell you exactly when that approval will come and I can't really comment too much for the other players in the market.

I'm not sure where Momenta is right now and I'm not sure about Amphastar.

What I do know is that we see application progressing very nicely.

We're getting very normal questions back around labeling and all of the typical stuff, so we do see activity and very positive activity.

Thank you.

Our next question comes from Ronny Gal with Sanford Bernstein.

Please state your question.

Good morning.

Thank you for taking my question.

First, I'm looking at my model and looking at your range for 2010 of the $4.40 to $4.60 and thank you very much for providing it.

But there seems to be a lot still in litigation and I was wondering if this is essentially your best guess now, but if obviously litigation cases work their way through the court in 2010, the possible range of outcome is much wider than $4.40 to $4.60 and I do have a follow-up.

Good morning, again, to apologize, we hear your voice very turbulent, so if you can be so kind and repeat your question?

Sure.

I mentioned that you gave us the nice guidance of $4.40 to $4.60 next year, but there seems to be a lot more that is still in some of the courts right now.

And I was wondering if this is a number you're willing to commit to now, and if things work through the courts obviously your guidance will have to change.

That would be very well, it's Eyal, I'll take that and Bill, you may jump in and add -- you're on the call in the United States.

But it's a simple standard answer.

We tried to risk adjust our business plan.

We know that we are not going to win every case, but we know we are going to win some.

We try to bring everything into consideration and be sure that we know we are predicting, they're moving parts, there's no doubt.

And it could go a little higher and even a little lower, but there are other parts in our business which are not intended for litigation.

So that's where we are, and this time of year we are all busy and finalizing our work plan, working out the details, and making sure that what we predicted early this year is still valid and they are in the middle of the evaluation.

Bill, do you want to add something on the litigation part?

Yes, Ronny, just a couple of follow-ups.

I mean of course and we talked over and over again about the venlafaxine and people know that.

But there's a lot of other cases out there such as we feel pretty good about Gemzar, Angiomax -- we've already talked about Mirapex comes at the beginning of the year, we're very hopeful on the appeal on Vista, and Temodar is -- just to name a few is an exciting opportunity for 2010.

And second, I guess this is more of a global question, you -- it was a nice discussion earlier about potentially pushing up the R&D a little bit towards the 7% rate year throughout, and looking at your business model once they're branded, two-thirds generic and looking at the branded R&D of around 15%, and I know you want to keep your R&D level low.

But thinking about the investment rate, shouldn't that R&D line be closer to 10% as opposed to closer to 7% two or three years out?

No, I don't think so.

I think that the more we look into our future and you'll remember that we are willing to maintain the ratio roughly speaking to be the current ratio between the branded business and the generic business, we believe that we will be more than okay in the current numbers.

It's important to emphasize that from my perspective, [expenditures] is the means, not the end.

The end is where we are willing to go, what are the products we would like to develop, and we come to the conclusion that it is the products or this is what we would like to be in, then we will dedicate the funds or whatever is needed in order to be there.

Right now, we think that we are doing, we are achieving our target without the R&D, and we have a different kind of R&D in Teva, so you should not expect us to go into the [finish] with numbers.

So do you believe your current branded pipeline is wide enough to support your growth in three to five years out?

Generally speaking to where we would like to be, I believe so, and definitely part of our future or long term future would be not only organic R&D, but also to a certain degree some acquisitions that will complement our portfolio to support our future projected sales in our branded part of the business.

Thank you.

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

Please state your question.

Good morning and a question for Shlomo.

If you could just comment on performance trends in the TAPI business in the quarter.

I know during your last strategic review you talked about this being roughly $1 billion business by 2012, but sales have continued to remain relatively soft.

And I still think that we're tracking roughly around 2006 levels.

So I'm just sort of puzzled frankly given the strength in the overall generic business worldwide, why we're not seeing stronger performance trends in that segment.

And then maybe just a follow-up question for Bill, if you could just give us your latest read on where exactly we are with respect to biologics legislation and what we should be looking for there.

And just maybe some color commentary on the notion that 12 years is a significant setback for the generic industry, and the thinking there is that while obviously for longer period of time than what you hope, the reality is that at least economically, you could be looking at products that are multiples above where they are in the seventh year in the life and 12th year, so I'm wondering how damaging you really think that is, thanks.

Let me first answer the TAPI part of your question.

You have to be aware that when we acquire companies, actually, we also acquire part of our customers.

So from that point of view, the Barr acquisition actually took a third party or external customer and make it an internal one.

So what you see in the TAPI numbers is actually the third party business or the external business part of the business, and I'm just giving it as an example because as we grow the business, TAPI is more busy with supplying Teva's internal needs, and definitely in the same time we would like to grow our external business and part of the number that we see because we actually move part of our customers into our internal universe.

So TAPI will continue to grow the business.

TAPI is the largest API producer in global terms, and that's basically what I can say on TAPI.

Bill?

Thanks for the question, Elliott.

There was a couple perspectives here on biogenerics.

First as the Chairman of the Association, I have to say that you probably did see the letter we sent to the White House asking the current biologics legislation is stripped from healthcare reform, because we think with 12 years of exclusivity and really the troubles around the evergreen, it's just not helpful.

It doesn't really create any competitive situation for the generic industry, so that's my Chairman of GPHA.

That said, from a Teva position, we're going after these products whether we have to do it through an ADLA or a DLA, and we've talked a lot about our filing of GCSF and again, we are hopeful that we will get that accomplished yet this year.

And we are hopeful about products like Neugranin, which is the Albumin fusion GCSF.

So we're going to go after these products one way or another as Teva.

So as I've commented many times to the press, don't feel bad for Teva.

Teva is going to be in these markets regardless.

What I would feel bad for unfortunately is for the American consumer, because I think they're getting a bad deal.

Thank you.

Our final question comes from Marc Goodman with UBS.

Please state your question.

Two questions.

First, Bill, you talked about Adderall XR a little bit, but I guess I'm just a little confused.

Was last quarter a big quarter of Adderall XR in this quarter?

Was it a very light quarter because of supply issues?

Is that the way we should think about it and we're hoping to get it back together in the fourth quarter?

Yes Marc, I think you need to think about the supply issues as post-180 day issues.

This is going to be a tough market as far as supply I think.

The way the situation is worked out right now, there's -- supply is tight.

There's not a lot of inventory out there.

Supply is tight, so right now, we are hopeful that our litigation will shake some things loose.

Okay, and then the other question has to do with the innovative business, some of the products, we seen a lot of press releases over the past three or four months.

Can you talk about just some milestones and things that we should watch for, and on the innovative side when will we see products hit the market whether it's Europe or US, maybe over the next 12 months give us a flavor for what we should see?

Yes, I think first of all as we discussed near term opportunities on Copaxone and the 0.5 M&A, and we talk about the Azilect and the ADAGIO study, and then the goals going forward.

And in addition, if you look at the innovative on the branded pipeline, I think that we have a few interesting products, definitely Laquinimod.

We believe that is a huge potential there for us.

And looking at the MS competitive landscape in the coming years, we have the [private loan] product that we're going to see results in next year, and this is a very interesting opportunity for us and other indications that we are developing with Laquinimod.

So all in all, it's all relatively I think midterm opportunity and on the innovative side.

We need to remember that on the other segment as well, we are developing our other franchises, and respiratory as well.

We're developing a few products on respiratory and we have a good development plan for our women's health business going forward, and definitely the biology is one of our growth engines let's say beyond 2010 in 2013 or 2014 timeframe.

So all in all if you look at the respect of the branded activities, which means that we have a good pipeline and an interesting and robust growth going forward.

Thank you.

I would like to turn the floor back over to Shlomo Yanai for closing comments.

Thank you, all, very much, for joining us today and I look forward to seeing you in New York on January 5.

Have a good day.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you, all, for your participation.