Teva Pharmaceutical Industries Ltd (TEVA) 2011 Q3 法說會逐字稿

Greetings, and welcome to the Teva Pharmaceuticals Industries Limited third quarter 2011results conference call.

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

A brief 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, Kevin Mannix, Vice President of Investor Relations.

Thank you, Mr.

Mannix.

You may begin.

Thanks, Rob.

Good morning, and good afternoon, everyone.

Thank you for joining us today to review Teva's third quarter 2011 earnings results.

I'm joined today by our CEO, Shlomo Yanai, our Chief Financial Officer, Eyal Desheh, Bill Marth, President and CEO, of Teva Americas, Dr.

Gerard Van Odijk, President and CEO, Teva Europe.

Shlomo will begin by providing an overview of the third quarter performance.

Eyal will then provide additional details on our consolidated financial results before turning the call back to Shlomo, who will provide an updated outlook for 2011.

We'll then open the call to question-and-answer period.

Before we start, I'd like to remind you that our discussions during this conference will include forward-looking statements.

Actual results could differ materially from those projected in the forward-looking statements.

The factors that could cause actual results to differ, are discussed in Teva's 2010 report on Form 20-F, and in our report on Form 6-K.

Also the discussions during this conference call, will include certain financial measures that were not prepared in accordance with generally acceptable accounting principals.

Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Teva's earning release issued earlier this morning, which can be found on our website.

I'll now turn the call over to Shlomo.

Shlomo, if you would please?

Thank you, Kevin.

Welcome, everyone, and thank you for joining us today to review Teva's results for the third quarter of 2011.

Overall, our efforts in the quarter yielded mixed results, against a backdrop of important strategic moves, both on the blended and generic fronts.

We saw sales increase by 2% year-over-year to 4.34 -- sorry -- $4.34 billion which produced quarterly operating profit and net income of $1.3 billion and $1.1 billion, respectively.

This brought us to an EPS of $1.25.

All of these metrics represent sequential growth, compared to the first and second quarter, as we have guided.

A combination of strong performances from multiple business units are what enabled us to exceed our guidance for the third quarter, despite reduced [sales] in the US generic business.

There were positive contributions from the majority of our business units, especially from our branded franchises, but also from our generic businesses, in Europe and the emerging markets which continued to exhibit strong growths.

Their performances were extremely important in providing balance, in the face of significantly reduced generic sales in our largest market, the United States.

Here, the business continued to struggle to replace, to replace expired 180 day exclusivity, from the year ago period, which as you know, were not only significant contributors to sales, but to our bottom line as well.

I would like to discuss the US performance in greater detail than I normally do, because it is important to appreciate the difficult comparison.

If you look at 2010, our generic version of Effexor XR, Hyzaar, Cozaar, Mirapex, and [Yaz] generated revenues totaling almost $1.4 billion, including $560 million in the third quarter of that year alone.

Now, fast forward to 2011, and the combined sales of these same products, will total just $350 million, for the entire year, including $58 million in the third quarter.

Replacing these sales from 2010 has proven to be a challenging task, one which has been compounded by the fact that we have been missing an important undisclosed launch, due to timing of the FDA approval.

We are hopeful that this product will be launched in Q4.

The US remains a key market for Teva, and continues to be the largest generic business in the world.

The dynamics of the US generics market are changing, however, we still see great potential for growth, starting with the recent launch of Olanzapine, and continuing through next quarter which we expect to be a strong quarter for our US generics business.

We are pleased by the significant progress we made at both, the Irvine and Jerusalem infection facilities as we put the quality issues experienced at these facilities behind us.

Quality is our top priority, and we are working diligently to take the system improvements we have made at these facilities, and implement them throughout our network of manufacturing facilities around the world.

And now, I would like to turn to some of the more positive highlights in the quarter.

Europe and emerging markets continue to display impressive growth, benefiting from a level of diversity that has eluded other operating in these regions.

Europe was especially impressive, growing sales by 24% in local currency, to $1.344 billion.

Our organic growth rate for the Europe business was 9%, while in our 5 major European markets, sales grew organically by an average of 14%.

And this September, for the first time, Teva became the number one generic pharmaceutical company in Germany, by both volume and value.

We attribute the strength in this region, to our unique position as a true pan-European company.

We have diversity throughout the 27 countries, that make up this region, which reduces our dependency on any one country.

In other ex-US regions, Latin America posted 22% organic growth, which is more than $200 million in sales.

I am pleased with the progress we have made in EMEA, which as a business exceeded $350 million, with organic growth of 16% for the quarter.

This was largely due to record generic sales in Russia, which grew organically by 27%.

In Japan, pharmaceutical sales reached $195 million for the third quarter, and I will provide additional information on that country shortly.

All of these markets and others are important to our long-term strategy, which includes growing our leadership position in the global generics market.

We strive to be the global dominant generic player, and we want to do this across the globe.

Whether it is in the [GGx], the generic -- generic market, the [BGx] markets, the [bena]-generic markets, and the [penda] markets or [governmental models], which ever model, Teva's size and scale, as the global generics market leader, represents a significant competitive advantage as we continue to diversify our generic business, not just by form, but also by geography.

Moving now to our blend of businesses, Copaxone led the way with a 26% increase in end market sales, with total, more than $1 billion.

Our flagship product continues to lead the US and global multiple sclerosis market in both sales and market share, including a 3.5% year-to-date growth in US prescriptions.

As patients and physicians seek treatment with proven medical efficacy and safety.

We believe this will sell the product well, even as the market awaits the introduction of additional therapies, which will certainly extend the market.

Last week, we held a meeting with FDA to discuss the NDA for Imiquimod.

Following the meeting we now believe that it would be premature to file an NDA at this time.

We will continue to discover Imiquimod, and are pleased that FDA has offered to work with us to determine the best design for conducting an additional trial.

Our product long-term strategy is to build on our blended and specialty pharmaceutical business, for diversification and expansion of our product portfolio and pipeline, while enhancing our position as the world-wide leader in generics.

During this quarter, we saw 30% year-over-year growth in our US respiratory business.

The addition of Theramex to women's health helped to offset the loss of patent protection from Seasoninque in the US in this quarter.

We expect to see continued growth in this area, over the coming years.

We further expanded our specialty blended business on October 14, when we closed on the acquisition of Cephalon.

Our new and expanded portfolio in CMS oncology, respiratory and women's health, together with our vast pipeline of more than 30 late stage product, position us as a leader in specialty pharma.

We are very excited about the opportunities that lay ahead.

As a result of the combination of our blended businesses, under the leadership of Kevin Buchi, who will be supported by Dr.

Lesley Russell, head of Global Blended Research and Development, and [John Carmbazon], head of Global Blended Marketing.

In fact, Kevin and Leslie are here in Israel this week, meeting with their staff, as we speak.

Since the announcement of this acquisition in May, the work that was done by the integration teams, and the bonds that they formed were unlike anything I have seen before.

This positions us, to have our most successful integration to date.

2011 has been a challenging year for Teva, somewhat offsetting the excellent progress we have made on our strategic initiatives.

We have diversified our generic businesses by acquiring Taiyo and Teva-Kowa in Japan, the second largest market in the world, thereby laying the building blocks for our planned future growth in that country.

These moves solidify our position, as the true leader in the top generic market in the world.

We're number one in North America, both United States and Canada.

Number 1 in Europe, and number 3, and widening in Japan.

As I discussed the earlier, the acquisition of Cephalon further positions Teva as a world-class specialty pharmaceutical business.

And our alliance with P&G, further expands our footprint in another dimension of pharmaceutical care.

All these key pharmaceuticals are an important part of the healthcare system, not only in the US, but even more so throughout the world.

Thank you for your attention.

And now let's turn the call over to Eyal, for a more detailed financial update.

Eyal?

Thank you, Shlomo, and good day, everyone.

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

The results for the quarter were dominated by strong performance in our European and international businesses, as well as our major branded businesses, which managed to offset another challenging quarter for US generic business.

This demonstrates the strengths of Teva's balanced business model.

Before we delve into the numbers, I would like to touch on 2 topics.

First, 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 purchased intangible assets amounting to $161 million, of which $151 million is included in cost of goods sold, and the remaining $10 million, in selling and marketing expenses.

I'd like remind you that we started recording amortization of ratiopharm intangibles in Q1 of this year.

Restructuring and acquisition expenses, and impairment of assets of $52 million related primarily to the acquisition of ratiopharm and Taiyo, costs related to regulatory action taken at facilities of $35 million, which relates primarily to quality issues in Irvine, and our animal health business, an inventory step-up of $19 million related to the acquisition of Taiyo, purchase of research and development in process of $15 million, income of 1 -- income of $1 million in connection with a provision for legal settlement and reserve, and a related tax effect of $86 million.

You should note, that the items excluded in arriving at our non-GAAP results for the third quarter of 2010, are not identical to those in the current quarter.

Please review our press release and related tables for a reconciliation to our GAAP numbers and more complete information.

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

And second, foreign currencies continue to have an impact on our results this quarter, influencing our P&L as well as our balance sheet.

In the third quarter, foreign currency differences had a positive impact of approximately $148 million on sales, and $15 million on non-GAAP operating income, as compared to Q3 2010.

On the other hand, foreign currencies had a negative impact on our equity.

The strength of the US dollar on September 30, compared to June 30, primarily relative to the Euro and other European currency, reduced our equity by approximately $1.3 billion.

Looking at the consolidated results for Q3, sales totaled $4.3 billion, an increase of 2%, compared to Q3 last year, and an increase of 2% compared to Q2 this year.

Sales in North America declined 20% from Q3 2010.

Our US generics unit, which had another particularly soft quarter, because several -- several products that were major contributors to sales in the comparable quarter of 2010, most notably Venlafaxine had lower or no sales this quarter.

And at the same time, there were no significant launches in the quarter to offset this.

We continue to expect a -- the fourth quarter to be stronger than each of the first 3 quarters in 2010, following the launch of Olanzapine last week.

Sales in Europe grew 34% in US dollars and 24% in local currency, due mainly to the consolidation of ratiopharm results.

But it is important to note, that we again saw organic growth in generic sales in Europe, beyond the consolidation of ratiopharm, calculated as ratiopharm and Theramex were part of Teva in Q3 2010.

Generic sales in Europe grew 7% organically, compared to Q3 2010.

And Germany continued to perform well, with generic sales, growing 8% organically.

Sales in our emerging markets, Eastern Europe, Middle East, and Africa, Latin America and Asia grew 56% in US dollars and 49% in local currency, due to strong organic growths and the first time inclusion of sales of Taiyo.

In addition, we continue to see double digit organic growth in Latin America and Russia.

Now to the gross profit margin, which excludes amortization of purchased intangible assets, cost related to regulatory action taken at facilities and inventory step-up, was 56.4% in the reported quarter, compared to 62.5% in the quarter last year, resulting primarily from the significantly smaller contribution of high margin generic products in the US.

Non-GAAP operating income and non-GAAP operating margin were $1.3 billion and 30.3%, down from $1.4 billion and 33.9% in Q3 last year.

The decline in operating margin resulted from the decline in high margin generic products in the US, and was offset by significantly lower G&A expenses in the quarter.

Non-GAAP net income was $1.1 billion, down 6% compared to $1.2 billion in Q3, 2010.

Non-GAAP fully diluted earnings per share were $1.25, compared to $1.30 in Q3 last year.

The weighted average share count used for calculating fully diluted non-GAAP earnings per share was 890 million shares.

Now let's discuss operating expenses.

Net R&D expenses totaled $227 million or 5.2% of sales, slightly lower than the $239 million in Q3 last year.

The decline in net R&D expenses is attributable mostly to lower legal expenses, in connection with our generic R&D and timing of projects, and does not reflect a cut in R&D investment.

Gross R&D in Q3, which includes participation of third parties, totaled approximately $248 million or 5.7% of sales.

Selling and marketing expenses, excluding amortization of purchased intangible assets, totaled $796 million this quarter, or 18.3% of sales, compared with 17.5% of sales in Q3 2010.

Higher selling and marketing expenses resulted from the consolidation of ratiopharm and Taiyo.

Further G&A expenses this quarter were $112 million or 2.6% of sales, compared to 5.5% of sales in Q3 last year.

The significant decline in G&A expenses this quarter, resulted primarily from a gain recorded in connection with the acquisition Teva-Kowa, and of an additional interest acquisition in CureTech, totaling together $135 million.

In -- Q4, we expect G&A expenses to return to regular levels of approximately 5% of sales.

We recorded $67 million in non-GAAP financial expenses in Q3 2011, compared with $48 million in the comparable quarter of 2010.

Higher financial expenses resulted primarily from higher interest expenses due to the debt incurred to finance the Taiyo acquisition, and expenses incurred in connection with hedging activity.

The non-GAAP tax expense for the third quarter was $119 million, of pre-tax GAAP income of $1.249 billion

Our current estimate of the non-GAAP annual tax rate for 2011 is 10%, compared to 13% of pre-tax non-GAAP income for 2010.

The lower non-GAAP tax rate for 2011 resulted from a particular mix of products that our manufacturers and geographies where Teva benefits from tax incentives.

The estimated GAAP tax rate for 2011 is 4%.

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

Cash flow in this quarter was not consistent with our typical run rate, and resulted from a combination of events which we do not expect to repeat.

Cash generated from operations this quarter totaled $482 million, compared to $1.2 billion in Q3 2010, due to lower collections, inventory build up, and actual payment of legal settlement and restructuring expenses reserved in Q2.

Our free cash flow, excluding net of capital expenditure of $276 million, and dividend payment of $204 million, amounted to only $2 million.

Cash flow in Q3 was weak, relative to a record high Q2 of $1.3 billion in operating cash flow, and it is expected to revert to strong typical levels in Q4.

During the quarter, we bought back 6.1 million shares at an average price of $42.30 per share, for a total of $254 million.

Since we started this buyback program in December 2010, we have repurchased 17.9 million shares for a total of $848 million, reflecting an average price $47.47 per share.

On September 30, cash and marketable securities totaled $1.3 billion, essentially flat compared to June 30.

Our total outstanding loan, bonds and convertible debenture totaled $8.2 billion, up approximately $1.8 billion, from $6.4 billion as of the end of June, as a result of the additional debt incurred primarily in connection with Taiyo.

Following the close of the Cephalon acquisition, our debt stood at $14.7 billion.

Our financial leverage as of September 30, 2011 was 26%, compared to 21% at the end of June.

The increase resulted from additional debt incurred in connection with the acquisition of Taiyo, as well as the negative impact foreign exchange had on our equity.

DSO, day sales outstanding declined to 36 days this quarter, compared to 41 days in the previous quarter, and 32 days in Q3 2011.

We calculate DSO, after netting out from receivables, our sales reserves and allowances.

Inventory days stood at 198 days, up from 178 days in Q3 2010.

The increase in inventory days, compared to last year resulted from foreign exchange differences, as well as preparing for volume growth in the US generics expected in Q4.

Gross capital expenditures was $276 million this quarter, compared to $224 million in Q2, 2011.

The increase in CapEx resulted from one-time expense in connection with a site purchase in the United States.

Dividend -- on Monday, Teva's Board approved the quarterly net dividend, amounting to approximately $194 million.

On a per share basis, our dividend which is declared in Israeli shekel, is ILS0.8 per share.

Based on yesterday's rate of exchange, of the shekel to the US dollar, this translates into approximately $0.219 per share

Before I return the call to Shlomo, to discuss guidance for Q4, I would like to say something about disclosing our information.

Following the acquisition of Cephalon, we intend to modify our presentation of information, and the level of detail to be provided.

We will provide more product level sales data for our branded business, as well as additional sales information by market.

Shlomo, please continue.

Thank you, Eyal.

The closing of the Cephalon transaction provides us with an opportunity to update our guidance for the year to reflect its inclusion.

The Company now projects 2011 full-year revenues to be approximately $18.3 billion to $18.6 billion, compared to the previous range of $18.5 billion to $19 billion.

The Company also expects non-GAAP earnings on a fully diluted per share basis, to be in the range of $4.92 to $5.02, compared to the previous estimated range of $4.90 to $5.20.

The new full-year estimate now include a non-GAAP EPS contribution of approximately $0.15 from the consolidation of the Cephalon acquisition.

The full-year 2011 range implied fourth quarter performance of revenues of $5.7 billion to $6 billion, and non-GAAP EPS of $1.53 to $1.63.

The range for the fourth quarter, primarily reflects the uncertainty about the timing of the regulatory approval and all the dynamics of commercial conditions of launching the undisclosed generic product in the US, that I referenced at the beginning of my remarks.

Looking ahead to 2012, as we mentioned previously, we plan to provide updated guidance prior to the end of this year, once we have had more time to integrate Cephalon, and review our combined war plan.

I would be happy to open the call for questions.

Thank you.

We'll now be conducting a question and answer session.

(Operator Instructions).

Thank you.

Our first question this morning is coming from the line of Randall Stanicky of Canaccord Wealth Management.

Please state your question.

Thanks guys thanks very much for the question and the color.

Maybe Eyal and/or Bill, can you just help us to be clear on fourth quarter guidance, can you rank order the 2 or 3 key drivers sequentially we should be focusing on?

And then maybe help us, maybe reiterate with respect to the commercially sensitive product, exactly what is in and what is not in fourth quarter?

And then I have a follow-up.

Okay.

Thanks, Randall.

I'll start with some, some numbers and Bill will follow-up with the, with the business aspects.

But as you said, on this quarter, is expected to be a different volume from Q, from Q3.

We, we see basically growth in all the parts of our business.

We -- of course, the US generic business -- with the Olanzapine launch which already started, and some other improvement.

Bill can shed some light on that.

Europe, we believe it -- continue to grow with a stronger Q4.

Same for our international market, we're beginning to take back, Copaxine in Germany this quarter, and a number of other smaller -- smaller country.

Respiratory business should have a stronger -- stronger fourth quarter, so basically, almost in every point in our business, you see addition.

Of course, the addition of Cephalon as Shlomo mentioned, we expect to contribute $0.15 of sales.

And then there's a product that we cannot disclose with an upside, that is an upside for the quarter, and Bill can provide more details on that.

Yes.

Thanks for the question, Randall.

Just a couple of points, the fourth quarter, really is an opportunity, it's time when US generic division will return to an accelerating position, and begin to accelerate.

It's led, of course, by the launch of Olanzapine, which should contribute about $300 million, which was shipped last week.

We'll also get a few other new products that should launch.

I think the main one you will think of, would be Combivir.

And then with the lifting now of the Jerusalem warning letter being behind us, it's really putting us in the position now, or the right position for us so seek share, and get share in volume and gain.

So if you want to think about the business in the fourth quarter, you think about this base business, that's about $850 million.

With Olanzapine, it should be approximately $300 million.

New products that -- other new products that will come in the quarter, about $100 million.

And then we should get potentially an impact from the price increases that begin to roll through, as well some share gains.

And all of this, of course, what I just laid out, doesn't include this important undisclosed product.

Which would be upside?

Well, it is upside to the ones that I just gave you.

I think it, needs to be very clear with respect to the range, that the low end of that range reflects not having that product, the high end of that range reflects having some level of that product.

Got you.

That's helpful.

And then let me just follow-up.

As we've looked the last couple of quarters, the US generic business has come down to probably where it's at its low watermark from here.

We've seen gross margins come down with that, 100 to 150 basis points.

So Eyal, directionally can you help us think about, as that US generics business picks up, should we think about the gross margin moving higher as well?

Yes, if you remember Q2 last year, we generated a record high gross margin of over 62%.

I don't see us returning to that level.

I am putting Cephalon aside, because Cephalon will have it's -- a positive impact on our gross margin, it comes with a branded gross margin.

And, of course, that will elevate the margin.

But on the Teva stand-alone business as you know, today, our gross margin for, for the, fourth quarter should be anywhere between 59% to 60%.

As a result of the changes in the mix of product and the, the rebound in the US generic business, Olanzapine of course, is a paragraph IV exclusivity product, and a few other improvements, that's [what] I believe we'll see.

Thank you.

Our next question is coming from the line of Gregg Gilbert with Banc of America.

Please state your question.

Thank you.

Firstly for Bill, understanding that comps were tough in the US generics business, is that business overall performing like you thought it would?

Or is there some changing dynamic underneath that, that we should understand, again separate from sort of chunkiness of big launches?

And my follow up is for Shlomo.

Can you confirm and put some rumors to rest, that there are any changes in senior management and the Board being considered?

And maybe separate from that, would you say there's more discussion these days at the Board level, about the prioritization of buybacks versus dividend versus business development?

Thank you?

Gregg, this is Bill Marth.

I'll start out.

I think your reference to the US generic business, it is basically down to, it is down to the base business.

If you think about what Shlomo said in his talk, about the $560 million of exclusive products that you're missing for the quarter, that's an extreme amount of money.

What I think is also different is in 2010 alone, we had 1 point above, $1.4 billion in exclusive products in that plan.

In the 2011 plan, we knew it would be sort of a dry year, but it has been a very dry year.

And we only look at this point in time, and at this point in time, expect about $350 million of exclusive products.

So that's a real extreme change.

But we are anticipating returns to some of our previous trends.

As, as we begin to pick up share and do all those things that I mentioned earlier to Randall's question.

And again, the launches in 2011, we had -- we've only had 13 in 2011 in total, and just 5 in Q3.

So we've been light on the launches, light on the exclusives, and we had a bit of an impact because of the warning letter in Jerusalem.

And now we see we're putting that behind us.

Okay.

And Gregg to your question about the buyback, let me say that, first of all, at this levels -- that Teva is a compelling value.

And Teva is today, is a different Company.

With the sales approaching almost $20 billion, we are evaluating what is the best way to create value for our shareholders, especially on the question of the total shareholder return or i.e.

how much of cash we would like to return back to our shareholders.

And definitely this is -- on our -- we are considering, and we are discussing it.

But at this point in time, I prefer to stop here.

Shlomo, maybe I can add some -- on returning shares to, returning cash to shareholders, over the past 12 months, we, we returned almost, almost $2.5 billion to shareholders, by way of dividend payments, share buyback redemption of our convertibles.

And we will continue to evaluate the right way to allocate capital, without of course, ignoring the need to maintain strong balance sheet and accelerated debt service.

So all this is definitely the things that we are taking into consideration.

Thank you.

And your last part about management changes, there's no management changes that I can tell you.

Thanks.

Our next question is from the line of Ken Cacciatore with Cowen and Company.

Please state your question.

Hi thanks.

Just wondering, in Europe you seem to be gaining share and performing a little bit better versus your peer groups.

Wonder if maybe Gerard would discuss some of the trends he's seeing there, and some of the thoughts as we move forward in 2012?

Thanks.

Yes, thanks.

Sorry, Ken, there was a bottle falling over here.

Happy to do so.

Listen, I think we had a great quarter.

Organic growth, and as you know, as Shlomo's alluded to, we had -- on a comparative base we grew 9% in our major 5 European markets or grow, 14 if you take it organically, which I think is really great.

And with the exception of Poland perhaps Portugal, Hungary, and France, it was flat.

Every market was doing very, very well in Europe.

But as you also know, each quarter has its own dynamics.

The launches, [standards], trade dynamics or M&A activities, and that's why every quarter is slightly different.

And I think for us in Europe, the quarterly fluctuation that we see in our 27 different European countries are there.

But we are so nicely spread, that as a net-net result, our European business is being positive quarter after quarter.

So it could be raining in one particular country in one quarter, but there's also range of other countries, where in that same quarter we have a lot of sunshine.

You may remember that in Q1 we grew in every key European market, except in Germany where we declined.

And with this quarter, our major five including Germany, grew sales organically with an average of 14.

So it's just shows you that I think our business model is making us more resilient and more resistant to these -- let's say, different models and different dynamics we see in the European market.

I think we can stick to what we said at the beginning of the year, we expect every quarter a slightly better quarter than the quarter before, and I think we are seeing -- we continue to see that, if you compare quarter-on-quarter, year-on-year.

And as for next year, I believe that with all the price dynamics we are seeing in Europe, there will be a little more pressure.

But growth might be a little bit more under pressure, but we're still expecting mid, mid to high single digit growth numbers to be possible for the European business.

Thank you.

Our next question is from the line of Jami Rubin of Goldman Sachs.

Please state your question.

Thank you.

I've got a couple questions.

Bill, for you, I'm wondering if you could kind of take a step back, and help us to think about what you see as the organic growth rate of the North American generics business going forward, recognizing that this year was a particularly challenging year.

You've got obviously, some opportunities in 2012, but if you were to sort of take a step back and look at the long-term organic growth, can this business recover to the levels of growth to which investors have become accustomed?

Or should we all sort of recalibrate our expectations on that?

And I also have a question for Shlomo.

You were out with pretty aggressive long-term 2015 revenue and net income guidance, and just wondering just as it relates to the earlier capital allocation question, what is more important to you?

Is it more important to you to hit those targets, which now seem even less achievable, given the revenue miss this quarter, or returning cash to shareholders?

And just, apologies here, last question, relates to the gains that you took this quarter on the acquisitions of Teva-Kowa and CureTech.

Just wondering, what the revenue impact was, revenue and earnings impact was, from those acquisitions this quarter?

Thanks.

Maybe I'll take that.

It is Eyal.

I'll take the revenue question on Teva-Kowa.

The (inaudible) addition of the revenue to Teva-Kowa in this quarter is marginal or hardly (inaudible), because we just closed the deal very close to the end of the quarter.

But going forward, it will add something like $25 million for -- to Q4, in the run rate, since we recognized part of the revenues.

We were 50/50, with such a unique Japanese structure, and we recognized something like two-thirds of the -- or 75% of the revenues, to begin with in, in our revenue recognition.

So this is, not (inaudible).

Jami, this is Bill Marth.

You asked, I think, a really great question about the long term view of generics in the US.

The way to think about Teva's generic business is, it's about a $5 billion business, that will move up and down on an annual basis, depending on exclusivities.

It's a great business.

It's still remains the largest generic business in the world, and will still for quite some time, and so we're very excited about it.

But there's changes happening in the US business.

If you think about -- if you think about our ability to grow, you've got about a $300 billion generic, or branded business in the US.

They attribute about $50 billion of it on IMS to, to generics.

And then, there's about $40 billion reflected in IMS on -- if you think about biologics, which we're also chasing, we're chasing in a different way.

It leaves you about a core business of about $210 billion of branded value for us to go after.

And we're excited.

I mean, we're filed against $117 billion of that $210 billion.

The fact is Paragraph IV has changed.

The ability with more NTEs, the ability to get first to file for your exclusive or semi-exclusive is much less.

So we see value coming from the more complex products.

Products like our budesonide, and other, other products that are -- (inaudible) ODT that we marketed for a while, products like that, that have complexity.

And we see more value coming from that.

We see a bit more commoditization happening, with, and more volume coming with, with strengthening of managed care, but a great business.

A little tougher to get some of that sustainable value, but we believe we have the edge to be able to do that.

But again, when you think about the business, think about that $5 billion base business kind of moving up and down, largely on those exclusivities and those technically challenging products.

Jami, Shlomo speaking.

Again, I would like to thank you for the question, and giving me actually the opportunity to pour some light on our long-term thinking.

So let me first remind you that in 2007, we came with a long-term strategy or plan which was called at that time, the 20 20 which actually said by 2012, we're going to be a $20 billion Company, and at 20% net profit.

And I remember that time, not many people believed that we could do that.

In 2010, and I don't have to be long here, because you see the numbers, and you see where we are going to be next year, even without giving you the guidance for next year now.

My point is that, long-term plans are actually giving you a kind of a road map, and kind of growth that you like to achieve and to make sure that the Company, especially a big Company like Teva, everybody understand where are we heading.

But we are doing it in a smart way, and we are not going to do anything, just because we put the number there.

We believe that this is achievable target and a reasonable target.

And I can, I'd be more than happy in a separate occasion, to show you the full business environment, and the full reasons why we believe there is a huge opportunity out there.

At the center of that is about, it is actually about one rule, which is diversify.

We need to diversify Teva's business in the coming year.

We just talked to Bill about the US generics, part of the long term strategy is to take the generic business to the global part of the world, where we have more opportunities for growth and for generating the growth, same goes for our specialty pharma business.

We have [one] Copaxone, we have to diversify our specialty business, and this is what is the rationale on the Cephalon acquisition.

Now talking about your more specific questions on, on returning cash to the shareholders.

In the coming year from now on, we are expecting to generate about $15 billion in cash.

So first of all, we have the source, but I do also believe, but I also do believe that we have all the assets.

So as far as I see it now, we don't need a mega or big additional acquisition.

And as a matter of fact, we would like to talk with, especially in the coming year, in integrating and digesting the, the 2011 acquisition, the Cephalon, the Taiyo.

And of course, to drive more value through the partnership with P&G and some other activities that we're focusing on right now.

By the way, the OTC idea or the OTC joint venture, which I believe it is a unique opportunity for Teva's future was not on the radar screen, which we announced the 2015.

Just to show, that we are living in a dynamic changing world.

Sometimes we are going to come with additional creative or initiate new business ideas.

Sometimes we're going to get bad news, as we had in the Laquinimod, but this is, the world we live in.

And we believe we have enough shapes, and enough business segments that we can at the end of the day, create what we believe is a balanced growing business model.

Most specific on the cash, as I said before, let me repeat, we understand that as a $20 billion Company, we have to think different, we aren't the same Company.

And part of it is of course, how much of cash we would like to return to our shareholder.

Management and Board both are considering and discussing it.

At that point of time, I don't want to elaborate more on that.

But it's definitely part of our thinking and part of our overall question, of what is the total way, of the total shareholders return and what is likely to be.

So to sum up, I don't see a big acquisition on my radar screen, unless we, we talk about some complementary, few hundred million dollars, in growing parts of the world.

Cash is under consideration, cash returns under consideration.

And, and we, we strongly believe that we can make this number.

And time will tell

Thank you.

Our next question is coming from the line of Louise Chen with Collins Stewart.

Please state your question.

Hi, thanks for take my questions.

I just had a few.

First question I had is on the undisclosed product opportunity.

Is this something that has been discussed as one of your general opportunities before in the past, or is this something we've never heard of before?

And then second question is just on the Cephalon pipeline.

I don't know if it's too early, but could you give us any sense of, what are some of the key products that you're excited about in the pipeline?

And then lastly, just on BG-12 now all that the data is out there, do you still confident about our previous comments about Copaxone's ability to maintain market share, and why do you feel confident about that?

Thanks.

(Inaudible).

Can you repeat the first one please?

The first one was on the undisclosed product opportunity?

I was just curious if it's something that's been mentioned before as one of your general product opportunities, or is it something that's going to be completely new, if it is announced?

Okay.

So Bill will take the first half of your question.

Yes, Louise, let me start with the last part, BG-12.

I think the way, when I think about this, absent a cure, the best thing you can do to, is to provide patients with options in the MS space.

We believe that oral therapies are important for patients.

And some of the data we see thus far, the MS market is expanding, so we're happy with that.

And orals appear to be helping that.

And we are bringing patients either into the market, or they're bringing them back to the market.

So either way they come to the market, we're excited that we're growing Copaxone, and we're being able to share in the patients that come into that market.

With respect to BG-12's results, I think it's premature, and it's a bit difficult from my vantage point to evaluate the results of define or confirm.

But again, we think that, that orals do have a place in therapy.

Your other question was with respect to the -- the undisclosed product.

I will just reference you to our last call where we, we did talk about commercially sensitive opportunities.

And I think that we will probably not want to say anymore on that.

And then there was the third question that --

The Cephalon pipeline.

Cephalon pipeline.

The Cephalon pipeline, what I would tell you right now is, we're right in the middle of that evaluation right now.

Kevin and his team is doing extensive work.

We actually put the two pipelines together.

I think we have a lot of exciting thing in that pipeline, from those that are more challenging such as [Revascor] that have potential to really be transformational in the marketplace, to products like hydrocodone, that we think are maybe a little bit easier to get into the market, although they're very important products to get into, to market.

So there's a lot there.

There's a lot for us to go through.

I think at this time, we would reserve discussion of that pipeline, and potentially we'll be able to talk to you sometime in 2012 about how we see the whole pipeline for Teva.

Thank you.

Our next question is from the line of Elliott Wilbur of Needham & Company.

Please state your question.

Thank you.

And I guess first question for, perhaps you Bill.

With respect to Copaxone and growth trends in the US, certainly, no secret, that historically pricing leverage has been one of key drivers of growth of that franchise.

And it's been quite a while since you guys have taken a price increase on that product.

I'm just sort of curious, what you think may have, may have changed about that market, despite the obviously transition with newer therapies that may, in fact, curtail your ability to grow the product, the price increases alone going forward.

And then as a follow-up question for you Bill, and all the members of the team, just stepping back and taking a look at, at Teva and specifically the US generic business, I mean, one can't help but sort of opine that, if anything, has changed over the last couple of years, certainly I think it's fair to say that the Company's risk aversion, with respect to Paragraph IV product launches, seems to have increased.

And it seems to sort of coincide around the Protonix launch.

So maybe going forward, we shouldn't be thinking about probability of success on a lot of these P IV launches, as being so high, relative to historical norms.

And I know each one, sort of has to be judged on its own merits, but maybe you guys can just sort of comment on that general observation?

Thanks.

Elliott, this is Bill Marth.

But let me start off with that last part first.

With the US generic market, you're right, it is transforming.

And there are, you said probably a lot of paragraph IVs, but you find a lot of MCEs, so the desire for me to necessarily bring that litigation to the finish line, only to share that exclusivity with half a dozen other generic companies is -- there certainly from an economic standpoint, there isn't a great value for me to do that.

But I think that you're, I think you're making a connection, that just because of the Protonix decision, which isn't a final decision at this point in time -- that, that for some reason we wouldn't want launch at-risk.

And I would just point you to a couple of products that we actually launched after Protonix, with respect into where we're at, for at-risk launches.

I think they are still part of our business.

What you find that is different, is we're not getting the cases that get us to that point that put us in a position for an at-risk launch.

So if the situation is right -- and every drug is different, and every litigation is different.

If the situation's right and the litigation is right, we think we're on the right side of the law, certainly we would still with reasonable review within Teva because we're not reckless.

We're certainly -- we are cautious, but we are careful and we are calculated.

If the opportunity presents itself, we will still do it.

With respect to Copaxone, the point I would make there, the year-to-date prescriptions are up 3.5%.

And we're doing very well there, we are 2.5% over the same year -- same point in 2010.

So we're doing very well, and that market's growing, and we're enjoying that, and we're the leading share, of course, at 40.5%.

So the share's growing.

And we did take a price increase earlier in the year.

Now I don't want to signal, obviously, on this call or on any call, when our next price increase will be, but we're always reflective of what's going on in the market.

So if the price increases in the market begin to slow down, we obviously will consider that.

What I don't want to do is, is like I've said many times before, we are the leading therapy in, in this particular area in multiple sclerosis.

And I believe our pricing should be reflecting, reflective of our place, as the standard of care.

So when I see the opportunity for a price increase, and I see that it's appropriate for the business and for our shareholders, we will certainly recommend that.

One other point, is that the franchise continues to expand.

And we are, we are still looking at [Gala] and [lots] of the LTI opportunity, so we look for the Copaxone franchise to last a long time.

Thanks.

Our next question is from the line of Shibani Malhotra, with RBC Capital Markets.

Please state your question.

Hi, guys.

So I've got a few.

But the first one is your original guidance for 2011 did not include Cephalon.

And now you've seem to added $0.15 of Cephalon, yet you are guiding to the very low end of your original range.

And if I back out Cephalon, I guess at the top end, with your kind of mystery product would be 487.

Can you just explain to us how, I guess what, what was not here, maybe as you entered the year, that made you bring down guidance this quarter so drastically?

And then I have a follow-up?

Hi, Shibani, how are you?

I just wanted to, with respect to your question the, the guidance change is reflective of the fact, that certain things didn't, didn't happen within the business, and, and caused us to make this change.

This particular product that we're talking about, which was another commercially sensitive, and today it's an un-yet launched important product, actually was much contemplated, much earlier in the year.

In fact, we thought an opportunity where we could have launched this product as early as early Q3.

And that would have made a substantial change to this year's plan.

That plus some of the (inaudible) launches, of course, was in the generic business, and we did that, and because of the slow down, because of the warning letter in Jerusalem, all of those types of things, led to the situation that we have today.

Okay.

And then second, when we, when you first announced the Cephalon acquisition.

And we're all trying to work on the accretion for next year.

I think the best kind of estimate we were getting is $0.25.

Would, would it be different now, given you've done $0.15 for the quarter, would it be fair to extrapolate that quarter, and make it higher for 2012?

Shibani, it's Eyal.

When we announced the acquisition of Cephalon, we said that in Q4 we see $0.10 to $0.15 contribution.

And we also said next year we see $0.20 to $0.25.

And in 2012, Cephalon is completely different from Q4 of 2011.

And this may be the reason for the differences.

So you can't take the run rate from Q4, and apply it to 2012.

Okay.

And again just to squeeze one in, when you say the line is behind you, does that mean the issues are resolved, or is it product by product, and is it going on track as you planned?

Hi, Shibani, it's Bill Marth again.

Irvine is making great progress, in (inaudible) it's operation.

By the end of 2011, all 18 products on our line 6, will be manufactured, and that represents about 44% of our oncology products.

A second line does also come up by the end of the year, and we, the other final 2 lines come up by March of 2012.

We anticipate full operation, by April to May of 2012, but remember, we're back at -- we're back at the full run rate, we'll be back at full run rate of about $100 million on an annual basis at the end the year.

And again, full operations should be in May of 2012.

And of course, this relates only to the injectables that are out of Invine, because that's all (inaudible) injectables.

And I think the last point is that we continue to work diligently with the FDA, drug shortage division to alleviate issues wherever we can be helpful.

Thank you.

Our next question is from the line of Ronny Gal of Sanford Bernstein

Good morning and thank you for taking my question.

First, Bill, just can you clarify a little bit about $100 million.

We can see a nice ramp up in the (inaudible).

When you say $100 million, do you mean 120 at the end of this year or next year?

If it's not by the end of next year, by May when you're fully ramped up, what kind of a run rate are you thinking there, injectable business can generate?

And second, I don't know if Lesley is on the call, but can you give us a little run down on the branded Phase III programs, where they stand today, and where do you expect the key products to come to market over the next year and a half?

Ronny, this is Bill Marth.

With -- let's do your second question first, Lesley isn't here, and so we're not in a situation today where we're ready to talk about the pipeline, because we're really we talked earlier about some the things that we think are exciting, but we're not really here to talk with the individual products that we do actually have that -- Lesley and the whole team are going through that right now.

And hopefully, we can get some time after the first of 2012, we can get back and do more of an innovative pipeline review.

So we'll see what we can do there.

On the Irvine question, that's $100 million run rate starting at the end of 2012.

There is a lot of products to get up here, there was 51 products manufactured at that site.

About 10 of those products have been discontinued.

That continues 41 to run on 4 lines, and we don't get you up to full speed until May.

Thank you.

Our next question is from the line of David Risinger with Morgan Stanley.

Please state your question.

Yes, thanks very much.

A number of my questions have been asked already, but regarding your expectation for a strong US fourth quarter, Eyal, I was just hoping that you could sort of frame what type of year-over-year growth you expect?

Whether that's -- if strong means double digit year-over-year revenue growth, excluding that product, that may or may not launch in the fourth quarter?

And then, Eyal I was just hoping you could frame for us your one-time item accounting policy for non-GAAP EPS.

At least I wasn't aware that the one-time gain was going to subtract from G&A in the quarter.

So if you could just comment on your accounting policy, and also whether your fourth quarter EPS guidance for non-GAAP EPS includes any, any one-time items that we should be aware of?

Okay.

Well maybe I should start from the last question.

It's Eyal, and start from the end of your questions.

We're currently don't have anything like that in, in our guidance.

But these things, these transactions are come and go, and they might, we might have something like this, not of the size within this quarter.

But basically, yes, you're right.

This is indeed included in our G&A line, and it is accounting treatment which reflect the value created, as a result of this transaction.

It's a regular accounting practice to include it in G&A.

In fact, in the past, we included capital gains, and (inaudible) to our G&A.

And but given the size, we gave particular note in our press release for complete disclosure of that.

Given our business model, we will see more of these in the future.

Our Teva portfolio of projects shared by the investment in company, in one molecule companies, and the several in the portfolio, we'll have more of those in the future.

So this is not one-time, and probably not the last time.

Thank you.

Yes, David, just to answer your question.

Frankly I don't remember the 2010 generic numbers off the top of my head.

But let me just take you through the way to think about it, one more time.

If you think about our base business, which is about $850 million, I would think about an Olanzapine launch, it's in the range of $3 million.

Additional new product launches, opportunities about $100 million.

And then there's some contribution from price increase.

And all of this, of course, does not, and does not -- our share gain right, and all of this does not include what we talk about as this important undisclosed product.

Thank you.

Our next question is from the line of Chris Schott from JPMorgan.

Please state your question.

Yes, great.

Thanks.

The first question is for Shlomo.

And thanks for some of comments on the long-term guidance earlier.

Just following up on that.

You have a $31 billion top line target, for 2015, that obviously includes future business development.

Can you just comment how close you will be to that 2015 target, based on the assets you have in-house today?

I guess, are we fairly close it that number, if we're just kind of use that today, and go forward up 2015?

And following up on that, is there any thought on providing longer term guidance that does not include future business development, just to help investors better understand your expectations on the core business and the assets you have in-house today, and leaving business development, share repo et cetera, more as an upside driver?

Let me start with the first one.

As I said before, I think that right now, we have the basic, let's call it - assets to make our future numbers.

If you escape what I call, complementary acquisitions of -- of market share in attractive growing parts of the world, or the (inaudible) some small molecules to enhance or strengthen our specially pharma, which is the two type of kind of complementary kind of acquisition.

And when I think about complementary, and talk about a few hundred million dollars at most, so just to make sure we're on the same measurement of scale.

Like any other things, acquisitions and things are very opportunistic kinds of types.

So if in the future, we see something which is very attractive on the business, from the strategy point of view, making a lot of sense on the economics, which are the two major criteria for Teva acquisitions, then of course, we will follow this rationale.

But as we see it now, we're not expecting it, we're not expecting more of that in the coming year, that means we can get there by the current assets that we acquired, that we should add to that something as I mentioned before, that was not in our plan, which is the (inaudible)very attractive new business segment for Teva, which I believe will take Teva to a different type of business, with a different numbers and level.

So all in all I feel that we are equipped for that -- that kind of exceptions as I mentioned, regarding potential future acquisitions.

And what was the second part of your question?

I guess you've kind of answered that.

But it was -- is there any thought of providing, maybe a longer term guidance number that is not inclusive of future business development, share repo, et cetera, and leaving those more upside drivers to numbers, versus a current target today that kind of includes that briefing?

I don't think that right now we're going to give more, more long-term.

I think that this is, as far as I know, the only company in our industry that is giving you this kind of long-term projection or guidance.

It's not the guidance, it's actually, it's as I said before, it's growth, and (inaudible) and how to go there -- how to get there.

But we try our best to share with our investors where we're heading, and what is the rationale beyond our exclusivities and our operations.

So we come to the conclusion, that that deserves these kind of long term perspective.

(Inaudible), but definitely we'll share with you, I believe that the more you understand our business and where we are heading, the better for our shareholders as well.

Okay.

Great.

Thanks very much.

And then, just a quick question for Bill.

Can you just give us a little more flavor on what the rate limiting factor is on this undisclosed product for 2011?

Is this something you're dealing with a competitor blocking an approval.

Is this a legal issue with FDA?

Is it some complexity with the product obtaining approval, just anymore color on that?

Chris, I appreciate the question, but we really can't provide any further clarity than we have.

Okay.

Thanks very much.

Thank you.

Our next question is from the line of David Buck of Buckingham Research Group.

Please state you question.

Yes, thanks for taking the question.

I just wanted first to clarify, just some of the expectations for fourth quarter that you're implying.

For Bill, if I look at your different drivers, it looks like you're targeting, without the mystery product of your undisclosed product, of $1.25 billion, so kind of flattish US generics business, and then maybe the new product adds to that.

For Gerard, could you talk about what type of the pricing and volume growth you're expecting in the European business in the fourth quarter?

And then, if we look at just the, the Cephalon acquisition, can you just confirm that the [Revascor] and [Mesoblast] Cynquil molecules are still in the pipeline, thank?

David, I'll try to take a couple parts of that.

First of all, with Cephalon, I think you said Mesoblast, and you broke up there, and I am not sure what

Yes, the Mesoblast, Revascor product opportunities, that's still part -- you said you were excited about.

But is it, I assume it's still part of pipeline, and actively being developed?

Yes.

That is still part of the pipeline at this time.

The comments about the US generic piece, Bill, I think I've been about as specific of what I expect as I can be, for the fourth quarter, which I think is a growth and improvement -- we're -- we are moving in the right directions, and all the -- what I talked about the base, the Olanzapine, the new products, price increase -- all of that puts us in a great position for Q4 and a nice acceleration.

And that will contribute significantly to our guidance.

And I guess the last question then would be for Gerard?

Right, just the European expectations in the fourth quarter.

Yes.

Thank you for the question.

It's difficult to be precise on the quarter, but I'll give you the dynamics there.

As you know as I described before, some markets go up, some go down, in terms, we've got launches.

We've got products leaving the market, so that's why it's a bit difficult to give you the overall.

But let me tell you the following in the numbers that we're currently expecting.

Price erosion in Europe on average, ranges between minus three and minus eight through the year, through the month and it depends a bit on what government takes what action, at what time.

So that's roughly you what you see happening.

On average, we're sitting somewhere at around 5%, yes.

But you have, some are up -- just above 5%, but rounded it's 5%.

And the volume growth was 7% on, on existing products, and 3% on, on launches.

And there are no dynamics in scope today, that make me think that these sort of numbers are going to be much different in the coming quarter, or in the running quarter as we speak.

So I think the overall market should be growing somewhat between net-net between 3% and 5%.

Great.

So you're looking at this quarter, for the September quarter, you actually have some acquisition benefit, but you still should still see some, call it low to mid single digit revenue growth, it sounds like is what the expectation is?

Yes we continue like we did, if you normalize the acquisition -- so you would assume that it wouldn't been part of our business for the full quarter, the ratiopharm and the Theramex, and what have you, then our numbers are described in the paper as -- and in the press releases as organic growth, that's in Europe 7% to -- or 8%, to 14% for the major markets.

And we do not expect to see, at least for the overall European number, a different number for the quarter.

Great.

Thanks very much.

David, this is Bill Marth.

I just want to make sure you got what you needed, growth (inaudible) on this side, that if it wasn't clear, with respect to our guidance.

Again, with US generics heading in the right direction, we're very -- we're very, we are very sure we will be on our low end of our guidance, if we are not to get our important undisclosed product.

And what will cause us to get in the upper range of our guidance, would be those certain conditions under which of the launch of that important undisclosed product.

Thank you.

Our next question is from the line of Marc Goodman of UBS.

Please state your questions.

Two questions.

First Bill, can you elaborate on one of the comments you made earlier which was in the US generics business, you said the paragraph IV business is not as good going forward?

I was a little confused by that.

That's number one.

And number two, I'm curious in the emerging markets, just over the past month or 2, as things have really slowed, and a lot of these markets are out of pocket to pay for drugs, if you've noticed the business slowing since the end of the third quarter, just October really just the past month is what I'm asking about?

And then the third question is for Eyal, and there's 2 of them.

One is, I'm a little confused on the comments you made about Cephalon, why would you have $0.10 to $0.15 of accretion in the four quarter, but only $0.20 to $0.25 for the full-year of 2011.

And then second question has to do with this $135 million gain.

I'm still not, I don't quite understand what exactly happened.

And maybe you can point to a few times in the past, where this has happened before, and exactly what's going on here?

Thank you.

Hi, Marc, it's Shlomo speaking.

I'm going to take first the emerging markets, and then Bill will the October question.

And Eyal will close with the third part of your question We are not seeing any problem in the emerging market, of let's say, Teva's emerging markets countries, where we are operating.

We don't see any payment or collection matters.

The business that we see including, the beginning of this quarter is, is as used to be before.

And I can tell you at least from our point of view, there's not any problem in that area, that respect.

Of course, in certain countries that you see right now, probably because they are not operating there.

And part of it is because we are in a different segment in their industry, or in the normal macro economic situation in a given country.

But to make a long story short, we are not having any problem in that respect as we see it now.

Bill?

Yes, let me just make a couple of comments.

On the paragraph IV, I think what you really -- what you want to think about on paragraph IV, is it is more challenging today than it has been in the past.

When you have large amounts of NCE's and you can have multiple first filers on it, the desire for us as a Company to want to necessarily press that case all the way to the finish line, often times, it's just, it's not there.

And so we'll take a settlement, or we'll, or we'll exit the case.

It's just one of those issues that -- paragraph IV has been a great opportunity.

But there's been fundamental changes, more NCEs, more difficult patents.

In the years past, we were able to enter oftentimes by filing a secondary patent.

But now, the secondary patent has gotten a lot more difficult.

We are challenging compound patents, and the compound patents themselves are very robust.

And so to get a win there, is much more difficult.

So that doesn't mean paragraph IV goes away, it just means paragraph IV begins to change.

There's not as many opportunities.

There's a lot of opportunities in more technically challenging products.

There are absolutely a ton of products to pursue, as I mentioned earlier, about $210 billion of innovator value, and we're filed on about $17 billion of that.

And we still pursue paragraph IVs, where they makes sense.

And to our, to our knowledge, we've got the largest portfolio paragraph IVs, and first to files in the market, worth $55 billion.

But again, it's different from, than what it was, just 5 years ago, and so you seek value in different ways.

And that's what we're doing.

And I think, of all the things we should capture, was the beauty of, of what Shlomo put together, with respect to our strategy, because you needed to diversify from US markets -- because we don't like the US market, we don't want to be in the US market?

No it's a great business, a $5 billion business that will grow, and go up and down, in that range.

One year, it will be 6, maybe it will be a bit less, all depending on technically challenging products, and paragraph IVs when we can get them.

So it's great.

But to diversify away from the US and into Western Europe, and then to Japan and into Latin America, becoming a global concern, is an excellent strategy.

And I think that often, what's not appreciated, when can you think about Teva being the number one generic player in North America, the number one player in western Europe.

And soon, hopefully, we will be the number one player in Japan, the largest market in the world.

And then having substantial positions in high growth markets like Latin America and Russia.

I think those things have been absolutely tremendous, and that's been driven by Shlomo's strategy.

Okay.

Marc, it's Eyal.

On the Cephalon, Q4, our $0.10 to $0.15 estimate of contribution to profit, Cephalon in Q4 2011, is running full steam ahead.

Next year, in April we are losing [Provigil], our cost synergies will take time, it takes time to build, to build up.

There are some sale synergies, negative sale synergies of business that we are losing.

Of course, the financial expenses right now, we're in a bridge loan, but we're going to replace it long-term which will cost more.

All in all, that is how we calculated this to about $0.20 to $0.25 contribution to profit next year.

The follow year, this number, of course, could double.

On the $135 million in G&A.

Let me try to explain, how it's -- what is the accounting treatment if I understood your question.

And basically when, when a company gains control, and the company that it owns a part of, which has a minority interest, the accounting treatment requires you to reflect the value of the company being acquired as a P&L entry.

This is the accounting practice, it's a new standard for a little over 2 years ago.

And that's what every company in the market is doing, but not always provided -- providing all the disclosure.

We chose to disclosures it, because it's a low, it's a little large and notable.

And this is why we had with CureTech, we executed -- exercised an option, that moved us from 20% or 19%, to 75% ownership.

And the value there was very, very conservatively calculated.

At Teva-Kowa, our moving from 50% to 100% ownership requires us to report a gain.

And this is what we've done.

These two deals, were original planned for the year.

We just didn't know when this is going to happen, and it happened in Q3.

And I hope that clarifies.

Thank you.

Our next question is from -- our next question is coming from the line of Tim Chiang from CRT Capital Group.

Please state your question.

Thanks.

Shlomo, could you talk more about additional trial for Laquinimod?

I know you mentioned that earlier in the call, that you talked with the FDA about that product?

Hi Tim, I'll ask Bill to provide more on that.

Yes.

I think at this point in time, we will just want it say that, we're going to continue study Laquinimod, as we believe it is important for patients to have a therapy option that's positively impacts disability with a high degree of safety.

It's got a great profile, and so I think that, that profile yet needs to be explored.

We can, we will do that.

We, we believe that the, that the FDA is, is as enthused about looking into this disability issue as we are.

And so therefore, they're going to help us, as we look forward on looking at a design.

Okay.

Great.

And just a follow-up for Eyal.

Eyal, is there any sort of free cash flow guidance you can provide for the fourth quarter, given the variability that we've seen on free cash flow, the last couple of quarters?

Yes.

We, no, we don't provide cash flow projection or guidance, but basically Q4 will be in line with Q1, Q2 cash flow.

The quarter already, a month into the quarter, has started very strong, so we're going to get back to those levels about $1.2 billion, $1.3 billion in (inaudible) operations.

And Eyal, one last question, you mentioned the debt, post the closing of the Cephalon deal around $14.7 billion.

What's the average cost of debt for you right now?

Right now, we're -- most of this is on a bridge loan at LIBOR plus 1 or so.

But we'll go to the bond market, and we'll pay whatever the market will charge us with, but given the current rates, we hope to get a good deal on the bond market.

Okay.

Great.

Thanks.

Thank you.

Our next question is from the line of David Amsellem from Piper Jaffray.

Please state your question.

Thanks.

Just a couple.

First, you mentioned lower receivable collections.

I just want to clarify, are you seeing any issues with customers, and particularly as you grow in emerging markets, should we be more concerned about collections?

Or is this more of a, a timing issue in the third quarter?

And then the second question is, just back to your 2015 goals, you previously mentioned several billion dollars worth of revenue from additional acquisitions needed, in order to get the $31 billion top line target in 2015.

So I guess the question here is, if you're targeting more dividends and buybacks, how can you be able to make the kind of acquisition to hit the long-term target?

And what does that mean for your debt levels longer term?

Thanks.

Okay.

So I'll take the first one on the collection.

The lower collection we had, basically suffered from very strong collection we had in the previous quarter.

And we're not seeing any slow down in the emerging markets, or the other parts of the world collection there is fine.

We extended some payment terms, and in Q2 and during the beginning of Q3, that cross a little bit, the time line of the quarter.

And it was -- by and large, collected in the beginning of Q4.

So I -- it's really a one-time singled out event.

And it's nothing to do with market conditions.

Can you repeat your second part of your question?

Sure.

So on the aspirational target of $31 billion of revenue for 2015, the question here is, I think you had mentioned previously that you needed roughly, I think $4 billon to $5 billion of acquired additional revenue to get to that target in 2015.

I think you had said that early this year, so the question is, with the additional buybacks, or dividend that you're contemplating, how are you able to do both, and what does that imply for your debt levels over the long-term?

First of all, I don't remember that we said, that we want -- we need more acquisitions (inaudible) to get there.

I think in 2011 after acquiring Cephalon, Taiyo, and after acquiring the [British Ratsio], we are -- we have the assets we need, in order to go forward.

And therefore, as, if you take what I mentioned, as what I called complementary acquisitions for both segments of business, we don't see anymore big acquisition on our radar screen going forward.

So we believe with these assets and with organic growth and with creative business initiatives like the P&G and Teva JV, we can get there.

And for the rest of your question, what, or we're going what we're going to do with the cash generation, I think that I covered it all in my previous questions.

We are considering, we are definitely at that size, as a growing and dynamic company, when you wish to (inaudible) $20 billion, you should think different, when we're a $10 billion company, on how you should get back your, your shareholders cash.

And for that respect, we are considering it, and in due time, we'll of course, we'll share it with you.

Thank you.

Our next question is from the line of Frank Pinkerton of SunTrust.

Please state your question.

Hi.

Thank for taking the question.

The first question, I think, is for Gerard.

Gerard, because I am really kind of ignorant of the European business, overall sometimes, could you please just run through the scenario, that if the current situation we have with the European union disintegrates, and that become multiple countries, or maybe multiple geographic areas, how does that ultimately impact Teva's business across Europe?

Whoa, Frank, that's a big one.

It's a question that many people are trying to answer today.

I think, the monetary system under which Europe is running, is to a certain extent, an environmental factor for the healthcare.

Healthcare is being organized at a European level and a country level, and there is very little European integrative work going on there, other than regulatory compliance elements that are being steered from Brussels.

Most of the implementation of the economic arguments, that you see in managing healthcare budgets in Europe is local policy.

That has always been anchored like this, in the European treaty, and that hasn't changed in the last 10, 12 years since this signing of the treaty of [Maastricht].

So the effect of all of the economic turmoil in Europe, is all going to be indirect through austerity or other measures, that may be taken by governments to, to manage their deficits in their budgets, and when they do that -- and when they look at healthcare budgets.

Within that, Teva is pretty well positioned to take advantage of that.

Our portfolio of products allows us to be part of the solution, rather than part of their problem.

And if prices are lowered and it's prices are lowered on the branded, on the reimbursed level of it, they're never on the level of transaction that we are having with our customers for our generics products, that's 1.

And 2, it's -- you see that very often when price interventions are taken, or other interventions are taken, it stimulates the utilization of generic products across Europe.

And I think those two elements, if you see these austerity and these savings measures being rolled out in Europe, have so far in every incident, proven to be net-net in our advantage.

So there is no connection one-on-one, with the economic turmoil in Europe with healthcare.

But it's -- as a fall out of that, you'll see austerity measures.

And within that, I believe generic companies of the size and the presence at Teva will benefit more from it, than they will suffer from it.

Great.

Thank you.

And just as my follow-up question, and I'll throw this one out.

But could you please quantify for me a dollar impact on management compensation, that the shutting of the Irvine facility and in the delays in manufacturing at Jerusalem had?

And if there's no actual dollar impact, what's the lesson ultimately, that Teva taken away from those 2 facilities, and the steps that have gone into making sure this doesn't happen in other facilities in the future?

Thank you.

Frank, this is Bill Marth.

I didn't get the first part of the question, but I got the part about what are we doing.

I think that, what have we learned -- I think Shlomo said it well, in his discussion, where he said it, that quality for Teva is the number one.

It absolutely is.

And we seek to pursue it in that fashion.

And whenever we get a 483, is that -- in any facility, we take that 483 and we respond to it.

And those responses aren't just for that facility, those responses are for the Teva network.

And that's a very large network.

So, we've taken this to the level that all facilities need to be compliant, and we need to share the best practices in the industry, and that's what we are implementing.

There absolutely are no short cuts with respect to quality.

And with our lessons learned here, is that we have to stay vigilant and proactive, because with this many sites, it's something to keep up with.

And I think, that's our lesson learned.

And let me follow on to Bill, this is Shlomo.

If you use the word, lesson learned, our lessons learned is that we, as the largest pharmaceutical producer on earth, next year is going to be almost about [$88 billion] (inaudible), just to understand the volume, that we are talking here -- in more than 65 around the world.

When you have such a big infrastructure, and such a big responsibility, you have to live in that area as well.

And what we are really doing is finding out (inaudible) turn around.

As Bill said, after every inspection, whether it is FDA, NEA, or other regulatory agencies in the world, we try to (inaudible) implement it around the world in all facilities to create the highest quality (inaudible) that we can.

We believe that this is our first obligation, and there is not anything that is stopping us to do that, besides the time that is needed to implement in such a huge infrastructure around the world.

This is our commitment to our patients, to the FDA, and we are going to do it as our first priority.

Bob?

Thank you.

Our final question comes from John Boris of Citigroup.

Please state your question.

Thanks for taking the questions.

For Bill, just a couple residual questions.

On the Olanzapine, $300 million that you called out, does that include sales of the 20 milligram?

I think you have an agreement in place with [Rambassy].

The 20 milligram accounts for a significant portion of revenue.

And then, with the [Anthistar] and Watson, preliminary injunction in place, can we get an update on the regulatory status on your generic Lovenox application, and is this still an opportunity for you?

And then I have one follow up for Shlomo.

Thanks for your question, John.

With respect to the Olanzapine, the value I gave is all strengths, so that includes the 20 milligram as well.

With respect to, [Anthistar] and their situation, I really can't comment too much on [Anthistar].

And as far as the update on our product, we are continuing the situation where we would say, there is no update, until we produce an update.

That said, I think that Enoxaparin still provides a compelling value.

We still are excited about the product, and so we are continuing to pursue.

Thanks for that.

And Shlomo, certainly through the acquisition strategy over the last 24 months, ratiopharm, Cephalon, Taiyo, and the P&G joint venture, geographically you diversified the business, however, I think your Form 20-F clearly indicates that on a product basis you don't want to be heavily concentrated in any one product.

You certainly lessened the dependence on Copaxone pretty significantly.

We estimate that it accounts for mid 20%s to upper 20%s of your earnings in 2012.

Is that a satisfactory level for you, or is there a certain level of product diversification that you would like to see going forward for Copaxone to be, or be contributing as far as less of your earnings, and how do you plan on doing that?

Well, every (inaudible) of the global level, we would like to be in the blended business as well.

And by the acquisition of Cephalon, which is the triggering reason for that, was exactly to diversify our blended business.

And if you only a pro forma, before and after the acquisition, you see immediately the impact on the [building] of the Copaxone share in our overall sales of blended portfolio.

So we believe, as I said in my script, that about -- right now, we have a great, interesting pipeline of about 30 products in the late stages, phase 2, phase 3, in different area, in (inaudible) areas, that some of those products -- of course, not all of them.

You will notice the likelihood of getting product to the market, but I believe these are going to provide very good future for the Teva specialty pharma business.

We believe that -- if we -- actually having all the (inaudible) in this area, right now, pro forma wise, in 2010 numbers, the [global] business is $7 billion.

We targeted by 2015, $9 billion, so I believe that we have all the needed assets here to get there.

Of course, this is also an opportunistic area, and if we see a kind of very attractive molecule, we will go for it right away.

Just in Q3, we have a very good example for that.

We acquired a stake in CureTech, a small company, a very interesting and very great future in a breakthrough kind of molecule.

Of course, it will take a long time to develop, but at least that's why we went there.

So if we see there are some other attractive opportunities, on that level, we will proceed.

But all in all, as I said, I think that we are telling the (inaudible), we need in order to do the diversification in our blended business.

And please bear in mind, that besides these 2 business segments, the generics and the blended, we also have another 2 [pillars] that are relatively young, but have a very interesting future, which completes the overall strategy.

One is the OTC, and the first one is the biosimilar that we are going to see, of course, in the longer term, longer than the (inaudible) time, on [Mystrom], but definitely part of our future.

Thank you.

I would now like to turn the call back to management for closing comments.

Thank you very much for being with us today, and I wish you a good day.

Thank you.

Ladies and gentlemen, a replay of this -- of today's teleconference will be available on Teva's website at www.tevapharm.com.

This does conclude today's teleconference.

You may now disconnect your lines at this time.

We thank you for your participation.