Teva Pharmaceutical Industries Ltd (TEVA) 2012 Q4 法說會逐字稿

Welcome to the Teva Pharmaceutical's fourth-quarter and full-year 2012 results call.

My name is Dawn.

I will be your operator for today's call.

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

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Kevin Mannix, Head of Investor Relations.

Kevin, you may begin.

Thank you, operator.

Good morning and good afternoon, everyone.

I'm joined today by our President and CEO, Dr Jeremy Levin; our CFO, Eyal Desheh; Dr Michael Hayden, President Global R&D and Chief Scientific Officer; Allan Oberman, President and CEO of Teva Americas Generics; Rob Koremans, President and CEO of Teva Europe; and Jon Congleton, Senior Vice President Global Medicines.

Jeremy will begin by providing an overview of the highlights from the quarter and year, followed by Eyal who will then provide additional details on our consolidated financial results.

We will then open the call for a question-and-answer period, which will run until approximately 9 AM.

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

Actual results could differ materially from those projected in the forward-looking statements as a result of foreign currency translation effects, macroeconomic trends, interruptions in our supply chain, and other factors that could cause actual results to differ as discussed in Teva's report on Form 20-F and Form 6-K.

Also, we are presenting non-GAAP data, which excludes the amortization of purchased intangible assets, costs related to certain regulatory actions, inventory step-up, legal settlements, and reserves and impairment, and related tax effects.

These are amounts we cannot predict at this point.

As mentioned in the past, we present these non-GAAP figures to show you how we, the Management team and our Board of Directors look at our financial data.

With that, I will now turn the call over to Jeremy.

Jeremy, if you would, please?

Thank you, Kevin.

Good morning, everyone in the USA.

Good afternoon, for those of you in Europe.

Thank you for joining the call today to discuss Teva's fourth-quarter and year-end 2012 results.

2012 was a year in which we assessed our business, identified key areas of opportunity, and built an important new business strategy.

We enter 2013 enthusiastically, with a refined business model, an expanded and engaged leadership team and a culture which encourages and rewards innovation.

We are constantly, of course, mindful of our commitment to patients, customers and shareholders.

We're optimistic and dedicated to deliver on these commitments.

I'm particularly pleased to announce today that Teva's Board of Directors elected to increase the Company's quarterly dividend by 15%.

This increase in our dividend reflects the Board's and Management's optimism about the future of our business and Teva's commitment to reward our shareholders.

Additionally, as you may have noticed, we repurchased approximately $0.5 billion of our stock in the fourth quarter, for a total of approximately $1.2 billion in 2012.

Overall, we returned over $2 billion or 58% of our free cash flow to our shareholders in 2012 through dividends and share repurchases.

Teva remains committed to invest in the future of our Company.

Today, as part of our reshape program announced late last year, we're announcing our intention to sell our injectable manufacturing facility in Irvine, California.

Our desire is to supply more of our products from our most cost effective locations; thereby, beginning to optimize our entire network.

We currently have five FDA approved sterile manufacturing sites from which to supply product, including our new state of the art facility in Godollo, Hungary.

Our goal is to sell the Irvine plant to a buyer with a strategic long-term interest in the facility, who will continue to manufacture for Teva as we work towards moving these products to other locations in our network.

Looking ahead, we will leverage our strengths, which provide an unprecedented geographical reach, world class manufacturing and distribution capabilities, and pricing flexibility with a balanced and integrated approach in both generic and patent-protected medicines.

Teva is and will continue to be an integral part of the global healthcare system.

Today, as we report our fourth-quarter and year-end 2012 results, we have a stronger, more competitive and differentiated R&D pipeline.

This exemplifies our commitment to both short-term and long-term growth.

Our strategy emphasizes management of our business for profitability and sustainable, profitable growth.

We will use an aggressive business development strategy as a key driver to build a robust pipeline and expand and extend our core franchises.

In addition, we have a firm commitment to returning shareholder value.

I strongly believe these components provide a platform for Teva's growth in the short term, as well over the next decade.

With our strategy in place, we have a very intense focus on execution, excellence and performance.

Now, let's move on to our financial results.

Overall, we had a strong revenue performance and are pleased to report our revenues of $20.3 billion and non-GAAP earnings per share of $5.35 for the year.

Both in line with the guidance we provided in May 2012.

Our performance for 2012 was driven by several factors.

Copaxone continues to lead the market in sales and market share, with $4 billion in annual sales and approximately $1.1 billion for the fourth quarter.

While we anticipate a potential approval and launch of a competitive product in the MS space, we expect Copaxone with its well-established safety record, efficacy, favorable side effect profile, and deep clinical experience to maintain its market leadership position in relapsing remitting multiple sclerosis.

We continue to enhance and expand the Copaxone franchise with our 3TW, otherwise known as a 3 times a week, 40-milligram dosing, with a submission planned for March of this year with the FDA.

Year-over-year, US generic sales increased $424 million, supported by the launch of 23 generic products in 2012.

We expect to launch a similar number of products in 2013.

I'm excited about our US generic business, as its overall performance and market share continues to improve in 2012 following a decline in 2010 through 2011.

Europe performed well and in line with our expectations, as it executed on our selective approach to win and maintain sustainable business.

Despite pricing pressure and destocking in 2012, the vast majority of the markets have maintained or increased their performance.

Our full year oncology revenues increased by $592 million from 2011 to $860 million for 2012.

We also saw strong year-over-year total prescription growth for both ProAir and QVAR versus 2011.

During the fourth quarter of 2012, Teva respiratory achieved the number two position of dispensing scripts amongst branded respiratory companies in the US.

Additionally, in 2012, Teva launched QNASL, Synribo, ProAir dose counter and Clozapine ODT.

Teva's OTC business is important to our future.

Given global trends and demographics, we strongly believe this is a growth engine for the Company.

We see our partnership with Procter & Gamble, through our joint venture, PGT Healthcare, as a key enabler and are very pleased with the performance it's demonstrated to date.

During 2012, we also continued to advance our biologics program, both internally and through our alliance with Lonza.

We look forward to building on this area in a careful and focused fashion.

In 2012, our business in Eastern Europe, Middle East, Israel and Africa provided record sales with strong growth in all business units, including MS, OTC and brands.

Additionally, we are committed to aggressively competing in Japan and in South Korea, with our business venture with Handok.

We continue to strengthen our capabilities in these regions, underlying our commitment to provide our medicines to patients in these markets.

We will utilize and build on Teva's core capabilities and geographic reach to drive the future growth of Teva.

At the same time, we will address unmet patient needs in a highly differentiated way with novel programs of product development.

To do this, we're committed to a selective and disciplined approach to business development, as well as pursuing innovative R&D programs including New Therapeutic Entities.

I'm very pleased to say our NTE program has progressed well.

Thus far, we've identified four products for development in therapeutic areas including HIV, anti-psychotics, pain and metabolic diseases.

We expect to have 10 NTEs approved for development by the end of 2013.

These NTEs target unmet medical needs in large and expanding global markets with billions of dollars of potential.

We are very excited about the differentiated R&D and clinical capabilities we brought together.

Our focused therapeutic strategy, combined generic and patent-protected R&D, with a broadly enhanced team under the leadership of Dr Michael Hayden.

This includes Dr Jon Isaacsohn in the newly created position of Chief Medical Officer.

Jon has successfully overseen hundreds of clinical trials and provides Teva with an outstanding clinical development capability.

We will use all these strengths to identify and develop products that change healthcare for patients and customers around the globe and continue to provide long-term shareholder value.

As part of our commitment to build a focused pipeline of novel medicine in select areas of medical need, I'm delighted with the initial progress we've made in our business development efforts to bring new opportunities into Teva's pipeline through our constellation strategy.

I'm excited by our recently established collaboration with Xenon to address CNS and pain disorders and our purchase of Huntexil for the treatment of Huntington's Disease.

These programs are merely the beginning of securing innovative science within our CNS constellation.

Our commitment to enhance our pipeline through disciplined and strategic business development will generate many exciting compounds to build on this and other constellations.

In addition to this, we note that laquinimod continues to be an exciting potential therapy for patients with relapsing remitting multiple sclerosis.

In addition, we are encouraged by the data we've seen in other therapeutic areas where we've used laquinimod such as Crohn's Disease.

Teva continues to identify innovative ways to build our pipeline in addition to our business development.

This includes unique ways of working with academia.

Last week, we formally launched Teva's National Network of Excellence in neuroscience, or NNE, encompassing all Israeli universities and medical centers.

This unprecedented partnership between Teva and this academic community holds the potential to generate research, which will lead to new and important medicines.

As we enter 2013, the hard work and diligence to reshape the Company has positioned Teva extremely well to bring new medicines to patients in need.

I look forward with great expectation and enthusiasm into 2013 and the years beyond.

We believe our 2012 results demonstrate a strong and disciplined business focus and our significant accomplishments, considering that they were achieved in the midst of extensive planning to reshape the Company, an uncertain global economy and an ever-shifting healthcare landscape, and while we assembled and integrated a new Management team.

It's quite obvious to any who see us that the Teva Management and organization are energized, focused, and excited about Teva's future and the opportunities ahead.

But it's not just the Management.

I would like to recognize particularly the dedication and contribution of the 46,000 employees around the world who work to reshape Teva.

I am extremely confident, the course we have set is the right one and will yield real value for patients, customers and shareholders, while ensuring the long-term, sustainable growth of our Company.

I'll now turn the call over to Eyal, who will take you through the details of our financial results.

After that, we'll open the call for Q&A.

Eyal, over to you.

Thank you, Jeremy, and good morning, everyone.

We're pleased to share with you today our financial results for the fourth quarter and full year 2012.

As we're committed on doing, we've provided expanded information in our press release, which I hope you have all had a chance to read this morning.

I'm therefore going to touch on the highlights, mainly as they relate to the fourth quarter and then some brief comments on 2013.

Looking at our consolidated results for 2012, revenues reached an all-time high of $20.3 billion, an increase of 11% compared to 2011, while our non-GAAP earnings per share rose 8% to $5.35.

Our results this year benefited from the inclusion of a full year of Cephalon sales, as well as strong performance by our US and Rest Of the World generic Copaxone franchise and OTC business.

This was achieved despite a very challenging year-over-year comparison for the fourth quarter of 2011, which was very unique.

Before delving into the numbers, I would like to touch on two items.

First, I would like to highlight that this quarter we made relatively high number of one-time charges totaling $822 million after tax, which we adjusted to our non-GAAP results.

This includes the impairment of $495 million, of which $145 million or $109 million net of minority interest resulting from the termination of the agreement with CureTech, as part of the ongoing review of our R&D portfolio, as well as various impairment of other research and development projects and manufacturing facilities, of which $98 million with regards to our facility in Irvine that we are planning to divest.

These charges represent initial steps into our new strategy.

Our adjustments also include the completion of the restructuring of Cephalon in France, which is the last portion of the Cephalon integration.

Furthermore, we've excluded in our non-GAAP presentation of results, amortization of purchased intangible assets totaling $284 million.

Accordingly, non-GAAP net income and non-GAAP earnings per share for the quarter are adjusted to exclude these and certain other items outlined in our press release.

Second, exchange rate differences had a negative impact on revenue this quarter and for the full year of 2012, compared to the respective period in 2011, these differences reduced our revenues by $50 million this quarter and $572 million for the year, while having a minor positive impact on operating income.

The reduction in revenue resulted from the weakening of certain currencies, primarily the Euro relative to the US dollar.

Moving on now to our fourth-quarter results.

We are reporting net revenues of $5.25 billion, a decrease of 8% compared to the fourth quarter of 2011.

This decrease and the overall challenging quarter-over-quarter comparison was largely driven by the anticipated effect of Provigil going off patent, coupled with the significant launches we had in the fourth quarter of 2011, primarily of the generic version of Zyprexa and our agreement with Ranbaxy relating to its launch of generic Lipitor.

If we eliminate the effect of Provigil, organic sales were flat compared to the fourth quarter of 2011.

Let me move on now to review our revenues by product line and geography.

Several generic medicines this quarter were approximately $2.7 billion, including API sales, the third party of $202 million, a decrease of 11% compared to the fourth quarter of 2011.

This decrease is mainly the result of exchange rates impact as well as the significant launches we had in the US in the fourth quarter of 2011, which were only partially offset by new launches we had during 2012 and in the fourth quarter in particular.

Overall, we had 23 new generic launches in the US throughout the year.

Turning now to our specialty business.

We had $2.1 billion of revenues this quarter, a decrease of 7% compared to $2.3 billion in the fourth quarter of 2011.

This decrease resulted from the loss of exclusivity on Provigil, which was more than offset by strong sales of some of our other specialty medicines, mainly Copaxone, Treanda and AZILECT.

Finally, to our OTC business, in which we see significant progress made.

Net revenues in the quarter were $269 million, an increase of 24% compared to $217 million in the fourth quarter of 2011.

This growth is primarily due to strong revenues and share gain in all key markets, including Europe, Russia, Latin America and Israel.

The successful launch of Vicks in several of these markets, as well as sales of OTC product in the US to Procter & Gamble.

Turning next to profit margin and operating expenses.

Non-GAAP gross profit margin was 58.7% in the quarter, compared to 60.7% in the fourth quarter of 2011, a decline, also attributable to the loss of Provigil and certain US generic products.

As we started doing when we last provided guidance for 2013 on November 30, we have included in our press release tables breaking down gross profit margin and other margins by our major product lines, which we are certain you will find useful.

For our operating expenses, we saw relatively minor increases in our overall spend in all three major expense lines, which I will walk you through.

Non-GAAP net research and development expenses totaled $374 million or 7.1% of revenues, compared to $371 million or 6.5% of revenues in the fourth quarter of 2011.

The increase in R&D spending primarily reflects the progress in development activities by our new integrated R&D organization.

Non-GAAP selling and marketing expenses total $1.043 billion, or 19.9% of revenues in the quarter, a modest increase in spend of $18 million compared to $1.025 billion or 18.1% of revenues in the fourth quarter of 2011.

The increase was primarily due to the take-back of Copaxone in Europe, as all sales and marketing costs are now paid by us, partially offset by exchange rate differences and lower royalty payment made on generic medicines in the US.

G&A expenses totaled $318 million this quarter or 6.1% of revenues, a small increase in spend compared to the fourth quarter of 2011.

Moving on to our non-GAAP operating income, for the fourth quarter, which totaled $1.35 billion or 25.6% of revenues, a decline of 22% compared to the fourth quarter of 2011.

The decrease is primarily the result of a loss of exclusivity on Provigil, coupled with lower revenues from new generic launches in the United States and partially offset by higher sales of Copaxone.

The overall split of operating profit before G&A expenses between our main lines of business for the quarter is as follows -- global generics, 30%; multiple sclerosis, 44%; other specialty brands, 21%; OTC and other businesses, 5%.

For the full year of 2012, this split is as follows -- global generics, 30%; multiple sclerosis, 42%; other specialty brands, 25%; OTC and other businesses, 3% of total Company operating profits before G&A.

The provision for non-GAAP tax in the fourth quarter of 2012 was $80 million on pretax, non-GAAP income of $1.2 billion.

This compared to $239 million in pretax non-GAAP income of $1.7 billion in the fourth quarter of 2011.

For the full year of 2012, our annual tax rate is 12.3%, slightly higher than the one for 2011.

Our tax rate for the quarter and the year was primarily affected by the type and location of production of our product mix.

Non-GAAP net income and fully diluted earnings per share for the fourth quarter were $1.14 billion and $1.32 per share respectively, down 19% and 17% compared to the fourth quarter of 2011, affected by the same reasons I mentioned before.

Cash flow from operations and free cash flow for the fourth quarter and the year were at a all-time high.

During the quarter, cash flow increased by 10% to $1.6 billion.

For the full year of 2012, cash flow from operations increased 11% to $4.6 billion.

Free cash flow, which excludes capital expenditures and dividends, also increased this quarter by 8% to approximately $1 billion.

For the full year, it increased 16% to $2.7 billion.

The increase in cash flow in the fourth quarter mainly reflects strong collection, resulting in a decrease in the level of receivables.

Cash and marketable securities on December 31, 2012, amounted to $3.1 billion, including $1 billion used for redemption of notes in January.

During the quarter, share repurchases totaled approximately 12.7 million shares for an aggregate cost of approximately $0.5 billion.

In 2012, we repurchased 28.1 million shares for approximately $1.2 billion, as part of a $3 billion share repurchase plan that was authorized in December 2011.

During 2012, we have returned approximately $2.1 billion in cash to our shareholders, representing 46% of our cash flow from operations or 58% of free cash flow before dividends.

Furthermore, we announced today a 15% increase in our quarterly dividend to ILS1.15 per share or approximately $0.31 per share.

All this put together strongly demonstrates our ongoing commitment to rewarding our shareholders.

Looking to 2013, we remain confident with the full year 2013 guidance, which we gave on November 30.

The quarterly development during the year will have more sales in the second half than in the first half of the year.

Expenses will be more front-loaded, as we continue to build and enhance our R&D investment and in addition, invest in sales and marketing in preparation for launches of new products later in the year.

We expect the expense level of R&D and SG&A in Q1 2013 to be similar to those of Q4 2012.

We will, of course, continue to update you on our progress throughout the year.

This concludes my prepared remarks.

Thank you all for your time and attention this morning.

I would you now like to open the call for Q&A.

(Operator Instructions)

Elliot Wilbur, Needham & Company.

First question is with respect to the top line outlook in 2013 for Copaxone sales specifically.

Obviously, a lot of movement and new dynamics in that marketplace, but I guess given the strong performance of the product over the past couple of quarters and what we've seen thus far in 2013, with respect to the uptake of the new oral agents, anything you can say in terms of maybe providing a little bit more of a tilt one way or the other in terms of the previously provided guidance range of $3.7 billion to $3.9 billion?

Certainly, it would seem like at it's very early juncture, the bias would be more towards the top end of the range.

I'm just wondering if, in fact, from what you're seeing if you would feel similarly?

Then as a follow-up, with respect to the Irvine facility, I'm assuming that's just basically disposition of probably what is your highest cost facility in the whole system.

But is there anything that disposition says with respect to your ongoing commitment to the US injectable generic market?

Thanks.

Elliot, good morning.

This is Jeremy.

Thanks for the questions, I'll take them both.

What I'd like to do is just touch on Copaxone, first of all.

Then secondly, I'll then hand that over to Jon Congleton, who's on the line with you.

Then what I'll do is, I'll talk about Irvine.

So with regard to our guidance for 2013, we're confident of our guidance.

It's very difficult to read into how the orals will play out through the FDA, but we are extremely confident of the safety and efficacy of Copaxone.

We know the patients speak to us about this and from our perspective this is a great medicine.

So we're confident of our franchise.

With regard to -- Jon, in a minute, would you come back and just flesh that out a bit for Elliott?

With regard to Irvine.

As you know, we committed to a $1.5 billion to $2 billion savings over the next four years.

My view on this is, this program has been initiated.

We are doing this in a very systematic and thoughtful fashion.

We are very encouraged by what we've seen.

We've mapped out where we'd like to start.

We're not necessarily picking on the highest cost or the lowest cost.

We're picking on the most effective steps.

We hold to the guidance that we've given to the Street on that.

With regard to the commitment to the injectables arena, we have a complete commitment.

This is not something that has changed one bit.

So can I just ask you, Jon, to make a couple comments on Copaxone?

Yes, Jeremy, I'd be happy to.

Jeremy, as you noted, the profile of Copaxone is what has really propelled it to the market leading position that it holds right now.

We saw our exit share in the United States in the fourth quarter still at the 40% mark, which speaks very significantly to how the customer base, patients, physicians and even payers are valuing that profile of really unsurpassed long-term efficacy and safety.

We're obviously still committed to the brand with significant investment behind that, both in the commercial support of it as well as focused on patient needs to ensure that if they and the physician choose Copaxone as their therapy, we do everything in our powers to help them do that.

As Jeremy said, we don't have any reason to change the guidance.

We're obviously planning conservatively.

Elliott, as you noted, it's a very dynamic time in the MS space.

But what hasn't changed is what patients are looking for and that is to safely manage this disease and give them a sense of predictability.

Copaxone certainly does that.

We're excited to continue to offer that asset to the MS community.

Ken Cacciatore, Cowen and Company.

Just a couple questions.

First, Jeremy, I don't think I've been able to ask you, why such an aggressive citizen's petition against BG12?

It was just interesting, we haven't seen a Company kind of go after so-to-speak another filer on an NDA.

So I just wanted to understand some of the internal thinking as why you didn't just have private interaction with the FDA.

Then also at the investor day, you mentioned that there could be a publication for a comparison of Copaxone versus a purported generic, where Copaxone down-regulates where the purported generic up-regulates.

I was wonder where that stands?

If you're now willing to tell us, who that generic is?

Or if all of the generics maybe have that same component?

Thank you.

Ken, with pleasure.

What I'd like to do is, first of all, I'll just quickly touch on the citizen's petition.

Then secondly, Michael Hayden will comment on the generic publication.

With regard to the citizen's petition, it's not really specific to any one particular medicine.

It's actually, as you will note in that, we're actually quite open ourselves to having a review of our product.

Of course, we have several which are coming along.

So the fact of the matter is, we've noticed in the past, every time a product has been launched, there have been subsequent problems with the product.

Now, what we're concerned about is that we know, having had a very, very substantial interaction over the last 20 years with patients, we know about the safety of our product.

We know about the efficacy of our patient.

Physicians know the same.

In order to assess similar safety, we believe the appropriate fashion and appropriate approach for any of these new orals or other types of therapy coming onto the marketplace, they need to go through in a very appropriate type of review.

I think you have seen the results when in fact some of these products have come to the market and there have been subsequent problems.

It's a question of taking something from a clinical trial and then walking it into a public setting where you have thousands of patients who actually now face exposure to the medicine.

So from our perspective, that's one.

The second point is, citizen's petitions are a normal process.

I suggest that if anybody were to look at this, you'd find that there are many, many, many such applications.

The FDA has been kind enough to provide a mechanism whereby we can all of us, provide them with information that we see as appropriate.

Now, can I just hand over to Michael to talk about the publications.

Michael?

Yes.

Thank you.

This publication is submitted and under final review.

We expect it to be accepted for publication in a well-established journal the next few weeks.

As we alerted to you on the Investor Day, this highlights the differences in the activation of certain genes with Copaxone compared to some other generic products.

More details on the manuscript will be readily available once the manuscript is in print.

Louise Chen, Guggenheim.

My first question is on your GCSF launch in November.

Are you expecting authorized generic?

Then just secondly on the sale of your generic injectables business, what is the timing behind that?

How much do you plan to sell that facility for?

Thanks.

Good morning, Louise.

I think what I'd like to do is ask Allan Oberman, if you could perhaps respond?

Yes.

Good morning.

Thank you very much for the question.

I think it's important to clarify that we're not selling our business.

What we are doing is looking for a buyer for the facility.

We have five other FDA sterile injectable facilities within the Teva network.

During the remediation process of Irvine, we've been developing products in many of those sites.

We'll commercialize products for the US market from those sites.

So as Jeremy said earlier, we are fully committed to the generic injectable sterile business here in the US.

We will remain as leaders in that market.

All we are doing at this particular moment is looking for someone to buy the facility, continue to supply us during a transition period and perhaps longer than that, as we continue to develop our business here in the US.

Randall Stanicky, Canaccord.

Jeremy, can you just help us with how the Board came up with 15% in terms of the dividend hike being the right number.

I think many were still hoping for something a little bit more substantial.

Is that still on the table as we think about your ongoing review going forward?

Then secondly, can you just maybe for Allan, can you help us -- how do we think about Pulmicort on the generic side?

Is that still in guidance?

Then should we be thinking about a decision here I guess before the end of March?

Thanks.

Hi, Randall.

Good to hear from you.

Look, a couple things.

Number one, the Board reviewed this very thoughtfully, very appropriately and of course, we review every year and constantly throughout the year our dividend's based on our performance.

We will continue to do that.

In addition to which, we remain committed to our share buyback.

So we are very much aligned with the thinking that we want to and will support our shareholders as appropriate throughout the year and the years to come.

Allan?

Yes, Randall, thank you for the question on Pulmicort.

We continue to model Pulmicort as the current number of competitors in the market.

You do know that Watson has received approval and there is a court case underway.

We understand that case -- final arguments will be heard sometime in March and the judge will render a decision after that and we will wait and see what happens based on that decision.

Okay.

Great.

You still see a royalty step-up, right?

It's a gross margin step-up, should we see additional competition come in?

This is a product where we are paying a royalty and if additional competition were to enter, the royalty rate does change.

Marc Goodman, UBS.

I was hoping you could give us some color on European generics?

Just, what was the underlying kind of market dynamics versus what was the impact of your new strategy with respect to revenues?

Then can you talk about Treanda a little bit?

It was flat quarter-to-quarter, but we know there's growth there.

So I was just curious, what happened in the third quarter versus what happened in the fourth quarter with respect to that product?

Thanks.

Good morning, Marc.

We've got Rob online.

He'll handle the European.

Then I'll ask Jon to handle Treanda.

Is that okay?

So Rob, why don't you kick off with Europe, please.

My pleasure.

Thanks for the question, Marc.

Actually very pleased to see that fully in line with our strategy in the quarter four of 2012.

We had very marked increased profitability, both compared to the quarter before of 2012 and to quarter four of 2011 and is really well into double-digits.

We are fully executing on our strategy of focusing on the right business and not just any business and sustainable profitability.

Quarter four of last year was -- in terms of overall European sales was a record quarter, per se.

We have really very stable market positions.

We're still by far the leader in Europe in terms of generic sales, but our strategy that we put in place the second half of 2012 is really nice, on track and is delivering what we expect it to do.

So we're really quite content and pleased with that.

Can you talk about Italy, Spain and Germany specifically since you mentioned that in the press release?

Okay.

So our market share in Germany has actually increased a little bit in the last quarter.

Spain has also increased market share, but the overall market in Spain has really declined because of very strong pricing cuts that we've seen in the Spanish market overall.

In Italy, the market in the last couple of months is really increasing nicely with more than 20%.

So our market share has been over the entire year gone down slightly with less than 1%.

We're still the number one in that market.

What we have been doing is really build also on the selectively there.

One of the issues that we have seen and that's affecting our net sales in those countries over the year -- what we have been seeing is a pressure on stock levels.

We have not given any counter-pressure, if you like.

So overall, stock levels in the market as we reported before, have come down which affected our net sales but not our end market performance.

I just found it interesting that you're increasing revenues in Germany and yet you're trying to be more profitable which would imply you're not going to do as many tenders as before.

How are you increasing in Germany?

Maybe it also shows that some of the tenders in Germany really do not generate any real revenues, right?

Especially, in Germany, also our profitability has really increased very, very markedly.

We're really in line with that, we're still at well over 20% market share.

We are launching better than any other company in Europe, outperforming our competitors.

We had, overall in Europe, we had about $200 million -- more than $200 million of sales of launches.

Notably, also in Germany, we really, really do well.

So, our strategy is not to go for any tender but just selectively.

With the strong Ratiopharm's brands, we pick up the business that is not in the tender very, very well.

This is working excellently.

We also have the question on Treanda.

Jon?

Yes.

Marc, thanks for the question.

Actually, Treanda had really significant growth in 2012 versus 2011 of about 20%.

If you look at Q4 relative to prior quarter, had significant growth as well.

It's driven a lot by the team in the United States, coupled with some nice data that came out of ASCO in June of 2012, where we really saw the latter half pretty significantly outperform the first half of 2012.

We continue to see great value with Treanda.

The market is certainly welcoming its use.

Anticipate it continuing to grow going forward.

Were you able to increase price on that product?

We have not taken any significant pricing actions.

Marc, I'd have to get back with you.

I think we maybe did a minor one in the first quarter, but it's really been driven more by volume.

(Operator Instructions)

Jami Rubin, Goldman Sachs.

Just a follow-up question.

I don't think you -- I know it was sort of asked.

But I'm not sure if you answered it.

On Pulmicort, does your guidance in 2013 contemplate any generic competition for Pulmicort?

Can you remind us what the contribution was in terms of revenues last year?

Then just a question for you, Jeremy, on capital allocation.

Obviously, the dividend increase is certainly a step in the right direction.

I think not as big a step as some of us would like to see.

But if you could just remind us how you and the Board are thinking generally about returning cash to shareholders.

You bought back $1.2 billion in stock this year out of $3 billion.

Should we expect that sort of rate of buybacks going forward?

Is there room to step that up substantially?

Certainly, according to our numbers there is.

I'm just wondering if you can comment on that especially in light of your comments related to being aggressive with business development.

That seemed to be a new emphasis on the word aggressive.

If you can kind of provide a little bit more color on that, that would be great.

Thanks.

Good morning, Jami.

Quite a broad set of questions --

I'm sorry, Jeremy.

No, no, please.

I get this opportunity four times a year.

I get it.

Before I even answer you, just let me apologize to Louise, who I think we missed her second question.

The second question really was that -- related to authorized generics.

Louise, we have an agreement with Amgen.

We'll launch against that agreement.

I can't really comment on any other authorized generics at this stage or other types of products that are coming in.

Jami, let me return to -- I think on the Pulmicort.

I'm going to ask Allan to deal with that.

I'll deal with the capital allocation, if that's okay?

Great.

Thank you, Jami.

On Pulmicort, we have said that clearly it's in our guidance of the $4.3 billion to $4.7 billion range.

We have said that we have in that guidance assumed that there are no further competitors entering the market.

To be clear, including Watson.

So I think you should look at that range depending on ultimately what the outcome is of the decision of the case, as to whether we would migrate to the lower end or the higher end of that range.

But does the lower end include competition from Watson?

I think we would be closer to the lower end if there was competition.

Okay.

Than we would be anywhere else in that range.

That is correct.

Okay.

Then Jami, I'm going to take the questions in reverse order.

What do I mean by aggressive business development?

Then we'll get to the capital allocation.

Aggressive business development really requires that you have in place, number one, a very clear strategy for what you're trying to accomplish.

That strategy was laid out and refined as we started in December 2011.

So we're now basically primed to take exactly the steps we wanted to do.

When I say aggressive, it doesn't mean size wise.

It means activity wise.

Our interests are to secure an appropriate and clear set of transactions whether they be expanding into other parts of the world or in fact acquiring product, licensing product, or what I'd call small to mid-size acquisitions.

Our goal now is to proceed to build both the near-term and long-term sustainable growth profile of our portfolio and our market access.

So aggressive doesn't mean anything other than the pace of activity should be stepping up as we launch into this year.

With regard to the capital allocation, I think a couple things.

First of all, the Board is committed to shareholders and to return to them.

Overall, we paid about 58% of free cash flow this year out with a dividend yield which is now up to about 3.3%.

We think this is a pretty clear demonstration of our intent.

We intend to continue with the same focus.

I think you can feel comfortable that the Board and the Company as a whole have this very much in front of us.

Chris Schott, JPMorgan.

Just two questions here.

First, coming back to the Irvine facility.

I understand your desire to optimize your network, but how are you thinking about the incremental competition, selling this facility to another industry participant, brings into the injectable market?

Then the second question touching back on Copaxone.

I know there's a lot of moving parts, but to the extent that Copaxone forecast proves conservative in 2013, should we think about that upside flowing through the P&L?

Or is that upside something you might reinvest elsewhere in the business.

Thank you.

Chris, good morning.

I'll take the Copaxone.

What I think I'll ask you -- if that's okay with you, Allan, to respond to the Irvine facility.

Why don't you start with the Irvine facility.

Great.

Thank you, Chris.

The Irvine facility has already seen much interest from a number of players who would be open to looking at this facility, taking a walk through it and potentially talking to us about it.

Clearly, it's in our best interest to align with somebody that mutually would be beneficial for our respective businesses and that would clearly be our objective as this unfolds.

Chris, with regard to Copaxone, it's always very difficult to predict as to what's going to happen over the next year.

I would say to you that depending upon the types of new launches that occur, the impact, the changes in the marketplace.

But by and large, we would look to be -- we would hope that this would largely be falling through the P&L.

I would also just like to add a little bit on the Irvine facility.

We're extremely cognizant of drug shortages and the opportunity they present.

From our perspective, the marketplace should know that we're completely committed to ensuring that those shortages do not occur.

Ronny Gal, Sanford Bernstein.

I've got two essentially on the pipeline.

First, laquinimod in Europe, we should be right now approaching the 220 day mark for EMA.

If we're basing your interactions so far, does the product look approvable without an additional trial?

I think your patent publications on the combo data were put out a couple weeks ago.

Looks some nice animal data models.

Can you tell us, where the combo trial testing the product together with Copaxone stands?

Ronny, we've got Michael here, he can answer both of those for you.

Thank you.

On the EMA response, we believe that -- there are always concerns expressed.

We believe those adverse concerns are answerable.

We're getting ready to submit our response to the EMA.

So we're hopeful that the response will be sufficient to allow approval of laquinimod in Europe.

With regard to the combo studies, these are very exciting.

We're looking at laquinimod in combination not only with Copaxone.

The design of that trial is currently being undertaken as we speak.

But we're also looking at laquinimod in combination with other oral drugs.

We're defining the right partner drug for that.

We're looking at a host of different drugs, a few, two or three and these are also in discussion.

But we believe both the combo trial with Copaxone and laquinimod essentially will start this year.

They'll be moving towards full design of the combination with laquinimod and other oral drugs, also to be announced and take place towards the end of this year.

Those will be -- those will be registration trials or do you need to do some more work before that?

It depends what we're in combination with, but it's highly likely that these will be registration trials.

Gregg Gilbert, Bank of America-Merrill Lynch.

I have two.

First for Jeremy and Eyal, a philosophical question back on the capital deployment.

At the Analyst Day, you were kind enough to project the $1 billion to $2 billion that would be returned over each of the next several years.

So my question is, are you willing to be flexible and perhaps put more back to shareholders, for example, given that the stock is down 10% or more since that day.

So curious on your thinking on how much goes into that bucket?

Whether that's a Board decision, a Management decision or a combination of both?

Then for Jon, on Copaxone, I think you made a pretty bold prediction at the Analyst Day, that the Company could switch up to half of Copaxone to the new form within a year or two.

So can you walk us through the logistics of how that would occur?

It certainly suggests that existing patients would have to switch, because there aren't a ton of new patient starts in a given year.

I ask because it has such important implications for the duration of the franchise and the value of the franchise.

That's a pretty bold prediction to say that half can be moved over and generics would obviously have to reformulate and potentially take several years from there.

Please, put some more meat on the bones there if you could.

Thanks.

Good morning, Gregg.

Yes.

You've probably heard enough of me on capital allocation, but I'm happy to respond.

Alternatively, let me hand it over for a moment here to Eyal.

Then we'll get Jon to put some meat on the bones around how we're looking at the new -- the 3 times a week.

Hi, Gregg.

Let me elaborate a little bit more and in line with what we showed in the Investor Day.

We are balancing the cash.

We have very nice cash generation this year so far.

We used a lot of it to return to shareholders, probably more than the Street expected.

I think the balance is right.

We're looking at buyback every quarter again on the opportunities and we're using it.

We are also retaining cash for business development activities, which Jeremy has referred to earlier in this conference call.

So I believe that with the cash that we are generating, with a very open eye towards shareholders and shareholder return, this is how we continue to manage it.

With regard to decisions on how this is accomplished, it's really obviously, the Board makes the decisions, but it's done in concert with Management.

Jon, can you respond on the Copaxone 3TW.

Yes.

I'd be happy to.

Gregg, thanks for the question.

In December, I had said what we're modeling right now is about one-third, 30% to 33% of the existing patients as well as new ones will come over to the 3TW.

That's based on talking to customers, talking to patients.

There's some thought that it could get to 50% within that time frame, but we're modeling about 30%.

What leads us to believe that will happen is just the patients' experience with the product, as well as what we can basically do to support those patients who are interested in making 3TW their choice of Copaxone.

We'll have both available in the marketplace.

Obviously, with shared solutions we can address patients specifically if they have questions about wanting to go from a daily to 3 times a week.

We can certainly facilitate that.

We'll be introducing a new injector, new autoject device with the 3TW as well.

So again, just if those patients want to continue with their daily, we'll continue to obviously support that.

But we'll also make it very easy for patients to transition to the 3TW if they're looking for that kind of experience.

So it's based on really our deep understanding of the patients, the patient support that we have with our shared solution program that really makes us believe that in a conservative sense that one-third of that population will find a 3TW the choice they want to use of Copaxone.

David Buck, Buckingham Research.

A couple of quick ones for Allan and then Eyal.

Allan, at the Analyst Day, you had talked about being aggressive in terms of getting value for some of the US generics and implying being aggressive on price increases.

Can you talk a little bit about whether you've seen reception to that point of view from the trade?

Whether that is in fact still the outlook?

Then on one drug that's a driver of growth, it seems for this year, but could go away next year, the generic version of Adderall XR.

Have you had any talks about extending the authorized generic arrangement beyond 2014?

Then just a quick one for Eyal.

Can you talk about whether we'll see any benefits still from take-back of rights to Copaxone through 2013?

Thanks.

Great.

Okay.

I'll start with the first two before kicking it over to Eyal.

I guess I want to start with 2013 and the view of 2013.

Our guidance of $4.3 billion to $4.7 billion relative to what we're talking about that we achieved last year.

As was reported by Eyal and Jeremy last year, we launched 23 products with a brand value of $27 billion, approximately.

In our line of sight, we see a similar number of launches in 2013, albeit with a brand value that's in the $18 billion range.

So if you just begin to think about the comparables relative to our guidance, we're going to be down somewhat on comparable new products; therefore, to get back to where we are guiding, pricing plays an important component of that.

Market share gains play an important component of that.

Our improved service levels with our customers is a key contributor to that.

The continued development of our market share is supportive of that.

So all of those aspects of how we will look to develop the business are under way.

We're working with our customers in all aspects of that.

Early on, we're seeing very positive responses from our customers.

Gregg, could you touch on the Copaxone question?

Could you --

The 2013 Copaxone question again?

Gregg, this is Jeremy.

Could you be kind enough just to repeat that question on Copaxone?

Yes.

On Copaxone -- it's David Buck, actually.

I'm sorry, David.

The question is, you had benefited in the fourth quarter internationally from the take-back of Copaxone.

Can you remind us when you anniversary the take-backs?

Whether there is a benefit in 2013 as well?

Thanks.

Yes.

The anniversary was actually in Q4 this year.

Basically, our last take-back happened last year.

When you look at 2013, this is already the same run rate that you've seen in Q4 2012.

It was all taken back.

It's all in the hands of Teva now -- posts -- the top line which is higher and the expenses which are higher.

As we discussed in the past, the benefit to the bottom line is incremental.

Got it.

Just for Allan, the Adderall XR generic question for 2014, any chance of extending that?

We clearly want to remain in the Adderall XR business and are looking at a number of options to continue to do that.

Shibani Molhotra, RBC Capital.

This question I guess is for Michael and Jeremy.

During the Analyst Day, you talked about your new strategy of NTEs.

I think while that sounded very interesting, many investors were left confused as to what specifically Teva was focused on and the time frame around some of the products and why Teva had an advantage over other companies that seemed to be doing very similar things.

So I'd really appreciate it if you could articulate that again and just focus on Teva's differentiation and the products you're most excited about in the near-term.

Thank you.

Good morning, Shibani.

I think Michael will have to take this.

I will take it and say, we are, just to be clear, we're extremely excited about what looks like and is in fact emerging as an extraordinary pipeline of very differentiated products that essentially address markets which we think are enormous.

What I'd like Michael to do is perhaps make that quite clear and walk you through how we're thinking about it.

Michael?

Thank you, Shibani.

Of course, the question of why?

Why NTEs?

Why is Teva's particularly suited for that?

I think the answer is the unique structure of R&D at Teva.

This needs -- to really do this on an industrial scale, it needs very deep understanding about a large portfolio, the ability to reformulate and the ability to have the analytics together on the one side, together with the clinical input on the other about understanding unmet patient needs.

Where Teva has a unique and distinct advantage is that, it's the only pharma in the world that has an integrated [R&D], generic and branded.

In fact, the formulation experience that actually comes from our generic R&D is informing a lot of this -- at influencing the medical knowledge that's coming from our branded side.

So it's the unique structure and capabilities of Teva that gives us this opportunity.

Then also what's unique is, in fact, the large product portfolio that Teva has.

We have branded and of course the largest product portfolio in the generic business and the opportunity to take from each of those, to consider other opportunities.

Unique opportunities for combination, represents another distinct advantage.

Thirdly, there's a major commitment at Teva to this.

We have [stocked] this.

We have people in commercial, regulatory, clinical, formulatory, chemical, analytics that's really coming together.

We have approved now at least five or six for development this year.

To come to five or six, you really have to have 60 or 70 that come through the actual process.

The ones that are most interesting are, for example, in the area of HIV where we're looking at multiple combinations.

I'm not at liberty to tell you which ones at this moment.

We're also looking in the nearest psychiatry space in areas like schizophrenia.

Also what excites us is that, we're not just dependent on our organic growth.

From the current products that we're putting in the market or putting in development today, these will be on the market, earliest by 2016 with a low clinical risk, low regulatory, low hurdle.

The clinical time for development will be significantly shortened with a much greater likelihood of success.

Fourthly, of course, we have major business development activities in this space.

It's surprising to us how many companies actually have single NTEs that fit this particular -- our particular focus.

We're in intense discussion with a few of these in terms of bringing some NTEs potentially that would actually reach the marketplace in 2013.

So we will have to unfold as this actually gets closer, but I would say it's an area of significant and exciting activity for Teva.

Okay.

Just to clarify.

So when you're talking about an NTE, we should be thinking about products like Risperdal Consta and Impax's Rytary, which is taking current products and just changing the formulation and addressing an unmet need; correct?

Yes, those are examples.

But it's much broader than that.

That's I would say the simplest.

What we're looking at is taking a branded product and mixing it those with a generic product.

We're taking a unique product that somebody else has, licensing that and then creating a novel combination that really deals with the unmet need.

The unmet need is efficacy and also which is often associated with increased adherence and then also decreased side effects.

Many drugs have side effects that other drugs may be able to obviate.

We're looking at some unique combinations that really address all of that too.

Thank you.

That was great clarification.

Thank you.

I will now turn the call back to Jeremy Levin for closing remarks.

Thank you all for joining us.

This is obviously the first call of the year.

I just want to reiterate the Management team and Board of Directors and the entire 46,000 people in our Company are very dedicated and incredibly charged up.

This looks like a year we're excited by.

This looks like a future that we're very excited by.

I want to just -- I look forward to the discussions with you throughout the year.

Obviously, for the rest of the day, if any of you have additional questions, we're available to you.

Again, my thanks to you on behalf of myself and the team.

Thank you, ladies and gentlemen.

This concludes today's conference.

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