Teva Pharmaceutical Industries Ltd (TEVA) 2013 Q1 法說會逐字稿

Welcome to the Teva Pharmaceutical Industries, Ltd.

first quarter 2013 earnings conference call.

My name is Sandra and 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 Mr. Kevin Mannix, Vice President, Head of Global Investor Relations.

Mr. Mannix, you may begin.

Thank you, Sandra.

Good morning and good afternoon, everyone.

Thank you for joining us today to review Teva's first quarter 2013 earnings results.

I'm joined today by our President and CEO, Dr. Jeremy Levin; our CFO, Eyal Desheh; Rich Egosi, Executive Vice President and Chief Legal Officer; Dr. Michael Hayden, President Global R&D and Chief Scientific Officer; Allan Oberman, President and CEO of Teva America's Generics; Carlo De Notaristefani, President and CEO of Global Operations; Dr. Rob Koremans, President and CEO of Global Specialty Medicines, Teva Europe; and John Connelton, 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 9.00 AM Eastern Time.

Before we start I would 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 can not 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'll now turn the call over to Jeremy.

Jeremy, if you would please.

Thank you Kevin.

Good morning everyone.

And thank you for joining us on the call today to discuss Teva's first quarter 2013 results.

During my remarks this morning, I will briefly recap the first quarter and more recent highlights and will emphasize the key milestones related to the implementation of our overall plan and strategy for the Company.

I joined the Company as CEO nearly exactly a year ago, May 2012.

Since that time, we have developed and articulated our global strategy, most recently in December.

The strategy is based upon six pillars, to accelerate growth platforms, extend our global presence, execute on strategic business development, protect and expand our core franchises, reduce our operating costs, and develop, retain and recruit world-class employees.

We are executing vigorously on our strategic plan and are well advanced in many of the efforts to reach our goals.

As a result, I firmly believe that Teva is poised to seize today's opportunities and successfully meet our industry's changing dynamics tomorrow.

In regard to our product portfolio, our focus is on high-value and sustainable products.

We'll continue to expand our business in high-value generics, including brand generics, industrialized new therapeutic entities, or NTEs, which have high barriers to entry, focus on specialty brand, which includes Copaxone, Treanda and Azilect.

We will develop new branded products for areas of high medical need in CNS and respiratory diseases and expand our efforts in OTC through our joint venture with Procter & Gamble.

Most recently, as part of the strategic plan, we announced the formation of our Global Specialty Medicines group, known as GSM, with Rob Koremans as President and CEO of this group.

Our goal is to create a structure that works seamlessly with our regional generics team to establish a single differentiated Teva presence in the market.

We will build up Teva's strong local presence, establish an high quality and accessible generics to leverage our global scale and capabilities in specialty medicine.

We now have an organizational structure in place, which supports our strategic plan.

Business development, as you know, is a key driver for Teva's success in the future, and its continued leadership in generics, OTC and branded markets.

While we continue to optimize and expand our core businesses we will build our pipeline and portfolio through a combination of R&D activities and business development transactions, including strategic alliances, licensing, and small acquisitions.

I'm particularly pleased to announce earlier this week that Paul Sekhri will join Teva's group as Executive Vice President Global Business Development and Chief Strategy Officer.

Paul will work closely with me to execute an optimal business development strategy.

I think many of you know Paul and are familiar with his extensive experience in the life sciences industry, including his diverse background with generic and pharmaceutical strategies, with a range of organizations including multi-national entities, small firms and venture groups.

Due to the efforts of the Company over the last year, we now have a solid and unique business infrastructure in place.

This allows Teva to more effectively leverage its strengths in both generics and specialty brands through business development.

Overall, the actions I have taken during my first year at Teva underscore my complete commitment to several key areas, a streamlined business through operational discipline, the expansion of a global leadership team with deep expertise and experience, a creative and strategic approach to R&D, an aggressive pursuit of business development opportunities that compliment and enhance our core businesses in key therapeutic areas, and the management of the organization for profitability and profitable growth.

Now, looking at the quarter, some of the highlights include the following.

Our Generics business performed as planned and in line with our expectations and was in particularly strong in Western Europe and Eastern Europe.

Our strategy for our Generic business is to continue to focus on profitability and sustainable profitable growth.

Sales for Copaxone of $1.1 billion were realized in first quarter of 2013 and were 17% up over first quarter of 2012.

During the first quarter, Copaxone continued to lead the US in global relapsing remitting multiple sclerosis market in both sales and market share.

Over the past several years, the RRMS market has become crowded with various therapeutic options including several oral therapies.

As we look to the future, there are extremely important considerations that patients and physicians need to contemplate when choosing the best treatment option to manage this chronic disease over a patient's lifetime.

We strongly believe that Copaxone's well established clinical experience and unsurpassed 20-year efficacy and safety profile in an extremely unpredictable disease will continue as a viable treatment option for physicians and patients when selecting a long-term therapy.

Additionally, we continue to seek ways to enhance patient's experience with Copaxone, and are pleased to announce that on March 29, Teva filed with the US FDA, the three times weekly dosing of Copaxone, 40 milligrams per mill, and we anticipate FDA action in the first quarter next year.

We are excited about the possibility of providing an alternative therapeutic option for RRMS without compromising efficacy or safety.

Moving on to Teva's other CNS products.

In our Parkinson's franchise Azilect revenue increased 29% and continues to experience strong prescription growth globally.

Further, in our Wakefulness franchise, despite multiple generic Modafinil competitors Nuvigil continues to maintain over 50% of the new prescription shares.

Teva's overall Oncology business was up 13% in the first quarter of 2013, as compared to the same period of 2012.

We continue to see strong results in our Oncology franchise from Treanda and revenues increased over 16% year over year.

Additionally, the life cycle program for Treanda continues to move forward as the Treanda LQ liquid formulation supplement was accepted by the US FDA for priority review.

Further, in Oncology, launch plans of Teva's Tbo-Filgrastim, our short-acting G-CSF product have been finalized and a full commercial launch is on schedule in Japan in May and in the US in the fourth quarter of this year.

In our Respiratory franchise we saw strong growth.

ProAir HFA with dose counter was successfully launched and realized a full brand conversion.

In the US, ProAir remains the class leader with over a 51% market share.

We are particularly pleased with QVar's continued strong performance this quarter as well.

For the first time, US total new prescription share exceeded 30% of market share and brand growth out-paced the class growth four-fold.

As we look regionally in Europe, the quarter resulted in double-digit growth in both sales and profits compared to the first quarter of 2012.

Teva's EU efforts resulted in an 11% increase in revenue, a 38% increase in operating profit year over year.

These results were primarily driven by generic launches above market growth in our OTC business and a positive impact on Copaxone sales.

Our strategy continues to focus on winning sustainable and profitable business as we continue to focus on diversity, reach and flexibility in Europe.

For the second consecutive quarter Teva achieved record overall sales in the EMEA region.

We are pleased to report sales increase of 32% in the first quarter of 2013 versus the first quarter of 2012.

This increase was primarily due to the strong OTC revenue, which was led by Russia and Israel.

The OTC business is strategically important for us and we see the PGT JV partnership as a key to this business success.

Our efforts have resulted in strong sales growth of 29% with exceptional growth in EMEA and Latin.

We are very pleased with our program in R&D.

In particular, the NTE strategy, which Dr. Michael Hayden and his team have already identified 50 candidates for NTEs and four of them have already been approved or entered into development.

Last week we also announced, with our collaborator, Xenon, the US FDA had granted orphan drug designation to XEN402.

We are excited by the promise of XEN402, which has shown an early proof of concept trials, and are committed to its development as a novel therapy for the treatment of pain associated with erythromelalgia.

It is well recognized as a tremendous unmet medical need for safe and effective medicines to treat pain.

XEN402 offers promise.

I would now like to take a moment to discuss cost management and initial steps that have been taken over the past month.

As part of the Company's overall efficiency and productivity strategy, we have initiated the divestment process for the manufacturing plant in Irvine, California as recently announced.

And in addition the seller's PA site will cease operations.

This plant will remain active and productive until it closes in 2017.

Additionally, I'm very pleased to share with you that Lisa Martin, formerly Head of Global Procurement at Pfizer joins Teva as Chief Procurement Officer and will put in place a comprehensive procurement strategy.

Our commitment cost saving remains a high priority, and as we have addressed previously, we anticipate most of these savings will be realized between 2014 and 2017.

We remain on track with our goals of cost based improvement.

Before turning the call over to Eyal, who will review Teva's first quarter financial results in more detail, I would like to emphasize that Teva's leadership team is committed to managing the Company to generate long-term and sustainable growth in our business.

Teva is uniquely positioned with a broad global footprint in both generic and branded medicine.

This, we strongly believe is a major competitive advantage.

It is my belief that over the past year we have created the strategy that will guide Teva into an exciting future as a leader in both generics and branded medicines.

We are executing vigorously against that strategy.

We look forward to keeping you informed of our progress.

Now thank you for your time and, Eyal, perhaps you'll take over.

Thank you, Jeremy.

And good morning everyone.

2013 is going to be a pivotal year for Teva.

We are diligently working on transforming our Company and reshaping many aspects of its business and operations in accordance with the pillars of the new strategy we have laid out late last year, and we have seen good progress made on many fronts.

We are streamlining a line of business and starting to increase operational efficiency, but continue to amend our business model towards a sustainable and profitable organic growth, and adjust our go-to-market draw-outs accordingly.

At the same time, we continue to solidify and focus our R&D efforts, protect our core franchises while managing the life cycle of our key assets, and pursue select business development opportunities.

Today we are pleased to share with you our financial results for the first quarter of 2013.

Generally speaking, we had a good quarter, with some top year over year comparisons to the first quarter of 2012, for reasons I'm going to discuss in a minute.

Many of our businesses performed well this quarter, in particular our generic business in Europe that delivered strong growth, a global specialty medicines business that maintains similar year over year safe levels, despite the loss of exclusivity of an important product like Provigil.

And finally our OTC business, that delivered a very strong growth rates compared to last year, building on strong fundamentals.

During this first quarter, we also generated significant cash flow from operation and reduced our financial leverage.

Before I dive into the numbers I would like to touch on two matters.

The adjustment we performed to our GAAP results and the exchange rate differences affecting our results.

This quarter we made adjustments total $330 million after tax to our GAAP results.

The biggest adjustment was $279 million for amortization of purchase intangible assets, and final expenses of $94 million in connection with one-time expenses related to earlier redemption of senior notes and others.

Accordingly, our 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.

In the first quarter we experienced the weakening of the Japanese yen and certain Latin American currencies versus the US dollar.

This fluctuation and several other minor ones had a negative impact of $35 million on revenues and $12 million on operating income this quarter, compared to the first quarter of 2012.

Let me move on now to the actual first quarter results.

By reporting net revenues of $4.9 billion, a decrease of 4% compared to the first quarter of 2012, non-GAAP operating income of $1.3 billion, an increase of 21%, non-GAAP net income of $960 million, an increase of 26% and non-GAAP diluted earnings per share of $1.12, a decrease of 24% compared to the comparable quarter last year.

The decreases and the overall challenging quarter over quarter comparison were largely driven by the anticipated effect of Provigil going off patent in the second quarter of 2012, coupled with the significant launches we benefited from in the first quarter of 2012, primarily of the generic version of Zyprexa and our agreement with Ranbaxy relating to its launch of generic Lipitor.

These were partially offset by higher sales of some of our other specialty products, strong generic sales in Europe and OTC sales.

If we eliminate the effect of Provigil, organic sales growth net of foreign exchange impact was 2.4% compared to the first quarter of 2012, despite the loss of exclusive generic products in the US market.

I want to briefly touch on several highlights of our financial performance this quarter by product line and geography.

Sales of generic medicine this quarter were approximately $2.3 billion including API sales to third party of $186 million, a decrease of 12% compared to the first quarter of 2012.

This decrease is mainly the result of the comparison with exclusive generic products we had in the US in the first quarter of 2012, which were only partially offset by new launches we had during 2012 and in the first quarter of 2013.

Launches of new generic products in the US market had a minimal impact this quarter.

We expect our US generic business to materially improve in the second half of the year with launches of new generic products in parallel with solid performance of our European generic business, increasing revenues by 11% year over year to $873 million.

In our Specialty business we had $2.1 billion of revenues this quarter, which were flat compared to the first quarter of 2012, despite the loss of exclusivity of Provigil in April last year.

We were successful in bridging this revenue gap by significantly growing several of our other specialty medicines, primarily Copaxone, Treanda, QVar and Azilect with good sales of specialty products in Europe.

Finally, let me turn to the strong results of our OTC business.

Overall, OTC sales this quarter reached $306 million, an increase of 56% compared to the first quarter of 2012.

I want to turn next to profit margins and operating expenses.

Non-GAAP gross profit margin was 58.6% this quarter, compared to 60.9% in the first quarter of 2012, a decline that is also attributable to the loss of Provigil and certain exclusive US generic products which were very profitable.

Many of the steps we are taking these days as part of our plan to reshape Teva and save on costs, including the creation of our new Global Procurement organization and the recent site closure we announced are geared towards improving our gross profit margin.

As Jeremy noted before, we are making good progress on our research and development effort, particularly in the CNS operating area and our NTE portfolio.

All these moves were reflected this quarter in an increase of 13% year over year and our non-GAAP net R&D expenses, which totaled $329 million this quarter, or 6.7% of revenues.

Our non-GAAP selling and marketing expenses totaled $985 million, or 20.1% of revenues in the quarter, a 7.5% increase compared to $916 million, or 18% of revenues in the first quarter of 2012.

The increase was primarily due to higher expenses of specialty medicines, higher OTC investments and assumption of distribution and marketing responsibility for Copaxone in Europe, as well as a modest increase in royalty payments, which were still lower than our plan.

G&A expenses totaled $307 million in the quarter, or 6.3% of revenue, a small decrease in spend compared to the first quarter of 2012.

The overall split of operating profit before G&A expenses between our main lines of business for the quarter is as follows, low generic, 21%; multiple sclerosis, 52%; other specialty brands, 23%; OTC and other businesses, 4%.

We recorded $81 million of financial expenses on non-GAAP basis in the first quarter compared to $70 million in the comparable quarter of 2012.

This is mostly the result of higher interest expenses we are paying following the extension of our debt maturity profile, in line with our new strategy and of higher expenses in connection with our hedging activities in the first quarter of 2013.

The provisions for non-GAAP tax in the first quarter of 2013 was 16.5% and amounted to $193 million of pretax non-GAAP income of $1.2 billion.

This compares to 13.7% or $207 million in pre-tax non-GAAP income of $1.5 billion in the first quarter of 2012.

We do expect our tax to go down later in the year.

Overall tax rates in 2013 will be higher than in 2012, given the different mix of products and geographies.

Cash flow from operations in the first quarter was a solid $1.1 billion, an increase of 46% compared to the first quarter of 2012, mostly reflecting better management of our working capital.

Free cash flow, which excludes capital expenditures and dividends, also increased well this quarter by 55% to $640 million.

We are continuing to take advantage of our solid cash flow to reduce our level of debt.

This quarter we repaid a total of $1.8 billion of debt, consisting of three separate debt repayments.

As a result, our financial leverage decreased from 39% to 36% quarter over quarter.

At the same time, our cash and marketable securities decreased from $3.1 billion to $1.6 billion.

As we committed on doing, we will continue to allocate our cash in a disciplined manner to support our strategy, reward our shareholders and also service our debt.

During the quarter we repurchased approximately 5.2 million shares for an aggregate cost of approximately $200 million.

With the dividend paid this quarter, we returned an aggregate amount of $481 million to our shareholders, or approximately 44% of our quarterly cash flow from operation.

In line with the increase of our quarterly dividend announced last quarter, our Board has approved a quarterly dividend for the first quarter of ILS1.15 per share.

Based on the exchange rate on April 30, 2013 of the shekel to the US dollar, this translates into approximately $0.32 per share, or a total amount of $272 million.

Looking forward to the rest of 2013 we are reiterating our guidance for revenues of between $19.5 billion and $20.5 billion and non-GAAP diluted earnings per share of $4.85 to $5.15.

We do want, however, to turn your attention to an important point.

As we have previously stated to you, our original projection of 2013 did not assume additional generic competition in the US for budesonide, the generic equivalent of AstraZeneca's Pulmicort.

As the decision and the pending litigation concerning this medicine is currently pending an appeal process with the US court, it is still early to tell whether we will indeed see such additional generic competition in the market during 2013 or not.

If we were to see additional generic competition enter the market this year, this will impact our results, especially the result of the second quarter if the decision is rendered in the second quarter.

But we believe that this will not change our original guidance ranges.

We will obviously continue to update you, as this matter continues to unfold.

This concludes my prepared remarks.

Thank you all for your time and attention this morning.

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

Thank you.

We will now begin the question and answer session.

(Operator instructions)

Please be aware you are limited to one question and one follow-up question, due to the interest of time.

Jason Gerberry, Leerink Swann.

Hello, guys, actually Chris Heanley in for Jason Gerberry.

Thanks for taking the question.

Quick one on OTC.

How should we be thinking about that run rate going forward?

Is this quarter representative of future quarters?

Jason, this is Jeremy.

Thank you very much for your question on OTC.

I had a little difficulty hearing you, but I think what you are asking for, and I'll just repeat the question, was looking at the OTC, how do we look at this as a run rate going forward is that correct?

That's correct.

Okay.

Eyal, would you take that question please?

Sure.

Thanks, Jason.

First of all, the numbers are nice.

We see the improvement from one quarter to the other.

We have to remember that Q1 is a winter quarter and has seasonal impact dependent on flu season, because these are the type of medicine of some of the OTC that we sell.

We do expect our OTC businesses to continue to grow double-digit year over year.

Great thank you.

And actually, if I could just slip in one on Lovaza, that would seem to be some major upside to your US numbers if you get favorable appellate ruling.

Can you guys quickly address a readiness to launch on that product?

I think what we'd like to do there, Jason, is get back to you on that one if you don't mind.

We do think there is upside there, but we need to be cautious about what we say about that, without talking to our partners on that.

Okay, great, thank you.

Randall Stanicky, Canaccord.

Hello, guys, thanks.

Two questions.

One for Eyal and one for Jeremy.

Eyal, relative to spending, it was down sequentially.

We expected it to be flat both on the R&D and SG&A side.

Can you talk about that?

And then how do we think about the trend going forward?

Is the Q1 spend number the right run rate?

And then I've got one follow-up for Jeremy.

Okay.

What we see is increasing R&D spend throughout the year.

We started the year a little slower.

We will most likely catch up on the expenses.

Sales increased very modest in sales and marketing, and probably flat on G&A.

This is the G&A run rate we'll see throughout the year.

But the major cost cuts that we should be thinking about relative to your targeted savings, that's not really going to hit in the back half.

Should we be thinking about early '14 or can we see some of that start to flow through earlier?

The majority of our cost saving is part of the reshape program we will start to unfold in 2014 and 2015.

We have very small amount of that in our plan for 2013, mostly the second half as we are moving forward in preparation for all that.

Okay.

And Jeremy, on the NTE program, there is obviously a lot of focus on the revenue side of the business.

The opportunity there via 505V2 is to bring some opportunities in earlier.

Can you just talk to us about what should we think about for timing?

We don't have a lot of visibility into the pipeline there.

How quickly can you bring some of those to market?

And then, as we think of (inaudible) sales potential, Are these products in the range of 200 to $400 million or potentially more?

Is there some color that you could help us with there?

Thank you.

Hello, Randall.

There's a couple of things.

Michael can talk a little bit more on it.

First of all, we view this overall as a multi-billion dollar opportunity.

There are examples of this in the past where individual products, which are would be described today as an NTE, have been highly successful.

So we are very keen on this.

With regard to timing, remember what we're doing here is, we're really handling this on two fronts.

One, internal development, which is in the hands of Michael, and he will talk to you about that.

Secondly, in terms of business development, at this stage, Randall, you should know that we are getting an absolute flood of tremendous opportunities in this area, some of which could be launched as early as this year, some of which could be launched later.

Frankly the opportunities are coming out and are showing us are extremely attractive.

We are wading through them.

Picking them very, very, very carefully.

And perhaps, Michael, you'd make a couple comments on this.

Thank you, Randall.

We are making great progress in our NTE portfolio.

You have got to resolve these as, sometimes, as late stage Phase III products.

In other words, the likely development time for them is up to three years, some of them do not have to go through clinical trials at all, just need to show by equivalence.

And so with 13, between 10 and 13, we think around 13 approved for development this year, that is like having 13 new Phase III products in your pipeline.

We expect some of these to actually get to the market within the next few years and this will continue to grow, year by year.

So it's 13 new products in your pipeline every single year going forward.

Great, thanks, guys.

Jami Rubin, Goldman Sachs.

Thank you, just a couple of questions.

First, Eyal, if you could address what is happening in the US generics business.

That came in below our expectations and that of consensus.

Obviously, maybe there are seasonality issues that affect comparisons.

If you could talk about that business, how we should think about it going forward.

What are the key drivers that you have in the ANDA pipeline we could be looking towards?

Secondly, not sure who can address this, but curious to know your confidence level in the FDA's ability to approve EpiPen, an AB-rated EpiPen in 2015.

Thanks.

Jami, hello, it's Jeremy here.

We have actually got Allan on the line so he can address the question on the North American generics.

Why don't we hand over to him and then we'll come back.

Great, super.

Thank you, Jamie, for the question.

When we think about the US Generics business in Q1, it was actually in line with our expectations of where we thought it would come out, in spite of the fact, clearly, as Eyal said, it was challenging.

Our year-over-year comparison was a challenging comparison.

Last year we had our agreement with Ranbaxy on the generic equivalent of Lipitor, atorvastatin, that benefited us.

We had exclusivity on Lexapro, or escitalopram, which benefited us last year.

And this year we saw price erosion on Zyprexa, Olanzapine and Adderall XR mixed amphetamine salts.

So it was a very tough year-over-year comparison, all of which was factored in to what our expectations were for the quarter.

As we look at subsequent quarters going forward, we see a continued improvement quarter over quarter, and the continued strengthening of the generics business here in the US.

I would point out a couple of things.

One, as Eyal mentioned in his prepared comments, the uncertainty relative to the court's ultimate decision on Pulmicort and budesonide on one hand, and on the other hand, as I think I said in the last quarterly call, in 2012 we launched 23 products representing a brand value of about $27 billion.

We forecast a similar number of new launches in 2013.

We launched three of them in Q1, brand value of a little over $400 million.

You can see we have new product upside as the year continues to unfold.

We have also seen steady improvements in our service levels we provide to our customers.

I can say our customers certainly are recognizing us in our ability to supply them, which is resulting in additional customer awards coming our way.

And finally, recognized through a recent award we received from Wal-Mart as the Wal-Mart pharmacy partner of the year, because of our partnership agreement with them and our ability to supply.

So I think that gives you a good framework of where Q1 was relative to US generics and where the rest of the year looks like it may unfold.

Jamie, your question on the EpiPen, I'll let you know we have a settlement with Mylan and we have an entry date in 2015.

The file is progressing well.

David Risinger, Morgan Stanley.

Yes, thank you very much.

I have a couple of questions.

First, and I'll actually make it three, if that's okay.

Pulmicort, could you just frame for us the US revenue and EPS contributions so that we know the swing factor if you do end up with greater competition?

Second, could you speak to the growth outlook for Rest of World?

It was weaker than expected this quarter.

Just wondering how to think about growth prospects going forward in Rest of World.

And then, third, for the three times a week Copaxone, have you filed that and can you provide a filing update?

Thank you.

Hello, David, there is a lot of people in line, so we'll try to keep the answers short and crisp.

The first two Pulmicort, I think what we'll do, Allan, why don't you handle that?

And gross outlook for the Rest of the World, Eyal will handle that.

And if we've got time, depending on how rapidly this goes, we'll hand over to John Connelton or Michael, here, can talk about the three times a week.

Why don't we start with Allan?

Thank you David.

With regards to your question on Pulmicort, we don't specifically break out individual products within our portfolio.

But we have said that Pulmicort, or generic budesonide, is the largest product within our portfolio.

And depending on which way it goes, we continue to have no competition factored into the forecast.

Although again I would reiterate that the guidance that we've given on the US Generics business of $4.3 billion to $4.7 billion for the year, incorporates budesonide or Pulmicort.

If it remains semi-exclusive with us, clearly we'd be in the mid to high end of that range.

If we find ourselves with additional competitors we'll be at the low end or slightly below the low end of that range.

That is the way you should envision what Pulmicort, the impact it has on the US Generics business.

All right, David, hello, it's Eyal.

Regarding the Rest of the World, without too many details, there are two factors that impacted our Rest of the World businesses quarter, which need to be analyzed under this too.

The first is exchange rates.

Especially in Japan, the Japanese yen is about 22%, 23% compared to where it was almost a quarter ago.

Some currencies in Latin America had an impact on sales, because if you look at our Generic business it actually grew, and basically the impact of the exchange rate if they remain where they are, will continue to slide into next quarter, but in local currencies we are generating growth in all of these markets.

The Specialty part actually suffered from the lack of Copaxone tender pressure, which we had in first quarter last year, and that is, of course missing in the comparison.

We expect to have sales later on this year but it depends on the timing of the tender.

These were the two major factors, exchange rate was the main one.

Then with regard to Copaxone, Michael you are here, why don't you deal with that?

Thank you, David.

Our FNDA was submitted on time as planned to the FDA March 29.

We are hopeful that this product will be approved and ready for commercialization early 2014.

In addition we are assuming approval for Copaxone in Europe and expect to submit that for approval this quarter.

David Maris, BMO.

Morning.

Two questions.

First, Michael, on XEN402.

Congrats on the orphan drug status.

What other indications do you think this drug could be applicable for and how are you pursuing them?

And then separately, more broadly for Eyal and Jeremy, I know you are both frustrated, as a number of people are, with the stock price and you can't manage the stock price.

But in your discussions with investors, what do you think, what's most misunderstood?

Thank you, David.

Nice to have you on the line.

For XEN402, we see both very focused open indications as well as a quite broad indications.

So for the open indication, of course, erythromelalgia, actually this is not such a small market, because the world's seeing bulge small more type in neuropathy and this is quite significant.

The important thing for XEN402, particularly the topical, you get great absorption through the skin, and we also, for example, straight to the joint capsule, and we will be also initiating trials this year as in various forms of arthritis, particularly affecting the lower limbs and this market is profoundly huge.

So we see both a focused market in terms of alternate indications and also extension from there and then inflammatory indications for our sale prices, for example.

David, I'll take this actually quickly.

Good to chat with you on the phone.

A couple of things, look, we have spoken to a lot of investors.

Some have expressed deep support and others who are having significant views with some of the purchases of the stock.

And there is an overall change in the portfolio of the types of people who are holding it.

All of this is a reflection of some change that's gone on.

A couple of things I think have underpinned what you are describing.

Number one, this is a sophisticated Company that is undergoing significant change.

It's a Company with great potential, a Company that's got a real future.

And it is very difficult for people to look back and understand that you walk away from a, essentially, a top-line driven strategy, driven by acquisitions coupled with, essentially, full of exclusivity, which no longer play a major role in our overall strength.

It's difficult for them to understand allow the sophisticated strategy that we now have laid in place, which is a growth strategy agree with significant pillars related to the ones I have described, and an integrated business plan, coupled now with a clear organizational structure and top-line people who are now running this.

Difficult to look at that, and I think that quite rightly, investors are looking for milestones and evidence that perhaps we're executing.

There is little doubt in my mind, and for those in the Company, and externally those who know as well, that we are absolutely executing.

So I look forward this year, very much, as we start rolling out aggressively, you'll see the execution that people expect, and quite rightly so.

Chris Schott, JP Morgan.

Thanks, it is actually Jessica Fye on for Chris.

Looks like Copaxone had a very strong quarter in the US.

Can you talk a little bit about the volume trends you've have been seeing since launch of BG-12 and also any initial feedback you are hearing in the market on that launch?

Hello, Jess, it's Jeremy here.

I think what we'll do is we'll start with John on that, if that's okay.

John, as you know, is now running our entire MS franchise and working with Rob in the new Global Specialty Medicines organization.

John, why don't you take that?

John's also got a history of having dealt with Copaxone for many, many years.

Jessica, this is John, thank you for the question.

As you heard Jeremy talk the quarterly figures look very strong, the units globally are up on Copaxone quarter relative to prior years.

We are very pleased with what continues there.

As far as the volume trends relative to fumarate, it is still really early to tell.

We have three weeks worth of data.

What we are hearing in the marketplace is continued support for Copaxone and the profile that it provides, really the unsurpassed efficacy, safety and tolerability that has been seen over 17 years experience with this product, is what is still resonating in the marketplace.

You tend to see, not only with Copaxone, but even the interferons that still continue to have business, that there's a lot of stability when patients and physicians find medication that works for them, they tend to say with that.

It will be interesting to see, and it will take several months, what kind of disposition is occurring with fumerate and some of the other orals, but I don't think anything is surprising us at this point, and we are not seeing any significant changes in volume in the short-term weeklies.

Thanks.

The next question is from Mark --

Ah --

I'm sorry, please go ahead.

Yes, I want to add to that.

It's Michael here, to provide greater perspective on that.

Of course Teva remains a supporter of the need to treat the managed MS. We welcome new therapy.

And of course, with any new therapy like fumerates, there is a level of interest that's mitigated by the uncertainty.

And in the case of fumerates, the issue, of course, that's on many people's minds is the very minimal long-term exposure, and all of that in trial settings.

I think now with the April 21 data out from the New England Journal on the PML, this has raised concerns about this particular drug and its relationship to long-term side effects.

It is important to know, even though the manuscript in the New England Journal had different forms of fumerates leading to PML, it is important to note that with DMS, dimethyl sulfide, all of these compounds have the same active compound, there is nothing else in it and the same with this.

So I think the, we have to see, of course long-term clinical experience is needed.

And so we await that data as it comes out.

Mark Goodman from UBS.

Mark your line is now open for a question.

If your phone is on mute, please unmute it.

We'll move onto the next question.

Gregg Gilbert, Bank of America.

Hi.

I have two.

My first one, Jeremy, other than executing on the strategies laid out on Investor Day, clearly you have some work to do there and some time, are you and the Board assessing other options to enhance shareholder value?

Is everything pretty much on the table at this point?

And my second question may be for Eyal.

Is the potential liability on pertonics something that need to play out before you and the team and the Board make significant decisions on cash deployment, such as the potential for another dividend increase or additional share buyback?

Thanks.

Hello, Greg.

No, I think you are right on the money.

We are looking to enhance shareholder value at all stages.

The Board is actively engaged in the capital allocation being part of this, how we think this through, how we utilize our capital, how we use all our elements within the Company to increase shareholder value.

You should understand that the strategy laid out in December is a strategy which is fundamental to the operations of the Company and are things that will play out over both the short, the mid and the long term.

That includes increasing our attention to how we increase shareholder value.

Yes, regarding pertonics, first, we are all waiting for the court to decide on that.

We made in Q3 last year a significant provision of $670 million in our book.

We do also have an insurance policy that covers any possible leverages, so we will await the legal process which will most likely go to appeal in any case.

Regarding buyback and dividends, we discussed it in our Board reviews on dividend every quarter, as opposed to every year in the past.

We have continued to buy back shares this quarter.

We will continue with the buyback program, the three year buyback program and the Board will review dividends frequently.

Just an indication, our dividend payment is increasing due to the -- it is in shekels, so due to the dollar and the shekel relationship, basically dividend in Q1 this year was 23% higher than dividend in Q1 last year, in dollar terms.

Thanks.

Douglas Thale, Barclays.

Douglas your line is now open.

If your phone is on mute, please unmute it.

We will move on to the next question.

Ronny Gal, Bernstein.

Good morning, thank you for taking my question.

First question is around the Generic business.

If I look at your numbers suggesting that 21% of the profits come from the generic business and subtract the Copax, which presumably is primarily related to the generic, you come to a number which is pretty close to break even.

Taking out Pulmicort, it looks likes your Generic business is pretty close to break even.

Jeremy, you have not really discussed a lot of strategy around the Generic business, primarily in the US and Western Europe.

I was wondering if you can give us a few more words.

Are there significant plans to change how this business operates?

Or is this business simply on an existing trajectory and we expect it would stay that way?

Second question is around the pipeline.

Two quick ones, actually.

First, should we expect to see the laquinimod data for lupus in [UR]?

And second, is it fair to say that Treanda as a nitrogen mustard has enough side effects from being stored, the liquid formulation should be expected to be safer and more efficacious than the existing powder formulation?

Hello, Ronny.

Look, we have taken very aggressive steps on our businesses on both the EU and the US.

I think we should give you some color.

We have been doing that along the way.

But let me giver you over to the guys who've been running this.

First of all in Europe, Rob, why don't you give a quick response to this?

And secondly, Allan, why don't you take a quick look run at this from the US and Ronny gets a good picture.

And the what we'll have is Michael will touch the two questions that you had on the two products, laquinimod and Treanda.

Rob?

Yes, happy to do it, Jeremy.

On Europe, in Generics, what we see is actually a very nice growth both in sales and profitability, and I can assure you that really it is a profitable business.

We are executing on our strategy of going for the right business which is sustainable profitable.

And we continue to be, and are very intent to stay, market leader in this in Europe and we have over-performed the market.

But it's very much a profitable business in Europe, which is probably one of the more price-sensitive markets, per se, right?

And opportunities for generics continue to be there.

Compared to the US, the generic market penetration is still low.

There are good opportunities, we see good growth in Italy and France, but we still can improve more.

So we are well-positioned as well to capture some of the future growth there.

I'm actually quite optimistic for Generics, being in a difficult market like Europe.

But we are delivering what is needed and we are increasing profitability.

Allan, you'll handle US, please?

Ronny, it's Allan.

Thanks for the question.

Let's start with the US market, certainly is a highly competitive market.

What we have been trying to do here is a multi-facetted strategy that we tried to lay out on December 11.

Let's dig a little bit deeper into it perhaps today.

Certainly, as Jeremy has said, the historical number frequency and size of Paragraph IV opportunities have diminished with the addition of shared exclusivities.

However we are still pursuing a strategy where we look to develop first, file first, get to market first and reap 181 days of exclusivity on a number products as we look to the future.

Number two, Jeremy calls them high-value add, known as complex generics here in the US, where you marry a medicine and a device and you put it together, and you would anticipate significantly higher development costs, fewer competitors, and over the longer term a higher margin structure associated with that.

Third, we talked about, I've talked about pricing.

We have continued to aggressively take pricing, looking to lead the industry forward on products that are low-margin products to try and return a decent value to our Company, to our shareholders.

And then there is a tail of products that we are working our way through in multiple dimensions.

First dimension is reformulating older products with lower cost, processes and APIs, in order to lower our cost and increase our margin, over time.

Secondly, consistent with the announcement of Sellersville, moving our manufacturing east from higher cost manufacturing locations to lower cost manufacturing locations, will enhance value.

And then finally, looking at the tail of products where we, after doing all of that, may not be able to enhance value long enough, finding other ways with other partners to create unique value add.

There is a whole host of activities we are doing to continue to progress the business forward, grow the top line and the profitability.

Ken Cacciatore, Cowen and Company

-- I just want to answer Ronny's other two questions that he had quickly.

We are continuing to be encouraged by the unique immunomodulatory profile of laquinimod, we will be presenting that in clearly in June at [ULAR] as an oral presentation.

And clearly it's chosen as an oral presentation, it is obvious that the community wants to hear that data.

And with regard to Treanda, we of course have now developed a novel liquid formulation and eliminated the lyophilization process in manufacturing.

And Lipsy's also providing a unique enhanced safety and profile, cutting down potential for human error.

The FDA has accepted IS NDA and there will be a review of the new liquid formulation of Treanda.

This is all part of trying to make better management for patients and Treanda is a great example of that.

Ken Cacciatore, Cowen and Co.

Thanks.

This is Anant for Ken, actually.

Just had a quick clarification question.

Eyal, I just wanted to clarify your comments on generic Pulmicort.

I apologize if you have covered this before.

Assuming Apotex and Actavis enter the market, are you reiterating your guidance if they are entering the market?

I'm assuming it is a fairly low-margin product.

And then I have another question on Copaxone after that.

The answer is yes, we are reiterating the guidance on guidance rate.

Even if we see a second competitor.

Always a generic form, of course, in the market.

You have to remember that once our arrangement of royalties with AstraZeneca, is that royalty level goes down if there is a second competitor.

So the hit to profit would be reduced by that mechanism.

Okay thank you.

Now that you've filed the three times weekly, could you talk about your expectations for this product in the long-term?

Do you think you might be able to transition a majority of the existing Copaxone formulation to the three times weekly?

Thanks.

Anant, Why don't we get John to answer that and I'll also ask Michael to comment a little bit about some of the things about Copaxone as well.

John start us and hand over to Michael please?

Yes, Anant, thanks for the question.

We have stated back in December during the Strategy Day that we are modeling right now about 30% to 35% of the patients currently on the daily Copaxone, we'll find three times a week preference.

Some of the market research that we have been doing in preparation of that introduction showed that it could go as high as 50%.

But we continue to model right now at about a third that have population are going to find interest in that.

Certainly excited about bringing that forward.

There is a strong interest in it.

But there is also a strong interest in the ones today as well.

Michael, do you want to answer --

Thank you, John, and also we are excited about bringing this to patients.

Also the recent data that we published in Expert Opinion and Therapeutic Target, showing how the mechanics of action of Copaxone are providing a lot more clarity.

We compared that reported with generics and to our surprise, even though this is a generic, the pathways of activation of these generics compared to Copaxone are markedly different with the potential for altered changes with potential changes in inflammatory pathways, so what goes up with Copaxone, goes down and this has significant implications.

So the bottom line for us is that we strongly believe that any generic will need clinical trials to really prove efficacy.

Very complex molecule, difficult to produce, and I think we are seeing now more and more evidence around that, in terms of the pathways that are activated that appear to be markedly different between Copaxone and purported generics.

Thank you.

David Buck, Buckingham Research.

David, you line is open for a question.

If your phone is on mute, please unmute it.

We'll move on to the next question.

David Maris, BMO.

Thank you for taking the follow-up.

Two, first on Treanda, what can you tell us about this formulation, the life cycle formulation and what its value proposition is?

And secondly, there was a lot of news this past quarter on biosimilar, some from your own partner.

What can you tell us about your current activities and any change or expectations adjustment to what you think the market opportunity is and the timing of the market evolving?

So just to say that we are continuing to look at novel ways to expand the life cycle of Treanda.

Looking at new formulations, including novel ways to deliver this.

I don't want to get into too much detail on that, but I think the liquid formulations, just one example, but there are numerous others that will be able to extend the life cycle of Treanda in ways that are going to be significant for patients.

There are many opportunities to deliver this product in improved formulation as a result that will, are likely to extend the life cycle.

Jeremy?

David, just a brief comment on this.

I know there has been a lot of news in this area by a number of different organizations, a lot of discussion around the opportunities and otherwise.

But the potential to develop and manufacture and market affordable, efficacious and safe biosimilars is, in my opinion and our opinion, an area of significant opportunity.

One has to really shape the opportunity, pick the opportunity and be very clear about what you are doing there.

We both Teva and Lonza, both as partners in individual companies as you know, are focusing on finding the best route to realize the benefits that safe biosimilars will bring to the community at large, both in the US, abroad and in the emerging markets.

As we know in some of these areas there is significant regulatory uncertainty in the biosimilars area and from that perspective, while the partnership continues to explore the field, both companies are taking a very measured approach.

Michael is looking at it very hard from the pipeline perspective and choosing really to evaluate fully both the prevailing regulatory and commercial circumstances before taking any decisions in long-term investments.

But it is an area that we both regard and certainly have a regard of, I'll speak to Teva's perspective, as of great potential and we continue to look at it very careful and selectively.

Thank you.

At this time I will turn the call over to Dr. Jeremy Levin for closing remarks.

Thank you, everybody, for spending the time with us this morning.

I'm sure there will be other calls later on, and we look forward to those discussions.

And I greatly appreciate you time.

This is the end of my, I can no longer say I'm new in this job, it's been one year and I really greatly appreciate the opportunity I have had with many of you over the last year to hear your opinion and help shape our thinking as to how we bring value to everybody, specifically our shareholders.

Thank you, bye, bye.

Thank you, ladies and gentlemen.

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