Teva Pharmaceutical Industries Ltd (TEVA) 2013 Q4 法說會逐字稿

Welcome to the to the Teva Pharmaceutical Q4 2013 conference call.

My name is Dawn and I will the 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, Vice President and Head of Global Investor Relations.

Kevin, you may begin.

Thank you, Dawn.

Good morning and good afternoon, everyone.

Thank you for joining our call to discuss Teva's fourth-quarter and full-year 2013 financial results.

I'm joined today by our acting President and CEO, Eyal Desheh; our acting Chief Financial Officer, Kobi Altman; Doctor Michael Hayden, President, Global R&D and Chief Scientific Officer; Allan Oberman, President and CEO of Teva America Generics; Doctor Rob Koremans, President and CEO of Specialty Medicine; and Dipankar Bhattacharjee, President and CEO of Generics Europe.

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

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

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

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

Factors that could cause actual results to differ are 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, reserves and impairment and related tax effects.

These are amounts that we can not predict at this point.

We present these non-GAAP figures to show you how the management team and our Board of Directors look at our financial data.

With that, I'll now turn the call over to Eyal.

Eyal, if you would please.

Thank you, Kevin.

Good morning and good afternoon, everyone.

We are pleased that you could join us today to discuss Teva's fourth-quarter and full-year 2013 results.

I will use my time today to briefly discuss the results of the quarter and year as well as some of the achievements during 2013 before touching on key growth drivers for our future.

I will then turn the call over to our acting CFO, Kobi Altman, who will provide greater detail around our financial results.

Before I begin my review, I would like to remind our listeners that last month Teva announced that Erez Vigodman was appointed President and Chief Executive Officer of Teva, effective next Tuesday, February 11.

Since 2009 Erez has been a member of Teva's Board of Directors and he will remain on the Board while serving as CEO.

Erez brings to Teva global leadership, business transformation experience, strong strategic expertise across multiple industries, and deep insights into global market dynamics.

Most importantly, he has an excellent understanding of Teva's pioneering spirit and the challenges we are facing.

Under Erez's leadership, and together with the management team, we are all committed to delivering medicines and solutions to patients all over the world, and enhancing shareholders' value through operational improvements, portfolio optimization, gross margin expansion, strong cash flow generation, and business development activities.

Let me first briefly review the highlights of our financial results.

Teva's revenues in the fourth quarter was $5.4 billion, a 3% increase compared to the fourth quarter of 2012.

Our fourth-quarter non-GAAP EPS was $1.42 per share, an increase of 8% over 2012.

Cash from operations before one-time settlement during the quarter was strong, reaching $1.7 billion with free cash flow of $1.1 billion before settlement.

On an annual basis, total revenue was flat compared to 2012 at $20.3 billion, while non-GAAP EPS was $5.01, down from $5.35 in 2012, following the anticipated loss or decline of several highly profitable products that were sold in the previous year, and an increase in sales and marketing and R&D as we continue to invest in our future.

We also had very strong annual cash flow from operations of $5.1 billion and free cash flow of $3 billion before one-time settlements.

I am pleased to announce today that Teva's Board of Directors decided to increase the Company's quarterly dividend by 5%.

This represents a dividend yield of about 3% annually.

Teva will review the possibility of further increasing dividend payments later this year, subject to the outcome of possible generic COPAXONE scenarios during 2014.

Now to further look at 2013.

We did manage to exceed the $20 billion mark in sales we had in our plan ending 2012.

However, we reached it with a very different mix of products and geographies than the year before.

During 2013 our product mix continued to change as greater revenues and profitability were derived from specialty medicines.

COPAXONE delivered another record performance against increasing oral competition, exceeding expectation again and maintaining its position as the number one MS therapy for patients globally.

We are very pleased with last week's announcement that the US Food and Drug Administration approved Teva's supplemental new drug application for three times a week COPAXONE 40 milligram.

We began shipping products into distribution channels within 24 hours of approval.

The availability of new three times a week COPAXONE 40 milligram, which maintains the same efficacy and safety profile of daily COPAXONE is a welcome enhancement that offers patients 60% less frequent annual administration, which we believe will improve the over all patient experience.

In addition to COPAXONE we are continuing to drive future opportunities within the existing portfolio.

After receiving orphan drug designation, the largest revenue-producing product in Teva's oncology portfolio, TREANDA, has extended its regulatory exclusivity to May 2016 for the indolent B-cell non-Hodgkin's leukemia.

We also expanded our global biological oncology portfolio with the launch of short-acting G-CSF in the US, GRANIX, and a long-acting G-CSF in Germany, LONQUEX.

Revenues from generic medicines, including API, were $9.9 billion in 2013, a 5% decrease compared to 2012 mainly due to the termination of our generic Lipitor royalty agreement with Ranbaxy and lower sales of API.

There were several highlights I would like to note.

During the year we launched 388 new generic products globally.

In the United States we had 21 new launches during the year that contributed over $400 million to our top line.

Around the globe we continue to focus on efficiency and cost reduction in our generic business, while focusing on value rather than volume.

Turning to our OTC business and our joint venture with Procter & Gamble, PGT Healthcare.

We had exceptional results in 2013, as overall sales of the joint venture grew 15% to more than $1.5 billion following a very strong fourth quarter.

Now looking towards our future, both short and long term, the opportunity lies in our global specialty and generic pipeline, our ability to reduce cost and a strategic approach to business development.

I will begin with the pipeline.

Preparation for new launches are continuing at full speed with excellent coordination between global, regional and local levels to ensure that we maximize the asset value.

In addition to the introduction of COPAXONE 40 milligram, we are preparing for several potential new product launches this year, including DuoResp, or BFC Spiromax in Europe; Adasuve and [Zicute] in the United States, as well as expanding our women's health portfolio with the anticipated launch of SEASONIQUE in Europe.

We are also continuing the launch of GRANIX, our short-acting G-CSF in the US and LONQUEX, our long-acting GCSF in Europe.

2013 was a year our integrating and building Teva's global R&D organization, while still delivering strong performance in traditional and complex generic, specialty and NTE pipeline.

All was accomplished during this year.

Generic R&D delivered 155 submissions in major markets.

These submissions included 21 ANDAs in the United States, raising our total pipeline there to 133 pending ANDAs, representing $81 billion of brand value.

We believe that 51 one of those ANDAs are first-to-file opportunities representing $40 billion in brand value.

In specialty pharma R&D had another eight submissions in major markets as part of 30 late-stage programs we are running, while our NTE approach yield 14 projects entering our development pipeline.

During 2014 we will also reach important milestones in some of our specialty Phase III clinical programs, including reslizumab for acute asthma and custirsen for prostate cancer.

And depending on the outcome of the Phase III trials, we expect up to 10 specialty product submissions for regulatory approval, including one NTE.

While we continue to focus our efforts on our core R&D programs and go-to-market activities, we are also increasing organizational effectiveness to our cost reduction program to ensure Teva's growth and its role as a leader in the ever-changing pharmaceutical industry.

During 2013 we updated the market on our ongoing cost reduction program which includes approximately $2 billion in annual cost savings by the end of 2017, compared to the 2012 cost base.

We estimate that $1 billion or 50% of the $2 billion annual cost savings will be realized by the end of 2014 and 70% by the end of 2015.

The majority of the savings are expected to come from increased efficiencies in production, procurement and people.

As we have disclosed, a minimum of $500 million at least will fall into the bottom line, while the remaining amount will be reinvested in the development and launch of our high-potential high-gross product primarily through R&D and sales and marketing expense increase.

As well as to offset the increase in costs resulting from anticipated increases in volumes in our generic business.

I want to assure you that the reinvestment of approximately $1 billion of the aforementioned target into our pipeline and sales and marketing will only happen if the opportunities have significant potential to be viable, durable and profitable.

In the event that one or more of the pipeline opportunities fail to progress or do not fit the criteria just described, that will lead to additional money flowing through the bottom line.

Finally a word on business development.

Our strategy has and continues to emphasize the management of our business for long-term sustainable and profitable growth.

We intend to use business development as a key driver to build a robust generic and specialty pipeline and portfolio, while expanding and extending our geographical footprint.

And we are open to any idea which will drive long-term value creation.

In any business development opportunity must meet our stringent criteria.

It must have strategic fit, support our leadership position, and be financially justified and accretive to earnings per share within a reasonable time.

In closing, 2013 was an important year for Teva and its shareholders.

Many seeds were planted to ensure our long-term success and prosperity.

2014 will be a pivotal year in terms of execution and further enhancement of our strategic direction.

We move towards 2014 not only with the necessary determination to execute our plan, but also with firm belief that the important choices we made in the past year are crucial in our journey to a successful future.

I will now turn the call over to Kobi who will provide additional details about our financial results for 2013.

Kobi, please go ahead.

Thank you, Eyal, and good day, everyone.

I'm happy you could join us today to review our financial results for the fourth quarter and full-year 2013.

We are reporting today strong results for the fourth quarter, which ends a year largely in line with expectations for Teva, despite some tough comparisons to 2012.

Net revenues for the year were $20.3 billion, flat compared to 2012, in spite of the anticipated loss of exclusivity on Provigil and certain generic products, primarily atorvastatin, in 2012.

This was achieved by strong performance in 2013 of many of our businesses, primarily specialty medicine led by COPAXONE, our generic business and our OTC business.

Non-GAAP EPS for 2013 was slightly above the midpoint to follow guidance at $5.01, compared to the $5.35 in 2012, a decrease that mainly resulted from the loss of exclusivity for the high margin products that I just mentioned, partially offset by the good performance in other parts of the business.

For the fourth quarter of 2013 we are reporting today a solid $5.4 billion net revenue and $1.42 in non-GAAP EPS, an increase of 3% and 8%, respectively, compared to the fourth quarter of 2012.

During 2013 we have been working hard to transform Teva, to deliver on strategy laid out for the Company and to build a more efficient effective organization.

We are making strong progress on all of these fronts and I will share some of it with you shortly.

Before I delve further into the results of the year and the quarter, I would like to touch on three important issues.

First, starting this quarter, Teva will report two separate segments in its financial statement.

Our two segments are generics and specialty.

While we will maintain the level of granularity of financial information that we provided, there may be some changes in our previous reporting structure.

We encourage you to review our full financial statements that we will file in a few days to familiarize yourself with them.

Second, in the fourth quarter we took relatively high one-time charges totalling $825 million after-tax which we adjusted in arriving at our non-GAAP results.

These charges, including permits of $329 million, mostly related to plant closure, portfolio optimization, write-off of IP R&D and investment write-off.

Furthermore, these charges include amortization of certain intangible assets totaling $330 million, restructuring expenses totaling $104 million related to our ongoing cost reduction program.

In addition are smaller items.

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

Third, exchange rate differences continue to negatively affect our results this quarter and for the full year 2013.

Compared to the respective period in 2012, these differences reduce our revenue by $49 million this quarter and $166 million for the year, and our operating profit by $45 million this quarter and $129 million for the year.

The reduction in revenues resulted from the weakening of certain currencies, primarily the Japanese yen and Russian ruble, relative to the US dollar.

The major impact on our operating income was caused by the strengthening of the Israeli shekel against all currencies.

Let me move on now to discuss some highlights of our financial performance by segment.

Revenue from generic medicine, including API, were $9.9 billion in 2013, a 3% decrease in local currency terms compared to 2012.

This decrease is mainly due to the termination of the agreement concerning atorvastatin back in 2012 and lower API sales.

Despite the decrease in sales, we continue to strengthen our value market share in the US and key markets in Europe.

During the year we launched 21 generic products in the US, 7 of them as first-to-file, or process-to-file, and 367 new generic products outside the US.

In the fourth quarter generic medicine, including API sales, were $2.7 billion, a 1% increase over the fourth quarter of 2012.

In our specialty segment we had a record year, with sales of $8.4 billion dollars, an increase of 3% compared to 2012.

With the exception of the sleep disorder business, where we experienced the anticipated loss of exclusivity on PROVIGIL in 2012, several of our specialty products increased year-over-year in all therapeutic areas and in most geographies.

Revenue from COPAXONE in 2013 were at an all-time high of $4.3 billion, an increase of 8% compared to 2012.

Despite multiple competitors entering the MS space, COPAXONE continues to be the leading MS therapy in the US and globally.

And it's maintaining its total prescription and new prescription leadership in the US.

Finally for our OTC business, where our joint venture with P&G, PGT Healthcare, set another record year in 2013, improving its base business, driving sales force impact and benefiting from favorable pricing trends.

For the full year, Teva recorded revenue of $1.165 million,(sic-see press release "$1.165 billion") a significant increase of 26%, net of foreign exchange impact, compared to 2012 with gains in all regions.

We are very pleased with how PGT Healthcare is progressing and together with our partners at P&G are planning for its continued growth.

Turning next to profit margin and operating expenses.

Non-GAAP gross profit in 2013 was $11.9 billion or 58.6% of revenue, a decrease of $0.2 billion or 0.8% compared to 2012.

This decrease was mainly the result of lower revenues of PROVIGIL, which lost its exclusivity, as well as the reduced revenue from additional exclusive generic products, mainly atorvastatin.

These were partially offset by more profitable product mix mainly in the US generic business, and higher COPAXONE revenue, as well as early contribution of our cost reduction program.

We are very pleased with the progress that our global R&D organization is making on all fronts, specifically in developing our NTE program and broadening our complex generic portfolio.

As a reflection of that progress, our non-GAAP net research and development expenses increased in 2013 to $1.4 billion, or 7% of revenues, compared to $1.3 billion or 6.3% of revenues in 2012.

We experienced a similar increase quarter over quarter as well.

Throughout 2013 we increased our selling and marketing expenses to support five specialty launches in our growing OTC business, as well as prepare for as many as six potential specialty launches in 2014, including the recently launched COPAXONE 40 milligram.

For the full year our non-GAAP selling and marketing expenses totaled approximately $4 billion, or 19.9% of revenue compared to $3.8 billion or 18.9% of revenue in 2012.

In the fourth quarter these expenses totaled $1.1 billion compared to approximately $1 billion in the first quarter of 2012.

Our non-GAAP operating profit in 2013 was $5.2 billion compared to $5.7 billion in 2012.

This 9% decline is mainly the result of slower sales of exclusive generic and specialty products mainly PROVIGIL, coupled with higher R&D and sales and marketing expenses.

For the fourth quarter operating profit totaled $1.36 billion, an increase of 1% compared to last year.

For the full-year 2013 the overall split of operating profit before G&A expenses between our main lines of business is global generics 29%, MS 50%, other specialty brands 19%, OTC and other businesses 2%.

Turning now to tax.

For the full-year 2013, our annual tax rate on a non-GAAP basis was 12.8% compared to 12.3% in 2012.

Our annual tax rate for the year was lower than we initially projected due to several items in 2013 that were not initially forecast, at least not at their prevailing magnitude, which reduced our tax rate for the year, but will not repeat in future years.

In particular, our tax rate in Israel on approved enterprises increased from 6% to 9%, resulting in a one-time increase in the value of our Israeli tax assets.

During 2013 we have been executing rigorously on our cost reduction program in many areas of the Company.

We are currently in process of implementing multiple projects and initiatives in procurement, production and supply chain, people and processes, commercial excellence, R&D and many other areas.

All these ongoing projects resulted in an aggregate reduction of our cost base by $426 million compared to the baseline at 2012 year end, and our total headcount was reduced by approximately 1,000 employees.

We remain strongly committed to delivering on our cost reduction program, and are working towards achieving the $1 billion cumulative cost reduction targets by the end of 2014.

Teva continues to generate solid cash flow by strengthening its underlying business and focusing on the right metrics, such as reducing working capital.

In the fourth quarter cash flow from operations and free cash flow, excluding the one-time payments of certain legal and tax settlements this quarter, were approximately $1.7 billion and $1.1 billion, an increase of 5% and 4%, respectively, compared to the fourth quarter of 2012.

For the full year 2013 cash flow from operations and free cash flow, excluding the settlements I mentioned, were a solid $5 billion and $3 billion, an increase of 9% and 8%, respectively, compared to 2012.

During the fourth quarter we did not repurchase any shares.

During the entire 2013 we repurchased 12.8 million shares for approximately $500 million as part of the $3 billion share repurchase plan that was authorized in December 2011.

Together with dividends paid, we have returned approximately $1.6 billion in cash to our shareholders this year representing 49% of our cash flow from operations, after the payment of certain legal and tax settlements this year, or 69% of our free cash flow before dividends but after the payment of those settlements.

I believe all of these measures, coupled with the dividend increase we announced, strongly demonstrate the ongoing commitment of Teva and its Board to reward and return cash to our shareholders.

Looking ahead now to 2014, we are reiterating today the full-year guidance we gave on December 10.

We have started the year on the right foot with the [rollout] of COPAXONE 40 milligram and the appointment of Erez Vigodman as our new President and CEO, and are very excited of the prospects we see ahead of Teva this year.

We will of course continue to update you on the progress we make on all fronts throughout the year.

This concludes my prepared remarks.

Thank you all for your time and attention.

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

(Operator Instructions)

Ken Cacciatore, Cowen and Company.

Thanks for taking the question.

First question I had was on the cost.

Wanted to clarify.

It sounds as if $500 million definitively gets to the bottom line next year, and you are going to have flexibility depending on other opportunities.

I was wondering, is some of the potential cost savings going to be predicated on your retention of COPAXONE if there is a generic launch?

I wanted to understand if there is any flexibility around that.

Also wanted to understand if you were thinking or contemplating about limiting the once-daily COPAXONE for the three-times-daily, i.e.

force the conversion or try to accelerate the conversion, how you think about that.

Thanks very much.

Hi, Ken, it's Eyal.

Let me take the first one and Rob will take the second one on the three times with the COPAXONE.

Regarding expenses, the minimum that we see flowing to the bottom line over the program is $500 million.

It could be more.

I believe that, you face reality, the generic introduction of COPAXONE will force us to sharpen our thoughts on [copert] efficiency again and again and again.

There's no doubt about it, but right now I think we are running pretty well with the cost reduction program.

2013 was not supposed to be a meaningful year.

We've done a little better.

We reduced our headcount by 1,000 employees during the year.

By tightening the belt and our definitely not going to spend anything we judge unnecessary to build value.

Rob, do you want to take the three-times-a-week?

Yes, pleasure.

First of all, we are delighted that we have the registration for the three-times-weekly 40.

Within 24 hours after receiving it, we got the products to pharmacies in the US and that's also quite an accomplishment.

We have done everything that we can to increase the nursing staff and get the message out to patients or doctors, but ultimately they decide whether they want to use the three-times-weekly 40 or continue to use our 20.

What we know from market research though is very encouraging.

We just confirmed our previous guidance of anywhere between 30% to 50% of the patients will switch by the end of this year to the three-times-weekly 40.

But we definitely have no plans to force a conversion.

That's not how we approach the business.

Or limit the 20 in any way other at this moment.

Thank you.

Liav Abraham, Citi.

Good morning.

A couple of questions please.

First, on your US generics business, you mentioned, I think, seven incremental first-to-file opportunities in 2013.

It seems as though this number is a little low compared to some of your peers.

You've stressed in the past that the strategy for your generics division is to focus on first-to-file opportunities.

Can you comment on what you're doing to maximize the strategy going forward?

Following on from this, a question on the structure of your R&D organization.

I understand that you've globalized this organization with generics and branded R&D under the same umbrella.

Can you comment on the merits of this strategy?

Do you think that there is sufficient focus on generics R&D within the organization, given your increased focus on branded products, NTEs and your branded portfolio, generally?

Thank you.

Allan, can you please take the first one?

And Michael will take the second.

Sure.

Thank you for the question.

If we think of the US generics business, you are right.

We did launch 21 products this year, more than anyone else.

In those 21 products, seven of those were first-to-file.

To preempt, perhaps, the submission question, we submitted 21 products.

And of the 21 products we anticipate about 8 of them will be first-to-file.

We won't know until, clearly, we hear from the FDA.

As we look to the future, we see that percentage ramping up to about 50% of our US submissions will be -- we anticipate being in the first-to-file category.

So we're very optimistic about our business and the submissions in the launches that will come from that.

We do know there's been some recent data published by some of our competitors that are suggesting they have stronger first-to-file positions.

A couple of comments on that.

First, the data that was presented that we saw, combined internal company data of that company with publicly available company data of their competitors, including ourselves.

And therefore, in the Teva numbers that were presented, a severely under-calculated the number of first-to-file products that we anticipate getting within our portfolio as we look to both historically and to the future.

And then finally, to reinforce the value focus, we've looked through the information that was disclosed in the Activis presentation.

Of the 11 products that were disclosed, let's say that two-thirds to three-quarters of them represent a very small portion of the value creation that they articulated.

20% to 25% of the products are where the major value creation comes from.

We are in a race with Activis on those products.

I think we do have to admit that Activis beat us on two of those, but that doesn't mean that we won't continue to win on others.

Our focus is to, again, look at those high-value first-to-file complex generics, devote over 50% of our R&D investment towards those products and leverage those for value creation.

And with that, I'll turn it over to Michael to describe how well we're doing in that area.

Thank you, Liav, for your question.

With regard to the emphasis on generics, I would say we continue to have a sharp focus with regard to our generics R&D portfolio.

The major focus over the last few years and further enhancing 2014, will be to build up our complex technology portfolio.

We are investing significantly in that particular area to look to having our complex generic products becoming a very significant part of our submissions in the near future.

The integration between the generic and the specialty organizations has been remarkably successful, tremendous synergies, unexpected and expected.

Of course the major bonus has been the integration with the development of the NTEs.

As you know, we had 14 NTEs last year, and looking forward to another 10 this year of the NTEs.

We will have significant -- we'll have our first NTE filed this year and eight of them coming through submission in the next three years.

This reflects a combined integration between the skills, both in the generic business and the branded business.

For example, in terms of our integration, the good example is the integration of our devices portfolio and our devices technology, where of course this serving both our generics and specialty business.

This has proven to be a tremendously strengthened, synergized and of great use to both research efforts.

Thanks very much.

David Maris, BMO Capital Markets.

Good morning, Eyal.

A couple of questions.

First, some investors are concerned that when a new CEO joins, they often reset guidance.

But is it fair to say that since the Company's reiterating its guidance now and the new CEO is already on the Board, that that is something that's unlikely or not going to happen when he officially takes the role of CEO?

Separately, on the three-times-a-week availability, there seems to be a little bit of confusion.

Is that widely available as of right now in the US?

Or will it be in the next few weeks?

Thank you.

Good morning, David.

Thanks for the question.

I'll take the first one.

We reiterated our guidance.

That's the best information that we have available and we analyze it on an ongoing basis.

The habit of new CEOs to reset hopefully is not going to repeat in this case.

And other than that, as of course he'll be leading this call next quarter, and I hope many will have a chance to meet him before that.

Thanks for the question.

Like I said, we launched COPAXONE three-times-weekly.

Within 24 hours in the US came into the first pharmacies, but it's widely available now.

So I'm very pleased to take away that confusion.

It's a fantastic product that many patients can benefit from now everywhere the US.

And as a follow-up, Eyal, when we got together in Israel last week, we talked a little bit about the likelihood of one generic versus two generics versus no generics.

Is it still Teva's believe that there are very critical and credible reasons that generics shouldn't be approved for COPAXONE?

And if you could remind investors what those might be.

Well thanks for the question.

I will forward this one to the scientists in the room.

Michael, can you please refer to David's question?

Thank you, David.

I think Teva's position has been, and as you well know, there's been new data that we have published just in January that demonstrated significant differences in the biological immunological effects of COPAXONE and various purported generics.

And whilst we recognize even now those investments that COPAXONE, by certain measures, can look similar to the purported generics.

In others that potentially have more clinical significance, which is partly activation and mechanism action, we're seeing significant differences.

Now we would never predict what the regulatory authorities and how they would interpret this.

But I think from our own point of view, we see significantly different impact on genes associated, by the way, with key immune response mechanisms, that would further underlie the need for, really, to understand the clinical and biological effects of purported generics relative to COPAXONE.

So we believe there's an important case in terms of patient safety and clinical efficacy to be made about the importance of clinical trials in this respect.

Thank you very much.

Randall Stanicky, RBC Capital Markets.

Great, thanks, guys, for the questions.

Eyal, in light of the business development goals, which it sounds like you are open to any idea, how is that different from the last five years?

Can you articulate how you're thinking about return on invested capital differently or strategically?

Where you are looking to grow the Teva platform?

And then I didn't hear you talk about divestitures.

There's clearly a lot of businesses that you're in that perhaps isn't up to the profitability level that you'd like it to be in, perhaps couldn't be going forward.

Is that something you're looking at?

Could we see broader divestitures over the next 12 months or so?

Thanks.

Let me try to take the two parts of the question.

First of all, on business opportunities, we are open for business.

Maybe in the past couple of years we've limited ourselves to small transactions, mostly focusing of building the pipeline and our portfolio.

I think we are expanding our thoughts, horizons and views on looking at some other ideas which are out there.

We are a very dynamic marketplace.

So as I mentioned in my prepared remarks, we will be looking at any ideas that will create genuine value over time to the Company and to its shareholders.

And I think everything else that I could say about this would be unnecessary at this point.

Regarding divestitures, yes, we are looking to divest some of the non-core parts of our business.

It's not the core specialty, it's not the core generic.

But the Company has some additional activities, such as the distributions and activities that don't really create or contribute a lot to our value.

A number of investments over in financial and Companies that have accumulated over the years, all this is money that we're going to generate and put to it work to our core programs.

So again, these things will have to be seen.

Probably over 2014 we'll move into several of those actions.

But we're not talking about divesting very large and central pieces of the Company, if that's what you meant to have said.

Thanks, Eyal.

Is it fair to say that the Company has no bias then towards brand versus generic?

We could still see sizable generic additions to the business going forward?

I would prefer to leave this question unanswered at this point, if you don't mind.

Okay.

Great, thanks, guys.

Corey Davis, National Alliance.

Thanks very much.

Everything that's gone on at Teva over the past couple of years, and perhaps a change in focus in your generics business.

Could you explain whether or not there's now a difference in your approach, if any, to how you think about and handle at-risk launches?

I'm particularly interested in generic OxyContin, given your recent big court win on all those patents.

You're one of the few filers that hasn't yet settled and we're still waiting for FDA guidance on tamper equivalents.

Is this something that conceivably could contribute to 2014 revenue, if all the stars align?

Or is that probably too much of a stretch?

Allan, will you take that please?

Sure, Corey.

Let me start with the specific OxyContin question.

Clearly we were very pleased with the outcome of the litigation.

There are still a number of legal and regulatory hurdles to get over to be able to commercialize that and bring that to market.

We are aggressively pursuing those.

And we would hope we can convert those into a first-mover advantage and economic benefit.

But I would say that there are hurdles ahead of us, including the fact that no generic has yet received regulatory approval on this product.

But we are working with the FDA to do that.

With reference to your question of at-risk launches, and someone who's been here for 14 years in the generics business, I can tell you that as we look at our paragraph 4, first-to-file strategy, we are aggressively looking at all opportunities where we can be first, create value, create sustainable value.

I would remind us however, relative to where the patent cliff has been, those opportunities in size and scale are not as great as they have historically been.

But that said, they do create good economic value for us and we continue to focus upon them as part of our strategy.

I would just remind you that in December 2012, when we talked about the generics strategy, we said that more than 50% of all of our submissions have a first-to-file challenge associated with them, a paragraph 4 first-to-file challenge associated with them.

And that is our strategy going forward and will continue to be our strategy.

Quickly back to the FDA, you said that you are working with them.

How would you characterize the nature of those interactions?

Do you think that they're close to coming up with tamper equivalents guidance?

Or is it premature to say that they are close?

I think it's premature to give timelines on what the FDA will or will not do.

But I will reiterate we are in close dialogue with them.

Okay.

Thanks very much.

Jami Rubin, Goldman Sachs.

Thank you.

Eyal, a question for you.

I'm trying to understand the numbers this year.

COPAXONE beat by $500 million, relative to your initial guidance, which by my math and the 76% operating margin that you disclosed for that product, should have produced a $0.40 beat over the midpoint of your guidance.

So clearly there were significant offsets.

And my best guess is that those offsets came from weaker generic sales and weaker operating margins or weaker profitability in the generic business.

Is that a correct characterization?

What else in the base business created that shortfall to the very strong COPAXONE beat?

And how a we think about the profitability of the generic business going forward?

I think that you gave guidance for 2014 of 41% to 44% generic gross margins.

How should we think about that going forward?

And if you could explain, again, relative to your initial guidance, why the numbers came in so much below your expectations.

Thanks.

All right, thank you and good morning.

There were some events in the business that offset the fantastic performance that we had with COPAXONE.

It wasn't just COPAXONE, it was also other parts of our specialty business.

And as we have reported, first and foremost, about $130 million of operating profit were robbed, so to speak, by exchange rates with some of the currency weakening against the dollar.

And some strengthening against the dollar like the Israeli shekel, which hit into our operating profitabilities.

That's one piece.

We had a particularly week year in our third-party API business.

A part of that has to do with managerial issues.

Part has to do with safety issues.

And we have checked our entire networks, I believe that in 2014 were going to see much improvement in that area.

A weakness in our generic business in Japan, again, part of that was strongly influenced by the weak Japanese yen.

To remind everyone, it was around JPY81 per dollar at the end of last year and it's JPY105, or over JPY100 right now.

That something like 25% taking off profits right there.

So there were parts of the business that went the other direction.

In operations we had to an excellent year.

We improved our service level dramatically.

But at the same time, we cleaned out the house.

That also resulted and then we have reported that throughout the year, writing off excess inventory in all our markets in order to come cleaner in 2014.

This number peaked, even peaked in the fourth quarter at about close to $190 million.

These numbers are not going to repeat next year.

So the combination of all that offsets our performance of the specialty business.

As to your question on the profitability our generic.

You see the profitability of the generic business in Q4.

It's in line with what we have guided to 2014 and we believe that we're going to deliver that, at least.

A lot of our cost reduction programs are going to hit the bottom line of the generic business, as we said.

It's not a one-sided picture.

We are going to improve and get a lot of money into the bottom line over our generic business in order to improve competitiveness.

And we deploy some of the savings into the specialty business by building our future.

But we believe the generic business of Teva is stable, is well managed, is going to grow in emerging markets.

We had a pretty good, even excellent, second half in the United States business.

We improved the profitability in the European by exiting some of the low-profit activities like tenders in many of the countries which are common today.

And I believe we will see profitability improve in that area next year.

Thank you.

Elliot Wilbur, Needham and Company.

Thank you and good morning.

If I could follow-up on Jami's question, specifically for Allan first initially.

In looking at the segment profitability measures on the overall generic business, my impression had always been the European business was generating segment profitability or op income profitability somewhere in the low to mid teens and obviously the US would be much higher.

That doesn't seem to be the case.

Maybe you could speak about the relative profitability of US generics versus Europe and the rest of the world.

And then I wanted to follow-up with more of a big-picture question.

I'd direct this towards you as well, Allan.

One of your larger international competitors is talking a lot about intensified consolidation, a distribution channel in the US, and now even more consolidation in a distribution system worldwide.

The suggestion there is that's just going to put a lot of pressure at the margin on some smaller players, and also potentially result in another leg down in overall pricing.

Obviously the look at the data and especially in the US, certainly the numbers don't confirm that, because the price environment itself is relatively healthy.

What are your thoughts on that subject matter?

How do you see that playing out over the next 12 to 18 months here?

Do you think the risk is really more relevant for smaller companies that don't have large portfolios?

Or do you think there's a growing risk of a far less favorable pricing environment going forward than investors seem to be expecting?

Thanks.

Thanks, Elliot, it's Eyal.

I'll take the first question of the overall comparison of our generic businesses around the world.

Allan can definitely talk for the consolidation in the industry and what is happening in his field.

On the scale that we're seeing, our US generic business is definitely the most profitable part, with gross margin at about the 50%.

It's a little over 40% in Europe.

It's around 35%, but improving next year, in Japan.

It's close to 50% in emerging markets.

And it's around 33% in our API business, which when you look at our overall generic business compared to last year, that is where we were hurt the most.

But we believe we know how to fix it.

We also, in comparison of our total last year, did not have the Ranbaxy royalties on the atorvastatin launch, which was sales and EBIT were exactly the same number.

Because there was no card, no sales expenses and that is missing from the numbers in the comparison.

Overall, we believe that our European business is stable.

The US generic business is highly profitable.

And in Japan and API 2015 will be years what we will improve profitability.

Allan, do you want to talk about the consolidation of the industry, please?

Sure, Eyal.

Thank you, Elliott.

Building on what Eyal said, we are reporting a 14% top-line growth on the US generics business in the fourth quarter.

In the back half of the year when we have an apples to apples comparison of six months versus six months, we reached double-digit growth.

At the gross profit levels that Eyal was talking about, it is a very valuable business to Teva.

And we see it continuing to be on a go-forward basis.

With regards to consolidation of the distribution base, definitely.

You know as well as I do, the three major transactions or combinations that have been announced in the last 12 months.

We remain extremely optimistic about that consolidation.

We are finding, as we said in previous calls, that as our distributors globalize to increase their complexity and get bigger, they are looking to the large global players to be able to work with, to help them to find synergies of that they are looking for.

We operate in 60 countries of the world.

We have one of the biggest global footprints and we are well-positioned to capitalize on that globalization.

We are already about 18 months into the Walgreens Alliance Boots combination with AmerisourceBergen coming on stream.

We are working very closely with them in creating mutual value that helps them to achieve the synergy targets that they are looking for.

But also creates value for us and enhances the value creation in our business.

Overall I would concur with the trend that you are hearing.

I do believe that the large global generic players will benefit from this globalization.

I do agree we will see some margin squeeze.

They will look for a lower, or enhanced, margins.

But managing mix and pricing together, we can find a way to offset that and to continue to grow our business.

As we've seen in the last 6 months and in the last 12 months, if you exclude the atorvastatin royalty situation.

Gregg Gilbert, Bank of America Merrill Lynch.

Thanks.

Going back to the important product, for Michael first and then Rob.

Michael, I like to put you on the spot on these calls, so I know that the financial guidance assumes generic COPAXONE around mid-year, but I'd like your personal view and your prediction as to whether generics would be approved on time, if you care to.

And then for Rob, on the 40, you talked about the 30% to 50% goal that was based on market research.

And you've made that prediction as a Company, I think, over a year ago initially.

Do have any real-time, real-world data based on patient flow or patient calls to physicians or actual visits in the past days that you could offer to make us more confident in your of 30% to 50% confidence?

And the second part of that is that if the 20 go generic in a few months, is it fair to assume you would bridge any pricing gap to the patient who is on the 40 mg product, so that there's no incentive for that patient to move back to the 20?

Thank you.

With regard to personal predictions.

No, I'm not going to make a prediction.

But I am going to say there is compelling data that raises significant doubt about the clinical and biological effectiveness and similarity and sameness of purported generics and so we believe the onus should be on really demonstration of efficacy and safety.

It's important to -- of course, Teva is a generic Company.

We understand what it is to show bio-equivalence and sameness.

We believe the same standards should be held here.

We stick to our guidance based on the most recent market research we have.

And all of the interactions and feedback initially is exactly as we expected, so we continue to just give the same guidance, being optimistic about achieving those 30% to 50%.

As you can expect, we are really very, very closely monitoring all of this to be able to react to whatever need is there.

And as to pricing strategy going forward, honestly I'm not going to comment on that.

It's too much of a commercial strategy that I really don't feel comfortable disclosing at this point in time.

Thank you.

Ronny Gal, Sanford Bernstein.

Good morning and thank you for taking my question.

First, regarding the CapEx, you're running over $1 billion COPAXONE.

I remember presentation from all your friends from Activis suggesting $250 million for the year.

You did more than that in the quarter.

Can you give us a feel for the CapEx train going forward?

Should we begin to see a decline in that number?

What is the goal for three years out?

Second, TREANDA, we begin to see softness in the prescription.

Can you describe a little bit of the competitive dynamics with TREANDA?

And third, obviously you've got a lot of stuff going in respiratory.

Can you review for us where you are in terms of major pipeline products and launches?

I think you mentioned a SYMBICORT look-alike.

And if you can also described where you are your ADVAIR program.

Thank you.

I'll take the CapEx, Ronny, and then Rob will get your two others.

Our CapEx projecting for the year is close to $1 billion.

The comparison that they are making, we need more details in order to understand it.

I'll tell you where we are investing.

First of all we are doing an overhaul of our IT system, moving the entire Company to SAP.

One system for the entire Company after a combination of many, many companies with different systems, that costs money.

We are building a new plant for the OTC products in India, a brand-new plant.

And a new plant in Russia, which we announced about a year ago.

These investments are ongoing.

We are also investing in new technology, biologic capabilities.

Were investing in API.

Anybody that has an API business knows that that's a large consumer of capital investment.

So CapEx budget is about $1 billion.

We are looking at it in order to do the most efficient possible thing.

We are also moving our production from a high-cost location to a low-cost location and expanding in Eastern Europe and in India, all consuming CapEx.

These are the numbers and these are the major items for our investment.

Rob, you want to go to TREANDA?

TREANDA, it's how you define weak, but we are growing 17% year over year, out-performing the market in every single respect.

So I wouldn't call that weak.

And if interested in news on TREANDA, there's actually -- we've had a confirmation of a orphan drug status, which will give the indication, one of the indications, a protected life until February 2016.

So TREANDA is doing really well, performance is good and we enjoy a longer protection than we believed a year ago.

So actually we believe that's good news.

On the respiratory pipeline, Michael, you want to comment on that?

Thank you, Rob, and thank you, Ronny.

With regard to the respiratory pipeline, of course this is the year we would expect results on our reslizumab study in mid-year.

So this is going to be an important year for that particular franchise.

With regard to our whole R&D strategy, in terms of respiratory, it's broad-based.

As you probably recall, we have 10 clinical stage programs.

We're targeting all the major drug classes.

And we're entering new valley high drug classes in asthma.

And also looking at adjacent disease areas like RSE coming out of our MicroDose acquisition.

We're also, with the MicroDose acquisition, looking at next-generation devices that are really going to be focused also on the elderly and the young.

We do have an 80-rated strategy the US, and this is underway.

Also, by the way, reflects tremendous integration.

A good example of integration between our branded and our generic business that come together very quickly as a result of the integrated organization.

We are expecting about 13 submissions in the next five years and we're expecting strong growth from our current franchise, which is around $1 billion.

This is a very strong, a burgeoning portfolio with tremendous upside.

David Amsellem, Piper Jaffray.

Thanks.

A couple, and I apologize if you are already addressed this.

Can you talk about the rate at which you're losing COPAXONE patients to the orals in the fourth quarter and into 1Q?

Do you see that potentially accelerating over time, as neurologists gain more comfort with the orals that are available?

Thanks.

David, so far actually what we've seen is a fairly minimal impact of competition.

COPAXONE is and remains the golden standard.

I think this is related to the effect that people, patients and doctors alike, trust its proven efficacy and safety, its entire clinical profile, and all of the experience.

So actually for five months in a row COPAXONE is now the leader in new prescriptions.

It was always the leader in total prescriptions.

So there has been obviously some sort of a market share taken by the orals.

All In all, it's a very low-digit, single-digit loss that we've had and COPAXONE is holding much, much better than I think many people expected 12 months ago.

Frankly that's going forward into 2014 is what we are expecting is COPAXONE will hold its ground.

Obviously the orals will continue to gain some market share, but at the moment we see it grow more at cost of some of the interferons than really at the cost of COPAXONE.

Thank you.

I will now turn the call back to Eyal Desheh for any closing comments.

Thank you very much, Dawn.

Thank you for your questions.

We will be taking calls from anybody that wants to contact us immediately after this conference call is over.

We will be happy to answer all of the additional questions that you may still have.

And we will talk to you during the quarter and on our next earnings call.

Thank you very much and have a wonderful day.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.