Teva Pharmaceutical Industries Ltd (TEVA) 2015 Q2 法說會逐字稿

Thank you for standing by.

Welcome to Teva's conference call.

This conference is being recorded today, Thursday, July 30, 2015.

I would like to turn this conference over to your first speaker today, Mr. Kevin Mannix, Senior Vice President and Head of Teva (sic).

Please go ahead.

Thank you, Tracy.

Good morning, everyone, thank you for joining us today to discuss Teva's second-quarter 2015 financial results.

Our President and CEO, Erez Vigodman, will deliver some brief remarks, and then our CFO, Eyal Desheh, will review the results with the slides that can be found on our website.

The team will then open it up for question-and-answer.

A copy of the slides, as well as this morning's release, can be found on our website under the Investor Relation section, as well as on the Teva Investor Relations app.

Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Reconciliations of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in this morning's press release.

Our presentation contains forward-looking information, which is based on our current beliefs and expectations and involve a number of assumptions, known and unknown risks, and uncertainties that change over time and can cause future results, performance, or achievements to differ materially from the results, performance, or achievements expressed or implied by such forward-looking statements.

We'd ask that you take a moment to read the forward-looking statement legend at the beginning of the presentation, as it contains important information.

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

Erez?

Thank you, Kevin.

Good morning and good afternoon.

Thank you for joining us today.

We have already been receiving great feedback from our investors and how happy they are in our enthusiasm for the Allergan generic transaction we announced.

The conjunction of moves we have conducted during the last 18 months, including this transaction, positions Teva for future growth with very powerful [cylinders] that will fire for us in years to come.

We have been creating a leader in the growing genetics industry, including in INN and branded genetics, with an overall product pipeline and product portfolio that leads the industry in terms of differentiation and durability.

We have been developing an emerging late-stage specialty pipeline.

It will generate an exceptional portfolio of specialty products and solutions.

Our [in end] financial profile will enable us to bolster our specialty pipeline and product portfolio in an accelerated manner.

We are well-positioned to capture untapped opportunities for greater integration and innovation between genetics and specialty with a single powerful and differentiated offering.

We believe we can deliver even greater value to patients and shareholders, as well as to the healthcare system around the world.

We will obtain our financing commitments during the next few days and before August 10 and we expect to close the transaction in the first quarter of 2016.

To get into the details of our second-quarter results, I'm turning now the call to Eyal Desheh.

Thank you, Erez.

Good morning, good afternoon, everyone.

Thank you for joining us.

As you know, we have already previewed this excellent quarter so let's take a deeper dive into the results.

Compared to last year, revenues were slightly down in nominal terms, but they were 6% up in real term, driving 16% year-over-year growth in operating income, 15% growth in net income, and 14% growth in earnings per share.

This was also accompanied by strong cash flow generation.

Foreign exchange continued to impact our top line significantly, reducing sales by $341 million compared to last year, but our natural hedge resulted in minimal impact on our operating income, only $4 million.

Cash flow.

Cash flow continues to demonstrate year-over-year improvement, creating adequate resources to support inorganic moves such as the Auspex and Allergan transaction.

This quarter, we delivered 41% increase in cash flow operation and 51% increase in free cash flow compared to Q2 last year.

When we look at our revenue breakdown by market, the US market is increasing in prominent, reflecting our strong focus on US generics business and a record quarter for Copaxone sales in the United States.

In addition, foreign exchange had a significant negative impact on our other markets, resulting in our business in the US comprising of 59% of total sales.

Segment revenue breakdown was fairly similar to Q2 last year, though Copaxone increased slightly as percentage of sales.

When we look at the bridge of our quarterly revenues, strong results of our generics driven by the successful launch of aripiprazole, ABILIFY, this quarter, and esomeprazole, NEXIUM, which was launched in Q1, increased it significantly.

The same goes for the sale of Copaxone in the US this quarter.

Exchange rates had a significant adverse impact on sale, but not on profit.

Talking about Copaxone.

Copaxone sales in the US are in line with expectations, despite the launch of the generic in June.

According to IMS data, demand is holding for Copaxone family, as you can see in the yellow line here on this slide, and we continue to monitor trends in the market very carefully.

The result of all this is a strong trend of improvement in operating margin for Teva over the past 18 months of almost 500 basis points in operating profit.

This was built upon the impressive improvement in the profitability of our generic business.

As you can see, stepped up for around 20%, 21% a year ago to between 39.5% (sic - see slide 14, "30.5%") to 30% in the first half of 2015.

Corporate quarterly operating income, operating income flow, the trend you have seen, with the increasing profits of generics and the MS segment.

Our other specialty products have shown lower profitability this quarter resulting from foreign exchange impact, as well as a one-time provision of $26 million, resulting from the situation in Greece.

We anticipate a much stronger second half for this part of our business.

So we've ended the quarter with a robust 16% increase in operating income overall compared to the second quarter last year.

And for the full half, Q2 was a clear continuation of the momentum of Q1, resulting in a very strong first half of the year.

While foreign exchange rates impacted sales, operating income was up 14% for the first half and earning per share increase by 13%.

Free cash flow was up an impressive 64% from the first half of last year.

So we looked at our numbers and at the rest of the year, and based on the strong first half, we are raising guidance, bringing earning per share for the year to the range of $5.15 to $5.40.

And a word on dividend, we also declare a dividend, a quarterly dividend, of $0.34 per share as in last quarter.

This concludes our prepared remarks and I would now like to open the call for your questions.

Thank you.

(Operator Instructions)

Your first question comes from Liav Abraham.

Please ask your question.

Good morning.

First question for Erez, can you comment on whether Paul Bisaro will be joining the Board of Teva following the announcement of the announcement of the acquisition of Allergan generics earlier this week?

And then a second question for Michael, perhaps on SD-809, I understand that the Phase IB trial in Tourette's was scheduled to complete in the middle of the year, can you confirm that, that's been completed and any commentary on the data?

We haven't seen a press release?

Thank you very much.

Good morning, Liav.

Not at this stage, and as you know, before we close the deal, we will not provide any more comments on that.

Hi, Liav.

Thank you for your question.

Yes, just to state, of course, the Tourette's trial has finished as planned, and as indicated to The Street in June.

Just similar to large pharma, we don't usually report on Phase IB data, but this should not be taken as if the results weren't exactly in line with what's expected.

We're looking forward to sharing more of this precise data with The Street in the near future at a function where the scientific data can be presented, but we are totally on track and the results were as we hoped for and expected.

Next question?

Thank you.

The next question comes from the line of Randall Stanicky.

Please ask your question.

Thanks, guys.

Just a couple.

Erez, one of the things we've talked about over the last couple of days is the fact you can do more specialty deals, really between now and the end of next year, throughout this process.

Can you talk about what the landscape looks like?

How many more opportunities similar to an Auspex or a Labrys do you see and maybe any color that you can provide would be great?

And then I have a quick follow-up for Siggi?

We modeled the capacity that is required in order to execute during the 2015/2016 Auspex like this.

Are you seeing a lot of opportunities out there?

Yes, the opportunities.

We'll assemble the list of targets and opportunities.

There are overtures in a number of phases, but it is to early to provide more comments on that.

Okay.

Fair enough.

Siggi, I wanted to ask you, we have seen a pick-up in generic approvals out of OGD over the last couple of months.

That could coincide, perhaps, with GDUFA II negotiations.

You guys are now set to again have the biggest generic pipeline out there beginning next June when you close the deal.

How are you guys thinking about the approvals as we move throughout the GDUFA process?

Are you expecting a continued increase and can you maybe provide some color on what you guys are modeling?

Randall, on the approval, it's great to see the last few months things are picking up, because earlier in the year, we didn't see so much improvement.

Also, I look at it like you indicated in your question.

We are coming up to the time when we need to negotiate GDUFA again and I expect it to improve.

We also have good news from the FDA, especially on two or three fronts.

First of all, they have indicated they have resourced better ODD, so they are ready to take on more volume and more reviews.

But also it's not only the volume, they are reviewing more challenging products as the EpiPen, so they have been increasing their expertise on the amount of reviewers.

And secondly, we are getting more communication from the FDA.

That for us has been a step forward.

We, of course, we would like to hear even more than we hear today, but we feel that very strongly, that they want to communicate better with the industry.

They are [stepping] up to that and that to us is very, very helpful, especially when we are preparing for launches.

So the indicators are right, Randall, and I'm optimistic that going forward this will improve even further.

Got it.

That's great, thanks, guys.

Thank you.

The next question comes from the line of Jason Gerberry.

Please ask your question.

Hi, good morning.

Thanks for taking my question.

Just have two.

First, can you guys give us an update, your Advair 505(b)(2) program, we are expecting data later this year or so.

This program seems like it would be a good hedge if companies in the space failed to meet the requirements for substitutability.

So just curious where are you at with that program, if we should get data later this year, and would a go-to-market timing be around the expiry of the Advair patent in August of next year?

And second, just on the formulary status in the Copaxone market, the expectation was that all the 40 milligram patients would be grandfathered under their previous insurance policy coverage, but that the new RXs would take a hit.

We are seeing new RXs for Copaxone 40 milligrams down as a percent of total Copaxone new RXs, so just curious how you're seeing the formulary status for Copaxone 40 milligrams shaping up?

Thanks.

Maybe on Advair 505(b)(2), Michael, you probably are in the best position to talk about that.

Yes, thanks, Siggi.

On the 505(b)(2), just to say that our respi generics program, which reflects the strength both in our generic, as well as our specialty portfolio, are working together wonderfully.

Progress is great.

There's of course more than one product, but at this stage I'm not going to release any data on precise timing.

But what we can say is that we are going to be very competitive in the space and the group is making outstanding progress, built on the strength of both organizations, the generic and the specialty, where there's tremendous strength in both that adds to this particular development.

Thank you, Michael.

Rob, please.

Jason, on the 40 milligrams, actually, we have seen a little bit of fluctuation in the [NRX], like you said, but the health plans, in answer to your question, remain very supportive of the 40 milligrams, three times a week.

They see it as really good value, both in terms of the real benefit that it delivers to patients, and we have not seen any change in access for patients there, being very high at 95% of patients having access to this product through payers.

So we continue to monitor it, obviously, but so far, really see no reaction from the payers from the health plans.

Thank you.

Thank you.

Maybe Rob, something on the TRX trend, during basically the last two weeks?

My pleasure, Erez.

What we have seen is really actually ever since the Glatopa made it to market, a slight increase in both Copaxone 20 and 40, Copaxone 40 being at an all-time high for 18 months, with close to 63,000TRX in the US, and we are really consciously optimistic on everything we are seeing.

It's early days, what you have seen from the generic entry, but all the early indicators are actually making us cautiously optimistic, and what we see both from patients, from physicians, from health plans, is a very strong acceptance to Copaxone 40 and business, reflected by the TRX, which is very nice news.

Great, thank you.

Next question, Tracy.

The next question comes from David Risinger.

Please ask the question.

David.

David, please ask your question.

Next question, Tracy.

The next question comes from the line of Elliot Wilder (sic).

Please ask your question.

No relation to Gene Wilder.

Elliot Wilbur from Raymond James.

Thanks.

Just a couple of questions on the MS segment, specifically looking at ex-US sales.

They have undergone a noticeable dip in the last couple of quarters, down about 35% from the average over the past two years.

Maybe you can just talk about the dynamics there, what's -- how much of that is currency versus other factors and whether or not we should be anticipating a rebound to more normalized levels or at least above the run rate of the last two quarters?

And then just a question on profitability of the MS segment overall.

It's something that has been in decline for several quarters now, but this period experienced a very strong rebound and it's the highest rate that you reported in three years or so.

It looks like specifically there's been a dramatic reduction in selling and marketing expense in the segment.

Just wondering how much of that is a short-term phenomenon or whether this is really more now a tactical decision to really scale back on direct promotions, given new competitive dynamics in the space?

Thanks.

Thank you for your question.

This is Eyal.

First of all, the ex-US Copaxone was strongly influenced by exchange rate.

We sell in Russia, we sell in Europe.

Rubel and euro are down year-over-year significantly against the dollar so that has the biggest impact.

In Russia, we have to remember also, there are tenders, and this quarter there was no tenders, so basically we have a bump each time we have a tender in Russia.

It comes between once to twice a year.

We expect one in the second half of this year.

Regarding the profitability of the MS segment, we've talked about this in the past.

Gross margin of Copaxone is just under 90%, pretty high and stable.

And then we have a few hundreds of millions of sales and marketing expenses supporting our sales effort in the US and in the international markets, which, of course, are a judgment call based on launches effort and driving sales in the geographies.

Rob, maybe if you'll just say something about, one, Europe, and second, the roll up of the Copaxone 40 milligram in Europe?

Happy to do so.

Elliot, we have been launching now in seven countries in Europe, Copaxone 40, three times a week, with very good results.

We are up to 15% conversion in those seven countries, which is well ahead of our plan, actually.

What we've seen as well in countries like France and Germany, was a fairly strong impact initially in the beginning of the year, end of last year from the orals, Aubagio relatively strong in France, and Tecfidera being relatively strong in Germany and France.

But that is flattening out now, so going forward, we expect to really see benefits from our three times weekly Copaxone launch, as we have seen in the US.

Like Eyal said, the majority of the impact you've seen in revenues is really FX related.

So for us, Copaxone remains a beautiful opportunity, and ultimately also in Europe, where the position of the authorities versus generics is really different and we believe we have a very strong franchise going forward, specifically with Copaxone 40 three times a week being available in many countries already and coming to more in the near future.

And my last comment here is that just that 2014, we saw the effort to drive up the sales of Copaxone 40 milligram after the successful launch, of course, and we basically are reducing the costs that were associated with the launch during 2015.

Next question.

Thank you.

The next question comes from Manoj Garg.

Please ask your question.

Hey, thanks for taking the question.

Sorry, I didn't realize she was referring to me.

A couple of questions.

One on Copaxone.

Appreciate your caller on the 95% access, but as you are having discussions for 2016, are you seeing any changes in carrying status within that access number?

No payer has indicated any change in market access for 40 milligram or 20 milligram.

Okay.

Great.

And then for Michael, maybe you can review two products for us.

One is just timings of the Phase III for CGRP, and then two, the bendamustine RTU product?

On the CGRP, as you know, we had the outstanding results.

We are the only company that has results for both chronic and episodic migraine.

We decided to go to the FDA with both results.

This is a meeting that's pending, will happen in the near future.

We have plans for these particular trials extremely well developed as part of our submission and once we have the meeting with the FDA, we'll be able to continue and develop these as we've planned.

But we are looking forward to input from the FDA.

The data, as you well know, was really outstanding.

Also outstanding, not only in terms of the end points, but also outstanding in terms of the improvements and quality of life of patients.

We had a significant -- if you look at just the one assessment of that, which is a MIDAS questionnaire which measures the days with disability over three months, our patients in episodic migraine has a score of 45, in other words, they missed days of work, 45 days.

The only other company who could compare to that used this in the episodic migraine is Amgen.

Our improvement was very large, 24 days reduction in disability.

Amgen was actually only eight.

So we know that we have a very competitive product, and once we've had our FDA meetings, we'll be informing The Street exact timing, but at this point, we are really awaiting FDA input as to both acceptability of our trial design and our plans for aggressively going forward.

Great.

And then on the bendamustine partnership?

Rob, did you want to comment on the Eagle partnerships?

With pleasure.

Rapid infusion bendamustine product has been submitted and we actually expect registration still this year, which we are really waiting for and would be very good news for us indeed.

Okay, great.

Thank you for taking my questions.

Thank you.

Next question, Tracy.

Thank you.

Your next question comes from the line of David Amsellem.

Please ask your question.

Hey, guys.

This is Michael on for David.

Just a few quick follow-ups on bendamustine, actually.

First of all, how are you thinking about the rapid infusion for of TREANDA that you licensed from Eagle, and specifically, do you plan a hard switch to that product once it becomes available?

And then regarding TREANDA currently, what is the extent to which you are still supplying the lyophilized product to customers, given the FDA [warrant] that you got on the liquid product earlier this year?

Rob, maybe you'll take the first one.

With pleasure, Michael.

Rapid infusion bendamustine is going to be a very important product for both the physicians and doctors.

It will take down the infusion time, which helps in the administration, good for patients, and good for the hospitals where they do it.

We are not going to commit or comment on any -- whether we do a hard switch or not at the moment.

And maybe the second part of the question, is yes, we still have the [lyophilized] product in the market.

We have seen that the liquid form has not been well adapted to certain devices that are used for applications, or so called, closed system applicators.

For those hospitals where these closed are being used, we continue to supply the lyophilized product to the market today.

All right.

Thanks, guys.

Next question.

Thank you.

Your next question comes from the line of Sumant Kulkarni.

Please ask your question.

Thanks for taking my questions.

I have a couple.

Now that Teva is back firmly in the lead on patent challenges in the US, will we also see a return to the more aggressive stance on at-risk launches or has Protonix litigation somehow changed that thinking forever?

And second, could you quantify for us a new EPS flow?

It seems like adding Allergan generics should probably give you an elevated [S]?

Sumant, it's Siggi here.

We are not yet there.

We need to close the transaction before we go in the lead again.

But we have an extremely strong IP group.

We look at each and every product on their own merit.

We -- don't forget that Teva was the leader in this.

Teva was the Company that built in a way up, the first to file.

There was a little bit of change in strategy, and now we are back in the game, with the transaction, with Allergan generics.

So we have, on both sides, both in Teva and Allergan, we have the best IP team there is because there's an expertise both on the brand business and the generic business.

And we are excited to take it on and get the value out of the transaction.

On the EPS flow, we provided the relevant formation by the end of 2014.

It pertains to 2015, 2016.

We said that we'll start to grow top line and bottom line, 2017, [after the] momentum going forward.

We are basically outpacing the targets in 2015, and by the end of 2015, we will be able to integrate the Allergan generic business with Teva's business and to provide more insights that pertain to that.

I believe that we'll provide information that meets your expectations.

Thank you.

Next question.

Thank you.

Your next question comes from Umer Raffat.

Please ask your question.

Thanks for taking my question.

I have two.

First one, relatively simple.

Has your house view of CGRP market size changed post the PCSK9 pricing we saw last week?

And secondly on EBITDA, right now my understanding is Teva EBITDA is about $6 billion.

Allergan generics got you about $4.1 billion, so that makes it $10.1 billion.

The slides on Monday mentioned $11.6 billion as being the EBITDA in 2018, meaning between now and 2018, EBITDA goes up something like $2 billion, so I just wanted to understand how you think about the key drivers of $2 billion in EBITDA increase between now and 2018?

So, maybe the first one, Umer, we are okay with $10 billion market at this stage, although we believe that the commercial opportunity is even bigger.

We don't think they are good enough tools today to approximate the commercial opportunity here.

So I believe that over time we'll realize that it goes beyond that $10 billion bar and that's something which is good enough, given also the way we see our position and even leading position in that space.

Michael, you would like to add to it something?

The one way to look about this is think about the number of people with migraine in the United States.

For example, let's just start, [70] million globally, a big, by the way, population in Japan, as well, very frequent.

In the US, around 40 million, of whom 5 million have chronic migraine.

So the important thing in looking at the market size is firstly thinking about the population that suffers from this and secondly the competitive landscape.

Certainly besides CGRP a lot of medications are being poorly taken up, not really providing the efficacy and also with some significant side effects.

So we believe that this whole field will revolutionize the field of migraine, just like statins revolutionized the treatment of high cholesterol.

Then we believe, just looking at the numbers, and also at the present time, the safety of these drugs, early days, but still this has been very safe, particularly for the anti-ligand.

There's always concerns with the receptor about hepatotoxicity.

The market has the potential to be significantly higher than what's stated.

But we will -- obviously lots of studies going on to understand the acceptability, the needs in the patients and not only in the US, but this is huge in Europe and also Japan.

And Umer, on the second one, $0.7 billion from synergies and the rest is coming from the growth of top line and bottom line of the legacy Teva and Allergan businesses.

Tracy, next question.

Your next question comes from Andrew Finkelstein.

Please ask your question.

Thanks very much.

First of all, for Copaxone as a family, if you think about the glatiramer, you can even include the generic, but what have you seen in terms of how that's doing in share of the MS market, as we have seen some changes in growth dynamics for some of the other products.

And then as there is now the three times a week on the market and a less expensive alternative for the 20, does that extend the share that glatiramer takes of the overall MS market?

And then secondly in the generics business, if you look and around the world, there's strong trends in the US and Latin America.

You did note some continued weakness in Japan.

If you would just give us an update on where things stand there?

Thanks.

Mike, maybe you'll take the first one?

Thank you.

Your next question comes from the line of--

Tracy, no, please let him answer the question.

Okay, thank you.

Okay, on Copaxone, what we have seen is that the current market share globally for Copaxone is 24%, and that really is all of the brand.

At the moment in the US, the overall market share for the generic is 1.5% in MS and it's under 5% for the overall Copaxone.

What we have seen over the last three years is actually only a relatively small decline of Copaxone, about 4 market share percentage points in the last three years.

Going forward, also next year, we believe that for the family of glatiramer acetates this is going to remain relatively stable.

The orals have made their in-road mostly at cost of [inter from that].

Also the markets, per se, have grown, so going forward in terms of the glatiramer rates, we think there's not going to be major, major change in the next 18 months or so.

And Copaxone, we discussed it already before there, we have a good position, doctors and patients and also payers seem to continue to support it, but it's very early days to make very firm statements here.

We are cautiously optimistic.

Maybe on the generic competition, where we see it, obviously, one player in the US -- there is generics in Latin America.

In some of the markets in Latin America, not nearly all of them, they are getting some market share, it is a locally packed product.

In Europe, as we mentioned before, we haven't seen approval for generic Copaxone.

Russia, there is a pending approval, but no approval as of yet of generic Copaxone.

And in Japan, the brand hasn't even launched, so I don't expect generic competition in Japan for some time.

So we are following the landscape well on Copaxone, but so far it's a little bit Latin America and in the US where we see generic Copaxone competition.

Thanks.

But if I could just [call it], the question on Japan was actually for your generics business, except for Copaxone?

All right, so for my generic business in Latin America, we are doing well.

We have been affected by FX a little bit in the market.

We have a leading position in Chile and Peru.

We are doing well in Argentina.

In Brazil, it's mainly Copaxone business, so that's how I can link the two together.

And overall, the Lat Am business is good.

It's a branded generic business.

We have been investing in pipeline for the Lat Am market over the last few years, so I'm very pleased there.

In Japan, our profitability is still low.

We are roughly at around approximately 10% operating profit.

If you said, when the overall generics business is at 29% in this quarter, it's very important to turn that around.

The team is focusing on it.

We had the much better launches in June from the Japanese team.

We have our goals in place.

But we are still under in operating profit in Japan where we want to be going forward.

So basically, transforming Japan and entering into a number of key growth markets is high on our priority list.

It is also in line with the five buckets of BD priorities that we shared with the street by the end of 2014 and will execute against it in the course of the next 24 months.

Thanks very much.

Next question.

Your next question comes from Ronny Gal.

Please ask your question.

Good morning.

Thank you for taking my question.

I've got two.

First one on bendamustine.

Rob, can you remind us on the criteria to getting your J-code for this product?

And do you guys believe at this point that you'll be in a good position to obtain a J-code separated from the product, or are you just going to go generic?

The second one is around human growth hormone.

You have this product in this market for a while.

You started Phase III, but you are not mentioning it a lot.

Can you give us a (technical difficulty)?

And if I can in a the third one, the CGRP, any chance for a submission based on the Phase II results in the severe patients?

Rob, please, the first one.

Ronny, I can take your first one.

On the bendamustine rapid infusion, we do expect that we have a good chance to get a separate J-code, but it will be not a time of launch.

It will come a little bit later.

Gives us a beautiful opportunity to differentiate if that happens, which we would consider to be a nice upside to the products.

I'll comment on the albutropin growth hormone deficiency.

Of course, this product is doing well.

We are in Phase III for adults and also Phase II for children.

We are seeing the appropriate response that we expected in terms of improvement of the growth trajectory, also measured by other factors like the ability -- IGF1 levels and both of these studies are proceeding.

Recruitment is good and we are on track.

The exact plan for commercialization of these products is still under deep discussion at Teva, but I would say the enrollment and the conduct of the studies is going according to plan, with us already seeing significant impact on some of the end points just by seeing the growth trajectory of patients.

So this is a study that is going very well.

Of course, it's a long-acting growth hormone, so it's going to change.

It does have significant benefits for patients, but we have to wait the results of these particular studies.

On CGRP, again, this is obviously going to be a discussion with the FDA.

The results in chronic migraine for such a disabling condition amongst -- compared to quadriplegia and dementia, and above blindness and paraplegia, so this is very significant.

The results were profound, and of course, part of the discussion will be how quickly can we get this to patients?

But at this point, I don't think anybody can predict.

Certainly, it's most likely that the FDA will require a Phase III study that continues to confirm benefit.

Importantly, as part of the study, we do have a dosage, so for us, compared to the competitors, our dosage is sorted out, single injunction at the moment monthly, 275 milligrams.

And that's also helpful to have a minimum dose that really is already established and at the moment given monthly.

Thank you.

Next question.

Your next question comes from the line of David Risinger.

Please ask your question.

Thanks very much.

Sorry my cell cut out before.

I have three questions.

First, with respect to your CGRP, it seems like this is a product that should get breakthrough therapy status, and once you file it, priority review, but Michael, I was hoping that you could comment on those possibilities?

And then second, when do you plan to provide a comprehensive R&D update?

And then finally, with respect to Synthon, it may be launching soon in Europe.

Can you just update us on the timing of when Synthon can launch?

And then separately, what your expectation is in terms of Synthon launch timing?

David, I'll start, and the update will be held before the end of the year.

Michael, CGRP?

On CGRP, we are very hopeful for priority review, but we don't know that yet.

On breakthrough therapy, whilst this product does have all the criteria that would meet it, generally, the FDA is asking for an active comparator as part of this, which we did not have.

We did not expect to get and we recognize that without that comparator this becomes a very difficult discussion.

So we expect priority review.

We will not get breakthrough status.

And with regard to Synthon, of course, we have been talking a lot about our own product to regulatory authorities all over Europe and there's been tremendous reception.

Synthon and Copaxone are quite different in terms of their impact, for example, on various pathways and also in terms of the protocol-defined end points, these were not fully adhered to.

I'm not going to make predictions about when Synthon and where it might be approved in Europe, but I would say that certainly the regulatory authorities are very interested in learning about the scientific issues around Synthon and its comparison to Copaxone and these discussions have been undertaken.

Thank you.

Rob, you'd like to add something here?

No, Michael said it well.

It would be pure speculative.

What we know is Synthon doesn't have registration as of yet and having seen their data, it doesn't surprise us.

Then we are really convinced that in Europe we have a very strong position with 40, three times a week, and our 20.

In none of our models Synthon would play a major, major role going forward, but speculation on the timing, I don't think we should do.

Next one.

Tracy?

Thank you.

Your next question comes from David Maris.

Please ask your question.

Just a couple questions.

First, Erez, you had said in your earlier comments that you have been meeting with investors lately and they have been widely supportive and that seems to be evident with the stock.

But maybe has there been any consistent misperception or any pushback and what is your answer to that then?

Secondly, the other night at the analyst Q&A, someone had asked about the price.

You gave a very detailed answer on how this feels actually cheaper than the Mylan deal.

Maybe f you could run through that again?

And then lastly, for Siggi or Erez, it seems like you've eliminated the biggest risk to any major M&A with this transaction, in that you know what you're buying given Siggi's long tenure there, just a year ago.

What do you think is -- what is the next biggest risk factor, if we're looking back on this in a couple of years of if things didn't work out.

What are the biggest challenges to a successful integration, eliminating that other risk?

Thank you.

Thank you, David.

Let's start with the price.

First, it's a fair price, and given the nature of the process, I believe that it's win/win to both parties, as was reflected by the stock performance on day one.

But to dive more into detail there, $2.7 billion is the EBITDA of Allergan generics in 2016 and we provided a number which basically implies less than 15 times EBITDA [margin] for the acquisition.

The $82 per share for Mylan implied 15 times EBITDA before [running the price].

So, that's one.

Number two, look at the economics that are emanating from the transaction.

Year two, more than 20% EPS accretion, year three, more than 20% EPS accretion.

Look also at ROIC and when you look, basically tells it us a very convincing and compelling story about, about how fair is the price that was paid there.

And when you compare it also to comparison transactions in the space, I believe that you will find out that also here that's a fair price.

On reflections from investors, there is no push back.

The converse is true.

People ask us about time to completion.

People ask us about the process with the anti-trust authorities.

People try to understand how fast we can integrate the business.

People ask us about how fast we can expect the benefits from the business.

People ask us about what is our strategy in genetics, an important discussion by the way, why we believe we can basically develop here a Company that is able to lead and transform the generic space, but these are questions are coming from investors.

There is no pushback.

The converse is true.

So David, on the integration, yes, it's true.

We're in a special situation of knowing both companies very well.

First of all, on the Allergan side, it's a good team, known them for a long time.

They have done great building up the company.

But also keep in mind, Teva has an outstanding team.

If you think about the generic team at Teva, they have improved the profitability of the Teva generic business by approximately 1,100 basis points in two years.

So I want to say we have amazing teams, two of the best teams in the industry on both sides.

But this is also the biggest risk in the integration because we need to retain the best talent.

We are offering here amazing opportunity.

This will be the fastest growing generic company in the industry.

We are changing a little bit the dynamics of the generic industry with this new company.

So we are offering a great challenge.

But to me, for this to be a successful company, we need to have the best teams.

We need to have the winning teams both from Teva and from Allergan generics because, yes, we are buying [tablet presses] and files and things like that, but at the end of the day, the success of this position and of this integration is the human capital.

We are taking this very seriously.

We have already kicked off on both sides because we need to focus also on the Teva side, but the Allergan side is very important.

We have kicked off this part of the preparation for the integration already, this week, same day we signed the deal and even before.

This will be a key focus because people are the essence of the company going forward.

Okay.

Thank you very much.

Thank you.

The next question comes from the line of Greg Fraser.

Please ask your question.

Good morning.

Thanks for taking the questions.

It's Greg Fraser on for Gregg Gilbert.

My first question is on laquinimod.

Given the possibility that laquinimod could be an ideal add-on therapy to current MS drugs, do you plan to start combo studies at some point, and if so, what other drugs would you include in such studies?

And then on your NTE pipeline, the last time you discussed projections for the pipeline, you predicted risk-adjusted sales of $1 billion to $1.5 billion in 2018 and $3 billion in 2020.

The question is, are those goals still intact?

Thank you.

Thank you, Greg.

Let me comment on laquinimod.

Laquinimod is a really remarkable drug, neuromodulary, so it's not an immunosuppressive, but it restores all the disturbed features of inflammation, and particularly, immune regulation that are disturbed, for example, in diseases like MS, restores them to normal without immunosuppression, so these studies are ongoing.

The relapsing remitting study, we've said, has completed enrollment Phase III, and we expect to have a full readout in about the second quarter -- before the end of the second quarter in 2017.

Also to say, we are -- laquinimod -- and certainly, even though the animals' models are not great, but certainly in the best animal models there are, and also recent publications in the marmoset, which just is out about a week ago, lauquinimod also -- and these are forms of more progressive MS -- laquinimod has had very significant effects.

We're also looking and have an ongoing trial Phase II of laquinimod in progressive MS, which should read out around the same time as relapsing remitting.

With this major impact on -- and the major impact of laquinimod is on disability, quality of life, and disability progression.

It does have impact on inflammatory processes, too with regard to relapse, but the major impact, and certainly in our study on Phase III, this is -- the FDA has changed the rules of the game, first time, putting disability and disability progression as one of the end points of this study through a special protocol agreement with the FDA.

So this is playing to laquinimod's strengths.

Of course, with this process and this model in place, there is still room for combinations with another drug that would have impact more on relapses and be stronger on relapse without having some of the big effects on brain atrophy and disability that laquinimod has.

So we, of course, are looking at different combinations, and of course this here Laquinimod (technical difficulty) to [oral] therapy and when we've made that decision, hopefully be this will really something we tell The Street.

But you can imagine, we're looking at oral therapies.

Obvious targets are various agents or something like them that have impact on various targets that already have shown to decrease relapse in this particular disease.

Now I've forgotten the second part of the question.

The other question was on the NTE and our projection for that.

What we can say is we don't have any update at this point in time.

But if we have, we would come to The Street with it.

Let me just give you, the NTs are a big part of our pipeline.

We really prefer to think about innovation using existing molecules, but the innovation takes multiple forms.

It takes, of course, reformulations, different fixed combinations, as well as even approaches to packaging.

Important to note that, for example, we have 11 NTEs by the end of this year.

We have 11 NTEs in Phase I, from period of starting this particular program in 2013.

Of these, six are going to go straight to submission, because we need bioequivalence studies.

Of these 11, five are going straight to Phase III, so no Phase II studies needed, and these are all going to be submitted on the 505(b)(2) pathway.

And the NTE -- this particular program is very much intact, and important to note that with the acquisition of Allergan generics, we will have a bigger pipeline and a bigger number of molecules from which to think about novel combinations, novel ways to deliver, to create value for patients.

So this program is very much part of our early pipeline and will continue to be enhanced as we look at other innovations in the space between both the generic and the specialty side as we can build and focus on creating value for patients and the healthcare systems that we serve.

Next question.

Thank you.

Your next question comes from the line of Marc Goodman.

Please ask your question.

Good morning.

First, Siggi, I know you are specifically giving up a lot of top line in Europe to improve profitability.

So first is can you give us a sense just for the full year, how much revenue do you think you're going to be giving up?

And after this year, will we be done with that and you'll be of stabilized and back to more growth in Europe?

And how has the profitability improved?

You send the press release it's improved.

Can you give us a sense?

And second question is, there was an earlier comment about Copaxone and not expecting much competition on the branded side anymore.

I was a little curious about your thoughts on the Roche product, which had data that came out recently?

And then lastly, if you could just talk about Canada.

You specifically mentioned Canada was weak?

Thanks.

Yes, let me start on Europe.

First of all, Europe in -- the only decline in revenue in Europe was FX.

They in fact, increased in revenue in second quarter, so we are getting to a stable environment.

We declined a little bit in first quarter, but our estimation is we are increasing slightly in revenue in Europe.

Obviously, it's difficult to say what the FX will do for the second half of the year, but we don't see any further [cresting] of the pipeline.

We have the right mixture.

Europe is ahead of schedule in improving their business.

Their operating profit alone in Europe has improved over 1,000 points, so proportionately in the overall generic business in Teva, the European business has outperformed.

The three markets for stars for me this quarter are Germany, again.

I mentioned Germany also in first quarter, but Germany again has done extremely well.

Very pleased with the business.

Our Italian business has improved enormously and is one of the leading businesses in Europe now.

And again, UK has been doing very, very well in our business in Western Europe.

So Europe is really getting to the point, and this is what we are saying.

This is why the combination with Allergan is so interesting that we see a growth on the top line because we have basically -- we are ready with our own business to integrate with the Allergan business to start to see a growth in the top line because we really are at the right profit level.

If I also take the Canada question, there was a dip in our Canada results in second quarter.

Part of that was a one-off item.

We changed a little bit our return policy, so we had to accrue more for return, simply due to what was in the pipeline.

So part of it was a return.

The second part of the one-off was a settlement with one of our customers, where we had to take a write-off.

This was something we had on our books and we closed the settlement.

The underlying business was a tiny bit weaker due to weaker sales.

We saw destocking in the major companies in Canada.

[Marksans] lowered their inventory in Canada in second quarter, but overall, the business itself, the launches are doing well.

For the second half of the year, we assume to be back in business in Canada.

We saw this more as a one-off for our Canadian business and they are doing very well.

On the MS, Michael, you would like to comment?

I would just say, the Roche study, Phase III, very interesting, an excellent response.

This is due to focusing on another mechanism in multiple sclerosis, B-cell depletion.

It's acting on this particular target and I would say this is great for patients.

It's another approach to looking at ways to modulate the cause of the illness.

Of course at Teva, we are very interested in exploring, in development, other approaches to moderate and modulate the cause of the illness.

But I would say the Roche results are great for patients, great for systems, in that they do have some impact and it explores a totally different mechanism, which is B-cell depletion.

Of course, we're exploring other mechanisms as new data on MS and the pathogenesis and the pathways involved in MS play a role, so we're very deeply in this place, but we see this as a validation of another target in MS, B-cell depletion.

Last question.

Thank you.

Your next question comes from Doug Tsao.

Please ask your question.

Hi, good morning.

Thanks for taking the questions.

Siggi, on the generics business, the operating margin improvement has been quite dramatic for the US business.

Just curious, if we normalize for the launches of NEXIUM and ABILIFY, how much improvement have we actually seen or how much did [weed] get us some excess rent in this quarter, because by my math, you are up 800 basis points on a year-on-year basis, but where are we on a current run rate if we think about those launches?

Yes, so we quickly looked at what we have to be careful of NEXIUM and aripiprazole are really not one-off.

Especially when you look forward, when we have a combined pipeline, of 110 first-to-files and 320 ANDAs, new launches will not be one-off.

They will be our business and the main part of the business model.

But to answer your question directly, we probably will be around 26%-plus operating profit.

This is why we are very comfortable with our goal of 27% for the year.

We are not raising that.

We obviously need to focus on the business.

But we are really, Doug, we are getting the generic business where we want it to be.

Improvement of about 1,000, 1,100 basis point over two years.

But the rate without these two products is probably around the 26%-plus operating profit without them.

Okay.

Great, thank you.

And then just in terms of Japan, one of your major competitors is taking a little bit of a different model in terms of a partnership with a large brand company.

I know there are a lot of unique dynamics in that market.

Have you ever thought about dramatically changing your go-to-market strategy there?

Yes, we think about all the options we have.

We obviously are doing this alone.

There's a challenge in Japan.

First of all, the Japanese market, you have to keep in mind that the operating profit of our competitors is not in the 30%s.

The operating profit of a good generic company in Japan is around 20% in the low 20%s.

So, we are about half-way there.

We need to do better.

But we are very open minded how we can improve our business.

Japan is a very important market to us.

We think Japan utilization of generics is growing faster in Japan than any other market around the world.

Teva has invested significantly in the pipeline.

We are launching on average about 10 products per year.

So we have all the indicators to do a good business and we are very committed to turn this around.

Okay.

Great, thank you very much.

Thank you.

I would like to turn the conference back over to Erez Vigodman for final comments.

Thank you, everyone, for joining us today, and I look forward to continuing the engagement with you as we make progress with the transaction.

Have a good day.

Thank you.

That concludes the conference for today.

Thank you all for participating.

You may all disconnect.