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Executives

Kevin Mannix – VP and Head, Global IR

Jeremy Levin – President and CEO

Eyal Desheh – Group EVP and CFO

Michael Hayden – President, Global R&D and Chief Scientific Officer

Allan Oberman – President and CEO, Teva Americas Generics

William Marth – President and CEO, Americas

Bob Koremans – President and CEO, Europe

Analysts

Elliot Wilbur – Needham & Company

Ken Cacciatore – Cowen & Company

Louise Chen – Guggenheim

Randall Stanicky – Canaccord

Marc Goodman – UBS

Jami Rubin – Goldman Sachs

Chris Schott – JPMorgan

Ronny Gal – Bernstein

Gregg Gilbert – Bank of America Merrill Lynch

David Buck – Buckingham Research

Shibani Malhotra – RBC Capital

Teva Pharmaceutical Industries Ltd. (TEVA) Q4 2012 Earnings Call February 7, 2013 8:00 AM ET

Operator

Welcome to the Teva Pharmaceutical’s Fourth Quarter and Full Year 2012 Results Call. My name is Dawn and I will be your operator for today’s call. (Operator Instructions) Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Kevin Mannix, Head of Investor Relations. Kevin, you may begin.

Kevin Mannix

Thank you, operator. Good morning, and good afternoon, everyone. I’m joined today by our President and CEO, Dr. Jeremy Levin; our CFO, Eyal Desheh; Dr. Michael Hayden, President Global R&D and Chief Scientific Officer; Allan Oberman, President and CEO of Teva Americas Generics; Rob Koremans, President and CEO of Teva Europe; and John Connolton, Senior Vice President Global Medicines. Jeremy will begin by providing an overview of the highlights from the quarter and year followed by Eyal who will then provide additional details on our consolidated financial results. We will then open the call for a question-and-answer period, which will run until approximately 9:00 a.m.

Before we start, I’d like to remind you that our discussions during the conference call will include forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of foreign currency translation effects, macroeconomic trends, interruptions in our supply chain and other factors that could cause actual results to differ as discussed in Teva’s report on Form 20-F and Form 6-K.

Also we are presenting non-GAAP data which excludes the amortization of purchased intangible assets, costs related to certain regulatory actions, inventory step-up, legal settlements and reserves and impairment and related tax effects and these are amounts we cannot predict at this point. As mentioned in the past we present these non-GAAP figures to show you how we the management team and our Board of Directors look at our financial data.

With that, I’ll now turn the call over to Jeremy. Jeremy, if you would, please.

Jeremy Levin

Thank you, Kevin. Good morning, everyone in the USA and good afternoon for those in Europe and thank you for joining the call today to discuss Teva’s fourth quarter and year-end 2012 results. 2012 was a year in which we assessed our business, identified key areas of opportunity and built an important new business strategy. We enter 2013 enthusiastically with a refined business model an expanded and engaged leadership team and a culture, which encourages and rewards innovation. We are constantly of course mindful of our commitment to patients, customers and shareholders and we’re optimistic and dedicated to deliver on these commitments.

I’m particularly pleased to announce today that Teva’s Board of Directors elected to increase the company’s quarterly dividend by 15%. This increase in our dividend reflects the Board’s and management’s optimism about the future of our business and Teva’s commitment to reward our shareholders. Additionally, as you may have noticed we repurchased approximately $0.5 billion of our stock in the fourth quarter for a total of approximately $1.2 billion in 2012.

Overall, we returned over $2 billion or 58% of our free cash flow to our shareholders in 2012 through dividends and share repurchases. Teva remains committed to invest in the future of our company. Today as part of our reshape program announced late last year we are announcing our intention to sell our injectable manufacturing facility in Irvine, California. Our desire is to supply more of our products from our more cost-effective locations thereby beginning to optimize our entire network. We currently have five FDA approved sterile manufacturing sites from which to supply product including our new state-of-the-art facility in Godollo, Hungary. Our goal is to sell the Irvine plant to a buyer with a strategic long-term interest in the facility who will continue to manufacture for Teva as we work towards moving these products other locations in our network.

Looking ahead, we will leverage our strengths, which provide an unprecedented geographical reach, world-class manufacturing and distribution capabilities and pricing flexibility with a balanced and integrated approach in both generic and patent protected medicines. Teva is and will continue to be an integral part of the global healthcare system.

Today, as we report our fourth quarter and year-end 2012 results we have a stronger, more competitive and differentiated R&D pipeline. This exemplifies our commitment to both short-term and long-term growth. Our strategy emphasizes management of our business for profitability and sustainable profitable growth. We will use an aggressive business development strategy as a key driver to build a robust pipeline and expand and extend our core franchises. In addition, we have a firm commitment to returning shareholder value. I strongly believe these components provide a platform for Teva’s growth in the short term as well over the next decade. With our strategy in place we have a very intense focus on execution, excellence and performance.

Now let’s move on to our financial results. Overall, we had a strong revenue performance and are pleased to report our revenues of $20.3 billion and non-GAAP earnings per share of $5.35 for the year both in line with the guidance we provided in May 2012. Our performance for 2012 was driven by several factors. Copaxone continues to lead the market in sales and market share with $4 billion in annual sales of approximately $1.1 billion for the fourth quarter. While we anticipate a potential approval and launch of the competitive product in the MS space, we expect Copaxone with its well-established safety record, efficacy, favorable side effect profile and deep, clinical experience to maintain its market leadership position in relapsing remitting multiple sclerosis. We continue to enhance and expand the Copaxone franchise with our 3TW, otherwise known as a three times a week, 40-milligram dosing with the submission plan for March of this year with the FDA.

Year-over-year, U.S. Generic sales increased $424 million supported by the launch of 23 Generic products in 2012. And we expect to launch a similar number of products in 2013. I’m excited about our U.S. Generic business as its overall performance and market share continues to improve in 2012 following a decline in 2010 through 2011. Europe performed well and in line with our expectations as it executed on our selective approach to win and maintain sustainable business. Despite pricing pressure and destocking in 2012, the vast majority of the markets have maintained or increased their performance. Our full-year Oncology revenues increased by $592 million from 2011 to $860 million for 2012. We also saw strong year-over-year total prescription growth for both ProAir and QVAR versus 2011.

During the fourth quarter of 2012, Teva Respiratory achieved the number two position of dispensing scripts amongst branded Respiratory companies in the U.S. Additionally in 2012, Teva launched Qnasal, Sinrivo, ProAir dose counter and Clozapine ODT.

Teva’s OTC business is important to our future. Given global trends in demographics we strongly believe this a growth engine for the company. We see our partnership with Procter & Gamble through our joint venture PGT healthcare as a key enabler. And I’m very pleased with the performance it has demonstrated to date. During 2012, we also continued to advance our Biologics program both internally and through our alliance with Lonso. We look forward to building on this area in a careful and focused fashion.

In 2012, our business in Eastern Europe, Middle East, Israel and Africa provided record sales and strong growth in all business units including MS, OTC and Brands. Additionally, we are committed to aggressively competing in Japan and in South Korea with our business venture with Handok. We continue to strengthen our capabilities in these regions underlying our commitment to provide our medicines to patients in these markets. We will utilize and build on Teva’s core capabilities and geographic reach to drive the future growth of Teva. At the same time, we will address unmet patient needs in a highly differentiated way with novel programs of product development. To do this, we’re committed to a selective and disciplined approach to business development as well as pursuing innovative R&D programs including new therapeutic entities.

I’m very pleased to say our NTE program has progressed well. Thus far we’ve identified four products for development in therapeutic areas including HIV, Anti-Psychotics, Pain and Metabolic diseases and we expect to have 10 NTEs approved for development by the end of 2013. These NTE’s target unmet medical needs in large and expanding global markets with billions of dollars of potential.

We’re very excited about the differentiated R&D in clinical capabilities we’ve brought together. A focused therapeutic strategy combined generic and patent-protected R&D with a broadly enhanced team under the leadership of Dr. Michael Hayden. This includes Dr. John Connolton in the newly created position of Chief Medical Officer. John has successfully overseen hundreds of clinical trials and provides Teva with an outstanding clinical development capability. We will use all these strengths to identify and develop products that change health care for patients and customers around the globe and continue to provide long-term shareholder value.

As part of our commitment to build a focused pipeline of novel medicines in select areas of medical need, I’m delighted with the initial progress we’ve made in our business development efforts to bring new opportunities incident Teva’s pipeline through our Constellation strategy. I’m excited by a recently established collaboration with Xenon to address CNS and pain disorders and our purchase of Antexol for the treatment of Huntington’s disease. These programs are merely the beginning of securing innovative science within our CNS Constellation. Our commitment to enhance our pipelines disciplined and strategic business development will generate many exciting compounds to build on this and other constellations.

In addition to this, we note that laquinimod continues to be an exciting potential therapy for patients with relapsing remitting multiple sclerosis. In addition, we’re encouraged by the data we’ve seen in other therapeutic areas where we’ve used laquinimods, such as Crohn’s disease. Teva continues to identify innovative ways to build our pipeline in addition to our business development. This includes unique ways of working with Academia. Last week we formally launched Teva’s National Network of Excellence in Neuroscience or NNE, encompassing all Israeli universities and medical centers. This unprecedented partnership between Teva and this academic community holds a potential to generate research, which will lead to new an important medicines.

As we entered 2013, the hard work and diligence to reshape the company has positioned Teva extremely well to bring new medicines to patients in need. And I look forward with great expectation and enthusiasm into 2013 and the years beyond. We believe 2012 results demonstrate a strong and disciplined business focus and are significant accomplishments considering that they were achieved in the midst of extensive planning to reshape the company in uncertain global economy in an ever-shifting healthcare landscape. And while we assembled and integrated a new management team, it’s quite obvious to any who see us that the Teva management and organization are energized, focused and excited about Teva’s future and the opportunities ahead.

But it’s not just the management. I would like to recognize particularly the dedication and contribution of the 46,000 employees around the world who work to reshape Teva. I’m extremely confident the course we have set is the right one and will yield real value for patients, customers and shareholders while ensuring the long-term sustainable growth of our company.

I’ll now turn the call over to Eyal who will take you through the details of our financial results. And after that, we’ll open the call for Q&A. Eyal, over to you.

Eyal Desheh

Thank you, Jeremy, and good morning, everyone. We’re pleased to share with you today our financial results for the fourth quarter and full year 2012. As we’re committed on doing, we provided extended information in our press release, which I hope you have all had a chance to read this morning. And then we’re going to touch on some highlights mainly as they relate to the fourth quarter and then some brief comments on 2013.

Looking at our consolidated results for 2012, revenues reached an all-time high of $20.3 billion, an increase of 11% compared to 2011 while our non-GAAP earnings per share rose 8% to $5.35. Our results this year benefited from the inclusion of a full year of severance sales as well as strong performance by our U.S. and rest of the world Generic, Copaxone franchise and OTC business. This was achieved despite a very challenging year-over-year comparison for the fourth quarter of 2011, which was very unique.

Before delving into the numbers, I would like to touch on two items. First, I would like to highlight that this quarter we remained relatively high number of onetime charges totaling $822 million after-tax which we adjusted to our non-GAAP results. This includes impairment of $495 million of which $145 million or $109 million net of minority interest resulting from the termination of the agreement with CureTech as part of the ongoing review of our R&D portfolio as well as various impairments of other research and development project and manufacturing facilities of which $98 million was regards to our facility in Irvine that we are planning to divest. These charges represent initial steps into our new strategy. Our adjustments also include the completion of the restructuring of Cephalon in France which is the last portion of the Cephalon integration.

Furthermore, we’ve excluded in our non-GAAP presentation of results amortization of purchased intangible assets totaling $284 million. Accordingly, non-GAAP net income and non-GAAP earnings per share for the quarter are adjusted to exclude these and certain other items outlined in our press release.

Second, exchange rate differences had a negative impact on revenue this quarter and for the full-year of 2012. Compared to the respective period in 2011 these differences reduced our revenues by $50 million this quarter and $572 million for the year while having a minor positive impact on operating income. The reduction in revenue resulted from the weakening of certain currencies primarily the Euro relative to the U.S. dollar.

Moving on now to our fourth quarter results. We are reporting net revenues of $5.25 billion, a decrease of 8% compared to the fourth quarter of 2011. This decrease and the overall challenging quarter-over-quarter comparison was largely driven by the anticipated effect of Provigil going off patent coupled with the significant launches we had in the fourth quarter of 2011 primarily on the generic version of Zyprexa and our agreement with Ranbaxy relating to its launch of Generic Lipitor. If we eliminate the effect of Provigil organic sales were flat compared to the fourth quarter of 2011.

Let me move on now to review our revenues by product line and geography. Several generic medicines this quarter were approximately $2.7 billion including API sales, the third-party of $202 million, an increase of 11% compared the fourth quarter of 2011. This decrease is mainly due to the result of generic’s impact as well as a significant launches we had in the U.S. in the fourth quarter of 2011 which were only partially offset by new launches we had during 2012 and in the fourth quarter in particular. Overall we had 23 new generic launches in the U.S. throughout the year.

Turning now to our specialty business we had a $2.1 billion of revenues this quarter, a decrease of 7% compared to $2.3 billion in the fourth quarter of 2011. This decrease resulted from the loss of exclusivity on Provigil which was more than offset by strong sales of some of our other specialty medicines mainly Copaxone, Treanda and AZILECT.

Finally, to our OTC business in which we see significant progress made. Net revenues in the quarter were $269 million, an increase of 24% compared to $217 million in the fourth quarter of 2011. This growth is primarily due to strong revenues and share gain in all key markets including Europe, Russia, Latin America and Israel. The successful launch of Vicks in some of these markets as well as the sales of OTC product in the U.S. to Procter & Gamble.

Turning next to profit margin and operating expenses. Non-GAAP gross profit margin was 58.7% in the quarter compared to 60.7% in the fourth quarter of 2011, a decline also attributable with the loss of Provigil and certain U.S. generic products. As we started doing when we last provided guidance for 2013 on November 30 we have included in our press release a table breaking down gross profit margin and other margins by our major product lines, which we are certain you will find useful.

For our operating expenses we saw a relatively minor increases in our overall spend in all three major expense lines, which I will walk you through. Non-GAAP net research and development expenses totaled $374 million or 7.1% of revenues compared to $371 million or 6.5% of revenues in the fourth quarter of 2011. The increase in R&D spending primarily reflects the progress and development activities by our new integrated R&D organization. Non-GAAP selling and marketing expenses totaled $1.043 billion or 19.9% of revenues in the quarter, a modest increase instead of $18 million compared to $1.025 billion or 18.1% of revenue in the fourth quarter of 2011. The increase was primarily due to the take back of Copaxone in Europe as all sales and marketing costs are now paid by us. Partially offset by exchange differences and lower royalty payments made on generic medicines in the U.S. G&A expenses totaled $318 million this quarter or 6.1% of revenues, a small increase in spend compared to the fourth quarter of 2011.

Moving onto our non-GAAP operating income for the fourth quarter, which totaled $1.350 billion or 25.6% of revenues, a decline of 22% compared to the fourth quarter of 2011. The decrease is primarily the result of a loss of exclusivity on Provigil coupled with lower revenues from new generic launches in the United States and partially offset by higher sales of Copaxone. The overall split of operating profit before G&A expenses between our main lines of business for the quarter is as follows: Global Generics 30%, multiple sclerosis 44%, other specialty brands 21%, OTC and other businesses 5%. For the full year of 2012, the split is as follows: Global Generics 30%, multiple sclerosis 42%, other specialty brands 25%, OTC and other businesses 3% of total company operating profits before G&A.

The provision for non-GAAP tax in the fourth quarter of 2012 was $80 million on pre-tax, non-GAAP income of $1.2 billion. This compared to $239 million on pre-tax, non-GAAP income of $1.7 billion in the fourth quarter of 2011. For the full year of 2012, our annual tax rate is 12.3%, slightly higher than the one for 2011. Our tax rate for the quarter and the year was primarily affected by the type and location of production of our product mix. Non-GAAP net income and fully diluted earnings per share for the fourth quarter were $1.14 billion and $1.32 per share respectively, down 19% and 17% compared to the fourth quarter of 2011 affected by the same reason I mentioned before.

Cash flow from operations and free cash flow for the fourth quarter and the year was at an all-time high. During the quarter cash flow increased by 10% to $1.6 billion. On the full year of 2012, cash flow from operations increased 11% to $4.6 billion. Free cash flow, which and excludes capital expenditures and dividend also increased this quarter by 8% to approximately $1 billion, and for the full year, it increased 16% to $2.7 billion. The increase in cash flow in the fourth quarter mainly reflects strong collection resulting in a decrease in the level of receivables. Cash and marketable securities on December 31, 2012 amounted to $3.1 billion including $1 billion used for redemption of notes in January.

During the quarter, share repurchases totaled approximately 12.7 million shares for an average cost of approximately $0.5 billion. In 2012 we repurchased 28.1 million shares for approximately $1.2 billion as part of the $3 billion share repurchase plan was authorized in December, 2011. During 2012, we have returned approximately $2.1 billion in cash to our shareholders, representing 46% of our cash flow from operations or 58% of free cash flow before dividends.

Furthermore, we announced today a 15% increase in our quarterly dividend to 1.15 shekels per share or approximately $0.31 per share. All this put together strongly demonstrates our ongoing commitment to rewarding our shareholders.

Looking to 2013, we remain confident with full-year 2013 guidance, which we gave on November 30. The quarterly development during the year will have more sales in the second half that the first half of the year. Expenses will be more front loaded as we continue to build and enhance our R&D investment, and in addition, invest in sales and marketing in preparation for launches of new products later in the

year. We expect the expense level of R&D and SG&A in Q1 2013 to be similar to those of Q4 2012. We will have course continued update you on our progress throughout the year.

This concludes my prepared remarks. Thank you all for your time and attention this morning. I would now like to open the call for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Elliot Wilbur from Needham & Company. Please go ahead.

Elliot Wilbur – Needham & Company

Thanks. Good morning, and good afternoon to everyone. First question is with us respect to the top line outlook in 2013 for Copaxone sales specifically, obviously a lot of movement and new dynamics in that marketplace. But I guess given the strong performance the product over the past couple of quarters and what we’ve seen thus far in 2013, with respect to the uptake of the new oral agents, anything you can say in terms of maybe providing a little bit more of a tilt one way or another in terms of the previously provided guidance range of $3.7 billion to $3.9 billion?

Certainly it would seem like at this very early juncture the bias would be more towards the top end of the range, and I’m just wondering if in fact, what you’re seeing if you would feel similarly? And then as a follow-up with respect to their Irvine facility, I’m assuming that’s basically disposition of probably what is your highest cost facility in the whole system, but is there anything that position says with respect to your ongoing commitment to the U.S. injectable generic market? Thanks.

Jeremy Levin

Elliot, good morning. This is Jeremy. Thanks for the questions. I’ll take them. both. What I’d like to do is touch on the Copaxone first of all, and then secondly, had that over to John Connolton, who is on the line with you. And then what I’ll do is I’ll talk about Irvine.

So with regard to our guidance for 2013, we’re confident of our guidance. It’s very difficult to read into how the orals will play out through the FDA, but we are extremely confident of the safety and efficacy of Copaxone. We know the patients speak to us about this, and from our perspective this is a great medicine. So we’re confident of our franchise.

With regard to – John in a minute would you come back and flesh that out a bit for Elliot? With regard to Irvine, as you know, we committed to $1.5 billion to $2 billion savings over the next four years. My view on this is this program has been initiated. We are doing this in a very systematic and thoughtful fashion. We are very encouraged by what we’ve seen. We’ve mapped out where we would like to start. We’re not necessarily picking on the highest cost or the lowest cost. We’re picking on the most effective steps, and we hold to the guidance that we’ve given to the Street on that.

With regard to the commitment to be injectables arena, we have a complete commitment. This is not something that is changed one bit. So can I just ask you, John, to make a couple comments on Copaxone?

Eyal Desheh

Yeah, Jeremy. I’d be happy to. Jeremy, as you noted the profile of Copaxone is really what has really propelled it to the market-leading position it holds right now. We sell our exit share in the United States in the fourth quarter still of the 40% mark which speaks very significantly to how the customer base patients, physicians and even payers are valuing that profile of really unsurpassed long-term efficacy and safety. We’re obviously still committed to the brand with significant investment behind that both in the commercial support of it as well as focused on patient needs to ensure that if they and a physician choose Copaxone as their therapy, we do everything in our power to help them do that.

As Jeremy said, we don’t have any reason to change the guidance. We’re obviously planning conservatively. Elliot, as you noted it’s a very dynamic time in the MS space, but what hasn’t changed is what patients are looking for, and that is to safely manage this disease and give them a sense of predictability. Copaxone certainly does that, and we’re excited to continue to offer that asset to the MS community.

Operator

Thank you. Our next question comes from Ken Cacciatore from Cowen & Co. Please go ahead.

Ken Cacciatore – Cowen & Company

Thanks. Just a couple questions. First, Jeremy, I think I’ve been able to ask you, why such an aggressive citizens’ petition against BG12? It was interesting. We just haven’t seen a company kind of go after it, so to speak, another filer on an NDA? So I just wanted to understand some of the kind of internal thinking as to why you didn’t just have private interaction with the FDA? And

then also at the Investor Day you mentioned that there could be a publication for a comparison of Copaxone versus a purported generic, where Copaxone down regulates whereas the purported generic up regulates. I was wondering where that stands if you are now willing to tell us who that generic is? Or if all of the generics maybe have that same component? Thank you.

Jeremy Levin

Ken, with pleasure. What I’d like to do is first of all just quickly touch on the Citizen’s Petition, and then secondly, Michael Hayden will comment on the generic publication.

With regard to the Citizen’s Petition, it’s not really specific to any one particular medicine. It’s actually as you’ll note in that we are actually quite open ourselves to having a review of our product, and of course we have several which are coming along. So the fact of the matter is, we’ve noticed in the past every time a product has been launched there have been subsequent problems with the product. Now what we’re concerned about is that we never having had a very, very substantial interaction over the last 20 years with patients.

We know about the safety of our product we know about the efficacy of our patient. Physicians know the same. In order to assess similar safety, we believe the appropriate fashion and appropriate approach for any of these new orals or other types of therapies coming onto the marketplace, they need to go through a very appropriate type of review. And I think you seen the results were in fact, some of these products have come to the market and there have been subsequent problems. It’s a question of taking something from a clinical trial and then walking it into a public setting where you have thousands of patients who actually now face exposure to the medicine. So from our perspective that’s one.

The second point is Citizen’s Petitions are a normal process. I suggest that if anybody were to look at this you’d find that there are many, many, many such applications. The FDA has been kind enough to provide a mechanism whereby we can all of us provide them with information that we see is appropriate.

Now can I just had over to Michael to talk about the publications. Michael?

Michael Hayden

Thank you. This publication is submitted and under final review. We expect it to be accepted for publication in a well-established journal in the next few weeks. So – and as we delivered to you on the Investor Day, it highlights the differences in the activation of certain genes with Copaxone compared to some other generic product. More details on the manuscript will be readily available once the manuscript is in press.

Ken Cacciatore – Cowen & Company

Great. Thank you.

Operator

Thank you. Our next question comes from Louise Chen from Guggenheim. Please go ahead.

Louise Chen – Guggenheim

Hi. Thank you for taking my questions. My first question is on new G-CSF launch in November, are you expecting authorized generic? And then secondly, on the sale of your Generic Injectables business, what is the timing behind that and how much do plan to sell that facility for? Thanks.

Jeremy Levin

Good morning, Louise. I think what I’d like to do is ask Allan Oberman if you could perhaps respond?

Eyal Desheh

Yes. Good morning. Thank you very much for the question. I think it’s important to clarify that we’re not selling our business. What we are doing is looking for a buyer for the facility. We have five other FDA sterile injectable facilities within the Teva network. During the remediation process of Irvine we’ve been developing products in many of those sites and we’ll commercialize products for the U.S. market from those sites. So as Jeremy said earlier we are fully committed to the generic injectable sterile business here in the U.S. We will remain as leaders in that market and all we’re doing at this particular moment is looking for someone to buy the facility, continue to supply a string of transition period and perhaps longer than that as we continue to develop our business here in the U.S.

Operator

Thank you. Our next question comes from Randall Stanicky from Canaccord. Please go ahead.

Randall Stanicky – Canaccord

Great. Thanks very much guys. Jeremy, can you just help us with how the Board came up with 15% in terms of the dividend hike being the right number. I think many were still hoping for something a little bit more substantial and is that still on the table as we think about your ongoing review going forward? And then secondly, can you just maybe – for Alan – can you help us – how do we think about Pulmicort on the generic side? Is that still in guidance? And then should we be thinking about a decision here I guess before the end of March? Thanks.

Jeremy Levin

Hi, Randall. Good to hear from you. Look, a couple things. Number one, the board reviewed this very thoughtfully, very appropriate and of course we review every year and constantly throughout the year our dividend based on our performance. We will continue to do that. In addition to which we remain committed to our share buyback. So we are very much in line with the thinking that we want to and will support our shareholders as appropriate throughout the year and the years to come. Alan?

Eyal Desheh

Yeah, Randall. Thank you for the question not on Pulmicort. We continue to model Pulmicort as the current number of competitors in the market. You do know that Watson has received approval and there is a court case underway. We understand that, that case final arguments will be heard some time in March the judge will render a decision after that and we will wait and see what happens based on that decision.

Randall Stanicky – Canaccord

Okay. Great. And you still see a royalty step-up or as the gross margin step-up should we see additional competition come in?

Jeremy Levin

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

Randall Stanicky – Canaccord

Great. Thanks, guys.

Operator

Thank you. Our next question comes from Marc Goodman from UBS. Please go ahead.

Marc Goodman – UBS

Yes. I was hoping you could give us some color on European generics and just what was the underlying market dynamics versus what was the impact of your new strategy with respect to revenues? And then can you talk about Treanda a little bit. It was flat quarter to quarter but we know there was growth there. So I was just curious what happened in the in the third quarter versus what happened in the fourth quarter with respect to that product? Thanks.

Jeremy Levin

Good morning, Mark. We’ve got Rob on the line. He’ll handle the European and then I’ll ask John to handle Treanda. Is that okay? So Rob, why don’t you kick off with Europe please.

Bob Koremans

My pleasure. Thanks for the question, Mark. So actually very pleased to see that fully in line with our strategy in the quarter four of 2012. We have very marked increased profitability both compared to the quarter four of 2012 and to quarter four of 2011 and it’s really well into double digits. If we executed on our strategy of focusing on the right business and not just any business and sustainable profitability quarter four of last year was in terms of overall European sales it was a record quarter per se. We have really very stable market positions. We’re still by far the leader in Europe in terms of generic sales. But our strategy that we put in place second half of 2012 is really nice on track and it’s delivering what we expected it to do. So we’re really quite content and pleased with that.

Marc Goodman – UBS

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

Jeremy Levin

Okay. So our market share in Germany has increased a little bit in the last quarter. Spain has also increased market share. But the overall market in Spain has really declined because of very strong pricing cuts that we’ve seen in the Spanish market overall. And in Italy, the market in the last couple of months is really increasing nicely with more than 20%. As our market share has over the entire year gone down slightly with less than 1%. We’re still the number one in that market. What we have been doing is really build also on the select to be there. One of the issues we’ve seen and that’s affecting our net sales in those countries over the year what we have been seeing is a pressure on stock levels and we have not given any counter pressure, if you like. So overall stock levels in the market as we reported before have come down, which affected our net sales but not our end-market performance.

Marc Goodman – UBS

I just found that interesting that you’re increasing revenues in Germany and yet you’re trying to be more profitable, which would imply you’re not going to do as many tenders this quarter. So how are you increasing in Germany?

Jeremy Levin

Maybe it also shows that some of the tenders in Germany really do not generate any real revenues. Right? And especially in Germany, also our profitability has really increased very, very markedly. So we really in line with that we’re still at well over 20% market share. We’re launching better than any other company in Europe, outperforming our competitors. Overall in Europe we had about $200 million, more than $200 million of sales of launches and notably also in Germany we really, really do well. So our strategy is not to go for any tender, but just selectively and with the strong Rachifan brands, we pick up the business that is not in the tender very, very well. And this is working excellently.

Marc Goodman – UBS

Thanks.

Jeremy Levin

Did we answer the question on Treanda? John ?

Eyal Desheh

Yeah, Mark, thanks for the question. Actually, Treanda had really significant growth in 2012 versus 2011 of about 20%. If you look at Q4 relative to the prior quarter, it had significant growth as well and driven a lot by the team in United States coupled with some nice data that came out of ASCO in June of 2012 where we really saw the latter half pretty significantly outperformed the first half of 2012. So we continue to see great value with Treanda. The market is certainly welcoming its use and anticipated continuing to grow going forward.

Marc Goodman – UBS

Are you able to increase price on that product?

Jeremy Levin

We have not taken any significant pricing actions. And Mark, I’d have to get back with you on it. We maybe did a minor one in the first quarter, but it’s really been driven more by volume.

Operator

Thank you. (Operator Instructions) Our next question comes from Jami Rubin from Goldman Sachs. Please go ahead.

Jami Rubin – Goldman Sachs

Thank you. Just a follow-up question. I don’t think you -I know it was asked but I’m not sure if you answered it, on Pulmicort does your guidance in 2013 contemplate any generic competition for Pulmicort? And can you remind us what the contribution was in terms of revenues last year?

And then a question for you, Jeremy, on capital allocation. Obviously the dividend increases. It’s certainly a step in the right direction, not as big a step some of us would like to see. But if you could just remind us how you and the board are thinking generally about returning cash to shareholders? You bought back $1.2 billion in stock this year out of $3 billion. Should we expect that sort of rate of buybacks going forward? Is there room to step that up substantially? Certainly according to our numbers there is. And I’m just wondering if you can comment on that especially in light of your comments related to being aggressive with business development. That seems to be and new emphasis on the word aggressive. So if you could kind of provide a little bit more color on that, that would be great. Thanks.

Jeremy Levin

Good morning, Jami. Quite a broad set of questions.

Jami Rubin – Goldman Sachs

I’m sorry, Jeremy. I get this opportunity four times a year.

Jeremy Levin

I get it. Before I even answer you, just let me apologize to Louise who I we missed the second question. The second question really was related to authorized generics. We have an agreement with Amgen. We’ll launch against that agreement. And I can’t really comment on any other authorized generics at this stage or other types of products that are coming in. So, Jami, let me return to – I think on the Pulmicort I’m going to ask Alan to deal with that and I’ll deal with the capital allocation if that’s okay.

Eyal Desheh

Great. Thank you, Jami. On Pulmicort we have said that clearly it’s in our guidance of the $4.3 billion to $4.7 billion range. We have said that we have in that guidance assumed that there are no further competitors entering the market. To be clear including Watson and so I think you should look at that range depending on ultimately what the outcome is of the decision of the case as to whether we would migrate to the lower end or the higher end of that range.

Jami Rubin – Goldman Sachs

But does the lower end include competition from Watson?

Jeremy Levin

I think we would be closer to the lower end if there was competition than we would be anywhere else in that range – that is correct.

Eyal Desheh

Okay. Then, Jami, I’m going to take the questions in reverse order. What do I mean by aggressive business development? Then we’ll get to capital allocation. Aggressive business development really requires that you have in place number one, a very clear strategy for what you’re trying to accomplish. That strategy was laid out and refined as we started in December 2011. So we’re now basically primed to take exactly the steps we wanted to do and when I say aggressive it doesn’t mean size wise it means activity wise.

Our interest to secure an appropriate and clear set of transactions whether they be expanding into other parts of the world or in fact acquiring product – licensing product or what I’d call small to midsize acquisitions. Our goal now is to proceed to build both the near-term and long-term sustainable growth profile of our portfolio and market access. So aggressive doesn’t mean anything other than the pace of activity should be stepping up as we launch into this year.

With regard to capital allocation I think a couple things. First of all the board is committed to shareholders and to return to them. Overall we paid about 58% of free cash flow this year with the dividend yield which is now up to about 3.3%. We think this is a pretty clear demonstration of our intent. We intend to continue with the same focus and I think you can feel comfortable that the board and the company as a whole have this very much in front of us.

Jeremy Levin

Next question?

Operator

Thank you. Our next question comes from Chris Schott from JP Morgan. Please go ahead.

Chris Schott – JPMorgan

Great. Thanks very much. Just two questions here. First coming back to the Irvine facility. I understand your desire to optimize your network but how are you thinking about the incremental competition selling this facility to another industry participant and bringing us into that injectable market? And then the second question touching back on Copaxone. I know it’s a lot of moving parts but to the extent that Copaxone forecast proves conservative in 2013, should we think about that upside flowing through the P&L? Or is that upside something you might reinvest elsewhere in the business? Thank you.

Jeremy Levin

Chris, good morning. I’ll take the Copaxone and what I think I’ll ask you if that’s okay with you Alan, to respond to the Irvine facility. Why don’t you start with the Irvine facility?

Eyal Desheh

Great. Well, thank you, Chris. The Irvine facility has already seen much interest from a number of players who would be open to looking at this facility, taking a walk through it and potentially talking to us about it. Clearly it’s in our best interest to align with somebody that mutually would be beneficial for our respective businesses and that would clearly be our objective as this unfolds.

Jeremy Levin

Chris, with regard to Copaxone it’s always very difficult to predict what’s going to happen over the next year. I would say to you that depending upon the types of new launches that occur the impact of changes in the marketplace but by and large we would look to be – we would hope that this would largely be falling through the P&L. I would also just like to add a little bit on the Irvine facility. We’re extremely cognizant of drug shortages and the opportunity that presents. From our perspective the marketplace should know that we’re completely committed to ensuring that those – do not occur.

Eyal Desheh

Next question?

Operator

Thank you. We have Ronny Gal from Sanford Bernstein. Please go ahead.

Ronny Gal – Bernstein

Hey. Good morning, and thank you for taking my question. I’ve got two essentially on the pipeline. First laquinimod in Europe. We should be right now approaching the 220-day mark for EMA. Based on your interactions so far does the product look approvable without an additional trial? And I think your patent applications on the combo data were put out a couple of weeks ago. Looks so nice animal data models. Can you tell us where the combo trial testing the product together with Copaxone stands?

Jeremy Levin

We’ve got Michael. He can answer both those two.

Michael Hayden

Well, thank you. On the EMA response we believe that whilst they’re always concerns expressed we believe those concerns are answerable. We’re getting ready to submit our response to the EMA so we’re hopeful that the response will be sufficient to allow approval of laquinimod in Europe. With regard to the combo studies – these are very exciting. We’re looking at laquinimod in combination not only with Copaxone and the design of that that trial is currently been undertaken as we speak but we’re also looking at laquinimod in combination with other oral drugs and we’re defining the right partner drug for that and we’re looking at a host of different drugs – a few – two or three. And these are also in this. But we believe both the combo trial with Copaxone and laquinimod essentially will start this year and they’ll be moving towards full design of the combination with laquinimod and other oral drugs also to be announced and take place towards the end of this year.

Ronny Gal – Bernstein

And those will be registration trials or do you need to do some more before that?

Jeremy Levin

Well, these would – it depends what we are in combination with but it’s highly likely that these will be registration trials.

Ronny Gal – Bernstein

Thank you.

Operator

Thank you. Our next question comes from Gregg Gilbert from Bank of America Merrill Lynch. Please go ahead.

Gregg Gilbert – Bank of America Merrill Lynch

Thanks. I have two. First for Jeremy and Eyal, philosophical question back on the capital deployment. At the Analyst Day you were kind enough to project the $1 billion to $2 billion that would be returned over each of the next several years. And so my question is, are you willing to be flexible and perhaps put more back to shareholders for example given that the stock is down 10% or more since that day? So curious on your thinking on how much goes into that bucket and whether that’s a board decision, a management decision or a combination of both? And then for John on Copaxone I think you made a pretty bold prediction at the Analyst Day that the company could switch up to half of Copaxone to the new form within a year or two.

So can you walk us through the logistics of how that would occur? It certainly suggest that existing patients would have to switch because there aren’t a ton of new patient starts in a given year. I ask because it has such important implications for the duration of the franchise and the value of the franchise. That’s a pretty bold prediction to say that half can be moved over and generics you have to reformulate and potentially take several years from there. So please put more meat on the bones if you could. Thanks.

Jeremy Levin

Good morning, Greg. You probably heard enough of me on capital allocation but I’m happy to response. Alternatively let me hand it over for moment here to Eyal and then we’ll get John to put some meat on the bones around how we’re looking at the three times a week.

Eyal Desheh

Yeah, well, hi, Greg. Let me elaborate a little bit more and in line with what we showed at the Investor Day. We are balancing the cash. We have very nice cash generation this year so far. We use a lot of it to return to shareholders. Probably more than the Street expected. I think the balance is right. We’re looking at a buyback again on the opportunity and we’re. We’re also retaining cash flow business development activities which Jeremy has referred to earlier in this conference call so I believe cash that we’re generating with a very open eye towards shareholders and shareholder returns. This is how we’ll continue to manage them.

Jeremy Levin

And with regard to decisions on how this is accomplished it’s really – obviously the board makes the decisions but it’s done in concert with management. John, can you respond on the Copaxone 3TW?

Eyal Desheh

Yeah, I’d be happy to, Greg. Thanks for the question. In December I said what we’re modeling right now is about a third – 30% to 33% of the existing patients as well as new ones will come over to the 3TW. And that’s based on talking to customers, talking to patients. There’s some thought that it could get to 50% within that timeframe, but we’re modeling about 30%. And what leads us to believe that, that will happen is just the patients’ experience with the product depends as well as what we can basically do to support those patients who are interested in making 3TW their choice of Copaxone. We’ll have both available in the marketplace but obviously with shared solutions we can address patients specifically if they have questions about wanting to go from a daily to three times a week.

We can certainly facilitate that. We’ll be introducing a new injector a new auto-inject device, 3TW as well. So again, if those patients want to continue with their daily, we’ll continue to obviously support that but we’ll also make it very easy for patients to transition to the 3TW if they’re looking for that kind of experience. So it’s based on really our deep understanding of the patient’s, the patient’s support that we have with our shared solutions program that really makes us believe that in a conservative sense, about a third of that population will find the 3TW the choice they want to use of Copaxone.

Operator

Thank you. Our next question comes from David Buck from Buckingham Research. Please go ahead.

David Buck – Buckingham Research

Yes. Thank you. A couple of quick ones for Alan and then Eyal. Alan at the analyst day you talked about being aggressive in terms of getting value for some of the U.S. generics and implying being aggressive on price increases. Can you talk a little bit about whether you’ve seen reception to that point of view from the trade and whether that is in fact still the outlook? And then on one drug that’s a driver of growth it seems for this year but could go away next year is this generic version of Adderall XR. Have you had any talks about extending the authorized generic arrangement beyond 2014? And then a quick one for Eyal, can you talk about whether we’ll see any benefit still from take back of rights to Copaxone through 2013? Thanks.

Eyal Desheh

Great. Okay. I’ll start with first two before kicking it over to Eyal. I guess I want to start with 2013 and the review of 2013. Our guidance of $4.3 to $4.7 billion relative to what we’re talking about that we achieved last year as was reported by Eyal in Germany last year, we launched 23 products with a brand value of $27 billion approximately. In our line of sight we see a similar number of launches in 2013, albeit with the brand value that’s in the $18 billion range. So if you just begin to think about the comparables relative to our guidance, we’re going to be down somewhat on comparable new products and therefore, to get back to where we are guiding, pricing plays an important component of that, market share gains play an important component of that, our improved service levels with our customers is a key contributor to that and the continued development of our market share is supportive of that. So all of those aspects of how we will look to develop the business are underway, we’re working with our customers in all aspects of that and early on we’re seeing very positive responses from our customers.

Jeremy Levin

Greg, could you touch on the Copaxone question?

Eyal Desheh

2013 Copaxone question again?

Jeremy Levin

Greg, this is Jeremy. Could you be kind enough just to repeat that question on Copaxone.

David Buck – Buckingham Research

Yeah, Copaxone. It’s David Buck actually.

Jeremy Levin

Sorry, David.

David Buck – Buckingham Research

That’s okay. The question is, you had benefited in the fourth quarter internationally from the take back of Copaxone. Can you remind us when the anniversary of the take backs and whether they’re is a benefit in 2013 as well? Thanks.

Jeremy Levin

The anniversary was actually in Q4 this year basically the last take back happened last year and when you look at 2013 this is already the same runway that you’ve seen in Q4 2012 as well. It was all taken back, it’s all a brand of Teva now past start. It’s all part of the higher expenses which are higher and then as we discussed in the past the benefit to the bottom line is incremental.

David Buck – Buckingham Research

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

Jeremy Levin

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

David Buck – Buckingham Research

Okay. Thank you.

Operator

Thank you. Our last question comes from Shibani Malhotra from RBC Capital. Please go ahead.

Shibani Malhotra – RBC Capital

Hi. Thank you. This question is for Michael and Jeremy. During the Analyst Day you talked about your new strategy of NTEs and I think while that sounded very interesting many investors were left confused as to what specifically Teva was focused on and the timeframe around some of the products and why Teva had an advantage over other companies that seemed to be doing very similar things. So I’d really appreciate it if you could articulate that again and just focus on Teva differentiation and the products you’re most excited about in the near-term? Thank you.

Jeremy Levin

Good morning, Shibani. I think Michael will take it. We are – just to be clear – we’re extremely excited about what looks like it is in fact emerging as an extraordinary pipeline of very differentiated products that essentially address markets which we think are enormous. What I’d like Michael to do is perhaps make that quite clear and walk you through how we’re thinking about it. Michael?

Michael Hayden

Thank you, Shibani. So of course the question of why – why NTEs and why Teva’s particular suited for that and I think the answer is the unique structure of R&D at Teva. This needs – to really do this on an industrial scale it needs very deep understanding about a large portfolio, the ability to reformulate and the ability to have the analytics together on the one side together with the clinical input on the other about understanding unmet patient needs.

Where Teva has a unique and distinct advantage is that it’s the only partner in the world that has an integrated RTE generic and branded and in fact the formulation experience that actually comes from our generic R&D is informing a lot of this that’s influencing the medical knowledge that’s coming from our branded side. So it’s the unique structure and capabilities of Teva it gives us this opportunity.

Then also what’s unique is in fact the large product portfolio that Teva has. We have branded and of course the largest portfolio in the generic business and the opportunity to take from each of those to consider other opportunities and unique opportunities for combination represents another distinct advantage. Thirdly...

Shibani Malhotra – RBC Capital

Okay.

Jeremy Levin

There’s a major commitment at Teva too that we have starters. We have people in commercial, regulatory, clinical, formulatary, chemical, analytics that’s really coming together. We have approved now at least five or six for development this year. To come to five or six you really have to have 60 or 70 that come through the actual process. The ones that are most interesting are for example in the area of HIV where we’re looking at multiple combinations. I’m not at liberty to tell you which ones at this moment. We’re also looking in the neuropsychiatry space in areas like schizophrenia and also what excites us is that we’re not just dependant on our organic growth.

From the current products that we’re putting in the market – we’re putting in development today – these will be on the market earlier by 2016 with the low clinical risk, low regulatory, low hurdle and the clinical time for development will be significantly shortened with a much greater likelihood of success. Importantly of course we have major business development activities in this space. It’s surprising to us how many companies actually have single NTEs that fit our particular focus and we’re in intense discussions with a few of these in terms of bringing some NTE’s potentially that would reach the marketplace in 2013. So we’ll have to unfold as we get closer but I would say it’s an area of significant and exciting activity for Teva.

Shibani Malhotra – RBC Capital

Okay. Just to clarify. So when you’re talking about an NTE we should be thinking about products like with Pantoprazole and which is taking current products and changing the formulation and addressing an unmet need. Correct?

Jeremy Levin

Yes. Those are examples. But it’s much broader than that. That’s – I would say the simplest. What we’re looking is taking a branded product and mixing it with the generic product. We’re taking a unique product as somebody else has, licensing that and then creating a novel combination that really deals with the unmet need. The unmet need is efficacy and also which is often associated with increased and then also decreased side effects. Many drugs have side effects that other drugs may be able to obviate. We’re looking at some unique combinations that really address all of that, too.

Shibani Malhotra – RBC Capital

Thank you. That was great clarification.

Operator

Thank you. I will now turn the call back to Jeremy Levin

for closing remarks.

Jeremy Levin

Thank you all for joining us. This is obviously the first call of the year. I just want to reiterate, the management team and Board of Directors and the entire 46,000 people in our company are very dedicated and incredibly charged up. This like looks like a year excited by – this looks like a year were very excited by and I look forward to the discussions with you throughout the year. Obviously, for the rest of the day if any of you have additional questions, we’re available to you, and again, my thanks to you on behalf of myself and the team.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. This conference is available for digital playback at 888-843-7419 or 630-652-3042. The passcode 06523042. The passcode 34121499. Thank you for participating. You may disconnect.

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