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Teva Pharmaceutical Industries Ltd (NYSE:TEVA)

Q12013 Earnings Call

May 02, 2013 8:00 am ET

Executives

Kevin Mannix - Vice President, Head of Global Investor Relations

Jeremy Levin - President, Chief Executive Officer

Eyal Desheh - Chief Financial Officer, Group Executive Vice President

Allan Oberman - President and Chief Executive Officer of Teva Americas Generics

Michael Hayden - President - Global Research and Development, Chief Scientific Officer

Jon Congleton - Senior Vice President, Global Medicines Group

Analysts

Randall Stanicky - Canaccord Genuity

Jami Rubin – Goldman Sachs

David Risinger - Morgan Stanley

David Maris - BMO

Jessica Fye - JPMorgan

Michael Hayden

Gregg Gilbert - Bank of America

Ronny Gal - Bernstein

Eyal Desheh

Anant Padmanabhan - Cowen and Company

David Maris - BMO

Operator

Welcome to the Teva Pharmaceutical Industries Limited first quarter 2013 earnings conference call. My name is Sandra, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Kevin Mannix, Vice President, Head of Global Investor Relations. Mr. Mannix, you may begin.

Kevin Mannix

Thank you, Sandra. Good morning and good afternoon, everyone. Thank you for joining us today to review Teva's first quarter 2013 earnings results. I am joined today by our President and CEO, Dr. Jeremy Levin, our CFO, Eyal Desheh, Richard Egosi, Executive Vice President and Chief Legal Officer, Dr. Michael Hayden, President, Global R&D and Chief Scientific Officer, Allan Oberman, President and CEO of Teva Americas Generics, Carlo de Notaristefani, President, CEO, Global Operations, Dr. Rob Koremans, President and CEO of Global Specialty Medicines, Teva Europe and Jon Congleton, Senior Vice President, Global Medicines.

Jeremy will begin by providing an overview of the highlights from the quarter and year, followed by Eyal who will then provide additional details on our consolidated financial results. We will then open the call for question-and-answer period, which will run until approximately 9:00 a.m. Eastern Time.

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

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

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

Jeremy Levin

Thank you, Kevin. Good morning, everyone and thank you for joining the call today to discuss Teva’s first quarter 2013 results.

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

I joined the company as CEO nearly exactly a year ago, May 2012. Since that time, we developed and articulated our global strategy. Most recently in [December], the strategy is based upon six pillars to accelerate growth platforms, extend our global presence, executive on strategic business development, protect and expand our core franchises, reduce our operating cost and develop, retain and recruit world-class employees.

We are executing vigorously on our strategic plan and are well advanced in many of the efforts to reach our goals. As a result, I firmly believe that Teva is poised to seize today's opportunities and successfully meet our industry's changing dynamics tomorrow. In regard to our product portfolio, our focus is on high value and sustainable products. We'll continue to expand our business in high value generics, including branded generics, industrialized new therapeutic entities or NTEs, which are the high barriers to entry, focus on specialty brand which include Copaxone, Treanda and Azilect. We will develop new branded products for areas of high medical in CNS and respiratory disease and expand our efforts in OTC through our joint venture with Procter & Gamble.

Most recently, as part of the strategic plan, we announced the formation of our Global Specialty Medicines Group, known as GSM, with Rob Koremans as President and CEO of this group. Our goal is to create a structure that work seamlessly with our regional generics team to establish a single, differentiated Teva presence in the market. We will build off Teva's strong local presence establishing high quality and accessible generics to leverage our global scale and capabilities in specialty medicines. We now have an organizational structure in place which supports our strategic plan.

Business development, as you know, is a key drivers of Teva's success in the future, and its continued leadership in generic, OTC, branded markets. While we continue to optimize and expand our core businesses, we will build our pipeline and portfolio through a combination of R&D activities and business development transaction, including strategic alliances, licensing and small acquisitions.

I am particularly pleased as announced earlier this week, that Paul Sekhri will join Teva as Group Executive Vice President, Global Business Development and Chief Strategy Officer. Paul will work closely with me to execute an optimal business development strategy. I think many of know Paul and are familiar with his extensive experience in the life sciences industry, including his diverse background with generic and pharmaceutical strategies with a range of organizations, including multinational entities, small firms and venture groups.

Due to the efforts of the company over the last year, we now have a solid and unique business infrastructure in place. This allows Teva to more effectively leverage its strengths in both, generics and specialty brands through business development. Overall, the actions I have taken during my first year at Teva, underscore my complete commitment to several key areas. The streamlined business through operational discipline, the expansion of the global leadership team with deep expertise and experience, a creative and strategic approach to R&D and aggressive pursuit of business development opportunities that compliment and enhance our core businesses and key therapeutic areas and the management of the organization for profitability and profitable growth.

Now, looking at the quarter, some of the highlights include the following. Our generics business performed as planned and in line with our expectation and was, in particularly, strong in Western Europe and Eastern Europe. Our strategy for our generic business is to continue to focus on profitability and sustainable profitable growth. Sales for Copaxone of $1.1 billion were realized in first quarter of 2013 and were 17% up over first quarter of 2012. During the first quarter, Copaxone continued to lead the U.S. and global relapsing, remitting multiple sclerosis market in both sales and market share.

Over the past several years, the RRMS market has become crowded with various therapeutic options including several oral therapies. As we look in the future there are extremely important considerations of patients and physicians need to contemplate when choosing the best treatment option to manage this chronic disease over a patient's lifetime. We strongly believe that Copaxone's well established clinical experience of unsurpassed 20 year efficacy and safety profile in an extremely unpredictable disease will continue as a viable treatment option for physicians and patients when selecting a long-term therapy.

Additionally, we continue to seek ways to enhance patient experience with Copaxone and are pleased to announce that on March 29, Teva filed with the U.S. FDA the three times weekly dosing of Copaxone 40 milligrams per mil and we anticipate FDA action in the first quarter next year. We are excited about the possibility of providing an alternative therapeutic option for RRMS without compromising efficacy or safety.

Moving on to Teva's other CNS products. In our Parkinson's franchise, Azilect revenue increased 29% and continued to experience strong prescription growth globally. Further, in our wakefulness franchise, despite multiple generic modafinil competitors, Nuvigil continues to maintain over 50% of the new prescription shares.

Teva's overall oncology business was up 13% in the first quarter of 2013 as compared to the same period in 2012. We continue to see strong result in our oncology franchise from Treanda and revenues increased over 16% year-over-year. Additionally, the lifecycle program for Treanda continues to move forward as the Treanda LQ liquid formulation supplement was accepted by the U.S. FDA for priority review. Further, in oncology launch plans of Teva's tbo-filgrastim, our short acting GSF product has been finalized and a full commercial launch is on schedule in Japan in May and in the U.S. in the fourth quarter of this year.

In our respiratory franchise, we saw strong growth. ProAir HFA with dose counter was successfully launched and (inaudible) a full brand conversion. In the U.S., ProAir remains the class leader with over 51% market share. We are particularly pleased with Qvar's continued strong performance this quarter as well. For the first time, U.S. total new prescription share exceeded 30% of market share and brand growth outpaced the class growth fourfold.

As we look regionally in Europe, the quarter resulted in double-digit growth in both sales and profits compared to the first quarter of 2012. Teva's EU efforts resulted in an 11% increase in revenue and 38% increase in operating profit year-over-year. These results were primarily driven by generic launches above market growth in our OTC business and a positive impact from Copaxone sales.

Our strategy continues to focus on winning sustainable and profitable business as we continue to focus on diversity, reach and flexibility in Europe. For the second consecutive quarter, Teva achieved record overall sales in EMEA region. We are pleased to report sales increase of 32% in the first quarter of 2013 versus the first quarter of 2012. This increase was primarily due to the strong OTC revenue, which was led by Russia and Israel. The OTC business is strategically important for us and we see the PGT JV partnership as a key to this business success.

Our efforts have resulted in strong sales growth of 29% with exception growth in EMEA and LatAm. We are very pleased about our progress in R&D. In particular, the NTE strategy that Dr. Michael Hayden and his team has already identified over 50 candidates for NTEs and four of them have already been approved or entered into development.

Lastly week, we also announced with our collaborator Xenon, the U.S. FDA got it orphan drug designation through XEN402. We are excited by the promise of XEN402, which has shown an early proof-of-concept trial and are committed to its development as a novel therapy for the treatment of pain associated with erythromelalgia. It is world recognized there's a tremendous unmet medical need for safe and effective medicines to treat pain. XEN402 offers promise.

I would now like to take a moment to discuss cost management and initial steps that have been take over the past month. This part of the company's overall efficiency and productivity strategy, we have initiated the divestment proceeds for the manufacturing plant in Irvine, California as recently announced. And in addition, this eligible [GI] side will seize operations.

This plant will remain active and productive until it closes in 2017. Additionally, I am very pleased to share with you that Lisa Martin, formerly Head of Global Procurement at Pfizer joined Teva Chief Procurement Officer and will put in place a comprehensive procurement strategy.

Our commitment to cost savings remained a high priority. And, as we've addressed previously, we anticipate most of these savings will be realized between 2014 and 2017. We remain on track with our goals of cost-based improvement.

Before turning the call over to Eyal, who will review Teva's first quarter financial results in more detail, I would like to emphasize that Teva's leadership team is committed to managing the company to generate long-term and sustainable growth in our business. Teva is uniquely positioned with a broad global footprint in both, generic and branded medicine. Thus we strongly believe there's major competitive advantage.

It is my belief that over the past year, we've created the strategy that will guide Teva into an exciting future as a leader in both, generics and branded medicines. We are executing vigorously against that strategy. We forward to keeping you informed of our progress.

Now, thank you for your time and Eyal, will take over.

Eyal Desheh

Thank you, Jeremy and good morning everyone. 2013 is going to be a pivotal year for Teva. We are diligently working on transforming our company and reshaping many aspects of its business and operations in accordance with the first of the new strategy we laid out late last year and we see good progress made on many fronts.

We are streamlining our line of business and starting to increase operational efficiency. We continued to amend our business model towards a sustainable and profitable organic growth and adjust our global market products accordingly. At the same time, we continue to solidify and focus our R&D efforts, protect our core franchises while managing the lifecycle of our key assets and pursue select business development opportunities.

Today, we are pleased to share with you our financial results for the first quarter of 2013. Generally speaking, we had a good quarter. We saw tough year-over-year comparison to the first quarter of 2012 for reason I am going to discuss in a minute.

Many of our businesses performed well this quarter, in particular our generic business in Europe that delivered strong growth of Global Specialty Medicines business that maintain similar year-over-year sales level despite a lot of exclusivity on an important product like Provigil and finally our OTC business that delivered a very strong growth rates compared to last year building on strong fundamentals.

During this first quarter, we also generated significant cash flow from operation and reduced our financial leverage. Before I dive into the numbers, I would like to touch on two matters. The adjustments we perform to our GAAP results and the exchange rate differences affecting our results.

This quarter we made adjustments totaling $330 million after tax to our GAAP results. The biggest adjustments were $279 million for amortization or purchase intangible assets and finance expenses were $94 million in connection with one time expenses related to early redemption of senior notes and others. Accordingly our non-GAAP net income and non-GAAP earnings per share for the quarter are adjusted to exclude these and certain other items outlined in our press release.

In the first quarter we experienced the weakening of the Japanese Yen and certain Latin American currencies versus the U.S. dollar. These fluctuations and several other minor ones and a negative impact of $35 million on revenues and $12 million on operating income this quarter compared to the first quarter of 2012.

Let me move on now to the actual first-quarter results. While reporting net revenues of $4.9 billion, a decrease of 4% compared to the first quarter of 2012, non-GAAP operating income of $1.3 billion, a decrease of 21%, non-GAAP net income of $960 million, an increase of 26% and non-GAAP diluted earnings per share of $1.12, a decrease of 24% compared to the comparable quarter last year. The decreases and the overall challenging quarter-over-quarter comparison were largely driven by the anticipated effect of Provigil going off patent in the second quarter of 2012, coupled with the significant launches we benefited from in the first quarter of 2012, primarily of the generic version of Zyprexa and our agreement with Ranbaxy relating to its launch of generic Lipitor.

These were partially offset by higher sales of some of our other specialty product from generics sales in Europe and OTC sales. If we eliminate the effect of Provigil organic sales growth net of foreign exchange impact was 2.4% compared to the first quarter of 2012, despite the loss of exclusive generic products in the U.S. market. I want to briefly touch on several highlights of our financial performance this quarter by product line and geographies.

Sales of generic medicines this quarter were approximately $2.3 billion including API sales to third party of $186 million, a decrease of 12% compared to the first quarter of 2012. This decrease is mainly the result of the comparison with exclusive generic products we had in the U.S. in the first quarter of 2012 which were only partially offset by new launches we had during 2012 and in the first quarter of 2013. Launches of new generic products in the U.S. market had a minimal impact this quarter. We expect our U.S. generic business to materially improve in the second half of the year with launches of new generic products in parallel with solid performance of our European generic business, increasing revenues by 11% year-over-year to $873 million.

In our specialty business, we had $2.1 billion of revenue this quarter which were flat compared to the first quarter of 2012 despite the loss of exclusivity on Provigil in April last year. We were successful in bridging this revenue gap by significantly growing some of our other specialty medicines, primarily Copaxone, Treanda, Qvar, and Azilect with good sales of specialty products in Europe.

Finally, let me turn to the strong result of our OTC business. Overall OTC sales this quarter was $306 million, an increase of 56% compared to the first quarter of 2012.

I want to turn next to profit margin and operating expenses. Non-GAAP gross profit margin was 58.6% this quarter compared to 60.9% in the first quarter of 2012, a decline that is also attributable to the launch of Provigil and certain exclusive U.S. generic products, which were very profitable. Many of the steps we are taking these days is possible for our plan to reshape Teva and save on cost, including the creation of our new global procurement organization and the reason that closure we announced are geared towards improving our gross profit margin.

As Jeremy noted before, we are making good progress on our research and development efforts, particularly into CNS therapeutic area and our NTE portfolio. All these moves were reflected this quarter in an increase of 13% year-over-year in our non-GAAP net R&D expenses, which totaled $329 million this quarter, or 6.7% of revenues.

Our non-GAAP selling and marketing expenses totaled $985 million, or 20.1% of revenues in the quarter, a 7.5% increase compared to $960 million, or 18% of revenues in the first quarter of 2012. The increase was primarily due to higher expenses on specialty medicines, higher OTC investments and assumption of distribution and marketing responsibility for COPAXONE in Europe as well as a modest increase in royalty payment which were still lower than our plan.

G&A expenses totaled $307 million in the quarter, or 6.3% of revenue, a small decrease in expense compared to the first quarter of 2012. The overall split of operating profit before G&A expenses between our main lines of business for the quarter is as follows, Global generic 21%, multiple sclerosis 52%, other specialty brands 23%. OTC and other businesses, 4%.

We recorded $81 million of financial expenses on non-GAAP basis in the first quarter compared to $70 million in the comparable quarter of 2012. This is mostly the result of higher interest expenses we are paying following the extension of a debt our debt maturity profile in line with our new strategy and of higher expenses in connection with our hedging activities in the first quarter of 2013.

The provision for non-GAAP tax in the first quarter of 2013 was 16.5% and amounted to $193 million on pre-tax non-GAAP income of $1.2 billion. This compares to 13.7% or $207 million of pre-tax non-GAAP income of $1.5 billion in the first quarter 2012. We do expect our tax rate to go down later in the year and overall tax rates in 2013 will be higher than in 2012 given the different mix of products and geographies.

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

Free cash flow, which excludes capital expenditures and dividend, also increased throughout this quarter by 55% to $640 million. We are continuing to take advantage of our solid cash flow to reduce our level of debt. This quarter, we pre-paid a total of $1.8 billion of debt consistent with three separate debt prepayments. As a result, our financial leverage decreased from 39% to 36% quarter-over-quarter. At the same time, our cash and marketable securities decreased from $3.1 billion to $1.6 billion.

As we committed on doing, we will continue to allocate our cash in a disciplined manner to support our strategy, reward our shareholders and also service our debt. During the quarter, we repurchased approximately 5.2 million shares for an aggregate cost of approximately $200 million with a dividend paid this quarter, we returned an aggregate amount of $481 million to our shareholders or approximately 44% of our quarterly cash flow from operation.

In line with the increase of our quarterly dividend announced last quarter, our board has approved a quarterly dividend for the first quarter of NIS 1.15 per share. Based on the exchange rate on April 30, 2013 of the shekel to the U.S. dollar, this translates into approximately $0.32 per share or a total of $272 million.

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

We do want, however, to turn your attention to an important point. As we have previously stated to you, our original projections for 2013 did not assume additional generic competition in the U.S. for budesonide, the generic equivalent of AstraZeneca's Pulmicort. As the decision and the patent litigation concerning this medicine is currently pending appeal process with the U.S. court, it is still early to tell whether we indeed see such traditional generic competition in the market 2013 or not. If we were to see additional generic competition enter the market this year, this will impact our results, especially the result of the second quarter if the decision is rendered in the second quarter, but we believe that this will not change our original guidance ranges.

We will obviously continue to update you as this matter continues to unfold. This concludes my prepared remarks. Thank you all for your time and attention this morning. I would now like to open the call for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Jason Gerberry from Leerink Swann. Please go ahead.

Unidentified Analyst

Hi, guys. This is actually (inaudible) Gerberry. Thanks for taking the question. Quick one on OTC. How should we be thinking about that run rate going forward? Is this quarter representative of all quarters?

Jeremy Levin

Jason, this is Jeremy. Thank you very much for your question on OTC. I had a little difficulty hearing you but I think what you are asking for, I will just repeat the question. Was, looking at the OTC, how do we look at this a run rate going forward? Is that correct?

Unidentified Analyst

That’s correct.

Jeremy Levin

Okay. Eyal, would you take that question please?

Eyal Desheh

Yes, sure. First of all, the numbers are nice. We see the improvement for one quarter to the other. We have to remember that Q1 is a winter quarter and has a seasonal impact and depending on flu season because these are the type of medicines of some of the OTC that we sell. We do expect our OTC business to continue to grow double digit year-over-year.

Unidentified Analyst

Great, thank you. Actually, if I could just slip in one on Lovaza. That would seem to be some major upside to your U.S. numbers if you get a favorable (inaudible) ruling. If you guys could just quickly address the readiness to launching that product.

Jeremy Levin

I think what we would like to do there, Jason, is get back to you on that, if you don’t mind. We do think there's upside to that but we need to be cautious about what we say about that. So that’s what we got (inaudible).

Operator

Thank you. The next question is from Randall Stanicky from Canaccord Genuity. Please go ahead.

Randall Stanicky - Canaccord Genuity

Hi, guys. Thanks. Just two questions. One for Eyal and one for Jeremy. Eyal, just relative to spending, it was down sequentially. We expected it to be flat both on the R&D and SG&A side. Can you just talk about that? And then how do we think about the trend going forward? Is the Q1 spend number the right run rate? Then I have one follow-up for Jeremy.

Eyal Desheh

Okay, what we see is increase in R&D spend throughout the year. We started the year a little slower. We will most likely catch up on the expenses. Some increase, very modest in sales and marketing and probably flat on G&A this is the G&A run rate that we will see throughout the year.

Randall Stanicky - Canaccord Genuity

But the major cost cuts that we should be thinking about relative to your targeted savings, that's not really going to hit in the back half. Should we be thinking early 14 or can we see some of those start to fall through earlier.

Eyal Desheh

Regarding our cost savings as part of their reshape programs will start to unfold in 2014 and 2015. We have very small amount of that in our plan was 2013, mostly the second half as we are moving forward in preparation for all that.

Randall Stanicky - Canaccord Genuity

Okay. Jeremy, on the NTE program, there's obviously a lot of focus on the revenue side of the business and the opportunity there 505(b)(2) is to bring some opportunities in earlier. Can you just talk to us about what should we think about for timing. We don't have a lot of visibility into the pipeline there, so how quickly can you bring some of those to market. Then as we think keep sales potential, are these products in the range of $200 million to $400 million, or potentially more? Is there some color that you could help us with there? Thank you.

Jeremy Levin

Hi. Randall. It's a couple of things about NTE. Michael Hayden will talk a little bit more on it, so we view this overall as a multibillion dollar opportunity. There are examples of this in the past, where individual products which are, look, will be just described today as an NTE to be highly successful and so we are very keen on this.

With regard to timing, remember what we are doing here is we are really handling on two fronts. One internal development, which is in the hands of Michael, and he will talk to you about that. And then secondly, in terms of business development and at this stage Randall, you should know that we are getting an absolute flood of tremendous opportunities in this area some of which could be launched as early as this year, some of which could be launched later, but frankly the opportunities are coming out and our showing us our extremely attractive waiting through then picking them very, very, very. carefully and perhaps, Michael you would make a couple of comments on this.

Michael Hayden

Well, thank you, Randall. We are making great progress in our NTE portfolio. You got to regard these as some kinds of late-stage Phase III products. In other words, the likely development time for them is up to three-year, some of them do not have to go through clinical trials at all. Just need to show bioequivalence. And, so between 10 and 13, we think around 13 approve for development this year. That's having 13 new Phase III products in your pipeline. We expect some of these to actually go to the market within the next year few years and will continue to grow year-by-year. There's 13 new products in your pipeline line every single year going forward.

Randall Stanicky - Canaccord Genuity

Great. Thanks, guys.

Operator

Thank you. The next question is from Jami Rubin from Goldman Sachs. Please go ahead.

Jami Rubin – Goldman Sachs

Thank you. Just a couple of questions. First, Eyal, if you could address what's happening in the U.S. generics business that came in below our expectations and that of consensus. Obviously, maybe there are seasonality issues that affect comparisons, but if you could talk about that business, how we should think about it going forward? What are the key drivers that you have in the NDA pipeline that we could be looking towards? Then secondly, not sure can address, but just curious to know your confidence level in the FDA's ability to approve EpiPen, an AB-rated EpiPen in 2015.

Jeremy Levin

Jami. Hi, it's Jeremy here. We've got Allen on the line, so he can address the question on the North American generic, so why don't I hand over to him. Then, we'll come back.

Allan Oberman

Super. Thank you, Jami for the question. When we think about the U.S. generics business in Q1, it was actually in line with our expectations of where we thought it would come out in spite of the fact clearly as Eyal said that it was challenging. Our year-over-year comparison was a challenging comparison.

Last year, we had our agreement with Ranbaxy on the generic equivalent of Lipitor atorvastatin that benefited us. We had exclusivity on Lexapro or escitalopram, which benefited us last year and this year we saw some price erosion on Zyprexa, olanzapine and Adderall XR mixed amphetamine salts, so it was a very tough year-over-year comparison all of which was factored in to what our expectations were for the quarter. As we look at subsequent quarters going forward we see a continued improvement quarter-over-quarter and the continued strengthening of the generics business here in the U.S.

I would point out a couple of things. One, as Eyal mentioned in his prepared comments, the uncertainty relative to the court's ultimate decision on Pulmicort and the budesonide on one hand. On the other hand, as I think I said in the last quarterly call, in 2012 we launched 23 products representing a brand value of about $27 billion. We forecast a similar number of new launches in 2013. We launched three of them in Q1, brand value of a little over $400 million.

So you can see we have new product upside as the year continues to unfold. We have also seen steady improvements in our service levels that we provide to our customers. I can say that our customers certainly are recognizing us in our ability to supply them, which is resulting in additional customer awards coming our way, and finally recognized, through a recent award we received from Walmart, as the Walmart Pharmacy Partner of the Year because of our partnership agreement with them and our ability to supply. So I think that gives you a good framework of where Q1 was relative to U.S. generics and where the rest of the year looks like it may unfold.

Jeremy Levin

So, just to your second on question on EpiPen, I will let you know we had a settlement with Mylan and we have an entry date in 2015. The trial Is progressing well.

Operator

Thank you. The next question is from David Risinger from Morgan Stanley. Please go ahead.

David Risinger - Morgan Stanley

Yes, thank you very much. I have a couple of questions. First, and I will actually make it three, if that’s okay. Pulmicort, could you just frame for us the U.S. revenue and EPS contribution so that we know the swing factor, if you do end up with greater competition?

Second, could you speak to the growth outlook for rest of world? It was weaker than expected this quarter. Just wondering how to think about growth prospects going forward and rest of world?

Then third. For the three times a week Copaxone, have you filed that and can you provide a filing update? Thank you.

Jeremy Levin

Hi, David. There is a lot of people in line. So we will try and keep the answers short and crisp. The first two, Pulmicort. I think what we will do is, Allan, why don’t you handle that and growth outlook for the rest of the world, Eyal will handle that and then we will hand it over to, if we got time, depending on how (inaudible), we will hand over to Jon Congleton or Michael here can talk about the three times a week. Let me start with Allan.

Allan Oberman

Thank you, David. With regards to your question on Pulmicort, we don’t specifically breakout individual products within our portfolio but we have said that Pulmicort or generic budesonide is the largest product with within our portfolio and depending on which way it goes, we continue to have no competition factored into the forecast. Although, again, I would reiterate that the guidance that we have given on the U.S. generics business of $4.3 billion to $4.7 billion for the year incorporates budesonide or Pulmicort. If it remains semiexclusive with us clearly we would be in the mid to high end of that range. If we find ourselves with additional competitors, we will be at the low end are slightly below the low end of that range and that’s the way you should envision what Pulmicort, the impact it has on the U.S. Generics business.

Eyal Desheh

All right, David. Hi, it's Eyal. With regard to the rest of the world, just without any too many details, the two factors that impacted rest of the world business this quarter which need to be understood. The first is [chambers] especially in Japan, Japanese yen about 22.3% compared to where it was also a quarter call, and some currencies in Latin America and on sale, because in our generic business it actually grew and basically the impact of exchange rate if they remain where they are, we'll continue to see this next quarter as global currencies we are generated growth in all of these markets.

The specialty part actually suffering from the lack of Copaxone tender reversal, which we had in last year and that is of course in the comparison we expect to have sales later on this year, but it depends on the timing of the tender, so these were the two major factors. Exchange rate was the main one.

David Risinger - Morgan Stanley

Then with regard to Copaxone, I know Michael you are here. Why don't you deal with that.

Michael Hayden

Thank you, David. Our sNDA was submitted on time as planned to the FDA, March 29 we are hopeful that first product will be approved and ready for commercialization early 2014. And in addition, we are assuming approval Copaxone in Europe and we expect to submit that for approval this quarter.

Operator

Thank you. The next question is from David Maris from BMO. Please go ahead.

David Maris - BMO

Morning. Two questions. First, Michael on XEN402, congrats on the orphan drug status. What other indications you think this drug could be the applicable for and how are you pursuing them? And then separately, more broadly for Eyal and Jeremy, I know you are both frustrated as a number of people are with the stock price and you can't manage the stock price, but in your discussions with investors what do you think, what's most misunderstood?

Michael Hayden

Thank you, David. Nice to have you on the line. For XEN402, we see both very focused open indication as well as quite broad indications. So, for the open indication of course, erythromelalgia that is actually not such a small market, because (Inaudible) involves [multi] neuropathy and thus it is quite significant.

Important thing that XEN402 is the [topical], you get great absorption through the stems and we also for example say to the jointed cash flow and we will also initiating trials this year and in various forms of arthritis, particularly affect the lower lugs and this market is profoundly huge. So, we see both, a focused market in terms of open indications and also expansion from there and then inflammatory indications for osteoarthritis for example.

So, Dave, I think just quickly and good to chat with you on the forum. A couple of things, we've spoken to a lot of investors. Some have expressed deep support and obviously they are having significant use in some of the purchases of the stock and an overall change in the portfolio of the types of people who are holding and today all of this is a reflection of some changes going on.

A couple of things I think that underpins what we are describing. Number one, this is a sophisticated company that's undergoing significant change, the company with great potential, the company that's got a real future and it's very difficult for people to look back and understand more away from a essentially a top line driven strategy, driven by acquisitions coupled with essentially Paragraph IV exclusivity, which no longer play a major role in our overall strength. It's difficult for them to understand how the sophisticated strategy.

But now I have laid in place which is a growth strategy with significant pillars related to the one that describes and an integrated business plan coupled now with a clear organizational structure and top line people who are now running that. Difficult for them to look at that and I think that quite rightly investors are looking for milestones evidence that we are absolutely executing, and there's little doubt in my mind for those in the company [external] as well that we are absolutely executing. So, I look forward this year very much as we did start rolling out aggressively. You will see the execution that people expect and quite rightly so.

Operator

Thank you. the next question is from Chris Schott from JPMorgan. Please go ahead.

Jessica Fye - JPMorgan

Hi, thanks. Its actually Jessica Fye, on for Chris. Looks like Copaxone had a very strong quarter in the U.S. but can you just talk a little bit about the volume trends you have been seeing since launch of BG12 and also just any national feedback you are heading in the market on that lunch..

Jeremy Levin

Hi, Jess, it's Jeremy here. I think what I will do is, we will start with Jon on that, if that’s okay. Jon, as you know, is now running our entire MS franchise and thus working with Rob on the new global specialty medicines organization. So Jon, why don’t you take that. Jon has also got a history of having dealt with Copaxone for many, many years.

Jon Congleton

Yes, good. This is Jon. Thank you for the question. As you heard Jeremy talk about the quarterly figures, like very strong unit. Global AR up on Copaxone, quarter relative to prior years. So we are very pleased with what continues there. As far as the volume trends relative to fumarate, it is still really early to tell. We have three weeks worth of data. What we are hearing in the marketplace is continued support for Copaxone and the profile that it provides. Really the unsurpassed efficacy, safety and tolerability that has been seen over 17 years experienced with this product is what's still resonating in the marketplace.

You tend to see, and not only with Copaxone, but even in (inaudible), we still continue to have business but there is a lot of stability when patients and physicians are buying the medication that works for them, they tend to stay with that. So it will be interesting to see and it will take several months what kind of disposition is occurring with fumarate and some of the other orals but I don’t think anything is surprising as of this point and we are not seeing any significant changes in volume in the short-term weeklies.

Operator

Thank you. The next question is from Mark - I am sorry. Please go ahead.

Michael Hayden

So I just want to add to that. It is Michael here just to provide some greater perspective on that. Of course, Teva remains a supporter of the need to treat and manage MS. We welcome new therapy and of course with any new therapy like fumarate there is a level of interest that’s mitigated by the uncertainty. In the case of fumarate, the issue, of course, that’s on many people's mind is the very minimal long-term exposure and all of that in trial setting and I think now with the April (inaudible) data are out on the New England Journal on PML, this has raised concern about this particular product and its relationship to long-term side-effect.

It is important to note, enough though the manuscript in New England Journal has different forms of fumarate leading to PML, it is important to note that with the DMF, as dimethyl fumarate, essentially all of these compounds have the same active compound. There is nothing else in it and the same with this. So I think that we have to see. Of course long term clinical experience is needed and so we await that data as it comes out.

Operator

Thank you. The next question is from Marc Goodman from UBS. Please go ahead. Mark, your line is now open for your question. If your phone is on mute, please unmute it. We will move on to the next question. The next question is from Gregg Gilbert from Bank of America. Please go ahead.

Gregg Gilbert - Bank of America

Hi, two. My first one, Jeremy, other than executing on the strategies that are laid out on investor day, clearly you have some work to do there and some time. Are you and the board assessing other options to enhance shareholder value? Is everything pretty much on the table at this point?

Then my second question, maybe for Eyal. Is the potential liability on Protonix something that needs to play out before you and the team and the board makes significant decisions on cash deployment such as the potential for another dividend increase or additional share buyback? Thanks.

Jeremy Levin

Hi, Greg. I think you are right on that. We are looking to enhance shareholder value at all stages. The board is actively engaged in this. Capital allocation being part of this. How we think this through. How we utilize our capital. How we use all our elements within the company to increase shareholder value.

So, you should understand that the strategy laid out in December is a strategy which is fundamental to the operations of the company and are things that will play out over both, the short, mid and the long-term. That includes increasing our attention to how we increase shareholder value.

Michael Hayden

Yes. Regarding (Inaudible). First, already for the quarter [we] on that made on Q3 last year significant revision of $670 million on our books, we do also have an insurance policy that include covers any possible damages, so we will wait for the court, the legal process, which will most likely go to appeal on any sights.

Regarding our buyback and dividend, first we discuss it then our board reviews a dividend every quarter as opposed to every in the past. We have continued to buyback shares this quarter. We will continue with the buyback program. The three-year buyback program the board will review frequently just as indication our dividend payment is increasing due to the, it is in shekel, so due to the dollar and shekel relationship. Basically dividend in Q1 this year was 23% higher than dividend in Q1 last year in dollar terms.

Operator

Thank you. The next question is from Douglas Tsao from Barclays. Please go ahead. Douglas, your line is now open. If your phone is on mute, please un-mute it. We will move onto the next question.

The next question is from Ronny Gal from Bernstein. Please go ahead.

Ronny Gal - Bernstein

Good morning. Thank you for taking my question. First question is around the generic business. If I kind of look at your numbers suggesting that 21% of the profits come from the generic business and subtract the CapEx, which presumably is primarily related to the generics. You come to a number which is pretty close to breakeven, taking out pulmicort, it looks like generic business is pretty close to breakeven.

Jeremy, you've not only discussed a lot of strategy around the generic business, primarily in the U.S. and Western Europe, and I was wondering if you can give us a few more words are there significant plans to change how this business operates or is this business simply on a existing trajectory and we should expect it would stay that way.

Second question is, around the pipeline. Two quick ones actually. First, should we expect to see the [data for]. Second, is it far to say that Treanda is a nitrogen mustard has enough side effects from being stored the liquid formulation should be expected to be safer and more [facetious] than the existing part of formulation.

Jeremy Levin

Hi, Ronny. Look, I think, we are taking some very aggressive steps on our businesses on both, the E.U. and the U.S., and I think we should give you some color and. We've been doing that along the way, but let me give over to the guys who have been running this.

First of all in Europe, Rob, why don't you give a quick response to this? And then, secondly, Allen, why don't you take a quick look run the U.S. I want to get to a good picture. Michael, will touch the two questions that you have on the two products [and] Treanda.

Michael Hayden

Yes. Happy to do it Jeremy. On Europe in generics what we see is actually a very nice growth both, in sales and profitability and I can assure you that really it is a profitable business. We are executing on our strategy of going for the right business which is sustainable profitable and we continue to be and have every intent to stay market leader in this in Europe and we have over performed in markets, but it is very much a profitable business in Europe which is probably one of the more price-sensitive markets, per se, right?

So, and opportunities for generics continue to be there. It's compared to the U.S., the generic market penetration is still low. There are good opportunities. We see good growth in Italy and in France, but we still can improve more, so we are well positioned as well to capture some of the future growth there, so I am actually quite optimistic for generics being in a difficult market like Europe, but we are delivering what is needed and we are increasing profitability.

Jeremy Levin

Allan why don't you handle U.S. please?

Allan Oberman

Ronny, it's Allan. Thanks for the question. Let's start with the U.S. market certainly is a highly competitive market. What we have been trying to do here is a multifaceted strategy that we try to layout on December 11. But let us dig a little bit deeper into it perhaps today. Certainly as Jeremy has said, the historical number, frequency and size of Paragraph IV opportunities have diminished with the addition of shared exclusivities. However, we are still pursuing a strategy where we look to develop first and reap 181 days of exclusivity on a number of products as we look to the future.

Number two, Jeremy called some high-value adds. They are kind of known as complex generics here in the U.S. We marry a medicine and device and you put it together and you would anticipate significantly higher development costs, fewer competitors and over the longer term, a higher margin structure associated with that.

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

Then there is a tail of products that we are working our way through in multiple dimensions. First to mention is reformulating older products with lower cost processes and APIs in order to lower our cost and increase our margin over time. Secondly, consistent with the announcement of Sellersville moving our manufacturing East from higher cost of manufacturing locations to lower-cost manufacturing locations will enhance value. Then finally looking at the tail of products where we, after doing all of that, may not be able to enhance value long enough, finding other ways with other partners to create unique value add. So there is a whole host of activities we are doing to continue to progress the business forward, grow the top line and enhance the profitability.

Operator

Thank you. The next question is from Ken Cacciatore from Cowen and Company. Please go ahead.

Eyal Desheh

Just hold on. I just want to answer Ronny, the other two questions that he had, quickly. So we are continuing to be encouraged by the unique immunomodulatory profile of laquinimod. We will be presenting that in June or July as an oral presentation and clearly have chosen that as an oral presentation. It is obvious the community, once we hear that data. With regard to Treanda we, of course, have developed an oral liquid formation and eliminated the (inaudible) process in manufacturing and this is also providing an unique and enhanced safety profile cutting down potential of human error. The FDA has accepted sNDA and there will be a review of the new liquid formulation of Treanda. This is all part of really trying to make better management for patients and Treanda has gone below that.

Operator

Thank you. The next question is from Ken Cacciatore from Cowen and Company. Please go ahead.

Anant Padmanabhan - Cowen and Company

Thanks, this is Ananta for Ken, actually. Just had a quick clarification question. So Eyal, I just wanted to clarify your comments on generic Pulmicort. So I apologize if you have covered this before. So assuming it Apotex and Actavis enter the market, are you reiterating your guidance, if they are entering the market, assuming it’s a fairly low margin product. Then I have another question on Copaxone after that.

Eyal Desheh

The answer is yes. We are reiterating the guidance range even if we will see another second competitor all with the generic Pulmicort in the market. You have to remember that once our arrangement on royalties with AstraZeneca is that the royalty level goes down if there is a second competitor. So the hit to profit would be reduce by that mechanism.

Anant Padmanabhan - Cowen and Company

Okay, thank you. Then now that you have filed the tree times weekly, could you talk about your expectations for this product in the long-term? Do you think you might be able to transition a majority of the Copaxone, the existing Copaxone formulation to the three times weekly? Thanks.

Jeremy Levin

Why don’t we get Jon to answer that and then I will also ask Michael to comment a little bit about some of the things about Copaxone as well. So Jon why don’t you start and hand over to Michael please?

Jon Congleton

Yes, Anant. Thanks for the question. We have stated back in December during the strategy day that we are modeling right now about 30% to 35% of the patients currently on a daily Copaxone will find that three times a week, preference some of the market research that we have been doing in preparation of that and reduction show that that could go as high as 50%, but we continue to model right now about a third of the population are going to find interest in that, so certainly excited about bringing that forward. There is a strong interest in it, but there's also a strong interest in the ones a day as well. Michael do you want to?

Michael Hayden

Thank you, Jon, and also we are excited about brining that to patients and we also, the recent data that we published and expert opinion and therapeutic targets showing how the mechanism of action of Copaxone providing a lot more clarity and we compare that to portfolio of generics and to our surprise even though this is a generic comp rate of activation of these generics compared to Copaxone, a market leader and with the potential for also the changes with potential changes in inflammatory pathway, so what goes with Copaxone goes down and as this kind of significant implication, so the bottom line for us is that we strongly believe that any generic will need clinical trial really improve that.

It is a very complex molecule, so difficult to produce and I think we are seeing now more and more evidence around that in terms of the operator activated that it had to be remarkably different between Copaxone and portfolio generics.

Operator

Thank you. The next question is from David Buck from Buckingham Research. Please go ahead. David, your line is opened your question. If your phone is on mute, please un-mute it.

We will move onto the next question. The next question is a follow-up question from David Maris from BMO. Please go ahead.

David Maris - BMO

Well, thank you for taking the follow-up. Two, first on Treanda. What can you tell us about the this, the lifecycle formulation and what it's value proposition is? Then secondly, there was a lot of news this past quarter on biosimilars. Some from your own partner. What can you tell us about your current activities and any change or expectations adjustment to what you think the market opportunity is and the timing of the market evolving?

Michael Hayden

Yes. So, to say that we are continuing to look at novel ways to extend the lifecycle of Treanda, looking at new formulations, including novel ways to delivery it and I don't want to get into too much detail on that, but I think the liquid formulation it just one example, but there are numerous others that I will be able to expand the lifecycle of Treanda in ways that are going to be significant for patients. So, there are many opportunities to deliver this product in improved formulations are likely extend the lifecycle. Jeremy?

Jeremy Levin

Yes. Maybe just a sort of a brief comment on that, I know there has been a lot of news in this area by a number of different organizations, a lot of discussion around the opportunities and otherwise. The potential to develop in manufacture market, affordable, efficacious and safe biosimilars is in my opinion and our opinion an area of significant opportunity.

One has to really be shake the opportunity, pick the opportunity and be very clear about what you are doing there. We both, Teva and Lonza both as partners and individual companies as you know our focus in refining the best roots to realize the benefits that safe biosimilars will bring to the community this large, but in the U.S. abroad and in the emerging market. But as we know, in some of these areas, there is significant regulatory uncertainty in the biosimilars area from that perspective, while the partnership continues to explore the field both companies are taking very measured approach.

Michael [is] very hard from the pipeline prospective and choosing really to evaluate fully both, the prevailing regulatory and commercial circumstance before sort of taking any and decisions of long-term investment, but it is an area that we both regard and certainly Teva regardless, speak to Teva's perspective of great retention and we will continue to look at it very carefully and selectively.

David Maris - BMO

Thank you.

Operator

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

Jeremy Levin

Well, thank you everybody for spending the time with us this morning. I am sure there will be other calls later on and we look forward to those discussions and I greatly appreciate your time taken. This is the end of my, I can no longer say I am new in this job. It has been one year. I really greatly appreciate this opportunity that I have had with many of you over the last year to hear your opinion and to help shape our thinking as to how we bring value to everybody including, specifically, our shareholders. Thank you. Bye bye.

Operator

Thank you, ladies and gentlemen. This conference will be available for replay starting today at 10:30 AM Eastern Time until May 9 of 2013 until 11:59 PM Eastern Time. The replay phone numbers are 888-849-7419. For international, 1630-652-3042. The passcode number is 34657214, followed by the hash key. This concludes today's conference. Thank you for participating. You may now disconnect.

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