Teva Pharmaceutical Industries Limited Q4 2009 Earnings Call Transcript

Feb.16.10 | About: Teva Pharmaceutical (TEVA)

Teva Pharmaceutical Industries Limited (NYSE:TEVA)

Q4 2009 Earnings Call Transcript

February 16, 2010 8:30 am ET

Executives

Elana Holzman – IR

Shlomo Yanai – President and CEO

Eyal Desheh – CFO

Bill Marth – President and CEO, Teva North America

Moshe Manor – Group VP, Global Branded Products

Gerard Van Odijk – President and CEO, Teva Europe

Analysts

Randall Stanicky – Goldman Sachs

Mark Goodman – UBS

Richard Silver – Barclays Capital

Ken Cacciatore – Cowen & Co.

Ronny Gal – Bernstein Asset Management

Gregg Gilbert – Bank of America Corporation

John Newman – Oppenheimer

Sebastian [ph] – BNP Paribas

David Amsellem – Piper Jaffray

Elliot Wilbur – Needham & Co.

Jim Dawson – Buckingham Research Group

Tim Chang [ph] – CRP Capital [ph]

Dave Windley – Jefferies & Company

Operator

Greetings and welcome to the Teva Pharmaceutical Industries Ltd. fourth quarter 2009 results conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions)

It is now my pleasure to introduce your host, Ms. Elana Holzman of Teva. Please go ahead, ma'am.

Elana Holzman

Thank you, Diego. Good morning and good afternoon everyone. Welcome to Teva’s fourth quarter and full year 2009 earnings call. We hope you’ve had a chance to review our press release, which we issued earlier this morning. A copy of the press release is available on our website at www.tevapharm.com. Additionally, we are conducting a live webcast of this call that is also available on our website.

Today, we are joined by Shlomo Yanai, President and CEO; Eyal Desheh, Chief Financial Officer; Bill Marth, President and CEO of Teva North America; Moshe Manor, Group Vice President, Global Branded Products; and Gerard Van Odijk, President and CEO of Teva Europe.

Shlomo and Eyal will begin by providing an overview of our results. Please note that Shlomo will be referring in his prepared comments to non-GAAP gross margins, operating profit, net income and EPS. Eyal will provide additional detail on the items excluded from our non-GAAP results. We will then open the call for question-and-answer period.

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today’s press release also pertains to this conference call and webcast. Shlomo?

Shlomo Yanai

Thank you, Elana. Welcome everyone, and thank you for joining us today as we review Teva’s results for the fourth quarter and full year 2009. 2009 was an excellent year for Teva, a year in which our company grew significantly, increased profits, and quarter after quarter delivered value for all our stakeholders. It was a year of record breaking sales across all our geographies and in all our major businesses, leading to record-breaking financial results across the board.

This was also a year of major strategic achievements for Teva, including the successful integration of Barr, a process which was completed less than a year after closing, and from which we expect to continue to derive significant synergies for many years to come. I believe that especially against the backdrop of a troubled world economy, volatile market conditions, and unfavorable foreign exchange effects, our results this year provide an especially strong demonstration of how Teva’s agility and the strength of our balanced business model enable us to deliver continuous profitable growth even as market conditions change.

I would also like to mention that in mid-January Moody's upgraded Teva to a credit rating of A3, reflecting Teva’s commitment to executing its growth strategy, while maintaining a strong balance sheet. Before I describe the year in greater detail, let me briefly review our results for the fourth quarter.

In a fitting end to the year, we had record-breaking results across every possible parameter in Q4. Net sales reached $3.8 billion with gross margins of 58.6%. Our operating profit for the first time reached the $1 billion mark with net profit of $847 million and a very strong cash flow from operations of $957 million, and all of this ultimately brought us to EPS of $0.94, another record high for Teva.

It is worth noting that these results were not driven by any one major launch in the US during the quarter, but rather from contributions from across our company. We benefited from especially strong performance in Latin America, in Eastern Europe as well as record global sales of ProAir, Qvar, and Azilect. In future quarters, the greatest contributions may come from a different mix of business, products and geographies. Whatever the mix, the important thing to keep in mind is once again the value we derive from our balanced business model.

Let us turn now to the full year 2009, a year in which, as I said earlier, we had record-breaking results across the board, including sales of $13.9 billion, which reflects 25% growth year-over-year, operating profit of $3.9 billion, up 35% over 2008, net income of $3 billion, up 22% over 2008, and record EPS of $3.37, up 11% over 2008. We also had record cash flow from operations of $3.4 billion and strong free cash flow of $2.18 billion.

Let me share with you some of the highlights of the year for each of our major business, beginning with our North American business, which had an exceptional year, including record sales of $8.6 billion, up 34% over 2008. $4.9 billion of this sales represents US generic sales, which grew 16% over 2008. During the year, we introduced 19 new generic products, which collectively represent branded sales of $14 billion. These launches included one significant new generic product, Adderall XR, and the rare introduction of another pulmicort.

We were highly focused during the year on extracting the maximum value from all of our product launches, as well as on creating additional opportunities through the strength of our base business. Our pipeline in the US grew to 216 product applications awaiting final FDA approval, including 89 first-to-file. Collectively, the brand products cornered by the entire pipeline had annual sales of over $113 billion. We expect these products to materialize over the next 3 to 5 years.

In 2009, we expanded our leading market share in the US among all pharmaceutical companies, both generic and brand, to 16.3% of total prescriptions and 17% of new prescriptions. Among generic companies, Teva leads with 22% of total prescriptions. That number is greater than the next two competitors combined by any measure.

2009 was a very good year for our European business, where we had record sales of $3.3 billion, representing 22% growth year-over-year in local currencies and 10% growth in US dollars. As you know, the effects of the financial crisis were especially apparent in Europe during this year with the market growing more slowly than expected. Despite this, Teva maintained or improved our market position in every one of our major European markets.

Teva is a top three player in every major European market, except Germany. We're the number one player in Italy, as well as in the fiercely competitive markets of UK and Netherlands, where we extended our lead during the year, and we have by far the broadest pipeline in Europe with 3,100 marketing authorization applications in 30 European countries.

A key element of our integration of Barr during the year was the world to integrate Pleva [ph]. By leveraging Teva’s global and European platform and know-how, we have turned Pleva’s European business into a profitable entity, which will make significant contributions to our business in the years to come.

2009 was an especially strong year for our international business. For the first time, sales reached over $2 billion, up 32% over 2008 in local currencies and 20% in US dollars. These results were driven by especially strong sales in Latin America, Russia and other Central and Eastern European countries and Israel.

I would like to turn now to the Teva’s branded business beginning with Copaxone, which had a truly outstanding year. During 2009, Copaxone further solidified its position as the global leader among MS therapies. Sales of Copaxone grew 25% over 2008 to reach a record-breaking $2.8 billion. For the year, Copaxone continued to demonstrate its unmatched safety and efficacy. The FDA approved and extended indication for Copaxone to include its treatment of patients who have experienced a first clinical episode and had MRI features consistent with MS.

In Europe, the UK issued a similar approval, which was adopted by 24 other European countries. Teva remains strongly committed to the MS community, and we are continuing to invest in a range of product enhancements, including new dosages, formulations and devices for Copaxone. We are very pleased with the exciting results of our STRONG [ph] study, whichever evaluated whether a new formulation would show improvement in the patient injection experience.

Based on the study's positive results, we plan to submit a file with the FDA by the end of this March. In addition, last March we announced that we will be kicking off a new study called GALA [ph], which will evaluate the benefits of less frequent, higher dosings of Copaxone. The study will begin this April.

This was also an excellent year for Azilect, which had record in-market sales in 2009 of $243 million, up 39% over 2008. The results of the ADAGIO study, which was designed to test Azilect’s efficacy in slowing the progression of Parkinson's disease were published in the New England Journal of Medicine. In January, we had a productive meeting with the FDA and will file a supplemental New Drug Application based on the ADAGIO study results by the end of the first quarter of 2010.

Lastly, based on the results of our Tyramine study, the FDA in December approved newly revised prescribing information for Azilect, which would use medication and food restrictions, thus removing a significant barrier for some patients and physicians.

Turning now to our respiratory business, 2009 was a record-breaking year in which global sales of our inhalers grew 15% over 2008 to reach $898 million. In the US, sales grew 30% to reach $568 million. US revenues were driven by higher sales of ProAir, which maintained its market leadership in the HFA market, and Qvar, which captured the number two position in the ICS market.

2009 was also a year of major strategic achievements for Teva and we took many steps during the year to ensure that we solidified even further our strong leading positions both in generics and in the pharma industry overall. Let me share with you just a few of these highlights.

First and foremost, of course, was the successful completion of the Barr integration. We now expect to realize over $500 million in synergies by this acquisition by 2012. As you have already heard today, we had a very productive year, when it comes to developing our innovative business, and in addition to growth through our own R&D, we recently announced that Teva is licensing a Phase III product from OncoGenex for multiple oncology indications. We regard biosimilars as one of our key growth drivers in the future, and during 2009 we have made very good progress on our goal of becoming a leading player in this emerging field.

Earlier this month, the FDA accepted profiling Teva’s first-ever biologic license application for NEUTROVAL, a G-CSF product. This product has already been launched in several EU markets under the trade name TevaGrastim, and will be launched in additional EU markets over time. Our long acting G-CSF product, Neugranin, has successfully completed Phase II trials and will begin Phase III trials during the first half of 2010.

In addition to having diversity and balance through our product mix, we are expanding our geographic footprint, especially in markets where we have high potential for growth and profitability such as Japan, the world’s second largest pharmaceutical market. In late December, we announced the Teva-KOWA, our Japanese JV was acquiring a majority interest in Taisho, an important step in realizing our strategic objective of becoming a leading player in the very important Japanese market.

Finally, as you know, we undertook a major review of our business and the industry based on which we updated our long-term strategy. At the heart of our strategy is value creation based on four factors, continuous growth, high profitability, financial strength, and hedging risk through our diverse mix of businesses, products, and geographies. I am looking forward to continuing to share with you our progress for realizing this strategic objective in the quarters and years to come.

And now I would like to provide our current expectation for 2010. For the full year, we expect net sales of around $16 billion. It is important to bear in mind that in this uncertain economic and foreign exchange environment, exchange rate may have an impact on our revenues. As for earnings per share, we expect non-GAAP EPS to be in the range of $4.40 to $4.60.

Before I turn the call over to Eyal, I would like to take a moment on behalf of the entire Teva family to wish Eli Hurvitz, the chairman of Teva’s Board of Directors a very swift recovery. As we announced yesterday, Eli is taking three weeks leave of absence in order to focus his full attention and energy on recuperating from treatment for a recently diagnosed illness. I'm happy to say that the treatment has been successful, and we are all looking forward to Eli returning to work, and most important to excellent health very soon.

And now let us turn the call over to Eyal for a more detailed financial update. Eyal?

Eyal Desheh

Thank you Shlomo, and good day to everyone. I hope you’ve had an opportunity to review the press release we issued earlier today. As you can see, the

fourth quarter completed an excellent year for Teva, and we're reporting today a record quarter and year. It is a long list of records here, so please bear with me.

Q4 was a record quarter in terms of sales, gross margin, and operating income, net income and of course, earnings per share, all on a non-GAAP basis. 2009 was our best year ever as we delivered records in sales, GAAP and non-GAAP gross profits, non-GAAP gross margin, GAAP and non-GAAP operating income, and GAAP and non-GAAP net income, as well as non-GAAP earnings per share and operating cash flow.

We also had record sales across all three geographies and across all our branded franchises, Copaxone, Azilect, respiratory products and women health products. Cash flow and free cash flow remained strong as well. These results were driven by a good product mix, tight expense control and successful integration of Barr. In other words, all products of the Teva machine worked together in perfect harmony.

Before we delve into the numbers, I would like to touch on two issues. First, I would like to remind everyone that we are presenting GAAP and non-GAAP results. In our non-GAAP presentation we have excluded the following items this quarter, legal settlement of $379 million with $315 million relating both to settlement agreements and reserves in connection with drug pricing litigation, including a settlement we announced a couple of weeks ago, and the majority of the balance relating to settlement agreement with Novartis regarding Famciclovir.

Amortization of purchased intangible assets and inventory step up totaling $139 million of which $129 million are included in cost of goods sold, and the remaining $10 million in sales and marketing. Impairment of assets of $71 million and restructuring expenses of $25 million mainly in connection with Barr related integration, and rationalization activity. Purchase in process R&D of $23 million in connection with our investment in OncoGenex announced in December, other net financial income of $8 million, and in addition the related tax benefits of $161 million. You should note that the items excluded in arriving at our non-GAAP results for the fourth quarter of 2008 are not identical to those in the current quarter. Also the items excluded from our full year non-GAAP results are also not identical to those of the fourth quarter. Please review our press release and related tables for the complete information.

As indicated in the past, we present non-GAAP figures to show how we, the management team and our Board look at our financial results. Foreign currencies continue to play a significant role in our results. In the fourth quarter, foreign exchange trends were reversed as the dollar weakened against most currencies. So in Q4 foreign currency differences contributed approximately $98 million or 3% of total sales as compared to Q4 2008. The impact on sales, resulted primarily from the decline in the value of the US dollar relative to certain other currencies, primarily the euro, the Canadian dollar and the Hungarian forint, partially offset by the strengthening of the US dollar against the Russian ruble and the Argentinean peso.

For the full year 2009, exchange rates still had an adverse effect on sales of approximately $572 million. For the full year, sales were impacted mostly by the strengthening of the US dollar against the British pound, Hungarian forint, the euro, the Russian ruble, the Polish Zloty, and the Israeli shekel. However it is important to note that on operating income, foreign exchange had a negligible effect, close to zero in Q4 and approximately $37 million adverse effect for the full year.

Teva’s diverse geographical presence continues to provide us with a good natural hedge that mitigates such of the risk involved in currency fluctuation, and minimizes the impact on our bottom line.

Looking at consolidated results for Q4, sales totaled $3.8 billion, an increase of 33% compared to Q4 last year. The Barr acquisition contributed to growth in sales in all Teva geographies, particularly in the US, Russia, Poland, Germany and Croatia. For the full year, sales reached $13.9 billion, an increase of 25% compared to 2008.

Non-GAAP operating income reached a record high topping $1 million, and up 41% compared to Q4 2008, and benefiting from strong gross margin and tight expense control. For the full year, non-GAAP operating income was $3.9 billion, representing 35% growth compared to 2008. Non-GAAP net income was strong at $847 million, up 28% compared to Q4 2008 despite the higher tax rate that resulted from the integration of the Barr business.

Non-GAAP net income for the full year was over $3 billion, up 22%. Non-GAAP fully diluted earnings per share was $0.94, up 18% compared to Q4 2008. Similar to the previous quarter, we had approximately 78 million more shares this quarter than in the fourth quarter of 2008 in our earnings per share calculation due primarily to shares issued in connection with the Barr acquisition.

Two housekeeping points related to EPS calculation. You will find share account details in the press release we issued today, and the add-back for the non-GAAP calculation is $10 million for the quarter. For the full year, non-GAAP diluted EPS was $3.37 per share, 11% up from 2008.

Now let’s discuss profit margins and operating expenses. Non-GAAP gross profit margins, which excludes amortization of intangible assets and the inventory step up was 58.6% in the reported quarter, a record high, compared to 57.4% in the comparable quarter of 2008. The improvement in gross profit margin is attributable to higher contribution to sales from our branded and innovative franchises, higher contribution in the quarter from new product launch in the US, as well as improved gross margin of our U.S. generic base business. For the full year non-GAAP gross profit margin was 58.4%. A side note on the US base business, improvement in the gross margin of the US base business as a result of internal action to improve our cost structure and product mix, as well as leveraging market conditions that have led to supply opportunities.

Non-GAAP operating margin reached 27.6% up from 26.2% in the comparable quarter last year driven primarily from strong gross margins, lower G&A, and net R&D as a percent of sales, primarily offset by higher royalty payments, which are reflected in sales and marketing expenses. For the full year, non-GAAP operating margin reached 27.7% similar to the quarter.

Net R&D expenses reached $219 million or 5.8% of sales this quarter. However, gross R&D before reimbursement from third parties for certain R&D expenses, primarily Teva’s joint-venture with Lonza, and purchased in process R&D was $276 million or 7.3% of sales. For the full year, net R&D expenses totaled $802 million or 5.8% of sales. R&D expenses in 2009 were lower than originally expected, primarily because Barr’s pipeline also enabled us to keep R&D expenses lower than we had originally anticipated and planned.

I would like to provide some more detail on total R&D spending done by the Teva group. When we add up all the R&D done by Teva, it doesn't show up directly in our R&D income statement line, items such as the Lonza JV, the Teva-KOWA JV, third-party participation and innovative investments, total gross R&D for the year was $923 million or 6.6% of sales. In addition, we invested approximately $35 million in equity investments in 2009 primarily through Teva’s innovative ventures, as part of our effort to expand our innovative pipeline.

We discussed in our strategy update in early January, we view the breath of our generic product portfolio as a core competitive advantage and we intend to continue investing in R&D in order to be first to market in every major opportunity and leverage our broad portfolio in the United States and elsewhere. We also intend to expand our innovative and biologic R&D activity either in-house or through partnership, joint-venture as in the Lonza case or licensing agreement as in OncoGenex example.

Sales and marketing expenses, excluding amortization of intangible assets totaled $742 million in the quarter or 19.5% of sales compared to 17.2% of sales in Q4 2008. These higher sales and marketing expenses are the result of two main factors, the contribution of Barr’s business, which is characterized by higher sales and marketing expenses and higher royalty payment in connection with Copaxone and other products primarily the relaunch of budesonide. For the full year, sales and marketing expenses totaled $2.6 billion or 19% of sales.

Total G&A expenses this quarter were $218 million or 5.7% of sales compared with 6.4% of sales in Q4 last year. For the full year, G&A expenses totaled $823 million or 5.9% of sales. We recorded $34 million of financial expenses on a non-GAAP basis in Q4. This is $26 million on a GAAP basis compared with $30 of non-GAAP financial expenses in the comparable quarter in 2008. Higher level of debt during the quarter compared to Q4 last year before the Barr acquisition were offset by lower interest rates. Financial expenses were down $18 million for the third quarter of this year as a result of the decrease in our debt over the first three quarters of 2009, and reduction in current hedging costs.

The non-GAAP tax rate for the full year of 2009 was 16% compared with the rate of 10% for 2008. The increase in tax rate from 2008 to 2009 resulted primarily from the fact that Barr’s effective tax rate is higher than Teva’s. The tax rate for 2009 GAAP results was 8%.

Now let’s have a look at our cash flow. Cash generated from operation totaled $957 million. Our free cash flow, excluding net capital expenditure of $179 million and cash dividends of $141 million amounted to $637 million. This strong cash flow was driven primarily by strong collection during the quarter. For the full year, cash flow from operation reached a record of $3.3 billion. Strong collection throughout the year more than offset significant Barr related integration and restructuring spending. Free cash flow for the year totaled $2.2 billion.

On December 31st, our cash and marketable securities was $2.5 billion, $0.5 billion from September 30. Our total outstanding loans, bonds and convertible debentures stood at $5.6 billion, down from $5.8 billion at the end of September. From December 2008, our debt has gone down by $2.8 billion, resulting primarily from paying back the bridge financing incurred in connection with the Barr acquisition and the conversion of convertible debt of almost $1 billion.

Our financial leverage as of December 31st 2009 was 23%, similar to September 30, and down from 34% in December 2008 following the Barr acquisition. Our strong balance sheet and business results had led Moody’s to raise Teva’s rating to A3, the first ever A rating for a generic pharmaceutical company.

DSO, days sales outstanding, amounted to 48 days this quarter compared to 50 days in Q3 2009 and 51 days in Q4 last year. We calculate the DSO as we always do after netting out from the receivables, the sales reserves and allowances. Inventory days were 182 days down from 195 days in Q3, and down from 206 days in Q4 2008. Net capital expenditures reached $179 million this quarter similar to the CapEx levels in Q4 2008, and $195 million in the previous quarter.

Dividends, yesterday Teva’s Board approved an increase in our quarterly dividend from 0.6 shekels per share to 0.7 shekels per share. You know our dividend is paid in shekels. This is a 17% increase in our cash dividend, and completed more than 15% increase in dividend payment over the past two years. Based on the rate of exchange on February 15 of the shekels to the US dollar, this translates into approximately $0.19 per share or a quarterly dividend amounting to approximately $165 million.

Before opening the call to questions, let me repeat our guidance for 2010 and provide a few more data points regarding 2010. We expect sales of approximately $16 billion. As Shlomo indicated, this number is sensitive to foreign exchange volatility, and could be impacted by future exchange rates. We expect non-GAAP earnings per share to be between $4.40 and $4.60 for the year with significant variance between the first quarter and the rest of the year, resulting from the timing of our key business drivers during the year.

New launches of Paragraph IV products in the US market, the elimination of Copaxone royalty payments to Sanofi-Aventis as well as our regular seasonality.

Now let me provide some specific guidance as to expenses and margins. Our non-GAAP gross profit margin is expected to average between 59% to 60% with lower rates in Q1. This number does not include amortization of approximately $470 million for the year. Net R&D expenses, without joint venture and other investments, will be between 6% and 6.5% of net sales. Sales and marketing expenses will be in the range of 16% to 18% for the year. This number does not include amortization of approximately $40 million. In Q1, sales and marketing will be considerably higher as a percentage of sales since the take back of royalties from Sanofi-Aventis does not begin before April 1st.

G&A as a percentage of sales for the year is expected to be between 5% and 5.5%. Finance expenses are expected to be between $150 million to $170 million, tax rate on our non-GAAP numbers is expected to be between 13% and 16%. In 2010, we expect to record share in losses of associate companies of approximately $30 million , primarily in our JV with Lonza.

We believe that the fully diluted number of shares in 2010 should be approximately 925 million shares, and the add back for earnings per share calculation will be 45 million dollars for the year.

Thank you all for your time and attention today, and now we will be glad to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Randall Stanicky with Goldman Sachs. Please state your question.

Randall Stanicky - Goldman Sachs

Hi. Thanks for the questions. Just one for you Eyal, and one for Bill. Eyal, can you give us a sense of how much cost savings you realized from Barr last year, and how do we think about that for 2010 on your path to $500 million in savings. And then secondly for Bill, can you just give us a sense of what's going on in women's health, how do we think about One-Step and the trajectory for that segment from here? Thanks.

Eyal Desheh

Okay, Randall. Thanks for the question. First on 2009, we estimate the savings synergies measurement is not nuclear science. So we estimate the savings to be anywhere between $350 million to $400 million, and it will get to $500 million as Shlomo said. It is factored into our numbers for 2010. So it is already in there.

Randall Stanicky - Goldman Sachs

Okay.

Eyal Desheh

Bill.

Bill Marth

Hi, good morning Randall. Thanks for the question. With respect to women’s health, I think your biggest question is Plan B One-Step. In that, we would have to say it was not the smoothest handoff that we would like. It wasn't as smooth as we would like. But what is important is we are committed to the franchise, and our expectations are still very good for growth. And we're going to be putting a lot of emphasis behind Plan B One-Step and that will be very, very helpful. But our thoughts about women’s health, is it continues to be a really good growth area for us, and we are going to emphasize it a lot, especially in 2010.

Randall Stanicky - Goldman Sachs

Are there other products in that segment that we can think about adding growth in 2010. And then I guess from this quarter, does it grow sequentially? Should we expect a ramp in One-Step ? How do we think about the level of growth going forward quarterly?

Shlomo Yanai

Well, I think the level of growth on Plan B One-Step is really more back-end loaded for sure, when you think about the efforts, the DTC and some of the other efforts that we put on that. You know, that is for sure. On the other -- we are also excited, when you look at all the promoted brands, they all performed very well.

Randall Stanicky - Goldman Sachs

Okay, thanks guys.

Operator

Thank you. Our next question comes from Mark Goodman with UBS. Please state your question.

Mark Goodman – UBS

Hi. Could Gerard maybe give us a flavor for what is happening in Europe, what has been changing, the changing prospects are for 2010?

Gerard Van Odijk

Yeah, with pleasure Mark. I think we and as Shlomo said that Europe has been -- a bit of a tough year in Europe in some places. We have been hit by many aspects of the crisis. We have seen sales picking up in the southern European part in particular. We see some stabilization in the Central European places, and we have done very well through the year despite all the difficulties in the economy in markets like in the northern part of Europe, UK and Netherlands what have you.

So all in all I think it seems as if the market is recovering from what was a very difficult year in ‘09, in which we did very well as Shlomo explained. We did very well in every market relative to our competitors, and we expect also to be able to try from that in this year to come in particular markets like Spain and France doing very well. We have launched a lot of products in the last 12 months, which will bear a lot of fruit in the coming 12 months. We have launched more than 200 products varying from almost 10 in Poland, up to 30, 40 in markets like France. So we have a very good ability to grow our business on the back of that.

Mark Goodman – UBS

So will those markets -- I mean, will France be a growth market for the whole market in general or is it just you're growing because of all the new launches?

Gerard Van Odijk

Well, as you look at France, France has been going through a bad year in ‘09 in terms of growth in the low single digits. We see Q4 picking up again and going up to the low single digits. So that is a good sign for instance. So, the market itself will grow, and within that we are doing better than the market.

Mark Goodman – UBS

And just give the same sense on the UK as well?

Gerard Van Odijk

Well, the UK is low single digit growth and we are growing a bit faster than the market.

Mark Goodman – UBS

Okay.

Operator

Our next question comes from Richard Silver with Barclays Capital. Please state your question.

Richard Silver - Barclays Capital

Hi, good morning. Just on the pharmaceutical sales by geography, including API, can you provide those numbers as you have in previous quarters?

Eyal Desheh

Yeah, we combined this quarter all our sales together, but you could assume that the breakout of the API is similar to what we have provided in Q3.

Richard Silver - Barclays Capital

Okay.

Eyal Desheh

You are targeting the model that is the information.

Richard Silver - Barclays Capital

Okay, and then just on the gross margin, Eyal you said that a 59 to 60 is the range for 2010, lower in the first quarter, would that be lower than 59 or the low-end of 59 to 60?

Eyal Desheh

No, it will be lower than 59. 59 to 60 is the average for the year, and as I said particularly the first quarter given the fact that no major powerful launch, and the seasonality impact that we always see in a neutral first quarter, the gross margin in the first quarter is expected to be lower than the yearly average, and later quarters, especially Q3 with expected venlafaxine launch. We'll see higher gross margin. So it is not going to even throughout the year. The range that I provided is an average for the year.

Richard Silver - Barclays Capital

And then one more on the gross margin. You mentioned some reasons for the improvement in the US space business margin, and you mentioned benefiting from supply disruption. Is that something that we've seen the full benefit from in the fourth quarter or would you expect some additional benefit to be seen, and then the second is in that 2010 plan, would you assume that that benefit is something that last -- throughout the year or would you expect as I assume the supply disruptions on the competitor side to change that perhaps the benefit diminishes later in the year.

Shlomo Yanai

Bill, you want to take that one?

Bill Marth

Sure. Good morning Rich.

Richard Silver - Barclays Capital

Good morning Bill.

Bill Marth

The -- you know, the supply disruptions you know, there is a lot of lumpiness to them. They haven’t come in, in a smooth linear fashion. So what we've noted is that people are giving awards to us that are occurring over time. So we got some benefit in Q4. We are going to get a little benefit in Q1. We're going to see a lot more benefit in Q2, Q3, Q4. It's really built towards the end of the year. You know, people are using some of their other supplies and have just decided that they're going to make a change, we think it is for the better.

Richard Silver - Barclays Capital

And that's something you already know it is going to be in the cards for the second, third, fourth quarter of 2010?

Bill Marth

Yes. These are commitments that have already been made.

Richard Silver - Barclays Capital

And as far as the other reasons for that base business improvement you mentioned some other I guess, efficiencies. Can you elaborate on what else that is that's contributed?

Bill Marth

There have been another great, there have been number of really good initiatives, and Teva is always working on its API process, to drive down its cost in manufacturing to get in the right place with the lowest potential cost for us, and so we've done a lot of that work. We’ve done a little bit of pruning of the portfolio. You might have noticed a little bit of share change this quarter. That's because there were a couple of products that we just took out of the portfolio because the margins were unacceptable and we turned that volume -- use that API or that capacity, actually manufacturing capacity for other more profitable products. So I think movement around the portfolio has been very helpful.

Richard Silver - Barclays Capital

Okay. Thanks very much.

Bill Marth

Thanks.

Operator

Our next question comes from Ken Cacciatore with Cowen & Co. Please state your question.

Ken Cacciatore - Cowen & Co.

Good morning. Couple of questions. First, on Lovenox Bill, can you give us any sense of any movement with the agency, so an update there. Also, although I'm sure you're not going to comment on anything surrounding Ratiopharm for yourselves, could you give us a sense of why a Pfizer and taking that more broadly speaking, large pharma, what you see as their actions into the space in a broader way, it looks like Ratiopharm is not really a platform, it's more of an add-on for a company like yourself. So what they may be thinking.

And then finally, Eyal, some of the settlement costs this quarter were for Famvir. I was wondering if you're planning on setting up a reserve for settlement losses. You seem to be getting the benefit when you launch these products but keeping it off the P&L when you settle on them. Although it was not a major cost to you, how are you going to deal with that in the future so that we can fully incorporate potential losses of these at risk launches? Thank you.

Eyal Desheh

Bill, you want to take the first one and also the last one, Shlomo will take the one on Ratiopharm?

Shlomo Yanai

Okay, first one -- go ahead, Bill.

Bill Marth

Okay, good morning Ken. You know, the issue on Lovenox is obviously who knows when. We've seen some really nice flow of information coming back and forth from the FDA. We feel, you know, that this is a sign of more likely approval coming, but you know, I can't ever tell exactly when. You never know what will happen. So, you know, I am more optimistic than I was a year ago, because the data flow back and forth is very, very good, but you know, I can't really be more specific than that. All I can say is that when that approval comes, we'll be ready.

Ken Cacciatore - Cowen & Co.

Yes, the one on the settlement.

Bill Marth

Okay. If you want me to roll right into the Famvir settlement, you know, I think it's more important for Eyal to really discuss whether we want to have a reserve, but honestly Ken, our issue is whenever we can take our liability like this off the books, this is the right thing to do, and we've done this very effectively. This was an excellent settlement that we're really excited about. We will still stay in the market and we think that makes a lot of sense. This is the right kind of, this is the right kind of settlement for both ourselves, for the brand company as well as the consumer in general.

Eyal Desheh

One thing on the accounting treatment, you know, we can't reserve if we don't have high level of certainty on any kind of expense even if we want to do that the authorities will not allow us. So all our reserves are down. When we reach a level of certainty, we look at the pricing settlement. We didn't settle all our pricing litigation, but once a major litigation was settled, we could take provision for the rest of what we believe is open. Same approach on patent settlement.

Shlomo Yanai

Ken, as per the Ratio auction or bid, let me say the following. First of all as you may expect, I cannot say anything regarding any potential acquisition, and I would prefer not to say anything regarding this one as well. I can say only two things which I believe would help you a little bit to better understand the business environment or if you wish the background. One, Europe is one of what our key strategy targets for the next five years. If you remember, the presentation that Gerald gave there well, thoroughly went on the key, the European markets and definitely a part of them are very attractive for our future goals. And as for the big pharma stepping into this generic potential arena, well, first of all this is not new news. I would like to turn your attention there is a today article in the New York Times, if I will remember that dealing with this phenomenon as a part of their, probably, let us call it remedies for their own -- other issues of subject, but I don't want to speculate more on that point of time.

Ken Cacciatore - Cowen & Co.

Thank you guys.

Eyal Desheh

You're welcome.

Operator

Our next question comes from Ronny Gal with Bernstein Asset Management. Please state your question.

Ronny Gal - Bernstein Asset Management

Good morning and thank you for taking my questions. First question is, you know, when I look at your numbers for 2010, you can go up pretty broad range of outcomes in EPS, depends on longevity of products like Prevacid, Oxali, Lotrel, and Adderall XR. It feels like you have been a little conservative here in where you decided to draw the outcome for the year. Can you give us a little bit more color about what assumptions you made a little bit about the longevity of those products. I know you can’t -- you won’t discuss specific around products, but overall essentially what was your philosophy in thinking about those products for this year?

Shlomo Yanai

Bill?

Bill Marth

Yes, I mean Ronny, you've got to think about products like you know, Adderall, and you know, Adderall is a product that there has been a lot of supply interruption or a lot of again lumpiness around the API supply. So, although today we have a pretty good share on that product, I don't know, you know, we target more of about 50 shares, but right now we're holding about a 60 share. That's going to change.

(inaudible), we just got through competition coming in on (inaudible). We see Lonza, although we took a lot of early share on Lonza, and that's because we usually react and move very, very quickly. We think our share is going to come down on that. So I think we got a pretty good handle on where this goes, and I think our track record stands on, you know, as being very appropriate at predicting that.

Ronny Gal - Bernstein Asset Management

You don't think you've necessarily been conservative on those?

Bill Marth

No.

Ronny Gal - Bernstein Asset Management

Okay, second, I think in the press conference you made this morning, you mentioned a target of about $800 million to $900 million for biosimilar revenue by 2016. One, if you can confirm that and second, what would that entail in terms of building a sales and marketing infrastructure, primarily in Europe, where a lot of those folks have at least half of their sales?

Shlomo Yanai

Ronny, if your first question was regarding the biosimilars by 2015, I can confirm it. This is what we anticipate now, as let's call it the first wave in the time frame of our next five years strategy plans. And we said it -- yes, but that's why I think we can confirm it now. So I have no problem to tell to say it again for you Ronny, and what was the second part of your question please?

Ronny Gal - Bernstein Asset Management

Yes, actually what will entail in terms of investment in sales and marketing sales force primarily in Europe where you know, a lot of the early entrance will take place?

Shlomo Yanai

Would you like to refer to that Gerard from your perspective?

Gerard Van Odijk

Yes, I will. First of all, we see different models in different European markets currently enrolling if you look at the TevaGrastim roll outs across Europe. You may remember Ronny that we spoke about the launch in Europe on TevaGrastim as a small product that is not going to move to dial, and it's allowing us to understand much better what are the dynamics in the marketplace looking like if you look at the selling process of the product in the bio-G area. We see markets where it's a very concentrated hospital driven business, where we have limited resource to invest. In other places, you really have to go to out clinics to generate prescription, and we feel the variations in between. So I think currently it's very difficult to predict precisely how that is going to be developing, and we have an existing sales force across Europe that's dealing with that, the right size, and depending on the timing of the launches that will come through, we just had faced upon the learnings that we're going through now.

Ronny Gal - Bernstein Asset Management

Thank you.

Operator

Our next question comes from Gregg Gilbert with Bank of America Corporation. please state your question.

Gregg Gilbert - Bank of America Corporation

Thank you. I have a couple questions on the good Copaxone news. Bill, what type of filing will be required to get that product to market and what's the FDA review time? And if that product is approved, should we view your strategy as a quick replacement strategy or a gradual switch strategy?

Shlomo Yanai

Moshe, do you want to take that or do you want me to move?

Moshe Manor

Yes, you can start, okay.

Bill Marth

Greg, you know, we can’t say [ph] we're very excited about those results and now we will be going into the first quarter. And you know, as far as the review time on that, you know, we are hopeful that that would be an expedited review, but, you know, it's more likely within a year, and I think over time that one would expect that the low volume would replace the one mL, because it's going to be our real, it's really important for the patient. You know, the pain and if the injection experience is better. Anytime you can inject less is a good thing.

Gregg Gilbert - Bank of America Corporation

So, do you care to summarize any of the findings of the study or do we have to wait for a publication there?

Bill Marth

I think you going to have to wait on that, but again I would just state that we are very pleased with the results that we saw.

Gregg Gilbert - Bank of America Corporation

Okay.

Shlomo Yanai

Just to add one sentence, I think we're going to publish the results. So, I can't get into the detail, but I think we suspect that we have positive outcome if you look at the 0.5 mL versus the 1 mL. I think we all realize it's important definitely for a injectable product, and specifically for Copaxone as a daily injectable product. So I think for the patient it would be a great news.

Gregg Gilbert - Bank of America Corporation

Would it be simple for an existing patient to move to the new formulation?

Shlomo Yanai

I don't think we want to disclose any strategy at this point of time. The moment, we are contemplating filing the data and submitting the data, and we will be ready to provide more data later on once we are ready, and we make our choice [ph].

Gregg Gilbert - Bank of America Corporation

Okay, then one other question on respiratory. Are there any new respiratory opportunities in your 2010 guidance or is that really a longer-term opportunity. I realize the existing products are growing but do have anything new dialed in for 2010?

Bill Marth

Gregg, this is Bill Marth. Now, right now 2010 is the existing products, you know, we are holding over a 50 share on ProAir, we're running about between 52 and 53, and I would just remind people that we've always guided that. You know, 50 share for us would be a really good thing and we've held that and that's been very good. Where we are most excited though is Qvar. We have really good results with Qvar and the ICS space and that's growing, but no new opportunities in 2010.

Gregg Gilbert - Bank of America Corporation

Thanks.

Operator

Our next question comes from John Newman with Oppenheimer. Please state your question.

John Newman - Oppenheimer

Hi, guys. Thanks for taking the question. Just wondered if you could give us some color on what we should expect this year in terms of M&A. Should we expect that you focus more on the ex-US opportunities?

Shlomo Yanai

Let me give your time, and I apologize for not being prompt or specific here, in a kind more of a general answer. First of all, yes, acquisition is part of our growth path, and we said it in the investors meeting that we held last month when we presented the five-year strategy plan. Basically what we are looking at are acquisitions that are fitting to our strategy plan.

Either market share in the generic arena or more specific molecules of technologies that help us to grow and sustain our interesting blended franchise, as for example the licensing of the Phase III OncoGenex product that I just mentioned in my part in the presentation. And if you go back and read our strategy, you can easily find where we are going to concentrate our targeting efforts for acquisition for the next year. Then to complete the answer, I'd like to remind you the three criteria that we are using in acquisition. One I already said, which is it should fit our strategy and the second one of course, the economics, and last but not least, it should be accretive in the first year after the acquisition.

John Newman - Oppenheimer

Okay, great. Thank you.

Operator

Our next question comes from Sebastian [ph] with BNP Paribas. Please state your question.

Sebastian - BNP Paribas

Yes, hello, gentlemen. Two quick questions, one on Copaxone outside of the US and Europe, you had some delayed tender effects in Q4. Is it a catch up from a strong Q3 or should we see you catch up more in Q1 of next year. And secondly, could you provide us with your biosimilar sales in 2009, little bit of color on the breakdown behind that, and also could you tell us what could be the design of the Phase III trial for (inaudible)?

Moshe Manor

This is Moshe. I think as far as Copaxone outside of the US, we see a very good and solid growth. In some market, the question of timing of the tender really affects the sales in this quarter, but overall I think in Europe we see strong, as I said double-digit growth about 13% in 2010 and 2009, and we see really increase in our share, market share in most of the markets in Europe. So, all in all I think apart from the timing, all in all, we have a positive trend in Europe, and in the international market, those markets that we are not affected by tenders. We see goals both in Latin and in other markets as well.

Sebastian - BNP Paribas

Thank you.

Operator

Our next question comes from David Amsellem with Piper Jaffray. Please state your question.

David Amsellem - Piper Jaffray

Hi, thanks. Just a quick question on the Qvar intranasal formulation, any update on when you think you would be in a position to file on that?

Shlomo Yanai

Qvar, and can you repeat your question please?

David Amsellem - Piper Jaffray

Sure, the intranasal formulation of Qvar and beclomethasone, when you think you may be in a position to file on that?

Shlomo Yanai

You know, we are planning to file it in 2011. You are referring to the Qvar nasal?

David Amsellem - Piper Jaffray

Yes. Secondly on the ADAGIO results for Azilect, can you give us a sense of what patient subgroups where you expect to see greater usage with the inclusion of that data in the label, and are you going to be asking for an expedited review as well?

Bill Marth

I think the, definitely the ADAGIO study was around -- based on early patient and that's what we see the major benefit in both -- definitely on early diagnosed patient, but we think that physicians will now, will start much earlier the treatment, and in this segment we believe that we can increase significantly, the share of Azilect, and we see more and more physician that are starting with Azilect versus other therapy or the traditional levodopa.

We believe that we see a good effect based on the data that we have from our add on study on Azilect in the more advanced phase, and we believe that based on the result, and based on the I would say other [ph] effects on the ADIAGO, we see that we see more and more patients are getting Azilect as an adjunct therapy or adjunctive therapy to levodopa, and it seems -- as far as the second question seems to be, as we already discussed the Azilect data, and as Shlomo mentioned we met with the FDA. So we believe that the FDA will have all the information needed in order to look at the data and to come back with their response or their reaction to our file.

David Amsellem - Piper Jaffray

Okay. Thank you.

Operator

Our next question comes from Elliot Wilbur with Needham & Co. Please state your question.

Elliot Wilbur - Needham & Co.

First question for Eyal, on sales and marketing trends, expense trends in the quarter, I know you talked about this a little bit in your prepared commentary, but if you just look at 4Q, saw an up-tick to around 19.5%, kind of the highest run rate for the year, and I'm just curious what may be underlying that sequential increase, and anything you could provide that might help us think about what could be some of the swing factors in terms of thinking about your 2010 guidance, which I think implies roughly a 200 basis point swing between the high and low end of guidance?

Eyal Desheh

I think I said that in my part but there were, you know, two major factors as compared to last year. I mean, the growth in Copaxone, which is driving royalties to Sanofi-Aventis, most of them are going to be eliminated in Q2 2010, which is a major factor as to how to look at it going forward, and the other one is the relaunch of budesonide, which according to our agreement drives royalties, and we had a national launch in Q4, and the level of royalties are reflected in our sales and marketing expenses as a percentage of sale.

As I said in 2010 in my guidance, we believe that the average for the year would be between 16% to 18%. Majority of that results from the fact that we will no longer pay 25% of our sales in the US as royalty to Sanofi starting with the second quarter. So you can make a calculation. It's a pretty big number, and on some of our other products there would be less royalties. It is mostly above the royalty component. The run rate of our regular sales and marketing expenses, the sales and marketing activities is going to be more or less in line with sales or maybe a little less than sales growth because we are going to become more effective.

Elliot Wilbur - Needham & Co.

Okay, if I could ask additional question about 2011 as well. I know someone attempted this at your strategy review and you guys didn't really provide any color on EPS guidance for 2011, but I guess sort of thinking with kind of the big run-up in 2010, given the Copaxone royalty elimination, I guess there's increasing concern that you're facing a relatively flattish year in 2011. I guess wondering at this point if you could just provide some color commentary as to whether or not that's actually going to be a growth year for you.

Shlomo Yanai

I think Bill will be happy to answer that.

Bill Marth

Yes, Elliott, thanks for the question. I think that, you know, really when you look at the answer is pretty simple. We're going to grow in 2011 over 2010. What people seem to miss is that you know, in IMS alone, got about $64 billion, $65 billion worth of innovative value coming off patent between that period of 10, 11, and 12 and our own data shows that we have, you know, we have targets around 100 targets worth about 70ish billion within that same range.

So there is plenty of opportunity you know, and the names you know right, there is atorvastatin, (inaudible) some people forget about olanzapine coming within that same period escitalopram. There is just a litany of products that are available. And the one piece, I would add to that too is remember what Shlomo said in the beginning, we are growing on our balance business model, both geographically and by business segment. So --

Elliot Wilbur - Needham & Co.

Okay, if I could sneak in one more question here since we have Moshe on the line, you guys kind of underplayed the branded pipeline a bit at the strategy review day. I am just wondering if there were any -- a couple of particular events you might want to point to highlight over the course of the year.

Moshe Manor

I think the activities that we presented on the different segments starting with MS, and definitely we see the potential with laquinimod, and we believe this is a product that we can actually bring good value to patients based on as we see the competitive landscape, and based on the -- I would say the efficacy and the safety ways are good ways for that.

We're now going full steam ahead with our vision [ph] and neurology basically with (inaudible), and with the ALS program. So, everything is going actually according to plan, and I think that we don't have any additional news at this point of time. As Shlomo mentioned the licensing of OncoGenex that is what we are planning to continue to do that, and to bring more products, and to develop that all the way to the market, and I think that the activities in bio-G is going as planned apart from as we mentioned NEUTROVAL and Neugranin, which is interesting, a big potential for us, and we are making progress in all of our in -- in antibodies product that we are developing. So all in all I think we are in a good shape to realize the numbers that we presented in our strategy day.

Shlomo Yanai

Let me add by saying, this is Shlomo here, that I can assure you that 2011 would be another yield growth for Teva, as we first of all committed ourselves to growth in the last time that we mentioned our five year strategy. So 2011 is not an exception year. In more specific terms, beside what Bill already mentioned which you think that you can see already based on the pipeline and pipeline projections or anticipation. We are working always on additional business initiatives and some other business ideas that in the size, diversity, and our business expansion, geographical expansion, you may expect that from now till 2011, you are going to see more idea other than what you can see just on looking into our future pipeline.

Elliot Wilbur - Needham & Co.

Thank you.

Operator

Thank you. Our next question comes from David Buck with Buckingham Research Group. Please state your question.

Jim Dawson - Buckingham Research Group

Yes, hi. It is Jim Dawson for David Buck. Where do you stand on generic ODT [ph] and generic Temodar as far as approval timing?

Bill Marth

David, couple of things on the -- with respect to the Temodar. We expect that approval any time. But there is continued court proceedings going on Temodar right now that they have appealed to the -- we expect to appeal to the federal circuit and so that is going to delay us a little bit there. Then to ODT is also in the queue we think for approvals relatively soon.

Jim Dawson - Buckingham Research Group

Okay. Thanks. And what about organic growth in Europe, ex-acquisition or ex-Barr and what is your forecast for the whole year for 2010 and also just pricing outlook currently in 2010 for Europe and Asia?

Shlomo Yanai

Gerard, do you like to take the European part?

Gerard Van Odijk

Yes, I will. As you know David, we do not give very specific information on that level. But I can give you a few perspectives on it anyway, I think if you look at what we have done in the markets where we were not acquisitive, you have seen that we have shown some good performance through last year, and we don't expect that to change in the coming year. As one market, I mentioned I think in the previous quarter, which has been a bit difficult this year, which was the Italian market, but that was across the board, but despite that we managed to keep our number one position there.

We grow our business in Hungary to a number one position organically. We grew our business in Germany to a number four position from number five organically. We grew our business in the UK organically. We grew our business in the Netherlands organically. We grew our business in France organically and in Spain. So I think if I sum it up, these were markets where we were not acquisitive last year or if you take Germany we were acquisitive, but on top of all of that acquisition, we generated some good underlying growth.

So the launch as I mentioned before and our ability to wire our business well into the needs of our major customers, and our specific customer needs in countries have been bringing the ability to grow faster than the market on top of what we have done in terms of acquisitions.

Jim Dawson - Buckingham Research Group

Okay, and then how about, just on pricing, could you just talk about that in Europe and Asia?

Gerard Van Odijk

On Asia, I cannot comment. But I can comment on Europe, that the pricing compared to I think the second half versus the first half, again that it is widespread across Europe, what is happening. We have seen a reasonable stable price setting in the Central European markets. We have seen in segments of the German business, meaning the bid of the German business that was tender driven. Of course, we have seen price competition like we have seen in UK and in Netherlands.

In France and Italy, we have seen some push on prices, but not as bad as expected in the second half. At least in the first half if was more so. It is moving and it goes up and down. So we have also been able to in some places to get some prices slightly improved or to stabilize that. The nice bit about price push is that in many markets we also saw some good volume growth compensating for that. So I think all in all it is a good blend.

Shlomo Yanai

Let me add on, on the Asian part of your question, as you well know, we for the time being at least have relatively very minor business in Asia with few very limited volume of sales in China, in Japan, which as I mentioned in my presentation, we are growing the business there faster by -- and I believe that the acquisition of Taisho would definitely boost our business, and our sales in Japan starting 2010.

In other parts, it is still on the backburner for the time being as I said, but this is one of the long-term projects for Teva once we will solidify our business in this part of the world. And by the way interestingly to add that talking about pricing or price pressure in part of the world that we all have become used to, in the end of 2009 we see at least in one part of the world, which is Latin America, in certain countries price increased, whether it is going to be spread all over other regions in the world. Of course this is still to be seen, but it is interesting to mention talking about the pricing issue.

Operator

Our next question comes from Tim Chang [ph], CRP Capital [ph]. Please state your question.

Tim Chang– CRP Capital

Hi, thanks. I wanted to get some more detail on the GALA [ph] trial. You know how is that going to be different than the SONG [ph] study that you recently completed, and okay, I will just stop right there?

Shlomo Yanai

Well, I think the GALA study is very different from the SONG study. The GALA study is looking at Copaxone on the higher dose of Copaxone and less frequent dosing. And it will be looking at the results of this new dose regimen, and on Copaxone, and while you know the SONG is about the current dose regimen going from 1 ml to 0.5 ml. We are very pleased with the fact that we’ve completed all our preparation and we're going to embark on this study shortly. And we believe that we can executing in a fast manner.

Tim Chang– CRP Capital

How long with the GALA trial be?

Shlomo Yanai

Without going into the detail, I believe that based on our experience and execution, I believe that we can bring this product to the market by 2013.

Tim Chang– CRP Capital

Okay, great. Thanks. And Eyal, I just had one question for you, you mentioned 6% to 6.5% of R&D spending on total sales for 2010, how much of that do you expect to be going to the biologics. It looks like you will try to ramp up this along with the JV, and I sort of wanted to get your thoughts on how much that is going to cost for you in the next couple of years?

Eyal Desheh

Most of the biologic is not in that number because it is done basically in the joint venture with Lonza, which we TL Biopharmaceuticals, and it is not in there. That is why I differentiated in my talking point, between the net R&D, which -- this is the number, it is 6% to 6.5% and the gross R&D, which you can add about hundred million dollars to that. So the total number R&D, which is done outside of the Teva, with further T&L in the joint venture. All in all, for biologics, it is under $100 million for next year.

Tim Chang– CRP Capital

Okay, great. Thanks Eyal.

Eyal Desheh

You are welcome.

Operator

Our next question comes from John Boris with Citigroup. Please state your question.

John Boris – Citigroup

Thanks for taking the questions. Just a question on Apotex. I think if you look at their product line from the two facilities in Canada they line up pretty well with yours. What are your assumptions about Apotex supply. Any kind of price firming and how long do you expect them to be out of the market?

Shlomo Yanai

Bill, would you like to take it?

Bill Marth

Sure. Good morning John.

John Boris – Citigroup

Good morning.

Bill Marth

Just --- it is really tough for us to comment on a competitor like that. I mean, I don't know what they are dealing with with the agency. You know, we hope that they will get through this fine, and I will get back into their position. I think what most people are concerned is that if Apotex comes back online, does everybody go and do a student body right and switch their product back to Apotex from Teva or Myland or whomever, and that is clearly not the case.

Our customers have been very, very loyal. They understand that we came to them when they were in need and filled the gap. So that is -- you know, we feel that, we feel very positive that that is not going to happen. My guess is that when Apotex comes back in, it will be a slow start for them.

John Boris – Citigroup

Okay. And then a follow-up on Prevacid. Obviously the agency hasn't approved the additional generics, what might be holding up the agency and what's your assumption around Prevacid, and how long might you have limited competition on that asset?

Shlomo Yanai

Well on ODT, we think we are again we are in the final -- in final preparation for that approval, it should come in the relatively near term. And then we have a period of exclusivity for that.

John Boris – Citigroup

How about on the conventional formulation, obviously there is others that haven’t been approved?

Shlomo Yanai

You know, Lanzo, if you go back to our earlier comments on this, you know, a year ago, it is not an easy process. And we know what we went through getting our approval, and right now there are three competitors out there, and the market is dividing up very well. We have got about a little bit more than 50% of the market today. We expect to hold maybe a bit under that 50%, but again it is not an easy process. I don't see a lot of people jumping, a lot of people getting into the market immediately. However, I don't know where all the files sit at the agency. I can't really tell.

John Boris – Citigroup

Okay, and then just one last follow-up question for Eyal. Thanks for the color on 2010, but can you just provide some commentary on what your foreign exchange assumption is for 2010, thanks?

Eyal Desheh

We don’t really have too many assumptions. Our base model assumes that exchange rates will be in the vicinity of where they are today. Of course, we know that this is not going to be the case. But as I have said earlier, and we have been discussing this for a long time, the impact on sales would jump right up or down. The impact on profit is minimal because of the balance between the different geographies and the different currencies.

John Boris – Citigroup

Thanks.

Eyal Desheh

The last question coming from…

Operator

Thank you. The final question comes from Dave Windley with Jefferies & Company. Please state your question.

Dave Windley - Jefferies & Company

Hi, thanks for sneaking me under the…

Elana Holzman

Diego…

Operator

Mr. Windley please press star one one more time.

Eyal Desheh

No, okay, then I think we are ready to conclude. Shlomo you want to conclude?

Shlomo Yanai

Yeah, sure. Thank you all very much for joining us today. As you have heard 2009 was another excellent year for Teva, and we are very exited about what lies ahead for us in 2010, and of course beyond. Thank you again and have a good day.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference, you may disconnect your lines at this time. Thank you all for your participation.

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