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Teva Pharmaceutical Industries (NYSE:TEVA)

Q3 2010 Earnings Call

November 2, 2010 8:30 a.m. ET

Executives

Elana Holzman – IR

Shlomo Yanai – President and CEO

Eyal Desheh – CFO

Gerard Van Odijk – President and CEO, Teva Europe

Bill Marth – President and CEO, Teva North America

Analysts

Randall Stanicky – Goldman Sachs

Richard Silver – Barclays Capital

Ken Cacciatore – Cowen & Company

Chris Schott – JP Morgan Chase & Company

David Amssellem – Piper Jaffray

Mark Goodman – UBS

Gregg Gilbert – Bank of America Merrill Lynch

David Buck – Buckingham Research Group

Tim Chiang – CRT Capital

Elliot Wilbur – Needham and Company

John Boris – Citi Investment Research

Corey Davis – Jefferies & Co.

Michael Tong – Wells Fargo

Frank Pinkerton – SunTrust Robinson Humphrey

Operator

Greetings and welcome to the Teva Pharmaceutical Industries Ltd. Third Quarter 2010 Results Conference Call. [Operator Instructions.] It is now my pleasure to introduce your host, Ms. Elana Holzman, Senior Director of Investor Relations. Thank you, Ms. Holzman, you may begin.

Elana Holzman

Thank you operator. Good morning and good afternoon everyone. Welcome to Teva's third quarter 2010 earnings conference 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 Americas; 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 a question-and-answer period.

Before we proceed to 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 third quarter of 2010. This was an outstanding quarter for Teva, a quarter of record-breaking sales across all our geographies and major businesses, leading to record-breaking financial results across the board.

Net sales for the quarter reached $4.3 billion, representing 20% growth over Q3 '09. Quarterly operating profit reached $1.4 billion, a 44% increase over the third quarter of 2009. Net income in the quarter reached $1.2 billion, a 47% increase over Q3 '09. And all of this brought us to non-GAAP EPS of $1.30.

We also had record cash generation during the quarter, with $1.2 billion of operating cash flow and $66 million in free cash flow, an increase of 23% over Q3 '09.

The most important strategic achievement of the quarter was the closing of our acquisition of Ratiopharm on August 10, and as you know, last week we signed an agreement to acquire Theramex. I will elaborate on both of these a bit later.

It was an exceptional quarter for Teva in North America, where sales reached $2.7 billion, up 22% over the third quarter of 2009. [Inaudible] [general expense], which approximately $1.6 billion, up 34% over Q3 '09 on the strength of our launch of Venlafaxine ER, our generic [inaudible] and mixed amphetamine salts, our generic version of Pulmicort Respules, and Adderall XR.

It has been an especially great year so far for Teva in the U.S., where we have introduced 17 new generic products since January. While we are on the topic of U.S. generics, I would like to provide a quick update on the status of our pending generic Lovenox application.

We recently met with representatives from the FDA to discuss the status of our ANDA. During the meeting, we confirmed that our version of generic Lovenox meets the FDA's criteria to demonstrate chemical sameness, and accordingly that data related to immunogenicity are currently under the Office of Biological Products.

This was also an outstanding quarter for Teva in Canada, where our ability to capture market share in a competitive landscape and our closing of the Ratiopharm acquisition has made us the number one player in the Canadian generic market, based on the dollar share of the market.

Let's turn now to Europe, where, following the closing of our acquisition of Ratiopharm, sales crossed the $1 billion mark, up 21% over Q3 '09, or 33% in local currency terms. Sales were up in all major European markets, on the [inaudible] growth of the Ratiopharm business, and excellent growth of Teva's revenues in key markets like Italy, Spain, Poland, Portugal, and Hungary.

In several other markets, including Germany and France, we experienced pricing pressure during the quarter. In Germany, our largest market, certain reforms impacted our prices. Nevertheless, we are pleased to see continual growth of our Teva portfolio in Germany on top of the growth we experienced from the addition of Ratiopharm's business. The combination of the two businesses resulted in net growth in market share over Q3 '09.

Immediately upon our closing with Ratiopharm on August 10, our integration teams were hard at work, and I'm pleased to report that the integration is right on track. The more deeply we get to know Ratiopharm, the more excited we are about what our combined company can accomplish.

In addition to our leadership in Europe and all its key markets, we are very well-positioned to compete in every important business segment, from [inaudible] generics, to OTC, to hospitals, to specialty and innovative niche areas and biosimilars. We are confident that we will be able to achieve our objective of $400 million in synergies. In fact, we are already realizing synergies.

Some of you joined me last month on a visit to Ratiopharm's headquarters, and I think that the experience of meeting the outstanding Ratiopharm team, seeing the efficiency of the operation, and understanding the strength of Ratiopharm's market position and brand in Europe makes it clear why we are so enthusiastic about the possibilities that lie ahead for us for our company.

Turning back now to our results, Q3 was another excellent quarter for our international business, where sales reached $525 million, up 13% in local currencies over Q3 '09, driven by especially strong sales in Latin America, Israel, and Russia. In Latin America, every one of our local business units, including Argentina, Mexico, and Chile, grew faster than the market, contributing to a 20% increase in sales in local currencies.

Once again, it was a record-breaking quarter for Teva's innovative business. Global in-market sales of Copaxone, the world's leading therapy for the treatment of multiple sclerosis, grew to over $800 million. We enjoyed good unit growth in Europe and in the U.S. Copaxone sales grew by 9%.

According to IMS data, Copaxone continued to grow its leading market position in the U.S. with a record share of TRx of 40.3%, and a [49.1%] market share of NRx. Clearly, Copaxone efficacy, its superior safety and [vulnerability] profile, and the fact that it is the only M.S. therapy on the market with compelling, long-term data, continue to make it the first choice of physicians.

The MS community values Copaxone and the many product innovations and services we regularly provide as the category leader. Teva is committed to continuously improving the patient treatment experience and continuously strengthening Copaxone's leadership position through ongoing clinical research.

As you all are aware, our [inaudible] trial examined a lower-volume 0.5 mL injection of Copaxone, for which Teva submitted an FNDA. We have had recent communication with the FDA on this lower-volume product, and conclude that the clinical data to establish similar efficacy of this new concentration and the currently marketed product will be required for approval.

To support the approval of our FNDA, we have supplemented clinical trial data on our [fourth] study, which was designed to assess the efficacy, safety, and [inaudible] of glatiramer acetate in the same concentration. And I am pleased to update you that recently we received a notice of allowance on our patent related to our 0.5 mL product.

Let's go now to Azilect, sales of which grew 28% over Q3 '09 to reach a record $81 million. Sales were especially strong in the U.S., where Azilect is the number-one [inaudible] Parkinson's disease therapy on the market.

Q3 was a great quarter for Teva's women's health franchise, which grew 13% over Q3 '09, driven primarily by exceptional growth of our Seasonique and ParaGard brands. We also had strong sales of Plan B One-Step, up 55% over the second quarter.

Last week we were excited to announce another important addition to our global women's health business. Our acquisition of Theramex, with its diversified product portfolio, seasoned sales force, and promising pipeline, will accelerate the expansion of our global women's health franchise and provide a strong platform for [inaudible] of our existing products in key growth markets in Europe and the rest of the world.

Theramex's main markets are France and Italy, two core markets in Teva's European strategy, and as part of the agreement, we will be taking over Theramex sales in a number of countries including Spain and Brazil, which are also key markets in our long-term growth strategy. By combining Theramex products and pipelines with existing products and our strong R&D capabilities, we will be creating a powerful new global women's health division, and we are very excited about the prospects for this business.

Our global respiratory sales reached $207 million, a decline of 15% compared to the third quarter of 2009. It is important to recall that in Q3 '09 we benefitted from earlier and greater sales due to the severity of H1N1 and seasonal flu viruses.

ProAir continues to maintain its market leadership position, with 49% market share and Qvar ended the quarter with a 20% share of new prescriptions in inhaled corticosteroid market, a new high solidifying our number-two position in that category. We are excited about the future of our respiratory franchise and we are looking forward to sharing with you more details about our respiratory portfolio and R&D at our investor meeting this Thursday.

Before I pass the call over to Eyal, I would like to provide you with an updated outlook for 2010 sales to reflect the inclusion of Ratiopharm. We now project 2010 revenues to be approximately $16.4 billion. We continue to expect that our 2010 EPS will be in the range of $4.50 to $4.60, which includes approximately $0.03 dilution from the Ratiopharm acquisition. The acquisition will become accretive on a non-GAAP basis in the first quarter of 2011.

We are now developing our work plan for 2011 and beyond, and we are extremely enthusiastic about the many opportunities that lie ahead for Teva as we look forward to another year of continuous profitable growth.

Thank you for your attention and now let's turn the call over to Eyal for a more-detailed financial update. Eyal?

Eyal Desheh

Thank you very much Shlomo, and good day to everyone. I hope you have had an opportunity to review the press release we issued earlier today.

As you can see, we recorded another excellent quarter with all-time highs in sales as well as gross profits, operating profits, net income, and earnings per share on a GAAP and non-GAAP basis, completing a very strong first nine months and heading to an excellent 2010. We also reported record cash flow from operations of $1.2 billion and free cash flow of $866 million, both representing impressive record results.

Before we delve into the numbers, I would like to touch on two technical topics. 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: amortization of purchased intangible assets amounting to $144 million. Amortization of Ratiopharm intangibles will commence in Q1 2011. And we adjusted for an inventory step up of $54 million relating to the Ratiopharm acquisition, non-cash impairment of long-lived assets and intangible assets of $27 million, restructuring and acquisition costs of $27 million related mainly to the Ratiopharm acquisition. These expenses were offset primarily by financial income of $45 million related to hedging activities in connection with the acquisition of Ratiopharm. And in addition, the related tax benefits of all of those items are $74 million in total.

You should note that the items excluded in arriving at our non-GAAP results were both in the current quarter. Please review our press release and related tables for reconciliation to our GAAP numbers and more complete information. As indicated in the past, we present non-GAAP figures to show you how we, the management team and our board, look at our financial results.

Second, foreign currency continued to play a significant role in our results with different impact on P&L and the balance sheet as I will detail below. In the third quarter, foreign currency differences had a negative impact of approximately $122 million on sales as compared to Q3 2009. The impact on sales resulted primarily from the strength of the U.S. dollar relative to most European currencies, which was partially offset by a decline in the value of the U.S. dollar relative to other currencies.

Nonetheless, the impact on operating profit continues to be negligible with a negative contribution of $6 million. Teva's diverse geographical presence continues to provide us with a good natural hedge that mitigates much of the P&L risk involved in currency fluctuation and minimizes the impact on our bottom line.

Before I review the P&L in more detail, one more comment on the impact foreign exchange had on our balance sheet, namely on our equity, which was a positive one. The weakness of the U.S. dollar September 30, primarily relative to the European currencies, increases our equity by approximately $1.5 billion compared to June 30 because of the impact of translation differences on long-term assets such as goodwill and other intangible assets as well as cash balances held in euros. We expect the translation differences will continue to cause fluctuation in our equity as we have significant assets, mainly goodwill and intangible assets, in non-U.S. currencies.

Looking at our consolidated results for Q3, sales totaled $4.3 billion, an increase of 20% compared to Q3 last year. In local currencies, we delivered an even higher growth of 23%. About 55% of our growth was organic, while the rest resulted from the first-time consolidation of Ratiopharm.

North America, which grew 22%, delivered record generic product sales and strong profitability. Europe grew by 21% in U.S. dollars and by 33% in local currency terms, due substantially to the first time consolidation of Ratiopharm results.

Sales in the international markets grew by 7% in U.S. dollars, and by 13% in local currency terms. Non-GAAP operating income reached $1.4 billion, up 44% compared to Q3 2009, benefitting from strong gross margins, tight expense control, and the take-back of the tax and royalties on North America sales from sanofi-aventis. Non-GAAP net income reached $1.2 billion, up 47% compared to Q3 2009. Non-GAAP fully diluted earnings per share were $1.30 per share, up 46% compared to Q3 2009.

Two housekeeping points related to earnings per share calculations. The weighted average share count for the fully diluted non-GAAP EPS was 921 million shares, and the add back for the non-GAAP EPS calculation was $11 million.

Now let's discuss profit margins and operating expenses. Non-GAAP gross profit margin, which excludes amortization of purchased intangible assets, was 62.5% in the reported quarter, compared to 58.2% in the quarter last year, due primarily to favorable product mix. Gross margin continues to benefit from contributions from new and recently launched generic products in the U.S., solid gross margins of the U.S. generic-based business, and the contribution to sales of our innovative and branded franchises. Gross margins also benefitted from our continued efforts to improve efficiencies.

Please note that this quarter's high gross margin is an exception to our long-term gross margin range of 57% to 60%. Non-GAAP operating margin reached 33.9%, up 5.8% from 28.1% in Q3 2009, mainly contributing to the exceptional operating margins where high gross margin and the termination of payments we made to sanofi-aventis over the past two years of 25% of Copaxone in-market sales in the U.S. and Canada.

Net R&D expenses were up 22% compared to Q3 2009, reaching a record of $239 million or 5.6% of sales. Gross R&D before reimbursement from third parties for certain R&D expenses and R&D investment in our partnership with Kowa and Lonza was $248 million, or close to 6% of our sales.

The growth in net R&D over the comparable quarter last year is attributed to both our branded and generic R&D activities. The increase in the branded R&D expenditure reflects progress mainly in the [inaudible] related activities as well as biosimilars and respiratory products. We now expect that for the full year net R&D expenses will be approximately 6% of our net sales.

Selling and marketing expenses, including amortization of purchased intangible assets, totaled $742 million this quarter, or 17.5% of sales compared with 18.6% in Q3 2009. As already mentioned, the decline in selling and marketing expenses as a percentage of sales resulted primarily from the termination of payments to sanofi-aventis, which were recorded as sales and marketing expenses. They were partially offset by higher royalty payments in connection with new and recently launched generic products in the U.S.

Total G&A expenses this quarter were $236 million, or 5.5% of sales, compared with 6% of sales in Q3 last year. The synergies from the Barr acquisition and tight expense control continue to contribute to the decline in G&A expenses as a percentage of sales.

We recorded $48 million of net financial expenses on a non-GAAP basis in Q3, compared with $52 million of non-GAAP financial expenses in the comparable quarter of 2009. The lower financial expenses resulted from lower interest rates on our outstanding debt, offset by higher levels of debt in the reported quarter following the acquisition of Ratiopharm. You should note that we excluded from our non-GAAP financial expenses in the quarter a gain of $45 million realized in connection with hedging the Ratiopharm acquisition.

Tax expense provided for the third quarter was $207 million on pre-tax non-GAAP income of $1.4 billion. Our current estimate of the non-GAAP annual rate for tax for 2010 in the whole is 15% compared to 16% for all of 2009. The estimated tax rate for 2010 on a GAAP basis is 12%.

Now let's have a look at our cash flow. Cash generated from operations this quarter totaled $1.2 billion, up 16% compared to Q3 2009. Our free cash flow, excluding gross capital expenditures of $175 million, and cash dividends of $167 million, partially offset by profits from the sale of certain assets of $14 million amounted to a total of $866 million, or 23% above Q3 2009. The increased cash flow was driven by strong sales and collections in the quarter.

On September 30, cash and marketable securities totaled $1.2 billion, down approximately $4 billion from June 30 as we used more of the cash on hand to pay for Ratiopharm. Our total outstanding loans, bonds, and convertible [inaudible] stood at $7.1 billion, only slightly up from $7 billion as of the end of June. Our debt remains essentially unchanged as we incurred additional debt in connection with the acquisition of Ratiopharm, while we paid off the debt incurred with the acquisition of Barr completely, as well as other bank debt. The debt incurred in connection with our acquisition of Barr is now fully paid.

Our financial leverage as of September 30, 2010 was just under 25%, down from 27% at June 30. DSO, days sales outstanding, amounted to an exceptional 42 days this quarter as the result of very strong out of quarter collections, compared to 50 days in the previous quarter. We calculated the DSO after netting out from the receivables our sales reserve and allowances, and we always do this.

Inventory days accrued at 178 days compared with 172 days in the previous quarter, or 195 days in Q3 2009. Net capital expenditures reached $161 million this quarter, compared to $90 million in Q2 2010. To remind you, in Q2 2010 net cap ex included proceeds of $46 million from sale of certain assets, versus $14 million, which are included in the prior quarter.

And now for dividends. Yesterday Teva's board approved a quarterly net dividend amounting to approximately $173 million. On a per-share basis our dividend, which is declared in the Israeli shekel, is 0.7 shekel per share. [Based] on yesterday's [inaudible] exchange of the shekel to the U.S. dollar, this translates into approximately $0.193 per share.

Thank you all for your time and attention today, and now we'll be glad to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions.] Our next question comes from Randall Stanicky with Goldman Sachs. Please state your question.

Randall Stanicky – Goldman Sachs

Just a quick one for Eyal, and then a follow up. I know we can all do the math, but can you just for the 4Q implied EPS, that's $1.21 to $1.31, and that reflects the $0.03 of dilution from Ratiopharm, is that correct?

Eyal Desheh

Yes. That is true for the first five months. Of course it's improving every month, and as Shlomo mentioned, Q1 2011 will already be accretive.

Randall Stanicky

And then Gerard, can you just help us a little bit more with Europe? Maybe just spell out a little more clearly what was the constant currency growth? I know you talked about a 5% constant currency back half outlook, and how are we tracking there? And then maybe which are the countries where you're seeing the most weakness versus where some of the offsets are coming from in terms of potential growth?

Gerard Van Odijk

I think what we've seen in the overall growth in Europe, we've seen no surprises as I've said before. We've seen some movement in some markets that were, as Shlomo mentioned, I think we saw in Germany and other markets a bit of price pressure kicking in August.

But all in all, I think if you go Southern Europe it has shown what we expected it to be. The markets showed positive dynamics. It has been turbulent, but we believe that for us it's been quite relatively well done. I think if I look at the Ratiopharm itself it's only two months after we just closed the deal and it's a bit early days to expect any positive sales synergies, but it's clear that as Shlomo said everything we've seen we like.

In Germany, reforms announced earlier this year started as expected in August, as said, and despite that our Teva German core business developed well, and in addition I would say that the combined market share of the two companies we gained a little bit versus last year.

Italy, Spain, and also Eastern European markets like Hungary and Poland are growing quite well and we did very well in there, and I think if you add of these things together for us this was a solid quarter. It was not like Q2 but it was a very solid quarter and we're very happy to see the first very positive signs of having the Ratiopharm business in there.

Randall Stanicky

But are you still tracking consistently with that mid-single-digit constant currency growth rate going forward that you highlighted last quarter? Is that fair to say?

Gerard Van Odijk

We haven't seen big movement [inaudible]. If you take the market with Germany included it's in the low-single-digits. If you take excluding Germany it's in the higher single digits, and that's still tracking very well. If you look at our current performance year-to-date it's been quite well, it's in the middle double-digit numbers and you can perhaps do the math yourselves as well if you do the strategic planned outlook for us in 2015 we need to deliver after Ratiopharm about 10% CAGR over the year and we're well on track of delivering that.

So we're outperforming the market. The market is more or less in line with what we do. Every quarter is different. In one quarter you have tenders kicking in and in another quarter you've got a price measure kicking in. In other quarters you merge with another company, so there are a lot of moving parts in this quarter-on-quarter comparison, but the underlying trend is exactly in line as I've declared before.

Operator

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

Richard Silver – Barclays Capital

First question is on the low volume Copaxone. Can you just tell us what the timetable is for approval, whether this date of submission, which you said the data has been submitted, changes the PDUFA date? And then you have a notice of allowance on this patent. Assuming that it issues and it's listed in the orange book, what might that mean or not mean in terms of P4 filings, 30-months days, etc.? Followup question is on the gross margin. Eyal, when would you expect the gross margin to be back in that 57% to 60% range? Could it be as early as the fourth quarter, or is it more likely sometime in the first part of next year?

Shlomo Yanai

Okay Bill, will you take the Copaxone question and then Eyal will follow on the gross margins?

Bill Marth

Sure. Rich, thanks for the question. There's a lot to talk about on the Copaxone 0.5 FMDA, and I think a lot came out of our interaction. Several points are mutually agreed upon, and that being the unknown method of action and the lack of PK measurement, and what we've concluded basically is there's no known shortcuts for glatiramer acetate. So that's very, very important. And I think when you think about this broadly, a clinical requirement for even a change of concentration has broad implications for any type of follow on product or generic products. So I think that's an important point to make, and then the fact that we're supplementing the file with clinical data from Forte with over 1,000 patients, if accepted significantly improves the treatment experience of over 100,000 MS patients in the form of an enhanced product with the requisite three-year exclusivity would be likely. So I think those are all very positive things as we think about this FNDA.

Your question on the notice, it generally takes a couple of months for the patent to be issued, and I would remind that in a case on the 0.5 we could eventually use all the patents in litigation as well as 0.5 mL patent.

Richard Silver

But what about the PDUFA date and the timeframe for approval?

Bill Marth

There's really no change at this point.

Richard Silver

So the additional days doesn't mean that the action that we would expect on January 1 would be any different than we would have expected without that supplemental data?

Bill Marth

Good question. What we did is we've supplemented with this data, now the agency will look at this data, the completeness of this data, decide what they want with this data and they may reset that PDUFA clock, but they may not. So we'll have to wait and see. That's a dynamic we can't really do anything about. But hopefully this is a much better situation for us. We're very pleased with it.

Eyal Desheh

Regarding gross margin, gross margin in Q4 is expected to be back below 60%. If you took Shlomo's focus for the year and extracted what we've done in the first three quarters you have a number for Q4. So sales are higher, but there is more [inaudible] in it which comes with a lower average gross margin that what we have delivered in the components inside, between generic, [inaudible] for generic launches and other products is a little different than in Q3. So by and large we're going to be below 60% which is where our natural area is.

Operator

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

Ken Cacciatore – Cowen & Company

Bill, I don't want to dwell too much on your comments on Copaxone, but I guess maybe just circling back a little bit, can you just describe the low-dose formulation and maybe a little bit more on your interactions with the agency. What level of nuance did you get into? Was it discussions about the potential for doing biological assays, biochemical assays, on your low dose? Were there discussions about doing PK specifically, an ability to do the PK studies? I think you hit on it, but maybe just even a little bit more about that interaction so we have a better sense in thinking about a generic Copaxone.

And then also - well, why don't I let you answer that and I'll have a follow up.

Bill Marth

I think I pretty well said it, but I would just reiterate that there are many points of discussion and we can't talk about all the discussion with the agency, but the conclusion again remains that we're similarly situated with an unknown method of action. Again, there's a lack of PK measurement, so we can conclude that there are no known shortcuts for glatiramer, and with no known markers there's no other way to go other than a clinical requirement.

Ken Cacciatore

Maybe on the litigation front can you just give us an update of what's happening there following the summary motion in your favor. Can you talk about steps forward that you can take or are planning on taking?

Bill Marth

I think it will probably be helpful to kind of walk you through the process because I think there's maybe some misunderstandings out there. Because we have an excellent understanding of the litigation process and thus far we are really pleased at where this litigation process is going.

Mylan and Momenta have been essentially consolidated for all purposes and trial, so I think probably the best way to do it would be to take you through the anticipated flow. So Mylan's construction hearing will be on January 12, after which some period of time Judge Jones would issue the claims construction. We will then proceed to summary judgment.

Now the summary judgment is an undefined period, but it could be a substantial period of time as due course to go through summary judgment motions. After the summary judgments are ruled on it's about a 30-day process. Judge Jones will bring us in for pre-trial conferences. After that pre-trial conference she'll set a trial date. We will begin the trial. We expect it to be about a two-week trial and then Judge Jones will render a decision at the appropriate time. I mean that's pretty much the course. But we feel really good about where we're at right now.

Operator

Our next question comes from Chris Schott with JP Morgan. Please state your question.

Chris Schott – JP Morgan Chase & Company

Just another follow up on the low-dose Copaxone data. I think you mentioned 1,100 patients. Can you just remind us how long a duration of therapy we saw with that data set? And then the second question on Copaxone, can you just talk about your expectations for the growth of this product with the introduction of Gilenia, and as you discuss that, do you anticipate Copaxone will remain at a price discount to Gilenia over time?

Bill Marth

With respect to the data, the Forte data is a one-year study and again, it's about 1,100 patients dosed on various - the 20 mg and the 40 mg. And the second question was?

Chris Schott

The growth dynamics for Copaxone with the new competition in the market, and thoughts around the price discount we see for Copaxone versus Gilenia at this point.

Bill Marth

We still anticipate revenue growth for Copaxone in 2011. As far as the pricing flexibility on Copaxone because Gilenia has come out with a relatively high price we really can't comment at this point in time. We are much lower-priced. We don't like to be too low. I've always said that what I consider the standard of care in the MS market should not put us in third or fourth place on pricing. So we'll just have to wait and see how that works.

Operator

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

David Amssellem – Piper Jaffray

Just coming back to that Copaxone litigation, just so I'm clear, is it your expectation that the trial date will be sometime in 2012, and given the protracted process is it your view that the FDA will necessarily have any sense of urgency in terms of reviewing the filings from Momenta and Mylan?

Bill Marth

I think to say that the trial is in 2012, that is not unreasonable at all. That would be fine. With respect to how fast the FDA moves on approving their products, or processing their file, that's very difficult to say. That's something that happens within the FDA. But we know from our experience with enoxaparin that it took a very, very long time, and the FDA didn't get tremendously motivated until litigation was done.

David Amssellem

And then just one more question. Can you just comment on your appetite for further presence in Brazil? It's a hot market these days. It's attracting a lot of interest in the states. Can you talk about your thoughts on this market? How you're looking to further build your business there?

Shlomo Yanai

As you know we are active in generic and in branded as well, and as I said when we presented our long-term strategy plan we mentioned, and I pointed out, some key countries for our expansion for generics, and Brazil was on that list as well. So Brazil definitely represents an opportunity but there are others in some other countries, in key generic markets that we are also excited about the opportunities that lay ahead for us. And as you know in M&A activity it's a very opportunistic arena, so I cannot refer to anything more specific on any given market or target.

Operator

Our next question comes from Mark Goodman with UBS.

Mark Goodman – UBS

Can you talk about this rest of world line a little bit? Russia, Eastern Europe, Japan - inputs that go into this line item and give us a sense of what's the normalized growth rate there? We didn't have any acquisitions that impacted the numbers, so I would think this is all Teva. Can you give us a sense of what's going on there please?

And then there was a comment that there was pricing pressure specifically in France and Germany. I understand the German tender. Can you just talk about France and what kind of pricing pressure you saw there and what we should expect there?

Shlomo Yanai

Let me first take the question on let's call it the international arena, or the rest of the world if you skip North America and Europe. I think that we are doing very well in that part of our business and roughly speaking this area is growing 17%, quarter-over-quarter.

But I think if you deep dive into the countries then you may see, or I may comment, that Russia is doing very well for us on generics and OTC. We have a double-digit growth there and we're expecting continuous growth for the next years in this very important market.

As for Japan, this is an accounting issue. This is a JV, and therefore we are not recognizing since, but we are doing there very well. Actually we are on a runway of more than $200 million per year of sales. And if you add it to our international activity, then actually we are roughly speaking on the 16% growth, which is in line with our long-term strategy expectation. And of course this is an attractive part of our business, or definitely [inaudible] going to provide us growth is in line with what we plan for the coming year.

And your second question please?

Mark Goodman

Pricing in France.

Shlomo Yanai

Would you like to add to that Gerard?

Gerard Van Odijk

I think I'll start with Germany and then I'll hop over to France. First of all, when we talk about Germany we need to distinguish between what's happening in the innovative part of the market in Germany versus the off-patent market. The German government has increased mandatory rebate for innovative products from 6% to 16%, and they also have installed a price freeze at a level of Q3 prices last year - August last year.

And for the off-patent market, we have seen an adjustment of maximum reimbursement prices in the marketplace, which is sort of a recalculation they used to do every couple of years and they've done this year twice. So that's all.

Despite all of that, the German gross generic market has grown 4% this year in any case. In terms of net sales, and I think that's what you sometimes pick up when you listen to other talking about the German market, it's very difficult to calculate the impact of all of that for each individual player in the market because rebates and portfolio diversity is very difficult to look at it differently. In our case as I've said, we've done reasonably well. We gained a bit of share in that.

In general, the tender segment, that is the low-price segment, has continued to grow but it's not growing faster as we have forecasted before. And it has been more or less stable during 2010. We also expect it to expand during the next few years, but that's what we've modeled for anyway with all of our expectations, also when we acquired Ratio.

In other segments, like OTC, hospital, or even the semi-branded products were Ratiopharm and we see an even more stable market environment in Germany. So yes, you see price dynamics in Germany. They're moving in the same direction as we've seen it. But it's only in half of the market really significantly.

If you take France, in August last year the government decided to take a serious price cut out of two different types of products, the proton pump inhibitors, the acid reducers, and the statins, the cholesterol lowering groups. That had an impact around about $100 million total market. This year, and that's now just [trickling] through [inaudible] as we go through the year.

What you also see is that it was an announcement in the summer by the French government to take some quite forceful measures into the budget of the healthcare system. After detailed study you will find out that only about $100 million of that is currently some sort of earmark as being a price decrease on the gross prices of generic pharmaceuticals in the French healthcare system. How that is exactly going to be implemented is currently unclear, but it's clear that there is serious talk about that, and we're waiting for that to play out further.

Shlomo Yanai

If I may comment, because I understand that Europe is getting a lot of [attraction], the price question and I'm going to comment in a very [inaudible], I think that when you are a market leader in generics price pressure is something that is part of your business environment. I used to say that in the United States this is a constant price pressure every year and it's become part of the business environment that you guys aren't even questioning it any more. Price erosion in generics is part of the business environment and it grows also with something that's called more market share. And as a market leader I believe that we know how to manage this kind of phenomenon and to increase our market share to exceed the impact of the price pressure. And that's of course not relating to any specific quarter or market or countries, but I believe that's one of the things that we are doing for many years and with a nice track record.

Operator

Our next question comes from Gregg Gilbert with Bank of America Merrill Lynch. Please state your question.

Gregg Gilbert – Bank of America

One for Bill and then one for Shlomo and/or Eyal. On [inaudible] being in the U.S. are you confident that your tentative will go final on November 15, and are you confident that afterward you will be supportive of the [CBE-30] approach to transfer the product and minimize the delay?

Bill Marth

There's still a process that we've got to go through. You can never be sure that the FDA's going to convert you in a rapid manner. We hope to get it converted. We have time. We know that the forfeiture rules leave us until January, so we'll do our best to make sure that we get it approved and hopefully out the door by then.

Gregg Gilbert

And then I have a question for Shlomo and Eyal. I know that the company believes that acquisitions are still the best way to maximize shareholder value, but I have to ask has the thinking of you and the board's shifted at all to a more balanced approach of acquisitions plus a more aggressive dividend and/or share repurchase strategy? It seems to me that the absolute level of cash flow you're generating these days calls for at least a slightly different look at your cash deployment strategy. Unless, of course, you think you should just continue to do larger and larger acquisitions over time.

Shlomo Yanai

Thank you for the question. It's a very broad subject, and I'll try to be sure, because it deserves more than just a quick Q&A session time. But roughly speaking, we are trying to follow our long-term strategy, which we're of course reviewing every year and from time to time and we think there is a reason for that. And we still believe that growth is the major value driver for our shareholders, and when it comes to the acquisition part, which let me remind you as we said about a third of our growth will come from acquisition, and two thirds from organic growth. And we are active in looking for acquisitions in generics, which is more about increasing our market share in attractive markets, but also in the branded, where we'd like to strengthen our branded part of the business. We have right now four interesting and attractive franchises.

Let me just highlight last week's announcement, which is a typically branded kind of acquisition. And as for size, I don't think the size is the issue. As you know, in our size, and with the strong cap generation of Teva and we believe we will have the needed resources. It's more about the strategic fit to our strategy and to our famous strategic criteria, which one I've already mentioned, strategic fit. But it should also, of course, be associated with good economics and accretive within a year after the acquisition. And that's how we're actually managing this part of our business.

Eyal Desheh

Maybe one more comment on that. I think you're all seeing what we're doing with cash. We've generated cash, we use it to pay back our debt, then we take that in order to finance acquisitions. The ROI of our acquisitions, we have an excellent track record and the return on acquisition or return on investment and now we go around, generate more cash, and pay back those debts. So far I think it's worked very well in generating value and I think that you asked about dividends. We're currently at the 1.5% dividend yield. We see ourselves as a growth company, and we need to have the right balance between all the factors and how to create shareholder value. And I think so far we're more or less in that balance.

Operator

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

David Buck – Buckingham Research Group

First, confirmation from Eyal. I think you said that 55% of the growth was organic. Using those numbers it looks like Ratiopharm was about $315 million in contribution for the quarter. Can you just confirm that and whether there was some seasonality associated with this in the third quarter or weaker quarter.

And then for Bill, can you give us an update or some kind of quantification, or qualitative, on what the impact of Venlafaxine might have been in the quarter, and a reminder of how competitive you expect that market to be after six months.

Eyal Desheh

I do confirm the number, 55% of the growth was organic and Ratiopharm contributed 45%. Remember, it was only a couple of months, or a little short of a couple of months. And the third quarter seasonally is a low quarter, so when we compared it to what we had in our plan it was right on the money and we're happy with the results.

Bill Marth

On the Venlafaxine, I guess the public record would suggest that there's likely to be not as many players in the first part of 2011, but it's hard for us to really have visibility to the players that haven't settled. So that makes it a bit unclear for us. Other than that, we had an excellent quarter with Venlafaxine. The conversion rate was tremendous, and so pretty much as you would expect it to be.

David Buck

And then just one follow up, also for Bill. Any sense of timing of when you might see an enoxaparin response?

Bill Marth

No, I don't think we have any update from our prior comments, but as we said, we did meet with management and we do know that we've established sameness and that we are with OPD, so that's very important and we're very pleased.

Operator

Our next question comes from Tim Chiang with CRT Capital. Please state your question.

Tim Chiang – CRT Capital

Gerard, I had a question in terms of Europe. You've talked about steady market share gains, and with Ratiopharm how will that accelerate your position in Germany if you look out a year? Is the goal to become the number-one pharmaceutical company there?

Shlomo Yanai

Yes, but I'll let Gerard answer the question.

Gerard Van Odijk

[Laughter.] Thank you Shlomo for teeing this one up. First of all, yes, definitely. We have the ambition to go after the leadership position in Germany. Actually we were very enthusiastic about the acquisition of Ratiopharm because it would give us a critical mass and punching power in quite a few markets in Europe that would lift us up and that would allow us to fight for synergistic strength in our top line generation.

First of all, in Germany I believe the total constellation of our portfolio book of products and customers will allow us to really take advantage of the size. Everything we see within Ratiopharm is making us enthusiastic there. I'm spending, myself, quite a lot of time in Ulm and I can tell you it's a real enthusiastic and opportunity rich field for us over there. Bringing together the Teva global strength and the strong reputation and brand [inaudible] value in Germany that Ratio brings is clearly something that is going to deliver us much more than just maintaining the dynamics as they are. There is a lot of potential for positive synergies.

But it's also true outside of Germany. I take, for instance, markets like Italy and Spain, where we will clearly separate ourselves from the pack with this merger of these two companies. We'll be number one in Spain. We are number one in Italy. We're not only number one on a national level but also in the different sub-regions that are important in these markets. As you know, it's sort of a devolved decision making system, and that should allow us also to take advantage of the strength and the knowledge of the different customers. There's very little customer overlap, so we can take advantage of each position and enrich our position.

If I take France, by now we can claim to have the broadest portfolio that we can offer to the marketplace for all of France, which is bigger and broader than the number-one in France, who are my American colleagues. So that should give us also some leverage there, which should translate into very positive dynamics. So to give you just a few elements there.

On top of all of this, there is some sort of consolidation at European scale going on with our major buyers, our major customers, the wholesalers with their retail chains. They prefer to work with a company that has a broad and a strong presence in each of the key markets and we have the exact right profile for that now. So that's also something that I have a lot of confidence in that it will bring extra value.

Tim Chiang

Just a quick follow up to that. What role does vertical integration play in this whole European market? You guys have always been sort of viewed as the leader and being vertically integrated, and I guess that should provide you some benefits longer term in terms of operating margins. Could you comment on that?

Shlomo Yanai

Absolutely, and you have touched a very important and good point, part of our tools, so to speak. How to do the job in the European arena is based on our advantages back integrated. Many of the acquired companies have third party suppliers, and we are going to bring back home part of these products, so it's definitely one of the best ways to generate more value, improving our margins by taking the advantage of this back integration.

Tim Chiang

Is it too soon to quantify what sort of benefits you can get on the operating margin side at this point? Do you think you'll be able to provide a little bit more color in the next year on that?

Shlomo Yanai

I don't think I can share with you our numbers on that. It's a process. As you well know, transferring product from suppliers takes time, but it's not a long time, and this is part of our integration and long-term planning in Europe while we're integrating the companies. We did it with [inaudible] and now we are doing it with Ratiopharm, and that is again part of the way we are going to maintain our differentiation or how to differentiate ourselves in the market versus part of our competitors.

Operator

Thank you our next question comes from Elliot Wilbur with Needham and Company. Please state your question.

Elliot Wilbur – Needham and Company

Just if at all possible we could drill down a little bit more on Copaxone ex-US trends. We're trying to get a sense of the negative impact of austerity measures versus timing of purchases and some of the other factors that were cited for the year-over-year decline. And then secondly, maybe just for Bill, can you give us an update on the Irvine injectable facility, where you are in terms of reintroduction of products?

Shlomo Yanai

As for Copaxone on the non-U.S., if you take out the FX impact and the fact that in part of the non-U.S. countries we are selling our Copaxone by governmental tenders, which sometimes are not necessarily occurring during the same quarter, i.e. there was a shift between the quarters, then actually we even grow the Copaxone market share in the quarter. These two elements that I mentioned, the FX and the tender shift is why you see actually a negative growth year over year and to a very small degree it is also some price in those countries that were mentioned, a price reduction in Europe. But the major part of that decline is FX and the tender proc. Bill, will you take the next question?

Bill Marth

Yes. With respect to Irvine, there's probably not a lot new that I can add. We anticipate startup between now and the end of the year. At some point during that startup process the FDA will come in and do one more inspection, and we've discussed that with them. We have released a number of products, as we've talked about before, in cooperation with the agency, most of which are medically necessary and important products for the market. So we're proceeding along with our plan.

Operator

Our next question comes from John Boris with Citi Investment Research. Please state your question.

John Boris – Citi Investment Research

Question for Bill on Copaxone. Can you just give a little bit better clarity on the type of intellectual property that's going to be issued? Is there a device involved? Is there any competitive advantage that you'll have with using the device along with the half-cc? And then have you started to build launch quantities on the half-cc formulation in whatever device that you might be using?

Second question just has to do with the dialog you're having with the FDA on Lovenox. Where are you in that process on Lovenox? Has it completed and you're just waiting for a final response from the FDA? Any update there would be helpful.

Bill Marth

I guess on the patent we can just say that it's around a formulation delivering the half amount, and that's really all we can say about that. And again, that would be added to the other patent estate that we have and can be used in any further litigation when we get to the 0.5. The other question about 0.5?

John Boris

Launch quantities?

Bill Marth

Launch quantities we wouldn't comment on, but one would assume that Teva's always prepared. Any more on the -

John Boris

So always prepared meaning you're only about 60 days away from FDA action on January 1, so -

Bill Marth

Again, I would remind you - it was brought up earlier that we have supplemented with clinical data. I wouldn't be shocked if it took them more time to respond to this clinical data. But again, you have to hedge your bets and although we're not saying that we've built launch quantities we always tend to try to be prepared.

On the enoxaparin, there isn't a whole lot more color to add to enoxaparin other than what I think is important is we achieved chemical sameness and we're in review with OPD, and meeting with management helped us feel much better about the situation.

John Boris

Is it in your guidance for this year? Lovenox?

Bill Marth

I can't really say about the guidance whether it's in or not. The fact of the matter is we are still hopeful that we could see it yet this year. In fact I'd be deeply disappointed if we didn't get the approval yet this year, but again we can't be certain.

Operator

Our next question comes from Corey Davis with Jefferies & Co. Please state your question.

Corey Davis – Jefferies & Co.

I think today tomorrow there's an FDA advisory panel about biosimilars and looking down the agenda there's a who's who of biotech, pharma and generic companies and Teva has some representation there. So any thoughts about whether or not there's anything meaningful that's going to come out of this meeting, or any updates you have in general about how you're feeling the regulatory path is proceeding with the FDA and getting biosimilars approved?

Shlomo Yanai

Bill, will you answer the question please?

Bill Marth

Yeah, the next couple of days I think will be very revealing. But I don't think we can make any real predictions just yet. We do have Dr. Rivka Kreitman down there who will be presenting, and we know she'll do an excellent job of portraying our position. So it will be very interesting for us to hear the others' positions as well, and I think this really is about a forum for the agency to be able to get all of the opinions and begin to - I'm sure they've thought deeply about their own positions, but they may want to think how they might alter their position or think differently. But I think it's a very, very good forum. So we're pretty excited with all the stuff that we see out of it.

Corey Davis

And one last question, just on Copaxone growth and looking at this quarter. Without asking for specific guidance, but do you think that the growth around 4% worldwide this quarter is predictive of where it's going to be over the next quarter, next couple of quarters, or is this more of a downside anomaly?

Bill Marth

Shlomo very well-articulated earlier that you have bumps from quarter to quarter. What we can say is if you look at the first nine months of the year, total boxes of Copaxone are up almost 10%. But it moves from quarter to quarter outside of the United States based on all the governmental processes, tenders, etc. So right now the global growth trend is good.

Operator

Our next question comes from Michael Tong with Wells Fargo. Please state your question.

Michael Tong – Wells Fargo

For Eyal, as you start to think about inclusion of Ratiopharm, how should we start to think about the longer-term tax rate on an adjusted EPS basis, maybe into 2011? And then secondly, the recently announced acquisition of Theramex - is there any ability for that operation to enhance your manufacturing efficiencies as it relates to the U.S. women's health business?

Eyal Desheh

Regarding tax rate, the acquisition of Ratiopharm will not have a meaningful impact on our effective tax rate, which is as we've guided anywhere between 14% to 16%. I believe that this is what we're going to see it is for next year. So we're pretty much in a stable environment. The fact is that Ratiopharm with a profit next year coming from synergies there's a slightly higher tax rate than it's ever seen. In Germany it's about 28%. We'll absorb that.

On Theramex, I can take the question. Basically, we're not talking about a new production facility. We're not going to move the product that we make for the U.S. market to be produced over there right now. It's designed to support that excellent product portfolio.

Operator

Our next question comes from Frank Pinkerton with SunTrust Robinson Humphrey. Please state your question.

Frank Pinkerton – SunTrust Robinson Humphrey

I might have missed it, but can you please just discuss your sales for your two follow on biologic products in the quarter and the trends there?

Eyal Desheh

I can give you the overall number, you'll also be able to see the details in our 6-K, but sales of biologic were just about $30 million this quarter compared to $25 million last quarter. So we're growing. Ratiopharm is adding or will add next quarter another dimension on biosimilars, but other than that we don't provide any more details on what are we selling product by product.

Frank Pinkerton

And just as a follow up, can you talk about, in 2011, I think the proprietary price line has some data points coming out in the first half. Can you give us anything on timing, or conferences and presentations. I think laquinamod's got a couple of studies, StemEx has a study and you've also got I believe something on the perennial rhinitis for your HSA product.

Shlomo Yanai

One part of the answer to your question is going to be given on Thursday when we will present the respiratory franchise. We will provide more data on our pipeline and status of some of the products that we are developing. The other part of your question, you'll have to be patient until we provide more guidance regarding 2011. And laquinamod as you know is scheduled for the beginning of 2011 when we are going to end the third phase of the clinical trial and that will definitely be a major milestone for laquinamod.

Operator

Ladies and gentlemen, there are no further questions. I will now turn the conference back over to Mr. Shlomo Yanai for closing remarks. Thank you.

Shlomo Yanai

Thank you and thank you all for joining us today. As you have heard, this was another great quarter for Teva and we are excited about how the rest of 2010 is shaping up. Thank you all for joining us today and we hope you can join us again this Thursday for our respiratory opportunity meeting. Have a good day.

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