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Teva Pharmaceutical Industries Ltd. (NYSE:TEVA)

Q2 2011 Earnings Call

July 27, 2011 8:30 am ET

Executives

Shlomo Yanai – President, Chief Executive Officer

Eyal Desheh – Chief Financial Officer

William Marth – President, Chief Executive Officer – Teva North America

Dr. Gerard Van Odijk – President, Chief Executive Officer – Teva Europe

Professor Yitzhak Peterburg – Group Vice President, Global Branded Products

Elana Holzman – Vice President, Investor Relations

Analysts

David Risinger – Morgan Stanley

Chris Schott – JP Morgan

Eliot Wilbur – Needham & Co.

David Maris – CLSA

Ken Cacciatore – Cowen & Co.

Marc Goodman – UBS

Ronnie Gal – Alliance Bernstein

David Amsellem – Piper Jaffray

Gregg Gilbert – Bank of America Merrill Lynch

Tim Chiang – CRT Capital Group

Shibani Malhotra – RBC Capital Markets

John Boris – Citigroup

Jim Dawson – Buckingham Research Group

Operator

Greetings and welcome to the Teva Pharmaceutical Industries Limited Second Quarter 2011 Results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Elana Holzman, Vice President of Investor Relations. Thank you, Ms. Holzman, you may begin.

Elana Holzman

Thank you, Jackie. Good morning and good afternoon everyone. Welcome to Teva’s second quarter 2011 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 North America; Dr. Gerard Van Odijk, President and CEO, Teva Europe; and Professor Yitzhak Peterburg, Group Vice President, Global Branded Products. 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 operating profit, net income and EPS. Eyal will provide additional detail on the items excluded from our non-GAAP results. Also, all financial comparisons Shlomo will be making in his prepared comments are to the second quarter of 2010 unless otherwise noted. We will then open the call to 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 of the second quarter of 2011. Net sales during the quarter were $4.2 billion representing 11% top line growth. Quarterly operating profit was $1.1 billion with net income of $984 million, and cash flow from operations during the quarter reached a record $1.3 billion. This brought us to EPS of $1.10.

With the first half of the year now behind us, we continue to anticipate higher growth during the second half of 2011, as we previously guided. (Inaudible) in Q2 though, we began to see the impact from our strategy of growing our generics business though global diversification with excellent contributions from our business in Europe and other parts of the world, and I believe another quarter of growth for Teva despite the challenges we face in our Europe generic business.

In the U.S., we had no major launches during the quarter. In addition, the second quarter of 2010 with its many new launches and sales of key products set a high bar for comparison. In fact, the decline in revenues as a result of products that were either absent or significantly diminished in the second quarter of 2011 totaled over $470 million.

I want to reiterate that we do not in any view the challenges we faced in the U.S. during the first half of 2011 as representing a trend. In fact, we anticipate over a dozen launches over the balance of the year, including an exclusive generics launch of the $2.9 billion brand, Zyprexa, which is scheduled for October. I’m happy to report we have partnered with Dr. Reddy and our exclusivity for Zyprexa now includes the excluded marketing of the 20 milligram strength.

The opportunity to bring high quality, affordable generics to patients in the U.S. has never been greater. There is over a quarter trillion dollars of U.S. branded opportunity in rating generics. Teva’s pipeline includes 185 AMDAs representing $116 billion of this branded value with 77 first-to-file opportunities worth $54 billion which creates tremendous opportunity for our future growth. These opportunities in generics are further enhanced by the advent of more complex branded products with more sophisticated IP and higher technical barriers. Producing these products requires significant resources but in the long term they generate greater and more sustainable revenues. Teva’s (inaudible) and advanced capabilities makes us uniquely well positioned to capture this opportunity.

During the second quarter, we made excellent progress in resolving the quality issues that slowed our production and hampered sales in the first half of 2011. In early June, Teva received notification from the FDA that the corrective action we have taken and the commitment we have made with respect to our Jerusalem oral solid dose facility appeared to address the concerns listed in the FDA’s warning letter from January. The FDA has conducted a follow-up inspection which concluded with no observations, and the agency has resumed approving (inaudible) applications for products manufactured at this site.

As you know, we have resumed production at our Irvine facility. We have been working closely with the FDA’s drug shortage division and I am pleased to report that we are gradually adding more and more products for distribution.

During the quarter, Teva also took some important steps in terms of risk mitigation through a legal settlement of two major parts of four suits, those related to our at-risk launches of gabapentin and Lotrel. We are very pleased with these supplements which will significantly reduce our exposure. As you know, (inaudible) launches have played an important role in our generic strategy and will continue to do so. At the same time, we will continue to mitigate that risk whenever possible.

Let me now move to Europe which provides a perfect demonstration of the positive impact we are already beginning to see from the global diversification of our generics business. During the second quarter, we made excellent quarter in Europe overall as well as in several key European markets. We enjoyed record sales in Europe, up 82% in U.S. dollar terms, driven in large part by the quick and successful integration of Ratiopharm, which is delivering real results and significantly increasing our profitability and competitiveness. Our average organic growth across the major European markets was 10% during the quarter, solidifying our position as the generics market leader in Europe, and we believe we are well positioned for continued growth in the second half of this year.

This was an especially strong quarter in Germany where sales were up 8% organically despite a very challenging market environment. In terms of sales of our Ratiopharm branded products, we have now become the number one generic player. This was also a very strong quarter in other key European markets where Teva is the leading player, including the U.K. where sales grew organically by 29%, boosted by our (inaudible) launch there, and in Italy where sales were up organically by 25%. Other countries, including Spain, also experienced significant sales growth. In France, market growth slowed to the low single digits and we saw an increase in competition and pricing pressure; but despite the challenges, we maintained our market share position in France.

When we look at the overall picture of our European business, it is clear that Europe is now a major contributor to Teva’s growth. We are also realizing the benefits of our strategic initiatives in other geographies. During the second quarter, we made good progress in growing our eastern Europe business, particularly in Russia where generic sales increased by 47% in U.S. dollars and 11% organically. In Latin America, generic sales grew organically by 14%.

This was also a quarter of major strategic achievements for Teva in Japan. Japan is the second largest pharmaceutical market in the world, and as you know, during the quarter we acquired Taiyo, the third largest generics company in Japan with sales of over $500 million annually, and we have already closed the transaction. We had originally announced our intent to purchase 67% of the shares of Taiyo, but in fact we were able to purchase nearly 100%. Taiyo provides us with a very strong platform for achieving the strategic objective of becoming a major player in the fast-growing Japanese market. Our (inaudible) in Japan with sales of approximately $60 million, up 18% in U.S. dollars terms.

As you can see, Teva’s global generics platform is enjoying strong growth. From a (inaudible) perspective, the second quarter demonstrates the great benefit we are deriving from our initiative to bring new growth drivers, broadening our scope and reducing our dependence on any one business or geography. We are more excited than ever before about the opportunities which lie ahead for us and the continued growth of our global generics business.

Let’s turn now to our branded business where we had a very strong quarter and enjoyed both sales and market share growth across the board. This was a record quarter for Azilect, in-market sales of which grew by 38%. Sales were strong in Europe as well as in the U.S., where Azilect is the leading branded product to treat Parkinson’s disease. Copaxone continues to be the global leader in MS therapy. In-market sales of Copaxone reached $957 million during the quarter, up 24%. In the U.S., Copaxone retained its market share of 40.6% and grew 7% in volume, despite the introduction of new therapies. We believe that there is a great deal of opportunity for continued growth, especially when Teva completes the take-back of full marketing rights in Europe for Copaxone beginning in 2012.

As we anticipated, INS data shows that the introduction of new MS therapies into the marketplace has had the effect of increasing the size of the market overall, which has also increased sales of Copaxone. We believe this market growth holds great promise for Copaxone, future Copaxone enhancement, and our pipeline product, Laquinimod; and we expect to retrieve the results of our BRAVO study on Laquinimod shortly.

The second quarter was an extremely busy one for Teva in terms of business development. In addition to our announcement and closing of the acquisition of Taiyo, we announced our planned acquisition of Cephalon. Earlier this month, Cephalon’s shareholders voted to approve the deal and we are awaiting regulatory approval in the U.S. and EU. In essence, this acquisition will do for Teva’s branded business what our initiatives across Europe, Japan and Russia are already doing for our generics business, that is to significantly broaden our platform and reduce our dependence on any one growth driver. We are expanding our branded business into a diverse specialty pharma business which will not rely on one product or even a handful of products, but rather a portfolio of successful products in key niche therapeutic areas.

Thank you very much for you attention, and now let’s turn the call over to Eyal for a detailed financial review of the quarter, as well as an update on our outlook for the remainder of the year. Eyal?

Eyal Desheh

Hello 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 and in line with our original guidance for the first half of 2011, we experienced another challenging quarter for our U.S. generics business which had a major impact on our results. We reported a quarter which for the most part was in line with our expectations, including top line growth compared to Q2 2010 and earnings per share improvement compared to Q1 2011 and Q2 2010. We continue to generate strong cash flow with record cash flow from operations of over $1.3 billion and free cash flow of $897 million.

Before we delve into the numbers, I would like to touch on two 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: legal charges of $221 million primarily in connection with the settlement of our litigation with Novartis on generic Lotrel and with Pfizer on gabapentin, and product liability lawsuits pertaining to propofol; amortization of purchased intangible assets amounting to $162 million, of which $152 million are included in cost of goods sold and the remaining $10 million in selling and marketing expenses - I’d like to remind you that we started recording amortization of Ratiopharm intangibles in Q1 this year; restructuring and acquisition expenses and impairment of assets of $51 million related primarily to the acquisition of Ratiopharm; costs related to regulatory action taken in facilities of $45 million which relates primarily to quality issues in Irvine, our animal health business, and Jerusalem; an inventory step up of $15 million relating to the acquisition of Paramax and Infarmasa, and related tax effects of $86 million.

You should note that the items excluded in arriving at our non-GAAP results for the second quarter of 2010 are not identical to those 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 the management team and our Board look at our financial results. The second point, foreign currency – it continued to have an impact on our results this quarter, influencing our P&L as well as our balance sheet. In the second quarter, foreign currency differences had a positive impact of approximately $222 million on sales and $40 million in non-GAAP operating income as compared to Q2 2010. Foreign currency also had a positive impact on equity. The weakness of the U.S. dollar primarily relative to the euro on June 30 compared to March 30 increased our equity by approximately $338 million.

Looking at our consolidated results of Q2, sales totaled $4.2 billion, an increase of 11% compared to Q2 last year. In local currency, sales grew by 5%. Sales in North American declined 15%. Our U.S. generic unit, which had another particularly soft quarter primarily because several products that were major contributors to sales in the comparable quarter of 2010 had little or no sales this quarter, and at the same time there were no significant launches in the quarter to offset this; but we continue to expect that the second half will be much stronger than the first half of the year.

Sales in Europe grew 82% in U.S. dollars and 60% in local currency due mainly to the consolidation of Ratiopharm results; but it is important to note that we again saw organic growth in generic sales in Europe beyond the consolidation of Ratiopharm, calculated as we did last quarter as if Ratiopharm and Paramax were a part of Teva in Q2 2010. Generic sales in Europe grew 4% organically compared to Q2 2010, and as we expected, Germany contributed to our growth in Europe this quarter with generic sales growing 8% organically.

Sales in our emerging markets – eastern Europe, Middle East and Africa, Latin America and Asia grew 22% in U.S. dollars and 15% in local currency, with Russia again posting very strong results.

Non-GAAP gross profit margin, which excludes amortization of purchased intangible assets, inventory step-up cross related to regulatory action taken in facilities, was 57.3% in the reported quarter compared to 59% in the same quarter last year, resulting primarily from a significantly smaller contribution of high margin generic product in the U.S. With the expected improvement in the U.S. generic business in the second half of 2011, non-GAAP gross profit margin is also expected to improve.

Non-GAAP operating income and non-GAAP operating margin were $1.1 billion and 25.9% respectively, down from 1.2 billion and 31.6% in Q2 2010. The previously mentioned decline in high margin generic products in the U.S. as well as high SG&A expenses contributed to the decline in operating margin. Non-GAAP operating income and non-GAAP operating margin—sorry, I read that. Non-GAAP net income reached $984 million, essentially flat compared to 981 million in Q2 2010. Non-GAAP fully diluted earnings per share were, as mentioned, $1.10, up 2% compared to last year. The weighted average share count for the fully diluted non-GAAP EPS was 896 million shares.

Now let’s discuss operating expenses. Net R&D expenses were up 4% compared to Q2 2010, totaling $243 million or 5.8% of sales. The growth in net R&D expenses over the comparable quarter of last year is attributed to greater investment in our branded R&D. Gross R&D in Q2, which includes participation of third parties, totaled approximately $262 million.

Selling and marketing expenses excluding amortization of purchase intangible assets totaled $794 million in the quarter or 18.9% of sales, compared with 16.7% of sales in Q2 2010. Higher selling and marketing expenses resulted from the consolidation of Ratiopharm and Paramax.

Total G&A expenses this quarter were $284 million or 6.7% of sales compared with 5% of sales in Q2 last year. The increase in G&A expenses this quarter resulted from exceptionally high legal expenses related to product liability and patent litigation, as well as the inclusion of Ratiopharm and other acquired companies. (Inaudible) also impacted G&A expenses. In the second half of 2010, we expect G&A expenses as percentage of sales to be lower than what we’ve seen in Q2.

We reported $20 million of net financial income in Q2 2011 compared with $25 million of non-GAAP financial expenses in the comparable quarter of 2010. The income resulted primarily from the settlement of various financial derivatives, including an interest rate swap agreement which we executed in one of our long-term notes. We expect financial strength in the second half of 2011 to be around the levels of Q1 this year.

The non-GAAP tax expense provided for the second quarter was $113 million on pre-tax non-GAAP income of 1.1 billion. Our current estimates for the non-GAAP annual tax rate for 2011 continues to be 11% compared to 13% for 2010. The low non-GAAP tax rate for 2011 resulted from a particular mix of products at our manufacturers and geographies where Teva benefits from tax incentives. The estimated tax rate for 2011 GAAP results is 5%.

Now let’s have a look at our cash flow. Cash generated from operations this quarter reached a record of $1.3 billion, up 39% compared to Q2 2010. Our free cash flow excluding net capital expenditures of 224 million and dividend payments of 203 million amounted to $897 million. The strong cash flow resulted primarily from improved collections and working capital items.

During the quarter, we bought back approximately 2 million shares at an average price of $48.98 per share for a total of approximately $95 million. Since we started this buyback program, which our Board approved in December 2010, we’ve bought 11.8 million shares for a total of almost $600 million, reflecting an average price of $50.28 per share. Including our earlier redemptions of the convertible debentures, we’ve invested over $1.4 billion in buying back shares since the beginning of the year.

On June 30, cash and marketable securities totaled $1.4 billion, up approximately 350 million from March 31. Our total outstanding loan balance and convertible debentures stood at $6.4 billion, down approximately 400 million from $6.8 billion as of the end of March. Our financial leverage as of June 30, 2011 was 21%, down from 23% at the end of March, lower than our financial leverage prior to the Ratiopharm acquisition which we closed exactly a year ago. Following the financing of Taiyo, which we already completed, and Cephalon, which we now expect to close in October, our leverage will of course increase. The anticipated October closing date of Cephalon is based on the current status of our discussions with the SEC and the European Commission.

DSO – days sales outstanding declined to 41 days this quarter compared to 46 days in the previous quarter and 50 days in Q2 2010. We calculate DSO after netting out from the receivables our sales reserve and allowances. Inventory days stood at 197 days, up from 195 days in the previous quarter or 172 days in Q2 2010. The increase in inventory days resulted primarily from foreign exchange differences and preparation for the AOK tender and volume growth in the U.S. generics expected in the second half of 2010.

Gross capital expenditures reached $226 million this quarter compared to 234 million in Q1.

Dividend – on Monday, Teva’s Board approved a quarterly net dividend amounting to approximately $210 million per quarter. On a per share basis, our dividend, which is declared in Israeli shekels, is 0.8 shekels per share. Based on yesterday’s rate of exchange of the shekel to the U.S. dollar, this translates into approximately $0.235 per share.

And now, I would like to give you an update on our guidance for the second half. We expect that our earnings per share for the third quarter will be approximately $1.22. We also expect a very strong fourth quarter and we reaffirm our guidance for 2011 for earnings per share to be in the range of $4.90 to $5.20. This guidance includes the recent Taiyo acquisition which will be slightly dilutive to non-GAAP earnings but does not include the pending Cephalon acquisition.

Thank you all for your time and attention today. Now, we’ll be glad to take your questions.

Question and Answer Session

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you. Our first question is coming from David Risinger of Morgan Stanley.

David Risinger – Morgan Stanley

Thanks very much. Eyal, I have a couple of questions. The first is that it seemed like the significantly higher legal expenses in the second quarter held back your profits, and specifically the G&A line grew 50% over year. Obviously that includes acquisitions, but you did mention the higher legal expenses. Could you just provide a little bit more color on how much of those legal expenses were one-timers, and how we should think about your legal expense run rate? That’s my first question.

Second, with respect to post-Cephalon financials, just wondering if you plan to change your reporting format starting with the third quarter after you close the Cephalon acquisition? And then finally with respect to Taiyo, you mentioned that you purchased nearly 100%. If you could just remind us of the timing and what the annual sales contribution will be from that. Thank you.

Eyal Desheh

All right, that’s a long list. First on the G&A, we have approximately $30 million of (inaudible) legal expenses. I don’t believe that this is going to be recurring at this level. As I mentioned in my previous comments, this is a resulting from our patent litigation as well as product liability mediation that we’re running. We expect this number to come down in the second half of the year.

The G&A cost, part of that is done in non-dollar currencies, also increased year-over-year as a result of the strong euro and other European currencies, as well as the strong shekel, so that was the major impact on G&A. As I mentioned in my notes, this is—we believe that the numbers will come down in the second half as well, of course, as a percentage of sales, which will come down significantly towards our target of 5% of sales.

Regarding Taiyo, we—yeah, second question is clarification. But regarding Taiyo, as Shlomo mentioned, we did buy 100% of the shares and closed the transaction there. Taiyo is expected to add about $250 million to our sales in the second half of the year, which is within the range of our guidance. And as I said for the earnings per share, it could be slightly—a couple of cents dilutive at the beginning and would be accretive in 2012.

Could you please repeat the question about Cephalon, because I’m not sure I followed it.

David Risinger – Morgan Stanley

Sure. Yes, so on Cephalon, just wondering given that it’s a significant addition of branded revenue, just wondering if you’re planning on changing your reporting format. And then one other follow-up – sorry to keep piling on the questions – but could you just repeat what you said about third quarter EPS guidance?

William Marth

David, this is Bill Marth. With respect to Cephalon, I know exactly what you’re asking with respect to disclosure, and you should anticipate that the level of transparency or disclosure will increase. We’re still working on those models at this point in time as to what that’s going to look like; but yes, we anticipate we’ll be gaining something there.

Eyal Desheh

Yes, the standards of branded companies is a little different, and we’ll be definitely be no less than (inaudible) standard. You asked me to repeat the Q3 guidance?

David Risinger – Morgan Stanley

Yes, please.

Eyal Desheh

Yes, we expect our earnings per share for the third quarter to be approximately $1.22 per share.

David Risinger- Morgan Stanley

Thank you very much.

Operator

Thank you. Our next question is coming from Chris Schott of JP Morgan.

Chris Schott – JP Morgan

Great, thanks very much. Just had three questions. The first – just to clarify the guidance, I’m sorry if I missed this – I saw you reiterated EPS guidance, but were there any other changes to elements of your guidance in terms of the 18.5, $19 billion top line or the SG&A or R&D ratios for the year we should be thinking about? The second question – as we think about the rest of 2011, specifically North America generics, can you talk about the key launches that are driving sales higher in subsequent quarters from here, beyond Zyprexa? What are the major opportunities there you are now reflecting in your guidance? And then the final question – given the strong growth you’re seeing in your ex-U.S. generic business and with these franchises becoming a larger percentage of your sales, can you help us understand the margin differences between these generic franchises and your U.S. business? How significant of a margin gap is there at this point? Thanks very much.

William Marth

Okay, Chris, why don’t I start with—I think your first question was about the guidance on the revenue, and I think you’re asking about Taiyo there, and I think that Eyal will speak to that in a second. The other question, though – absent—let me clear on this. Absent commercially-sensitive information, I want you to know—we talked about in Shlomo’s speech a bit about 12 opportunities that I can think of off the top of my head, things like Entocort, Aldara, Combivir, Zyprexa of course we mentioned, (inaudible) I think we just launched yesterday or are launching today, (inaudible), we have a pretty good shot at a product, prometrium, we’re pretty excited about, and Keppra. So that’s a couple of the opportunities that we see. For whatever particular reason, the second half of the year got particularly backlogged with launches this year.

Eyal Desheh

Yeah, and Chris, regarding the revenue guidance, we didn’t refer to that. Revenue guidance remains the same as we originally guided at the beginning of the year – 18.5 to $19 billion, and we’re not changing it.

Shlomo Yanai

This is Shlomo speaking. Let me just make sure – because this is a very, of course, (inaudible) issue or subject, so I want to make sure that we are very clear on that. We impact with our guidance of 2011—we confirm that. We just tried to give you more clarity, more transparency how to handle the Q3, and therefore Eyal just provided the $1.22. We have a back-loaded, let’s put it this way, Q4; and has been said, there is commercial sensitivity issues that we cannot elaborate more than that. We’ll definitely give you more clarity on that when we end the quarter, going into the fourth quarter.

William Marth

Chris, I think you had one last question, and I don’t think we got that.

Chris Schott – JP Morgan

Yeah, no, and I appreciate all the color on the guidance here. The final question is just a bigger picture one, which is as we’re seeing a larger percent of your business coming from ex-U.S. generic business, can you just help us understand if we look at your core U.S. generic business as compared to these ex-U.X. franchises, how should we think about the relative margins of those franchises? Is there a large gap now? Are there margins relatively similar? Just help us qualitatively how we think about those businesses.

William Marth

I understand now. Chris, those margins are actually the same, if not better, because when you think about the Latin American business, the (inaudible) businesses, there are—a lot of it is CGX business. Now, you have a little bigger SG&A but you have a higher pricing point, and so there’s lots of potential there. So in general, those opportunities are slightly better.

Chris Schott – JP Morgan

Thanks very much.

Operator

Thank you. Our next question is coming from Eliot Wilbur of Needham & Company.

Eliot Wilbur – Needham & Co.

Thanks, good morning. I guess just with respect to the progression of earnings growth throughout the year, if in fact you do just sort of meet your third quarter guidance, that would imply based on the reiteration of full-year guidance roughly anywhere from 25% to 50% sequential growth in the fourth quarter. Obviously, variability in timing of U.S. generic launches could in fact be a significant factor behind that delta, but I’m trying to maybe get some additional perspective on what some of the other items of variability may be embedded in that range.

William Marth

Eliot, this is Bill Marth. I just—with respect to that question, there were—the question asked by Chris, essentially, related to the generic launches, and I wanted to give you some more clarity on them; and again, absent commercially-sensitive information, that was a good list of launches. But I think the other thing that you need to keep in mind is that all—really all areas of the business ramping up in Q3 and Q4, we’re getting. We see much better respiratory, we see much better—we see improved Copaxone, we see improved Azilect, we see improved—a whole other (inaudible) world, and Shlomo (audio interference). But it’s really contributions coming from all divisions.

Eliot Wilbur – Needham & Co.

Okay, thanks.

Shlomo Yanai

If I many just jump in on that, because I think it’s important as we go toward the future, what you should be more aware of is the importance and the significance of the other generics business out of the U.S. as we go to the future. And it’s not just about Europe that I elaborate on that margin. You see a second quarter in a row how the world is becoming more significant and reaching a much larger part in all of Teva businesses. It’s also about Japan, eastern Europe, Latin America – all these places, first of all, the room to grow generics there is much more than in any other previous U.S. base for generics, and believe it or not, the profitability of this business (inaudible) view to be a level of competition via what (inaudible) said, the kind of this more branded generics and some other reasons that we can take offline, is giving us better profitability on that part of the world, at least for the coming years. Definitely competition will take it later down, but at least as I said, it’s a great opportunity to expand the business, and we are ramping up our businesses in these parts of the world and we are pushing hard to get to our numbers. And as I said, you can see the first results are positive results of that, even in this quarter.

Eliot Wilbur – Needham & Co.

Okay, then I have one follow-up question for Eyal. If you could remind us, please, of the timing of the take-back or reacquisition of marketing rights to Copaxone in key ex-U.S. territories, and again, just sort of a top level perspective what the flow-through or impact on the P&L will look like. Thank you.

Eyal Desheh

Yes, sure. The major parts of our take-back are actually starting in October. We’re taking back Germany and the Nordics, and the rest of the major European countries will start in February next year. It will take the entire 2012 to materialize.

Regarding the impact on the numbers, basically when we take back a country from Sanofi, we double the sales—we double the recorded sales. We believe that our unique focus on selling will also improve the results in this country. But right off the bat, we’re doubling the sales and we’re adding around 50% of the profit just from the action of taking back a country from Sanofi. And the impact will begin to be seen in Q4 this year. It’s part of what’s happening in Q4, and of course it will even intensify in 2012.

Eliot Wilbur – Needham & Co.

Eyal, if I could just follow up on that. You stated that you add back about 50% of the profit, but does that take into consideration the need to sort of maintain some sort of active promotional presence and the like in order to support the product?

Eyal Desheh

Yes, yes. Of course.

Eliot Wilbur – Needham & Co.

All right.

Eyal Desheh

It takes everything into account. There’s some royalties that we’re paying and everything.

Eliot Wilbur – Needham & Co.

All right, thank you.

Eyal Desheh

You’re welcome.

Operator

Thank you. Our next question is coming from David Maris of CLSA.

David Maris – CLSA

Hi, a few questions. First, on the Express Scripts-Medco deal, what does it mean for Teva? What does it mean for the industry? Secondly, is there anything in the current debt ceiling proposals, Bill, that concerns you from an industry standpoint on pricing or reimbursement? And then lastly, I think one of the questions a lot of clients are going to ask today is if the fourth quarter is so back-end loaded, why at the beginning of the year did you not get a better handle on it and kind of focus it there? I mean, that’s going to be complaint that I hear, so I think it’s—you might as well address it now.

William Marth

David, this is Bill Marth. I’ll start with the Express Scripts question. You know, this is kind of more of the same that we’ve seen, which is of course large customers becoming every larger, meaning large suppliers. So it really reflects more to what we’ve often called, or Shlomo has often referred to as our big-to-big philosophy. So big purchasers need big suppliers, and we think that bodes well for us. To be sure, we’ve had some issues as of late, and Shlomo has spoke of those, and we are taking action to correct those and we see improvement moving forward. But we think this is good. ESI—you know, Medco has been—is a great partner, and we’re excited about it.

I think the one thing I would add to that, where the issue may lie is for some of the smaller to midsize generic manufacturers, that may cause more M&A activity within that space.

With respect to the question on the debt ceiling, I have to tell you, David, I’m not fully aware of all the provisions that are in it as of yet. I’ve been out of the States for about a week.

Eyal Desheh

David, it’s Eyal. Regarding your question on the back-end loaded year and Q4, I’d like to remind everyone that from day one when we guided for 2011, we said that the first half would be slower than the second half and that we will see improvement from one quarter to another during the year. And this is going to be a back-end loaded year, and as you know, especially on the generic business many parts are always moving, and this is why we’re coming to you guys now (audio interference) clarity on how our plan is going to develop throughout the rest of the year.

David Maris – CLSA

Okay, thank you very much.

Shlomo Yanai

David, it’s Shlomo. I’d like to add to Eyal, because I think this is something that we should make sure that we see eye-to-eye. We are committed to transparency and we try to share with you, of course without hurting our commercial future, as much as we can in any given time. But as you well know, our business, due to an enormous number of moving parts, let me call it this way, sometimes the clarity is coming only when we get some more progress in the year. And therefore, we provide for the first time, I think, the kind of quarterly guidance just to make sure that you are not making any mistakes or to help you to do your models. And whenever I’m going to get or to have more information, I’ll do my best to share it with you as soon as I can, even not on a quarterly release basis but even in interim kind of update. So it’s just the nature of the business and especially 2011, which is a very, let’s call it challenging and interesting year.

David Maris – CLSA

Then just one follow-up, but thank you for the color on that. On Lipitor, is there any scenario that you see that gives you an opportunity to be among the first with Lipitor?

William Marth

David, this is Bill Marth. You know, what I can say about that is we have a settlement with Pfizer, the terms of which we’re not allowed to disclose. So I really can’t add much to that, other than the fact that I would say that we are not the only ones who have a settlement with Pfizer, and of course I wouldn’t know what’s in their settlements.

David Maris – CLSA

Okay, thank you.

Operator

Thank you. Our next question is coming from Ken Cacciatore of Cowen & Company.

Ken Cacciatore – Cowen & Co.

Hi, thanks guys, and thanks Eyal for the specific guidance. Bill, a question for you, and not looking to go back too much retrospectively, but maybe it helps us going forward is this hole in the U.S. line seems to have persisted a little longer than most of us expected, this lack of new product flow. And I know it happens from time to time, and you’ve given us good clarity in the back half of the year. But can you just speak generally about your level of enthusiasm as you look forward and whether there is any way you can prepare us – are there going to be more holes from time to time, is there a little bit more proactive to fill them as we look forward? It just seems like this has persisted, it’s caught us off guard for a while, and I wanted to get your level of enthusiasm over the next couple years on the U.S. line specifically, understanding from your perspective it’s a diversified business. So I just wanted to hear thoughts generally speaking on the U.S. line going forward. Thanks.

William Marth

Sure, Ken. Appreciate the question. A couple things – you have to really think about the enormity of this business, right? When you have in a single quarter the loss of (inaudible) Cozaar, the loss of exclusivity, right? It costs you $161 million. Just the change in Lotrel alone with incoming competitors – 38 million; Protonix – 48 million; Eloxatin – 63 million; Pramipexole, which is Mirapex – 64 million; and Yaz, which is Gianvi – 97 million. That’s $471 million in a single quarter (inaudible). Not only that, the delta in (inaudible) from quarter to quarter was about $159 million from Q1 to Q2. So those are just huge variations.

Now we’ve had launches of Triamcinolone, Clonidine patch, Ancidine (phon), Diazepam gel – some of those launches, but they were relatively small. So as we move forward, we know we’ve got some good launches. We laid those out for you – olanzapine and a whole bunch of other products that we think are very interesting moving forward. So yeah, the launches get better as we move forward, and the one thing I would mention about ’12 that I don’t think people are thinking about – there are a lot of launches in ’12, and we’re excited about ’12. But there is not a tremendous amount of exclusivity in ’12. There’s a lot of NCEs, so you have to think about the competition that’s going to be there. But yeah, and you couple that with Jerusalem, which was an issue; Irvine, which was an issue that we’ve spoke to, and those are all improving. Jerusalem, we’re over. We feel great about it. Approvals are coming again. Irvine – it’s coming back slowly. It’s incremental, because you’ve got to bring some new products back. We believe another seven products will come back into commercial in the next couple of months. So again – gradual improvement there.

So yeah, I’m excited about this business, but it is gradual improvement. It is the largest generic business on earth. People can’t forget that. And it’s going to go up and down with exclusivity, but it is still one big business. We have a ton of files out there. There’s a huge number - 185 files, 77 of them are first-to-files, and just the first-to-files alone are about 54 billion.

Operator

Thank you. Our next question is coming from Marc Goodman of UBS.

Marc Goodman – UBS

Yes, good morning. A couple questions. First, can you give us your thoughts on Copaxone and how that went? Second of all, can you just dive into Europe with a little more details, especially in France and specifically what is going on in France, and is it just pricing? Is it volume? Still strong there—what are the volume gains for the market for what you’re doing? Are you guys taking or losing share? So specifically there. And then third, can you give us a sense of the Irvine impact and the Jerusalem impact kind of year-over-year, just like you just did, Bill, with the major U.S. launches? So how much sales this quarter versus what was there a year ago for Irvine and what you lost, kind of the delta, and also with Jerusalem. Thanks.

William Marth

Marc, let me start out with Copaxone. I think Shlomo would like to talk to Europe, and then we’ll move from there. But with Copaxone, Shlomo said what I think the big story is, right? Everyone thought Copaxone would decline. Copaxone is the leader – 40.6%, a 7% volume increase, sales are up 29%; and the key—what we had said before is the market appears to be increasing, and that’s a great thing. The share is strong at 40.6 and it appears that the loss in share is with interferon. And so we think that bodes very well for Copaxone, for our life cycle initiatives, our base Copaxone product and potentially as well for our potential product, Laquinimod.

Shlomo Yanai

On the European one, I suggest Gerard, would you take it, please?

Dr. Gerard Van Odijk

Yeah, sure. I think Europe in the first half of the year and also in the quarter did very well, but we saw a bit of a split picture. We saw a few markets that did excellent, and those were mentioned by Shlomo. We saw a few challenges in some other markets besides the already mentioned France, which I will give you a few comments on in a second. We also saw Portugal slow down, we saw in some central European markets – Hungary, Czech and Poland, we saw a slowdown of the business. So it was not everywhere in Europe a great business, but I think we did in all these places reasonably well. We did at least as good as the marketplace, but I said the marketplace itself slowed down, which is something we saw in France as well.

If you look at France, I think the quarter itself was a soft quarter for us and for the market. We saw a slightly unexpected stronger slowdown of the market dynamics than we had expected about six to nine months ago. That’s probably related to this mediated case. There’s a lot of turmoil about this product from (inaudible) that serves a lot of debate and conservatism in the French market, and we see an overall slowdown in the pharmaceutical market in France.

And on top of that, we see that everybody is fighting like hell for any single part of the market share that they can go after, so the commercial conditions under which people are competing are extremely aggressive and sharp. If you look at our performance there, it’s that we see a slight decline quarter-on-quarter, although for the full year it’s still slightly growing; but we do see that we keep our share, we keep our 16% market share as a company. We are a solid number three behind Mylan and (inaudible), and I’m not sure how quickly this will be resolved. I expect the second half of the year in France to be slightly better, but still with a lot of pressure. I think all companies competing there are under pressure, are fighting, and it’s very incidental to our success there. We believe that we’ve got the right ingredient to take our share back or to grow our share further, but I cannot predict exactly how quick that will take off. Some of these, as I said, they are dynamics in the market and need to just settle down a bit before we can see significant growth in France coming back again. So for the second half of the year, we expect some good numbers from France but no real strong growth coming from there.

William Marth

Marc, on your last question, let me just follow up with one other thing on Copaxone. I think the important event, too, we should mention in our (inaudible) patent litigation, right, is the trial on IC, and obviously we’re very pleased. And I think clearly anyone who was in the courtroom saw the difference between the teams. We were really excited with the case. We think we’re going to do extremely well. You know the Therasense decision makes the bar for IC very high, and I think really the most important thing out of this particular IC trial was the ability to get the judge—Judge Jones, a very fine judge in southern district of New York, up to speed on the case. I think this will put her in position leading into the September trial with quite a bit of information and a good feeling about the fundamentals of the case.

And your last point about what particularly Jerusalem and Irvine cost, Irvine—remember, we had stopped shipping in the second quarter of last year, so there’s minimal impact on the Irvine number. Jerusalem number is in the $40 million range, but it’s really difficult to hit the exact number because it’s also the but-for case, meaning yes, there were sales on shipments—on batches I just absolutely could not ship, and I can validate that and that’s around the $40 million number. But the other part is the new products that I couldn’t get launched, the products that I couldn’t ship more share because I had to slow down the processes. That’s a little bit harder to ascertain.

Operator

Thank you. Our next question is coming from Ronny Gal of Alliance Bernstein.

Ronny Gal – Alliance Bernstein

Thanks guys. Two questions – and again, I guess we’re all struggling a little bit with the trajectory from here until the end of the year, just because it’s so back-end loaded. So if you don’t mind, I’m going to ask two questions about that. First, I don’t know if you kind of mentioned the number, but can you give us Germany and Norway as a percentage of Europe; and two, Bill, we (inaudible) the script growth and the injectable revenue growth through IMS. Roughly when should we see a turn in your year-over-year trajectory? Is it coming up right now, or should we wait another quarter before it shows up? And third, with so many launches in the fourth quarter, I guess the question is where is kind of the midpoint of your mind of consensus, Bill, on your business; that is, if you get all of those products launched, are you going to be at the high end of your guidance? And if you have a lax year at the bottom end, would you kind of have to hit all of them to hit the bottom end of the guidance?

Shlomo Yanai

Okay, let’s talk first—Ronny, you asked about Germany, right?

Ronny Gal – Alliance Bernstein

Correct.

Shlomo Yanai

So Gerard, would you take that, and then Bill will take the U.S. part.

Ronny Gal – Alliance Bernstein

(Inaudible) on Germany.

Dr. Gerard Van Odijk

Okay, I can take them both. First of all, hi Ronny. The question on Germany – I think it’s—if you look at the question of Teva in Europe, it’s the more interesting one. Our business set-up is roughly a reflection of the overall generic market in Europe, so as you know, probably round about 25% of the total value of the generics business across Europe is coming from Germany, or that’s roughly the case with us as well; and you can go around Europe and we are basically a sort of mirror picture of the overall buildup of the generic market across Europe. So that’s a more general answer to this, which is different from some of our competitors, as you know, which gives us a good resilient way of responding to situations like I was just referring to in France. So that’s the situation in (inaudible) for Germany and the relative contribution.

If you look at the Copaxone business in Europe, I think in Poland we’ve been growing 10%. Value was less and value was just a few percentage points, and that was all on the back of the impact of the price decrease that we faced in Germany—the mandatory price decrease, and that should go away if you look forward for the second half of the year. Thank you.

Shlomo Yanai

One more thing about Copaxone out the U.S., because I think it deserves some highlight before we go to your other—the second part of your question. I think that you should pay attention to the Copaxone business out of the U.S., which is right now about a third of the business. This is where the potential for growth is still in front of us, and I strongly believe that we – especially when we do the take-back- we can do more with this product, and that’s part of what I anticipated to the future of Copaxone. It’s not only about gaining more market share going into 2012. The whole dynamics that we are seeing in the MS therapies, including what Bill already mentioned, but the price going view to newer therapies and the change in the trend in the current therapies. So just a kind of fruit fulfilled regarding the future of Copaxone out of the U.S.

Bill?

William Marth

Yeah, Ronny, with respect to injectables, we pretty well guided on this before that Irvine would be up to about $100 million run rate by the end of the year, and we feel pretty good about that. That’s where we see it right now, and that’s reflective of what we believe will be coming out of Irvine, you know, not the ex-Irvine injectable manufacturing. That, of course, could be quite a bit more depending on what we launch in the injectable line. We’d remind, of course, that we’re shipping in product now from Pharmachemie, Gordela (phon), and other sites from around the world.

And your last question was? Was there another outstanding question, Ronny?

Ronny Gal – Alliance Bernstein

Can you hear me?

William Marth

Yes.

Ronny Gal – Alliance Bernstein

Okay. I guess the last question was simply about you need to actually hit all of the products you’re designing for the fourth quarter to hit the bottom of your guidance, or essentially the guidance range reflects some sort of illogical assumption- if we hit all the products in the fourth quarter, then we’ll be the high end; if we miss a couple of them, we’ll be at the low end.

William Marth

I wouldn’t make any more comment about guidance other than what I already did.

Operator

Thank you. Our next question is coming from David Amsellem of Piper Jaffray.

David Amsellem – Piper Jaffray

Hey, thanks. Just a couple – first, any update or comment on generic Lovenox? And then second, just some additional color on what’s driving the improvement in Germany. Is it mainly higher volumes, and just give us sort of your general thoughts on pricing trends in Germany going forward. Then I have a quick follow-up after that.

William Marth

David, I’ll start out – this is Bill Marth. Appreciate the question, but as we have said before, we are not going to comment on Enoxaparin until we launch the product.

Shlomo Yanai

And Gerard, can you take the Germany question?

Dr. Gerard Van Odijk

Yes. Hi David. Germany, we believe that first of all, the first half of Germany, in particular the Q2, was probably better even than we expected. I think we were very pleased with the improvement of the business there. It came even a bit earlier than we also expected. As you may remember, I said that the second half of the year, we would expect it to be much better; but it came in a bit early, which is great. But we also know that there’s a lot of competition out there, but we’re doing relatively well versus the competition. So part of our success is that we are just capturing more of the opportunity in Germany than some of our competitors.

The second point is that in the second half of this year, we should be seeing the effects of the (inaudible) that we won, in which we did very well, kicking in. Formally, the AOK tender would have kicked in on June 1, but because of some supply issues of some main suppliers of this tender, the AOK, sloped that down to August 1. So that might be an effect on market share and (inaudible) sales on the back of these tenders that is going to also give us benefit for the second half of this year.

And thirdly, what you will see in the German market is that in the second half of the year, the impact of some of the pricing measurements that were taken last year should go away, and that should help us as well to grow our business again. Those are the main explanations for Germany.

David Amsellem – Piper Jaffray

Great. And just a quick additional question, if I may – a quick one on Adderall XR. Can you talk about the supply situation on the authorized generic, and if you feel that you’re being adequately supplied and where your sales are trending there?

William Marth

Yeah, David, this is Bill Marth. Actually, our supply was better this month and you can see the share pick-up that occurred because of that; and it’s really just it is literally a month to month thing with respect to our allocation. We keep working that as actively as we can. We had a decent quarter this quarter with respect to sales, and I don’t off the top of my head have that sales number.

David Amsellem – Piper Jaffray

All right, thanks.

Operator

Thank you. Our next question is coming from Gregg Gilbert of Bank of America Merrill Lynch.

Gregg Gilbert – Bank of America Merrill Lynch

Thanks. I have a few. First, for Bill – is it still the case that you have not discussed settlement with Momenta or Sandoz on Copaxone, and how is the litigation going so far from your point of view on that product?

William Marth

Yeah, right now the litigation I think couldn’t be going much better. It couldn’t be going much better. We’re very pleased with it; and there has been absolutely no discussion with Sandoz or Momenta with respect to settlement, and we don’t see a reason at this point in time to engage in that.

Gregg Gilbert – Bank of America Merrill Lynch

Bill, do you still think Suboxone is an opportunity for Teva potentially this year?

William Marth

No.

Gregg Gilbert – Bank of America Merrill Lynch

Any more color on that?

William Marth

No.

Gregg Gilbert – Bank of America Merrill Lynch

Okay. And lastly, can you frame the potential outcomes from the adcom meeting that’s scheduled for Azilect? It looks pretty interesting; and also comment on whether there are any other studies underway or planned to address disease progression, given that that could dramatically extend the sales potential for the product. Thanks.

Professor Yitzhak Peterburg

It’s Yitzhak. We have this advisory committee planned for October 17. The decision was placed only two days ago. We are very pleased that this is the reaction to our asking for Azilect to include a labeled indication for the slowing of clinical progression of Parkinson’s disease. We are waiting for that, and look forward to continued collaboration with (inaudible) to make sure that we are having the required result.

Operator

Thank you. Our next question is coming from Tim Chiang from CRT Capital Group.

Tim Chiang – CRT Capital Group

Thanks. Shlomo, I had a question – you talked a little bit about the potential for more acquisitions, especially with the Express Scripts-Medco deal. I mean, what is your appetite for more deals, especially in North America?

Shlomo Yanai

Well as I stated many times before, acquisitions is about two major things besides other criteria that I already mentioned. What is whether they are a strategic fit, and the second one, of course, is about the economics. To skip the third one, just to remind you that we have to make sure that the deal is accretive in (inaudible) time. So it’s about the target or the specific opportunity, and like always, it takes two to dance this sort of dance. You have to make sure that it fits with the strategy, and what I can tell right now that from the financial capabilities or financial strengths, we are able to continue our acquisition path; but right now, we are digesting the Cephalon and we are going to digest it in the coming year, and so it should be a very attractive target or opportunity. We have the resources but we have first to make sure that we understand and we see the opportunity, and definitely we have to take into consideration that right now we are taking care of the acquisition that we did in Cephalon, in Taiyo, and some other small acquisitions that are complementary acquisitions. That could, of course, be the comment for the next year as well.

Tim Chiang – CRT Capital Group

Just a quick follow-up – Shlomo, are you guys still on track for the second Phase III Laquinimod trial?

Shlomo Yanai

Sorry, can you repeat, please? What was the question on the BRAVO?

Tim Chiang – CRT Capital Group

Is the timing on the BRAVO trial really still expected in the third quarter?

Shlomo Yanai

Yes, we expect it very shortly, and of course when we have the results we will let you know.

Operator

Thank you. Our next question is coming from Shibani Malhotra of RBC Capital Markets.

Shibani Malhotra – RBC Capital Markets

Hi guys. Thanks for taking my question. Sorry to kind of ask another one on Europe, but can you talk about the organic growth in Europe ex-Nexium and Lipitor? And then also, can you comment on the profitability of the different countries, in particular U.K., Germany and France? And then finally, on gross margin improvement from Ratiopharm, I know you said this is going to be a long-term sort of situation. How is that going? What are your timelines there? And then finally, just—you had a few questions right now on potential acquisitions in the U.S. Can I just confirm that your guidance for 2011 does not change that position?

Shlomo Yanai

Let me first start the last one – our guidance is not including any future acquisition in North America. Is that the question?

Shibani Malhotra – RBC Capital Markets

Yes.

Eyal Desheh

Well maybe I’ll clarify, Shibani. The guidance for the rest of the year does not include the impact of Cephalon. It does include the fact, the earnings per share that we expect prior to be a little dilutive, a couple of cents dilutive for the second half of the year, and that is included in our guidance.

Shibani Malhotra – RBC Capital Markets

Okay, but no additional acquisitions factored in within the range, correct?

Eyal Desheh

No. No.

Shibani Malhotra – RBC Capital Markets

Okay.

Shlomo Yanai

No, Shibani, as I said – Shlomo speaking – as I said, no future potential acquisitions included in that guidance. If that would happen, that’s something we would have to give you new guidance. We’d have to talk about that.

And Gerard, would you take the European question, please?

Dr. Gerard Van Odijk

Yeah, sure. First of all, thanks Shibani for the questions. The organic growth without Nexium, or Esomeprazole as we call it, and atorvastatin/Lipitor, we do not take that into account like this. We do not analyze the market like that, because every other year we’ve got a whole range of launches and launching products in the generics environment, it’s part of our lives and it’s part of the underlying growth of any given marketplace. So we have these molecules this year; you have other molecules last year, and we’ll have other molecules next year. And you should know that the omnipresent opportunity this year in terms of launch opportunities for Europe is much better than it was last year, and we expect to benefit from it in the second half of the year, as well as next year. Some good products will lose their exclusivity, and therefore they will (inaudible) to grow. So I cannot specifically answer you the question on organic growth excluding specific products.

In terms of the profitability, in general what I’m saying is that the fact that we’re number one in the U.K. makes us, let’s say, more efficient and therefore using our scale much better, and therefore I think we are doing very well in the U.K. It’s a very price competitive marketplace, but if you have a 30% market share like we have, then you can make a good return on a buck and I think that’s exactly what we’re doing there. We do not specify specific profitability numbers per country, as you know, so I do not plan to change that policy now. Same is true for Germany – I think Germany, our size is very good. The second quarter for us in Germany is that we have a very diversified portfolio of product. We’re not only in retail generics – we have specialty generics, we’ve got OTCs, a branded business in hospitals and in retail. We’ve got a whole diverse portfolio, which makes our profitability there very attractive, and as Bill referred to earlier on, the outside U.S. business versus the U.S. business, Germany is one of our best markets that is doing very well profit-wise.

Finally on the margin on the Ratiopharm, switching products always takes more time, as you know, and we did the announcement on the Ratiopharm closing, which was on August 10 last year, we said it would take us between two and three years to start reaping the benefits. We’re now nearly one year down the lane, and we’ve reaped the quick benefits out of that. Some of it is in ATI purchasing, some of it is in pulling or buying of some other products; but the real product transfers always takes a bit more time. We’re working very hard and we’re on track to deliver the benefits and the savings of the (inaudible) for that. As a matter of fact, overall the savings in the Ratiopharm deal that we predicted are slightly ahead of schedule as we revealed to you a year ago.

Shibani Malhotra – RBC Capital Markets

Okay, thank you.

Operator

Thank you. Our next question is coming from John Boris of Citigroup.

John Boris – Citigroup

Thanks for taking the question. One for Gerard – Gerard, in light of you just talking about the U.K., can you just comment on the size of the Lipitor market in the U.K. and how much Lipitor contributed in the quarter, and what kind of price discount it was launched at to the brand? And then I have a couple follow-ups.

Dr. Gerard Van Odijk

On the—I think the overall market as I imagine reporting it for Lipitor in the U.K. is north of 200 million sterling. We do not give any more specifics on the launch as we have given so far, and we would like to stick to that for good reason, as you can imagine.

John Boris – Citigroup

Okay. On Laquinimod, the roll-out of the results from the BRAVO trial, will it follow a very similar communication trajectory or path to the previous results that were released? Will they be top line and then full results presented at (inaudible). But can you just walk us through how you plan on communicating the BRAVO results? And then I have one last follow-up.

Shlomo Yanai

As we said before, we are expecting the results very shortly and only then decide what is the right way. For sure, we are going to publish those results to the scientific community as appropriate as we have done (inaudible).

John Boris – Citigroup

Okay. And then just on the Proctor and Gamble joint venture, any additional incremental commentary on P&G and how the formation of that joint venture is progressing. Thanks.

Shlomo Yanai

I missed the question. John, can you repeat the question a little louder, because you’re breaking up.

John Boris – Citigroup

Providing any commentary on the Proctor and Gamble joint venture, the formation of that, how that’s progressing and how you see that rolling out moving forward.

Shlomo Yanai

I hear you very bad, so I try to answer based on what I heard here. We are moving fast in concluding the agreement with P&G. It’s expected somewhere toward the end of the Q, maybe the very beginning of the next Q. The more we dive into that idea or (inaudible), we are more excited. It’s worthwhile in one of our next investors meetings to better explain in more details why OTC or high end OTC is going to be one of the growing segments of the business. I generally speaking see it as another leg for Teva businesses in the future, besides the generics and the specialty pharma that we all know about. And I think that together with P&G, we not only having the geographical advantage because we can sell now in countries where they are strong, but we also have more channels because we can use their channels to the market, whether it is retail or others, and definitely their outstanding world know-how in branding will help Teva very much in leveraging our portfolio and our capabilities in different parts of the world. And I would like to believe that that answers your question. If there is any more, please queue again.

Operator

Thank you. Our next question is coming from David Buck of Buckingham Research Group.

Jim Dawson – Buckingham Research Group

Hi, it’s Jim Dawson for David Buck. I just had a question on the second half improvement you expect in U.S. generics. What is driving that besides the additional launches? Is there anything else that we should know about there? And also, are you starting to see a pricing turn in the U.S.? Thanks.

William Marth

Hi David, this is Bill Marth. Really, I think we’ve talked about the various launches, at least a dozen opportunities, great improvement there. Again, a sequential improvement in our total supply chain, improvement in all businesses, not just generics is really what will contributes to this. With respect to pricing, pricing hasn’t really changed much in the U.S. for quite a while, and so I haven’t seen any changes in the trends there whatsoever. So really, things are relatively stable. I don’t think I can add a whole lot more color than I have already.

Jim Dawson – Buckingham Research Group

Okay, thank you. And then just on the gross margin, I know you said it’s going to improve. Can you just get into that a little more specifically in the third versus the fourth quarter, and also the drivers behind that?

Eyal Desheh

Hi David, it’s Eyal. Yeah, we anticipate a very, I would say, improved product mix in the second half, Q3 as well as Q4, with more launches in the U.S. generic market with some continuous improvement in Europe, some better sales on our branded products. (inaudible) respiratory, women’s health are part of that. All that should get the gross margin at a higher level than what we’ve seen in Q2. That should work in both quarters.

Jim Dawson – Buckingham Research Group

Right, and Q4 will be better than Q3?

Eyal Desheh

In terms of margins? It might—yeah, it might be, but the difference is they’re not going to be that high, only mostly on the top line side.

Jim Dawson – Buckingham Research Group

Okay, thank you. One last thing is just on the status of the Jerusalem facility and the FDA warning letter, when will you be back to normal approval timing there? Thanks.

William Marth

David, this is Bill Marth. We’re essentially at normal activity now. Again, we have not received the official letter, although we are getting approvals and although our conversations with the FDA have been very positive, and there are no longer any issues. We just haven’t gotten the letter in hand. Again, there was some additional quality initiatives put in place, but those are all in place and we are running smoothly.

Shlomo Yanai

We can just say that in Jerusalem, our file from my point of view is closed. Of course, we are waiting, as Bill said, for the official letter from the FDA, which I believe will come very soon. I cannot speak for the FDA, but that was my understanding from the discussions with the FDA. And Jerusalem is full steam ahead.

Operator

Thank you. At this time, I’d like to hand the floor back over to Mr. Shlomo Yanai for any closing comments.

Shlomo Yanai

Thank you very much, and thank you everyone for joining us today. As you have heard, we are looking forward to increasing growth across all our geographies and businesses in the second half of the year. I would like to believe that we also capture the enthusiasm that we have regarding this second half of the year, and again, thank you all very much for being with us today and have a good day.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you all for your participation.

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