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Teva Pharmaceutical Industries Limited (NYSE:TEVA)

2012 Business Outlook Conference Call

December 21, 2011 8:30 am ET

Executives

Kevin C. Mannix – Vice President, Investor Relations

Shlomo Yanai – President and Chief Executive Officer

Eyal Desheh – Chief Financial Officer

William S. Marth – President and Chief Executive Officer, Americas

Gerard W.M. Van Odijk – President and Chief Executive Officer, Europe

Analysts

Ken Cacciatore – Cowen and Company

Gregg Gilbert – Bank of America/Merrill Lynch

Marc Goodman – UBS

Elliot Wilbur – Needham & Company

Ronny Gal – Alliance Bernstein

John Boris – Citi

Michael Faerm – Credit Suisse - North America

Louise Chen – Colling Stewart LLC

Randall Stanicky – Canaccord Genuity

Tim Chiang – CRT Capital Group LLC

David Amsellem – Piper Jaffray

Operator

Good day, ladies and gentlemen, and welcome to the Teva 2012 Business Outlook Conference Call. My name is [Eiena] and I’ll be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a remainder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host, Mr. Kevin Mannix, Vice President, Investor Relations. Please proceed.

Kevin C. Mannix

Thank you, operator. Good morning and good afternoon everyone. Thank you for joining us today to review Teva’s 2012 Business Outlook. I'm joined today by our CEO, Shlomo Yanai, our Chief Financial Officer Eyal Desheh, Bill Marth, President and CEO of Teva Americas and Dr. Gerard Van Odijk, President and CEO of Teva, Europe.

Shlomo and I will start by providing an overview of our outlook for 2012 and then we will open the call for a question and answer period. Before we start, I’d like to remind you that our discussions during this conference will include forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements and the factors that could cause actual results to differ are discussed in Teva’s 2010 report on Form 20-F.

Also, we are presenting non-GAAP data, which excludes the amortization of purchased intangible assets, costs related to certain regulatory actions, inventory step-up, legal settlements and reserves, impairment and related tax effects. And these are amounts that we cannot predict at this point.

As mentioned in the past, we present these non-GAAP figures to show you how we, the management team and our Board look at our financial data.

I’ll now turn the call over to Shlomo Yanai, President and CEO of Teva. Shlomo, if you would please.

Shlomo Yanai

Thank you, Kevin. Welcome everyone and thank you for joining us today to review our financial guidance for full-year 2012.

As mentioned in our third quarter call, we recognized that it is important this year to provide early an increased transparency regarding our expectations for the upcoming year. We look forward to doing that on this call by providing a new level of detail that would assist investors and analysts to better understand our business activities.

Teva today combines the leading global generic company with a world-class specialty Pharma business and a new OTC joint venture. As such, Teva is uniquely positioned to capitalize on the attractive dynamics of a growing generic market, aging population, governments under economic pressure to provide less expensive health care, legislative reform and decision power moving to payers.

With the largest product offering in the industry, economics of scale, extensive geographic reach and globally integrated infrastructure more than any other pharmaceutical company, Teva is best prepared to take advantage of these new market realities.

Throughout 2011, we have made great strides in achieving our goals which set us up for strong growth year. 2012 will be highlighted by total sales of approximately $22 billion and EPS in the range of $5.48 to $5.68.

In just a few minutes, Eyal will provide more color on our financial outlook for the year. But before turning the call over to Eyal, I would like to make a few brief comments on our different market sectors.

And let me start with the U.S., the U.S. remains Teva's largest and most important generic market. Indeed, the U.S. generic market is the largest generic market in the world and is expected to remain so for the foreseeable future. We have been the number one player in this market for almost a decade, and Teva is committed to remain in this position for years to come. 2011 has been a tough year for all the U.S. generics business as we experienced a decline in sales for a variety of reasons.

We see 2012 as a pivotal year, where we anticipate an unprecedented number of patent expirations and product launches. And where many of those products launches come with robust competition, we will compete effectively and increase our share in that market. Through our commitment to service level excellence, world-class R&D, and deep reach customer relations, we expect to grow faster than the market in 2012.

Europe continues to be a success story for Teva. We are the number one generic company in Europe, and we expect to grow faster than the market in 2012. On the back of a record number of over 400 launches, our pan-European diversity is best-in-class, as we had a balanced presence in 27 European countries. We expect to further solidify our leadership in Germany, where as you know, we reached the number one position in value since September this year. This comes on top of our leadership position in other major European markets like UK, Italy and Spain.

In our emerging market business, we are expecting a combination of double-digit growth in 2012. Following the completion of the Taiyo acquisition, we are now the number three generic player in Japan, with the aspiration to become the leading generic player. At the same time, we continue to see growth across the globe, most notably in Russia and Latin America.

We continue to see great potential for further geographic diversification. Although we're not expecting any major acquisitions in 2012, we may make some smaller complementary partnerships, alliances or acquisitions in emerging markets.

Falling now to our specialty pharma business, the integration of Cephalon’s branded business with our own creates a world-class specialty pharmaceutical business with a robust late stage pipeline. The integration thus far has been growing well, and has met all our expectations and more as synergies are tracking better than planned.

With this acquisition, we have enhanced our Bromide capabilities in R&D, commercialization, sourcing and regulatory. We have now 30 late stage clinical programs although half of which are in Phase III, supporting the future of our branded business. A more detailed information on our innovative pipeline efforts will be showed at an Investor Day we plan to hold in mid-2012.

Moving on to OTC. We have an extended global platform in Procter & Gamble's knowhow providing a competitive advantage, our joint-venture will create significant long-term value by leveraging on our even asset, our OTC business.

Global OTC branding will add another exciting dimension to our emerging markets, where branding matters most. 2012 represents the first full year of operations for this joint-venture, and we expect our OTC business to grow about 20% in 2012.

To conclude, executing on our strategy provide us a more balanced business model across geographies and therapeutic areas mitigating the risk in our global industry, and positioning us well for the future.

As you have seen in the press release issued this morning, I’m also pleased to announce that our Board of Directors approved up to $3 billion share repurchase program. This share repurchase program reflects our confidence in our future outlook of our business and the company long-term value. Furthermore, our strong cash flow enable us to return cash to shareholders, while preserving the ability to service our debt and support our growth plans in a balanced solid fashion.

And now, I’d like to turn the call over to Eyal. Eyal?

Eyal Desheh

Thank you, Shlomo, and good day, everyone. Our goal today is to provide transparency and clarity around our 2012 guidance in order to help everyone understand our outlook for the year. We’re excited to have this opportunity to share with you why we are truly looking forward to the year ahead. I’d now like to provide you some more details regarding our 2012 forecast.

We expect 2012 to be approximately $22 billion in sales. This number is of course sensitive to exchange rate volatility, especially, since almost half of our sales are denominated in currencies other than the U.S. dollars. While we recognize that you will like to have more comparative data as we have not yet closed the books on 2011, looking at this time provide that detail. We will be able to do so when we report our full year results in February in the same format.

Looking at our major business lines, we estimate total generic sale which includes sales of API to third-party to be approximately $11.8 billion, total branded product sales to be around $8.2 billion, total OTC sales to be approximately $1billion and other sales mostly distribution of third-party product to be approximately $1 billion as well.

Looking at geographical splits, total U.S. sales in 2012 were expected to be approximately $11 billion, sales in Europe to be $6.6 billion, and sales in the rest of the world to be $4.4 million. The rest of the world includes Canada, Latin America, Asia, Eastern Europe, Middle East and Africa.

Total U.S. generic sales in 2012 are expected to grow to about $5 billion, $650 million will be generated from new product launches. Total European generic sales are expected to be approximately $4 billion, with a record of more than 400 product launches. Total rest of the world generic sales are expected to be $2.8 billion lead by Japan and Russia.

Turning to our branded product sales, Copaxone will continue to be our leading product, growing to an estimated global Teva sales of $3.8 billion. Additional forecast for individual brand product global sales include the following estimates. Trianda at $550 million, women’s health products at $525, ProAir HFA at $490, Qvar at $400, Provigil at $375 million, Azilect at $350 million and Nuvigil at $300 million.

Now let me provide some specific guidance as to expenses and margin. Our non-GAAP gross profit margin is expected to be between 58% and 60%. The first quarter is expected to have relatively high gross margin, benefitting from the inclusion of Provigil before it becomes generic and we expect the gross margin to be lower in the following three quarters.

Net R&D expenses without joint venture and other investments will be approximately 6.9% to 7.3% of net sales. Total R&D, which includes our JV with Lonza and our investment in a variety of smaller companies was close to 8% of sales.

Selling and marketing expenses will be in the range of 18.4% to 20%. Included in selling and marketing expenses for 2012 are royalties totalling approximately $400 million. General and administrative expenses in 2012 are expected to be approximately 5.1% to 5.5% of sales.

Net financial expenses are expected to be approximately $360 million. Foreign exchange fluctuation may have significant impact on this figure. Tax provisions on our non-GAAP pre-tax income is expected to be in the range of 13% to 14%.

In 2012, we expect to record sharing losses of associated companies of approximately $55 million to $60 million, primarily in our joint venture with Lonza, mostly related to R&D expenses.

We expect non-GAAP earning per share to be between $5.48 and $5.68 for the year. When we look at the quarterly development, unlike recent years, we see a relatively strong Q1, which will include sales of branded Provigil and the launch of generics Lexapro. Lighter Q2 and Q3, we expect introduction of generic Provigil and another strong Q4 with a large number of generic launches anticipated in the U.S. and Europe, combined with the winter seasonality effect.

Finally, cash flow from operation it is expected to be $5 billion. Free cash flow, after capital expenditures and dividend is expected to be approximately $3 billion. We estimate that average real diluted number of shares in 2012 will be 865 to 870 million shares. This reflects the company's intent to continue and repurchase its shares, as announced earlier today.

Our strong cash flow solid balance sheet will enable us to continue to return cash to our shareholders, service our debt and to demonstrate our commitment to support our current credit rating.

Please keep in mind that these guidelines are indications only, and actual results may vary whether as a result of foreign exchange differences, market conditions or other factors. We will be issuing a press release with all these figures momentarily for your convenience.

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

Question-and-Answer Session

Operator

(Operator Instructions) The first question will come from the line of Douglas (Inaudible).

Unidentified Analyst

Hi, good morning. Thank you very much for taking the questions. Just, on the share buyback, I was wondering if you have contemplated or thought about doing accelerated share repurchase?

Eyal Desheh

It’s Eyal. As the press release indicates, we will be buying in the open market. Just to make sure that everybody understands, we entered yesterday to a breakout period, so are prevented from buying shares until we release our results in February. But currently the plan is to collect shares in the European market day-in and day-out as we’ve done in the past.

Unidentified Analyst

Okay, and then I was just wondering if you could provide a little clarity in terms of the guidance on Nuvigil, especially given the loss of exclusivity on Provigil and the genericization of that market. What takes into your expectation of $350 million?

William S. Marth

This is Bill Marth. Had said that the number for Nuvigil is $300 million. We’ve effectively moved as much of the Provigil over to Nuvigil that we think that we’re likely to do. We do believe that the therapeutic advantages of Nuvigil once-a-day dosing provides lot of advantage over Provigil. So we’re pretty confident about that $300 million number.

Unidentified Analyst

Okay. And then finally, in terms of the $3.8 million, I think it was for Copaxone, what are your expectations for pricing versus volume?

William S. Marth

This is Bill Marth again. With respect to Copaxone, we do believe 2012 is likely to be our peak year at this point at almost $4 billion or $3.846 billion. What we see happening is, a gain in price in the U.S. We do believe that we will lose some share to orals as they begin to become more robust in the market. But we see strong growth outside of the U.S., but of course price is great outside of the United States.

So, outside of the United States we get much more volume with much less price. In the United States, we get much more price and we have very good volume. So we see that volume slowing a little bit.

That said, we do think there is a lot of opportunities for Copaxone as we move forward as orals begin to enter the market and expand the market. And we see evidence of this expansion going on. We believe that there is greater opportunity for us in Copaxone.

As I have always said, we've got 40% market here. I'll take a low market share but much larger market, if we can begin to get many of those people who have dropped off treatment back into the market. So we're pretty excited about that.

And I think the other big driver this year for us is the take back in Europe. And that provides a lot of opportunity. Certainly (inaudible) has been an excellent partner over the years, but the opportunity to get the bat back in our hands gives us the opportunity to do a bit more. So we'll see how that goes over 2012.

Unidentified Analyst

And then just one final quick question, a follow-up on Copaxone, Bill. In terms of the GALA study and the potential for three times weekly, how would that play into your sort of, life cycle management strategy for Copaxone?

William S. Marth

Again, GALA, we expect to get [lead-out] on that July or so of 2012, last patient out. Once we get our hands on that data, we’re hopeful that that data is the data we’d like to see, and if so then we’ll get that off to the agency and we’ll hope for an approval and to be in market in 2013.

And of course we’re excited about the opportunity with GALA. Three times a week we think provides a real advantage for patients. It’s a step change for us with Copaxone and we think it will be a great product. But of course one step at a time, let’s get that data back.

Operator

And the next question will come from the line of Ken Cacciatore.

Ken Cacciatore – Cowen and Company

Hi, thanks guys, good morning. Just, Eyal using your lower share count and applying it to last year to figure out what the base that we’re growing from, I would look at the 548 as 7% growth. So can you describe for us what could possibly kind of go wrong to have to hit the low end of the range? It seems that’s pretty conservative.

And then maybe, you could just describe for us what’s the single largest swing factor in your guidance? Is it Tricor, is it any individual product that you could point us to that maybe we should pay attention to, to understand the difference in the 548 to the 568? And then I have a follow-up, thanks.

Eyal Desheh

I will take the share count and Bill will take the question on Tricor and what could go wrong. Maybe Shlomo can wrap that up. Well, you can do the calculation, we expect to exit 2011 with about 880 million shares. We bought share during the year. It’s again, with averages of course.

And as we have announced, we will continue to buy back share during the year and we estimate that the average will end up as I have mentioned before, 865 to 870 for this month. And this number of course could move up and down, depending on stock price and how much we will buy.

Ken Cacciatore – Cowen and Company

Okay.

William S. Marth

Ken, I think that’s you. The audio here wasn’t real good. But in any case, I just want to clarify on Tricor. Tricor is not, and I repeat is not in our 2012 work plan. We do not anticipate approval of our file in 2012 and it looks like (inaudible) as we do have a settlement with Abbott that we did some time ago and really can’t reveal the terms on that.

When I think about the thing that could go wrong in our plan, first of all we think we put together an excellent plan and we plan to execute on all elements of it. But when you think of the big parts, number one in your mind has to be the U.S. generic recovery. And we expect that, we anticipate that. Shlomo said a lot of important things about the U.S. market and its important stuff and so U.S. recovery has to be one of those things you have in the back of your mind.

Copaxone sale trends has to also be something that’s always in the back of your mind. We have projections based on orals coming into the market. We are very confident on our legal case. We are very confident that there will no generic Copaxone, certainly in 2012 and probably not for some time. So we are very confidant about that. But sale trends are always a risk. It’s a big product for us, right?

And then finally, the EU, the EU is a big piece in our puzzle. When you talk about the way it will break down for us, the U.S. about $11 billion, EU in aggregate about $7 billion and rest of the world $4 billion. The EU of course is that second large driver. So I think those are the big parts.

Eyal Desheh

Maybe one more comment on what could go wrong, and I know this is very popular today, but I will take the risk to say it anyway. There is a world out there, and we try to factor our price erosions and pressure by government into the plan, but there’s something that could happen in 2012 that we never know, and then the economy could go north also at the second part of the year.

So I think, that is, at this time at least, that is a big question mark for every company, for every global company, for every company operating in U.S. and Europe. And that could affect us as well, but as I said, we’ll try to factor this into our plan, but it’s external and it’s hard to predict.

Ken Cacciatore – Cowen and Company

Thank you.

Shlomo Yanai

And if I may add to that, Ken, this is Shlomo speaking. Just as a follow-up on Eyal and Bill, as we all know, this is a world where the economy is in a turmoil, and in such an environment, we have to be cautious and not to be over-optimistic. And that was the approach that we gave with the guidance. We try to assess very carefully, and to try to understand as much as we can what are and what could be those kind of threats or moving parts as Eyal called them.

But generally speaking, this is the guidance and this is the approach. And in that respect this is a very solid guidance for next year.

Ken Cacciatore – Cowen and Company

Thank you.

Operator

(Operator Instructions) The next question will come from the line of Gregg Gilbert.

Gregg Gilbert – Bank of America/Merrill Lynch

Thanks guys, and thanks for the continued focus on total shareholder return. My first question is about dividends, and in light of a step-up share buyback plan and in light of the fact that Copaxone might rollover in the coming years; is the plan to still increase dividends at the double-digit rate that has been the case in the past. And secondly, for Bill, what do you think happens at the end of that 13 month date for Nuvigil, and can you confirm when that is? Thank you.

Eyal Desheh

Hi, Gregg. I'll take the dividend, the dividend question. We do every year, I think at least during the past 10 years, I didn’t go back to check it, we have increased dividend every year, and in most years, double-digits, at least the last five years that I can recall.

Our board will approve the new dividend for Q4, and 2012, when it will approve, results for 2011, and we’ll announce it in February. We can assume that, that will continue to increase dividend as we've done in the past, but the exact amount and percentage will be determined and approved by our board in a couple of months or less than that. Bill?

William S. Marth

Gregg, on the Nuvigil, I think the question you’re searching for there is, we assume that sensitivity for Nuvigil. We don't see any change, I think the next decision point, we expect from the court is sometime over the summer. And so for this plan, you should assume that Nuvigil remains a branded product.

Gregg Gilbert – Bank of America/Merrill Lynch

Thank you.

Operator

The next question will come from the line of Marc Goodman.

Marc Goodman – UBS

Yes, hi, a couple of things. First of all, in R&D, can you comment on why that number seems so high, is this the biosimilar spend that’s really kicking in or what is that? And then, second of all, new product launches in the brand side of the business, can you just give us a flavor for what you’re assuming there? Thanks.

Shlomo Yanai

Bill, you start and then, Eyal, will follow up.

Eyal Desheh

Yeah.

William S. Marth

Sure. Mark, its Bill Marth. I think the only real new product that we launched this year, we anticipate Qineva launching approximately mid-year. We’re pretty excited about that product as well as in Europe we would launch the (inaudible) and that should launch as well. So, a couple of our branded products there. More of our branded products ramp-up in the later years.

Eyal will comment a little bit more, but with respect to the R&D spend, we’re spending about almost 5% on our generic business and about 11.5% to 12% on the branded business. And you might ask, are those the exactly the right numbers? Those are the numbers that we have budgeted now, it’s for our new barn, and as we move forward hopefully, Eyal, will give you more number.

Eyal Desheh

Yeah. We're moving from…

Marc Goodman – UBS

Yeah…

Eyal Desheh

From about $1 billion to $1.5 billion. So it's a 50% increase. Most of the increase is in our branded part of the business that we can, you asked about biosimilar. We’re committed we continue to invest a pretty meaningful amount of money in biosimilar, and our respiratory program, in oncology projects and CNS, that’s where most of the money, the R&D money is going to go.

We have 30 programs or projects at advanced phases, Phase II and Phase III, more than half of that is in Phase III, and these are all clinical products which we invest in, and we're committed for that for the longer period. The generic R&D is over $0.5 billion, and in total costs it's about 5%of generic sales, probably above industry benchmarks as we are looking at building the generic pipeline.

In all the geographies, U.S. which is our primary market, but Europe and you see 400 launches this year. This is the benefit of the focus on generic R&D in Europe, and we’re spending a lot of effort in the rest of the world market, especially Japan as we quickly build a portfolio of generic product to the Japanese market.

Marc Goodman – UBS

So the biosimilars is within that 5% generic?

Eyal Desheh

No, the biosimilars is within the branded budget

Marc Goodman – UBS

I see. And all the Cephalon products, have you weeded any out or are you keeping pretty much the same portfolio that we remember when the company…

Eyal Desheh

Yeah. Maybe Bill can add some color on that. We’ve gone through a very thorough study of all our portfolios of products and they are very, I think very encouraging results that you can add to that.

William S. Marth

Yeah, Marc, I probably won’t add a whole lot at this point. We regret that Kevin couldn’t be with us today, Kevin Buchi, who is really running our GBP, our branded development business now. And they’ve done a wonderful, he and the team Leslie, Serg and people from Teva has done a wonderful job of really looking at the pipeline and developing what we considered our most valuable product, the A products or B products and our C products. They’ve ranked all of these, all the products and we’ve rationalized the dollars accordingly.

And so we’re making the right decisions with respect to the clinical studies for all of these projects as we move forward. So, we’re excited about it, and as Shlomo said that we hope to share some information a little bit deeper, richer information with you, a little bit later in the year.

Marc Goodman – UBS

And Bill, can you say anything else about Tricor? I think most of us were expecting it this year.

William S. Marth

No, I really have to limit my comments there. But it’s not in the plan as I said, and I do not anticipate our approval this year, and we do have a settlement. Those are really the three things I can say.

Shlomo Yanai

And Marc, I’d like to add to your pervious point on the R&D, and especially in the branded arena, just to give more color on that. First of all, one of our effort in that respect is, after doing the first, let’s call it first round of portfolio optimization or streamlining the converged portfolio of Teva and Cephalon into one, and as Bill said, the team did a great job.

I believe that this is something that we are still ongoing review as we still continue of course the sourcing during full 2012, so we will get hopefully another opportunities or another new molecules. So it is going to be an ongoing process and I believe that by the mid of the coming year, we’ll be able to provide a very, let’s call it thorough picture on our future pipeline based on that work which is done now.

Another dimension, which is not necessarily going to the R&D, but is important to understand, we see a great opportunity in leveraging the current portfolio, the current brand portfolio from U.S. to the other global Teva major countries, mainly Japan or Europe, where we believe with additional, not too expensive investment in R&D, we can definitely leverage the branded business in that part of the world.

Kevin C. Mannix

Next question, please?

Operator

The next question will come from the line of Elliot Wilbur.

Elliot Wilbur – Needham & Company

Thanks, and good morning or good afternoon. First question is for, I guess, Bill around the expected performance of the U.S. generic business. First, Bill, can you just give us a sense of what the assumption embedded in your forecast is for pricing erosion on the overall base business?

I mean, it seems like we’re kind of moving somewhat out of this window of what has been a very favorable pricing environment, just trying to get a sense of relative degree of conservatism in the forecast there.

And then also on the $650 million in expected new product launches, obviously that wouldn’t contain a combination of launches that have high degree of certainty, and also those that are probability-adjusted. So I’m trying to get a sense of how that may be balanced, and sort of what our confidence should be in that number, sort of not knowing what some of the probability assumptions are behind that.

And then just a follow-up for Eyal, specifically with respect to the net financial expense expected to be incurred during 2012, could you just give us an indication of what the actual level of interest expense embedded within that number is going to be, and then just kind of a general breakdown of how much variable cost debt you have on the balance sheet versus fixed rate? Thanks.

Eyal Desheh

Bill?

William S. Marth

Thank you. Thanks for the question, Elliot. When we look at the product opportunities for 2012, we see as many as 42 product launches worth greater than $30 billion in innovator value. That said, we generally launch about 50% of the opportunity. So if I were looking for a number for Teva this year, I would peg it at about 25 as a real good target number for launches.

As you remember, every launch, we needed at least three principal criteria, the regulatory approval, operational readiness and legal clearance. And only with that of course, we’re ready to go. Some of the big products you think about this year would be Azathioprine, the Lexapro are the $2.8 billion product, and we have about $250 million in the budget for that product. Pioglitazone would be another one the ACTOS, it’s a large product, actual patent which is Oxycontin, Irbesartan and Avalide is a big product, Clopidogrel Plavix a large product Quetiapine circle very large product, $4.4 billion.

Provigil unfortunately, Modafinil at $1.1 billion and Montelukast Singulair $3.1 billion, lots of products, lots of robust innovator sales, but there are also lots of competition. The only large launch that we have, exclusive launch that we have this year in generic side is Azathioprine, the Lexapro. That's where we see it this year.

With respect to the erosion, we are still seeing very low erosion in the market, and we’re still forecasting the same range, and we think we’ll be fine this year with respect to price erosion.

Shlomo Yanai

Okay, regarding the finance expenses, average yield or average interest rate on our portfolio is around 3%, and as we’ll exit the year with just under $15 billion, about $14.5 billion in total debt, and we would probably go down by at least $1 billion during the year. You’re asking about the composition, it’s about, 70% to 75% of that is today at fixed rates, and at about 30% is in variable rate.

Kevin C. Mannix

Next question?

Operator

And the next question will come from the line of Ronny Gal. Please go ahead.

Ronny Gal – Alliance Bernstein

Good morning, good afternoon, and thank you for taking my question. The first question I have is about the pipeline. Can you give us idea about the timing of the Tr hydrocodone and the lead about poly data on one side. And should we expect a Phase III to start this year on Revascor, and your analogs to Advair and Symbicort? And I have a follow-up.

Eyal Desheh

Okay, the first one Ronny, was on, sorry?

Ronny Gal – Alliance Bernstein

Hydrocodone.

Eyal Desheh

The hydrocodone study, we hope to get completed this year. We hope to get a filing for hydrocodone yet this year or in 2012, excuse me. The second one?

Ronny Gal – Alliance Bernstein

The sales of Nuvigil bipolar?

Eyal Desheh

Again, also expect filing in 2012.

Ronny Gal – Alliance Bernstein

So have you got the data already?

Eyal Desheh

There is data, there is some other data being accumulated yet.

Ronny Gal – Alliance Bernstein

But the Phase III is in, for pivotal?

Eyal Desheh

The pivotal is in.

Ronny Gal – Alliance Bernstein

And it’s positive, assuming that you’re going to submit?

Eyal Desheh

We won’t comment any further than that.

Ronny Gal – Alliance Bernstein

Okay. And should we see a Phase III starting on Revascor, and your analogs to Advair and Symbicort?

Eyal Desheh

I don’t have the information on the Revascor, we’d have to get that, we can follow-up on that.

Ronny Gal – Alliance Bernstein

All right. So my follow-up for you Bill is actually about the generic business. Teva has not have had a particularly strong performance in the last couple of years on first-to-file, first-to-file on reformulations in complex products, it seem to have, that is a field where I guess couple of people have been much more aggressive on. Can you give us an idea if this is something that you’re going to step on or press on for the next year or two? And related to that, when do you expect the injectable facility from Guatemala to begin to ship products to the United States?

Eyal Desheh

Brian with respect to our filings, I actually think we've done a pretty good job of getting our share of first-to-file and we've been launching first-to-file up into a couple of these – we actually I thought had a quite good year in 2010. Unfortunately, 2011 was a tough comp, but overall our first-to-files have been pretty good. We focused on those. We have focused more on the complex products, but that’s a strategy that makes sense. We are looking for these more complex products instead of all the first-to-files where you have a lot of NCE and there’s just no value.

So, with respect to putting the pipeline in the right place is, I think we're doing the right things. We're looking for less filing, but more meaningful filings as we plough ahead. Having said that even though some products may be anti-ease and some products may attract a lot of filers, we’ll still go lean to the more meaningful products as we're obviously concerned about what our customers want and when they want, wants the right product for the appropriate name.

Ronny Gal – Alliance Bernstein

Right. And the injectable facility in Guatemala?

Eyal Desheh

The injectable facility in Guatemala is due to be expected in the early part of 2012 and if we get all of our sales done and we are able to qualify everything we should begin launching mid-year for the U.S.

Ronny Gal – Alliance Bernstein

Great. Thank you very much.

Operator

And the next question will come from the line of John Boris.

John Boris – Citi

Thanks for taking the question. First one on the European side of the business, just any, since you are launching so many assets in Europe, any particular ones that you can call out and can we get some idea as to what your share price assumption is in Europe?

Shlomo Yanai

Gerard, can you take this?

Gerard W.M. Van Odijk

Yeah, sure, Shlomo. Hi, John, with all pleasure.

John Boris – Citi

Hi.

Gerard W.M. Van Odijk

There is from the 400 launches, I talked about, of course it’s losing it’s exclusively through the summer next year. So that’s by far the biggest one, there are a few other smaller ones, but the 400 is a combination of the amount of markets by the amount of products because as you know Europe with 25 markets has it’s own complexity there rolling out to launch. I do believe that besides that we have Combisartan and the combination of Combisartan with HCTZ. Those are the major ones. So the launch is in the [Audio Dip] if you look at the European market are growing, are fueling about 4% of the volume growth that we expect to happen in the market place next to the organic growth that is about 5%. This is only the volume growth.

John Boris – Citi

And your assumption on price erosion in Europe, across Europe?

Gerard W.M. Van Odijk

Yeah, if you take the pricing, as you know, the economic pressure in the European market continues and we are confident that the austerity measures will continue to be pushed on to the systems by governments because they have to. This will lead in our view to a couple of events. One is that we probably have to expect sort of a slowdown in pharmaceutical development in central Europe, but also great opportunity for markets where generic penetration is still very low or relatively low in many large Europe, Western European markets.

The overall effect of the pricing assumptions that we have taken into our plans is that we expect from governmental pressure, roundabout 3% to 4% net effect on our price is negative, and on top of that through competitive action another 3% to 4%. So the total impact of negative pricing is somewhere in the range between 6% and 8%. If you combine that with the roundabout 9% volume growth that we are expecting next year, we expect the total market to be somewhere in the range between 1% and 3% growth.

John Boris – Citi

Any big tenders we should be focused on?

Gerard W.M. Van Odijk

No, all the big tenders in Germany are sort of, business as usual by now. And we believe that with the excellent portfolio of market that we have across Europe, and the blend of strong generic launches and generic-based business as well as new launches in the branded business, we believe we should be able to beat that overall dynamic in Europe and do about twice the growth in our company that the market is currently focused upon.

John Boris – Citi

Thanks for that. Bill, similar question for you. In the U.S., what is your assumption for pricing in the U.S. in particular in volume growth on the generics business?

William S. Marth

The generic business in U.S. is growing quite a bit from where it was last year. We’ve got quite a bit of share growth. The price is largely driven by the $650 million of new product launches. Exact volume, I don’t have a volume percentage. We expect to pick up share this year, probably about twice the rate of the market growth.

John Boris – Citi

And just your assumption on price?

William S. Marth

Our assumptions on price is, they don’t change. The price erosion this year should be about mid-single digit.

John Boris – Citi

Negative mid-single?

William S. Marth

Yes, yes.

John Boris – Citi

Okay, great. Then one question, final question for you Shlomo. I appreciate the increased transparency you provided on the business, obviously, with R&D and SG&A needing to be a focal point for an ever increasing branded business. Can you just help us understand, at least going forward, how we should be thinking about the growth in R&D and growth in SG&A spending and how you're thinking about spending that as a percent of your total revenue is going forward across the branded business?

Shlomo Yanai

Okay, let me first start with, definitely the acquisition of Cephalon was a major move for the different kind of Teva going forward. We are more balanced, we have right now a stronger generic presence, and definitely, I believe that we are building a very strong specialty pharma business. I didn't pay attention to check whether this is one of the strongest or the largest, but definitely by any given criteria, our specialty business right now is a very significant part.

And I believe that we should think on the future of the pharma business in a more holistic and a more broad approach rather than by segment because at the end of the day, Teva has generics and many kind of generics, branded generics, tenders, and there are many other varieties.

We have the branded specialty pharma business. We added to that this year. We did a significant move to increase the OTC. It’s overall about serving the customer in the way he would like to be served by a global, big, reliable supplier with high quality and has a huge portfolio breadth. I believe that we have the largest portfolio breadth in the industry by all means.

I think that the potential for growing our branded business, I said before, is by taking the very attractive portfolio with Cephalon, mainly developed and sale in United States. Yes, there are sales in Europe as well, and take them into other parts of the world where we have a presence and we can definitely sell this product. Some of this product as we have a little bit more investment in regulatory affairs, or R&D and regulatory affairs, but I think this is minor compared to the business advantage that we can get out of it. We’re committed to develop this business and therefore if there will be a need to increase our R&D, of course in a relative numbers we can do that.

So the G&A, G&A will go down. G&A by definition, in fact, I still believe in being a lien pharma Company. And I believe that that means that first, we have relatively a low G&A. This is part of Teva’s G&A and I believe if we can take advantage, even when we go into the more branded part of the business to do so and use our experience there as well. As you know, our S&M expenses in United States in the branded arena are significantly less than the pharma numbers. And I believe this is part of what we call the future lien pharma model.

John Boris – Citi

Thanks for that.

Shlomo Yanai

Bill, do you want to add to that?

William S. Marth

Yeah, just one other thing I want to point out too. We did make some investment this year, when we lifted the sales force and we are integrating Cephalon, sales and marketing costs go up a bit. So one of the investments we made was to increase our calls on Copaxone. When you look at our call frequency in Copaxone, we had a sales force of about 200 people on sales on Copaxone and about 60 of those people were also dedicated to the Azilect franchise.

What we’ve done now is actually put all 200 on Copaxone, fully dedicated and taken the 60 from Azilect and moved that over and combined it with our (inaudible) sales force. So we’re actually stepping up the call frequency and activity around Azilect and at the same time doing the exact same to Copaxone.

We think this is extremely important with all movement, all the entrants in the multiple sclerosis market. It’s an excellent opportunity for us to really get a better share of voice in that particular space.

Operator

The next question will come from the line of Michael Faerm.

Michael Faerm – Credit Suisse - North America

Good morning. Thanks for taking my question. My question is regarding the share repurchase. Can you give us a sense of how you think about timing and urgency of your intent to execute the repurchasing, taking share price out of the equation, if we assume share price remains relatively constant until your blackout is lifted, how do you think about timing and distribution of that? And then secondly, to what extent do you intend to use the recent shelf filing and any financing that could come from that to fund to repurchase?

William S. Marth

Allow me to take the last one first. We renew our shelf registration every year. So we don't see any particular planning into it. Regarding the share repurchase, we’ll start purchasing shares immediately when the blackout period is over. After we report our Q4 results in February, I’d say that we'll buy in the open market. We’ll take advantage and use opportunities we believe if stock price is low. I don’t know where it will be at that point in time, but I will definitely intend to go in and start to execute on the plans that was approved by the Board. Other details, I think are premature to provide.

Michael Faerm – Credit Suisse - North America

And just one follow-up, if the share price is relatively where it is today would, do you think that price is such that it would make sense to be aggressive with the repurchase or do you think it makes sense to do it more over time?

William S. Marth

Yes.

Eyal Desheh

The answer was yes.

William S. Marth

Yes.

Michael Faerm – Credit Suisse - North America

Yes to the first part I assume.

William S. Marth

Yes. We don’t like the share price but as a buyer I like it.

Michael Faerm – Credit Suisse - North America

Thank you.

Operator

And the next question will come from the line of Louise Chen.

Louise Chen – Colling Stewart LLC

Hi, just one question and a follow-up. First one is; we’ve often been asked to define Teva’s business strategy, could you elaborate more on this now that Teva is one of the largest or the largest generic company in the industry? And then secondly, what has been your historical organic growth rate and what do you expect this to be going forward? Thanks.

Shlomo Yanai

I’m not sure that we got your first part or the first half of your question. Can you please repeat it?

Louise Chen – Colling Stewart LLC

Sure, I think we’ve often been asked to define Teva’s business strategy, given that there is many moving parts in the business, the things have changed a lot. So could you elaborate more on this now that Teva is one of the largest or the largest generic company in the industry?

Shlomo Yanai

Okay. And the second part please?

Louise Chen – Colling Stewart LLC

The second part is going forward what do you expect to be your organic growth rate, and historically, what has that been if you exclude large M&A transaction?

Shlomo Yanai

Okay. So let me take the first one. Teva is a hybrid company. We believe that, and by the way if you look at the – into our industry almost every company at the size of Teva and above is by definition hybrid, with different varieties of business lines.

We believe that this is the right business to be in, the right strategy, and this composition create a lot of benefits to a company that understands how the market dynamics are working and how to take the advantage and leverage from the mental or basic assets which is the global presence, the breadth of our portfolio, the unprecedented integrated support systems and definitely what we call the Teva culture and the know-how of Teva’s people and their aspiration to continue Teva’s growth and success [trial].

It means that we are open. It means that we are not rigid to any ratios. We started the journey where we were about 70/30, but if you think that it's better for the business then definitely this is not carved in stone and we can change this ratio. We have to be flexible, this is a dynamic world and we should ask ourselves what is good for our business and what is good for our shareholders that value creation.

And in that respect, we may see a creative addition business idea, I’m just taking on the OTC with P&G, I think this is the standing. It was not our radar screen two, three years ago, but it is a good example that we're working on some ideas or business venture, which I could, which I can quote out of the current box ideas. And you should expect more to come in the coming years.

And as per our organic and future growth rate, of course as we grow the business and as I just gave the guidance for 2012, which is above the $20 billion size, $22 billion to make it more accurate. It means that you probably cannot continue the small-sized few billion dollars company growth rate forever. It’s of course, it’s a no-brainer conclusion. But definitely, we will continue to believe that growth is one of the best value drivers and we’ll try to grow the business as we can. And as we see for the next year, it is very substantial strong growth that we anticipate for 2012.

Going backward, I would say that we organically grow the business by a low two-digit number, depends on the years and that going backward as part of the overall organic, let’s call it CAGR or pace, it varies from year-to-year, but as a CAGR, I would say that this could be a kind of a number that could serve you as part of my answer.

Louise Chen – Colling Stewart LLC

Thank you.

Operator

Your next question will come from the line of Randall Stanicky. Please go ahead.

Randall Stanicky – Canaccord Genuity

Great. Thanks for the questions. Two fairly straightforward ones, Shlomo, maybe I missed this, but did you talk about 2015 targets and what’s built in there and does that still hold?

Shlomo Yanai

Randall, can you please repeat your question? We have some problems with volume.

Randall Stanicky – Canaccord Genuity

Sure. Does the 2015 target still hold?

Shlomo Yanai

Thank you for the question. I think that it’s a great opportunity to clarify, and I know that many are questioning this question. So I think that it’s about time to provide a little bit more color on how we see and what’s the difference between guidance for next year and long-term perspectives or strategic plan.

And I think sometimes people tend to believe that they are rigid, and as the guidance that we are giving which is guidance and this is a commitment that we have to execute and deliver with not many questions.

When it comes to the long-term, I think that it’s still of course a commitment there and more than a commitment there is also some excitement and aspiration as well, but we have to understand that looking forward for five years, which is the current strategy, time range that we are talking about, you have to understand that there are many moving parts. Just take the last years. Sorry, just take last year. We built Cephalon. Cephalon was not in our radar screen for 2011. It was in our short list of companies but we could end it with another acquisition in another year.

As I just mentioned, OTC was not on our radar screen, it’s there. So there are ups and downs regarding the strategic moves, and some of them are major moving parts and not mentioning external, like foreign exchange and things like that, it cost us billions of dollars due to what happened in the world economy in the last year.

So I would say that the strategy for going forward, the directions, the trends, the priorities, the way that we’re going to prioritize our cash flow and our activities is intact, is valid. And if you take this part of the 2015 strategy, I would more than say that they are and we believe and we just, as we do every year, we review that and we found that as I said, intact, valid and will grow to direct our activities going forward.

As for the target, I would call it more as aspirational growth. I believe that we can get there, but if I won’t be there due to, I’ll get there two years after or a year before I won’t see it as an issue because what really matter is the strategy and I want to be in a situation that we’re doing a move just to be on the [level]. It’s absolutely not the right way to look at it, the right way to look in our strategy. This is how we’re actually getting an advantage because we are long-term thinkers, we have strategy, we have principles; we have directions. We moved this big ship, big carrier that’s called Teva and we do it year-after-year.

If you look backwards, 2012 is the year that we actually, it was a kind of a checkpoint year for Teva. If you remember in 2007, we come out with the strategy called 20-20, that by the year 2012 we’re going to be $20 billion in our top line. And you see we are anticipating for next year $22 billion. So if you took a more long-term kind of thinking and you differentiate it from a very rigid year-by-year kind of things, you should look at it as a road map, as a performer and as I say an aspirational goal and that I believe the right way to look on these numbers, on our strategy.

Randall Stanicky – Canaccord Genuity

Great and then a follow-up to that, it sounds like the strategy from here from a capital deployment perspective is ongoing share buyback which you talked about three years, ongoing growth in the dividend and should we be thinking about deal sizes now, more like $1 billion to $2 billion rather than $3 billion to $5 billion in size?

Shlomo Yanai

Well, first of all let’s start with next year. I don’t anticipate any acquisition at that level or even below that level for next year. We could do as I said, few complementary acquisitions as part of our diversifying the business to a very attractive emerging market countries and you can imagine what, where I’m pointing for too sorry. But that would be the level of most $100 million, not and above this level.

And going forward we think four years to complete our 2015 and that, the way to address that following my previous long speech on strategy is the following: As Eyal said Teva is generating $5 billion cash flow per annum. You multiply it by four and you got a 20, now we believe that its time to give more, to retain more capital to our shareholders than we did in previous years.

We have to serve our deck and the rest is going to be to grow the business by CapEx and by acquisition. So you may expect in the coming years acquisition one, maybe two, again it’s very opportunistic based on the level that you said on the size, so the size that you mentioned. But I don’t think that you’re going to see more of that because we have the resources and that how we’re going to use these resources.

Randall Stanicky – Canaccord Genuity

Okay, great. Thanks so much. It’s very helpful.

Operator

And the next question will come from the line of Tim Chiang.

Tim Chiang – CRT Capital Group LLC

Hi, thanks. Shlomo, could you just confirm that the Cephalon contribution for 2012 is still on an EPS basis is around $0.20 to $0.25?

Shlomo Yanai

Yeah, I’d say, maybe I can take that. Yes, the answer is yes, we estimated right after the acquisition Cephalon will contribute between $0.20 to $0.25 through 2012. That really up a range – upper part of this range but this rate is definitely valid.

Tim Chiang – CRT Capital Group LLC

Okay, and just one quick follow-up, you mentioned a little bit more about R&D spending part of it coming from the JV with Lonza, longer-term when do you actually think you’ll start to recoup some of the cost of investments in the biosimilars area?

Shlomo Yanai

Well, I think first of all the current number is a good number to put this in your models going forward under the current, let’s call it factor of Teva. Can you elaborate more on your point or your question regarding the quest because I’m not sure that I well understand the question?

Tim Chiang – CRT Capital Group LLC

Well, I think certainly you’ve seen news about Watson collaborating with Amgen and biosimilars you’ve had this collaboration with Lonza for about two years. When do you expect to see revenues from biosimilars? That was really my question.

Shlomo Yanai

Okay, Bill you want to jump in?

William S. Marth

Yeah, I think right now the planning really for us is in late 2013. We see, we believe our first entrance into this market and we believe, probably the first people to enter this market will be Teva and at this point in time we're projecting that we’d be able to launch our G-CSF and potentially as well our glyco-PEG or long-acting G-CSF in 2013.

Shlomo Yanai

We commented to the biology because we believe this is the future and that's why we launched the JV with Lonza, which is the state-of-the-art company for that purposes and so we're committed for that. It’s an evolving area because as you well know, even the regulatory path is not yet understood in that space, it’s more in Europe. And we’re reviewing this business or this future business every year, but we are moving on in Europe, especially in the R&D as Bill just said, and the R&D is on track.

Tim Chiang – CRT Capital Group LLC

And just one last question, the $22 billion revenue guidance you’ve given for 2012, just to clarify, that doesn’t include any additional acquisitions, is that right?

Shlomo Yanai

That’s right.

Tim Chiang – CRT Capital Group LLC

Okay, great. Thanks, so much.

Operator

And the next question will come from the line of David Amsellem.

David Amsellem – Piper Jaffray

Thanks. Just a couple of quick ones. On Trianda, what can you say about efforts to extend the life of that franchise, given that the orphan expiry for CLL is in 2015, and what are you thoughts on how to further drive penetration in lymphoma and CLL?

William S. Marth

With respect to Trianda, we are hoping to be able to get first line NHL for that some time in, we hope to submit at least for that in 2012, and we’ll see where we go from there. Right now, it’s doing very, very well, and we’re very pleased with it. I really can’t comment too much more than that on Trianda.

When I have the, David when I have the opportunity, I want to make sure that we – the audio on this side is not real good, and I want to apologize for that. But with respect to a couple of the answers on Nuvigil, I want to make sure we understand that, to Ronny’s earlier question, we have a couple of Phase IIIs going in on that. And we have one for Q1, one for Q2. We expect lead out some time after Q2 for the Nuvigil bipolar. So we’re hopeful for that. With respect to the Nuvigil, and its 13 month date, I believe the 13 month date is about May, May 3, but we do anticipate a trial over the summer in July, still not sure that, that information is clear.

David Amsellem – Piper Jaffray

That’s helpful. And just to be clear on the first line filing for Trianda in non-Hodgkin lymphoma, is that from the Rummel study or is that from the study that Cephalon? I’m assuming that’s from the Rummel study in Germany, naphtha study that Cephalon had been running on its own, is that correct?

William S. Marth

Hi, David, I’m sorry the audio is really not good, but I believe you’re talking about the Rummel study

David Amsellem – Piper Jaffray

Yes.

William S. Marth

And the Rummel study, that particular data should be, is assembled, and I believe should be going in first quarter, so.

David Amsellem – Piper Jaffray

Okay. And then one last question, if I may, what, just remind us what your synergy, cost synergy target is for 2012 related to Cephalon? You think that’s conservative and are there any cost savings you expect coming from out of, specifically out of the R&D pipeline or pipeline that’s in 2012?

Eyal Desheh

Okay, yeah. We, over a while we anticipate $500 million synergies from Cephalon acquisition within three years after the acquisition. We’re all very well on our way to achieving that. We’re seeing so far, it’s only two months since we closed the deal. That is the integration, it’s not as a synergy. It’s also the integration between the companies is progressing extremely well, people-to-people, and we’re confident we’ll meet those cost synergy targets and probably exceed it and maybe do it even a little earlier than what we thought.

William S. Marth

That would be okay, if I made, add on to the synergies point, I think that, Eyal mentioned the integration. You know that Teva is well experienced in making integrations for many years, and I think that, the integration with Cephalon is probably the best so far and the smoothest integration. So all the question mark that I heard here and there about the integration of Cephalon to Teva, I have to tell you in a very open and pleasant way that this is the best integration ever.

David Amsellem – Piper Jaffray

All right, thanks.

Operator

And ladies and gentlemen this concludes today’s question answer portion for the call. I’d now like to turn the call back to Mr. Shlomo Yanai, CEO for any closing remarks.

Shlomo Yanai

Thank you, very much for being with us today. As you all have heard, we anticipating a strong growth for 2012 for Teva. And I would like to believe that the high level of transparency will help you to model and better understand the Teva business. And if I may take this opportunity to wish all of you a Happy New Year and thank you for being with us today.

Operator

And ladies and gentlemen, as I have stated earlier this call was recorded. To listen to a replay of today’s conference please dial 888-286-8010 and use the replay passcode 71642627. The reply will be available [Audio Gap] from today. We like to thank you for your participation. You may now disconnect and have a great day.

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