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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

Kevin Buchi – Corporate Vice President, Global Branded Products

Kevin Mannix – Vice President, Investor Relations

Analysts

Eliot Wilbur – Needham & Co.

Randall Stanicky – Canaccord Genuity

Tim Chiang – CRT Capital

Ken Cacciatore – Cowen & Co.

David Amsellem – Piper Jaffray & Co.

David Risinger – Morgan Stanley

Jami Rubin – Goldman Sachs Active Management

Shibani Malhotra – RBC Capital Markets

Chris Schott – JP Morgan Chase & Co.

John Boris – Citigroup

Michael Fern (phon) – Credit Suisse Group

Ronnie Gal – Alliance Bernstein

Jason Gerberry – Leerink Swann

Marc Goodman – UBS

(Unknown Analyst) – Exane BNP Paribas

David Steinberg – Deutsche Bank

Teva Pharmaceuticals Industries Ltd. (TEVA) Q4 2011 Earnings Call February 15, 2011 8:30 AM ET

Operator

Greetings and welcome to the Teva Pharmaceutical Industries Limited Fourth 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, Mr. Kevin Mannix, Vice President of Investor Relations for Teva Pharmaceuticals Industries Limited. Thank you, Mr. Mannix. You may begin.

Kevin Mannix

Thank you, Jackie. Good morning. Good afternoon everyone. Thank you for joining us today to review Teva’s fourth quarter and full-year 2011 earnings results. I’m joined today by our CEO, Shlomo Yanai; our Chief Financial Officer, Eyal Desheh; Bill Marth, President and CEO of Teva Americas, Dr. Gerard Van Odijk, President and CEO of Teva Europe; and Kevin Buchi, Corporate VP, Global Branded Products. Shlomo will begin by providing an overview of the quarterly and annual results. Eyal will then provide additional details on our consolidated financial results. We’ll then open the call to a question and answer period.

Before we start, I’d like to remind you that our discussions during this conference call will include forward-looking statements and actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in Teva’s report on Form 20-F and Form 6-K. Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with generally accepted accounting principals. A reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Teva’s earnings release issued this morning, which can also be found on our website.

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

Shlomo Yanai

Thank you, Kevin, and welcome everyone and thank you for joining us today as we review Teva’s results for the fourth quarter and full year 2011. 2011 was a challenging year for Teva, but despite these challenges, we ended the year on a strong note, delivering our sixth consecutive year of double-digit growth. Sales for the year reached $18.3 billion, which reflects 40% growth year-over-year. Our net income reached $4.4 billion, up 7% over 2010. This led us to EPS for the year of $4.97, up 9% over 2010.

The fourth quarter was our strongest quarter ever. Net sales reached $5.7 billion, growing by 28% over the fourth quarter of 2010. Quarterly operating profit was $1.7 billion with net income of $1.4 billion. This brought up to EPS of $1.59. Cash flow from operations during the quarter was strong, reaching a record $1.4 billion.

2011 was a year of major strategic achievements for Teva. Our strategy is focused on growth and creating a highly diversified business, and on reducing our dependence on any one particular market or product. During the year, we took major steps toward reaching our strategic goals, including the acquisition of Cephalon which has enabled us to continue the process of establishing a top-notch specialty pharma business; our acquisition of Taiyo which creates an important growth engine for us in Japan, one of the world’s most attractive generics markets; and our JV with Procter & Gamble which significantly strengthens Teva’s OTC business on a global scale, establishing a new growth platform for us.

I believe that Teva’s financial performance in 2011 clearly demonstrates the strength of our balanced business model. During the year, we delivered on our legacy of continued profitable growth thanks to contributions from all of our geographies and lines of business. One clear sign of our growing diversity is that during 2011, more than half of our total sales came from European and other rest of the world sales, and our total (inaudible) rose to all-time high of 35% of total sales. We believe that in the years to come, we will achieve even greater diversity across geographies as well as across therapeutic areas in our branded business.

I would like to begin my review off the top of the performance of our business during 2011 with a discussion of our U.S. generics business. The fourth quarter saw a return to the normal standard for this business with exclusive launch of all strengths of generic Zyprexa, our agreement with Ranbaxy regarding the launch of generic Lipitor, as well as the launch of generic (inaudible) in the last days of the quarter.

Looking ahead to 2012, we anticipate $650 million in new launches, with over $20 million of that resulting from the anticipated successful launch of generic Lexapro. Although many of these launch opportunities will face competition, we are confident that we will compete effectively and increase our market share.

Teva remains the leader in the U.S. generics market by a very wide margin. We believe that our commitment to providing excellent service, our strong R&D, and our deep customer relationships will enable Teva to outpace the market growth in 2012.

In Europe where Teva is also a generic leader, we grew by 44% in 2011, with Q4 being the fourth consecutive quarter of growth despite the serious economic turmoil and regulatory challenges in the euro zone. Teva’s vast portfolio of products, our broad reach across Europe, and the fact that we are truly diverse European player insulated us from many of the disturbances that impacted our competitors. We had a strong year in key European markets where Teva is the leading player, including the U.K. where sales grew by 30%, Italy where sales grew by 81%, and Spain with 82% growth. During 2011, we had 441 launches across Europe and our pipeline now includes generic versions of products which represented approximately $77 billion in branded sales in 2011.

I would like to point out that over the last two years, Teva Europe has almost doubled sales and profitability due in large part to our quick and successful integration of Ratiopharm and the benefits we enjoy as the number one generics player.

If Europe provides an example of Teva’s strengths when it comes to M&A, the performance of our rest of the world business demonstrates our ability to deliver organic growth. 2011 was an excellent year for this business, which grew 39% over 2010. In Russia, sales reached over half a billion dollars, representing organic growth of 21%. In Latin America, sales were over $800 million, up 11%; and in Japan, the world’s second-largest pharmaceutical market, we completed the acquisition of Taiyo during the third quarter as well as assuming full ownership of Teva Kowa, our Japanese JV. This was a very important milestone in realizing our strategic objective of becoming a leading player in Japan, a market we view as an important growth driver for Teva. By leveraging our combined resources, we are significantly increasing access to high quality, affordable generics for the people of Japan. Teva is now the number three generic player with a slim gap between our sales and the number one and number two players. This April, we will bring in together Teva Kowa and Taiyo under one organizational umbrella which will be called Teva Saikou (phon), which in English means Teva Healthcare.

2011 was a (inaudible) year for Teva’s branded business. During the year, sales of most of Teva’s major branded products increased. As I mentioned, branded sales represented 35% of our total sales for the year compared to 30% during 2010. Copaxone remains a leading therapy for the treatment of multiple sclerosis globally. With 31% global market share, Copaxone continued to grow in terms of volume during 2011 and reached a milestone of 1 million units sold in the United States alone during the year. We anticipate the annual sales of Copaxone will exceed $3.8 billion in 2012.

In Q1 2012, we complete the take-back of Copaxone in Europe from our partner, Sanofi. The infrastructure we already have in place for sales of our branded products in Europe is ensuring that this is a seamless transition.

Azilect enjoyed record global in-market sales, crossing the $100 million mark in quarterly sales for the first time in Q4. Annual global sales grew by 19% year-over-year, and in the U.S. total prescriptions rose by 16.4%.

2011 was a strong year for our (inaudible) business with sales (inaudible) up by 10% and Cuba by 22% over 2010. For the first time, (inaudible) sales of our (inaudible) product crossed the $1 billion mark. In the U.S., our (inaudible) sales and profitability both increased by 16%.

Teva’s acquisition of Cephalon closed during the fourth quarter and we anticipate that synergies will remain in line with our original expectations. The integration is proceeding quickly and smoothly, and we believe that it will be in large part complete by the end of the second quarter of this year. Sales of Cephalon products did very well during the fourth quarter of 2011 and we will provide you with more detail about the performance of specific Cephalon products in the quarters to come.

As I said earlier, our acquisition of Cephalon is enabling us to continue the process of establishing an important branded pharmaceutical business with a robust pipeline. We are especially enthusiastic about Treanda, the SNDA for which was trialed in the fourth quarter, Revascor for the treatment of congestive heart failure which is scheduled to begin Phase III trials in Q2, and our programs for TD Hydrocodone and Nuvigil for the treatment of bipolar disorder, which are on track for filing this year assuming the successful outcome of their studies.

This was also an important year strategically for Teva’s OTC business. Our unique JV with Procter & Gamble is in its early stages, but we are extremely pleased at the progress we have made so far. We are enthusiastic about the potential for our OTC business on a global basis as it will provide important addition dimension to our business, both in terms of geographies and product lines, and serve as another growth driver for Teva.

In line with Teva’s focus on and commitment to total shareholder return, Teva’s Board of Directors voted to increase our annual dividend to shareholders by 25%. This is on top of the decision we announced in December to buy back $3 billion worth of Teva shares. Eyal will be providing more details on this in his remarks.

We are expecting a strong 2012 and I’m happy to report that the year is off to a good start for Teva. Thank you very much for your attention, and now let’s turn the call over to Eyal for a financial review of the quarter and the year. Eyal?

Eyal Desheh

Thank you, Shlomo, and good day to everyone. I hope you all had an opportunity to review the press release we issued today. The fourth quarter of 2011 positively concludes what was a challenging year for Teva. We are reporting today record quarterly results in almost all parameters – sales, non-GAAP operating income, non-GAAP net income, non-GAAP earnings per share, operating cash flow, and free cash flow. We are also reporting this quarter for the first time consolidated results that include the three most important endeavors we have been working on this year – Cephalon, Taiyo, and the take-back of Teva Kowa joint venture we acquired in Japan and our new joint venture with Procter & Gamble, PGT Healthcare.

The strong results this quarter were driven mainly by two generic launches in the U.S., solid results in Europe, strong results in all our international markets, and the successful acquisition and integration of Cephalon, and strong performance across almost all our branded product lines. For the full year of 2011, we are reporting today another year of solid growth in sales, non-GAAP profit margin, and non-GAAP net income and earnings per share. This was driven primarily by our branded sales at our European and rest of the world businesses, offset by a difficult year in our U.S. generic business where we believe the trend has started changing this quarter.

As we noted during our 2012 guidance call late last year, we are happy to provide you today with our fourth quarter and full year of 2011 results in accordance with the new reporting structure we adopted which is meant to give you all more transparency and clarity of our business model. Some of the comprehensive data you require will be included in my review now, but I also encourage you to visit our website where we have posted some additional information earlier today.

Before we dive into the numbers, I would like to touch on two issues. First, I would like to remind everyone that we are presenting GAAP and non-GAAP results. In our non-GAAP presentation, we have excluded the following items which are more significant this quarter because of the impact of certain charges resulting from the Cephalon acquisition: acquisition restructuring and other expenses of $123 million related primarily to the Cephalon entire integration. As you may remember, the accounting rules require to include the restructuring costs in the P&L and not in the PPA, which is the Purchase Price Allocation, as in the past. Inventory step-up of $308 million in connection with the acquisition of Cephalon, impairment of intangible assets of $171 million related primarily to our animal health business in the U.S. and the divestiture of (inaudible) which was prompted by the Cephalon acquisition. Amortization of purchased intangible assets totaling $225 million, of which 214 million are included in cost of goods sold and the remaining 11 million in selling and market expenses, legal settlement of $255 million mainly relating to U.S. product liability matters, including the settlement of half of the propofol cases and an increase into reserves to cover the remaining cases. Costs related regulatory actions taken and facilities of $40 million, which relates primarily to quality issues at Irvine and our animal health business, and in addition related tax benefits of $221 million.

You should note that the items excluded in arriving at our non-GAAP results for the fourth quarter of 2010 are not identical to those in the current quarter. Please review our press release and related tables for complete information, including reconciliation to the GAAP figures. As indicated in the past, we present non-GAAP figures to show you how we, the management team and our Board look at our financial results.

Second, foreign currencies continue to have an impact on our results this quarter, influencing our P&L as well as our balance sheet. In the fourth quarter, foreign currency differences had a negative impact of approximately $29 million on sales. This resulted primarily from the weakening of some European currencies relative to the U.S. dollar. Currency had a minor positive impact on our operating income this quarter. On the other hand, foreign currency had the most substantial negative impact on our equity. The strength of the U.S. dollar on December 31 compared to September 30, primarily relative to the euro and other European currency, reduced our equity by $821 million, on top of the significant reduction to equity we experienced in the third quarter of 2010 for the same reason.

For the full year of 2011, exchange rate differences had a positive impact of approximately $367 million on sales and 73 million on operating income compared to 2010. On the other hand, our equity was reduced by $481 million in 2011 as a result of currency differences.

Looking at consolidated results for Q4, sales reached a record of $5.7 billion, an increase of 28% compared to the fourth quarter last year, and an increase of 31% compared to the third quarter this year. For the full year 2011, sales reached an all-time high of $18.3 billion, an increase of 14% compared to 2010.

Let me turn now to breakdown of our sales by business line and by geography. Generic products net sales in the fourth quarter of 2011 were approximately $3 billion, including API sales of 197 million, an increase of 12% when compared to $2.7 billion in the fourth quarter of 2010. Generic sales consist of U.S. sales of 1.2 billion, a decrease of 5% compared to the fourth quarter of 2010; European sales of $1 billion, an increase of 3%; and rest of the world sales of $758 million, an increase of 81% compared to Q4 of last year. The U.S. generic business in the fourth quarter benefited from our launch of generic Zyprexa and our agreement with Ranbaxy relating to its launch of generic Lipitor. The European generic business grew both organically and as a result of the inclusion of Cephalon. The rest of the world generic business had a very strong quarter primarily as the result of continued growth in Russia, Israel, certain markets in Latin America, as well as the inclusion of Taiyo.

For the full year 2011, generic product net sales were $10.2 billion, an increase of 3% when compared to 9.9 billion for the full year of 2010. Generic sales for the year consisted of U.S. generic sales of approximately $4 billion, a decrease of 32% from 2010; European generic sales of $3.8 billion, an increase of 44%; and rest of the world generic sales of $2.4 billion, an increase of 64%. The decrease in U.S. generic sales was primarily due to fewer significant new launches and decreases in sales of key products compared to 2010, most notably the generic equivalent of Effexor XR as well as generic equivalents of Cozor (phon) and Izor (phon), and was affected by quality and supply issues primarily from our Irvine and Jerusalem plants, particularly in the first three quarters. However, we believe that the fourth quarter of 2011 demonstrates the change in trend. The rapid in growth of our generic sales in Europe and the rest of the world markets partially compensated for the soft year in the U.S. generics business and demonstrated our diversified model.

Let’s turn now to our branded business, where we had an excellent year. Total net sales for the fourth quarter of 2011 were approximately $2.3 billion, an increase of 68% when compared to $1.3 billion in the fourth quarter of 2010. Our branded sales consist of U.S. sales of $1.8 billion, an increase of 76% compared to the fourth quarter of 2010; European sales of $329 million, an increase of 65%; and rest of the world sales of $155 million, an increase of 9%.

In the fourth quarter, our branded sales comprised approximately 40% of our total sales compared to 30% in the fourth quarter of 2010, while at the same time our generic sales percentage of total sales went down from 60% to 53% of total. This reflects changes in our business model following the Cephalon acquisition. The increase in branded sales this quarter was primarily due to the inclusion of Cephalon products, mainly Provigil with sales of $350 million for the quarter, Treanda with 131 million, and Nuvigil with $86 million. In addition, there were strong sales across almost all of Teva’s branded products, including respiratory product sales of $275 million, up 27% compared to the fourth quarter of 2010; Copaxone from which sales recorded by Teva increased 11% to $927 million, while global in-market sales increased 8% to 1 billion; and Azilect, for which sales reported by Teva increased 26% to 83 million while global in-market sales increased 22% to a record of 109 million.

For the full year of 2011, branded product sales were approximately $6.5 billion, an increase of 34% when compared to $4.9 billion for the full year 2010. Branded sales consisted of U.S. sales of $4.8 billion, an increase of 33% compared to 2010; European sales were $1.1 billion, an increase of 48%; and the rest of the world sales were $588 million, an increase of 16%. The increase in branded sales was primarily due to the inclusion of Cephalon products as well as strong sales across almost all of Teva-branded products, particularly Copaxone which increased 21% to a total of $3.6 billion for the year.

Finally turning to our OTC business, net sales for the fourth quarter of 2011 were $217 million, an increase of 19% when compared to 182 million in the fourth quarter of 2011. For the full year of 2011, OTC net sales were $765 million, an increase of 54% when compared to $496 million in the full year of 2010. The increases were primarily attributable to the inclusion of Ratiopharm for the full year and also our increased focus in this business, which as mentioned we see as one of our future growth engines with the creation of PGT Healthcare.

The numbers which I have reported here are the Teva numbers only, and the numbers of the joint venture itself are about double of that.

Moving now to our non-GAAP operating income, which totaled a record $1.7 billion in the fourth quarter, up 34% compared to Q4 2010 and reflecting for the first time the inclusion of Cephalon, strong sales of our branded products, and two generic launches in the U.S. and tight expense control. For the full year, non-GAAP operating income was $5.3 billion, representing 6% growth compared to 2011. Non-GAAP net income for the quarter was strong at $1.4 billion, up 23% compared to Q4 2010. Non-GAAP net income for the full year was $4.4 billion, up 7% compared to the full year 2010.

Non-GAAP fully diluted earnings per share for the quarter was $1.59, Teva’s highest ever, up 27% compared to Q4 2010. For the full year, non-GAAP diluted earnings per share was $4.97, up 9% from $4.54 for the full year of 2010.

For the fourth quarter of 2011, the weighted average share count for fully diluted earnings per share calculation was 886 million shares on both GAAP and non-GAAP basis. At December 31, 2011, the share count for calculating Teva’s market capitalization was approximately 883 million shares.

Now let’s discuss profit margins and operating expenses. Non-GAAP gross profit margin for the quarter, which excludes amortization of purchased intangible asset costs related to regulatory actions taken (inaudible) and inventory step-up was 60.7% in the reported quarter compared to 59.6% in the comparable quarter in 2010, and compared to 56.4% in the previous quarter. The high margin this quarter reflects the unique product mix and the contribution from branded products primarily due to the integration of Cephalon, partially offset by a decrease in the contribution from certain high margin generic products in the U.S., primarily generic Effexor XR. For the full year, non-GAAP gross margin was 58.5% compared to 60% in 2010.

Non-GAAP operating margin for the quarter reached 30.5%, up from 29.2% in the comparable quarter last year driven primarily by the inclusion of Cephalon and strong sales of certain of our branded products, partially offset by the decrease in the contribution from certain high margin products in the U.S. For the full year, non-GAAP operating margins reached 28.7% compared to 30.6% in 2010.

Net R&D expenses reached $371 million this quarter or 6.5% of sales compared to $270 million or 6.1% of sales in the fourth quarter of 2010. The increase in R&D spend mostly reflects the inclusion of Cephalon. Gross R&D in the fourth quarter of 2011 before reimbursements for third parties and certain R&D expenses totaled $414 million or 7.3% of sales. For the full year of 2011, net R&D expenditures, including Cephalon, totaled $1.1 billion or 5.9% of sales while gross R&D totaled 1.2 billion or 6.5% of sales. This compares to 933 million and 1 billion respectively for the previous year.

Selling and marketing expenses for the quarter, excluding amortization of intangible assets totaled $1 billion in the quarter, or 18.1% of total sales, compared with $806 million or 18.5% of sales in the fourth quarter of 2010. These higher selling and marketing expenses are mainly the result of the consolidation of Cephalon and Taiyo, as well as higher expenses on our expanding branded product portfolio. For the full year, selling and marketing expenses totaled $3.4 billion or 18.8% of sales compared to 2.9 billion or 18.2% of sales in 2010. This increase in selling and marketing expenses for the year resulted primarily due to the consolidation of Cephalon, Taiyo, Paramax, and a full year of Ratiopharm, partially offset by divestment of ETL and the termination of our obligation to pay Sanofi 25% of in-market sales of Copaxone in North America, which was only one quarter in 2010.

Total G&A expenses this quarter were $315 million or 5.5% of sales compared to 258 million or 5.8% of sales in Q4 last year, primarily due to the inclusion of Cephalon. For the full year, G&A expenses totaled $932 million or 5.1% of sales compared with 865 million or 5.4% of sales in 2010.

We recorded $68 million of financial expenses on a non-GAAP basis in Q4 compared to $54 million of non-GAAP financial expenses in the comparable quarter of 2010. The increase resulted primarily from higher interest expenses due to the additional debt used for the Cephalon and Taiyo acquisitions, partially offset by gains from hedging activities.

The non-GAAP tax rate for the full year 2011 was 12% compared with a rate of 13% for 2010. The decrease in tax rate from 2010 to 2011 was primarily the result of differences and the mix of product, both type and location of product sold in this year. In general, we benefited from tax incentives on products for which we also produced the API. The tax rate for 2011 GAAP results was 4%, lower than the 8% GAAP tax rate in 2010 mainly as a result of geographic mix and the type of products sold during the year, and a variety of factors including the impact of legal settlements, restructuring and impairment charges on subsidiaries that have tax rates above the Teva average. We expect the tax rate in future years to be higher.

Now let’s have a look at cash flow. As we guided at the end of the third quarter of 2011, cash flow was strong during the fourth quarter. Cash generated from operations in the quarter was a record $1.4 billion, an increase of 30% compared to the fourth quarter of 2010. Our free cash flow, excluding net capital expenditures of $280 million and cash dividends of $190 million, amounted to a record of 958 million, an increase of 33%. The strong cash flow this quarter was primarily driven by good collections, the inclusion of Cephalon, and Teva’s increased focus on working capital management. For the full year, cash flow from operations reached $4.1 billion. Free cash flow for the year totaled 2.4 billion.

During the quarter, we bought back approximately 3.7 million shares at an average price of approximately $40.60 per share for a total of $150 million. During the fourth quarter, we have completed our $1 billion share repurchase plan announced in December 2010, repurchasing 21.6 million shares at an average price of $46.30. To remind you. in December 2011 our Board of Directors authorized an additional share repurchase program of $3 billion.

On December 31, our cash and marketable securities were 1.7 billion, up 398 million from September 30. Our total outstanding loans, bonds, convertible debentures totaled $14.5 billion, up from 8.2 billion as of the end of September. From December 2010, our debt has increased by 7.6 billion, primarily reflecting issuance of bonds to finance the acquisition of Cephalon as well as bridge financing incurred to finance the acquisition of Taiyo, offset by repayment of certain debt associated with the Ratiopharm acquisition.

Our financial leverage as of December 31, 2011 was 39%, up from 24% as of December 31, 2010. The increase to financial leverage is attributed primarily to the bond and bridge loan we incurred to finance the Cephalon and Taiyo acquisitions in addition to the negative effect of buyback, foreign exchange, and dividend distribution on our equity. We expect to gradually reduce our financial leverage in the coming year.

DSO – Days Sales Outstanding – further declined to 30 days this quarter compared with 36 days in Q3 2011 and 41 days in Q4 2010. We calculate DSO after netting from our receivables the sales results and allowances.

Inventory days were 158 days in Q4, lower than 198 days in Q3 and 180 days in Q4 2010. The reduction in inventory days this quarter is mainly the result of the inclusion of Cephalon which had lower level of inventory, and efficient inventory management at Teva.

Net capital expenditures reached $281 million this quarter, flat compared to $276 million in the previous quarter and an increase from $208 million in Q4 2010.

Dividends – as Shlomo mentioned, yesterday Teva’s Board approved an increase in our quarterly dividend from ₪0.8 per share to ₪1 per share. This is a 25% increase in our cash dividend and completes more than 42% increase in dividend payments per share in shekels over the past two years, reflecting our intention to return more cash to our shareholders. Based on the rate of exchange on February 14, 2012 of the shekel to the U.S. dollar, this translates into approximately $0.268 per share or a quarterly dividend amounting to approximately $236 million.

Last, I would like to refer to our 2012 guidance. First, I would like to reaffirm our original earnings per share guidance for the year, which is at $5.48 to $5.68. Now looking at the current Street consensus average, Q1 earnings per share is too high and will be lighter than the current consensus average. Q4, on the other hand, will be stronger than current consensus average. We believe that Q2 and Q3 are within the right ranges.

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

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, 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. We ask that you limit yourself to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, we ask that you limit yourself to one question and one follow-up. One moment, please, while we poll for questions.

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

Eliot Wilbur – Needham & Co.

Good morning, or good afternoon. Thanks for taking the question. First, I guess this is for Bill – just with respect to new product launch expectations in 2012. Could you just maybe help us assess the risk or your exposure to Cetero in terms of whether or not that issue with the CRO could impact any of your key product launches, particularly escitalopram?

William Marth

Thanks for the question, Eliot. Just to go over the launches again for ’12, there could be as many as 42. It’s 40-plus with as much as $30 billion in innovator value. Now, that’s on the extreme side; we don’t really think we’re going to launch that many, but that’s the number of opportunities that are out there. You need in all cases to get to the right nexus between regulatory, legal, and operational readiness.

The key product is escitalopram. In any pipeline there are issues, whether it’s with Cetero or some other, that you always have to be concerned about – that’s why I refer to that regulatory, legal and operational nexus. But we feel pretty good about escitalopram being our largest launch this year. It should be a little bit greater than 200, and I’m not too concerned about Cetero on escitalopram.

The other products that are out there that you know about – Pioglitazone, Actos, Eloxatin, Avalide, Plavix, Seroquel, Provigil of course, Singulair – all very big products that will launch this year, but we expect plenty of competition. So a lot of launches is really the key.

Eliot Wilbur – Needham & Co.

Okay. And then just a follow-up question, with respect to Europe, if you could maybe provide a bit more color of the year-over-year performance of some of the key markets, particularly Germany and France. And then going back to the last conference call, I know Gerard talked about expected price erosion of something on the order of 6 to 8%, which I guess in retrospect doesn’t sound all that awful relative to what we’ve seen in the U.S. over the years. I’m just wondering if in fact that is still holding. It sounds like some commentary from some of your competitors in the past couple weeks suggests that maybe things in some of the larger markets are perhaps a little bit worse than that. Just want to get your insights on that. Thank you.

Shlomo Yanai

Eyal, can you take this one, please?

Eyal Desheh

Yes, sure. Thank you, Eliot. Yes, I think if you look back at Europe over the year, I think (inaudible) the numbers that I said last time, it’s in the range between 6 and 8% of—in some markets, it’s been a bit more, in some markets it’s been a bit less, and particularly in markets like Holland and some other central European markets we’ve seen larger swings in the last quarter. But overall, it’s been roughly netting out to something in that range, as I mentioned last time. We are seeing good volume growth on the other side of that, in particular the normal price decreases are being compensated by regular volume growth, and on top of that we see a net effect of the new launches that are basically then bringing some growth into the European markets.

If you take one or two specific markets, I think in Germany we’ve done pretty good. We had a good year in Germany if you consider the circumstances. You know that the overall marketplace has been reported to go down, and we believe that is true. I think we kept our share and we took over the leadership position there. We did much better than our main competitors. There’s one of them we (inaudible) captured more than 5% market share, so we’re very proud of that and I think we’ve got the right blend of activities in Germany there and the right blend of products.

We had also a very good performance in the U.K., Italy and Spain. France was a tough market this year. We maintained our share. We kept our sales. We grew a little bit, but the French market is under a lot of pressure. The last major market in Europe I think I mention here is Poland – that has been totally unpredictable in the last quarter and it’s also happening this quarter. There have been some draconian measures. It’s a major market but we’re on the (audio interference).

Operator

Thank you. Our next question is coming from Randall Stanicky of Canaccord Genuity.

Randall Stanicky – Canaccord Genuity

Great. Thanks, guys, very much for the questions. Just two quick questions, one for Eyal and one for Bill. For Eyal, with the Cephalon closing, it sounds like now—or sorry, the integration now moving closer to completion in 2Q, should we think about synergies perhaps are ramping a little quicker than initially anticipated? Then the second question for Bill, we’ve gotten some questions around your opportunity on Epipen, I think given the timing of the trial this week. Can you just talk about the regulatory and legal hurdles there, and is that a realistic opportunity? Thanks.

Eyal Desheh

Okay, let me take the first one on the integration. First, I’d like to mention that the integration is going extremely well. We remember there were some concerns regarding our ability to integrate a branded company. We specialize in integrating generic companies. This one looks even better than the previous one in terms of collaboration. It’s all about people, and it is progressing extremely well and I think we are very happy also with the result of the business, which was uninterrupted. Even more than that, we did very, very well.

Just so we all remember, the integration takes time. It doesn’t happen within a couple of months. We always said it takes three years, but the majority is done in the first year. We believe that the $500 million in cost synergies were intact and we might do it a little faster than planned.

William Marth

Randall, it’s Bill Marth. With respect to the Epipen, there’s probably not a lot we really want to say at this point in time; but you know the trial starts tomorrow. We believe we do not infringe. We are not subject to a 30-month stay, but I would say that the regulatory pathway is tricky so you have to watch that. That’s pretty much all we want to say at this point.

Randall Stanicky – Canaccord Genuity

Okay, that’s helpful. Thanks guys.

Operator

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

Tim Chiang – CRT Capital

Hi, thanks. Just a follow-up on the Cephalon integration – is it pretty safe to say you came in around the high end of your target for EPS contribution in the quarter for Cephalon? I think your original guidance was around $0.10 to $0.15.

Eyal Desheh

Cephalon contribution was a little bit bigger than what we had expected, so it’s a little bit above the high end of our original target. We were very happy with the performance.

Tim Chiang – CRT Capital

Is it too early to tell right now if that $0.20 to $0.25 guidance that you gave for 2012 for Cephalon, you’re not going to change that right now?

Eyal Desheh

We’re not going to change it. I believe it’s a good number now.

Tim Chiang – CRT Capital

Okay, and then just one quick follow-up – could you give us an update on the Irvine facility? I know you provided some timetables last quarter on Irvine. How are things going there?

William Marth

Tim, this is Bill Marth. Irvine is moving along pretty well. Line 6 is fully functioning; Line 7 is coming up right now, so we’re moving along on that and we are very hopeful now we’ll get Lines 1 and 2 up in April, and that means all of the lines will be running and fully functioning, we think, at a normal rate sometime in June. So for the back half of the year, it should be fully functioning.

But again, we’re also looking for some contribution from our plants overseas, Pharmachemie as well as we are hopeful that the new Gotela (phon) plant will be able to contribute yet this year, and a little bit from Barr Saba in Israel.

Tim Chiang – CRT Capital

Bill, are there any specific products that you are bringing back that you think will be very significant this year in the injectables side?

William Marth

First of all, the most significant things we can do with that facility right now is respond to drug shortage and that’s what we’re doing. We’re working hand in hand with drug shortage to make sure that we bring out those products that are so critical. And then where there are other needs such as SMX, TMP, very important life-saving medications that we’re trying to get out there – naturally our key focus.

Now, the suspensions that come off of Line 7 in particular are definitely some of our more profitable products, but I would not look for that until the back half of the year.

Tim Chiang – CRT Capital

Okay, great. Thanks.

Operator

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

Ken Cacciatore – Cowen & Co.

Thanks guys, and thanks very much for the disclosure in the release. Just one question on Copaxone – Bill, can you give us a legal and regulatory update? And I understand that Copaxone was excluded from the biosimilar guidelines, but is there any read-through as you look at the guidelines that may be applicable to Copaxone? Then I’m also wondering if you could give us just a real brief update on the timing for Advair and Symbicort, when they might be entering clinical and when we might be expecting a potential 505(b)(2) approvals for those. Thanks.

William Marth

Thanks, Ken. The first question – Copaxone, where do we go on Copaxone? First of all, let me deal with your last part of the Copaxone question first with respect to the biological guidance. The biological guidance is the biological guidance, and so I really didn’t see a read-through per se for Copaxone. There were a couple of points in there where people talk about method of action and how known that is, and I think that it’s very important with respect to biologics. I think it’s probably very important with respect to Copaxone as well, but I think Copaxone has its own challenges in its complexity.

As far as the case in and of itself, again, we feel very, very good about our case; but we’ll have to wait for Judge Jones to rule. And you know the timing on that is generally six to 12 months, and I think nine months is a good read; so we’re hopeful maybe sometime in the second quarter that we’ll hear something from the court. But we feel very good about that.

And I really can’t say much more about the readiness of the applicants, other than what was revealed at trial. I think based on what we saw there, we still think they’re a long way away. We’re still very optimistic, and I tell people who ask I’m thinking about a 15 date. That’s where I’m at.

With respect to Advair, those go into Phase III trial in 2013, so at this point in time we’re still on the Phase II levels on those products

Operator

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

David Amsellem – Piper Jaffray

Hey, thanks. Just a couple – so on Copaxone, regarding the price increases, how much of the more recent increases are flowing through the net selling prices, and what’s the extent to which you can continue to take price? And then secondly on the Cephalon pipeline assets, any update on when you expect to have data and a filing on the tamper-resistant Hydrocodone ER product, and also where you are with Cinquil in eosinophilic asthma in terms of enrollment in the eventual Phase III readout. Thanks.

Shlomo Yanai

Bill, can you take the Copaxone and then Kevin will take the Cephalon pipeline?

William Marth

No problem. David, with respect to the price increase we took at the beginning of the year, that takes a while to cycle in; and you always have to remember, we continue to caution people when we take it, even though a 14.9% price increase is a lot, we only realize about 50% of a price increase because of all the patient assistance programs, rebates, et cetera that occur based on that price. So I would look for contribution in the latter part of the year – into the second quarter will be when we’ll start to see some real contribution from that price increase.

But as far as for us continuing to do price increases, it’s really difficult. We went from a pattern of doing twice a year 9.9, down to a single price increase a year, and at this point in time we’re still able to do it; but we’ll just have to wait and see. I’ve been telling this forum for years that the price increases are over in this category, and so far they’ve continued. But we know it gets tougher and tougher. We do have the standard of care, we believe, therapy within multiple sclerosis, so we believe we’re appropriately priced.

Kevin Buchi

This is Kevin. And then in terms of the Cephalon pipeline asset, so the old Cephalon pipeline assets, the Hydrocodone program, the pivotal study there is complete. We’re waiting on agreement with the FDA on the statistical analysis plan, and assuming that study is successful, we would expect to be filing on schedule in the third quarter.

In terms of Cinquil, the first of the Phase III studies in eosinophilic asthma – this is the one with the FEV endpoint – is on track with results expected in the fourth quarter of this year; and then the other two studies with exacerbation endpoints are also recruiting patients, and those are on track as well.

So I think as was mentioned earlier, the transition from Cephalon to Teva has moved along pretty smoothly. I don’t think we’ve dropped anything in the transition. All the clinical programs seem to be pretty much on track as we speak.

David Amsellem – Piper Jaffray

Okay, thanks guys.

Operator

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

David Risinger – Morgan Stanley

Thanks very much. I have a couple questions – first, Bill, could you please discuss the U.S.-based business year-over-year pricing trends recently and what you’re expecting in the near term? And then with respect to the Ranbaxy contribution, could you just provide some color on the estimation for the first quarter of this year versus the fourth quarter contribution? And then one little tidbit – just curious about how the statistical analysis on hydrocodone wasn’t finalized before Phase III was initiated. Thank you.

William Marth

David, thanks for the question. With respect to U.S.-based pricing, not a lot has changed on our base pricing in a while. We’re about mid-single digits on price erosion, and that’s net of price increases as well. We’ve had opportunity for price increases, and we continue to explore for price increase opportunities and we’re doing that selectively where it is appropriate. But our erosion rate has not really changed much – mid-single digits is where you should think about that.

With respect to Ranbaxy and Atorvastatin, we really can’t say much on that. First of all, as a practical matter, I’m not selling the product so I’m really getting a royalty on the back end – we’ll have to wait for them. And we have a confidentiality agreement with Ranbaxy, and so we can’t really reveal that.

And the final part—

Kevin Buchi

Yeah, the statistical analysis plan, David, it’s standard operating procedure. You typically would agree with the FDA before the study starts on the trial design, on the endpoints, and also on the outline of the plan. But then when it comes down to the very specifics of the final statistical plan, you always want to make sure that the FDA is on-board with that before you un-blind the study. It’s just standard – we do it with all our studies that way.

David Risinger – Morgan Stanley

Thank you.

Operator

Thank you. Our next question is coming from Jami Rubin of Goldman Sachs Active Management.

Jami Rubin – Goldman Sachs Active Management

Thank you. Bill, just a couple follow-ups on the U.S. generics business. I think before you had talked about that business reaching about $5 billion in 2012, and we understand that the key drivers in 2012 will obviously be Lexapro—you know, Zyprexa was launched in the fourth quarter. Can you identify what the other sort of chunky launches are going to be on a go-forward basis, and maybe if you can give us an update on TriCor? And if you could talk about the outlook for exclusive first-to-file opportunities and how we should think about that business going forward.

And secondly on manufacturing, I think you talked about it a bit on the Irvine plant; but do you feel that you are now out of the woods on manufacturing, and what are the sort of risks that you think about that we should be aware of in thinking about potential for further manufacturing issues? Thanks.

William Marth

Jami, I’m going to start backwards. With respect to Irvine, I’m not going to say I’m out of the woods until the warning letter is lifted. We hope to get the Agency in there sometime around April and achieve that, and then I’ll feel much better about Irvine; but we need to have that happen.

With respect to manufacturing in general or in steriles—first let’s just take steriles. In steriles, keeping a sterile core is a very difficult operation, and I think manufacturing around injectables, as everyone has seen in this industry, is difficult and your attentiveness to detail, your quality, your systems is so very, very important. I think this is an area that’s been underappreciated, and certainly I think at the price points we’ve seen in the United States, I don’t think that this kind of pressure can continue. We’re going to have to get more for our product. I’ve said time and time again that the days from Teva’s perspective of supplying injectables for a buck a vial are gone.

With respect to total quality, there is always a risk when you have 60-some facilities around the world. There’s always a risk, but whenever we get an observation, we take that observation, we apply it against our network across the world, and we are very, very vigilant. And as you’ve heard Shlomo say time and time again, quality is the number one concern at Teva so we’re very focused on that.

With respect to your question about the whole 2012 landscape, and we’ve talked about citalopram being very important, it’s really as simple as what I was saying in that as many as 40-plus launches, $30 billion of innovator value, and it’s being ready for each and every one of those launches. You don’t know in a situation like this where there are many filers how many will actually get to the market, and that’s where I see the upside opportunity, if there is to be an upside opportunity. We have forecasted for about $650 million in new product sales, or launched products in 2012; and the opportunity will come in the products that you don’t expect it - the product where you think there will be six competitors but there’s only three. That’s really it. It’s hard for me to say. But there are a lot of exciting launches in there - oxaliplatin, or Eloxatin, is one of them. There’s a number of them, but I can’t tell you specifically what will be the big one.

Jami Rubin – Goldman Sachs Active Management

Can you just comment, though, about 2013 and beyond? I’m more interested in what sort of exclusive first-to-file opportunities that we should anticipate.

William Marth

Yeah, I’m not guiding anything out of ’13 or beyond at this point in time, other than to say when you look at our filings, Jami, we’ve got about 177 filings worth about $115 billion of innovator value, and I forget the number off the top of my head but about 75 first-to-files, more first-to-files than anyone in the industry. I think that’s where the value will come from, and the value will come from that point of being operationally ready, having the regulatory approval in your hand, and then being able to win the legal case or having legal put us in a position where we can launch, and that’s where those opportunities will come.

But in general, we still feel good about the U.S. market. The products aren’t as big moving forward but there’s still first-to-files, there’s still Paragraph 4’s. It is a business that is 5 to $6 billion, depending on the exclusivities from year to year, and that’s why we’re excited about our global growth opportunities as well.

Jami Rubin – Goldman Sachs Active Management

Thank you.

Operator

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

Shibani Malhotra – RBC Capital Markets

Hi guys. Thanks for taking the questions. Quick one for Eyal – you talked about consensus being too high in quarter one. Can you just give us some more color on that – do you think the top line is too high, or is it that we’re not modeling our R&D and SG&A correctly? How should we be thinking about that?

And one for Bill as well – just following on a point you made about potential for price, what are you modeling or what are your assumptions for competition for key products such as Lexapro and Lipitor?

Eyal Desheh

Hi Shibani, it’s Eyal. First of all, I’m referring to the average. I don’t remember your numbers right now, so this on the consensus average numbers. We’re trying just to calibrate. It’s not about our top line. We believe that when we look at our model, this is a bit too high and we want to calibrate the market into the right place on the first quarter, and same thing on the fourth quarter which we think that it’s a bit too low and the numbers should move from one to the other. That’s all.

Shibani Malhotra – RBC Capital Markets

Okay, but you’re talking about earnings, right? And so I’m just wondering is it that people are mis-modeling the progression of spend, or is it the way the revenue is going?

Eyal Desheh

I’m talking about earnings per share. Part of that is, of course, on expense level and marketing level – all over the lines of your model. But as I said, these are not huge adjustments. We just want to make sure that everybody is calibrated.

William Marth

Shibani, the second part – if I might say something on Eyal’s answer too, I would just—one of the things we’ve noticed about the first Q, Shibani, lately is with respect to Copaxone, our wholesaler community seems to be finding ways to be creative with their DSA agreements from time to time and maybe pushing some product a bit out to customers early so that they enhance the ability for them to take on 30-day supply when there’s a price increase. So that’s one of the concerning factors, and again, as Eyal mentioned before, we lose our exclusivity on Provigil so you’ll see people start to shorten up their sales and run those days supply of Provigil down very, very low as we get down to the end of the quarter. So those are just a couple of very real concerns with respect to the number as well.

As far as the launches themselves, again, whether it will be four players or six players or eight players on, say, Atorvastatin will have a lot to do with the way the year unfolds. We really don’t have a crystal ball today to say how many players will be there on Eloxatin, oxaliplatin, or how many players will be there on irbesartin, on Avalide, or on quetiapine, Seroquel. It’s really tough for us to say at this point in time. We’ve forecasted most of them with robust competition, and we feel that that’s the right way to do it; and unfortunately, we probably won’t be disappointed. But if somebody doesn’t show up to the market, that’s where the opportunity will come; and that was pretty much my point to Jami, and I really can’t be any more specific than that. I do know, having been in this business a long time, being ready affords you the opportunity. At least I have a ticket to play, and that’s what’s really important.

Shibani Malhotra – RBC Capital Markets

Just a little bit more on that, Bill – in the past, you’ve talked about Lipitor having a very significant (inaudible) value. Are you assuming more competition than you have previously assumed, and what’s the basis for that?

William Marth

I really don’t have any more basis for it than you or anyone else. We have a tentative approval; now Mylan had a tentative approval. So between—we know you’ve got Ranbaxy, you’ve got Watson, you’ve got Mylan, you’ve got Teva. You’ve got four players right there. Would it be—is it logical to think we’ll pick up at least two more? Yes. And then if you’ve got six players in this market, hard to say where price will go. I think, again, there should be—it looks like it’s shaping up like there will be robust competition in the Atorvastatin market.

Shibani Malhotra – RBC Capital Markets

Okay. And then just a very quick follow-up – you got Bio-T-Gel approved today. Can you give us an idea of when you would launch that?

William Marth

No.

Shibani Malhotra – RBC Capital Markets

Okay.

Operator

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

Chris Schott – JP Morgan Chase & Co.

Great, thanks. Just had two questions. The first was on the dividend – with today’s increase, I think you’re at a 20%-ish payout rate. How should we think about dividend payout over time? Is this something we should expect will continue to increase? I guess more specifically, when I think about the large cap pharma group, dividend payouts there are close to 40%. Is that the type of range we could see Teva getting to as we look out five years-plus, or is that just not in the cards?

The second question is when I think about the 650 of new U.S. generic launches you’re targeting in 2012, obviously this figure is going to vary year to year. But again looking out over the next three to five years, do you think of 2012 as an average year for new launches, this is a below average year? Just trying to get a sense of when you think about this new U.S. generic landscape, how does that 650 number relative to what you would typically or hope to see over the next few years? Thanks.

Eyal Desheh

Chris, it’s Eyal. I can take the dividend question. I don’t think that we’re in competition with big pharma over dividend yields. We have increased by 25% that dividend payout for this year. This is good for the next full quarter and we’ll take it one year at a time.

William Marth

Chris, this is Bill Marth. On the second part of the question, it’s really tough to say; and I don’t want to get us in a box here. I think 2011 is a good year for launches, and we’ll look at 2013 as we get closer to it, 2014, 2015. We got a lot of cases out there, a lot of first-to-files – again, I think it’s 75 first-to-files, and a large, about almost $115 billion of innovator value filed. The exact timing of it, I don’t know until I get closer, and I really don’t want to characterize it any other way and put us in a box. I think that you will continue to see a robust number of launches for a few years to come.

Chris Schott – JP Morgan Chase & Co.

Great, thank you.

Operator

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

John Boris – Citigroup

Thanks for taking the questions, and congratulations on the quarter. On capital allocation, it would seem that some of the commentary that you’ve made is that most of the transactions that you’re potentially going to be doing going forward are going to be in order of magnitude smaller from the multi-billion dollar types to much smaller ones that are potentially focused on emerging markets. That does, especially with your cash flow, leave you with – if you are doing smaller deals – a lot more cash to be able to allocate towards dividends and share repo. Is that the way we should be thinking about that, and can you articulate that if you are making smaller deals, where you need critical mass in emerging markets?

Second question just for Bill on TriCor – Abbott seemed to indicate that they expect you to be in the market before the end of the year. Have you been able to resolve the issues on TriCor? And then lastly, Wyeth has admitted to the district court a confidential expert report claiming damages on Protonix for the at-risk launch. Sun has already indicated that there’s about a billion dollars of exposure there. Can you help us understand what your exposure might be? Thanks.

Shlomo Yanai

Thanks for the question. This is Shlomo speaking. I would like first to take your question on the capital allocation going forward. We see Teva still as a growing company, as a growth company; and of course not necessarily in the double digit high level phase of growth as we get into that number that we are in right now. We are expecting to be $22 billion in 2012. One may think that probably the growth phase would be slower, but I would say that the way we see it, we have enough capital to allocate to all the regions that we need to, including acquisitions. And I want to make any conclusion right now that you won’t see any big acquisition in the future. It’s very difficult as by nature all these acquisitions are very opportunistic ones, and we always stick to our strategy. The way we see it for 2012 is, as I said on the previous call, we probably are going to see more complementary, i.e. not big acquisitions at the level of a few hundred million dollars in order to complement our growth aspirations in the emerging generics market, or in places that we would like to take the business one step further, as we did in Latin America last year and as we would like to do in some other places as well. And of course, it could be not only for market share, or not only market share driven but also for licensing or buying a part of planned business needs.

So the way we see it, we are going to generate about $5 billion of cash in the next three years, and if you accumulate this, the numbers all together, then net out the dividend and the buyback and the debt we are paying, you see that we have enough capital to continue our growth journey as well.

Bill?

William Marth

John, with respect to your question around TriCor, I’m not sure what you’re hearing from Abbott so I really can’t go there. But what I can tell you is maybe where the confusion is, is I think everyone clearly knows we had a license for July, and we do have a license for July but we do not expect approval of our product in 2012. So that’s pretty much all I can say.

John Boris – Citigroup

So it’s not in the 650 million that Shlomo outlined earlier?

William Marth

No.

John Boris – Citigroup

Okay. And pantoprazole?

William Marth

Sorry, I didn’t hear the pantoprazole question.

John Boris – Citigroup

The pantoprazole question related to Wyeth, who had submitted to the district court an expert report claiming damages against defendants rising out of the at-risk launches. Sun has indicated that their exposure is just under a billion dollars. Can you help us understand what your exposure might be there?

Eyal Desheh

Hi John, it’s Eyal. Yeah, Wyeth or Pfizer has submitted their damages claim. They gave expert opinion that the damages could be as high as $2.1 billion. We don’t think that this came as a surprise to anyone in terms of the size. We are, of course, evaluating the damages. Discovery is ongoing and the trial on that has not been set yet; and other than that I don’t think we can add anything. But the (inaudible) correct.

John Boris – Citigroup

Thank you very much.

Operator

Thank you. Our next question is coming from Doug Lasalle of Barclays Capital. Thank you, Mr. Doug Lasalle, you may continue with your question.

We’ll go to our next question coming from Michael Fern of Credit Suisse Group.

Michael Fern – Credit Suisse Group

Good morning. Thanks for taking the question. I have a question on tax. The tax rate came in at about 12% for the year, which I think is a bit above your prior guidance. Can you give us a sense of how you expect the tax rate to play out over the next few years?

Eyal Desheh

Yes, it’s Eyal. Tax rate for the year came out about 4%. Remember, we included Cephalon in the fourth quarter and the average for Q4 was 15%, which has the impact to bring the average for the year up. As you remember in our guidance for the year, we gave a range of about 13 to 14% of tax rate on a non-GAAP basis. The GAAP tax rate, of course, is substantially lower than that, and that’s where we believe we’re going to be. It can move from one quarter to another based on the mix of products and especially their origins, but that’s where the rate is going to be.

Going forward and for later years, we’ve talked about it in the past – we expect our tax rate to go up a bit year-over-year and year after year.

Michael Fern – Credit Suisse Group

And one other question on manufacturing, if I could – can you quantify, whether it’s by percentage of sale or some other metric, just how much of your manufacturing is concentrated in Israel?

Shlomo Yanai

This is Shlomo speaking. I’m sure that your question is about contingency or emergency or regional kind of issues. Is that correct?

Michael Fern – Credit Suisse Group

Yes.

Shlomo Yanai

Okay, so first of all let me give you the numbers. It’s roughly something around 30%, three-zero; and unfortunately as you well know, we have been in this for many, many years. We have the risk assessment and the contingency plan of this event and the calculated risk that we see, based of course on our assumptions and our contingency plan, is very minute. It’s around 1 to 2%, if at all. And from the major products which are making our top line, we have redundancy. I just can take an example – the Copaxone, we have three different sites in three different countries of the world. All of them are qualified to produce immediately and to supply the whole 100% of demand with six months of inventory to back up the whole manufacturing (inaudible).

Michael Fern – Credit Suisse

Could you just clarify that 1 to 2% comment? I didn’t quite follow that.

Shlomo Yanai

I said that the overall risk, whatever it could come, whether it’s God forbid safety method or other things, is below 2%. It’s actually 1%, but from the (inaudible) I’m just giving you the range. It’s a very low level. And in all the key 100 products that are making our top line, or having contingency plans, we secure them by the way that we organize operations system.

Michael Fern – Credit Suisse

Okay, thank you.

Operator

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

Ronnie Gal – Alliance Bernstein

Good morning everybody. A couple questions for Kevin – Kevin, by now you should have kind of completed your assessment of the pipeline for Teva and Cephalon. Can you just help us understand what stays and what goes, what program (inaudible) you decide to discontinue. And then a couple of specific questions, one on Treanda – can you give us a quick update on the IP situation, next generation formulation, and I think Shlomo referred to a trial taking place right now. And then again, you probably have received the DiaPep277 data by now. Can you give us your assessment of the data? I think (inaudible) suggests it’s a bit—the underlying number suggests that the top line result is as good as it seems.

Kevin Buchi

Ooh, a lot of questions. How you doing, Ronnie?

Ronnie Gal – Alliance Bernstein

Hey.

Kevin Buchi

In terms of the pipeline review, we sat down as a group. We went through the entire combined pipeline of the two organizations. Most of the assets, certainly all of the later stage assets continue in development. We made some decisions around some of the earlier stage assets, some of the preclinical things on the Cephalon side and some of the earlier things on the Teva side and decided to put those on the backburner; but most of the principal assets are going forward and the Teva R&D budget is sufficiently large to support most of them. I think it’s a very interesting combined pipeline. I think you’ve got a nice mix of risk profiles between some of the respiratory products, some of the biosimilars which have lower scientific risk - obviously there are other types of risks in the development of those programs. And then kind of the higher clinical risk, higher return programs like Revascor in congestive heart failure. So I think we’ve got a very interesting, very diverse, very large portfolio of products, and I’m actually quite excited about it.

In terms of your specific questions on Treanda, the pediatric study has been submitted so assuming the FDA agrees with it, and I don’t believe there’s any reason why they wouldn’t – we think we met all the criteria that was set up in the pediatric written request – then we should get an extra six months. We are of course keenly aware of the importance of that product and the need to do lifecycle management around that, and we’re continuing to work on that. I don’t have any firm update to give you at this point in time, but I can assure you it’s an important one for us.

Did I miss one of your questions, Ronnie, or was that kind of it?

Ronnie Gal – Alliance Bernstein

I was asking about DiaPep – you should have seen the data by now. Your top line was positive but we kind want to know that the (inaudible) and all the metrics suggesting that people come within range of blood glucose are actually supporting the top line. Is the data looking as positive as the top line seems?

Kevin Buchi

We’re still in the process of analyzing that data, Ronnie. I don’t have any additional update to give you at this point in time. We are looking at the data and we’re trying to make sure that the effect is, as you say, as robust as it might appear at first blush.

Ronnie Gal – Alliance Bernstein

Great, thank you very much.

Operator

Thank you. Our next question is coming from Jason Gerberry of Leerink Swann.

Jason Gerberry – Leerink Swann

Hi, thanks for taking the question. Just one quick question for Bill – you mentioned that the Epipen from a regulatory perspective was tricky. Just curious if you’re referring to the citizen’s petition by the innovator, or I noticed in the pretrial order there was a mention that you guys are going to have to amend your ANDA, and this was from Teva Parenteral. I’m just curious if there was any issues coming out of Irvine. Thanks.

William Marth

Thanks, Jason. No issues stemming out of Irvine whatsoever. But it is a device, right, and devices themselves are tricky. And so because of that, it just adds a little degree of difficulty to the equation.

Jason Gerberry – Leerink Swann

Thanks.

Operator

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

Marc Goodman – UBS

Yes, hi. Gerard, can you just talk about what countries we should be watching for in Europe this year that might do some additional price changes, price decreases?

Dr. Gerard Van Odijk

Yes, sure Marc. As I alluded to before, we’ve seen some draconian behavior in Poland recently, and I think that will be with us in the next few months.

Marc Goodman – UBS

And what kind of price changes was there?

Dr. Gerard Van Odijk

It was more like they changed the conditions for the trade, so it’s an unpredictable dynamic there in terms of volumes, what’s sitting in the retail, what’s sitting in the wholesale, and what’s being ordered – patient behavior unpredictable. As a matter of fact, it’s very difficult to give you a specific percentage answer in Poland, but it’s something that we’re monitoring very, very closely, and the trade there is extremely unpredictable – the trade, as well as the behavior of the customers and the patients. It’s a strange situation there.

The other market that is clearly making steps now is Italy, but that’s on the positive side. I think they will take price measurements that will force them into more generic substitution. As you know, generic penetration there is still very, very low. Monte is clearly putting effort behind genericizing the Italian market, and by doing so, using that as a tool to save money in his healthcare budget, so I think there might be an upside there in volumes and then the prices there won’t be affected by these measures.

And in other markets other than central Europe, we do not expect much to happen other than what we’ve seen so far, and the other unpredictable market that we will have to wait and see is how France will play out with the presidential elections there. France, clearly under pressure, but currently with the elections in sight, nobody is willing to take big measures. But in the second half of the year, that may change.

Marc Goodman – UBS

And nothing in Spain, Germany? Kind of status quo?

Dr. Gerard Van Odijk

No, Spain is patchy. We see some—the changes in Spain so far has helped us, as you’ve seen. We’ve had excellent growth in the generics industry in Spain; in particular, we’ve done very well there, and I don’t see a change in that this year. All the measures that have been taken is that they compound the steps that were taken in the last two years in Spain, so I think the dynamics of Spain for generics should be as positive as they were in the last 18 months.

Marc Goodman – UBS

Thanks.

Operator

Thank you. Our next question is coming from (unknown analyst) of Exane BNP Paribas.

(Unknown Analyst) – Exane BNP Paribas

Good afternoon, gentlemen. Thank you for taking my questions. (Inaudible) Exane BNP Paribas. Two quick questions, one on the specialty pharma pipeline. Could you highlight some products which from a (inaudible) view the most promising in the pipeline, and when should we have a (inaudible) update of your research portfolio? And my second question is on biopharma – could you disclose the sales, 2011 sales and the dynamics of the biopharma product? And if you could give a quick update on your research projects there. Thank you.

Shlomo Yanai

Kevin, would you take this one?

Kevin Buchi

Sure, I’d be happy to. I think in terms of the R&D pipeline, there are a number of things which excite me. I suspect that they’re not necessarily the same as the things which excite other people. It’s a very diverse pipeline, and frankly I think there’s kind of something for everything in it. I think in terms of the programs with kind of the largest potential, if you will, the Revascor program in congestive heart failure, if that were to come through – it’s going to be starting Phase III in the next couple of months – that would be a very, very large, very exciting opportunity. But we have a very nice portfolio, as I mentioned earlier, of products in the respiratory area, products in the biosimilar area. There’s a fairly deep oncology pipeline, and so I think there’s a lot of things to like in the pipeline generally.

In terms of your question about biopharma, I kind of missed the question. What were you looking for in that area, talking about the biosimilar programs?

(Unknown Analyst) – Exane BP Paribas

Two things – first, can you disclose the sales you generated last year, and what dynamic you see there? And if we could have a quick update on your projects there.

Kevin Buchi

I don’t have the detail of biologic generic sales for 2011. I will say, though, that going forward we have a very strong relationship with Lonza. They are our partner on most of the biosimilar programs that we’re developing. You saw that guidance came out from the FDA just the other day on the biosimilar pathway for the U.S. market, which I think is encouraging. I think the guidelines make a lot of sense. They’re very similar to the guidelines that we had assumed would come out and fairly similar to the model which the Europeans are following, and so we’re encouraged by that. But beyond that, I don’t have a whole lot to say about the biosimilar programs right now.

(Unknown Analyst) – Exane BP Paribas

Okay. And could you please tell us if some point in time this year you will give an update on your research pipeline, please?

Kevin Buchi

There was certainly some thought about having an R&D day to go through the pipeline in the fall, yes.

(Unknown Analyst) – Exane BP Paribas

Okay, thank you.

Operator

Thank you. Our next question is coming from David Steinberg of Deutsche Bank.

David Steinberg – Deutsche Bank

Thanks. Wanted to come back to your acquisition strategy for a moment. So the last couple of years, Teva’s successfully diversified away from the U.S. with acquisitions in Europe and in Japan. There are a couple areas where you have minimal presence, specifically Latin America, which is an area of success in the past. Can you talk about your current thinking there, and I know that in the recent past you’ve indicated that the prices have been a little too rich for your blood.

Shlomo Yanai

Thanks for the question. This is Shlomo speaking again. First of all, let me remind, I just said it in my part of the conference call, we have a pretty nice presence in many of these emerging markets to start with, so if you just take Russia—of course, it’s an unique example but it’s still on the Teva geographical portfolio. It’s a $500 million business without any acquisition. We grow the business there mainly by organic growth and taking our portfolio and other Teva strengths into that market. But being more specific on your question, Latin America for example, it’s a good example. On one hand, we have a presence in almost every important market or country, so there are over $800 million per annum. Last year, we acquired a small company in Peru and we integrated that with our presence there, with our company that we had there for many years. Yes, we know everybody has the question about Brazil - definitely Teva will be in Brazil, but it’s about picking the right target and not necessarily the big one. We may get to a different strategy of acquiring neat, small-sized companies and integrating them, and of course it’s about the companies and then of course there is the economics that goes along with it. Right now, I don’t think it would be wise to go for a more detailed analysis, but one may expect that Teva decided a strategic acquisition should also look for the economics and in such countries where we believe that right now the market is (inaudible). We have the patience to wait. We waited almost 10 years before we acquired the company in Germany, which was on our radar screen for a long time.

And basically, the same goes for other parts of the world; but again, we have the resources and we have the strategy, and if we find there is a target that would fit to our strategy, I believe that we can go for big acquisitions as well. As we see it now, and I have to be clear – actually be loud and clear – I don’t see this kind of target on our radar screen for 2012. We will focus probably more in other kind of acquisitions. And having said all that, this is my view of course, in May when Jeremy will come on board, he will make his mind and he can take the same approach or a different approach, so that should be taken into consideration as well.

David Steinberg – Deutsche Bank

Thanks.

Operator

Thank you. And that concludes the question and answer session for today. I’d like to hand the floor back over to Mr. Shlomo Yanai for any closing remarks.

Shlomo Yanai

Thank you. I’m going to be very short and say, just as you have heard, 2012 is off to a good start and everyone here in Teva is working very hard to ensure another successful year, another year of growth. Thank you very much for being with us today, and have a good day.

Operator

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

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