Teva Pharmaceutical Industries' (TEVA) CEO Erez Vigodman Q4 2015 Results - Earnings Call Transcript

| About: Teva Pharmaceutical (TEVA)

Teva Pharmaceutical Industries (NASDAQ:TEVA)

Q4 2015 Earnings Conference Call

February 11, 2016 8:00 AM ET

Executives

Erez Vigodman – President and Chief Executive Officer

Kevin Mannix – Senior Vice President-Investor Relations

Siggi Olafsson – President and CEO-Global Generic Medicines

Eyal Desheh – Chief Financial Officer

Dr. Rob Koremans – President and CEO, Global Specialty Medicines,

Dr. Micheal Hayden – Head of R&D and Chief Scientific Officer

Analysts

Ken Cacciatore – Cowen and Company

David Risinger – Morgan Stanley

Umer Raffat – Evercore

Jami Rubin – Goldman Sachs

Marc Goodman – UBS

Liav Abraham – City

Elliot Wilbur – Raymond James

Andrew Finkelstein – Susquehanna Financial Group

Gregg Gilbert – Deutsche Bank

Irina Koffler – Mizuho

Ronny Gal – Bernstein

Chris Schott – JP Morgan

Operator

Ladies and gentlemen, thank you for standing by and welcome to Teva’s Q4 and full year 2015, Results Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session at which time if you wish to ask a question [Operator Instructions]. This conference is being recorded today on Thursday, the 11th of February 2016. I’d now like to turn the conference over to your host for today, Kevin Mannix, Senior Vice President of Investor Relations. Please go ahead.

Kevin Mannix

Thank you, operator. Good morning and good afternoon, everyone. Thank you for joining us today to discuss Teva’s fourth quarter and full year 2015 financial results. On the call with me today Erez Vigodman, our Chief Executive Officer, Eyal Desheh, Chief Financial Officer, Siggi Olafsson, President and CEO, Global Generic Medicines, Dr. Rob Koremans, President and CEO, Global Specialty Medicines, Dr. Micheal Hayden, Head of R&D Chief Scientific Officer and Dr. Carlo De Notaristefani, President and CEO, Global Operations.

We will start the call with presentations from Erez, Siggi and Eyal before opening the call after questions and answers. A copy’s the slides as well as this morning’s earnings release can be found on our website tevapharm.com under the Investor Relations section as well as on the Teva Investor Relations app. During this call we will be making forward-looking statements which are predictions, projections, or other statements about future events.

These estimates reflect management’s current expectations for Teva’s performance. Actual results may vary whether as a result of exchange rate differences, market conditions or other factors. In addition, the non-GAAP figures exclude the amortization of purchased intangible assets, costs related to certain regulatory inventory step up, legal settlements and reserves, impairments, and related tax effects.

The non-GAAP data presented by Teva are the results used by Teva’s management and Board of Directors to evaluate the operational performance of the Company to compare against the Company’s work plans and budgets, and ultimately, to evaluate the performance of management. Teva provides such non-GAAP data to investors as supplemental data and not in substitution or replacement for GAAP results because management such data provides useful information to investors.

With that, I’ll now turn the call over to our CEO, Erez Vigodman. Erez?

Erez Vigodman

Thank you, Kevin. Good morning, good afternoon and thank you for joining us today. 2015 was a year of exceptional operational and strategic performance for Teva. We delivered in 2015 record operating income, EPS and cash flow, while improving profitability margins across the board. Our financial performance was based on excellent execution in generics, with significant improvement in profitability, strong execution of specialty life-cycle management initiatives, continued transformation of our global operations and network operations and network, and strong focus on cash flow generation. Once the Company was put on a solid footing, we have taken the offensive from BV perspective, delivering on all our promises and creating a new Teva.

We delivered strong financial results in 2015. Net revenues, including foreign currencies’ effects, went down by 3% to $19.7 billion. And excluding foreign currency effect, we saw organic growth of 4%. Operating income grew by 6% year over year and excluding foreign currency effect by 9%.

Net income grew by 6% to $4.7 billion, which is translated to EPS of $5.46 without the new shares issued in Q4 2015, to finance the Actavis Generics acquisition and to an EPS of $5.42, including the additional new shares issued. EBITDA grew by 6% to $6.6 billion, cash flow for operations grew by 8% to $5.5 billion, and free cash flow grew by 15% to $4.9 billion. These cash flow non-billeds include the payment of $970 million in connection with the Modafinil legal settlement earlier this year. In 2015, we continued the operating profit improvement of our generic business, while maintaining the operating profit of our specialty business, in a year when we face for the first time generic competition to Copaxone and invested in building the future of our specialty franchises.

We continued to make important progress on managing the right cycle of Copaxone and Treanda. On Copaxone, most recent IMS data suggests that Copaxone 40-milligram is today the leading MS medication in the US market with 25.2% TRx share. The entire Copaxone franchise owns 94.7% of that Glatopa segment. Glatopa owns the remaining 5.3%, and 31.6. % of the entire MS market. Copaxone is also the number-one global treatment for MS with 22% TRx share. On Treanda, we recently launched Bendeka with our partner Eagle. We believe Eagle providers will favor the features of Bendeka, including its short-time infusion of 10 minutes versus Treanda.

Our strong focus on solidifying the foundation of Teva and improving our business fundamentals is manifesting itself in the operation of step-up since the beginning of 2014 and the continuous improvement on all relevant financial matters. With a series of strategically compelling BV deals, we have transformed Teva in the course of 2015. With regards to the Labrys acquisition, which was closed already in 2014, we completed in 2015 a very successful Phase II clinical trial and have kicked off the pivotal Phase III study that we believe will demonstrate, we the best-in-class cornerstone drugs for leadership in migraine prevention. We continued with the acquisition of Auspex, an emerging leader in developing innovative medicines for hyperkinetic movement disorder and other rare diseases. This area was a huge patient unmet need. And Auspex has attractive growth to market products to address it. For Huntington’s disease, we have been granted with an Orphan Drug Designation for SD-809. The FDA has also granted breakthrough therapy designation status to SD-809 for the treatment of patients with moderate to severe tardive dyskinesia, the hyperkinetic movement disorder affecting about 500,000 people in the United States.

Auspex also provides us with a proven technology platform in promising pipeline candidates, like levodopa for Parkinson’s, an additional 60 molecules in its patent portfolio. Through our announced acquisition of Actavis Generics, we’ve established a strong foundation for long-term sustainable growth, anchored by leading generics capabilities in a world-class late-stage pipeline to accelerate our ability to build an exceptional portfolio folder, both in generics and specialty, as well as the intersection of the two. We also delivered on our promise to expand our footprint in key growth markets, with the acquisition of Rimsa in Mexico and the establishment of the JV with Takeda in Japan, one of the fastest growing generic markets in the world. In acquiring Gecko Health and the partnership with Microchips IBM Watson and Amwell that present innovative technologies and the space between generics and specialty that reinforce our strategy.

On the specialty front, we have streamlined our business to areas we have established strength. And we are positioned to claim global leadership around anchor products that would be extended over time to additional conditions and indications. In migraine, TEV-48125 is a cornerstone drug for leadership in migraine prevention. Over time, we will develop the core migraine solution platform to additional added condition, such as Glasgow headache. In movement disorders, the newer the generation SD-809 provide us with attractive growth to market products. Huntington’s disease tardive dyskinesia Tourette’s syndrome. The unique technology platform that was developed by Auspex holds great promise across a wide spectrum of movement disorders and other conditions. We’ll be one our unique patient-centric model, and over time develop and invest in additional novel targets. We’ll also maintain our position as a leading provider of solutions to MS patients.

In pain, our novel abuse-deterrent technology in generating significant [audio gap], including our extended-relief hydrocodone that awaits approval from the FDA. During 2016, we plan to submit an application for an immediate-release hydrocodone. Over time, we will develop and invest in next-generation abuse-deterrent technologies and devices in a quest to become a leader in improving abuse-deterrent and safety of opiates. In respiratory, we are awaiting approval for Reslizumab. We are also developing a series of innovative devices and technologies that focus on the most important challenge today in this field, which is improving the adherence and compliance of patients to an integrative approach for the management of chronic asthma and COPD.

We are building a new Teva with a solidified foundation, a significantly enhanced portfolio, a promising specialty pipeline, diversified net revenues and profit streams. And we are positioned to continue the transformation of our business model. We strongly believe that we are creating here a diversified growth platform, with a balanced portfolio of durable products that offers top-line and bottom line growth prospects and, over time, also multiple expansion opportunities. It’s a platform expose the Actavis generic deal serves approximately 250 million every day as the world’s largest black [ph] cabinet with more than 1,000 molecules. And every one in every five prescriptions in the US, one in every four in the UK, one in every eight in Germany is Teva’s.

And also, one of the most competitive fully integrated operational platform in the industry that covers full spectrum of products, from volume generics to complex generics, and all the way to specialty medicines and biologics, and with unique capabilities in the space between generics and specialties. These efforts result in a Company well-positioned to ensure we have a strong product development engine in both generics and specialty that can support a sustainable, long-term goal.

Today we are reaffirming our 2018 target, first presented last year when we announced the proposed Actavis Generics acquisition. Using 2015 as the base year, we project a CAGR for top-line growth of 12.5% and 20% CAGR growth in EBITDA, cash flow from operations, and free cash flow. In 2016, our main focus will be on closing and integrating the Actavis Generics business, Rimsa in Mexico, and Takeda JV in Japan and on fully capturing Fairfield’s synergies. We expect to provide combined business outlook for the Company during Q2 2016.

In 2016, we also expect to continue delivering on the promise of our specialty pipeline with the commercial launches of SD-809 for Huntington’s disease; Reslizumab in asthma; when rare extended-release hydrocodone, in addition to the launch of the Bendeka recently. We also expect a number of important submissions, including SD-809 for tardive dyskinesia, TV 46763 for pain, QVAR and [indiscernible] for asthma, and a number of important clinical milestones.

One clinical milestone for 2016 that I would like to provide an update on is [indiscernible]. We have indicated to you that during this quarter, we have the pre-specified analysis of the 26-week data from our 52-week Bright HD study. At this time, the study’s Steering Committee has recommended to continue the study as planned. And in order to maintain the integrity of this ongoing double-blind trial, results of both 26-week and 52-week endpoints will be made available upon study completion in Q3 2016.

Last but not least, we expect to generate $20 billion to $25 billion of free cash flow during the 2016 to 2018 timeframe. It would allow for rapid deleveraging and the ability to continue pursuing future acquisitions, with focus on growth and entering specialty branded deals in core specialty areas and footprint expansion in key growth markets.

With that, I hand it over to Siggi Olafsson to discuss our Global Generic Medicine business.

Siggi Olafsson

Thank you, Erez. Good morning and good afternoon, everyone. 2015 was a very good year for Teva Generics. Thanks to our strong performance of the base business and good new products launches, we delivered great results in the U.S. and in major markets globally. We continued improving the operating profit of the generic business, coming from $1.68 billion operating profit in 2013, or 17% of revenue, to $2.68 billion operating profit in 2015, or 28% of revenue. This is $1 billion improvement in operating profit over 24 months period. So how did we do this? Not by pricing but by portfolio mix, new products, and efficiency measures. New product launches are very important. We had approximately 450 new product launches in 2015. This is the key to the growth of generics. For 2016, on a full-year pro-forma basis with Actavis Generics, we see over 1,000 new product launches forecasted, growing to approximately 1,500 new launches in 2017.

Portfolio mix is also important. Part of our yearly operating plan is to review our marketed portfolio in addition to the pipeline. Having the largest product offering of any pharma company gives us the opportunity to serve the markets well, but also improve profitability by making the right portfolio decision. The network optimization and efficiency measurements that have been taken by Carlo and our operation group have delivered approximately half of the profit improvement in generics. This is a key strength of Teva, and we will continue improving our operation network and costs.

We have also focused our marketing presence. We have terminated business activities in 74 markets, focusing our efforts on larger markets. And this has improved significantly the efficiency of the overall business. And last but least, we have kept our sales and marketing costs flat. We have invested more in the growth markets. That’s the market we see the opportunity to grow maybe to $700 million to $1 billion revenue over time and promote mostly branded generics. And against that, we have reduced costs in some of the markets in Europe.

We are on track of closing the Actavis Generics transaction soon. We have a good collaboration with the regulating agencies. But as you can imagine, they are doing a very thorough review, which takes a while with the combined pipeline these two companies have. We are continuing down the path towards closing this transaction by the end of this quarter, although closing might slip into April. We remain confident in completing the transaction and haven’t had any surprises during the process.

The divestiture process is running in parallel. And we are working closely with four to five potential buyers in divesting necessary assets. The plan for the overall integration is in place. The collaboration with Allergan has been outstanding. We set up 31 integration teams, co-led by leaders from Actavis Generics and Teva. They have prepared detailed plans for day 1, day 30, and day 100; announced leadership teams pending, of course, close of the transaction; and validated synergy targets. Based on the work we see today, we are very confident in the synergy targets and execution of the transaction.

Briefly, on pricing. As I’ve previously stated, we and the generic industry overall don’t see price inflation of generics as it sometimes is portrayed in the media. On the contrary, for 2015, we saw a mid-single-digit price decline for the overall business. In the U.S., our largest market, we saw approximately 4% price erosion. In Europe, we experienced a little higher price pressure of maybe 5% to 6%. And in the growth market, we saw a smaller decline; and in some branded generics markets, even small price increases during 2015. This gives us overall price erosion of approximately 5%. Looking forward, the conjunction of price erosion with the mix changes, focus on cost structure, and the new product launches, we continue to drive our business growth, both top line and bottom line. We expect to see the same in 2016. Nothing today points to a significant change in the generic pricing environment. With that, I hand it over to Eyal Desheh to discuss the financial results and guidance. Eyal.

Eyal Desheh

Thank you, Siggy. Good morning and good afternoon, everyone. I am pleased to share with you the financial review of Q4 2015 end of year. This was indeed a transformational year for Teva. I will start with Q4. This was a strong quarter, which closed a very good year. Revenues and operating income, net of FX impact, were flat in real terms compared to last year. Earnings per share, adjusted to exclude the December 15th equity offering was $1.32 above the high end of our guidance. On the same share count basis earnings per share for the year was $5.46. While foreign exchange had a negative impact of about $260 million on our top line for the quarter, the impact on operating income was much smaller due to our balanced natural hedge. And it was $44 million.

Our cash flow in Q4, we continued to demonstrate strong cash flow as we have throughout the past two years. And this positioned us with improved liquidity ratio ahead of the upcoming closing of the Rimsa and Actavis Generics acquisitions. Leverage was down to 25%, and debt to EBITDA was down to 1.51 times. When we look at the breakdown of revenues by region, U.S. continues to represent 54% of our total sales. Generics were 46% of total sales, and Copaxone accounted for 20% of our total sales in Q4.

Copaxone represented 40% of our operating profit, down from 47% in Q4 last year. The share of generic profit was up from 31% to 32%, with a 250-basis-point improvement in profitability from Q4 last year. And last, the sale of Copaxone were just under $1 billion for the quarter, with stable total TRx level, and an uptrend for the 40-milligram, as you can see on this slide.

So let’s look at the year. 2015 was indeed a very good year for Teva, with revenues net of the FX impact growing by 4% in real terms; operating income growing 9% in real terms; net income and EPS 6% in nominal value year-over-year. Earnings per share, adjusted to exclude the December 15th equity offering were, as mentioned, $5.46. Our strong results were achieved despite the foreign-exchange headwind. This headwind resulted again from the strength of the dollar against most currencies. While the impact on our sales came from most of our major currencies, our operating profits were very well balanced and were mostly influenced by the weakness of the Russian ruble. Looking at EBITDA, this important measurement will continue to drive very strong EBITDA growth, with 7.8% CAGR over the past three years.

The improved generic business generated 37% of annual operating profit without G&A, while Copaxone’s share of this profit was down from 46% to 42%. And these two major pieces of our business are coming close in contribution. So here’s the profitability improvement of our generic business, as Siggi already mentioned. In three years, profitability improved over 1,000 basis points for 17% to over 28% for 2015. Dividends, our declared dividends for Q4 2015 were $0.34 per share.

And now let’s move to the Q1 2016. In 2016, our combined business will change profoundly in all aspects. Economically, financially, and also our capital structure is going to change. We will share with you today our outlook for Q1 2016, and will present the new Teva a few weeks following deal closure. We expect revenues to continue to be impacted by exchange rates and to be in the range of $4.7 billion to $4.9 billion for the first quarter of 2016. We further expect EPS for Q1 2016, adjusted to exclude the share added in December 15 equity offering, to be in the range of $1.30 to $1.36. And the fully diluted full share count to be $1.16 to $1.20. This is based on share count of 978 shares. So I like to thank you all very much for listening to our review this morning. And we will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question today comes from the line of Ken Cacciatore from Cowen and Company. Please go ahead.

Ken Cacciatore

Good morning everyone. Thanks, just a question on your discussion within the press release about wanting to focus on integration. Understanding that’s clearly a high priority this year of integrating the businesses. But wondering with the decline in branded asset values that are available out there, would you be thinking or considering maybe accelerating more business development in that area as you try to continue to diversify away from Copaxone? Thank you.

Erez Vigodman

Yes, I said that our BV focus is shifting now to growth and entering specialty deals, and in a very selective fashion also footprint expansion in key growth markets helping the market overtime to assign our market on higher EPS. Any follow-up question?

Ken Cacciatore

No, thank you.

Erez Vigodman

Next question please.

Operator

David Risinger from Morgan Stanley. Please go ahead.

David Risinger

Yes. Thanks very much. So I have three questions. First, Siggy, could you just talk about why the deal timing might slip into early April? Is that simply because certain countries are holding you up, like China, or what is driving that? Second, with respect to the three times a week product, ex-U.S., there was an encouraging patent win in Europe. Could you please talk about that and talk about the durability of that asset ex-US? And then, third, consensus seems to expect negative iPad decisions on the three TW patent challenges late in the summer. Could you talk about that and whether there might be any positive read through from the three times a week patent win in Europe? Thank you very much.

Siggi Olafsson

David, let me start on the timing. So timing is simply the size of the pipeline, if you think about the pipeline of the two companies combined, probably over 320 ANDAs. There’s a pretty thorough review that needs to take place between the FTC and the FDA of the pipeline. I think the review of the commercial overlap is going well, and this is on the U.S. In Europe, we are on the clock. So we feel that should be – we should be able to close that in March. And most of the smaller markets are already in-house. So probably the part which is the most work, which is the U.S. review, is the one that we are focusing on. But there is nothing unexpected coming up. It’s just the extent of the work, the extent of the portfolio that we are dealing with that could be the reason it could slip into April. But we are still very focused to try to close in this quarter.

Erez Vigodman

So on Copaxone, first, let me just let me just say that with all the patent offices, and choose of the IPR, on three out of four orange book patents, it is far from [indiscernible]. We strongly believe that we will prevail at the end of the process. We strongly believe in the durability of our franchise and our ability to protect it commercially in Italy. But I will just would like to remind basically everyone that even in this scenario, the Copaxone 40-milligram generic financial implication for us are limited, and we shared a discreet viewing our Q3 earning call. It clips $1.2 billion of net revenues and up to $0.65 of EPS post Actavis Generics close in 2017, even if we assume that we face generic competition from generally 2017. So that’s basically captures all the relevant elements.

Unidentified Company Representative

And maybe David, on your question to Europe, so that’s indeed encouraging, we have a patent that holds till 2016. Copaxone three times a week, 40 milligrams is actually doing extremely well in Europe. We have it now on the market in 19 countries, and it’s really captured the number one spot in new patients, new to brand in countries like Germany, similar like Spain, the Netherlands, Denmark. So we’re seeing very good results, and that’s really encouraging. Similar trend as we’ve seen with the U.S. where also Copaxone 40 is the leading brand, as Erez already said before, and continues to hold strong. So with Copaxone 40, we really have a good performance on both parts of the ocean, and in some of the other rest of the world markets.

Erez Vigodman

Yes. I am just identifying was not good enough on the first question that was posed to me, so I just would like to reiterate my answer. I said that our BV focus is shifting now to growth and to growth and entering specialty deals, and in a very selective fashion also footprint expansion in key growth markets helping the market overtime to assign our market on higher EPS.

Operator

Your next question comes from the line of Umer Raffat with Evercore. Please go ahead.

Umer Raffat

Thank you for taking my question. I have three if I may. First for Erez, have your thoughts on CGRP pricing changed given the slow initial uptick of PCS [indiscernible] and they’re priced at $15,000? One. Secondly, Eyal, question for you more on the long-term tax rate, especially considering there’s new branded pipeline that’s coming up, and I’m curious where the patents for CGRP are held and what is the tax rate on that patent? And then finally Michael, if I may, Pridopidine’s upcoming phase 2b, if that works, can you file off of that? And if there is any updated status on the deutetravenazine percentage on for an aspect? Thank you.

Michael Hayden

Thanks, Umer. Let me answer the last question first. On the Pridopidine, of course, it all depends on the strength of the data that we will see at the end of Q2, early Q3. So basically results to be shared in Q3. And we have an agreement with the FDA that if the results are sufficiently strong, covering not only symptomatic therapy, but also change in progression, functional capacity, that we have a reason to go back to the FDA and file associated for that. So we will have to wait till the third quarter to really get the full understanding of the implications of that data. And then the next question was…

Erez Vigodman

Umer, on the CGRP pricing, it’s three years away. It’s too early to reflect on that.

Umer Raffat

Got it.

Eyal Desheh

Taxes. So long-term tax, tax rate, today we are about 20%, 21%. We see a decline in long-term tax rate over time, so around 17%. Specifically to your question on the CGRP, the IP is not in the U.S. So it will be taxed at a lower tax rate and will have an impact on our tax rate end of 2015 and beyond.

Umer Raffat

Got it. Eyal, just to clarify, the tax rate on the CGRP patent, will that will be left then the tax rate on Copaxone right now, which is about 19% I understand?

Eyal Desheh

Not the same. Not the same geography. But definitely a preferential rate.

Umer Raffat

Thank you very much.

Operator

Your next question comes from Jami Rubin from Goldman Sachs. Please go ahead. Rubin your line is open.

Jami Rubin

Sorry, I was on mute. First question is on Copaxone. Just wondering if you could comment on what you’re seeing – there is only one generic out there, but what you are seeing in terms of price. It does seem that you have been able to hold your volumes relatively steady, but revenues did come in a bit lighter than we were expecting. Are you seeing any changes with respect to price? And when you think about 2016, whether or not there is another entrant to the market, do you expect any real changes in terms of the dynamic of price and rebates? And then, Erez, for you, I think the question was asked earlier, but on M&A, you have talked about when you start to deliver next year, you may be in a position to be more aggressive. I’m just curious to know what your thoughts are on what’s happening with the healthcare tape. Obviously, everything is way down. Do you think that CEOs of companies have adjusted their expectations and would be willing to accept lower prices, or do you think that time needs to pass before expectations can recalibrate? And are you in any position to take advantage of that now anyway? Thanks.

Siggi Olafsson

Jamie, let me start with the Copaxone. Actually, we are not seeing any impact on price at the moment. And what you do see in Europe is, as we transfer to the 43 times a week, which is price per milligram, and has a 10% to 15% lower price depending on the countries, that’s something that you see as an impact on the overall sales where we just get 10% to 15% less per patient. In the U.S., we are not seeing any impact there. What we’ve seen a bit at the end of last year is more a question of the timing of some of the demand. The underlying prescriptions and PRX remain very stable and we’re confident. Information available to us today, which by nature is always a bit limited, but we don’t expect to see any generic additional generic in the US market in 2016.

Erez Vigodman

And on the question you have posed to me, Jami, we at this stage we are not basically witnessing recalibration of expectations to a large extent at this stage. And as far as Teva is concerned, number one, we will be more selective in 2016, which basically the – I think we are very clear that we have – in 2015, we’ll plan to invest not more than $3 billion in a quest to augment further our pipeline in core specialty areas in order to promote long-term organic growth. That’s what you need to expect from us in the course of 2016. Over time, as we are able to generate the very strong cash flow from the combined Company, we might then accelerate the pace of potential deals going forward, and then we need to adjust to see it go along our expectations of sales look like.

Jami Rubin

Thank you.

Next question comes from Louise Chen with Guggenheim. Please go ahead.

Louise Chen

Hi, thanks for taking my questions. So my first question here is some of your competitors have talked about pricing pressure in the generics business during the quarter. Curious if you saw that, and if so what might be driving that. And the second thing is as you think about your next larger scale deal, are you more interested in generics, brand deals, and why? Thanks.

Siggi Olafsson

Louise, let me start on the pricing. As I mentioned in the beginning, we didn’t see anything change in fourth quarter. We saw approximately 4% pricing pressure or price decline in the US business over 2015 flat over the year. Some of our competitors have seen more pressure. I think overall, it might have to do with some dosage form differences. But also I think we have been right in adjusting the business. We are running the business for the bottom line. As you saw in the slides, we have improved the bottom line. So we might run the business a little differently than our competitors. But overall, we saw mid-single price decline in the U.S and also on the global level.

Erez Vigodman

And on the BV form again, not to repeat same I used before, I’ll just put it another way. The acquisition of Allergan is transforming Teva, much more than just another generic acquisition for us. It innovates significantly our financial profile. And over time, it will allow for rapid deleveraging and the ability to continue pursuing future acquisitions, with a focus which is shifting. The focus is shifting now on both specialty pharmaceuticals that complements [indiscernible] strong focus on specialty pharmaceuticals that both still both still sell to the pipeline. That augment the our [indiscernible] and in a very selective fashion going forward in expending our footprint and growth market.

Siggi Olafsson

Next question please.

Operator

Next question Marc Goodman with UBS.

Marc Goodman

Good morning. Siggi, global generics margins at 28%. Obviously, we have seen a massive change. Can you give us a flavor for, excluding Allergan, how much further there is? And then including Allergan, are we talking about moving into the mid 30s. Secondly just on European generics, up 2% constant currency in the quarter, clearly we have turned the corner. I’m just wondering how should we think about constant-currency growth in Europe going out this year and even the following year? Are we going to see growth of low single-digits? Is that how you think about it? And then just lastly, a quick question on ProAir and how you’re thinking about the switch. It doesn’t seem like the newer version is ramping up that quickly. We know that generics are coming at the end of the year. So how are we all thinking about that? Thanks.

Siggi Olafsson

Marc, on the overall operating profit of 28%, I think I’ve said when we set the guidance for the year of 27% midpoint that there could be maybe 100 to 200 basis points more to do if we get that. We are closing the year at 28%. So there might have been a little bit more, but it’s only theoretical because we will have a very new and different Company when we close the Actavis transaction. So maybe a little bit more, but really I think the big task has been done. I think 28% is a really, really good profitability of the business we have in hand today. With regards to the European generics, we saw in third quarter and again in fourth quarter we have started to grow on a fixed currency, the top line.

We obviously, we will not comment on 2016 of the generic business now because the picture will be very different when we combine Teva and the Actavis generics business. Because the make-up of the European business in Actavis is very different than in Teva. So let’s wait until we give the guidance. But overall, we felt in third and fourth quarter we turned the corner and started to see low-single digit growth on the top line but continued growth on the bottom line.

Unidentified Company Representative

The maybe Marc, on the ProAir question, we are now with ProAir at about 4% of the overall ProAir subscription on the RespiClick. It’s about 2.5% of the overall several market. If you look at it, 75% of the volume of the RespiClick doesn’t come from switches actually; it comes from --most of it comes from new patients, and about one-third of it comes from switches from other products. And this is also been a launch where we really focused a lot on the new benefits of this device, which is intuitive, which holds a lot of benefits for patients, and that we need to continue to convince not only patients and doctors, who are pretty convinced, but also payers that this is something that is really worth getting up to.

We now have about 75% of the commercialized covered, which I think is a good step forward. But we haven’t been approaching the market so far with an end to really force a switch. Maybe a word also on potential generics for ProAir. First of all, the FDA hasn’t registered anything, and this needs to happen. And if it happens, we have an agreement with Perrigo that would allow them from the very end, from December of 2016 on, to come with limited numbers of a generic if they manage to get a registration. So our focus at the moment is really on driving acceptance of the RespiClick, and we’re actually very happy with the uptick we’re seeing, which is really accelerating at the moment. But there is still a bit of work to do there.

Operator

In your next question comes from Liav Abraham with City. Please go ahead.

Liav Abraham

Good morning. First question is on SD-809. Can you comment on the preparations that you are doing ahead of the launch and what you expect that launch to look like as of the second half of this year? And then secondly, Michael, I’m interested in any additional comments that you have on your CGRP in the cluster headache indication. Where do you start on this with FDA? Can you go straight into Phase III? And when can we anticipate clinical trials to start? Thanks.

Unidentified Company Representative

Liav, I’ll start with the SD-809 preparations for the launch, which we really are in full preparation, as you can imagine. For us also understanding Huntington’s disease like we understand multiple sclerosis is very important and we have come to insights that show there is a lot of lessons that we can take from how we have been successful with Copaxone and translate it to Huntington’s disease. It’s obviously a disease with many --with a much fewer number of patients.

Very unsatisfactory current treatments, with only 10% of doctors and patients really getting access to products, so that is far from optimal. So we are training our sales reps. Our MSLs are out in the market already having scientific discussions, and we’re learning as fast and as good as we can. And obviously have also strong discussions with all stakeholders, including payers. Monitoring the market as well, you see that there is two generics of tetrabenazine and deutetravenazine that sells on the market, and we’re monitoring that. And we see really, really good opportunity. About 90% of patients really have no therapy at the moment, and that’s a vast and huge opportunity. So we are still very --we remain extremely confident, actually more than ever, that we can launch SD-809 well and as indicated when we acquired Auspex.

Michael Hayden

Good morning, Liav. Thank you for the question. With regard to 48125 on migraine, first just to restate that we have begun the trial for both chronic and episodic. This will be in about 145 sites, half in the US and half in Europe. And already a significant number of sites in the order of around 20 are already open. And the study is very much on track. Important to note that the study for both chronic and episodic migraine is taking place in the same sites, and we think that will enhance recruitment, and with people already who have participated in the Phase II study. We have committed to starting a trial on cluster headache. And as you know, known as suicidal headaches, about 600,000 people in the US, 600,000in Europe. We do know that this 48125, an anti-CGRP, in general, has there been some proof of concept with Lily. We know that this is likely to provide some benefit, and we plan to start the study in the second half of 2016 after discussions with the FDA on the design and the approval of the design for the study. We obviously would hope to go straight into a Phase III study, but this will depend on our discussions with the FDA.

Liav Abraham

Thanks very much.

Operator

And next question comes from Elliot Wilbur with Raymond James. Please go ahead.

Elliot Wilbur

Thank you. First, I just wanted to ask a follow-up question of Siggi regarding your earlier comments around profitability of the generic segment. Obviously, experienced a big ramp year over year, but a lot of that came in the first half and was very product specific, I believe, given certain key launches in the U.S. The exit rate of 25.5%, just wondering what the defensibility of that level is going forward? Do you think that’s a floor for the entire book of business pre-Actavis? Just trying to get a sense of whether or not you think we’ve bottomed. And then maybe you could just provide a little bit of color commentary given that level, what the relative rate of profitability is amongst the three revenue buckets, U.S., Europe, and rest of the world. And then a follow-up question. There has been a lot of time talking about pricing, particularly packs and the generics. But maybe you could just comment on pricing trends across your specialty business. Obviously, seems like payer dynamics become much more difficult in the U.S. market and realization of list price increases becoming increasingly challenging. Maybe you could just talk about pricing dynamics within the specialty portfolio, particularly in the U.S., whether or not you think pricing will still be a positive in 2016 versus 2015. Thanks.

Siggi Olafsson

So Elliot, on the profitability, the overall business coming in at 28% versus what we --for the full year was 25.5% for fourth quarter. I think how you need to think about it is, obviously, when you have an exclusive opportunity, especially in the U.S., you traditionally have a higher profitability. And we saw that in the first two quarters of the year, where we didn’t have any exclusive product in third and fourth quarter, there was a lower profitability. That being said, keep in mind that in the new Teva, in the new combined Teva, with approximately 110 first to files, there will be regular launches of exclusive products that will keep pushing, obviously, the profitability higher.

Is 25.5% the bottom of the curve? I don’t know, on Teva stand alone. Really it doesn’t matter because we are not --we are only running Teva stand alone in the first quarter of this year. I think that reflects somehow the reality when you don’t have any exclusive launch. But keep in mind that from fourth-quarter 2014 to fourth-quarter 2015, there is a 200-basis-point improvement the operating profit.

So there were no exclusive launches in either quarter, so the base business, overall base business improvement from the 12-months period was 200 basis point from fourth quarter to fourth quarter. So I think the overall business is improving. With regards to the region, just quickly, U.S. has been stable over the year. I mentioned the pricing before. There is a lot of competition in the U.S., there is no question about it. As you well know, there is over 200 generic competitors in the U.S. market and the competition is fierce. The opportunity we have is basically the largest pipeline, and I think an extremely good supply chain. Our business in Europe has improved very significantly. Over the last two years, been a total turnaround of European business, even more than you see in the overall business.

We launched an average around 20 new products in every market we have in Europe going forward. Very stable operation and has been built up very well. Probably the fastest growing opportunity net of FX is the growth market. How we explain growth market to market, which we would like to foresee to grow significantly, even to $7 million to $8 billion in revenue. Markets likes Russia, obviously, there is a huge FX impact in Russia. But the underlying business, the volume, the new launches, and the business we’ve run in Russia is outstanding. I’m very excited about the joint venture. We will hopefully close that transaction beginning of second quarter. We made a very significant acquisition in Mexico with Rimsa, which takes us to a top-tier company with a portfolio of both specialty and generic products. So that’s where we see the most growth going forward. But I think we have a very unique business model in the Teva generics today and feel that we are running on all cylinders.

Erez Vigodman

Maybe to just underscore one of the points that were made in there. The 25.5% operating profit is basically a profit that naked in terms of new launches, businesses generating. You have to just realize that. You compare it to 2015. We saw launches for businesses that generated 20% – of 20% operating profits. And going forward, that’s basically not a situation because with [audio gap] for which one out of ten are FDA first to file that a business that will be able to generate on yearly basis exciting launches. So the 25.5% that you are witnessing in Q4 2015 is basically an exceptional situation. And going forward, that’s a business that will be able on top of that, to generate much higher profit that stem from launches that are going to be carried out.

Rob Koremans

Maybe Elliot also one word on the question of the pricing for the specialty products or the branded products. So clearly there is not only political dispute, but I think well before that started, there were already very clear trends and signs in the market that you have to move away from pricing as a description really to showing the value you bring for your products to patients and payers alike. And having differentiated products able to really meet the unmet medical needs and show the value of that is going to be important. This was in our programs, and we will have to be able to do that in the years to come. I think in 2016, we planned with fairly moderate price increases, and I would be surprised if many companies have done differently. The focus has to be on value delivered to patients and payers alike. That’s where we are focusing.

Operator

Thank you very much. Your next question comes from Andrew Finkelstein with Susquehanna Financial Group. Please go ahead.

Andrew Finkelstein

Good morning and thanks very much for taking the question. I was hoping you could talk a bit more about some of the price volume dynamics and how that works in terms of the contracting with the large customers in the U.S. If you could provide some insight as you approach those relationships this year, both as a stand-alone and with the pending deal. How does closing the transaction and the launches and the launch calendar you’re able to provide to them affect your ability to secure volume and see the moderate overall erosion that you’re talking about? And then I had a follow-up on the branded side.

Siggi Olafsson

Yes. So Andrew, I think the overall – we run the business in ordinary course. We are totally independent. There is a still a very fierce competition between Actavis Generics and Teva in the market today, there’s no question about that. We basically launched the product. We compete on pricing. And you have to keep in mind that especially in the – in the bigger market, both in the US and Europe, you are really fighting on a molecule by molecule basis. If there is a lowering of the prices, you either have to walk away from the business and that’s that. And that is the fact of the US business, and that doesn’t change anything around the combination of the two companies. I’ve said it previously, and I think on the last – on the third-quarter call, what we will offer to the customers as a specialty is basically we will have most launches, the most number of launches in the industry.

We will pride ourselves of the service level of the high quality of the product. But at the end of the day, there is a fierce competition in the market. Over 200 generic companies, and really there is no bundling or anything like that, that can go on in the market. So overall, same as without the deal. But we see the opportunity going forward based on the huge pipeline that we have.

Andrew Finkelstein

Thanks very much. And then on the branded side, you noted the IR hydrocodone product and FDA just announced what they called a sweeping change in its approach to opioid regulation and immediate-release products in particular. How do you think about both for your ER and IR abuse-deterrent products, how you’re seeing that opportunity? FDA does seem to be taking more actions to try to discourage the use of opiods in general. Are they doing --going to be doing enough to encourage the use of the abuse-deterrent products to help compete against the generic alternatives that are already out there? And how you’re thinking about your strategy from maximizing that portfolio opportunity? Thanks.

Michael Hayden

Thank you, Andrew, for that important question. Yes. There are a number of opioid NDAs currently under review by the FDA. And certainly the agency has provided additional scrutiny around these applications, and certainly we believe that we’re a part of the solution. We recognize the really awful and very sad epidemic of opioid abuse in the United States, and we are developing products that really have a chance to both treat people with chronic pain, but also prevent some of the abuse that is likely.

So our abuse-deterrent technology, which is very novel and provides both protection and also can provide pain relief for those patients that need it. So we are awaiting our review and approval of Vantrela, which is ER hydrocodone. We also expect to get the results of immediate-release hydrocodone this year, and to file before the end of the year. This product of course, the immediate-release hydrocodone deals with the larger number of patients and people who are suffering from addiction and also from overdose, where 80% of this is due to the immediate-release hydrocodone. So we are very much aware and working with the agency, working very closely to address all the questions. We are looking forward to having approval of this important first product, and then we’ll continue to develop products that really have a chance to make a difference in patients’ lives.

Operator

Thank you very much. Your next question comes from Gregg Gilbert of Deutsche Bank. Please go ahead.

Gregg Gilbert

First on your outlook, when you provide your new outlook in May, do you plan to offer guidance for 2017 and 2018? Maybe more importantly, near term, is all the info you’ve been getting from Allergan supportive of the previous targets you put out that obviously include their generic business? Secondly, a question on Treanda, I realize there is a legal ruling due in the coming months on the lyophilized generics and that those generics are possibly going to launch if they win. But if you do prevail, what’s the best-case timeline for the launch of generic lyophilized products? How late would those be? Thanks.

Eyal Desheh

So on guidance, hi Gilbert, on guidance, we are committed to provide guidance for 2016. We are considering if now we provide more visibility into 2017 and maybe beyond. But that’s too early to comment on that. Regarding to a target, we are basically maybe that some of it was spread out already. But I am reiterating it now. Basically, we are reaffirming all the synergy targets that we announced last year, and basically, we are able to generate all the synergy numbers that we showed [audio gap].

Rob Koremans

And on Treanda, we are quite hopeful and positive on the opportunities. Generics could come in May. But even if that would happen, we believe that we could, and we’ve indicated it before, shift about half of the patients, half of the business to support at least a shift to Bendeka, the rapid infusion medicine that we have just launched a couple of days ago really. The Treanda life after that, there will be – Bendeka has a potentially three depending on the FDA, whether they grant it with an orphan drug status and the protection related to that, even seven years life stay. But it’s, at the moment, pure speculative. So that’s something that we need the FDA confirmation on, but we are very positive on that. And also the patents, per se, on Treanda will go well into the 2020s. But that’s something that I need to look up the exact date for the end of the Treanda patent life.

Gregg Gilbert

Thank you.

Operator

And next question comes from Irina Koffler with Mizuho. Please go ahead.

Irina Koffler

Thanks for taking the questions. Can you help us visualize the layering in of the Takeda business, as well as Rimsa throughout 2016? And then the second question is on QVAR. It seems a little strong this quarter. Can you maybe describe what happened there. Was there any stocking? Thank you.

Siggi Olafsson

So maybe if I start on Takeda and Rimsa, we estimate that we will close the Rimsa transaction in first quarter. Probably hopefully by the end of this month, beginning of next month, that is our goal. In terms of the Takeda goal has been April 1st. It could slip a little bit later in April. But the goal is April 1st to close that transaction.

Rob Koremans

And on QVAR, there has not been extra stocking or anything like that. It is really purely demand-driven. What you have seen is there has been some release of provisions related to some of the payments we had to do to the public segment in the U.S., which came in a little bit lower than previously. But the underlying business is really performing well and there is a growth of a --a nice double-digit growth on QVAR as well in the U.S.

Irina Koffler

Can you, going back to Rimsa and Takeda, just explain how much revenue you are expecting to layer in? Can you provide a little more there?

Rob Koremans

No. So with both companies we will give you guidance when we close probably close Actavis, what we gave when the Rimsa transaction was announced was revenue of Rimsa in 2014 just over $200 million, so it’s not significant. The revenue of the joint venture we have to see. We are basically finalizing the numbers and we will give that at the guidance time. That’s much more significant.

Irina Koffler

Thank you.

Operator

Next question comes from Ronny Gal from Bernstein. Please go ahead.

Ronny Gal

Hi, good morning guys. Congratulations on the quarter. Thank you for talking my question. The first is on SD-809, as you guys have the discussion, your previous discussion with payers, should we expect that patient will have to fail first on tetrabenazine in order to get the juderated [ph] erosion, or do you have a fairly good shot at first line? And similarly, are we talking a pricing at roughly demand the level of the anti of the $10,000, $15,000 fee or lower for that for this product? Just to give us a ballpark where to put our first year. Should this be a decent quick launch or should we really expect this to be in-line with some of the recent branded launches which were a little bit slow out of the gate? And second, you had a pretty good quarter on the branded respiratory. Can you just go over us how you see the new generation of branded products layering in, in terms of timing and potential contributions? Just give us a feel for how the tranche looks for the next five years.

Robert Koremans

Ronny, on the SD809, commenting on pricing is something that – you’re aware of the prices of both the original and the branded products in the market – I’m sorry, of the generics in the market, the two generics. We are not going to comment, but they clearly set clear milestones for our prices in going forward. So far, the discussions in our plans, actually we did expect the patients would have had tried the current tetrabenazine before they move into SD-809. But in our discussion with payers, we see that if we are able to really commit the right value approach, that might not be the case.

In terms it of ramp up, what we see with any new products on the market, not just ours, but we see the penetration of newer products per se is a little bit slower and it’s vital to work well up front with payers. So it will be vital for SD-809 as well. We do not expect – we expect it to reach peak number of patients in sales in five years, so that it’s going to be a somewhat slower uptick in that sense. In five years, we should be at the 6,000 patients or so we expect in Huntington’s disease on SD-809.

Erez Vigodman

And maybe just to add an important insight there, today basically the current medications are used by only 10% of our HD patient population. So again it should be stated in a very clear fashion only 10% are treated today by tetrabenazine and the generic product. So although we are careful in the mounting business and going forward and the pace of optics. But it should be stated clearly that we see a vacant space, and we see a big opportunity for us, because 90% of HD patients basically are not treated today. Are not treated today. Why? Because of the side effects of tetrabenazine and we believe that we are coming here with a solution which is very different and differentiated from the existing therapies.

Michael Hayden

Also let me just comment on the respi and then hand it over to Rob just on the actual market size. But this is a year of important submissions for our respi portfolio. We expect three submissions this year: FP-MBPI, and the FS-MHPI early on and also QVAR ABI for both adults and pediatric asthma in the second half of the year. We, of course, are also looking to approvals for Reslizumab IV both in the U.S. in the first quarter and Europe in the third quarter. And FS Viromax high strength in Europe for asthma and COPD in the third quarter. So it’s quarter. So it’s going to be a very busy year in respi actually, fruition of a lot of R&D that has been happening over the years, but now products getting to market. Rob.

Robert Koremans

Ronny, what you see on the device part with the RespiClick in the US and the DuoResp, same device, different brand name in Europe, we are trying and planning and submitting different combinations, existing product combinations in the same device for us to be able as the only Company actually to offer one in the same device for different interventions with patients so that they can really use one intuitive device. On top of that, with Reslizumab, we are expecting launch in the second quarter of this year, going into the severe high eosinophilic asthma, where – and that’s the patient group that really requires interventions that are badly controlled. And that’s also a patient group that we focus on for our further asthma therapies, where we bring our current device further and move into that what we discussed before E-connectivity, so smart feedback around how you actually use your product, and lung function, and giving patients and doctors tools that actually enable them to manage their asthma much better and potentially even prevent asthma attacks.

Because they can predict when they happen and seek for help before they happen. And that’s going to be important for a segment of patients, which is probably about 20% or so of the asthma patients that are severe and that currently generate huge costs for payers and have huge medical need. That’s where we focus more with the devices that are E-connected and smart and will help a solution there. And then for people that are really well treated today, that do not have a severe asthma, and are well controlled or completely controlled, offering generic versions of currently available products is part of our plan.

So we have a fully – we really have a full approach there with – on severe asthma with reslizumab first in IV and in 19 [indiscernible] with the sub cue. Well-connected smart devices for the severe patients in asthma, and then for the ones that are better controlled, more cost-effective generic versions. We feel that we are really uniquely positioned and quite optimistic about this.

Erez Vigodman

Ronny, what you are seeing here is the – basically the fruit from this strong focus. We have been exercising on co-TAs. So for TAs with strong focus and we start to this – basically the outcome that is stemming from that, not just top line but also profitability, I’m talking about respiratory. You will continue seeing it going forward.

Ronny Gal

Thank you very much.

Operator

Next question comes from Chris Schott with JP Morgan. Please go ahead.

Chris Schott

Great. Thanks very much. I think most of mine have been answered. I just had quick one here, which is an update on EpiPen. Have you guys had a response from the FDA at this point? Is there any other color you can provide in terms of what needs to be done to get an approval here? Thanks very much.

Siggi Olafsson

No. There couldn’t be an investor call without an EpiPen question.

Chris Schott

Had to slip one in.

Robert Koremans

So overall as I mentioned in third quarter, we had a targeted date in the middle of December. That date came and went. We have been in contact regularly with the FDA, but they haven’t sent us any communication. So we are waiting, as you are waiting. Still of the opinion that we will get the CRL because we are not at that level of getting approval. We have been – we speak to the FDA every week about this product. But at this point in time, we are no closer what will be the content of the complete response letter.

Chris Schott

Thank you.

Erez Vigodman

So I would like to thank everyone for joining us today. We are extremely excited to close the Actavis Generic transaction soon, and we look forward to discussing our future with all of you once we do. Have a great day.

Operator

Thank you very much. That does conclude the conference call today. Thank you all participating and you are now free to disconnect.

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