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Executives

Bill Marth – Chief Executive Officer

Analysts

Doug Tsao – Barclays Capital

Teva Pharmaceutical Industries Limited (TEVA) Barclays Capital Global Healthcare Conference March 13, 2012 4:15 PM ET

Doug Tsao – Barclays Capital

So, good afternoon, everybody. My name is Doug Tsao. I cover U.S. Spec Pharma here at Barclays Capital. With us now is Bill Marth, CEO of Teva Americas. Obviously, I think almost everybody in the room is very familiar with Teva, which is the largest generics manufacturer in the world, as well as a leading brand player as well and certainly, increasingly so and certainly, part of the strategic direction for the company is to diversify the model. So, I think that will obviously be sort of a point of our conversation.

So to start off with, Bill, I think with a lot of the generics manufacturers who we’ve had present today, sort of started with this one question is, how you see your company, as well as the generics industry in the post-patent cliff world, which is certainly a concern that many people and investors sort of relate to me and ask me questions about, and I just wanted to get your perceptions on how Teva can successfully navigate that landscape?

Bill Marth

Well, thanks for the question, Doug. I think it’s really an interesting question and it’s a lot about your strategy as a company. Teva is really a company that is well-balanced between brand and generic. Our goal or our mission we feel is really to bring medications to patients around the world.

And that really doesn’t, that doesn’t box us in just into the U.S. market where the patent cliff is an issue. We see really growth around the world in two main dimensions, one being the Spec Pharma world or the specialty pharma world where we participate.

We’re a $22 billion corporation. We have about $12 billion of sales in generics, about $8 billion in brand, about a $1 billion in distribution and about $1 billion in OTC. So our spec pharma business is very important to our business. That’s one side of it.

The other side is our growth potential in international markets. Right now, we have the U.S. market, which is about $5 billion to $6 billion business and moves up and down on an annual basis based on some patent expiries and the exclusivities that you’ll get from that. It’s an excellent market. We’re excited about it. There’s still tons of value out there to get. If you think about the U.S. market, $300 billion market, roughly $50 billion IMS put us -- that’s in IMS dollars. IMS puts about $50 billion of that value towards generics.

So if you look at what we can still go after in that market that’s $250 billion. It’s harder to get to today because in the future, because you’re not going to have as many large products that It won’t be so concentrated, but you do have a lot of products that you can chase, whether it’s biosimilars, which we have a very active program on or it’s your very small molecule lots of, maybe not so complex and many other complex products that exist as well.

So lots of opportunity yet in the U.S., I really think from our perspective, we like investors to think about us as that growing specialty pharma company we’re the 14th largest in the U.S. today, but as well as really an international generics player.

Doug Tsao – Barclays Capital

And when you think about the international opportunity, what do you see as the key levers for Teva? Is it further geographic expansion, is it increasing generic penetration, market share gains, how do you see that playing out over the next few years?

Bill Marth

Yeah. If you look at the global generics market, its worth about $120 billion and $130 billion today, growing to 2015 you’ll be at about $150 billion. What’s really interesting about the global generics market is the BGX component or the branded generics component.

We have a situation here where the wealth has moved around the world and as wealth adores to a greater portion of the world, whether that be because of oil or manufacturing, for whatever reason. The middle class around the world seeks greater healthcare and as they seek greater healthcare, pharmaceuticals is a large part of that.

Many of these systems have more nascent quality systems or regulatory -- not as vigorous regulatory systems that exist out there. So people look for branded generics as a way to deal with that. They don’t want the generic generics that exist in many of these markets and they’re cash paying, a lot of it’s out of pocket, because it’s out of pocket, they have a choice.

And for us, we think that this is a great area and that’s why we -- that’s the market we play in. We have a $500 million business and growing 20% a year in Russia. We have just under $1 billion business in Latin America, which is largely a BGX business.

Those businesses are growing. They’re doing well and that exists in Eastern Europe, actually in Southern Europe. Those businesses are around the world and we think they are very important markets. And that’s one of the areas that we’re very excited about and we spend a lot of time on.

Doug Tsao – Barclays Capital

And how do you generally see the economics on the BGX market, as well as the BGX products versus your standard generic products and substitutable? How should we think about that from a business model or a gross profit standpoint to what are traditional generic markets and how we view it?

Bill Marth

They are a bit better, right? You’re looking at a gross margin of maybe 60%, your net margins are better, but you have greater SG&A costs for sure. But the ability -- you have your ability to drive your business through some levels of demand generation to the extent that these markets we’re calling on physicians, as well as on pharmacies and driving our products. So it is a more -- it is a better profit margin. However, there’s more expense to it. But net-net, you still do better than the GGX market.

Doug Tsao – Barclays Capital

And then another international market in which Teva has expanded significantly in recent years has been Japan and you made the Taiyo acquisition. Recently, the Japanese government updated their incentives to pharmacies for generic substitution.

I know there was some disappointment or some people thought the incentives were be more aggressive in terms of trying to hit that 30% target. I was curious in terms of Teva’s perspective what the new incentives would mean in terms of market growth and whether you even need, is that 30% target or generic penetration and the subsidy for you to grow that market and opportunity -- capitalize on that opportunity meaningfully?

Bill Marth

Well, I think that the 30% target by the government which they, obviously, at this point it’s not likely that they’re going to reach that by 2012. But I think it is great for them to have this goal. I think it’s important for them to contain costs and this is one of the ways to do it.

Listen, we think it’s a great market and it’s not going to turn -- the incentives to pharmacies are excellent. That’s a great start. Yeah, could there have been more? We’d like to see more. But I think the markets headed in the right direction.

The Japanese culture itself is a very brand oriented culture and they’re really going to have to -- they are going to have to great confidence in these products and I think they can, and I think having Teva there will help. We’re going to work very hard to do this.

This is not going to be a change. We’re not going to -- look at the U.S. market. The U.S. market is 76%, 77% penetrated by generics and the European market is less so, more in the 50% -- below 50%. And Japan at this point in time is about 23%. It’s going to take a while for them to get there. But they will get there, whether it’s five years or 10 years, I can’t tell you exactly.

But I know it was the right place for us to make an investment. We are now number one in North America. We’re number one in Western Europe and we’re number three in Japan and those are the three largest markets on earth, and that’s where -- those are the platforms we need to work with.

And then we need to expand our business as well in Latin America, expand our business in Russia, Eastern Europe. There’s lots of other places and then we can think more broadly about where we’ll go with China or what will we do with -- are we in, will we be in India? Won’t we be in India? Those questions still remain. But I think we’ve got all the right growth trends and then, Japan was an area we just had to be in.

Doug Tsao – Barclays Capital

And then, how do you see the European market? Clearly penetration rates or generic utilization rates have some way to go to match the United States. In recent periods, some countries have proven to be more challenging although the results from certain countries in the last quarter were very strong. I think Spain had an outstanding result, as well as Italy with another good outcome for you.

How do you see the landscape there shaping up? Is it complete -- is it just very specific to each individual country right now and you’re having to tweak the business model as circumstances arise or do you see any sort of macro trends that you can capitalize on?

Bill Marth

Well, obviously, there’s a lot of discussion about austerity and to the extent that the austerity exists, I think it benefits a business -- generic business more so the GGX business than it does the BGX business, but clearly, I think over time it does benefit us. I think there’s a long way for us to go in Western Europe to get the right penetration.

But there are a number of -- geographies that have BGX. BGX is still a big part of the business and it exists whether it’s in Germany or whether you see it in Italy, still in Spain, lots of areas and France, lots of areas. It’s difficult to penetrate these markets quickly. It takes time.

And the reimbursement is just a piece of it. It’s not all of it. And I think our advantage for Europe is the fact that we are the largest player in Western Europe. We have not just one country, not just two, but we’re leaders in multiple countries and that’s the key.

So when something maybe -- something bad is going on in Poland, something good is happening in Italy or something good is happening in Spain, or something negative in Germany is offset by something else, so I think having that broad basket really helps.

But the European model is, as you kind of alluded to a difficult model because you’ve got 26, 27 different states and different way or countries for them to do different and they do different things. You have very mature markets like the U.K., which by the way still can go much further with its generics, only in the 60% range. And markets where they’re just not converting as rapidly, that leave us lots of opportunity like France.

Doug Tsao – Barclays Capital

And then, coming back to the United States, you touched upon biosimilars as an opportunity for Teva. I think, clearly given where you are in Europe with your biosimilars portfolio. I think Teva has a unique position.

The FDA obviously provided guidance last month in terms of sort of the regulatory pathway. I was just curious now what Teva’s reaction was and how that perhaps changed your view in how that marketplace is going to develop? And how that might’ve changed your strategy or your thinking in terms of product development right now, if at all?

Bill Marth

Yeah. It really hasn’t changed our thinking a whole lot. The promise of its, first of all, it’s proposed guidance, so there’ll be lots of commentary on that guidance right now. Well, we didn’t see a whole lot of big surprises in the guidance. I was actually more pleasantly surprised in the fact that the agency seems to be open more to bridging indications than they -- than one might have suspected. But all of this is going to have to be done with a heavy amount of dialogue with the agency when you’re designing your study.

I was very pleased to see that we are committed to doing Phase III clinical trials in this area and I think that it’s important for you to start out in that way because I can’t imagine how you’ll be able to market your products in the U.S. without those, the kind of clinical evidence one needs to bring to a physician or a payer or a patient for that matter in order to be able to sell your product. So, I’m reasonably pleased with the draft guidance as I see it today.

We need to understand more about it though. It’s not always what’s written. It’s what’s not written. And so we really need to spend some time digging in order to know if this pathway’s going to be the right way for us to go or not.

When I look in the guidance and I think about the chance to get an equivalence rating in biologics. I think that’s going to be quite a ways out, and so for us, that’s not a disadvantage. We think that this market is going to act an awful lot like a non-differentiated branded market.

If you look, for instance, a great example of the way I think this market is going to develop more like, if you look at our ProAir product, when you think of the SABA market, our ProAir, our Proventil or Ventolin, all pretty much the same product. However, slight differences between them.

You’re going to need the clinical evidence. You’re going to need a sales force. You’re going to need all the backend support. You’re going to have to have heavy managed care participation and there’s going to have to be a savings.

And so, I think, those are all important attributes that we’re going to have to have in the biosimilars market and it will be very interesting. I think monoclonals will be much more complicated than your garden variety protein, and so I’m glad to see this. But this is something that’s going to develop over years, maybe a decade for us to really get where we need to be.

Doug Tsao – Barclays Capital

And then you referenced sort of some of the challenges in terms of bringing interchangeable or substitutable products, was that ever in your thinking when you thought about your initial product commercialization as something that was reasonable or had you always felt that this was going to be a market that was going to be sort of value brand as you sort of alluded to, a lot of your respiratory products?

Bill Marth

Yeah. I think that we always felt it was going to start out as a value brand market. Think about generics themselves, if you just think about small molecule generics, when I started in this business over 15 years ago, it really wasn’t what it is today, right.

At that time, small molecule generics weren’t accepted as well and you go back much further than that, before the Hatch-Waxman legislation. It took a long time for small molecules to develop. It won’t take as long for large molecules to develop but it’s going to take a while.

So we thought about this ahead of time and we actually have played in this area by marketing our own human growth hormone Tev-Tropin and here’s a product that we knew that we had to have a clinical packet, had to put a sales force out there. We had to have a managed care strategy and we were able to sell the product even though we were not one of the big players in this market.

We didn’t sell as much as we’d like but we didn’t have -- you needed a 5-milligram and a 10-milligram, we only had a 5-milligram. You needed a device. We sold our product without a device, our product was lyophilized. We had a lot of disadvantages but we built our product over time and we realized early in, this is what the model’s going to look like.

Doug Tsao – Barclays Capital

And did you -- were you surprised and did you sort of change your thinking because the FDA proposed guidance certainly allowed for certain flexibility of be it devices or some flexibility, did you see that as an opportunity to create value in the next biosimilar product that could even have some advantages commercially relative to the innovative product?

Bill Marth

You always think about that, yeah, having the ability to work in those advantages, right. Because if I’m not sticking to a complete AB-rated space that allows me to create some features and benefits of my own that can help with the product and that makes a lot of sense.

And then we’ve done it before in the injectable business, I mean, if you really think about some of the products that we’ve brought along through the years whether it was starting with a wet formulation instead of a lyophilized formulation, you were able to do that in the injectable space, because you didn’t always get a clear AB or AP rating and oftentimes it would take a B2 strategy because in a hospital as long as you had approval from the PT Committee, you could sell your product.

So it gave you a little bit more space and you were able to create an opportunity for yourself and actually create a better product for the end user. And so, I think that this is well resident within the thought process of biosimilars and think it will be important.

Doug Tsao – Barclays Capital

And then, I think, a question that everybody we sort of couldn’t have a session on Teva without talking about Copaxone?

Bill Marth

I’d hope you wouldn’t.

Doug Tsao – Barclays Capital

We’ve been waiting for the court decision in the litigation. But even moving away from that, just thinking about your guidance because you’ve consistently said that you don’t expect, your confidence in terms of winning the litigation and sort of not seeing generics for some time. But at the same time you’ve sort of modeled, you’re sort of guided to a decline from the peak this year to at around $4 billion to decline.

I guess the question that I think some people have asked me about is if we think about what has gone on in the MS market with product introductions that typically expanded the size of the market, as well as set new thresholds for price.

And so, I think, some people are curious in terms of how you see or the key levers in terms of the impact on the oral agents coming to market, which in the past you cited as a catalyst for Copaxone sort of somewhat decline from $4 billion this year in that range to, I think the guidance is $1.8 billion in 2015.

What the mechanics are because certainly, some of the upsides could be if pricing holds up or even the volume declined from the agent, the oral agents could basically expand the markets rather than take share.

Bill Marth

Yeah. There is a lot in that question. So let’s try to break it up into some parts.

Doug Tsao – Barclays Capital

Yeah.

Bill Marth

When I think about the exclusivity of the products and people ask me how long do you think this is going to last? I try to guide them to the latest patent date 2015, because that’s the way we feel based on the knowledge we have today of where the challengers are and where we feel that we’re going to be in the litigation.

We feel and we still haven’t engaged yet on the marker patents, which go out to 2019, 2020. So we’ve got -- we believe that the franchise is relatively safe from any generic competitors at this point in time or so-called generic competitors, at least let’s think about 2015.

Where we’ve cautioned is that the product its 15 years and it’s quite remarkable that last year in the face of 15 years of marketing the product actually grew. And it speaks volumes for our safety and our efficacy and that’s what we think is so important in MS therapy.

When you think about treatment, which is not for weeks or months or even years, its decades, safety and efficacy is extremely important and that’s what Copaxone is. So I think that, that’s one of the true values.

Now why does our projection go down because of that? Well, we do look at this market and say, hey, it’s becoming a crowded space. When we started in this market we started with an orphan, was an orphan exclusivity, it was an ODE and so we had a longer patent protection, well not patent protection, actually a longer regulatory protection for this product because of the ODE.

But now here we are years and years later. You’ve got lot of entrants coming in, you -- and by the way you’ve never had anything that really expanded the market until Gilenya. Gilenya has come in and this last year we grew, the market grew.

Now all other therapies other than Copaxone from the looks of our data, all other therapies other than Copaxone and Gilenya, they all suffered. Copaxone and Gilenya both grew.

My concern is, is it responsible for me to keep forecasting growth in the face of increased competition whether it’s from Gilenya or BG-12 or whatever. And I think it’s irresponsible for me to say this will not impact my business.

I’m very happy if they continue to expand the market and I’m 40% today and I’m the market leader. If I’m 35% in a couple of years of an expanded market then we’ll be at the same numbers and that’ll be a great thing. But I don’t think it’s good for me to forecast that, right.

So back when we gave the guidance back in 2010, we had said at that point in time that we would suffer from the crowding of the space and not really from any sort of competition, some glatiramer competition at that level and I don’t see competition to glatiramer acetate at that level. I see us really dealing with new therapies coming down the pipe.

Doug Tsao – Barclays Capital

And how much, you know you indicate don the fourth quarter call you obviously did take a typical price increase at the beginning of the year, you indicated that it has become increasingly challenged over recent years to do so.

Certainly, you want to be cautious, when you think about pricing, is it a competitive dynamic when you think about it or when you think about that in your head, how much can we get, take at any given year, or is it simply reimbursement pressure today and what managed care is willing to absorb?

Bill Marth

Certainly reimbursement pressure is there. It is price increases, taking price increase is challenging for everyone. But from our perspective, I’m 40% of this market. We’re the standard of care. What -- I don’t have to be the price leader and Gilenya is the price leader. I have been for the last couple of years, before that it was Tysabri.

From our perspective, we never have been the price leader. We don’t intend to be the price leader. But I don’t want to be far down in the pricing pack as well. From my perspective, I’ve always tried to be in the second position or the third position and that’s where we are right now, and as long as prices move up, if market prices do continue to move up, we’ll have price increases.

I don’t see us taking multiple price increases in a year. I think those days are gone. But if there’s opportunity, the responsible thing for our shareholders and we are -- I do believe we’re the standard of care. So I think we have a right to take those price increases and we do whenever we can.

Now we also have to deal with the managed care side and the push back, and when we take a price increase, if it’s -- we took one earlier this year, 14.9%. We don’t yield then on a product. We yield about half of that, about 50% of that goes back to either rebates or some sort of level of patient care, and our indigent programs or patient assistance programs are very, very important to us and we keep funding those.

Doug Tsao – Barclays Capital

And then, just one final question on the brand business, perhaps, you could -- you can for the audience, before we move into the breakout, is offer some sort of products and milestones that people should think about and what you particularly think are key focuses as part of launches and approvals, and milestones over the next 12 to 18 months?

Bill Marth

Well, I can, let me start by saying, I know, I can tell you that we wanted to be able to have a day to review the pipeline. We were hoping to do it about midyear. Now we have a change in management with Jeremy coming in, which we’re very excited about.

And I think that having Jeremy come in, it wouldn’t be appropriate to do it midyear and Jeremy really needs to work on his program and be able to announce where he -- what he feels about Teva and where we’re going and what he thinks about the direction. And so we needed to allow a little time. We’re going to do that review. It should be in about September at least right now the date we’re talking about and it’ll be good to holistically go over the pipeline.

I think the things to look for on the near-term is that we should be looking for some data coming out in the back half of the year on the TD hydrocodone with our pain product, which is abuse deterrent and I think it’s very important because that’s a large market. And we should have more abuse deterrent in that pain market and its long acting.

As well as some, hopefully, we’ll see in the back half of the year data on the Nuvigil bipolar, that’s something else we should be seeing. Hopefully, our filings are in on our Treanda, on the first line therapy. We hope we may get some data on that by the back end of the year.

So I think there’s a couple of exciting things that we hope to get kicked off to Phase III on Revascor and again, that’s great progress and as well with (inaudible) and Obatoclax. So I think we should be getting some news flow on the pipeline this year although many of the more important ones like the Revascor and Obatoclax are a little bit farther out. But I think we’re going to get -- we should get some data.

As well, we should get some data last patient should be out of the GALA product, the 40-milligram three times a week in fact in July, so we should be able to get a readout on that data. And then potentially, if all goes well, get a filing in before the end of the year and launch that product in 2013.

Doug Tsao – Barclays Capital

And would that, If that plays out as you expect, how do you see that playing into your sort of lifecycle management efforts regarding Copaxone and does that -- would that change, perhaps, the guidance that you’ve issued in terms of the decline?

Bill Marth

Well, we’d have to see how the uptake is, our data going into this to put out a more convenient product three times a week instead of every day. It won’t appeal to everybody. So it certainly won’t be that we would collapse, I don’t envision us at this point in time collapsing or once a day therapy into that. I think that we would probably be looking at, that will, our studies show that acceptance of that should pick up about a third of our market, so that’s a start.

Doug Tsao – Barclays Capital

Okay. I think we’re done with time for the formal presentation. I don’t know how we handle the breakout because I think the breakout’s actually going to be located here in this room, so.

Bill Marth

So I don’t have to move.

Doug Tsao – Barclays Capital

So we don’t have to move. So if people want to sort of start up with questions or.

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