Greetings ladies and gentlemen and welcome to the Teva Pharmaceutical Industries Ltd., Fourth Quarter 2006 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. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kevin Mannix, North American Director of Investor Relations. Thank you, Mr. Mannix you may begin.

Thank you, Claudia. Good morning and good afternoon everyone. Welcome to Teva's fourth quarter and full year 2006 Earnings Call. We hope you’ve all had a chance to review our press release which we issued earlier this morning. A copy of the press release is available on our website at www.tevapharm.com. Additionally, we are conducting a live webcast of this call which is also available on our website. Today, we are joined by Israel Makov, President and CEO; Dan Suesskind, Chief Financial Officer; George Barrett, President and CEO of Teva North America; Bill Marth, President & CEO of Teva USA; and Moshe Manor, Vice President of Global Products. Israel and Dan will begin by providing an overview of our results. We will then open up the call for a question-and-answer period. Before we proceed with the call I'd like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and the webcast. I would now like to turn the call over to Teva's president and CEO Israel Makov. Israel.

Thank you, Kevin. Welcome everyone and thank you for joining us today as we review Teva's results for the fourth quarter and full year 2006. 2006 was an extraordinary year. It was a record breaking year across the board for sales, net income and cash flow and of course profit margins. This was also an exceptional year in terms of strategic achievements. Before I describe the year in greater detail, let me briefly review the fourth quarter. Our sales of approximately $2.3 billion in Q4, matched the record we achieved in Q3. We had strong sales across Europe and our international geographies where we achieved new sales records as we did in our API, respiratory, and Copaxone market sales. Our US generic business, once again demonstrated its strength. While we enjoyed successful launch of bupropion XL and launches of a number of other smaller products in Q4, we also had to absorb the loss of exclusivities from simvastatin and pravastatin including the associated significant shelf-stock adjustment. It is worth noting here that our US market share of simvastatin today is a bit higher than it was during the exclusivity period, quite a rare phenomenon. Although retaining this significant market share required that we take a larger than anticipated shelf-stock adjustment in Q4, we are pleased that our key customers will continue to source this important vertically integrated product from Teva, and welcome the additional ongoing value from these important products. Global sales of Copaxone continue to be robust. In-market sales in US increased by 9% and non-US sales by 35% quarter-over-quarter. And in our international region, which includes all our geographies outside North America and Western Europe, sales of Copaxone nearly doubled. Our recently launch of Azilect also did very well in Q4, with in-market sales of $19 million, reflecting…

Thank you very much Israel and good day to all of our friends around the world. I hope you have had the chance to review our excellent quarterly and annual figures we released this morning. First, let me start by reminding all of you that the comparison between the two quarters and the two years is not an apple-to-apple comparison, because the results of Ivax were not included in '05. The acquisition is also reflected in the items that we have taken out of the P&L and realizing it our as adjusted figures. These were items that were recorded mainly in Q1 and Q4 of '06. There were no such items in '05. We strongly believe that the as adjusted results, which are the results used by management and our Board provide a better indication of Teva's operations and trends. So, my analysis on this call speaks to the as adjusted numbers excluding these items, which are primarily acquisition related. I will mention the major items throughout the call. Let me give you a synopsis of our figures. As compared to Q4 of '05, sales are up 63% to $2.3 billion, adjusted net income is up 42% to $433 million, and adjusted EPS is up 18% to $0.53. We again generated very significant cash from operations amounting to $765 million for the quarter, while free cash flow amounted in the quarter to $576 million. And as to the annual '06 figures, sale exceeded $8.4 billion, up 60%. Adjusted net income is up with 74% to $1.9 million, and adjusted EPS has increased 45% to $2.30 per share. Cash flow from operations for the year amounted to $2.1 billion and free cash flow to almost $1.5 billion. At yearend our total cash balances and other liquid assets reached $2.3 billion. The…

Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from Greg Gilbert with Merrill Lynch. Please proceed.

Thanks Dan, if I could, one or two part financial question. Could you clarify your guidance for the total financial income? Like you're looking for going forward and estimate your tax rate for '07 and beyond?

As to the financial expenses, I may have said wrongly, but we will go forward to have financial income. As to the financial net income, net of any hedging or currency impact, it should be 15. The financial expense will be at the range of $15 million to $20 million, we expect in '07.

Tax rate?

Obviously by quarter. Our tax rate, we model it currently at about 17%. As you may know, our tax rate is subject to the rate of our different territories, it depends a lot on our product mix and territory mix but I think the best approximation for our '07 should be 17%.

And for Copaxone, what gross margin should we be using, starting in second quarter '08? And is the 25% payment to Sanofi based on sales or gross profits? Thanks, that's it.

It should be the -- whatever your estimated gross margin before, adding 20% to 25% to the sales in market rates. No, the revenues -- no the gross margin, the gross margins.

Thank you. Our next question is coming from Richard Silver with Lehman Brothers. Please proceed with your question.

Okay. Dan, just on the SG&A outlook you did say on your last call that SG&A as a percentage of revenues would rise, obviously it was much higher this quarter than the third quarter. Can you give us some sense of what the range will be in the coming quarters as a percentage of revenue and what -- what's behind that, besides the fact that there is Ivax brand business included and these partnered products, which include some contribution?

I am sorry, but you -- being cutoff and I didn't understand the second part of your question.

Just on SG&A, you did say last quarter that this figure would rise as a percentage of revenues, which should obviously have third quarter to fourth quarter -- And just if you can give us some idea of what we should expect going forward in terms of a range and what's driving that number besides what you mentioned today, which was the Ivax brand business as well as some impact from partnered products?

I will say it should be below 20% -- to which, how much below 20% is mainly related -- actually related with the partner that you mentioned in the last part of your question. This is the -- I think the largest swing on a quarterly basis on this line item. And the competition of this line item is, as I said, including also efforts or expenses that we have in relation with our innovative products, mainly Copaxone and Azilect. And as we mentioned, the branded business in operations were branded markets of Ivax.

And just one, if I can sneak one more in, which is on the respiratory business. Can you give us some sense as at some point will you be providing sales of ProAir on a standalone basis as we also see with Copaxone and at what point might you do that?

We will consider this going forward. We started this time by giving an overall sales figure for our global respiratory business, which we said was $0.5 billion. Going into more detail in the future, we will see how it works out.

Thank you.

Our next question is coming from Mr. Tim Chang with FTN Midwest Securities. Please proceed with your question.

Thanks. Hi Dan,, I wanted to get your thoughts on the potential M&A outlook in terms of what companies you're focusing in and on, or what geographies at this point, you have given some targets for '08, and they look pretty positive. But again, I think all investors are wondering, does that include another potential purchase, your thoughts, Dan?

It does not include any major condition. As I mentioned, it includes a change in the agreement with Sanofi-Aventis?

Okay. Great, thanks.

Our next question is coming from Michael Tong with Wachovia Securities.

Hi, I am just wondering if, Dan, you can clarify. As far as, once you take over the Copaxone agreement, the extra 25% is that in cost of goods or will that reflect in SG&A?

The increase on top-line and increase in SG&A.

But the 25

Which more or less -- which more or less was.

Right, but the 25% is on the SG&A line or SG&A -- the cost of goods line or SG&A?

No, the SG&A line.

Okay. Great. Thank you.

Our next question is coming from Elliot Wilbur with CIBC World Markets.

Thank you. I have a two-part question on your North American generic business, but first I want to say thank you for sharing with us your longer-term expectations and providing greater clarity into the Copaxone transition. So my question with respect to the North American generics is, number one, if you look at the industry data, it seems like we've reached a point where volume gains are now offsetting the rate of pricing erosion and if I look at your commentary from the last couple of quarters, you seem to suggesting that in fact it was true, at least with respect to your base business in the US. So, outside of exclusivity launches as we go through the course of '07, do you think that the volume gains likely to see in your business will more than offset the normalized rate of pricing erosion in '07? And then number two, a lot of momentum on capital hail for various items that could significantly alter the competitive landscape in the generic industry. And I guess if you look at all these different initiatives, are there any there that you think have the potential to materially impact the performance of the US generic business in the latter part of '07 or headed into 2008? Thanks.

George, will you take the two questions?

Sure, I'd be glad to. Good morning Elliot. As it relates to the offset between volume and price, it’s a little bit tough to assure that math. I think directionally you're observing the right trends, which is that volume growth is occurring. There is no doubt that Medicare Part D is helping to fuel that growth. I think, we can say as it relates to price, we saw during this recent quarter for the first time and sometime that the rate of the erosion of our base was somewhat lower in Q4 than we have seen in while. As you know that rate of erosion has been holding pretty study for a couple of years. Again, I would hate to -- certainly hesitate to suggest that one data point here makes a trend, but certainly it's good news on the price. To say that it's an offset is probably too much of a leap simply because we have fluctuation from period-to-period. For example, you have seasonal swings on volume, as we did this year that can affect that dynamic. But I think the general direction, they describe is positive. As it relates to the activities in Washington as your well aware it's been a very busy couple of weeks and there are a lot of issues that are being discussed. I think certainly generic biologics is one that I think long-term has significant potential for our industry and frankly for broader products of the industry including some other biotech companies that may seek to bring products to market. And I think, there is a lot of support right now. To do something in generic biologics, obviously, we believe that process of empowering the FDA to move this forward coming from congress is the right direction. And we really believe that we are going to see significant motion there. You have seen that the -- our generic sale is getting probably greater legs than we would guessed six months ago. And again, I think, that's good news and it's a right thing against the caution, obviously the stakes are very high and innovators fight in a lot of different ways, but probably also good news. And, of course, we are all watching very carefully the discussion is on settlements and I think you probably know our view on that. And we've talked about that pretty consistently that we'd certainly be concerned with legislation that too broadly restrict the terms of settlement because we think that settlements can be very, very pro-competitive. In fact, we've done some calculations and if we look at the settlements that we've been engaged in, we've taken more than 50 years of patent rights of products. So, we just want to make sure that we don't make it hard to bring generic products to market by creating a law that's too restrictive, but those are covered in most active things right now.

Thank you. Our next question is coming from Ron Miguel with Bernstein.

Hi, good afternoon folks. Two questions, first on ProAir. You boasted under -- well in the fourth quarter, do you see ProAir able to maintain its current market share or well from here pushback a little bit? And second, about the marketing of ProAir, roughly what should we be modeling, is it more around the $20 or the $15 to the $25 per script?

Hi Ronnie, it's George.

Hi George.

Hi. So let me just give you a just a very quick sense of where things are. I think one of the things that we did fairly early and you heard us talk about this in the last two quarters was to recognize that supply issue is what might really be driving the convergence. And we moved quickly to try to ramp up our capacity, our ability to respond to this demand. We also tried to approach this market in somewhat integrated way to see if would could actually lead the conversion, and so we relaunched our drug as ProAir as you know. And then we reached out to physicians, but also to pharmacists and managed care and interested groups like the American Lung Association helped move this process forward. But I think this has been effective, as you acknowledge and where our share is very high right now, it's in excess of 60%. I think we should expect some jostling as we go forward. The ramp-up is occurring very quickly. We've probably got another advantage, the most recent data which I think just came out yesterday Ronny, said that about 47% of new Rxs are HFA. So that's converting very fast, and so I think the issue of supply and the response at the right time is going to be important. So I would expect there will still be some jostling for share and that our share might moderate a bit, 50% is obviously very high. As it relates to price I can't give you a specific pricing, except to say that of course it is at a higher price than the generic, it's a branded product. There is some discounting going on and we should also note that our net realized price is influenced by some of our programs designed to help patients cope with the transition, including couponing programs and others. So I think you should assume that there is some discounting going on, but we are really pleased with where we are right now.

Great. And last one is for Dan on share count. I think you note that it's going to be 832 million share count for '07, but just looking at 832 million share count average for the fourth quarter, and you've apparently purchased 3.5 million or so shares in the first quarter. Roughly what number of shares you will be thinking about for '07?

First of all the end of the share count is also 832 and that is actually a few account adjustments to be made, one is, relating to the options and one is relating to the share count. But we have at our disposal now another $260 million or so, which we have to decide what the average price we think we would able to buy, that gives you the number of shares that we can be able to buy, which will be probably somewhere in the order of 6 million to 8 million shares.

Okay, thank you.

Our next question is coming from Randall Stanicky with Goldman Sachs. Please proceed with your question.

Great, thanks for the question. I just wanted to clarify the $2.50 and $3 numbers which are applied by my math of June, 20%. Those are organic numbers, any M&A would be upside and then the contribution from Copaxone during that time would be minimal and then I have a follow-up?

It would be minimal in this period, it will -- well as I said, it will show up only in the second quarter of 2010.

Okay. Great, and Dan as you are thinking about M&A hurdle rates for the last couple -- large deals you did, were accretive fairly quickly. Has that changed, how are you thinking about that? And then as the branded businesses continue to grow, are you looking at non-generic deals currently or are you still focused on filling in holes on the generic side?

No, we actually are open now also to deals relating to products or projects in different stages and not confine ourselves only to generics.

And next question is coming from Louise Chen with Morgan Stanley, please proceed with your question.

My question was with respect to the guidance for '07, what is driving the EPS to be backend loaded and then also, what should we think about for R&D and CapEx for '07?

Relating to R&D, you can include in your model, somewhere 6% or 6 plus percent of sales. In relation to CapEx we had a record expense this year, record investment this year and I don't think it will increase much next year. What else did you ask, please?

The EPS, why it's backend loaded?

Because it is based on new products that we expect to get and according to the flow, as we see today it will be more in the second half than in the first half.

Thank you.

Our next question is coming from Robert Bonte with Citigroup. Please proceed with your question.

Hi, just one question and sub-questions a, b and c. First question on the shelf stock adjustment, could you give us an update if that shelf stock adjustment is made to sales booked in 3Q or sales booked early in 4Q? Question b, do you have -- as we are all watching the ProAir scripts compound up. Do you have enough capacity to meet the runaway demand, or when will additional capacity come online? And question 1c, on the R&D spending, can you give us anymore detail on the non-Ivax acquisitions of in-process R&D in the quarter, Dan?.

One by one, relating to capacity of our -- in relation to business, as we have said we are lengthening our capacity, and as we see, that it will co-relate the increased demand in the market and hopefully the -- our capacity will not be a constraint on our sales. As it relates to the $50 million as we have mentioned on capacity, it relates to sales that we have done in this quarter. What was next? Robert Bonte - Citigroup. So just to be clear about that -- this is not sales related in 3Q but its sales early in 4Q at the end of 4Q you have to adjust again?

That's right. Robert Bonte - Citigroup. Okay. And the last question was just a description of in-process R&D of what you acquired in 4Q?

It was something minor that one of the investments that we are doing in our so-called start-ups that we are investing in. Robert Bonte - Citigroup. Can you be specific?

I think we are specific enough. But maybe one thing, the name in any case won't give you anything.

Thank you. Our next question is coming from Marc Goodman with Credit Suisse.

George, can you talk about the strategy on the Zocor in the quarter and the shelf stock adjustments in order to maintain share and whether that you've treated Zocor differently than all the other products. Did you do with -- this with Pravachol and Zoloft, and you didn't really didn't call anything out previously? Just how about the strategy on that and Wellbutrin XL, I mean, big products and whether this is just a different world altogether, when you just as -- really wanted to maintain your share and the extensive price? And then the second, if you could just repeat the comments on the profit sharing, someone put some numbers, but I couldn't hear them, they impacted the SG&A line?

George, will you take it please?

Sure. I will start with the first part, Dan you are going to cover the second issue, and I am also going to let Bill jump in a little bit here on this -- on simva. But yeah, certainly, Marc, it has been an enormous product. And by and large, I am not sure that we approached things all that different expect the size of it dictated some very interesting market characteristics. Again, just a touch on with Dan and Israel mentioned earlier, we did retain significantly higher share than we would have expected and we are pleased about that. Yeah, we did take the additional shelf stock adjustment into Q4, but I think the lasting value from that is important. I would like to just ask Bill to comment a little bit on what that dynamic has been all about. And then, Dan maybe you can take the next question which was the financial part. Bill?

Yeah Marc, I would just -- I would just try to clarify that when we did our models, we hadn't anticipated keeping as much shares as we did. And so when our customers came to us at the close of the exclusivity and other companies were not able to ramp up and take care of them, it was necessary for us to maintain the market and to be good to do the right things with our customers and our relationships to hold on to that share. So we've done so and we think it's going to have lasting value for Teva, and we can get the right thing to do especially on the vertically integrated product like this.

Are you implying that the competitors could not supply enough to meet the market demand?

Yes, we found that to be - we found that to be a fact.

That's unbelievable with all those players?

See -- look Marc, again, I don't know that we should -- I don't want to turn it into a forward projection, but I think at a point that customers are making decisions here I think, they probably had to look and see whether or not the product is large, it was time to make that risk-based decision. I think we found that a lot of folks wanted to continue to do business with us. So, again, it's not meant to be a predictive statement as much as a statement of what we experienced as we came close to the end of exclusivity.

And so Zocor was different, you didn't really do this type of thing with the other products, or you just didn't see this type of issue with the other products that there was?

This was more or less an anomaly. This was an unusual product.

Okay.

I mean if you think about its size, 4.4 billion, largest molecule that's been engineered sized yet, I think it's not unreasonable. And again Marc, just to clarify what George said and what I had said, we don't want anyone to think that it's not unusual to see a situation where others couldn't pick up the share right away because if you are in a company and you are making a bet on how much share you are going pick up, it's a pretty expensive bet?

Marc as to your other question relating to the splitting of profits, you didn't miss any number that I said because I didn't mention any number. But what I can say is that the majority of the incremental SG&A in Q4 over Q3 carrying from that.

Okay. Thank you.

Our next question is coming from Will Sawyer with Leerink Swann.

Good morning, and thanks for taking the question. First question on the Jerusalem facility, could you supply enough data as the status of that facility and how the factors in the guidance that you gave for the out years as far as gross margin and tax rate? And then the second question is for George, do you think the prevalence patent litigation settlements in sectors like technology limits Congress's ability to effectively legislate against the branded and generic drug settlements? Thanks.

Actually, Jerusalem plant I will take it first George. We got the approval from the FDA last month and we started manufacturing also for the US. We are gradually increasing our capacity there, parallel to that we are increasing already our capacity. We started with -- with a capacity of 4 billion tablets in year. We are now working to extend it to 8 billion tablets a year, and I think we will get there more or less by yearend. This is included obviously in our guidance and also as you have rightly said has an impact on our tax situation although we have also benefits in other places that we manufacture tablets. So it won't be a major impact, but it will have a positive impact on our average tax rates.

Well, as it relates to settlements, again there are probably attorneys out there better equipped to answer the question as to whether or not this legislature will be influenced or the attempt to do legislation on settlements to be influenced by things happening in other segments, I think we could say that, it's a very complex area and the right to settle litigation goes beyond the question of just the drug industry and for those of us who undertake litigation, which is at its nature, uncertain, we have felt strongly and we try to make sure we educate people on the fact that settlements are part of the -- in our view necessary part of the equation when you undertake a risky or uncertain patent cases. So, I think we may find that this discussion becomes a broader question about how one views settlement in the context of litigation generally, and you raised an interesting point, but I am not sure, I can give an answer to that [other than one point].

Thank you.

Our next question is comes from Ken Cacciatore with Cowen & Company.

Hi, thanks guys. Just going back to the '07 guidance, I believe it's a Q1 on $0.37, but that would imply about an average of $0.56 in the following three quarters. I am just wondering, are there other kind of agreements that potentially like Wellbutrin XL or Allegra that maybe we can't see that you all are thinking about that might pop in as well maybe -- are we just anticipating the continued good HFA. Give us a little bit more color on why the steep acceleration?

George, do you want to take it?

Yeah. Good morning. The truth is that we often are selling -- the things that happen during the course of the year that we can't describe in advance and unfortunately we have this year a number of moving parts, many of which we can't really disclose. As I think mentioned by Dan or Israel in their comments, we plan on in the US market 30 to 40 generic launches, some of those or many of those are not in the public domain. So again, unfortunately again providing -- I'm really sorry, that it is not something I can do. Of course we do see continued good news from the HFA conversion, and as I look throughout our businesses on our neurology business on businesses outside the US, we have a lot of good motion. So I'm sorry that I can't provide more detail on specific products in the course of the year but I guess you are probably used to that.

Our next question is coming from Ben Josef with Mezdi Capital

Hi there. Thank you. (inaudible) on accounting, can you just go over one more point, are you going to be accounting for 100% of the in-market sales, and then stripping the market shares [lower down] can you just confirm please?

I hope I understood the question that you are asking. In the first phase, which in the two year starting in Q2 of '08, we will book roughly 75% of the in-market sales compared to a 50% plus that we booked to date. In starting with the second quarter of 2010, we will book the 100% of the sales, as we will cease paying -- making the payments, that we have under the agreement for two years. We will cease paying them to Sanofi-Aventis, is that what you asked?

Yes. And when you will be booking roughly 25% of the sales within SG&A, is that correct as well?

That's right.

Okay, thanks very much.

Thank you. We will take one more question.

Our final question is coming from [John Smart with JAS Securities].

Hi, thanks. You already covered my questions.

Okay. Kevin, you close the call.

Yes, thank you everybody for joining us today, appreciate it. If you have any additional questions, feel free to contact us, we will be happy to answer them offline. And Claudia, if you wouldn't mind could you provide the replay information.

Certainly. To listen to a replay of this teleconference, you can dial 877-660-6853 or for international parties 201-612-7415 using accounts number 3055 and conference ID 229480. This concludes today's conference. We thank you for your participation.