Teva Pharmaceutical Industries Limited (TEVA) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Senior Vice President Investor Relations Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you the call is being recorded today, Thursday the 5th of February 2015. I’ll now hand over to your first speaker today, Kevin Mannix. Please go ahead, sir.

Thank you, Operator. Good morning and good afternoon, everyone. Thank you for joining us today to discuss Teva's Fourth Quarter and Full Year 2014 Financial Results. On the call with me today are Erez Vigodman, Chief Executive Officer; Eyal Desheh, Chief Financial Officer; Siggi Olafsson, Global Generics Medicines; Dr. Rob Koremans, Global Specialty Medicines; Dr. Michael Hayden, Head of R&D, Chief Scientific Officer; Dr. Carlo De Notaristefani, Global Operations; and David Stark, General Counsel for Global Markets. We will start the call with Erez and Eyal, who will present for approximately 20 minutes, before opening the call up for questions-and-answers. Copy of the slides, as well as this morning’s earnings press release can be found on our website tevapharm.com under the Investor Relations section. During this call we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s earnings press release and the comments made during this conference call and in the Risk Factors section of our Form 20-F, Form 6-K and other reports and filings with the Securities and Exchange Commission. Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principals, reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in this morning’s press release and the backup section of the slide presentation. And with that, I will now turn the call over to our CEO, Erez Vigodman.

Thank you, Kevin. Good morning and good afternoon. In 2014 we embarked on a journey to confirm Teva, solidifying the foundation first, unlocking significant value from our existing business, reenergizing our business on core capabilities, cultivating growth engines and establishing a stable underlying base from which we grow organically and inorganically in the coming years. 2014 we delivered $600 million in net cost reductions. We significantly improved cash from operations from $3.2 billion to $5.1 billion and free cash flow from $2.3 billion to $4.3 billion. Substantially elevated quality and generated significant achievements. And we are on track to develop the most competitive operational network in terms of quality standards, scale, capability and efficiency. Now generic business, we improved operating profit before G&A by 510 basis points from 16.8% in 2013 to 21.9% in 2014. We launched 19 products in the U.S., 209 in Europe, 87 in rest of world, delivering $1 billion in revenues in 2014. Now Specialty Business, Copaxone 40 milligram has gained 19.6% market share at the MS space and it accounts today for 63% of our total franchise holding strong versus oral competition. We launched successfully four new products with net revenues of $200 million. We narrowed our therapeutic areas focused on those we have established strength in and are positioned to claim for market leadership. And most importantly, we delivered on all our promises and rewarded our shareholders. We created a platform to support continue margin improvement, $5 EPS floor and grow revenues and earnings organically from 2017 onward. We delivered on the high-end of our guidance achieving or exceeding all key metrics of our 2014 financial guidance, despite significant FX headwinds and higher share count. We returned $1.65 billion of cash to shareholders, including estimated Q4 dividend payment. We generated total shareholder return of 47% in 2014. Today we are strongly committed to drive further the confirmation of Teva in 2015 and these are our key priorities for this year. Generating $500 million in net cost reductions, continue solidifying the generics business, improve its profitability by additional 400 basis points and drive organic growth, continue enhancing the competitiveness of our operational network and elevating further the quality bar, further maintain the Copaxone franchise and manage the life cycle of key Specialty products, deliver on the promise in our Specialty pipeline, strong focus on business development and continue the transformation of the company to create its new future. 2015 is an important year for our Specialty franchise. We target four approvals, extended-release abuse deterrent hydrocodone in the U.S., ProAir MDPI for asthma in the U.S., Copaxone 40-milligram three times a week in Europe and Seasonique for contraception in Europe. We will witness four key clinical milestones that can demonstrate the potential in our Specialty product pipeline, submission of Reslizumab for Asthma, approval of extended-release abuse deterrent hydrocodone, that might possess a technology validation platform for us, LBR-101 for chronic and episodic migraine, Phase II clinical results by the end of Q1 2015, the Pridopidine Huntington's disease Phase II preclinical results. And we planned seven launches that shall generate $400 million of net revenues, Qnasl Pediatric, ProAir MDPI for asthma, ZECUITY, extended-release hydrocodone in the U.S., COPAXONE 40-milligram, Duoresp Spiromax and Lonquex in the EU and other international markets. Our transformation is not confined to just following the past. Overtime, Teva will adjust its business model in order to claim for a unique space in the industry, developing a new differentiated narrative. We started to evolve our business model in 2014 and we will accelerate the pace of that transformation during 2015. In 2015, we will also shift the orientation towards inorganic move that support our model evolution focusing on complex how to produce generics, growth markets, in-market or close to market Specialty assets in core TAs, attractive Specialty pipeline assets or portfolios in core TAs and we might also look at unique health solution technologies and services. I would like -- I am -- I would like now to hand over to Eyal Desheh.

Thank you very much, Erez. Good morning and good afternoon, everyone. I am happy to provide the details on the business and financial results for the fourth quarter of 2014, as well as for the full year. As always, we’re presenting most of our results on a non-GAAP basis, while our GAAP results appear in our quarterly press release, as well as in the 20-F Form, which will be filed next week. So let’s begin with the Q4 review, as you can see from these highlights. Our revenue decreased by 5% due to the impact of foreign exchange and due to the divestment of our U.S. OTC plant. However, operating income increased by 10% and nearly 400 basis points year-over-year. Also positive for the quarter and the year was our strong cash flow generation more than doubled what we saw in Q4 last year. Foreign exchange fluctuation had a negative impact of $277 million on our revenues and $55 million on operating income. Most of the income -- of the impact on operating profit resulted from the devaluation of the Russian ruble against the dollar. As you can see from the detailed P&L, both gross and operating margin showed substantial improvement from last year. Total expenses were $400 million lower than in Q4 2013 due to the self focus on cost reduction and efficiencies. Cash flow continues to improve creating additional financial resources of $1.75 billion in cash flow from operation and over $1.5 billion in free cash flow delivered this quarter alone. Let’s look at the breakdown of revenues by business segments. This was very similar to the percentages we saw last year. However, our geographical breakdown shows increased in U.S. sales reflecting mostly foreign exchange impact on ex-U.S. sales. While revenues were flat year-over-year, in real term, when compared to Q4 2013, the results this quarter do not include sales of the divested OTC plant at the end of June. While having no impact or profit this plant generated annual sales of approximately $250 million, which are no longer included in our results. You can also see the improvement in sales of Specialty products OTC and other products all going up for the quarter. When we look at the profit distribution, we see the improvement in the generic profit and the lower dependency on Copaxone profit, which we are developing, we will see the same impact for the entire year. So now let’s move to the annual numbers. Sales were flat year-over-year, but our operating income increased significantly, resulting from the improvement in our generic business and the focus on cost reduction. Year-over-year, foreign exchange fluctuation had a significant negative impact of almost $350 million on revenues due to our balanced business model which creates substantial natural hedge. The hit to the bottomline was significantly less, reducing operating income by more than $120 million coming mostly from the impact of the Russian Ruble. Looking back at our guidance, we provided for 2014, results were mostly at the high end of our range or better. Our full P&L reflects improved margin. Total expenses were approximately $600 million less than spend in 2013. And this year, we also produced over $5 billion of cash flow from operations. The percentage of revenues by business segment were similar to last year, very similar distribution and the geographical slate was also very identical to what we’ve seen last year. As you can see here in our annual revenue bridge, revenue grew nicely in all our business activities but this growth was offset by the devaluation of most global currencies versus the U.S. dollar ended up in a similar place, 2% increase in real term. The most notable contribution was generated by our generic business, improving profitability by more than 500 basis points. The contribution of our generic business to the growth of other operating profit was nearly $500 million, increases its share of the total to 31%. Now, let us look at the contribution of the different parts to the EPS improvement. While the growth in operating profit contributed $0.78 to increase in earnings per share, higher taxes as anticipated, foreign exchange and higher number of share driven by over 43% increase in share price had the opposite impact. Let’s talk about foreign currency impact when we look at the business outlook for 2015. First of all, we’re reaffirming our business outlook for 2015 despite a currency volatility. We have a balance business model which creates substantial natural hedge. The only outlier is the Russian Ruble which caused most of the negative FX impact on profits in 2014. I would also like to discuss the quarterly progression of our earnings per share. In 2015, we see a similar trend of the development in the quarters to the one we saw in 2014. This means that earnings per share for the first half will be around 48% of the total and the second half will be a bit higher about 52% of the total. Looking at our financial resources, the financial performance of 2014 enabled us to reduce debt by $2 billion, improved leverage by 31 -- to 31% and reduced debt to EBITDA from 2.16% to 1.67%, a substantial improvement in all our credit metrics. And last, our dividend, we are increasing quarterly dividend by 10% to 1.33 sheqels per share. Starting Q1 2015, our dividend will be declared and paid in U.S. dollar. Thank you all very much. And I would like now to open the call for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Shibani Malhotra from Sterne, Agee. Please go ahead.

Hi. Thanks for taking the question. I guess, a bigger picture question for you guys. Obviously, we saw a big takeout this morning of Hospira. It’s something we assumed that Teva might be looking at as well, given your focus on injectables or your desire to get in the injectables but you've also mentioned many times you are looking at Specialty pharma. Given what’s happening in our sector and it’s been going on for a while now, I guess, how should we be thinking of the actions that Teva is looking at over the next year or so? Thank you.

Hi Shibani. First, we are not looking at Hospira. Second, I was very clear with all the priorities that pertain to potential ability during 2015. So we’ll be looking at gross market. We’ll be looking at complex generics and how to put used products. We’re looking at in-market product, Specialty product and we might also look at attractive pipeline of product or portfolios. Basically, that’s the agenda for us in 2015. And in 2015, we are redirecting the direction towards basically inorganic moves in a way that we’ll be coming into play during the year.

Can I just follow up on that? In terms of the Specialty pharmaceuticals, is there any -- are you looking to stay in the CNS space or leverage with your COPAXONE franchise or are you willing to look broader areas as well?

The focus is on quality which means CNS pain are experimental.

Okay. Great. Thank you.

The next question today comes from the line of Andrew Finkelstein from Susquehanna Finan. Please go ahead.

Thanks very much. On -- you spoke about in the release this morning about taking bold steps inorganically. Can you characterize what kinds of risks, Teva feels most comfortable taking in terms of moves you might make. I would suspect there are few situations in these days that they aren’t either explicitly or effectively in auction. And so is it a willingness to leverage potential synergies in terms of the valuation you are willing to offer, in terms of the operational risk of assets that you might be willing to assume or being bold in terms of going into new areas for the company. Maybe if you could characterize, how you think of bold actions inorganically?

Basically, it goes to where we want to be in 2019. Teva in 2019 would be a company that is driven by patient needs where patient intervention would be fully important to chemical intervention. On the drive front, we’ll put focus on the complex generics, how to produce products in that part and space. In the Specialty, we’ll basically narrow the focus on areas we have a steady strength and we are positioned to claim for global leadership. And also we look at the intersection between generics and Specialty in a way that involves unique combinations that fits strongly the capabilities of Teva. We’ll also develop overtime the most competitive operation network in the industry and we’ll increase our presence in emerging markets. Now all the initiative will be derived from basically the future end game, the way I have just shared with you. Which means, complex generics -- which means how to put those products, which means bold markets, which means bold moves, potentially bold moves in the Specialty space but with strong focus on quality.

Okay. Thank you. And then if I can ask specific question, you got an approval on generic Nexium in the U.S. Is there any color you can share on the timing of our potential launch and what the opportunity might be relative to what you had assumed in December? Thanks.

Andrew, its Siggi here. So we got the approval for generic Nexium. As we mentioned, we will be launching in February -- very soon in February. We see the market it sell, it’s probably just under $2 billion as a total brand value of the market. We really don’t know how big the opportunity will be. There is quite a few application pending at the FDA. Of those quite a few are also on a 30-month stay. We included it in our guidance but we risk adjusted it in the guidance, I think, appropriately because we don’t know what the future brings. So for us, this is exciting opportunity. We are exciting to launch this in February. We’re ready to go soon. The reason why we haven’t gone already to the market is simple that the brand change the label just before the generic approval. So we have to re-label the product but we will be coming out very soon.

That’s helpful. Thanks.

The next question today is from the line of Liav Abraham from Citi. Please go ahead.

Good morning. Just another question on the biosimilar space following today’s announcement of Pfizer acquiring Hospira. I’d be interested in your thoughts on the space, your presence in the space in the second wave of biosimilars going forward and given that today’s acquisition seems to lend credence to biosimilars as a long-term value driver. And then I have a follow-up question? Thanks.

So let me take that. I think first of all this is a consolidation, I think, in the biosimilar space. Pfizer was looking at it and Hospira was doing that too. So I think that speaks highly to that space. Also I think our good indication to that space was the advisory committee that all of you saw recently around the Sandoz submission in the U.S. We mentioned -- previously, we mentioned that in our December meeting that we have our few products in wave two. We would love to have more. We are exploring the opportunities. I think Teva has extreme care -- extremely good capabilities in terms of development and commercialization. We are quite strong in wave one, estimated this year to be between $200 million and $300 million in revenue this year from wave one. We have launched GRANIX in the U.S. even though it’s not a biosimilar product. I think it has been extremely successful launch, a close co-operation between Specialty and generics. So I think we have the infrastructure to do this well. But at this point in time, we need in a way a little bit bigger pipeline in wave two to be a real player in 2020 and 2021 timeframe.

And then just as a follow-up to that, can you talk about the investments that you are making in biologics manufacturing? Erez, you have spoken about this is an area where Teva potentially needs to improve. Can you just talk about what you are doing to address that?

So, maybe, Carlo can start and I will take then over. Carlo, please?

Yes. Thank you for the question. We currently have capabilities and capacity both in the $1 million and microbial manufacturing at small scale. We need to expand that and we are currently assessing the best location to do this. It’s really about expanding the capacity because we currently do have capabilities for older key technologies within the space of biologics manufacturing.

Yeah. We feel fairly strong on a number of key fronts, RA, IP, clinical growth capabilities, R&D capabilities. We have the scale. We are developing basically. We start to develop a plan for the establishment of biologics production facility, significant one. That’s one gap we have. And we’ll over time also craft a plan to deal with what we call go-to market capability. We might then pursue a partner to accelerate the pace of the execution.

Thank you.

The next question today is from the line of Sumant Kulkarni from Bank of America. Please go ahead.

Good morning. Thanks for taking my questions. The first one is -- we've seen payors take some bold steps in some therapeutic areas, terrain and pricing. How do you think that’s going to evolve in the multiple sclerosis space, if and when once-daily genetic COPAXONE comes in and how’s Teva positioned to take advantage in that? And my follow-up is you mentioned complex generics. That is a catch-all term. It can mean different things to different people. So if you could give some more specifics on what Teva defines as a complex generic that would be helpful? Thanks.

Okay. So, maybe, Rob, you start.

Yeah, pleasure. Thanks for the questions, Sumant. So obviously, you are right. There is an increased pressure on the payor environment with our COPAXONE, both the three-times weekly and the daily injection. We have a very competitive price. Three-times weekly is accepted. We have access to about 90% of all patients in U.S. and we secured our contracts for 2015 and in many cases well beyond that, right. And we continue to be in a strong dialogue, obviously something to monitor. But at the moment what we see is COPAXONE 40 is a very-very competitive product, both in terms of safety efficacy and pricing and that explains the excellent market introduction to that extent as well.

And then on the complex generics, as you rightly say, it’s a broad term. But how we identify is also quite broadly at this point in time, when we are thinking about the strategy. It can include everything from biosimilars. It includes also more difficult to develop dosage forms, for example in term of long-acting injectables. It could even because they are very complex topicals, we haven’t seen any generic competition, not in our wings. On the dosage fronts, that really is a shot to change the market and then there is a space for us to claim our own opportunities. So, we look at it broadly at this point in time but there is niches within this broad spectrum where we think we can do better than any other company to execute.

And by the same time and at the same time, we believe we have -- we are position to win in two very. I would say challenging areas, injectables and respiratory.

Thanks.

The next question today is from the line of David Maris from BMO Capital Markets. Please go ahead.

Good morning. A couple questions. First, Erez and Siggi, the ruble devaluation make you more gun-shy about investments in that part of the world and maybe in emerging markets where there is high growth but risks of -- lots of risks. And then separately in the oral MS market, there are limited number of programs in late-stage development. How attractive do you think that area is from a business development standpoint, given the interest in the area by others? In other words, is this something that you have to do to build out the COPAXONE MS franchise or is it -- what, if it is the right opportunity, maybe you will do it? How high of a focus is that? Thank you.

Yeah. So on the first one, yeah, there are risks, more risks in emerging markets but there are also opportunities. Everything we’ll do will be in our quest to be able to mitigate risk and tap the opportunities out there. Personally, I think that there are very compelling opportunities today, especially today. And if you are able really to mitigate the risks, the way we do today in other countries where there are fluctuations of currencies, we will be able to basically generate value for shareholders over time. We look at emerging markets. We see the opportunities and we put the focus on key ones in a way that will enable us to tap opportunities but to mitigate potential risks. And maybe, Siggi, you’d like to add something to that?

Yeah. I think on Russia, per se, we have fully aligned that. This is still an opportunity. This is still a very fast-growing market for us. We are number five in Russia today. Our growth in the market, our volume growth in the market and any price adjustment we have made, we are still being very close to keep up with the currency. So, we feel that we are well positioned on expanding our business in Russia. We have amazing management team in the country. So, we are not gun-shy, maybe for the reason of the currency per se but we need to be careful. There is risk in the Russian market but there is also risk in other emerging markets and the growth markets we are looking to.

Mike?

Yeah. I’d just like to comment on the RO therapies. Of course, we are very most interested in therapies that are going to be effective. Number one, dealing with novel mechanisms of actions that really have a chance to not only call relapse but also have a big impact on the things that matter to patient, which are disability and progression of the illness. And of course in our pipeline, now in Phase III, we have laquinimod, a very interesting molecule that plays into that particular space in terms of having big impact on disability and also showing great promise in the area of OTO decreasing progression. And then of course and as such, we’ve also begun a study of laquinimod in progressive MS because we believe it may play to that particular very difficult and currently for which there is no therapy, very difficult and therefore a disease for which there is no way to hold the illness. But of course, we are most interested in other pathways as well, pathways at remyelination pathways, pathways that will have impact for the long-term to prevent some of the disability on early treatment. So, I would say the crucial issue is not the motive administration but is really also the possibility of rarely reducing illness. We’ve seen with the drug like COPAXONE, which is safe, has such a safety record that subcu injection is still, hasn’t been an obviously go-to patients taking this particular drug. So we are of course to open to add our RO forms that target new mechanism. But the key thing is signing away to stop the disability progression and laquinimod represents a molecule that we are quite excited about.

And, David, without interrogating for the importance to -- of course to develop solutions in the oral space, I think it is important to underscore that COPAXONE holds very stronger versus the oral. We have today the same number of patients that we have before the launch of Tecfidera. So we serve today by COPAXONE by the family, same number of patients that was served by us before the launch of Tecfidera. COPAXONE 40 milligram today, basically, was able to gain a 19.7% market share in the MS space in a way that basically puts him in a leading position to act with Tecfidera just being launched, less than 12 months ago. And that’s today basically a competition as well between Tecfidera and 40 milligram on a pivotal basis, on the leading position in the MS space. So, we feel strong about the way we can compete against the all, without interrogating for the need of course to come up with the right solution for, of course for that segment.

Great. Thank you very much.

Thank you. Your next question today comes from the line of Gregg Gilbert from Deutsche Bank. Please go ahead.

Thank you. And appreciate that 10% dividend increase, a great call on that. I have two for Siggi. You are committed to Western Europe in the generics business in a way that some others are now and I suspect that’s due to your scale and the economic benefits that are tied to that. But can you provide us some color on how you see growing that business profitably over the next couple of years and how much is sort of internally driven versus being able to pull things on there? And then my small add-on question there is, is about Nasacort. The store brand, Nasacort OTC, when might we see the launch by your partner on that? Thanks.

So on Western Europe, I think we are in a very good position in Western Europe. We are the largest player. In out of the 28 markets, we are top three in 20 markets. And as you mentioned Greg, it’s all about scale. The opportunity using our scale, we have a very good manufacturing network. We work closely with manufacturing of selecting the right portfolio. In terms of what we have done in Western Europe, it’s worth mentioning that we have improved the operating profit from 13% to approximately 20% in 2014 from 13% 2013. And this is a great achievement by the European team. How this was done was in three ways. In terms of cost of goods sold, it was very important. In terms of the focus of the portfolio and where to do business, be more selective in the business, be more selective in the tenders that was part of it, and obviously cost containment both on the D&A and the sales and marketing. How do we grow in these markets? We are thinking in organic terms. Western Europe acquisition is not our focus at this point in time. We still think -- you saw that we have over 200 launches in Western Europe in 2014. We have amazing pipeline. I think one thing you should notice is we are the leaders in launching at risk in Europe. We have extremely strong IP team and the regulatory affairs, R&D team to support that. And I feel with the machine we have in place, with the infrastructure, with our size we can continue to grow the Western European market. You see a faster growth in the bottomline simply also due to the FX impact on the revenue line. The FX impacting Europe is very little, as Eyal mentioned, on the bottomline. So I feel that there is a real opportunity for us to grow that business with the infrastructure we have in place as an organic move. With regard to the Nasacort, I can’t comment on it. This is a Perrigo product per se. So I think you have to leave that question with Perrigo how they see the opportunity for this product.

Okay. Thank you.

The next question today is from the line of Louise Chen from Guggenheim. Please go ahead.

Hi. Thanks for taking my questions. So my first question is with respect to business development. Curious if you have any interest in expanding into the areas of animal health, store brand drugs and/or orphan drugs? And second question is just how confident you are in an approval this year for an AB-rated generic version of EpiPen? And if you got that approved, how much market share do you think you could take? Thank you.

So we don’t look at big opportunities. We don’t want to allow the possibility of looking at orphan drugs potential initiatives. Siggi?

Yeah. So I think on the EpiPen, as we mentioned, we submitted, we dealt with all outstanding queries from the FDA in December. We felt we submitted a very strong information and we have dealt with any outstanding issue. Of course, as you know, Mylan submitted a CP few weeks back. The CP focus was mainly around the device and the usability of the product. We of course will respond to that, but we feel that we -- in our filing, we have addressed that, but we will respond to the CP. It’s very difficult to say when you get approval from the FDA. As we mentioned in December, we have appropriately risk adjusted this in our focus for 2014, but it’s still in our focus. It’s exciting opportunity. I think, it’s a large brand and I think our opportunity if and I highlight if we get an AB-rated, I think we can have a significant generic product in our hand.

And on those standards you said animal health, so I am sticking to the answer that I provided. We are not looking at opportunities in the animal health space.

Thank you.

The next question today comes from the line of Manoj Garg from Healthcare. Please go ahead.

Hi, thank you. Thanks for taking the question. Two questions, one on sterile injectable and then two on your guidance. Sterile injectable, that’s a space that you know well from your previous SICOR acquisitions, but you indicated, you had not looked or have not looked at Hospira. So I am just curious if that speak to your beliefs or your forward beliefs on that segment.

So let me take that. I think our strategy has simply been that obviously Teva was the leader in this field through the acquisition of SICOR and up until we had challenges in our manufacturing few years back. What we are doing now is we are re-entering the market. Already in January, we have introduced three or four new injectable products. We are building our portfolio again. Our thinking has not been to be in all the injectable space. We are not looking for antibiotics. We are being focused on therapeutic areas and focused on where there is a patient need for our injectables. We are also looking very carefully in developing the long-acting injectables where we have an excellent knowledge and expertise due to the combination of Specialty and generic development to bring some nexus in the market, but really our strategy has not been in the mask market of injectables, more in the niche and the opportunistic market of this space.

Okay. Thank you. That’s helpful. And then just question on your guidance. So at your Analyst Day you had indicated that your guidance assumes generic entry by two ANDA filers in September on Copaxone. So I was just curious are you using [indiscernible] because that’s the midpoint of zero to 4, which are the number of known filers with no or is there something about two application that gives you confidence that there will be two equable?

I don’t think -- it’s Eyal, I don’t think that we have any changes to our original estimation, generic entry of course of the 20 milligram only between one to two players that this is what we have guided originally and we see no change at this point.

No. And by that way, no -- so no indication, the converse is to, we are just careful and that’s basically the way we have wanted the business plan. And we have to assume that in the course there we might see that no indication and we might end up there without generic competition.

And just one thing to add to that is that the number one or two does not indicate any assessment or conclusion or even perception as to the quality of the submissions or the quality of the purported generics that have been submitted. This is unrelated to the submissions or anything about them.

Okay. Thank you. That’s very helpful.

Your next question is from the line of Ken Cacciatore from Cowen & Company. Please go ahead.

Thanks, guys. Good morning. You have been very clear about your acquisition strategy, yet there has been no transaction. So I was just wondering is it price or is it lack of opportunities? And then also, I would like to hear your view on whether you would ever consider going hostile as an approach to a potential target if conversation aren’t going the way you wanted? Thank you.

Our strong focus during 2014 was on getting our house in order first, or define the validation, developing the cylinders that we will file for us in years to come and just now we are saying that we are re-entering the direction during 2015 towards inorganic moves as well. So things were fully in line with the way we have designed set of measures for 2014 versus 2015. Basically we don’t want to rule out any possibility in the landscape. We prefer not to go hostile, but we don’t want to rule out any possibility. We will do whatever is needed to go for transaction that will enable us first to generate and look value for our shareholders. EPS accretion is also important to us to really matter and what really matter for us is to be able to generate value for our shareholders in the long term in the way that enforces our strategic direction.

Thank you.

Your next question today is from the line of Chris Schott from JPMorgan. Please go ahead.

Great. Thanks very much for the question. I just had two quick ones here. First, it seems like much of the generic space right now are a lot of people pursuing complex generics as a growth driver. Are you concerned at all as you build out this complex generic portfolio that by the time you get to these markets that we are going to actually end up seeing too much competition and some of the attractive pricing dynamics might not be there in a few years relative to today? Second question is coming back to the Pfizer Hospira transaction this morning. I appreciate your earlier comments. But just when we think about that combined entity, could you just talk about what that combined entity means just in terms of industry competitiveness and just relative to current business space? Does this create a more powerful competitor as you look out to build out your injectable portfolio? Thanks so much.

Thanks, Chris. I think on the first one, yes it’s a little bit of a buzzword to talk about complex generics, but it’s also it’s easier to say than learn. I think we are in a prime position to do this. We have the infrastructure of doing this. I think we have a proven capability. We have recently worked possible first to file, which included an injectable and the device on the protein drug. So we are in a special position. Also keep in mind even complex generics like the transdermal patches, many companies have talked about this for quite a few years and still today you see at most maybe 4 to 5 players in the market. So I think you are right, it’s likely talking about, but I think the execution will be harder on and I think we are in a better position in this field than most other companies. With regard to Pfizer Hospira, clearly if this merger goes ahead, then this will be a powerhouse in the injectable space. They have a hospital, obviously it’s very strong in the injectable space. But also in the biosimilar space, Pfizer was doing some work in the biosimilar space and Hospira also both with the joint venture partners but also alone. So there is no question about it that the combined entity will have a strong presence in the injectable space. But that being said, I want to mention again what I said previously, our portfolio strategy and our approach to the market is a little different. We are more in the niche spaces. We are in the smaller product. We are not competing on the big volume antibiotics or oncology products per se. But clearly, if this merger goes ahead, it will be a strong competitor in the market.

And Ken, I think it is also important deal to yes to underscore maybe a notion that was mentioned that it is important to share it with all of you. Although we say that we want to move more and more towards how to produce complex generics, it doesn’t derogate from the fact that we are -- we have today the capabilities, the skills, the technologies, the infrastructure, and the pipeline that support our leading position in complex generics. So that’s something that should be clear, we want to reinforce it much further going forward, as it doesn’t derogate from the basically position that we have today.

And also just to add for our pipeline as we talked about this, we started in 2014, the pipeline was around 35% of our pipeline complex generics in the U.S. and also in Europe. But in U.S., it is going to about 75% in 2015. So it’s a major investment and a major commitment to specific products in the complex generic space.

The next question today is from the line of Ronny Gal from Bernstein. Please go ahead.

Good morning. And thank you for taking my question. I’m going to start with a housekeeping question and then I have got a content one. The housekeeping one is about the shape of the year. You mentioned that, you expect slightly more profits in the second half. I believe you were assuming the Pulmicort will be lost somewhere during the year. And you are assuming the generic Copaxone coming in. So it kind of sales that the second half should be actually lower than the first half, what’s offsetting that? And second on the content. Can you just talk about two issues, the first one is the marketing practice investigation in Russia, you mentioned to us the risk there? And then second the QET launch, this is the one I guess is upcoming. Can you discuss a little bit the coverage you are able to obtain for that drug, royalty pricing versus the other products in the market? And what you see is kind of on the peak sales potential, they mentioned to us the potential of this product?

Yeah. Ronny, I’ll take the first one. Regarding the so-called linearity of the year and the quality progression, yes we see in the second half despite everything that you have mentioned, more launches of new products, some of our launches for the year are going to be the second half launches, more realization of cost reduction as the year progresses. So all in all, when we look at it, it is pretty balanced, but the first half will be a little lighter, the second half will be a little heavier, not the big difference, but in line with what we’ve guided earlier.

Okay.

On the second one we have nothing to add beyond the note to the financial statements and on the QET role.

Yeah. Ronny, so QET is planning to launch for quarter two, right. So at the moment, this is all being prepared. We will be able as we see today to do that launch. And in terms of coverage, it’s a bit early to talk that, but you can be sure that when we have a world-class team on that, we’ve our assumptions but not negotiations with payers at this moment.

Okay. And in your mind about how -- comparing to some of the other branded products, that you have, is that like a Qvar size, a Nuvigil, the Copaxone size product?

No, it’s not a Copaxone size product, but it is an important for a niche group of patients with migraine very difficult to treat. We believe it’s going to be a viable option. You shouldn’t look at it as a product that will all of a sudden dramatically explore in sales. It will be a slow growing product. It’s a complex supply chain per se. So there is enough challenges on that, but we believe it’s real and nice opportunity. And it’s definitely, if we manage to get into the market well and manage everything well there, you’re looking at a couple of $100 million in potential, but it will not come into first year. This is protected till way into 2020. And we expect peak sales not before 2024. But it’s something that fits fantastically to our overall portfolio in the migraine space and we believe we can serve a small but important portion of migraines sufferers with security.

Thank you very much.

So Ronny, it plays a very limited role in the -- in our old plan and the next five year plan, very limited. We want to basically to watch things that we go along and there too with all conclusions basically from what we see in the marketplace.

Thank you.

The next question today is from the line of Randall Stanicky from RBC Capital Markets. Please go ahead.

Hey, guys. Thanks. Just two questions. First for Erez, as you think about creating long-term value, how does the imports are diversifying away from Copaxone over the next couple of years factor into that thinking, and specifically the M&A strategy? And then quick one for Siggi. On budesonide, you guys recently got a hearing, what’s your latest thinking on timing as to when we could get an update there? Thanks.

So maybe, Randall, I’ll take the budesonide, generic budesonide first. So as you said there the closing arguments were at the end of January, you have to keep in mind we are not part of this trial. This is AstraZeneca against all the generic players. Obviously we don’t know, we gave the guidance that we estimated that we would have additional generic competition in first half of the year. Just keep in mind that, even if we get additional generic competition in first quarter, it will not change our guidance in any way or form. The injunction is in place up until March 1st. So we really don’t know what budget is going to do. But these are roughly the timeframe, we still stick with our guidance. We -- I think it’s appropriate at this point in time to estimate a competition in first half of the year, will not be in March, April, May, we don’t know or could it be into the second half of the year or -- and obviously the case could go all the way of AstraZeneca. We would continue to sell budesonide. So it’s very difficult to read into it but these are the types of the market.

So basically we put strong focus on core capabilities. We took decision on where to play. We know where we want to be in 2019. And the strategy that I formed that, by the same time of course the quest to diversify away COPAXONE is about -- is an important element in that version.

Okay. Thanks, guys.

The next question today is from the line of Umer Raffat from Evercore ISI. Please go ahead.

Hi, guys. Thanks so much for taking my question. I wanted to touch on a couple of topics. The number one maybe just a quick follow-up on the Hospira. So I wanted to, Siggi, maybe ask you how large is your Specialty injectable business in terms of revenues right now and what percentage of it actually overlaps with Hospira, just trying to understand what potential competition could look like under Pfizer? And then secondly maybe on COPAXONE, I know there has been a lot of discussion on COPAXONE generics. And my question was on COPAXONE like drugs other than generics. So specifically the Plovamer acetate from the weekly subcu. From Merck KGaA starts there and monthly deeper form of COPAXONE, just curious how you guys think about those? Thank you very much.

Yeah. So I think on the injectable business. Globally, we are probably somewhere between $500 million and $700 million in revenue of injectable business. In the U.S., we are relatively small. We are approximately just over $100 million last year, but we are growing very quickly. I mention that three or four launches that we had in January already. So as I mentioned in December, we assumed the last year growth is U.S., we estimate to three, four that revenue in 2015. In terms of overlap, there is obviously some overlap specifically in the European markets. But in the U.S. market, there is a less of an overlap. We -- one of our last launches that we did now in January was generic enoxaparin, very important drug to us. We have launched that very successfully. There is no overlap there. We also launched Linezolid in January under loan on the market. That’s obviously a Pfizer product. So the combined company would have that going forward. So it’s difficult for me to give you an activate overlap at this point in time. But maybe an indication this is more in Europe than there is in the U.S. at this point in time.

Got it.

Michael?

Yeah. Just comment on the COPAXONE, other COPAXONE-like drugs or COPAXONE. So firstly just to say that what we’ve learnt about COPAXONE over the last year and half in particularly in great detail is how COPAXONE works. And certainly we are very interested in the pathways of the way COPAXONE works. So we understand some of the molecular event underlying those pathways and of course are interested in drugs that might modulate that pathway. In terms of other formulations of COPAXONE, they are in very early development. We will close on this like ourselves but there are other also doing this. And we watch this, we watch with careful interest. We do know as we’ve gone from one injection once every day to three times a week that this was very convenient for patients. It has to be a significant improvement in outcome of patients and these studies are very far away. So we watch with interest. We pay attention but the whole COPAXONE study has done is really alert us to the pathways and also other different and new molecular entities where we’re particularly interested to play a role.

Thanks very much.

The next question today is from the line of Marc Goodman from UBS. Please go ahead.

Siggi, could you give us a little more color on some of the key markets for you outside of the U.S. in the generics business. France and Germany and then also in some of the rest of the world obviously Russia was mentioned a little bit or maybe some of the other key countries for you. Second question is, is there any update on life cycle extension strategies for TREANDA. And third, women’s health seem to be a little weak in the quarter, maybe just point out why? Thanks.

Yes. So if I spot on the international market, I think we have other good results in Europe. I think some market which I was very pleased with was first of all U.K. U.K. did very well. I think what we managed to do there but there was an upset in the satellite situation of our competitors. And I think this shows the strength of our supply chain we were able to step in and take a space. There was a need for our product and that grew our business in U.K. I’m also pleased in markets like Germany. The German team has been doing extremely well. They -- obviously the key, they are both working for the Specialty under generics. They launched Specialty products very successfully on the respiratory field. But in the generics, I think we have taken a smarter strategy. We are more selective on the tender business. We still have a very, very strong brand in Germany and the Russia home front. And also on our joint venture with P&G, the PGT joint venture. We have a very strong position in the OTC business in Germany. Spain has been a little bit more challenging. There is some regions in Spain that have gone into tenders. We have not followed that. We really don’t want to go too much into the tender business in the Spanish region. On the French market, I think we are doing okay. I have said it before, the France system is quite a complex one where you still -- where the prices have gone down. The utilization is still relatively low. And you still have to have a sales force in place to drive the usage of your medicine. So, I think we are a fairly large company in France but I hope in the future I can see the profitability going up there. And maybe the last to add up to this was Russia as you mentioned. If it wasn’t for the FX challenges, I think Russia probably would be my best market outside of the U.S. By the way, U.S. had extremely good year and did extremely well but Russia did -- the Russian team did an outstanding work. As I mentioned in terms of volume growth and any price action taken in the market, they nearly managed to keep up in terms of growth with the plan we have in place. It’s very challenging market but also I think, being number five in the Russian market has helped us and we see a significant growth going forward in that market. So overall, I think, internationally being top three in 30 markets around the world, gives us a very special position versus our competitors.

And, Mark, nothing new on the other things since December 2014, I think we met -- we are basically -- lots of exclusivity is expected in May 2016. We are taking all the possibilities to extend it further. Rob, on women’s?

Yeah. Thanks. So the perception on three weeks have moved on. Sales for the full year on women’s health are more or less the same level actually, almost exactly the same level as the year before. Maybe, you will refer to the fact that from ’12 to ’13, there was quite significant growth related to some of the launches. But this is a business we manage for sustained profitability, competitive. It was very nice marketplace to be in. Our two key products PLAN B One-Step and PARAGARD are actually doing very well. Notably, PLAN B One-Step one step has exceeded all of our expectations. And also going forward, you’ll probably see more of the same. It’s a nicely profitable business. We have a very nice position. We don’t over invest in it. It’s important to keep it going and we’re optimistic also going forward for this.

The next question today is from the line of David Steinberg from Jefferies. Please go ahead.

Thanks very much. Just back to your M&A strategy, you’ve been very consistent about paying down your debt. I think a couple of billion dollars over the last four quarters. What’s your current thinking in terms of, to do an all-cash deal and lever up? How much -- what’s your current debt capacity? And then on the equity side you continue to buyback stock. I think, signaling that you have an undervalued share price but if you were to do a much larger transaction, I assume you would have to use equity. Would you be comfortable using equity to make a larger acquisition at current share price levels? Thanks.

Thanks, David. It’s Eyal. Without going into hypothetical transaction because every deal is different, structure is different. We believe that our balance sheet and equity price and capabilities enable us to go after a reasonable transaction into market. And with more debt on the balance sheet, depending on the EBITDA contribution of targets and the mix of debt and equity will depend on the type of the transaction and EBITDA to risk deriving from it. So, I would refrain from doing hypothetical analysis but obviously, 2014 had increased our borrowing capacity. That said, we look specific as ever do.

Thanks. And then on your slide about potential generic launches for this year you put on generic benefit. I’m just curious what sort of probability plays on launching this year? And what sort of share could you take, if in fact you do get approval?

So that’s one of the injectable products that we have in our pipeline. We have, as I have said, how we build our focus and how we guide the market is, we have multiple opportunities. We have so many set of goal, but we appropriately risk adjusted when we focus to the market. We don’t know if we get this approved. We are ready. If we get the approval, we are ready to launch in the market. This is the -- the injectable market is a little bit different. There is contract in place. There’s sometimes long-term contract with the DPOs and things like that. So it’s difficult for me to give you an estimation of the markets here. But clearly, if we get approval in time, this could be a good product that it will not overall affect our guidance for the year per se.

Thanks.

The next question today is from the line of Jason Gerberry from Leerink Partners. Please go ahead.

Oh! Hi. Good morning. Thanks for taking my question. First, just for Siggi, just thinking about the U.S. biosimilar market and thinking about the Pfizer Hospira entity and Novartis? You really have two pretty big behemoths in the space that are got to have a mix of innovative and low cost biosilimar? So if the market ultimately ends up evolving into position pull-through type category? I’m wondering your view on the attractiveness of that market from a Teva perspective. And then as my second question, as you guys think about bolstering your second wave of biologics? There is an emerging group of smaller companies out there building out and running Phase III trials on biosimilars? Just kind of curious your general thoughts on the quality of those assets and if you guys think about acquiring a portfolio of de-risk to Phase III assets? Thanks.

Yeah. So, I think on the biosimilar, U.S. biosimilar product. I think we are aligning with, I think, most of the market we don’t expect any interchangeability at least in the first few years. So there has to be some pull-through with depreciation. I think Teva is ideally position for this. We have a strong Specialty business and we have a strong generic business, because you need to manage both ends. You need to manage the deep yields. You need to work with the hospital settings and we do that very strongly on the generic side. Then we have the sales force on the Specialty side to drive the prescription through. And I think, I want to use Granix as an example again, where we are over 15 plus market share on this product in the U.S. market, even though we only have one indication as we filed it as a BLA, its not the biosimilar. But I think, it’s an indication of what we can do in the market. And I feel right, Pfizer, Hospira, Sandoz, Novartis, these are powerhouses in terms of branded medicines and they also have generic businesses. But, overall, I think, we are position -- very ideal position to be able to take advantage of the market. In terms of second biologics, yes, there is quite a few companies that say, that they have assets for the second wave and third wave, and we obviously are monitoring that. I think our count is over 100 companies that say they have assets that are usable. I think from our point of view, there is clearly not 100 assets that we are interested in. we have limited that down, probably to five to 10 companies that really have a strong assets. And any option in business development is open. It could be an acquisition. It could be a joint venture. It could be a core development. We are very open. We are looking for the right asset for the right partner that where we can be a real player in the market in five to six years.

Okay. Great. Thank you.

And our last question today comes from the line of Tim Chiang from CRT Capital. Please go ahead.

Hi. Thanks. Erez, I think, when you guys had your presentation last December, in one of the initiatives you had sort of said was to regain leadership in the injectible business? I sort of want your thoughts on what prevented you from looking at Hospira? I think, Biolin also had looked at Hospira and they have decided as well? Was there something that you saw with Hospira that you didn’t think was a good fit for Teva?

We felt to begin leadership in the generic business and basically, we don’t want to say anything which is not appropriate on Hospira. We appreciate Hospira as a competitor. But we believe that we can build basically the franchise -- injectible franchise in organic manner based on capabilities, infrastructure, that we have in-house and we don’t need to invest in Hospira. We didn’t need to invest in Hospira in order to claim for leading position in that space.

And maybe just one follow-up there, I mean, you guys have done pretty well with Granix already? I mean what your expectations in terms of market share with that product here in the U.S.?

Rob.

Like, Siggi, said, we are over 15%, now actually approaching 17% and actually it’s grow to almost 20% with that going forward. It’s a nice and interesting good products and a nice example of synergy between the generics and Specialty groups in U.S.

Okay. Great. Thanks very much.

There are no other questions at this time.

So thank you for attending the call this morning and for your really active participation, very good questions. And I look forward to continuing the dialog with you during the 2015.

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