Thank you for standing by and welcome to the Teva reports First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, April 30, 2015. And I would now like to turn the conference over to your first speaker today, Mr. Kevin Mannix, who is the Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thank you, Jenny. Good morning and good afternoon everyone. Thank you for joining us today to discuss Teva’s first quarter 2015 financial results. Our President and CEO, Erez Vigodman and members of Teva’s executive management team will present for approximately 20 minutes before opening the call up for questions and answers. A 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 SEC Commission. Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. 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. With that, I will now turn the call over to our CEO, Erez Vigodman. Erez?

Thank you, Kevin. Good morning and thank you for joining us today. Before we get into the details of our first quarter results, I want to briefly discuss the proposal we made to acquire Mylan for $82 per share in approximately 50% cash and 50% stock. After speaking with many of you, including those we are – who are also Mylan stockholders, we are confident that the combination of Teva and Mylan make strategic and financial strengths that our proposal represents a full and fair price for Mylan and its stockholders. It remains our strong preference to work in collaboration with Mylan as we are prepared to do so immediately. From all perspectives, this deal is compelling. It makes sense for Teva, it makes sense for Mylan, and it makes sense for both our respective stockholders, customers, patients and employees. Accordingly, we are prepared to devote all necessary resources to complete this combination. As we have said before and will continue to say, we are committed to getting this done. With that, I would like to ask you, please limit your questions to our financial and operational results for the first quarter as we do not intend to comment further about our proposal for Mylan. I thank you all in advance. Q1 marks a strong start for the year and the continuous business momentum we saw over the course of 2014. Revenues remained flat, but increased 8% in local currencies. Operating income, net income and EPS increased by 11% year-over-year. Cash flow from operations increased to $1.35 billion, 51% higher year-over-year, and we generated free cash flow of $1.2 billion, 80% higher year-over-year. We are making progress on all our key priorities for 2015. We are on track to deliver $500 million in net cost savings. We are accelerating this…

Thank you, Erez. We have done outstanding quarter for generics this first quarter 2015. All our regions showed a significant improvement over first quarter 2014. And despite the FX impact, the profit for the generics increased 59% to $799 million. The revenues were up 9% to $2.6 billion and our operating profit in the first quarter was 30.5%, which is a significant improvement over the 2014 operating profit of 21.9% and 16.7% operating profit in 2013. We successfully launched the generic Nexium, esomeprazole on February 17. We are still exclusive on the market, but pending at the FDA are 10 other ANDA filers waiting for approval. The international markets did very well. There was a double-digit growth in the branded generic. For example, in Russia, despite the FX impact we saw in that market. Europe had the record profitability levels. The main reason there is we have a very good new product introduction. There is an improved pricing level in the European markets and we have a much stronger supply chain on cost of goods than before. The strongest markets for us this time were Germany, UK and Italy, that showed the record profitability levels. The OTC revenues were up 20% year-over-year in local currency, that’s based on a very strong cough and cold season. But the profitability of our joint venture with P&G improved significantly year-over-year. When we look at the – what the growth – the improvement in generics, we are continuing our improved operating profitability. Our growth markets, our emerging markets, growth markets significantly improved. We have a clear strategy for OTC going forward. And we are focusing more on our strong market and we show that both in Europe, U.S. and in the growth markets. We are looking at our cost of upsized sales force effectiveness within our key market is very important to us. So with that, I hand it over to Dr. Michael Hayden. Michael?

Good morning. Thank you, Siggi. I would like to just share with you some of the tremendous progress that’s occurring and the depth in our Teva specialty pipeline. As you can see, we have a total of 31 programs encompassing 134 clinical trials in more than 15,000 patients. These are focused in our major core therapeutic areas with 16 in the CNS and pain and 9 in respi, and this slide does include the Auspex programs where we expect closure and the integration of Auspex in the very near future. Next, what you can see is that in the summit and the outlook meeting at the end of 2014, we spoke about pivotal events in 2015 and we are meeting all the promise and delivering on the promise of our pipeline. As Erez spoke about, the RespiClick is now approved. Reslizumab has been submitted. And importantly, our CGRP monoclonal antibody was now reported positive Phase IIb results in both chronic and episodic migraine. We are the first anti-CGRP compound to report positive data in chronic migraine. Importantly, in particular, the two tested doses were positive on primary and secondary endpoints, which included the decrease in the number of hours and headache days at 3 months and relative to baseline. These doses showed separation from placebo at 1 month and decreased the consumption of other drugs used to treat migraine such as triptans, different than Botox. The full dataset will be presented from this study at the International Headache Society in Valencia in a few weeks. What is emerging, however, is that there are four companies with drugs in this particular space, three against the ligand, the one against the receptor, but these drugs are not all the same. And we would propose that the Teva compound has the potential to…

Thank you very much, Michael. Good morning everyone. I am pleased to review the financial results of this excellent quarter. As you can see, our revenues were practically unchanged in nominal terms. However, in real terms, this represents 80% top line growth. Operating income posted 11% nominal growth and 14% growth in real-time terms. 11% growth in net income and earnings per share and 51% growth in cash flow from operations summarize an excellent quarter. Foreign exchange fluctuations again had negative impact of $368 million this time on revenues and $42 million on operating income. The devaluation of the euro had the biggest impact on revenue, while the Russian ruble had a significant impact on our operating income. Despite that, results were excellent. Cash flows continue to demonstrate strong year-over-year improvement creating adequate resources for inorganic moves. This quarter, we delivered 51% increase in cash flow from operations and 80% increase in free cash flow compared to Q1 in 2014. Looking at the breakdown of our revenues by segment, the improvement in our generic business brought to 52% of our total sales and even more so when we look at segment profits. The generic business contributed 44% of our operating profit before G&A compared to 30% last year. Growth of the Copaxone to which I will refer in a few slides, Copaxone profit contribution took 36% of the total, hence reducing the dependency on the products. We are tracking the turnaround in our generic business very closely. As you heard from Sigi, this is doing very, very well. This quarter gross margin reached nearly 50% for our generic business. Segment profitability was 30.5% above our plan for the year, which I have to remind you, was 27%. This is a 10 percentage point improvement from last year, driven primarily by…

Thank you, sir. [Operator Instructions] And your first question today comes from the line of Jason Gerberry from Leerink Partners. Please go ahead.

Hi, good morning. Thanks for taking the questions. First question just on the U.S. Copaxone, I am just so curious if you guys, what’s happened with 20 mg, if you still stand behind a $5 EPS floor in 2017 with the 40 mg generic comes to market. And then my second question for Dr. Hayden, if you can just comment on what you are expecting to disclose at IHS regarding CGRP program? Thanks.

Michael, start with the second part.

Okay. Thank you, Jason. Well, for this particular meeting, our abstract has been accepted for late breaking session on chronic migraine. We will provide the exact results of end points associated with this, the doses, the statistics associated with this and show the data from one month to three months. We will also talk about the absence of any safety concerns and we will show this in great detail. We will also be able to show the comparisons although in that phase head-to-head comparison with other compounds. Of course, there is no other drug currently in the Anti-CGRP that has been shown to be used and has been used in chronic migraine. But we will show comparison to the standard of care. The only approved drug for chronic migraine, which is Botox. The results will be I think very convincing and compelling. Thank you.

On the first one, we speak to the [Technical Difficulty] in December, which means that we protect the $5 per share EPS 2015 even now and also 2016 and from there grow our earnings 2017 and accelerate the momentum going forward.

Okay. Thank you.

Thank you. And your next question today comes from the line of Randall Stanicky. Please go ahead.

Hi, great. Thanks guys for the questions. Can you just talk about your strategy to protect the three times with the Copaxone in 2017 in light of the recent FDA update and generics and just perhaps your strategy for the franchise going forward? Thanks.

Yes. Eyal, you start.

With pleasure. Thanks for your question, Randall. So, what you see with Copaxone 40 milligram is a huge enthusiasm from patients and physicians alike and varied acceptance from various and in essence we don’t change our strategy, we see continued enthusiasm for this with now over 20%, close to 21% market share of Copaxone 40 milligram in the U.S. And we actually expect that the conversions going forward will be increasing as indicated in earlier calls. We continue to really support patients in getting access to the products and doctors getting access to the products and the availability of the generic Copaxone 20 milligram. If and when that happens it’s not going to significantly change. And we also expect very little switch back from the three times weekly to a generic product. Outside of the U.S. we are launching Copaxone 40 milligram, it’s now on the market in the most significant European countries like Germany and we have it in the Netherlands, Denmark and we continue to rollout our products in Europe and bringing the same benefits that U.S. patients have seen from the three times weekly also to European and outside of Europe as well. So we continue our rollout of Copaxone 40 milligram globally.

Has – thank you.

David?

Hi Randall, it’s David Stark speaking. Thanks for the question. I think you are trying to touch on the patent case as well. So we feel very good about our ability to defend our patents covering the 40 milligram product. There are three main reasons for that confidence. First, the obviousness arguments raised in the IPR proceeding and the P4 case are not new. The patent examiner had the same arguments in front of him and granted the patents. Second, unlike for business method and technology patents, which are getting a lot of attention in the IPR context, very small changes to what’s already in the public domain can lead to vastly different clinical results, as you know. So it’s very hard to prove predictability based on the prior IPR, especially for a product like Copaxone where the mechanism of action isn’t entirely clear. So that’s a pretty high bar. And finally, our terrific track record at Teva in patent matters generally.

And Randall just to add to that something that I think it was manifested in the course of the patient related to the outset. We will continue to deliver on the promise of our specialty pipeline. And to bolster our specialty pipeline even further, the way we have done already the course of the last 14 months, in a quest to diversify our revenue away from Copaxone and basically to take the company just away and beyond the Copaxone era, that’s the question you will see us delivering on that as we go along.

David, can you just help us with the timeline there on the litigation, what should we think about for when we can get an update there? Thanks.

Yes, sure, no problem. In the IPR proceedings, there are two junctures. One is a decision about whether to commence the proceeding or not. That will happen sometime in August of this year. And then if there is a proceeding, that takes about a year.

Okay. Thanks guys.

Thank you. And your next question today comes from the line of Liav Abraham from Citi. Please go ahead.

Good morning. A couple of additional questions on Copaxone. Can you comment on your view on the approvability of Copaxone 40 milligram generic, following the FDA’s approval of the 20 milligram, I meant to say this is not very doable given that the products use the same API, so I would be interested in your views there. And then secondly, any additional commentary on your Copaxone biomarker programs the identification of high responders, any updates there on where that stands and we can expect this to reach patients? Thank you.

Michael, please.

Let me thank you, Liav. Good morning. Just to give you an update on the biomarker program. We continued to do additional research into the ability and the predictability of the biomarker program and now following patients up to 3 years. And I am delighted to see which is quite unusual for some biomarkers that this predictability is maintained over a 3-year status and it’s highly robust. So we are able to identify high responders with high specificity and also robust sensitivity. So we will be beginning pilot programs in Europe this year in an effort to really look and translate this into patient care. We will also be expanding some of these studies to the U.S. by the end of the year. But we are delighted, which is often not the case for many biomarker studies that was all the additional research we have done in different clinical trial sets of patients, the robustness of this particular biomarker to identify high responder patients is maintained. Also to say that we have looked at purported generics to see whether in expression studies, we were actually having impact on the very genes involved and in fact the results are quite different. And so the very genes that are altered by Copaxone are not altered by the purported generics. And so it’s not likely and really would not be appropriate for these biomarker programs to use for the purported generics that is currently tested.

Michael, I think there is also the question about the approvability of a 40 milligram generic.

Yes. So, what we do believe that just as with Copaxone 20, the 40 milligram also has similar to 20 a very specific pattern of expression and shows very significant differences to all the purported generics that we have seen. And so at this point, we maintained that the 40 milligram 3 times a week is really quite different to any of the purported generics we have seen. And so we do not see – we again see significant differentiation and really cannot comment on everyone that is of course has not had access to the Momenta product, but as we get access to that, we will also be able to determine its famous old differentiation as we do additional studies.

Thanks very much.

Thank you. And your next question today comes from the line of Louise Chen from Guggenheim. Please go ahead.

Hi, thanks for taking my questions. So, my questions are on the Auspex SD-809 product. And I am curious if you could comment more on the advantages of your product versus others that are in development? What you think of pricing as I know Tetrabenazine’s pricing may not be as high as what some people anticipate the Auspex products should be? And then how it complements your Huntington’s franchise and other drugs you might have in development for CNS? Thank you.

Well, let me – I will just take the first part and then Rob will talk about the commercial aspects. We believe this is a very important product in our Huntington’s disease franchise. Just to remind you, we are the leading company in the world in this particular disorder, and that’s not only important for Huntington’s disease, but important also for other disorders, which are shared by chemical pathways and shared pathways inquisition such as for example, dementia, Alzheimer’s disease, Parkinson’s disease, and in fact, multiple sclerosis as well. So, what we are excited about with this SD-809 is particularly the side effect profile. It’s really quite remarkable. In that Tetrabenazine has been approved in the United States and in fact physicians and patients do not like the drug despite the incapacitating movement they have and they don’t like it, because in fact the drug predispose it to depression, one of the features of the disease, increased suicide, associated with somnolence in a very significant number of patients. Also, this drug can cause Parkinson’s disease, which can exacerbate the sentimentality of HD. So, the exciting development with SD-809 with uteration we understand the mechanism completely. The side effects are due to the metabolites. And we know that SD-809 has a much longer time. It slows metabolism in terms of generation of these particular metabolites. And the side effect profile is really not differentiated from placebo. This is a big advance. The physicians, the neurologists involved in these patients all have voiced significant excitement about this particular product. The career is very significant on impairments of the quality of life. So, we have seen this Tetrabenazine as the first of what is a spectrum of drugs that will be useful in patients not only to treat symptomatically, but we have Pridopidine behind us. And we now has impact on movement disorder that’s different and also has the potential to modify the course of the illness and Laquinimod behind that. So, we have really a profile of treatment. The disease, of course, in the United States, 30,000 patients who have more symptomatic, but about 5 times that number who carry the mutation and not yet ill. So, the total frequency of Huntington’s disease is about half the number of patients with MS with very little competition in the space with only one approved drug.

And maybe just to add to is something which we need to underscore the Tetrabenazine today to its side effect profile is used by 5% only of the patient population, which basically for us it means that there is a huge unmet need there and basically there is no real competition.

And then what about the pricing, any thoughts there or is it too early?

Just to underscore what you are saying, Erez, it’s largely unmet need in a largely untreated market. We know obviously and you know the Tetrabenazine price and this indication for years about $85,000, which sets a mark in there, but for us it’s too early to really discuss pricing.

Okay, thank you.

Thank you. And your next question comes from the line of Ronny Gal from Bernstein. Please go ahead.

Good morning and thanks for taking my question. Just couple of them very, very quickly. If we look at your operating profit improvement year-over-year, $312 million, how much of that is due to Nexium? That is if we move Nexium, what will be the impact? What will be the impact of the generics business on operating income? And couple of quick if I may jump, if you can discuss Abilify for a second, you just launched it yesterday, big product, not sure how limited the competition will be early on. But if I can step back and ask a broader question, for last I guess 5, 6 years you have been talking about potential for growth for U.S. generic business first in Europe than in emerging markets and be able to see good partnership. And none of this, have really generated a lot of constant currency year-over-year growth, but as far as I can see, can you discuss for a while what you are changing about the growth – about the way you run operations in those geographies to increase the rate of growth of the generic business?

Okay. Maybe I will take the margin impact and Siggi will take the rest of the question. First of all, Nexium, of course, was in our plan, but we do not expect to be explicit, so we had numbers in the plan already. The impact when we analyzed what is the impact on the profitability of our generics, even without any of the Nexium serve the profitability of the generic business is higher than last year, very well on the way to achieve our targets and our guidance. All-in-all, it’s a good profitable product, but it’s also shared with others. So, we don’t get all the profits from it. And the next, maybe Siggi can take it.

Yes, so Ronny, I think overall the improvement is in every region. We are in. U.S. As Eyal just mentioned, esomeprazole was good, but the underlying business in the U.S. has significantly improved year-over-year. In Europe, it’s the same. The growth markets even with the FX challenges we are seeing in the growth markets, we are seeing that. And even in Japan, we have managed to get to a double-digit operating profit from single-digit last year. So, we see a significant improvement. It’s all about the execution. We are basically executing better on the new launches. We are also more focused. We are focusing on the bottom line, but also as you can see we grew our top line 9%. That is driven by new launches. There is very little movement in volume on the established base business that’s usually is quite constant overall. But if I go to Abilify, you started with that, yes, we launched that yesterday. There are four players in the market for generic players on the brands, but keep in mind, there is 18 filers, including Teva, on this product. As I mentioned, four already approved, three have tentative approval, the 11 don’t have approval as of yet. So, this could change very quickly the situation. But as it is now, we launched at-risk into a four player market. And just to....

On the emerging markets front, there is some of this I spoke to you about. We started when we showed it with you, the four buckets of priorities for us in the BT [ph] front. We look at emerging markets and with that opportunities, we will execute.

Got it. Just – if I can just push a little bit further, out of those $312 million of growth in generic, can you just dimension how big Nexium was, was it half of it? Was it a quarter of it? That is if we just take it out, would you have growth from first quarter of ‘14 to the first quarter ‘15?

Yes, we would have – still have a significant growth. I can tell you that even if taking us on for sold out, we would be growing our operating profit for over 400 basis points from first quarter 2014 to first quarter 2015.

Great. Thank you very much.

Thank you. And your next question…

And again and again and again, Ronny, for you and for the others basically we move from 16.7% operating profit 2013 to 21.9% 2014 and we basically promise to be generating 27% margin midpoint 2015. And we are well on track, well on track, with and without Nexium.

Thank you. And your next question comes from the line of Andrew Finkelstein from Susquehanna. Please go ahead.

Thanks for taking the question. Without going into the deal you proposed, could you speak more broadly about your analysis of the strategic environment in generics, both in the U.S. and worldwide, particularly in the developed markets in terms of the value of scale and the changes in the customer landscape that you are facing and in particular, what that may mean for the pricing dynamics regardless of whether you do a deal? Thanks very much.

Yes. If we go through it in 2009, if we talk about our customers in terms of value, in the U.S., the top three customers in terms of value were just over 50% in 2009. When we look at 2014 in terms of value, they are approximately 80%. So over 5 years period have grown from approximately 50% to 80% in terms of value. And the same in a way in Europe, the numbers are a little bit smaller, the top three customers in Europe were 50% in 2009 and they have grown to approximately 60% in 2014. At the same time in the U.S., the top four generic companies in 2009 were 50% of the market. They have declined to 40% of the market, simply because the smaller player taking more significant market share in the market. So how we are looking at it, it’s important to be large in this. You are working with global customers. Teva today, I think is well positioned in working with the global customers that have businesses in the U.S., but also all around the world. I think we have the largest global network to touch them in most location, which is very critical when you work with them. Our customers are looking for strong generic companies to work with but have a strong pipeline, reliable supply and a good quality. And we have all that to offer, but clearly in current – in today’s environment with a significant consolidation of customers, it’s important to be large to balance the business and grow it with big customers.

And can you talk in any more detail about the investments you are making organically in terms of complex generics and evolving the value of the pipeline in the U.S. in particular?

Yes. So this is our key growth strategy of the complex generics. We really have a significant program. Probably more than about 50% of our products we are developing for the U.S. today are around complex generics. We are in a great position to do that due to the synergies between our specialty development on generic development today. So going forward, this will be a larger and larger portion of our products that we launch to the market. You will start to see that already in 2016 and then ‘17 and onward. And this is a key part of our growth in the generic business, which we are talking about to compensate for any loss of exclusivity on the specialty products.

And I wonder if I may just add something. Of course, in the complex generics we have also had unique opportunities from the integration of R&D to add significant capabilities to the development. One of the examples is in respi where one is able to use the experience clinically from our specialty area in respi have the appropriate formulation, have a device, all of this representing a tremendous integration with multiple programs under development associated and really leveraging the specialty expertise together with outstanding expertise in complex generics and putting this all together to create competitive capabilities.

Thanks very much.

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

Thanks. Just wanted to ask, can you from a financial perspective and do you want to from a strategic perspective continue to pursue branded products or portfolios or commercial or development assets while you are going through this process with Mylan? Thank you.

The answer is absolutely yes.

Thank you.

Thank you. Your next question comes from the line of David Maris from BMO. Please go ahead.

A couple of questions, On Copaxone 40 milligram, you said you feel good about the patent position, about the pipeline offsetting any of the risk and you are happy with the conversion so far. My question is really simple, in your modeling, what year are you assuming that Copaxone 40 milligram goes generics. And then separately, Siggi I met with the top 10 generic companies recently that said mega mergers in the generic space are FX impeditive and bad for consumer pricing and part of it is driven as a response to wholesaler and retailer consolidation, which you just mentioned in the previous question. So do you think, if for example, Sandoz and Actavis or any other top few generic companies would emerge, would you think that they have better negotiating cover with price with buyers or do you think that, that will be negative?

Thank you, David for the questions. On the first one, we are a clear and I will clarify it again, when we are discussing the split in December, basically the four levers of growth framework. What we basically presented is a decline of our existing franchise portfolio, including Copaxone from 2014 onwards. And in a way which is compensated by new launches of specialty product coming from the pipeline and of course from then inorganic move that will enable us to bolster further the pipeline. And we are very solidly sticking [ph] to the framework that was presented to the market. Siggi?

Yes. So David, I think first of all, there is still a significant pricing pressure on the market due to the consolidation of the customers. I just mentioned a minute ago that the top three customers are 80% while the top four generic companies are approximately 40% of the U.S. market. So there is no question about it. The pricing pressure comes very strongly from the last customers. No matter if you are big or large, there is no question about it. That big benefit is basically to have a global reach and being able to offer a full range of portfolio. Full range of portfolio plus ANDA, enough new supply to come to the market, plus the customers in every market they are operating, is the pricing pressure going to be more or less if you are big or large, you will have to keep in mind David, that there are hundreds of companies offering generics in the U.S. today. And those customers are very smart. They look for three things. They look for quality, they look for reliability of supply and they look for price. And clearly, they look for price. There is no question about it. So yes, there might be, I think overall what we offer to the customer, what that last generic company can offer to the customer is a broader portfolio, more new launches, better supply chain and hopefully better cost of goods. The pricing pressure, I really don’t know. I really don’t know due to the simple things that there are so many companies today offering generics in the U.S. market.

So I guess a different way of asking, do you think that if two of your large peers came together, would that be – would they expect that their pricing power would be slightly better or slightly worse?

I can’t speak for my competitors. Very difficult to estimate what my – I don’t think it’s worse or better. I think the opportunities, is basically for a greater business, because you have a stronger company, stronger pipeline, stronger offering, stronger, better supply chain, better cost of goods, and that’s why you can improve your business. I am not sure if I can even comment on the pricing environment of a bigger company.

And I think, David that – I think David that to look at a potential combination of two of our competitors, to look at something that might grow beyond just the way they are able to encounter potential pricing pressure. Yes, of course, the consolidation that we witness at the customers’ landscape is one of the drivers for the consolidation that we have been witnessing in our space. But at the same time, we see the duplication. We see the overcapacity. We see the inefficiencies. Everybody is doing the same basically and here on the global scale. And the quest to be able to start the benefits from such a combination enables people, not just to compete better on prices or not the just to be able to increase EPS, but also to invest the resources which are required in the new frontier contract generics, contract technologies, biosimilars and to build a platform, which is build with basically the requirements of the new frontier.

So, let me – let me just say the genesis of the question, because maybe it will help you, because I will tell you I have gotten half a dozen e-mails saying why are you asking FCC question? I am really asking, so we were talking with these other company about the two companies come together and they have some overlap and one sells – but small market share, and one sells for a product for $0.10 and the other sells it for $0.13. If I am a CBS or a Cardinal, wouldn’t I just say great, I am looking the portfolio, I want some lower price for each. I said, no, there is actually – we got a little bit of having a broader portfolio as the strategic advantage, because we can then pushback a little bit more on pricing. And so that’s really the genesis of whether or not when you come together are there sales synergies or sales to synergies?

Yes, I know what you are coming from. Really, our customers are more sophisticated than your question gives away. They have very sophisticated buying offices in April in London and in Rhode Island of looking to get all of the things I mentioned before. They clearly look for a good price all the time, but they are looking for reliability and the high-quality. And I think we can do that going forward. So, I don’t think the concept of your question is applicable here.

Great, thank you.

Thank you. And your next question comes from the line of Sumant Kulkarni from Bank of America Merrill Lynch. Please go ahead.

Thanks for taking my questions. I have three quick ones. First, for Siggi, how much more potential exists to increase generic segment margins purely from organic gains and operational efficiencies? Second one is what is the potential for cost containment on the selling and marketing infrastructure on the MS part of the specialty segment? And third, how is Teva thinking about generic competition to the Copaxone franchise in other important ex-U.S. markets? Thanks.

Yes, Sumant, thanks for these. I think, overall, we put a very aggressive goal of 27% midpoint, basically we gave – our forecast was 26% to 28% operating profit in the generic segment, which would be approximately 1,000 basis points improvement over a 2-year period. I think there is room for more, but it takes a little bit longer time. What plays into the operating profit in generics are probably three or four things. First of all, we have a significant improvement in our cost of goods. I think the operation team in Teva has done an outstanding job in lowering the cost of goods, improving the quality of the supply, and really it’s my business that has benefited from that, because a good portion of our volume comes straight to the generic business. And really, we will continue that over time. As Erez mentioned earlier, we have a goal to get to $10 per thousand – conversion cost per thousand tablets by 2019 with 60% of our volume at $7 or lower. I think the next thing is that portfolio offering. I think the more we have of exclusive complex generics of offering, we have a higher margin on these products. It’s simple. So, when we have more of the launches, it will drive up the market. The third thing is the cost infrastructure. I think we have done a very good job in the cost infrastructure. You can see that from our gross margin versus our operating profit. There is improvement in the operating profit over and above the gross margin. And so that is our cost infrastructure, which we will continue to work on. And then the third thing is where are our key focus areas? So, with all these four things, I think we can’t probably improve from this year by maybe 100 to 150 basis points going forward. But obviously, the big jumps of 1,000 basis points we have taken over the last 24 months, you wouldn’t see that scale of improvement in the generics. But I think at the end of this year we are in world class level in terms of profitability of generics. When you look at the top line growth, you see that already in first quarter, we have improved our top line growth. That mainly comes from our new launches, but also our emphasis on the branded generic market. So, in the branded generic markets, we have seen a top line growth, because we are investing more in the infrastructure there. And we will continue to see that going forward because you at some point in time cannot get more operating profit for being leaner and meaner inside the business.

On the ex-U.S. 40 milligram competition, Rob please?

So, first of all, thanks Sumant for your question. So, we are rolling out our Copaxone 40 in Europe as we speak. As I said before and indicated it’s on the market in Denmark, in the Netherlands, in Germany and Israel and we are rolling out in other countries there. And this is an important part of defending and improving our Copaxone franchise. In terms of generic competition in Europe, the authorities have made it very clear that they require evidence, clinical evidence for safety and efficacy. And as far as we can judge, first of all, this hasn’t changed. And second, there is something – there is nothing really near that we provide this. So, this is we continue to really do that and launch our Copaxone 40 as we possibly can. In terms of your question on managing the cost, first of all, the percentage of the expense on Copaxone was never really very high. We obviously invested in the U.S. for the Copaxone 40 launch and continue to support this as good as we can and everything that is needed will be done there to continue to be as successful as we are. And then the same CNS team is actually there also to help them prepare to launch and do the launch afterwards for the Auspex products and our pain franchise in there. So, the people there really are focusing us and actually on what Erez already stressed a couple of times making our launches successful and drive our future beyond Copaxone.

And maybe that’s a point to also indicate that Teva plans to see $4.5 billion of new net revenues by 2019 from launches of specialty products from 2014. So, basically – and after we know the focus to areas where we have strength or whereas have established strength and we are in a position to claim for market leadership. We see the importance of our proximity to patients and services that were rendered to patients is an important lever in the equation. So, it will not be confined just to MS patients. Of course, the reason to-date, a strong focus on MS patients has continued to put strong focus on MS patients, but as we go along with basically other indications and solutions that we will be providing, we are using the arm that was developed and even we will extend it even further in order to capitalize on the benefits from patient proximity, for patient intervention, from services that were rendered to patients in a way, which will cost the entire spectrum of solutions that we have been offering.

And just to add what Erez has said of course to be very specific. We are launching that for migraine, migraine solutions in the very near future. We are also developing programs for Huntington, for Huntington disease solution, all leveraging the expertise and benefit of what we learned for our shared solution and also in the long-term and medium-term really looking at the global patient support service.

Thank you.

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

Yes. Thank you. A couple, first, when Sandoz launches the generic Copaxone 20 milligram, do you have a plan to launch an AG or will you wait to see share dynamics play out first. Secondly, Michael on the CGRP, have you had your FDA meeting yet or is it least set up to discuss that Phase III plans and do you see a path for some sort of expedited plan given the unmet need and the efficacy compared to the standard of care. And lastly for Erez, are you committed to maintaining a significant dividend and growing that dividend regardless of what deals you do going forward? Thanks.

Rob please.

Thanks Greg. So we continue to really monitor the entrance of a generic and obviously also the penetration of Copaxone 40 milligram as we continue to be very careful on that. And keep the best interest of patients at height and keep every single option to serve just that purpose.

Sorry, but my question was on the 20 mg generic?

My answer was on the 20 mg as well. We keep monitoring very carefully and keep every option open. The conversion to 40 mg is an important element in that monitoring.

Okay. Thanks.

And just to comment on the CGRP. Of course, now with the results where we had waited for both results for chronic and episodic and look forward to our end of Phase II meeting with the FDA, so this has not happened yet, but of course, our going together with both results. Chronic migraine being such an unmet need affecting close to 6 million to 7 million women and about 2 million men in the United States alone with no real therapy. So the opportunity to think about some – more rapid approach to approval, we don’t know yet, but these are obviously the cases will be making to regulatory authorities about this tremendous unmet need and also the tremendous efficacy in terms of this approach that we are really hoping that we – in some way, expedite this drug for patients who needed so badly, just remember chronic migraine is the first most disabling condition known above paralysis and above quadriplegia and angina, for example, it’s much more incapacitating. So it’s very significant unmet need. We have results that are compelling. And we of course, will be making this case to the FDA to expedite the opportunity to get this drug to patients.

Yes. And on the third one, we assess dynamically and continuously our – I would say overall well balance capital allocation approach. And we continue doing this in a way, which is fully associated with the initiatives which are ongoing. Next question?

Thank you. Your next question comes from the line of Michael Faerm from Wells Fargo. Please go ahead.

Good morning. Thanks for taking the question. Regarding Copaxone, does your new EPS guidance for the year assume one or two generic entrants this year and how much of an impact on guidance is it one scenario versus the other?

Yes. We assume two generic competitors until the end of the year. Of course, it has an early entry. We need to see where it is going to happen. As I have mentioned earlier, we assume mid-year entry now as compared to our original assumption of a generic – two generic competitors in September. Of course, this has a negative impact of a number of cents on the EPS. But as you can see, there is more than enough to compensate to that coming from the rest of the business.

And in the event that there is only one, is there much of a positive impact there for you?

And I would guess it will be a little less competitive.

Thank you.

Thank you. Your next question comes from the line of Marc Goodman. Please go ahead.

Yes. Siggi, you had mentioned in the prepared remarks about the Europe record profits, better pricing you mentioned and stronger supply chain management, can you just go into a little more detail what you meant by better pricing and what you have done in the supply chain to improve things. And you mentioned some of the countries where performance was really good there, but could you go through some of the rest of the world, like Latin America and did you mention that Russia had double-digit growth on cost and currency or was that even assuming the currency was such a mess and if you can just go through some of the major countries overseas there and what’s happening. Thanks.

Yes. No, absolutely Marc, at least in Europe we feel that we have reached the bottom in the pricing. We even have seen some price increases in the market because the previous pricing was not sustainable. We see that in probably markets like the Netherlands and other markets like that, which have a very low pricing. We haven’t seen any further erosion and we have seen stabilization and even a little bit of an increase. It’s market-by-market of course where you deal with that. I think for example, in Germany we have two very good launches in first quarter, [indiscernible] launches have risk we made in Germany in the first quarter. Also, on the supply chain, I think the work that the supply chain and operation team in Teva has done is outstanding. Our service levels are increasing year-on-year, significantly better this year than a year ago. But also, we are improving our cost of goods that makes us more competitive in these lower margin markets. If you go outside of Europe, Russia I mentioned basically there is a double-digit growth in the branded generics in terms of volume in Russia. And even with the FX impact, we are showing growth in the Russian market. Very impressive, both on the branded generics, but also they are a huge contributor to our OTC sales. The Russians had quite a bad cough and cold season which we benefited on also in the OTC sales. In Latin America, similar things, branded generics, we are doing very well. We are focusing on our key brands. There is a new strategy in place of selecting fewer brands which we are pushing more. Similar to our specialty business and we are seeing the benefit already from that. And also we have seen a very strong OTC in the Latin America markets. Japan, still quite a challenging market, we were having about single-digit operating profit last year. But the Japanese team launched a significant number of products in December, which we then introduced, obviously early this year in the first quarter. There is a little bit of a slow start. We want to see a faster start in Japan, but already we managed to get our operating profit to a very low double-digit profitability. So in every market around the world we are seeing the improvement. Very, very pleased, so yes we have strong launches. Esomeprazole is a great thing to have. But the underlying business is significantly improving in every market we are operating in today.

So when you talk about price increases, are you actually seeing the bottom out in Germany, I know we have had this tender process that’s been hurting that market for, it must be 5 years or 6 years now, where are we in that process?

So I think the tenders I get to say. What we are doing, our tender policy is we go into tenders which are profitable to Teva. We are not trying to increase our top line, but participating in tender that are questionable on the bottom line. We have excellent team in Germany that looks at each and every tender. So I think the overall profitability for us in Germany have improved, but being more diligent in the decision making about what tender to participate in. That being said, I am not sure if the overall pricing in Germany has improved that much, but for us the profitability has increased because of stronger management decisions made in that market.

Thanks.

Thank you. Your next question comes from the line of Umer Raffat from ISI. Please go ahead.

Hi, guys. Thanks for taking my questions. Erez, I know you spoke about it briefly just a few minutes ago as well, but I wanted to drill into the $4.5 billion risk-adjusted new specialty revenues that you mentioned in the letter yesterday. Can you breakdown for us what the key drivers are there? And I have a follow-up for Michael.

Rob, you start.

Okay, thank you Umer. So, one of the key drivers is our entire respiratory franchise, which will add quite significantly as we have already shared in the past close to $1.5 billion in additional sales up to the end of ‘19. And then there is a number of launches in CNS, including the ones we discussed at Laquinimod, Pridopidine, we have hydrocodone in security. Obviously, the migraine products, is going to be in there already. And then the oxycodone ER is going to be in there. All of them really have quite significant contributions there. And between those two, really between the pain franchise and migraine franchise, the other CNS and the respi, you really have the – by far the majority of the additional sales coming into that $4.5 billion.

And just to be clear here, these numbers does not include potential contribution from Auspex.

Okay, great. And then Michael, a question for you, so given you have a lot of experience in Huntington’s both on the research side and the clinical side. So, I wanted to get your perspective on SD-809 versus anything. So, specifically, on efficacy, so we know Xenazine had statistically significant worsening on UHDRS functional, you guys didn’t show that data. So, I wanted to understand how SD-809 is or isn’t differentiated on the functional endpoint specifically? And on the side effects side, how do you think about as a practitioner lower depression versus the weight gain we saw with SD-809? Thank you.

Yes. So, just to comment – just with regard to the side effect profile, what hasn’t been shared in a lot of detail, but there were some of it just prepared and shared at the American Academy of Neurology Meeting just last week. And so what you saw with the SD-809 was improvement not only in the career which was very important, but also there was improvement in less dystonia that was also significant. So, there was improvement in a whole host of symptoms that were very significant associated with no side effects. So, the Xenazine, and in particular, the depression in a group of patients that already have a much higher frequency of depression and a much higher risk of Xenazine in the general population. This has been a big fear for the physicians. Also just to say as part of this also there was looking at the physician’s impression of change and the patient’s impression of change and all of these were very positive with this drug compared to Xenazine. So, the weight gains that you can see that is different associated with this drug. Of course, these Huntington’s patients have difficulty in swallowing and I will come back to that in a moment and these patients are very thin. And so the weight gain is really actually quite welcomed. It’s not like they will become obese, it’s just some restoration of weight. And most importantly, what SD-809 showed in part the weight gain is because swallowing is improved. Again, we haven’t really spoken about this, but SD-809 actually has some improvement in swallowing. So, this is all good for the nutritional status of the patient. So, that’s why they may become increase in weight gain and associated with that, because the swallowing has improved as less likely of aspiration and ammonia from which many of these patients potentially died. So, overall, the impact is not just on career, it has a broader impact on the quality of life, on the impression of change, on swallowing other movement disorder, all-in-all is a net highly beneficial effect compared to Tetrabenazine alone.

So, that’s the time to thank everyone for joining us today. And I look forward to continuing the interaction with you.

Thank you, sir. That does conclude our conference for today. Thank you all for participating. You may now disconnect.