Ladies and gentlemen, thank you for standing by. And welcome to the Teva Pharmaceutical Industries’ Third Quarter 2016 Results Call. I must advise you this conference is being recorded today, Tuesday, 15 November, 2016. I would now like to hand over the conference to Kevin Mannix, Senior Vice President, Investor Relations. Thank you and please go ahead, sir.

Thank you, Lawrence. Thank you for joining us today to discuss Teva’s third quarter 2016 financial results. On the call with me today are Erez Vigodman, Chief Executive Officer; Eyal Desheh, Chief Financial Officer; Siggi Olafsson, President and CEO, Global Generic Medicines; Dr. Rob Koremans, President and CEO, Global Specialty Medicines, Dr. Michael Hayden, Head of R&D, Chief Scientific Officer; Dr. Carlo De Notaristefani, President and CEO, Global Operations; and David Stark, Chief Legal Officer. We will start the call with presentations from Erez, Siggi and Eyal before opening the call up for questions and answers. A copy of today's press release and slides can be found on our Web site, tevapharm.com, under the Investor Relations section, as we all on the Teva Investor Relation app. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These estimates reflect management's current expectations for Teva's performance. Actual results may vary, whether as a result of exchange rate differences, market conditions, or other factors. In addition, the non-GAAP figures exclude the amortization of purchased intangible assets, costs related to certain regulatory actions, inventory step-up, legal settlements and reserves, impairments, and related tax effects. The non-GAAP data presented by Teva or the results used by Teva's management and Board of Directors to evaluate the operational performance of the Company, to compare against the Company's work plans and budgets, and ultimately, to evaluate the performance of management. Teva provides such non-GAAP data to investors as supplemental data and not in substitution or replacement for GAAP results, because management believes such data provides useful information to investors. And with that, I'll now turn the call over to our CEO, Erez Vigodman. Erez?

Thank you, Kevin. Hello everyone. Thank you all for joining us today to discuss our financial result for the third quarter of 2016. Before I start, I would like to make a personal note. I want to acknowledge the passing of a dear friend and colleague Richard Egosi. Rich was an integral part of Teva for over 21 year, serving most recently as our Chief Legal Officer. He was a pillar of strength and integrity with passion professionalism and innovative thinking that's a remarkable legacy. You will be greatly missed. I have also noted on our quarterly call and in my discussions with all of you that 2016 is fully a full year of transition for Teva. Throughout the year, we have completed key moves highlighted by the closing in August of our purchase of Actavis Generics business. I am very proud of the work that employees of Teva have done to get us to the finish-line of all of them, and integrating them into Teva. This will serve us well in building our long-term future, and achieving our mission of providing the Company with a balanced and diversified portfolio of levers of growth, which we believe will create lasting shareholder value. I want to start by greatly discussing our third quarter results. Eyal will take you through a much deeper dive of the numbers in just a few minute. This was an important quarter for Teva. With the first in-time inclusion of Actavis Generics, our total net revenues of $5.6 billion for the quarter were up 15% compared to the third quarter of 2015. This includes two months of Actavis Generics, which contributed approximately $890 million to the top-line. Our non-GAAP operating income for the quarter was up 16% compared to Q3, 2015, while non-GAAP EBITDA and net income…

Thanks, Erez. Good morning everyone. This quarter was one of monumental change for Teva's Global Generic medicines business. On August 2nd, we completed the strategic acquisition of Actavis Generics. The result is a much stronger, more competitive Teva that is best positioned to thrive in an evolving global generics marketplace. We also announced the acquisition of Anda, the fourth largest distributor of generics in the U.S., which closed shortly after the end of the quarter. The acquisition of Anda reflects our belief that distribution capabilities are very complementary to our pharma business, and Anda provides an important service for many of our customer, as well as our competitors. The combination of these businesses expands our growth opportunities and the value we can bring to our customers under U.S. healthcare system. Turning to the performance of our Global Generics business in the third quarter. Total revenues were $2.9 billion, an increase of 32% compared to third quarter of 2015, reflecting the result from operation of the Actavis Generic business from August 2, 2016, or approximately two-months contribution. The two-months of Actavis contributed $887 million in revenues; no revenues from Anda were included in third quarter. In the U.S., there was a small decline in the Teva legacy generics business, which mainly resulted from a loss of exclusivity, and intensified competition for generics versions of Pulmicort, Nexium and Xeloda. As I stated before, new product launches are crucial for growth over any period of time, and there was a lack of significant new product launches during the third quarter. This was attributable to delays and product approvals and IP decisions, as well as quality challenges experienced by third-party suppliers. These delays will likely impact fourth quarter as well, pushing some of the larger launch opportunities into 2018 and 2017. This quarter, the…

Thank you very much Sigi. Good morning, and good afternoon, everyone. I would now like to walk you through some of the highlights of our financial results for the third quarter and the first nine months of 2016. This was a good quarter, the first to combine Teva and Actavis Generics businesses. Our GAAP results that showed first, which includes a number of one-time item, which I will discuss in a few slides, showed net income and earnings per share improvement compared to Q3 2015. Looking at the non-GAAP results, all-in-all, it was a good quarter with 16% inorganic growth in revenue, which was complemented by 16% growth in EBITDA and 17% growth in net income. Non-GAAP earning per share was $1.31, $0.04 lower than last year, resulting from the increase in number of shares following Actavis acquisition. Cash flow from operation and free cash flow were up nicely compared to last year. We generated a strong $1.5 billion in cash flow from operation. It was up 34% compared to Q3 2015. We have the number of one-time items this quarter, as well as cost associated with the acquisition of Actavis. Non-GAAP adjustment, include; the provision for the anticipated FCPA settlement with the government; the investment with Regeneron, which is classified as in-process R&D; a gain from divesting certain Teva products as part of the Actavis deal; an increase in amortization and deal-related inventory step-up; and the corresponding tax impact of all that. Our financial leverage increased to 50% as a result of the borrower needs to finance the Actavis acquisition, and debt to EBITDA is 5.4 times at the end of the quarter. We expect this ratio to improve to under 3, 4, 5-times 18 months, following the growth of the transaction in order to protect our BBB rating.…

Thank you [Operator Instructions]. Your first question comes from the line of Louise Chen. Please ask your question.

Thanks for taking my two questions here. So, first question I had was on your tax rate, and why it came in lower than expected. And then secondly could you talk more on the magnitude of the OTCP that was driven by the Venezuela FX? Thanks.

This is Eyal. Thank you for your questions. Regarding tax rates, you remember we guided that as of the combination of Teva and Actavis, we expect our tax rate to be at the range of between 16% to 18%. This quarter it was just below the low-end of this range of 15.9%. Our expectation going forward is within that, the original range. Regarding Venezuela, Venezuela this quarter posted about $280 million in total sales. There was more OTC sales than generic Rx sale and to mix this quarter, remember we shared the profit of the OTC results with the PGT, a partnership with Procter & Gamble. So Teva only recorded half of that. Total results of Venezuela this quarter in the bottom-line were lower than Q2 and Q1, represented just about two-thirds a share for the total results of the Company.

Maybe Louis to add to the OTC, you also need to keep in mind that there was an extra two months of Actavis business, which contributed to the OTC line. There was a portfolio of Actavis OTC products, which is solely sold by Teva, and that increased the revenue and the profitability of the OTC line also.

Thank you. Your next comes from the line of Vamil Divan. Please ask your question.

Just two if I could. One, I appreciate your comments regarding the guidance for this year. Can you just discuss, you’ve obviously given longer-term guidance a while before. And do you still stand-by those numbers, or when might we get an update on your base for the -- or just beyond 2016? And then second just around your comments that you made around generic drug pricing. You mentioned 7% erosion this quarter versus you said your comp last quarter remained in the mid single-digits, going forward. So, can you just maybe provide a little bit more insight, there is obviously in areas that there is a lot of investor focus. Just what gives you the confidence that what’s going to happen in the quarters little different than what you saw this quarter? Thanks.

It's Sigi here. Let me start on the drug pricing. So, overall, like previously quarter, there hasn’t been any fundamental change in the U.S. drug pricing. On what we saw in the difference between the 5% store or mid single-digit we guided for going into it versus exiting that 7% was the impact of the pricing impact on the divested product. As we mentioned to close the transaction and to fulfil the requirement of the SEC, we had to divest 79 products in the U.S. And these products have limited competition, and that’s why we have to divest them. So our customers use the opportunity of the instability of the market. So, there was more pricing pressure during the time where the transaction happened on these 79, or listed less marketed products that’s where in the market. So, we saw that, we saw a little bit increase in pricing. But the underlying market itself, the competition in the market, is in line with what we have seen for the first two quarters of the year. We saw the same in third quarter. And our expectation going into the fourth quarter is the same with similar price erosion in the mid single-digit.

Vamil, we are working out now a bottom-up assessment of the opportunities and challenges we see as part of our comprehensive annual operating planning process for 2017. We plan to complete that process as in every other year, early next year, and to provide you with our 2017 guidance when we report our fourth quarter 2016 results in early February. This guidance will include the comprehensive review of our expectations for all of our businesses, including the scenario of generic competition the possible economics on Copaxone.

Thank you. Your next question comes from the line of Tim Chang. Please ask your question.

Erez, Eyal, could you talk a little bit just the revised guidance for operating cash flow. What’s going into that and also what is actually the fourth quarter in terms of new product launches. And also in the first-half of 2017, do you expect the recovery on the new product launch cycles?

Should I start with the cash flow? So we revised our operating cash flow down by $300 million to $400 million as a result of what we’re seeing see some payments that we inherited when the accounts payable of the Actavis transactions were retired, and what we -- that what we had expected. And other than that, cash flow is very well intact as we’re seeing.

So, Tim, on the new launches -- it's Siggi here. I think, first of all, obviously, we are very dependent on the approval by the regulatory agencies. We have over 90 cases ongoing and in fact four challenges in the U.S. So we are dependent obviously on IP decisions. And then on top of that, obviously we are using APIs sometimes from our manufacturer, which could affect the approvability of our products. In this quarter, even though I mentioned that we have no significant launch in the quarter, we still have the 11 launches in our U.S. business. So, there were 11 launches, we still maintain to be a launch machine to grow the business. The challenge was these were relatively small launches in the overall scheme of things. And as I mentioned in my prepared remarks, in fourth quarter, we don’t see any significant large launch coming in fourth quarter. In terms of 2017, we will take that much deeper when we guide 2017. But keep in mind that Teva now has over 300 ANDA pending at the FDA. And of those 300, there could be the possibility of over 60 of them coming to the market in 2017. But again, that depends very heavily on regulatory approvals, IP decisions, et cetera, et cetera. So, I think we have the best portfolio to have a good launch here. But we are doing the work now. We are evaluating the IP situation, the regulatory situation, obviously, of the Actavis portfolio. So in February when we guide you for 2017, we can give you a much better picture of the new launches. But clearly, we have the best pipeline in the industry and we will continue to grow the Teva generic business with new launches.

Thank you. Your next question comes from the line of Ken Cacciatore. Please ask your question.

Just quick question here on the business development, I appreciate that you're taking a pause. Just trying to understand what you are going to do to change some of the decision making process here, the acuity Rimsa, the Regeneron deal. These things seem to be going bad and not just going bad, they seem to go bad quick. And so trying to understand internally besides positing, what we’re doing and what we’re learning to make sure these decisions improve, or get better. And then also we're spending quite a bit of money, billion dollars on branded R&D. Can you explain how it's at that level given the pipeline as we observe it, it seems like a really high level for a portfolio that one would think would be better than $1 billion in annual spend? Thank you.

Thank you. Let me just answer firstly about the pipeline. The pipeline is a very focused pipeline in our areas of particularly interest, migraine and pain, movement disorders, neurodegeneration, breast pain, and when you look at this as we look at end of 2016, 29 programs. This is a year where we also had very significant result. We just think about the SD-809 for tardive dyskinesia, the Huntington successful resubmission. Of course 48125, anti CGRP, which is doing very well, treatment is going very well. We’re looking to result in 2017. We both initiated the same TEV-48125 for cluster headache. We’re also continuing to develop, have used the terms opioids with the advice Board gave us, the highest abuse deterrent claims that are thus far being supported. We’re waiting for approval of that. So that we’re also starting in 2017 expect to see significant organic growth from both our small molecule development early drug development and biologic pipeline. So Teva is being in the process of transformation. And in fact our central fee pipeline R&D is amongst the lowest in the industry, highly productive. We also are using innovation, using existing molecules, deuterated molecules, other ways to reformulate improved compliance efficacy and tolerability. And this is a very balanced portfolio. And you will be seeing additional results, 2017 a very important year for us as we look through the results of laquinimod, Nav1.7 antagonist for pain, the results of migration. So this is a very active focus productive pipeline, which is expected to yield increasing value as we go through this transformation into a balanced, both generic and specialty company.

I can just to add to that, first, in any event looking again in 2017 on priorities and we might end-up the year with a much more focus on this initiative, in general, and the specialty also in particular in order really to make sure that every penny we spend and move the needle for us, and create value for us. And these projects which don’t generate value for us, we’re turning in those projects. So that again we are in the process as I indicated before of revaluating everything we do. And in order to use the transactions that are we build as a catalyst to transform Teva and to take Teva to the next level also in terms of comprehensive efficiency measure plan that is not so tangible starting synergies from the business. On the first question, yes, we’d like to tell you and we are -- this investigating our sales on that in order to draw all the conclusions from that value. It doesn’t of course from all the efforts build the business in Mexico, and we believe the total time we’ll be able to reach the target that we set for ourselves, even if it will take us a number of years more than what was expected initially. But we list all the -- basically target that we have set for our first thing in that important market. But I bet something that of course doesn’t derogate from the need to learn deeply what went wrong and to draw all the conclusion on that and that’s something that we had of course we are doing. I want to really distinguish a little bit from the other aspect advantage rate we indicated. We acquired other very -- at least to-date successful specialty assets that we are extracting the value, the value from them and we’ll expand the value from them all the time. In Regeneron that’s a very different case compared to Rimsa on all relevant plans. We firmly believe in that project. It is just about time we believe that it's just about time until the partial old will be basically listed, clinical will be listed and we strongly believe in that partnership and in the potential contribution of that asset to Teva and Regeneron over-time. And the security, maybe I’ll ask Rob to address.

First of all, the security, it was relatively small acquisition that we did. It was an interesting opportunity and the opportunity would have been there, but the products showed a side-effect that was very difficult to predict. And we’re viewing that. What we’re doing at the moment to see where we can bring down the side-effect ratio, which is going to be very difficult because it's relating to the on to operators per se. So I think the lesson that we took there is that the device like security, the technology behind that and an indication like acute migraine where there are quite a number of alternatives available, authorities and also patients, do not tolerate any increase of side-effects. And although we had quite a number of happy patients, people are very committed to these products and then match with our pipeline with our TEV-48125 is really striking. We said we’ll put interest of the patients first here and withdrawn the products from the market. I think the lesson learned there is what we have learned and as I described was to put -- it was really an extremely small deal in that respect. It would have been a very nice opportunity.

Thank you. Your next question comes from the line David Risinger. Please ask your question.

I just wanted to get a little bit more perspective on the generics business. The Company hosted a very bullish generics meeting in early September, yet generics are disappointing and the guidance is coming down. And so, could you just talk us through a little bit more detail on what you weren’t aware of in early September and how we should think about the prospects for the generics business going forward? Thank you.

Thanks, David. So first of all I’m as bullish on the generics business today as I was on September 9th for sure. I think the volatility you see between months, between quarters, I think we all recognize that that the volatility of new launches between quarters and between years have a significant impact, especially on the U.S. business. The price erosion in the U.S. is similar to what we expected in September. The impact on the divested product was a little bit more. I think the guidance on how we see the pricing environment is very similar as we guided to in our meeting. The difference being is basically that the new launches. New launches, as I mentioned in the September meeting, to maintain the mid single-digit growth in our business in the U.S. We need to launch new products every year of between $500 million and $600 million in revenue every year from our timeline. And where I sit today and I see the pipeline, and the pending products, the first-to-files, we mentioned the 80%, the total planned value of the first-to-files being filed this year is $7.1 billion. We have approximately 80% of that including some shared first-to-files. So there is a lot of value there in the overall business. But the volatility will come from quarter-to-quarter. I think what we’re saying here is we didn’t get the big approvals that we expected in first quarter. We don’t foresee them in fourth quarter. And then we are building the plan for 2017. But I’m as bullish of seeing the mid single-digit growth as before. But to be able to do that, we simply need to deliver between $500 million and $600 in new product revenues every year going forward, and I really see that with the pipeline that’s spending.

Thank you. Your next question comes from the line of David Amsellam. Please ask your question.

Thanks. So, first is just following up on the brand R&D, it's so often that you called out some of your programs. But do you think that there is significant efficiencies to be extracted as you review the entire R&D pipeline and maybe actually thinking about the brand R&D spend longer term. And then secondly, I am just trying to drill-down on your pulling back from business development and M&A for the time being. Should we expect that in the next one to two years, you’re going to completely revamp the team and then redouble your efforts to source brand assets, particularly given that we should expect long-term pressure on Copaxone. How should we think about, not really for the near-term but more to say 2018 or 2019? Thanks.

Thanks for the question. Just on the branded R&D. I think it’s important. As I stated before, this is a highly efficient and already effective organization in the sense of the results in terms of -- and we judge by that the number of products coming in by organic growth and the number of submission, and the number of approval that we see. But of course and how we really moderate risk, and I think we've totally revamped, there is also understanding fundamental pathways looking for other indications for drug that have similar pathways. So for example obviously SD-809, which depletes dopamine and depletes early pre-traumatic dopamine and is useful for movement disorders not only for Huntington’s but also for tardive dyskinesia we’re seeing such stellar results. And also now we’ve embarked in tourette syndrome. So I think the approach that we take is really understanding deeply how these drugs work, looking at additional indications, using some of the safety and the different approaches T&C, we already of course know how to do that. So we have synergies in terms of the understanding biochemistry, the pathways that leads us to other disorders; 48125, for example. CGRP is not just useful for migraine but also early evidence suggesting might be useful for cluster headaches. So as we go forward, of course, we are focusing more on brain and mind. We also have significant recipe portfolio that is also developing the first biologic for Teva, developed for approval this year, IL5 antagonist. And we’re looking to also refine. But we constantly are looking for ways to improve efficiencies, improve time to market, inclusion of commercial perspective very early in the R&D development. And you will expect to see 2017 will represent the maturity. This is of course as you understand it. It takes a while for building the capabilities, which we’ve done really over the four to five years, 2017, we’ll see a significant number of INDs that have all come organically growth through biologic and small molecule development pipeline. These are molecules of course we announced, and that’s why the need for BD is much less as we go forward for big deals which we actually growing our pipeline organically.

So just to add, may be the most important message here. We’re firstly focused on a number of key molecules that we have been developing internally around it. We look for basically expanding those molecules for additional conditions and indication. That's also processes are underway. We will terminate all the projects that don’t add value for us or don’t move the needle for us over-time. We might pursue tracking deals, which are not significant ones in terms of financial results which are required in order to complement further our Company.

Thank you. Your next question comes from the line of Randall Stanicky. Please ask your question.

I just want to follow-up on the generics business. If we take the third quarter revenue and add another $400 million for the extra month of Allergan, we’re run-rating at about $23.8 billion, that's a billion for $1.4 billion short of the low-end of guidance that was given in July for next year. So, I guess, my question is, is that guidance realistic, can you grow towards that? And that’s before any erosion around Capaxone. So can you help us calibrate that? And then I have one quick follow-up.

So, Randall, I think the overall -- you see the run rate of Actavis, you can take the 880 somewhat million in revenue, divide it by two, and you see the run-rate of Actavis as it is currently. It’s between $4.8 million and $5 billion, which I think is in line with our expectation going into the acquisition. We are very pleased with the asset with the Actavis asset when it comes in. I think that Teva business, as I mentioned, we are a little bit under, and it's related to the hint we get on the exclusive products that we have a year ago and not having a significant product launch, even though we have many small product launches. Remember last year that the revenue from new product launches in Teva alone last year was over $800 million, which was very significant that year. This year it will be significantly less, and this variability we see in the U.S. product launches is the variability we see in the overall business. We are doing our work now on the pipeline. It’s a lot of work with over 300 ANDAs pending, looking into IP situation and regulatory situation. But the movement in the Actavis, in the generic revenue, is very much dependent on revenue and opportunities from new launches. We have plenty of sales that go. I am very pleased with the pipeline. But to be able to guide you on 2017, I really need to understand the overall pipeline better, so I can give you a number where we stand in ’17. But all the implications in terms of the status of the Actavis business, in terms of number of first-to-files, in terms of number of ANDA pending, in terms of the price erosion, even though we have a slightly higher price erosion in this quarter, there’s no sentimental difference still intact. But you need to give us time to validate the new launches for ’17 so we can guide you for that year.

That’s fair. I am just going to ask the question, I think a lot of people on call are trying to understand. Numbers are coming down significantly since July. So if the environment and the outlook for Teva generics and the rest of the business is relatively unchanged. What are we missing? What’s changed since -- from July when you looked at the business and provided that three year guidance? Whether it’d be on the generic side or the brand side? What’s changed that has brought numbers lower than we initially thought?

Well, costs throughout the numbers lower than we thought in July for 2016 are the revenue from new launches. That’s very, very simple, we estimated a significantly higher. There were about three or four key launches that we expected to get by the end of this year, which are not coming in that would deliver hundreds of millions in revenue, which are not coming in. The good news on this path uses they will come later. They will come in 2017 and maybe into 2018. So they are not lost at all. But basically the simple situation is that there are hundreds of millions in new product launches that we expected before the end of this year, which will come later. And basically moves the growth curve a little bit later in the year. And that’s why you seed impact of the revenue, both in third quarter and fourth quarter this year. But it doesn’t mean, it doesn’t undermine that all the fundamental of the generic business, because these are not lost opportunities, these are opportunities that we are moving into next year and the year after.

And on the back of that volatility, we have been tailing out efficiency measures that are beyond what was initially expected and planned. So, that’s something which is coming into play in 2016 already, and it will continue and gain more momentum in 2017.

Thank you. And your next question comes from the line of Umer Raffat. Please ask your question.

Siggi, I want to focus on U.S. generics for a minute, and maybe just do a very simple bridge. So U.S. generics for Teva, so Teva business non-executed was $892 million in the second quarter, its $755 million this quarter if you basically take the overall reporting and subtract Actavis. So $892 million went to $755m. Can you make a bridge for us on, between Q2 versus Q3 sequentially, what changed? And also Siggi, what’s your confidence in a 505(b) (2) adverse equivalent February, and the possible Epipen next year? And next one for Europe, SG&A this quarter came in at about $1.2 billion, which is about the same as last quarter. So I’m just trying to understand what is two months of Actavis contribute and/or whether certain non-GAAP adjustments and have got us there? And finally, Michael, in SD-809 in tourettes, still ongoing? Thank you.

So, let me start on first part of your question. I think if you compare the $892 million versus $755 million, these are basically the main impacts and about half of this is the added competition on Pulmicort that we saw between second quarter and third quarter. On top of that, we mentioned Xeloda, added competition, esomeprazole, Nexium, and the last one being aripiprazole. These four products more than explain the gap between second quarter and third quarter, and you can even see this pretty well when you look at the IMS data for product, where basically we have some semi or exclusive position and we have an increased competition in third quarter. Against that, we had very low revenue from new launches. We had 11 new launches. So we didn’t compensate for the competition we got on these products. And so at the end of the day, the beauty of having a huge portfolio is it keeps us more stable. But when you have a threatening or basically a competition to your key exclusive products and you don’t have the new launches to compensate for it, you will see volatility in the revenue line. Just to come back to what Erez mentioned before, I think we’ve done better than anyone expected in terms of managing our costs. So we defended the bottom-line more than the top line with the product mix and the control of the costs. In terms of Epipen, we are working very closely with the FDA. I haven’t changed my view. My expectation for Epipen is still early 2018. There is nothing to change my view on that. We are still moving forward in good collaboration with the FDA. We have the meeting with the FDA. We understand the way forward, what needs to be done. We think pretty well. But it hasn’t changed my best estimate on the Epipen launch. Maybe Rob you want to take the 505 (b)(2) other product, which is in the specialty group.

So, we are -- the development is on plan on track. We will be launching hopefully depending on the FDA approval, both from the combination mid next year is our planning.

And just to answer the tourette, Umar, the tourettes program is continuing. There has been significant discussion with the FDA initially based on the question of the metabolize that FDA that are now in the HD program, we of course had submitted that and provided -- and hopefully provided reassurance, but certainly was expected around SD-809. This will have impact also on the tourette program. And so we’re in the discussion of the FDA, but our plan is to start the Phase 3 study for tourette in the near future.

Umer, regarding your question about SG&A run-rate, that's an opportunity to say a word about synergy and the progress. We’re making very good progress on cost synergy and tracking extremely well. So, expense run-rate as a result of the combination of our generic businesses is expected to further go down in Q4, and later on, as we have guided originally. This is the main reason why you see the addition of two months Actavis but no significant increase in SG&A.

Thank you. Your next question comes from the line of David Maris. Please ask your question.

I’d be interested in your comments about the U.S. policy issues facing the Company, especially with the new administration. So, if you can speak broadly about maybe three efforts; specifically efforts to reign in large price increases; the second to speed in more generics to market; and third the potential for re-importation and how these may impact Teva; and more broadly speaking pricing? Thank you.

So, David, I think on the first two, we see opportunities that basically where we are today. We are well positioned to take the right balance between excess and innovation in the U.S. and the of course also ex-U.S. We do it ex-U.S. today. We had a business in Europe which was much less profitable three years back and that's a very positive business today. We told them as it was well conducted under huge pressure of prices. And that's exactly what we’re doing now here in the United States. Look at all the efficiency measures that we have incurring out and we’ll accelerate by the way, the spring of sufficiency measures that are conducted. And I alluded to that before I underscore it again. For us that's an opportunity to take the transformation of Teva to the next level, beyond just extracting the synergies. So, it’ll be much linear. We’ll focus on all the things that really matter, all the things that move the needle for us, all the things that generate value for us. We'll basically get read and terminate projects that don’t meet that condition. So, in the U.S. with our infrastructure, with our portfolio of generics, we believe that we are positioned to become part of the solution in the United States. And we’ll continue to basically accelerate the pace of being able to basically contribute to the solution here in the United States. More access and the right balance between access and innovation. As far as the FDA approvals are concerned, maybe Siggi would address that.

Yes, so it's a valid question. I think first of all on the generic approvals, we, on balance, we are very pleased if we get more generic approvals. Keep in mind that we have just over 8% of all pending ANDAs at the FDA. And so if there is an increase in approval speeds, I think we on average get benefits from that versus obviously there is increased competition on our product when our competitors get approval. So we are fully supportive of increase and the new GDUFA to that will be in place soon. I think pushes for that and we were a supporter of that. But with having the largest ANDA pending at the FDA, I think we will benefit from that. I think maybe to add to the price increases, keep in mind -- and we talk a lot about that, the overall prices in the U.S. of generics always go down. I’ve been in the business for 23 years and the prices even though they are examples giving of a product going up significantly, maybe single molecule, even one SKU. But overall, when you look at the 300 to 400 products we have on the market, our price erosion on average is about 5% per year. And our generic pricing is everything from a 30% comes from the brand pricing to about 98% discount from the brand pricing. And there is a great value, and I think that the U.S. policy that will come in place will probably hopefully recognize the values at the generic, because as I mentioned in our prepared remarks, we are part of the solution. We are not part of the problem. And maybe around the re-importation, let’s see how that goes. That has been on the agenda for many years. But keep in mind that with the pricing we have from many of our generics, the pricing on generics in the U.S. coming from the manufacturer is lower than many of the countries around us. We can take obviously examples of brand products where the differences are, but when you look at everyday generics of thick volume generics, where the competition in the U.S. is fierce, the discount from the brand value is maybe 97%-98%, the pricing here is lower than in the neighboring countries. So I think being a global company with the position around the world, we need to see how it’s done. But overall, this doesn’t scare us and I think puts Teva in a strong position going forward.

On the specialty side, David, we are always -- we believe of course that our point of view that we’re very responsible as far as pricing was concerned. And in modern days in all the cases we competed in areas where there were more than one alternative for patients. So, basically, what we witness is competition and strong competition on the specialty side. So, all-in-all, we believe that with everything that we possess as a company today, we are positioned in a good trial manner to deal with challenges that might emanate from policies that pertain to guidance. Having said that, I think that at this stage there are still questions, big questions about policy that is underway. And we have to wait and see what we shall basically be confronted with and now we address that that bottom-line, as a company, we believe that we are positioned to address the challenges that might emanate from new policies.

Just as a follow-up. Siggi, so what you’re saying is the acceleration in the price increases that you’ve seen in this past quarter aren’t a result of increased competition on existing molecules, and it's not a result of having to tame previous price increases or give back some of those?

No, basically, the main reason, David, was that we have to divest a very good portfolio of product that has limited competition. So, we have to divest it. What our customers did as they do is that there is a new player in the market that took over those products, and that became a pricing pressure on roughly about 60 molecules of -- and these are the top molecules we have in our portfolio. So there was an instability that happened in the market during the month of August when the new owners were taking market share. It didn’t change the fundamental of the market. It didn’t change the structure of the market or the chemistry of the market. But we saw the impact on the divested molecules significantly more than we saw on the rest of the portfolio, which gave us 7% versus 5%, which we assumed going into the quarter.

Thank you. Your next question comes from the line of Marc Goodman. Please ask your question.

Siggi, in the past you’ve talked about the operating margin. Do you believe you can get to over the next couple of years on the global generics business, now that you really do own the Allergan portfolio. Can you just talk -- just talk again about those margins just so we understand what you’re thinking over the -- and the progression over the next couple of years. And then secondly, just in a rest of the world generic $782 million, can you help us understand, what was Rimsa, what was Allergan, what was Japan? I think you said $150 million. Just so we can understand what the apples-to-apples versus last year’s Teva only business was? Thank you.

So, Marc, first of all, on the operating profit. I was extremely pleased with the operating profit this quarter 29.9%. I think, I don’t expect that to come through in fourth quarter, maybe a little bit lower. We need to see how it comes. Obviously, the mix of the portfolio, when you have it for three months versus two months, the mix in terms of the new product launches, we don’t foresee product launches -- in big product launches in fourth quarter. But before the close of the transaction, I said that I was hoping to see in 2017 that we would stabilize around 30%. So I really didn’t expect us to get to 29.9% at this point in time. I think that highlighted with -- I think early said it is a good work around our synergies, but also a very good cost control. But I’m still of the opinion that we can be in the 30s in 2017 with the right mix of product launches. I have to say because maybe you didn’t ask the question, but I was ready for it Marc around our European business. I was very pleased with our European business in third quarter. They have an outstanding quarter. They didn’t miss a bit. There was a full integration in all the Actavis market and the profitability in the Europe really stabilized. They’re really showing amazing results. There was no effort of new launches in Europe, and I was extremely pleased with the European business. To the apples to compare it year-over-year, I think Eyal highlighted it in terms of, there was a $30 million difference in the net revenues from third quarter of ‘15 to third quarter of ’16. Basically, the additional revenue that the joint venture with Takeda contributed to the $60 million numbers was about 150 million. The impact of Rimsa was negligible due to the recalls we have in the market. We have cost in Rimsa. So, really is that didn’t changed the overall picture. So if you do that comparison net-to-net, it's about the $180 million and still I think that is a really, really good result comparing third quarter last year versus this year because of the movement of new product launches, as I mentioned to the question Randall asked, have such a significant volatility impact on the overall business.

What was the Actavis contribution in rest of world versus Europe?

So, we don’t have the contribution. But you saw it in Eyal’s revenue, there was about $349 million of contribution outside of the U.S. and really a good [multiple speakers].

More or less in line with that, more or less.

Thank you. Your next question comes from the line of Liav Abraham. Please ask your question.

I just want to come back to your lower 2016 guidance and apologies if I missed this. But can you walk us through exactly what has driven your change in revenue guidance for the year, how much do you expect in under contribution in Q4? And then what offset that? Is it only performance in the generics business, or does it come from branded expectations as well? And then quickly, secondly, can you be more specific in the economic terms of your Celltrion partnership. I understand it is a profit share. But if there any more details that you can provide that would be helpful? Thank you.

So, without being too specific on splitting, we do expect the generic business to increase in contribution from Q3 to Q4 by between 7% to 8% with similar increase in total sales basically, or with higher increase in total sales is due to the including of fourth quarter of the -- a full quarter of Actavis business and some growth in the business. We can see this in the new generic business. We can see this in the European business. Mostly this so far as we can even see this in Canada. So there is some growth reflected of course in the guidance that we have provided for the quarter, sequentially between 7% to 8% on the products. On Celltrion we’re excited by the opportunity. Obviously, it's that we’re in both Herceptin and Rituximab have opportunity to be in the first way. It's a North America deal, so Canada and the U.S. where we work with Celltrion together in partnership and reduced split, also the commercial profit there. We have a smaller down-payment, which we already did of $10 million, and there is relative small milestone payment upon registration. On that, it’s a really nice opportunity for us to be partnering with Celltrion, and I am not sure we disclose the exact split there, so I’ll have to check that. This will reference to do that here.

Thank you. Your next question comes from the line of Gregg Gilbert. Please ask your question.

Rob, can you comment on the potential for generic Copaxone in 2017 assuming generics are approved and they don’t wait for an appellate decision. I am not looking for a financial guidance here, just looking for conceptually what you think you can do there to maintain a large chunk of the franchise in the event if it recurs in the way I described? Thanks.

Sure with pleasure. First of all, we’re extremely pleased with Copaxone at the moment and the way it's moving. Europe launching the 4T and a similar conversion rate as you’ve seen for the U.S., and now at over 60% already. And for instance, a country like France hasn’t even launched yet. And in Europe, there is not going to be substitution generic and it's still a very substantial part of our business, right. So the business there is performing extremely well. We also have Canada just recently improved. And if you look at the U.S. where we are still like in the key countries in Europe with Copaxone, the number one new two patients, so we see an incredible enthusiasm for the products and its holding much better than I think anyone expected, both against the generics and against oral competition there. Going into ’17, the market will be a little bit more dynamic. First of all, FDA hasn’t improved -- approved any 4T generic. And I remain very sceptic that we will do that, because I think we have good scientific reasons for that. If you look at today’s -- in October performance, there are about 11% of the overall Copaxone, and about just over 40% of the 20 milligram. If you take that as a model going forward when the generic would hit a markets and that’s exactly what we’ve been guiding in previous calls. There is no information to-date to change my opinion on that, and wouldn’t change it. What we have seen though in the last months is that Copaxone is actually being holding much better. And the performance shows really good, and I am extremely proud of all the teams that do this. Patient support programs will play an important role. And that’s what we’ve seen people move into with less hope and the U.S often came back. Actually the biggest source of new to brands that comes from the focus changes in the U.S. when they switch, because of the value they place on our support programs, amongst which are the sales solutions. So, other than that, there is very little new information that we have product doing well and we are optimistic about the future in that respect.

Thank you. Your next question comes from the line of Ronny Gal. Please ask your question.

I guess I’ll start with a couple of the branded questions. On GF, Michael, what convinces you that we will not see osteoarthritis in patients who are currently not diagnosed with osteoarthritis? I guess that’s the critical question that is part of giving that you could have subclinical osteoarthritis advancing? And second on Advair, in Europe, I believe you were not approved for all dosages of the drug. Are you convinced you’ll get all dosage of the drugs? You had said you would obviously need all of them to get an alternative to add there. On the generic side, I think just a quick housekeeping. I don’t know if you can break for us roughly the U.S. versus OUS profit for the generics post Actavis. Just so we understand the magnitude of the risk that comes from the U.S. pressure. And then more specifically on the U.S. pressure, I understand what you did in 3Q, I understand there were few products that you divested that had a more significant pressure. But we’re hearing from both the retailers and the distributors, they are seeing pressures on that business in the MCOs. And that generally translates to further pressure on their supplies, which means you. How you’re thinking about that, what else you have to do something about that and that helps you. So if we think about the pressure on you in the next year given the pressure on the entire value chain, where is your ability to compete?

It is important to clarify this issue. So of course we have as part of the development of this anti-NGF with Regeneron, fasinumab. We have a planning to do both a Phase 3, OAstudy and we’ll plan to also come back with chronic lower back pain. It’s important to note that the patients who have had the rapidly progressive osteoarthritis have all been of a particular type classified in osteoarthritic term KL, these are KL3 and above. So as we continue for patients with early osteoarthritis, the risk at this movement is really not viewed as significantly higher. And so when you look at and Pfizer and Lilly have done the same thing, when they’ve continued with their Phase 3 program, they continuing with OA, mild OA, and severe OA patients have been excluded from the study, and that’s what we plan to do. So firstly in the patient selection, we’ll go with patients lower degrees of OA. OA is a progressive illness of the time but it's very slowly progressive, and obviously will have to be monitored. And then second thing -- but there is a huge population of patients with early OA, and a KL less than three is very significant too. These are very significant proportion of patients. And then mean secondly the dosage is important. And what we’ve seen when you start getting down to lower doses, and for us it's 3 milligram and 6 milligram, there is no evidence for increase in OA of these severe population as severe side-effect in this population. So the Phase 3 studies are going to have two important parameters, and this is already -- this is going to be osteoarthritis of a milder to degree; number one, number two; lower dose. The patients that were seen in the rapidly progressive with chronic lower pain had severe osteoarthritis KL greater than the three. And what’s getting 9 milligram IV, which is even higher than 9 milligram RO and 9 milligrams subcute. So we will be planning these studies appropriately and patients with severe osteoarthritis going to be candidates in part of our clinical trials.

And Ronny maybe as part of the recipe question, the development strategy we’ve chosen in the U.S. was very different from Europe, basically in Europe we tried to show and have to show bioequivalence, which lead to only being able to launch the higher dose in the U.S., we want to have both of those, because we have a different development and we will be able to cover if we get the registration the entire spectrum.

So, if I take the housekeeping Ronny, we’re not giving the profitability of the Actavis business. But if you at the slides that Eyal showed, the overall revenue prior to divestiture of the Actavis business was $943 million. We had to roughly around $50 million from the Actavis business also divested business. And the break-up would be roughly that there would be $530 million from the U.S. and roughly $350 million from the rest of the world. I think the divestiture is 50-50 Teva and Actavis, overall. So that’s what’s coming from Actavis. We’re very pleased with it in terms of the total revenue. In terms of the pricing pressure, I think we heard our customers to talk a lot about increased competition between them. And I think that’s right. But that’s for -- I don’t think that this for the whole market because APC obviously has the strong ties with Walgreens, and the remaining of their business they are completing for the same applies obviously to Cardinal, they have a strong ties to CVS. The rest of their business, they are competing with the rest. And McKesson has maybe a little more fluid business, but they have currently the Rite Aid business. They just took over Wal-mart. And they have a strong support for many of the other businesses. So I think there clearly is a competition. But it's for a relatively small part of the overall business. Clearly, we are impacted by it, but we being the largest supplier, I think what we can say is with our pipeline, with our service level which we have increased the year-on-year, I think we will be impacted but we will be impacted to a lesser degree than any of the other players in the market due to the size and the strength of the business we have. So, we notice it. We know of the competition of our customers. But at the end of the day, it's not maturity of the market it's a small portion of their overall business where they are competing very frisky at the moment.

Thank you. And your next question comes from the line of Jami Rubin. Please ask your question.

I just have a few. Siggi, recognizing that you’re not ready yet to give 2017 guidance, in listening to your commentary about first of all opportunity, et cetera. Are you standing-by your mid single-digit growth projection for the combined Teva Allergan generic businesses? And I only asked because obviously your standalone Teva business, both in the U.S. and total generics, is way down. I can't really tell but may be you could help us to understand what the Actavis business is growing ex-divestitures. It looks like that’s also trending below that 5%. And your 5% would require a monumental turnaround going forward. I am just wondering if you can comment on that. And then I have couple follow-up for Eyal.

So, thanks Jami. So as I said in my prepared remarks, I believe in the mid single-digits growth going forward. I don’t know if we achieve that in 2017 that will depend very heavily on how the launches will does. But going forward, going over the next five years, I believe that the underlying business on the new products that we have pending and that we believe this very, very strongly Jami, we will be able to grow 5%. Will we do that in every quarter, Of course not, due to the variability of new product launches, you will have quarters where you might go down and you will have quarters where you do better. Just remember, first quarter and second quarter last year where we have the 15% growth on the Teva generic business versus the year before. So, we have the ups and downs. But when you take a long term view, which absolutely have to do when you look at the generic business, it's not nearly as stable as a specialty business. But when you take the long term view, when you take the five year view of the business, I am absolutely convinced with what we have in place we have a 5% of mid single-digits growth in the overall business. But I really can't tell you from quarter-to-quarter that we will always do 5%, because it's simply the volatility in the business, it doesn’t allow you to do that.

I guess I am just asking, because the guidance assumes 5% growth on an annual basis. I recognize we can’t project quarter-by-quarter. So it sounds like you’re taking buyback. Eyal just a couple of questions for you. How much, I mean OTC business is very strong, up 40%. What was the contribution from Venezuela and how much of that can we expect going forward just given that other companies have written-down that business. And then also what is the $155 million in other comps related adjustments that helped the gross margin this quarter? Didn’t noticed that item in 2015, and just wondering what this is. Thanks very much.

I’ll start from the last date, other cost adjustments. It’s a long list of item, no one that stands out. So we could take it off line I can run it towards the list. It's not very material. Regarding Venezuela, I think I pre-empted that at one of my earlier answers. But just to repeat sales in Venezuela -- from Venezuela this quarter were about $280 million, including the generic product, the Rx product. And the OTC operating profit was lower than in Q2, which was also lower than in Q1, represents about $0.02 or just under $0.02 per share to our overall EPS for the quarter. And there is no change in the accounting treatment and the exchange rate that we used since the beginning of the year.

Thank you. And your next question comes from the line of Chris Schott. Please ask your question.

Just I think we’ve talked a lot about this generic pricing environment. But your results obviously saw more difficult dynamic this quarter with 60 products. But a number of your smaller competitors also seem to be really struggling throughout this year. And it seems like in subsequent quarter this year we’re seeing a different part of the generic market under pressure. So I guess I am just trying to get, how you separate out normal quarter-to-quarter volatility at generics versus an overall more challenging generic pricing environment that could persist for extended period of time. Because if anyone look at the industry as a whole, it feels like this is a broader issue than kind of one-off kind of market disruptions. So any color you have on that, I know you’ve talked about on this before. But any color would be great? And then second question I had is just with the stock in the $40 range, where do share repo factor into your capital allocation plans? And do you have the ability or the capacity to look at a share repo given the leverage position right now? Thanks very much.

I think Teva is ideally positioned probably to take the temperature off the pricing in the U.S. So, let me maybe explain how we think about it. We market between 300 and 400 products on the market, when the smaller players are maybe dealing with 30 to 60 products. So any impact on one category, on what therapeutic area, on even the biggest product, has significant impact on their company and the price erosion where even an impact on maybe 50 to 60 of our key products doesn’t move the needle that much in terms of price erosion in the quarter. Even though obviously we felt the extra 2% clearly in the business, but it shows the strength and the benefit of being large in the market. We have a good service level I think our operational colleagues here have done better than ever before and being ready for the integration. We have serviced our customers well. We’re offering all these products to the market. How I think about it is I think about basically transition products. Products where we are losing exclusivity which always will hurt us and that was the comparison I talked to Umer about in terms of as omerprazole, xeloda, aripiprazole et cetera. Those are the transition products you will always see a little bit higher price erosion on these products. Then obviously we could identify the transition products that we had to divest, the duplicate to our competitors. We saw more pricing pressure there. And then the base business is a very big base business where it's the best briefing I think in the overall pricing environment in the U.S. So maybe we have to take a view what we will see in 2017. But where I sit here today, experiencing the market, there hasn’t began been any fundamental change. Yes, our customers are talking about more fierce competition. But as I mentioned before, it’s for a limited part of the market. And then on top of that, I think we are servicing our customers significantly better with Anda by our side, Anda being the fourth distributor of generics which will help us to service the customers better in the long-run as a plan. But the bottom line, Chris, there hasn’t been a significant change in the business. But we will take a view on that of course before we guide through 2017.

And on capital allocation, Chris, I said it before just reiterating what I’ve already said. Our focus now is on unlocking the value from the integration; from our generic business; realizing the value from our specialty pipeline; with strong focus on internal products; complementing quality with deals which are tuck-in deals, not significant ones; and then focusing strongly on paying down debt; and with a quest to reach the level of 3.5 times debt to EBITDA as quickly as possible. And before we do that we’ll not consider other potential capital allocation initiatives.

Thank you. We have no further questions on the phone. I’ll now hand the call over to Erez Vigodman. Please go head.

So on behalf the entire team, I’d like to thank you for participating in today’s call. We’ll look forward to speaking with you, seeing many of you, in the coming months. Thank you, again.

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