Welcome to today's Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. I must advise you that this conference is being recorded today, Thursday, August 3, 2017. I would now like to hand the conference over to your first speaker today, Kevin Mannix, Senior Vice President, Head of Investor Relations. Thank you, sir. Please go ahead.

Thank you, Rose, and thank you, everyone, for joining us today to discuss Teva's second quarter 2017 financial results. On the call with us today are Dr. Sol Barer, Chairman of the Board; Yitzhak Peterburg, Interim President and CEO; Mike McClellan, Interim Chief Financial Officer; Dipankar Bhattacharjee, Global Generic Medicines; Dr. Rob Koremans, Global Specialty Medicines; Dr. Michael Hayden, Global R&D, Chief Scientific Officer; and David Stark, Chief Legal Officer. We will start the call, which will last approximately one hour, with a review of the quarter and revised 2017 outlook by Dr. Peterburg and Mike, followed by remarks from our Chairman, Dr. Barer. We will then open the call for questions and answers. A copy of the slides can be found on our website at www.tevapharm.com, as well as on our Teva Investor Relations app. During this call, we'll 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 are 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 a supplement of data and not in substitution or replacement for GAAP results because management believes such data provides useful information to investors. And with that, I will now turn the call over to our Interim CEO, Dr. Peterburg. Yitzhak?

Hello, everyone, and thank you for joining us today. I'm sure you all have had the chance to review the press release we issued this morning. We are reporting today lower-than-expected Q2 results. Revenues in this quarter were $5.7 billion, resulting in a non-GAAP net income of $1.1 billion and non-GAAP EPS of $1.02. Cash flow from operations was soft, amounting to $741 million. We have also lowered our 2017 revenue outlook to $22.8 billion to $23.2 billion, and our non-GAAP EPS outlook to $4.30 to $4.50. All of us at Teva understand the frustration and disappointment our shareholders are feeling. This morning, we are going to outline what has changed over in the last three months, the actions we are taking, and some of the positive development this quarter. In the last three months, our results were greatly impacted by the performance in the U.S. Generics business and continued deterioration in Venezuela. In our U.S. Generics business, we experienced accelerated price erosion and decreased volume, mainly due to customer consolidation, greater competition as a result of an increase in generic drug approval by the FDA, and some new product launches that were either delayed this quarter or got subjected to more competition. Let me explain. One of the most notable challenges we have faced was price erosion and the decreasing volume has been the ongoing consolidation of our customers and their ability to negotiate lower prices for generic drugs. Specifically, in Q2, we finalized both prices and volumes of our inline products with one of our largest customer, Claris One, the Walmart and McKesson RFP. This development and other new contracts had a greater-than-expected negative impact on our Q2 results and especially on the outlook for the remainder of the year. Given new insight we have into the business…

Thank you, Yitzhak. Good morning, everyone. Please join me in reviewing our Q2 2017 results. This quarter revenues were $5.7 billion, up from $5.0 billion a year ago, mainly due to the inclusion of the Actavis Generics business, including Anda. Our GAAP results for the quarter were significantly impacted by a goodwill impairment of $6.1 billion booked this quarter, leading to a loss of $6.0 billion in the quarter and I will expand on that later in the presentation. On a non-GAAP basis, net income was $1.1 billion compared to $1.2 billion a year ago. Similar to last quarter, the effect of the mandatory convertible preferred shares was anti-dilutive, so the number of shares remains at 1.017 billion. The EPS associated with the mandatory convertible preferred shares is $1.09 per quarter. So when EPS is lower than $1.09, we do not add the potential new ordinary shares to the number of shares. Looking more deeply at our non-GAAP results, you can see the revenues increased by 13% with a corresponding increase of only 4% in operating expenses despite increasing our investment in R&D by more than 20%. Operating income increased by 1%. This quarter had a lower gross profit margin, 56.8%, compared to 62.5% in the second quarter of 2016, which was a standalone Teva business only. This is the result of the addition of the low margin Anda business, which is a distribution business in the U.S., as well as lower margins in our generic medicines business and a mix effect as post the Actavis acquisition, the Generics business has a higher weight than in the past. The lower profitability of the Generics business is mostly due to limited launches this quarter as well as price erosion in our inline products as described by Yitzhak. In addition, R&D expenses…

Thanks, Mike. First and foremost, I want to echo Yitzhak's remarks and stress that the board understands our shareholders' disappointment with today's results. I also want to reinforce the support of the entire board including our four new independent directors to the actions Teva is taking to improve our performance. We understand that significant change is required and we all have a sense of urgency. The executive team under the leadership of Yitzhak has the full backing of the board as it navigates this difficult environment to deliver the results we know our shareholders expect from us. It's never easy to take action to reduce the dividend. However, we will continue to make the tough decisions when necessary. After carefully reviewing our dividend policy, we determined that the cash generated from this reduction, combined with other measures, will help us pay down debt, invest in our business and the great array of assets that Teva has within its portfolio and operate successfully in the current environment. We are also mindful that Teva is an important company to patients and healthcare systems around the world. As I've said before, we also take this responsibility of being a responsible corporate citizen very seriously and we are committed to doing things in the right way. Before turning the call back over to the management team for Q&A, I want to briefly touch on our ongoing search for a permanent CEO. This is a process we are not going to rush, and we will not compromise on quality and on finding the best individual possible to lead Teva. Let's now turn to the Q&A.

Thank you. Your first question comes from the line of Randall Stanicky of RBC Capital Markets. Please ask your question.

Great. Thanks, guys. I just have a question and a quick follow-up. When you first provided guidance late last year, you had implied a roughly $1 step-up in the back half. That's now $0.70 lower on the implied midpoint of the guidance currently. So, can you just quantify for us where that $0.70 change has come from? And then my follow-up is, I just want to front this. You're going to get the question probably on this call about breaking up the business, but is that even realistic given the $35 billion in debt and what would be likely significant dissynergies? Is that effectively off the table?

So to answer your first question on the guidance, as you've seen, our guidance range has come down to $4.30 to $4.50. There's a couple things driving that, mainly the price erosion in the U.S. business, the additional competition and the effect of Venezuela. Those are the things that are driving the majority of that $0.70 difference and because we had a back-loaded year, we were expecting to ramp up significantly in the second half. We originally had guided to a 40-60 split. The way we see it now, we see Q3 more relatively in line with what we've seen up until now and we will see a tick-up in Q4 as the U.S. generic launches take into more effect. I will now turn it to Sol for the second part of the question.

Okay. Thank you for the question. Look, the board and the management team are right now focused on doing what is best for our shareholders and that is concentrated on delivering our business goals to continue to take action to aggressively confront our challenges, invest in our core assets and strengthen our leadership position across all our markets. We believe by doing this, we are delivering long-term shareholder value. Having said all that, we continually evaluate what the best things are for our shareholders. So again, just to be clear, we are focusing on our business and financial priorities very aggressively right now.

Okay. Thank you.

Thank you. Your next question comes from the line of Andrew Finkelstein of Susquehanna Finance. Please ask your question.

Hi. Good morning and thanks for taking the question. I was hoping you could talk a bit more about how the phasing from some of these consortium bids are coming in through the rest of the year. And how that relates to your commentary around the accelerating price erosion in the back half of the year? And then you mentioned some work with outside groups to look at the strategy in U.S. Generics. Could you maybe talk conceptually about what kind of initiatives you and probably others need to take to put the business on better footing for the longer term? Thanks.

Yes. So thank you, Andrew. First, let me address the question that you have around the consolidation of the buyers. As you know that now at this point in time, approximately 80% or a little higher than that of generics purchases are concentrated in four GPOs. Specifically, in quarter two, we saw the impact coming from finalization of Claris One which is RFP that was from a combination of McKesson and Walmart. We saw some impact of that due to price adjustment in the latter part of the quarter as well as some shelf stock adjustments that we had to do. It has negatively impacted our prices. And we also largely secured most of the volumes that we have seen. Earlier in the year, we had a similar RFP from another GPO which is Econdisc, and at this point in time, we have no further news as to whether there will be further RFPs or not. In terms of the effect of these RFPs on the remainder of the year, it will lead to a higher price erosion, and that is built into our forecast. Coming now to the second question...

When you say higher, higher than what?

So, Mike mentioned earlier that using our new methodology, in quarter two, we saw the price erosion to be around 6%. In the remainder of the year, we expect the price erosion to increase to high-single digits. Now, coming now to the next part of the question that you asked, which is around the strategy of the Generics business, as was mentioned earlier, we are engaged or we are in the process of engaging some external consulting help to look at our overall strategy for the U.S. Generics business. We feel very encouraged by the fact that we have an extremely strong pipeline coming out of our R&D. We have slightly over 300 ANDAs, of which more than 100 which have been filed and of which we have in excess of 100 which are first-to-file. In addition to that, we also have about 300 products in development which we haven't filed as yet. As a combination of these two, we are targeting close to $200 billion of brand sales. So as far as the future is concerned, I think we need to put it in perspective not just in the context of the price erosion that we see but also the value that is going to come through our new products pipeline.

So, I mean, where is the area for improvement to – I mean I think were – the rationale for the Actavis deal was certainly to get access to that pipeline. What's the key to making sure that you're able to get the value that those products are providing to the healthcare system and patients?

Yes. So the shift in the pipeline that we have accomplished through the Actavis acquisition is the products in our pipeline now, we believe the greater value will come through more complex products. We have products in development which are in the respiratory area. They will be AB-rated products. We have products in the development which are long-acting injectable products. They are difficult to make. They are difficult to get regulatory approval, and we believe that the value that we will see out of these products will be far more durable than some of the blockbusters that we have seen in the past.

All right. Thanks very much.

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

Good morning. A couple questions. First, on buying groups, if we imagine they're like bullies and with a bully you kind of have a few different choices either punch them in the face and hope they stop or you have the choice of keep getting beaten up or move. So when it comes to Teva, since your generics and you can't really move out of the neighborhood, and this quarter kind of shows that you don't really have the ability to stop the beating, why should we think this is a one-year phenomenon rather than something that we are just going to keep seeing happen year after year given the pricing power that the buying groups have? And then secondly, just a clarification, on generic Copaxone, I want to make sure I heard it correctly that you said the impact of a generic Copaxone 40 milligram you estimate would be $0.25 per quarter, is that with one competitor assumed or is that multiple competitors? And is it fair to assume that 2018 guidance will include an impact of generic Copaxone so that roughly we should imagine, all things being equal, $1 lower EPS? Thank you.

So, David, first, let me take the question that you asked around the consolidation of buyers. So, on the buyers, first, we see ourselves strategically aligned to the three or four large customers that we have in the U.S., okay? The relationship that we have is we try and find situations where there is a win on both sides. So while through these RFPs we have seen price erosion, we have also been able to secure additional business. So I think that to see them as simply a transfer of value from one place to another is not how we look at our partnership with them. Regarding as to what is the future outlook in terms of pricing, the formation of these GPOs have resulted in a degree of harmonization of prices among the different members of the GPOs. And as you are aware that in the GPOs you have retailers, you have wholesalers, you have people who are different positions in the value chain. So over a period of time, as these prices are harmonized among the different trade classes, we do believe that there will be a degree of stabilization that will come.

Thank you, Dipankar. Let me take the generic Copaxone question. Based on what we see in the market and the public information that we have, we still feel confident that we will not see a generic Copaxone 40 milligram in 2017. If we were to see one or multiple competitors in Q4, the numbers we've given you of $0.20 to $0.25 is a reasonable range for us. It's too early now to comment on 2018. We are just starting our annual operating plan. We will, of course, come back to you in early 2018 with our guidance for the year, but we still hope not to see a generic entry in 2018, though the numbers you have there for a quarter are probably not a bad rough estimate based on what we've seen up until now.

Great. Thank you very much.

Thank you. Our next question comes from the line of Ronny Gal of Bernstein. Please ask your question. Aharon Gal - Sanford C. Bernstein & Co. LLC: Hi, folks. If you don't mind I'm going to ask three. The first is to Sol. Sol, you have mentioned needing to do things the correct way on cost cuts, but we hear a lot of noise coming from Israel, and the question is, doing it the right way is important, but you're also resolute enough to actually go through with some of the cost cuts within Israel, which is obviously a place where luxury costs are based. And I know I'm touching a tough point, but I think it's got to be addressed. Second on the U.S. generic, I'm not going to join David's flowery language in terms of bullying and such, but I think the core argument is still there. Are you actually making money in dealing with a large group purchasing organization on the commodity business? And given where you are today, should this business not shift to a differentiated generic business only, cutting out of the commodity products that are not making you money in the United States? Are you not in a position to start thinking about exiting in this? If we look at what happened with the injectable generic business when the group purchasing organizations have been founded, the product pricing went down, all the way down to the point where there was no supply in the market. We might be heading that way with the oral solid products. Is this not the time to potentially just step away from this business? And third, just not to be a complete downer for this call, AUSTEDO, you've launched the product this year; can you give us a little bit of update about the launch of that product?

So, Ronny, Yitzhak is speaking. I'll take Sol question, I think – questions about our notification of cutting 350 employees in Israel. So decisions like this are never easy, but we really firmly believe that this is the right thing to do, first of all for our businesses in Israel and, you know what, even for the employees in the Israel and for sure for all of our stakeholders for the long-term. We value the dedication and the hard work of all the employees and we are committing to treating the affected employees with dignity and respect. Second question, Dipankar?

Yes. So thanks, Ronny. Let me – and address it in the following way. You know we have a large portfolio of products and as a part of that portfolio are relatively more commoditized products and the example that you gave are many of these are instant-release oral solid-dose products. Overall, first, what we have is an active tail management process where we find that whenever a product within our portfolio, which is highly commoditized with many competitors where we are not cost-competitive enough, we usually remove them from our portfolio. We have an active portfolio review process through which we address that. Nevertheless, if when we look at the combined commoditized part of our portfolio, it still continues to be quite attractive. And one of the most significant contributors to that, the two reasons are, first is, many of these products are where we are vertically integrated and we have an extremely cost-competitive supply chain. The second part of it is the breadth of our portfolio by itself allows us to get a relatively attractive price even within the context of the overall commoditization. So I don't think that we have reached the point, and we are far from reaching the point, where this portfolio ceases to be attractive to us. Answering the second part of your question is should we not move to complex generics, more difficult-to-make products. Yes, we have, and that is where our R&D investment is principally focused. Aharon Gal - Sanford C. Bernstein & Co. LLC: Dipankar, medical CapEx. Are you making money in the U.S. commodity generic business?

Yes. Aharon Gal - Sanford C. Bernstein & Co. LLC: Okay

Ronny, let me take your third question on AUSTEDO. We are extremely happy with progress so far. The product is doing well. The feedback from patients, doctors is very positive. And also on the payer side we really don't see any major hurdles. We now have about 800 patients being treated. As you know, you don't pick it up in IMS because about the largest part is actually going through specialty pharmacy and we expect that you will only see about 10% or so eventually in IMS. And also we started this launch with giving patients the option of titration free of charge, which will take about two months on average per patient. But so far we're extremely happy and looking forward now to the launch in TD, which we expect to be able to do in September. We're in active negotiations with the FDA on the label and also that looks good. It's too early to comment on anything because you always have to wait for it, but so far so good for AUSTEDO and I'm extremely pleased with the progress we're making there. Aharon Gal - Sanford C. Bernstein & Co. LLC: Thank you.

Thank you. Your next question comes from the line of Louise Chen of Cantor Fitzgerald. Please ask your question.

Hi. Thanks for taking my questions here. I had a few. So first question here is just following up on some of the earlier questions on consolidation of these consortiums. It seems like they are pretty consolidated. So if they can't get any larger, shouldn't generic drug pricing stabilize from here? And when could we see that? And then the second question is if a breakup of the company is achievable, does the result of this quarter in the generics business push you closer to doing something like that? Just because it seems like the brand business probably isn't getting the attention and the valuation it deserves given some of your advancements there. And then the last question here is just, despite the setback this quarter, do you think there's still room left to grow the U.S. generics business? And if so, could you give some specific examples where you see this? Could it be biosimilars? You mentioned the complex generics. What's still out there that's interesting? Thank you.

So, thanks for the questions. Let me start with the first question, where you are asking where is the effect of the GPO consolidation, how will it play out and at what point of time we will see the stabilization. The GPO consolidation started a couple of years ago and accelerated since then. The more recent phenomena that we have seen in the last six to nine months is the frequency and the scope with which the RFPs have been sent out by these GPOs. And to a certain extent that was to bring about a degree of price harmonization among the different members from the different trade classes within the GPOs, as I mentioned earlier, and the most recent and the most significant RFP was the one with Claris One that closed at the end of the second quarter. Now the effect of these RFPs will take time to play out, and which is why I mentioned that we will see an increase in price erosion in the second half of the year. We have to see as to how long it takes. I expect that some of it will advance into 2018 as well. And so over a period of time as the prices among the members become similar and the prices across the GPOs become similar, we will begin to see a degree of stability in the price erosion itself, but it's not that the price erosion will not be there but the erosion in itself. The second is in order to understand the dynamics of price erosion, there are two contributors to price erosion. One is the erosion that happens on the base business, and the second is the erosion that arises out of transition products. And let me explain to you what are transition products. Transition products are by their nature products that had enjoyed a certain degree of market exclusivity, enjoyed higher prices and volumes, and with the inception of additional competition, they see very radical decreases in prices and volumes. The second are transition products which are currently enjoying higher prices and volumes, but they are likely to lose that in the foreseeable future because of additional competition coming. Now depending on the company and depending on the portfolio of the company and how much of the business comes from transition products, that is often a significant contributor to price erosions when you look at all-in portfolio of the company. So it changes from year to year. It changes from company to company depending on the products in the portfolio.

On your second question, it's Yitzhak, coming back to what's happening in the generic, I think we spent some time about the challenges, and what we are doing now – management and board is really concentrating on really taking the right action items to aggressively confront those challenges. Questions are coming all the time about splitting the company. The only way I can answer it is our board and our management team are committed to acting in the best interest of our shareholders. We evaluate all the time the situation, and I think we are doing the right things now.

So, Louise, let me also address the question that you asked around is it possible for the U.S. generics business to grow? In the U.S. generics, our ability to grow is dependent on three factors. The first is the flow of new product launches that we have in any particular year. The second is the price erosion and the one that I explained in my earlier response, both on the base business as well as on transition products. And the third is net changes that we may see on our market share on some of our key products. Now the most important contributor to this are the new product launches, and there as I mentioned earlier, in our pipeline we have 300 plus pending ANDAs, of which 100 are first-to-file. There are in addition another 300 products in development, which we haven't filed of yet. Overall, this targets about $200 billion of brand sales. And even within our portfolio, the R&D dollars are now directed towards developing more complex products, which are more difficult to get approval for, and hence, the intensity of competition around those products are likely to be less than what we see in either oral solid-dose instant release or even extended-release products. Often, these are medicine and device combinations. They are difficult to get approval for. So we do believe that there will be some years where we can grow; there will be other years it'll be difficult to predict, depending on the flow of new products.

Next question.

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

Thank you. First, Mike, can you clarify your cash flow guidance and expand and give us free cash flow guidance for the year? Second, for Yitzhak, you sounded confident in getting $2 billion or more from divestitures and getting the money by year-end. It sounds like it's important for covenants to get it then what supports your confidence in the $2 billion or more comment as well as getting the money that quickly, given no announcements yet? So please be specific, if you can. And third, I think it's for Dipankar. You're cutting your U.S. forecast on factors that many other companies and industry followers have highlighted months or quarters ago. So given that, how can we be confident that the new forecast is conservative enough, and what changes have you made to any processes or forecasting or personnel? Or are you simply just using a lower number in the model? Thanks.

Thank you, Gregg. Let me address your first question on cash flow guidance. You have seen that our guidance on cash flow from operations is $4.4 billion to $4.7 billion. When we look at free cash flow, we use a definition that includes the proceeds from the divestitures. Assuming that we are able to complete the divestitures, as mentioned by Yitzhak, we feel that we will still be in the range that we originally had published of over $6 billion. Of course, that will be subject to the timing of all the necessary approvals and does face a little bit of a crossover risk between the end of Q4 and beginning of 2018. In any case, we feel it will help us on our path towards deleveraging and help us to pay down the $5 billion of debt that we've promised in the past.

Regarding the divestitures, first of all, as I update you in the call, the situation is that we are continuing to make very good progress on the sales of both assets. We see strong competition from multiple bidders – I'm sorry – and we are happy where we are and expect, as I said, to announce agreement in the really coming months. Saying all of that you know we anticipate closing this in 2017, but this is subject to necessary approvals, and that's exactly where we are. We think we will get the number I showed you.

Yitzhak, one more.

Yes. So let me answer the last part around the generics forecast. So in the remainder of the year, the way we have looked at our forecast is the following. There are really two key elements. The first element is the degree of price erosion that we expect in our base and transition products. And what we have done is we have looked at the impact of the RFPs, the impact of the shelf stock adjustments that we have done. We have modeled them on the basis of volumes that we expect out of these for the remainder of the year. And that is based on information that we have that is based on our anticipation of what further changes that can happen, and we feel good about that forecast for now. As I explained earlier also that it does lead to a higher level of price erosion in the remainder of the year than what Mike reported for the second quarter. The second significant element is the new product forecast, which for the year we have said we feel good about $500 million. And let me expand on that. So as we described at the beginning of the year, we were targeting more than 80 different product opportunities that are expected to yield about 40 to 50 launches in 2017. And let me give you some more color on that. As of July, we have launched around 30 products that we expect will yield approximately $270 million in annual revenue this year. Some of our notable launches year-to-date are the generics of Glumetza, Pataday and Epiduo. As you are aware, Pataday and Epiduo are two products in which we enjoy 180-day exclusivity. In the second half of the year, the way we have looked at our new product launch revenues is we have a number of launches where we have stronger position from a legal, regulatory and operational readiness. And I will give you some more examples of that. These are launches of the generics of Viagra, Viread and a combination of these we feel quite good about the fact that we will get to the $500 million that Yitzhak spoke about earlier in his opening remarks.

We'll take one more, please.

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

Good morning. Thanks for taking my questions. So just on the CEO search, can you provide just a bit more of a detailed update? This has been going on now for six months, how close are you in terms of timelines and to what extent is this any kind of limiting factor on making any kind of strategic decisions at the company? And then secondly on the debt, can you confirm that you are still on target to pay down, I think, you mentioned earlier this year about $5 billion...

I'm sorry.

You're breaking up.

Okay. Liav, are you there?

Yes.

Okay. So let me provide – I will answer your first question in terms of the CEO search. As I've said several times, and you're right, it's been approximately six months, we are looking – this is a global search. We're looking for the right person to lead Teva. I've gone through the qualifications of that person, including significant very senior-level, CEO-level experience at major global pharmaceutical companies. The ability to manage in a changing environment, cultural fit, et cetera, all these things, and for me, Liav, this is a very critical hire for us as we are determining in many ways the leadership for a long time and setting the course for Teva in doing this. So, this is my primary sort of personal objective at Teva. I live, eat and sleep this, and while it is always great to do this in a rapid time, et cetera, six months is not a long time for – to look for a CEO. We're very pleased in terms of number one, in terms of the candidates, the number – the candidates that we are meeting with that we're having discussions with, and under all those circumstances, I'm very pleased with the quality, and so at the end of the day, I think we have made significant progress for that search. I don't want to give you a specific time, but it is very positive so far.

So, Liav, this is Mike. Can you expand on your second question that we kind of got cut?

Sorry. Can you hear me now? Can you hear me?

You can't hear us?

I can hear you, yes. I'm just checking that you can hear me.

I can hear you. If you want to repeat your debt question, please? I'll answer it.

Just that you're still on target to pay down $5 billion in debt this year? And any comments on how much debt you anticipate that you'll be able to pay next year or any targets going forward, that will be helpful as well.

Okay. So as I mentioned earlier with the proceeds of those divestment sales, we feel we're on track to pay down the $5 billion. The one factor we just don't have control over is currency. If the euro and the yen continue to appreciate against the dollar, we could of course miss that target a little bit, but we are on track to pay the $5 billion. As we go into 2018, we're still early in the process of looking at that. We are committed to repaying our debts as they mature and we're also on track for all the commitments that we have. We will come back to you, of course, early in 2018 with further color on that as we get into the annual planning process.

Okay. Thank you.

Thank you. We will now take a question from the line of Umer Raffat with Evercore. Please ask your question. Umer Raffat, please ask your question

Can you hear me? Sorry. Sorry. Can you hear me?

We can hear you, Umer.

I'm sorry. So I wanted to focus on three topics if I may. First on the free cash flow guidance, just wanted to understand why the free cash flow guidance drop was more than the EBITDA guidance revision down? Just wanted to understand the dynamic there, number one. Secondly, if you could comment a bit on the pricing pressure on Copaxone. Why that is? I noticed a bunch of your MS competitors didn't have that, but just wanted to understand the dynamic. And then finally, I just wanted to spend a minute on debt. So the latest debt is about $35 billion and probably drops to – what I'm trying to get at is towards the covenant. So the debt is $35 billion, probably drops to about $33.5 billion organically by Q4, and if you get another couple billion divestitures, that's $31.5 billion debt by year-end. So that $31.5 billion debt balance divided by 4.25, which is your covenant, would get you implied EBITDA of $7.4 billion is where you should be for the trailing 12 months, which is effectively 2017. Your first half of the year is tracking at 3.6, which would imply to the full year $7.2 billion or under, so isn't that below what the covenant requires? I just want to understand how you're thinking about that and what you have to do? Thank you.

Yes. Thank you, Umer, for your suite of questions. I'll try to go through them. First of all, the GAAP that you're seeing between the net income and the cash flow from operations, free cash flow, are due to two things. One is there's some working capital timing as some of these launches and other items shift later in the balance sheet, the collections are more likely to be in 2018 than 2017. And in addition, in my slides, I mentioned we are purchasing some minor assets mainly in the R&D space of up to $200 million, so that kind of bridges the gap between the EBITDA that you see and the cash flow. In terms of Copaxone, when we say net pricing adjustments this isn't necessarily all pricing in the market. If you remember, we have a 20 milligram generic in the U.S., which is putting a little bit of pressure on us. We also saw in 2016 in Q2, if you remember from our presentations there, that we had a little bit of a favorable gross to net adjustments in 2016, which was a follow on of the 2015 launch of the U.S. generic for the 20 milligram, which had some, of course – we weren't able to predict what channels all of that was going to be in. So we had a little bit of a one-time positive in 2016 that did not repeat. In terms of the debt, of course, doing the math, we are on track for the 4.25 based on our cash flow. And of course, it's going to be that we have to hit the EBITDA within the guidance that we've put out. We of course will monitor the situation and be in close collaboration with our creditors to make sure that we take prudent steps, and if necessary, to talk about adjustments or refinancing if we feel that we need to do that sometime in the future.

Okay, Rose. We're going to close the call now.

Thank you. I would now like to turn the conference back over to Kevin Mannix. Thank you, sir. Please go ahead.

Thank you, everybody, for joining this call this morning, which started earlier than we normally do. We know it's a busy day for all of you. We apologize to the folks who we were unable to get to in terms of asking questions. And the management team will make itself available throughout the day, tomorrow and next week to answer any questions you might have. Thank you very much.

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