Ladies and gentlemen, thank you for standing by, and welcome to the Teva Pharmaceuticals Third Quarter 2019 Financial Results Conference Call. [Operator Instructions] I must advise you, the conference is being recorded today.I would now like to hand the conference over to your first speaker today, Kevin Mannix. Please go ahead.

Thank you, Laura. And thank you, everyone, for joining U.S. today to discuss Teva's Third Quarter 2019 Financial Results. We hope you have had an opportunity to review our earnings press release. A copy of the release as well as a copy of the slides being presented on this call can be found on our website at www.tevapharm.com as well, as through our Teva Investor Relations app.Please note that the discussion on today's call includes certain non-GAAP measures, as defined by the SEC. Management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the Company's operations to better understand its business.Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information and facilitates analysis by investors in evaluating the Company's financial performance, results of operations and trends. A reconciliation of GAAP to non-GAAP measures is available in our earnings release and in today's presentation.To begin today's call, Kare Schultz, Teva's Chief Executive Officer and Mike McClellan, Teva's, Chief Financial Officer, will review the third quarter results. Question and answer session will follow the presentation. Joining Kare and Mike on the call today is Brendan O'Grady, Teva's Head of North America Commercial.And with that, I will now turn the call over to Kare. Kare if you would please.

Thank you, Kevin, and welcome everybody. It is a pleasure to review the third quarter highlights. Our revenues came in at bit more than $4 billion, very much in line with the last three quarters as we have been discussing before. We are seeing now a nice stable development of our revenues. Our GAAP diluted loss per share was $0.29 in the third quarter. This was primarily affected by the accrual for the opioid litigation.On a non-GAAP basis, our diluted earnings per share were $0.58. The primary change there was a change to the tax - estimated tax for the full-year and that reduced the EPS by around $0.04. The non-GAAP EBITDA is around a bit more than $1 billion. It is very stable, again, in the last three quarters.So really the take home message here is, we are seeing the operational stabilization we have been talking about. We can see that the run rate on the operating profit is stable and we also saw a nice cash flow of some $550 million in the third quarter. So all in all we are very happy about the financial results.Commercially, I will touch upon a few topics. I will touch upon North American generics. The nice growth we are seeing on AUSTEDO; TRUXIMA, which is a new launch we are having in biosimilars; and then of course also on the restructuring program; and then positive development of our net debt.But let’s go first to the restructuring and take a status on that. So if we can take a look here at the actual spend base in 2017, it was $16.3 billion. As some of you might recall, when we announced the restructuring nearly two years ago, we promised we would bring this down by $3 billion to an absolute number of…

Thank you, Kare, and good morning everyone. As always, we start with the review of the GAAP performance on Slide 15. Teva posted a quarterly GAAP loss of $314 million and a loss per share on a GAAP basis of $0.29 for the third quarter of 2019. As I will detail in the next slide, the GAAP results were impacted mainly by an update to our legal provision associated with the ongoing opioid litigation.So turning to Slide 16, in the third quarter of 2019, non-GAAP adjustments amounted to $951 million impact on net income. The adjustments came primarily from three items; $460 million provision for legal settlements generally related to the opioid litigation; amortization charges of $255 million, which is a normal quarterly run rate for us; and $204 million impairment to intangible assets.I would like to take a minute and give you some insight into how we calculated the legal settlement provision as it relates to ongoing opioid litigation. As you recall that in Q2, after considering the $85 million settlement we had with Oklahoma and its unique characteristics, we further evaluated the potential settlement scenarios and outcomes for the purpose of determining the size of the provision, we would take.And in accordance with accounting requirements as no single scenario was considered to be most probable at that time, we recorded the minimum of these estimates which in Q2 was approximately $500 million.Since then, we have had two additional data points, which are; A, our Track 1 settlement with the two counties in Ohio; and B, the not yet finalized agreement in principle on a nationwide settlement framework announced on October 21st.These data points and other factors were taking into consideration our ongoing evaluation of potential settlement scenarios and the outcomes which resulted in increasing the provision by about…

Thanks and good morning, and best wishes to you Mike, and thanks for all your help over the past couple of years. Question specifically with respect to gross margin performance in the quarter, a little bit lighter than expected and I know there has been quite a bit of focus on that this morning, sort of given how important that is, you ultimately retained your operating margin target.I guess drilling down through the numbers a little bit, it looks like everything in terms of segments was essentially flat sequentially with the exception of the international business, that is down about 200 basis points. So I don't know if that is a function of exchange or just plant utilization, but maybe you could just drill down on those dynamics a little bit more and sort of talk about what accounted for the relative softness there.And then as a follow-up for I guess, Kare, and Brendan. Just maybe some thoughts on kind of overall CGRP market dynamics in the U.S. I guess the positive is we still see 7,000 kind of new-to-brand RXs every week, but that is basically been flat for eight months. So just spots on maybe sort of overall market growth trends opposed to just Teva's relative share of the market. Thanks.

Thank you very much for those questions. I think Mike will take the first ones and then I will give it a go at the second one and then Brendan will add to that. So, Mike you go first.

Yes. So we did have a sequential dip. If you look Q2 to Q3 in the gross margin percentage, but we also had that last year. So It is a little bit of a normal pattern in the year. We do expect that the full-year and the Q4 will get back toward the 50%.If we actually look at what drives that in the Q3 a couple of things. You are right, the international markets we saw a little bit of a lower gross profit percentage there, mainly related to Japan. We have seen some product mix there, that is a little bit light in the quarter.We also have a little bit higher write-offs in the quarter versus what we had in Q2. That tends to happen in the summer months as you have some plant shutdowns and they reevaluate the write-offs of products. But we still feel good that we are on track for roughly 50% for the year and you should see around that level in Q4.

And on the overall CGRP dynamics in the U.S., I will just say that from an overall perspective, we are still very optimistic about this segment. We see very good reception in the marketplace in terms of efficacy.We see a constant good flow in, as you mentioned yourself, or NBRx, which means that the market continues to accumulate. So we are still very optimistic on this segment and also internationally. We are only just starting to launch in Europe and in the rest of the world, but we believe this will be a strong worldwide segment.Brendan do you have any further comments? Brendan O’Grady: Yes, I would just comment Kare that I think if you look at the segment as Kare mentioned, It is a very effective class of medications. And I think you saw a lot of early pent-up demand. And I have said since the beginning, 2019 was going to be a bit of a roller coaster. I do think that the market levels out a little bit and continues to grow and I think that we will play a significant part in that growth.

Thank you, Brendan.

Your next question comes from the line of Ken Cacciatore. Please go ahead, your line is open.

Thanks so much. Kare you are doing a great job trying to resolve this litigation. But can you just give U.S. a sense of dealing with all Attorney Generals versus some? Are we making any progress with those that are not part of this early agreement that you have. So is there any progress being made as you try to bring the rest of them under the tent. And then, also in terms of the upcoming debt that you have due in the next couple of years, can you just talk about how this litigation may be impacting your ability to refinance or work on those debt obligations? Thank you.

Thank you very much for that question. I'm sure that It is on everybody's mind, the litigation on opioids and what I would say on that is that the frame work has of course been developed together with the four AGs that have been sort of been partied to this and it was started based on the Track 1 case that was coming up, as you know, in Cleveland.And the way It is developing is basically that there is a framework that everybody agrees to and that will serve you could say the American public and will serve the people suffering from addiction very well. We have made a 10-year commitment to supply a key component in the treatment pattern for people suffering from addiction.Some of the [indiscernible] have made commitments to provide significant financial resources also over a longer period of time. And I feel, this will be a very, very good way to move on, because at the end of the day what matters is really if we alleviate some of the burden from the people who have problems with addiction.Now that being said, of course, I realize that this will only work if everybody comes together. I very much hope that everybody will come together. That was the whole idea behind it. That is what the AGs have been signaling to us. It is a process that is ongoing. I'm sure It is an interesting and dynamic process. But I have high hopes that we will succeed in the end to the best of the American public, but also to the best of everybody involved.Now, when it comes to the ongoing you could say challenge we have that we need to secure refinancing in order to serve our debt, and I don't think It is a major issue. I think what matters here is that there is a willingness to look at a longer period here to look at like a 10-year period in order to resolve the issue.And that of course means that on a short-term basis given the fact that as we just discussed, we have a high debt and we have a high net debt-to-EBITDA ratio, then the fact that we were looking at a longer-term solution is a positive for our ability to, on an ongoing basis, refinance our debt. And maybe, Mike, you have a comment.

Yes, we regularly assess the market conditions as they relate to refinance our debt. And at this point, we can't comment on specific refinancing plans, but I think we have mentioned in the past that we would like to get out in front of the 21 maturities sometime latest in the first half of next year.So we will continue to monitor the market conditions and look at refinancing when it makes sense. We have been encouraged by the recent moves both in the broader market interest rates as well as in our own secondary rates. So there is some things that we will look at and assess the market as the time comes.

Thank you. We will now take our next question from the line of Esther Rajavelu of Oppenheimer. Please go ahead.

Good morning. A couple of quick ones, on AUSTEDO, can you update U.S. on the Tourette syndrome readout?

Yes, sure. So, we expect to have the final results of the Tourettes in the first half of next year and of course as soon as we have the final results, we will communicate them to the market. At this point in time we don't really have any further information, but of course we very much hope for a positive outcome to the benefit of patients suffering from Tourettes.

Got you. And then you mentioned in the press release on investing in some early stage R&D projects. Can you help U.S. understand what they are and when we might be able to see some of the news flow on those?

Yes. We have a strategy where we are pursuing R&D in biopharmaceuticals. Now that is innovative biopharmaceuticals and It is also biologics such as biosimilars and we will be communicating more in depth on the R&D strategy and the portfolio in February in connection with our full-year announcement. Right now all I can say is that we have approximately 25 biopharmaceutical projects and It is a very I think exciting portfolio that fits with our commercial footprint as well. But I don't have any further comments today.

Okay. And then lastly, any updates on the price-fixing litigation?

There is no real update there. We are in ongoing dialog with the Department of Justice. We have of course shared more than a million documents with them. We have not found any evidence that we were in any way part of any structured collusion or price-fixing, but we remain of course in dialog with the Department of Justice.

Thank you.

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

Thank you. Kare, I know you plan to update in February on this, but you did replace your Head of Global Ops a few weeks ago. So I was hoping you could provide a little more color on that and update U.S. on your progress to streamline your global operations and reduce cost of goods. It seems like cost of goods is the next frontier in terms of cost reduction at Teva, given the low hanging fruit, you probably already picked in the other lines. My second question is for Brendan. When do you expect approval for generic versions of Forteo and Nuvaring, and can you update U.S. on expected launch activity in general in the coming months. Thanks.

So, thanks for that question. You are absolutely right. Of course It is a key topic for U.S. to secure and in long-term improve our operating margin and our gross margin. And you could say that the recent change we had in the Head of our Global manufacturing.In that change, we replaced a very experienced and very, very competent person with not a very experienced, very, very competent person. And we also in our choice of new CFO, have secured a person with a very long and in-depth experience in global complex manufacturing and margin improvements.So I'm convinced that the management team will be able to inform you about our manufacturing strategy and the positive effects it will have on our gross margin long-term and we will be doing so with more color, more detail in February.But you are absolutely right, It is one of our key priorities for the very simple reason, our gross margin is around 50% and that means basically every dollar we sell, we spent $0.50 by far the biggest cost element in our P&L on the manufacturing. So that is of course a key focus area for U.S. going forward. But more details on it in February. And then, on to you Brendan. Brendan O’Grady: Yes. So, as Kare mentioned, we have launched 40 generic products year-to-date. We have another five to eight that we will complete by the end of the year. Nuvaring, Forteo and Restasis; none of those are in the 2019 plan. We likely won't launch Forteo before the second half of 2020. Nuvaring has been moved out to 2020 and Restasis could be any day, we just don't really know kind of on that one. So whenever the FDA approves it, we are operationally ready to go.

Thanks for the color.

Thank you. We will now take our next question from David Risinger from Morgan Stanley. Please go ahead, your line is open.

Thanks very much. Two questions please. First, with respect to the proposed opioid settlement, could you just explain how Teva accounts for the $23 billion in free Suboxone over 10-years from a financial exposure standpoint in reserves. So how you book that into reserves or do not book that into reserves. And then, with respect to AJOVY, could you talk about potential formulary changes in 2020? Any opportunities to improve its position that we should know about? Thank you.

Thank you very much. I'm going to take the first one and then Mike will probably add something to it and then Brendan will address the AJOVY formulary question. So if you go back to the half year announcement and at that point in time as you know, we have had the first settlement in Oklahoma. And the way the accounting rules are that if you have a settlement, but you don't know really what the end result will be for the whole issue, you have the partial settlement.Then what you are supposed to do is you are supposed to assess what the likely outcomes are. And if there is not one outcome, which is the most likely then you will pick the lower end of the range of outcomes that are sort of within the likely scenario.So since then, of course, we have had two things happening. We have been settling the Track 1 in Cleveland. And then we have the framework, which still has not been finalized, meaning that we don't have it sort of in a final form, and we don't know exactly how It is going to play out.So we have taken all these things into account, including the commitment to - under the framework, which we hope very much will come to fruition under the framework to commit to at WACC pricing deliver $23 billion of Suboxone.And that, all those elements have been taken into account and that has then led to a range of possible outcomes, and we have then made an accrual, which matches the lower end of the range. But, Mike, I'm sure I didn't get it all right, but if you have some further comments please.

No, I think you have got the substance, right. Let me just get some of the mechanics to expand on it. So, our expectation is that we will book a reserve for the future cost of this settlement, whether it would be the cash costs or the cost of goods. Some of those elements will be discounted using an appropriate discount rate back to a present value.Over time what you will see is, as inventory is produced and released, it will be taken against that reserve as well as cash settlements as part of future cash outflow. And over the years, the reserve will then of course be evaluated on an ongoing basis for changes in cost of goods, changes in interest rates, or any other thing that may change that liability.But our expectation is to eventually, once there is a final settlement, with everyone that you will see a much more clear number. As Kare mentioned, we have got a range of estimates at this point. And as nothing is more probable than any other point on the range at this point, we have booked the minimum of what we expect. Brendan O’Grady: So as far AJOVY formulary access for 2020, we don't expect any major negative changes to our formulary position going into 2020. We have currently about 70% of what we would call acceptable access or acceptable coverage and we hope to continue to improve that, especially as we go into 2020. We have one major Blues Plan coming on that we know of in January 1st, so that'll help. And although there is not a lot of volume in Medicaid and Medicare Part D, we are looking at those segments as well in improving our coverage there also.

Thank you.

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

Yes. Good morning everybody. Congratulations on the nice quarter. And Michael, we will miss you. We always enjoyed working with you. If you don't mind, I have really got three, but all the same topic, which is roughly pricing. I was wondering about TRUXIMA, if you can let U.S. know what pricing came with, is it same WACC as the is innovator same as the current ASP? And now that you are launching this product commercially, I was wondering if you can share with U.S. a bit more about the margin that you will be making on sales from your partnership with Celltrion.Then just following up with a couple of questions that just came in, on the opioid settlements, can you let U.S. know if - or share with U.S. roughly what will be a drag on cash flows if the agreement with the four AGs will actually end up being the agreement that passes the entire country as is, just so we can kind of model the probability. And the question of the pricing for 2019, AUSTEDO and AJOVY now that we have the contracts for 2019, can you give U.S. a feel for the pricing trend. Are we going up moderately or is it more of a flat or step down given the contracting situation.

Okay. Thank you, Ronny, for those questions. The TRUXIMA question and the AUSTEDO question, I will leave for Brendan. But I will just handle the opioid first. And with regard to the opioid framework, It is really too early to give you a firm answer to this on the cash flow.And that is simply because we haven't really - you could say, got to the fine print on it and there is a lot of details about how will the ramp up on volumes be and how will it actually be executed. So It is too early for U.S. to give you a number for the actual cash flow.Assuming that the framework results in a firm agreement, which I very much hope. As I said, to benefit of the American people and people suffering from addiction. We will of course update you as soon as that has happened with a more precise number both on the accrual and on the effect on cash flow. And then, Brendan over to you. Brendan O’Grady: Sure. So Ronny, the press release on TRUXIMA has the WACC prices listed in there, so It is $845.55 for the 100 milligram vial. It is $4,227.75 for the 500 milligram vial, which represents I believe about a 10% below the reference brand WACC.Of course, we will likely sell it for something less than that. I won't get into the exact specifics of how we are going to do that and the channels we are going to do that and so forth. But I think you are kind of aware of how this will go.As far as the margin, this is a profit split between U.S. and Celltrion. Celltrion were the developers. They submitted the BLA to the FDA and our deal on our profit split acknowledges the partnership that we have with Celltrion. And so that is all I will comment about that.In regards to AUSTEDO and AJOVY. I think as we convert patients off of coupon cards, we have more patients in paid prescriptions and we continue to improve our formulary access, you will see the margins on AJOVY improve and I don't see any real significant change to the margin on AUSTEDO as we head into 2020.

And maybe just to add on AUSTEDO, if we take price adjustments on AUSTEDO, it will be modest.

Thank you.

Thank you. Our next question comes from the line of Ami Fadia of SVB Leerink. Please ask your question.

Good morning. This is Eason Lee on for Ami. Thank you for taking my questions. Just a couple of sort of on the customers. You know we have seen some different biosimilars, Neulasta or Remicade launches in the U.S. priorly and they have gotten off to different ramps and I acknowledge that is sort of their - you know, different patient populations and durations. So just given these dynamics, how are you sort of thinking about the launch curve of biosimilar Rituxan versus some of these?And then just on some of the other biosimilars in your pipeline, Herceptin. When is this expected to hit the market? And then maybe a broader question longer term, what is your appetite to sort of bringing on additional biosimilars into the pipeline? Thank you.

So I think I will address the last one, the broader question and then I will leave two specific ones for Brendan. So longer-term, we actually have an appetite for bringing specific biosimilars to the marketplace.We realize that It is a unique situation product-by-product and we firmly believe that in order to be successful with the biosimilar in the U.S. marketplace, you need to have the - let’s say commercial footprint and commercial insight in order to penetrate the market.In this case, as I said before with TRUXIMA, we believe that due to our long experience in the oncology space in the U.S. with several products in the marketplace and long-standing relationships with all the different parts of the commercial value chain that we have a very good chance of doing so.And we also believe that in the future, we will be able to do the same with many different biosimilars. So that is a part of our - I would say biopharmaceutical R&D strategy that we both work on innovative new biologics, but also on biosimilars. But on the specifics, over to you Brendan. Brendan O’Grady: Yes. As you can imagine, there is been a lot of interest in the biosimilar launch of Rituxan. So there is been a lot of interest in TRUXIMA and of course Pfizer will follow on after us. So there would be two in the market here in the not too distant future. I think it still remains to be determined how pricing shakes out, and what the uptake is on share. But we are fairly optimistic that we have the right mix to take advantage of it.If you think about who Teva is, as an organization, we have an oncology business that we are very familiar with and we had a product - we have a product in that portfolio, GRANIX that very much acts like a biosimilar. And then we have of course the generic business. And the biosimilars are somewhere between a brand and generic.So we think we have the right commercial structure and the right strategy to fully take advantage of this marketplace, may be uniquely better than most. So we will see where it all goes. We look forward to showing you the results when we get there to February, but we are optimistic that we will see fairly good uptake in this market and may be better than what we have seen with some past biosimilars.In regards to Herceptin, I think you asked when we were planning to launch Herceptin and it will be late Q1, I believe, is the date for Herceptin, which is our - oh, our product is HERZUMA.

Thank you. Our next question comes from the line of Dana Flanders of Guggenheim. Please ask your question.

Hi, thank you very much for the questions. My first is, Kare, I know you have talked about the U.S. generic business being about $4 billion in annual sales. And I know it can be lumpy. It seems to be trending lower this year and you pushed out some launches. So, just can you comment on how much wiggle room do you see to that $4 billion number and would you expect launches next year to take that U.S. number back to that annualized $4 billion run rate? And then just my second quick follow-up, on AJOVY and I recognize the importance of having an Auto-injector. Can you just talk about the need or lack thereof, of a primary care presence to really help drive an NRx back to where you'd like to see it go. Thanks.

Thank you for the questions. I will take the first one and then I think Brendan and I will share the second one. So in terms of the $4 billion, It is important just to remember what we have been saying all the time. We are saying in North America, so if you look into detailed numbers, It is not the United States alone, It is United States and Canada. And as you know, we have a very strong generic business in Canada as well.So the North American business has a run rate, which is very close to $4 billion and as you say correctly, it can be a bit up and down per quarter. I think this year it will be very close to $4 billion in total and I have the same rough expectations for next year. We will give you more insight into that of course, when we come out with the guidance in February for 2020.But we do see a strong and sustainable business. And you are absolutely right. Some of our launches will get delayed. Orders will move up. Some will do better than expected when they finally get there like EpiPen and EpiPen Junior and - or else we will be disappointed that they get delayed. So that is just the name of the game in generics. And with regards to AJOVY, I think I will let you go with that one, Brendan. Brendan O’Grady: Sure. So we have always looked at the CGRP market, specifically the AJOVY launch as a two phase launch for us. So we launched the pre-filled syringe into the market. We saw early - a lot of early quick demand, and of course in the last several months, we have seen a decline in the new-to-brand share. And largely,…

Thank you.

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

Great, thanks very much for the questions. Just a follow-up on a few topics from before. Maybe the first on AJOVY, you are obviously highlighting the Auto-injector is driving reacceleration for the franchise. Just help U.S. understand a little bit, how quickly post the Auto-injector launch do you expect we will see that uptick. So is you are monitoring how important that is going to be for the franchise, is that something happens almost immediately or do we need to give this a quarter or two to evaluate?And my second question was on TRUXIMA and that opportunity. Is this largely a new start opportunity or do you think there is the potential to convert existing patients as well. And just a really quick one on taxes, you stepped up the tax rate to 18%. Is that a decent run rate to think about for Teva on a go-forward basis. Thanks very much.

Thank you for the questions. I think Brendan you will take the first two and then Mike, you will take the last one. Brendan O’Grady: Sure. So as far as the Auto-injector with AJOVY, I don't expect that we will launch the Auto-injector and all of a sudden we will pop up to 30%, 40%, 50% in new-to-brand share.I do think that we will see a steepening of the curve and I think that we will continue to see growth in AJOVY kind of back to the 20%, 25%, 30% that we are looking for as far as new-to-brand share. How long that takes? I don't know. I don't expect it to be immediate, but I expect it to continue to grow and climb into that 20% to 30% new-to-brand share that we are looking for.As far as TRUXIMA goes, I would expect that you won't see any conversions of patients currently on therapy. I think that whether It is TRUXIMA or whether it is any biosimilar in an oncology setting, is probably going to be mostly driven by new patient starts.

Yes. So when it comes to the tax rate, I did say in the past that we would see some pressure on the tax rate and we would eventually get toward the 18%. We have gotten there a little quicker than we thought. We thought we would be more in the 16% range this year. But I think 18% is not a bad range for the next couple of years.In the outer years of course, maybe we will be able to bring it back down a little bit. But given our business and given the rules that we are dealing with, with no significant new changes in tax legislation, 2018 is a reasonable run rate for the next couple of years.

Thank you.

Thank you. The next question comes from the line of Akash Tewari from Wolfe Research. Please ask your question.

Hey, thanks so much. So if we look at your long-term guidance projections for your operating margin. Can you, and it is just say we put it in consensus top line revenue projections, there seems to be an embedded OpEx cut that is baked in over the next few years. Maybe to the order of $500 million to $1 billionCan you give U.S. a sense of how much cost can still be cut out of Teva's current cost structure and given kind of the pricing wars we are seeing on CGRPs, is that kind of possible? And maybe on the other line for Teva's U.S. business, can you give U.S. a sense of what the growth trajectory of that line is over the next few years and what the margins are for those products? Thanks.

So, I will try and handle the first part and then I don't think we have much comments on the margin progress, but we will see, Mike will comment on that. So, if you look at our long-term financial targets, then we have an operating margin target of 27%, which is of course higher than where we are right now.Now, you have to imagine that that improvement would basically come from, you would say three main sources. One is the gross margin improvement that again will come from the sources of optimizing the manufacturing network, which basically takes down the cost of manufacturing the product and thereby improves gross margin and then of course there is also a mix effect on the gross margin.When COPAXONE goes down and the generic business is stable and then of course your gross margin goes down. When COPAXONE has sort of flattened out and AUSTEDO and AJOVY are increasing and your generic is roughly flat, then your gross margin goes up. So those two elements of course they help us. And then of course you have the ongoing optimization of the rest of your operational cost.And you are right, we have just taken out $3 billion of the spend base and we can't do that once more, but of course, we can keep on looking for optimization and improvements and we will be doing so going forward. On the other line in the U.S., do we comment on that? I don't think so, Mike, but...

No, I think you can see the basic sales trends there. This is all the remaining products, many of which are already facing generic competition. So you will see them slowly decline. They tend to have good operating margins because we don't invest behind these products.So that is something, but you can see over the course of the last couple of years that number has gotten down to a reasonable amount and It is been pretty stable throughout the year. So you will see a slow drag, but It is not going to fall off the face of the earth.

Great, thanks so much.

Thank you. The next question comes from the line of Jason Gerberry of Bank of America. Please ask your question.

Okay. Thanks for taking my questions. Just first Kare, just curious if you can comment at all on a Wall Street Journal report that came out a few months ago about the possibility that opioid manufacturers are contemplating opting into produce bankruptcy proceeding while not filing for bankruptcy themselves but leveraging that legal proceeding, which would seem to U.S. to potentially offer you experience and a consolidated legal mechanism to work with your counterparties. So, just curious what are the impediments to that? And then just secondly, on November 22nd, I think there is a deadline for parties - municipalities to opt into a negotiating class. Curious if you view that as a major milestone in terms of your ability to strike a settlement that is global and all-encompassing with the political subdivisions? Thanks.

Thanks for that question. So you are absolutely right that there is a theoretical opportunity of seeing the Purdue bankruptcy sort of being expanded to cover the whole - you could say the situation on opioid litigation.However, as of today, that is not what we are pursuing. As of today, we strongly hope and believe that the framework we have developed together with other defendants and together with the State AGs that that is the most likely and the best way forward.As I have said before in this call, for the American population and also for the people who suffer from addiction. This will be, in my mind, the most constructive way to move forward. In the event that this would not work out.Of course you are right, there is another legal framework, which would be some kind of participation you could say from a legal point of view of all this defendants in some overall resolution under the bankruptcy proceedings of the deal. I think that is really not what I see as the best solution right now. I think there is more momentum behind the general framework that we have developed together with the State AGs.

Thank you. The next question comes from the line of David Amsellem of Piper Jaffray. Please ask your question.

Thanks. So, on AJOVY just irrespective of the Auto-injector, do you think you need to contract more aggressively longer term given how your competitors are contracted, particularly Lilly with [indiscernible] being pretty aggressive in year one. So that is number one. And then number two, on AUSTEDO, your competitor is now going to be running a trial in Huntington's chorea. So with that in mind, how do you see the competitive landscape, particularly in Huntington's where you do have a unique label there. How do you see that evolving to the extent that INGREZZA gets a label expansion for Huntington's chorea longer term? Thanks.

Okay. So I will take obviously the AJOVY question first. I think that if you look at our focus on AJOVY, it has been on profitability as well as access and share. And I think that we have taken a little bit different approach in regards to access. But as I said earlier, we have 70% acceptable access and we continue to - we hope to continue to grow that.So I don't think that we necessarily need a more aggressive contracting approach with AJOVY to be successful. I think again the Auto-injector is not going to be everything, but we do have kind of a revised commercial strategy and plan around AJJOVY, which includes targeting physicians and a whole host of things.So I think that the gross to net is fine. And I think that we don't expect a new aggressive contracting play for access. As far as AUSTEDO goes, I think that if you - we will see where INGREZZA goes and we will cross that bridge when we get to it. But you are right, right now we are the only ones with the HD indication. Whether INGREZZA gets that indication or not, we will see.If they do, AUSTEDO certainly has a foothold in that market position. Seem to be fairly pleased with the way that AUSTEDO is working. So while it will increase competition and likely take some share, I have no idea how they will perform in that market.

Thank you. Next question comes from the line of Umer Raffat from Evercore ISI. Please go ahead, your line is now open.

Hi, thanks so much for taking my question. Kare, I wanted to ask a two-part question on opioid settlement framework. And I see two possible layers of alignment that still need to happen and would really appreciate if you could give us color on each of them. So the first one would be the rest of the 46 state AGs and there is a lot of feedback that they are not fully aligned, they are not comfortable and I was curious if you could catch up on what exactly is the hold up there.Second is the cities and counties, and I'm particularly interested in them because it seems to me that State AGs do appear to be focused on addressing the opioid crisis, so they are okay with taking Suboxone supply whereas cities and counties are being represented by trial lawyers, who are primarily focused on their cut on the dollar settlement size. So in theory, those trial lawyers have no incentives to get the cities and counties to align unless there is dollars coming their way. Wouldn't that theoretically imply a deadlock. I'm just trying to understand is there a credible path toward resolution in the next six months or so?

Yes. So that is, of course, very interesting question, which I can't completely answer in all details, since I'm not a party to all those discussions. But if we start from the overall situation, and as I said before, I believe that the framework that is on the table now that is the best possible way forward to serve the purpose of helping the people suffering from addiction in the United States.I think the state AGs see that. I think the other defendants and us, we see that, and there might be some subdivisions who don't see it exactly that way, but hopefully at the end of the day, what will prevail will be what is best for the American Public and for the people suffering from addiction.And you could also say that if it is not resolve this way, just like the state AGs outlined it, it becomes a completely random game for which county, which city goes first in the sort of sequence of suing and how much money do they actually get until potentially some people stop settling or stop paying.So I think we need a holistic solution here. I think It is to the benefit of everybody to do that way and I very much hope that that will be the case.

Thank you.

Next question comes from the line of Gary Nachman from BMO Capital Markets. Please go ahead.

Thanks. Kare I know you will give guidance in February. But with most of the year behind you, how are you thinking about 2019 as a potential trough year and an ability to return to growth next year, both in terms of revenue and EBITDA. Just give some of the major pushes and pulls on that front.And then just one follow-up. Part of that is that COPAXONE is holding up better than expected. So explain the dynamics there behind the scenes and can that be maintained into next year? What sort of declines should we be thinking about with that franchise. Thanks.

Thanks, a very interesting question. You are absolutely right. As I have said, I guess since I joined that we were going to do the restructuring and the decline of COPAXONE combined with the restructuring would actually, from a natural point of view, automatically result in more or less this year being the trough year.And as you know, a trough is flat at the bottom and that is what we are seeing right now in terms of the development in revenue and the development in operating profit. You basically see the last quarters being very stable and we having the operating profit at the level of just above $1 billion and the revenues at the level of above $4 billion.Now if we then think about next year, It is too early for U.S. to give guidance. And then you might ask, why can't you give guidance? And one of the elements is of course your second question COPAXONE, because you are right, we are seeing a stabilization. Basically the last three quarters of COPAXONE have been very stable.We see a marginal decline in the TRx volume. We see a very stable development in Europe and there is a lot of moving parts in this. And if we take the U.S. first, then you can say that is the unknown factor of how are we going to have one more generic competitor in the 40 milligrams COPAXONE. Right now we don't have any evidence that we will have short-term, but we don't know when that will happen. So that is one swing factor.Now that situation will also affect the contracting and the pricing. If there is no new competitor coming in, then there is a high likelihood that the pricing environment will stay relatively stable. Now that will have a positive…

Okay, thank you.

So, this completes our quarterly earnings call for the third quarter. I very much look forward to hopefully talking to most of you three months from now, when we will announce the full-year results and also share with you our look on our future manufacturing strategy and biopharmaceutical R&D strategy. Thank you so much for listening in.

Thank you. That does conclude the conference for today. If you wish to listen to the replay of this conference, please dial +44 3333009785 and type in the Encore replay code 5965257. Thank you for participating. You may all disconnect.