Teva Pharmaceutical Industries Limited (TEVA) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Teva Pharmaceutical Industries Ltd. First Quarter 2012 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, May 9, 2012. I'll now hand over the call to Mr. Kevin Mannix, VP, Head of Investor Relations. Mr. Mannix, would you like to begin?

Thank you, Rachel. Good morning, good afternoon, everyone. Thank you for joining us today to review Teva's first quarter 2012 earnings results. I’m joined today by our President and CEO, Shlomo Yanai; Teva's incoming President and CEO, Dr. Jeremy Levin; our CFO, Eyal Desheh; Bill Marth, President and CEO of Teva Americas; Rob Koremans, President and CEO of Teva Europe; Dr. Michael Hayden, President of Global R&D and Chief Scientific Officer. Shlomo will begin by providing an overview of the quarter, followed by Eyal. We'll then provide additional details on our consolidated financial results. Finally, we will hear from our new CEO, Jeremy Levin, before opening the call to a question-and-answer period. Before we start, I’d like to remind you that our discussions during this conference call will include forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in Teva’s report on Form 20-F and Form 6-K. Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Teva’s earnings release issued earlier this morning, which can also be found on our website, www.tevapharm.com. With that, I will now turn the call over to Shlomo. Shlomo, if you would please?

Thank you, Kevin. Welcome, everyone, and thank you for joining us today as we review Teva's results for the first quarter of 2012. I'm pleased to report that the year is off to a solid start for Teva. Compared to the first quarter of 2011, sales were up by 25% to reach $5.1 billion. Quarterly operating profit grew by 42% to $1.6 billion, and net income increased by 39% to $1.3 billion. This brought us to EPS of $1.47, up 41% over the first quarter of 2011. During the quarter, we undertook an important initiative to streamline some of our commercial arrangements in the U.S. In the near and midterm, these changes will yield important financial benefits for Teva. During Q1, however, these moves had a negative impact on revenues of approximately $180 million. Revenues were also impacted by currency exchange rates during the quarter of $81 million. I would like to discuss just a few highlights from our major businesses during the quarter, and Eyal will elaborate later on all of our businesses in a greater detail in his remarks. This was the second consecutive quarter of solid results in our U.S. generics business. Teva's world-class generics R&D, broad product portfolio, continuing improvements in service levels and deep customer relationships have enabled us to bounce back to enjoy growth of 29% year-over-year. During the first quarter, we launched 7 new generic products, representing over $10 billion in branded sales in the U.S. market, and a number of these launches were either exclusive, semi-exclusive or in limited competition markets. In Europe, in spite of rough macroeconomic conditions, sales grew by 3% during the quarter in local currencies to $1.3 billion. We saw a significant increase in sales of our branded products due primarily to the inclusion of products we acquired from Cephalon, as well as the take-back of Copaxone distribution and marketing rights from Sanofi. In fact, in the EU countries, where we recently took back Copaxone sales and marketing rights, however, its growth in units is about 7%. This offset lower generic sales due to the ongoing macroeconomic conditions and health care reforms in key European markets. Our strategy of diversifying our business in Europe geographically and from a product standpoint, as well as our significant footprint in the continent has helped us to successfully mitigate some of the prevailing pressures. During Q1, we continue to enjoy strong growth in our Rest of World markets, particularly in Eastern Europe and Latin America. Sales totaled $1 billion, up 23% in local currencies. And in Japan, Teva has introduced a new face to the market, with the integration of Teva's existing businesses into one new company, Teva Saikou [ph]. We are very pleased with the enthusiastic response the Teva brand is receiving in Japan. 2012 was off to a great start for Teva's branded business, with strong sales of our major branded products. As you have seen in our press release, sales of Teva's portfolio of branded products enjoyed 54% increase in sales year-over-year, thanks to a combination of organic growth, the addition of Cephalon products and positive sales synergies of the major Cephalon products with Provigil, Nuvigil and Treanda growing organically, on average, 22% year-over-year. I am pleased to report that the integration of Cephalon into Teva is going even more quickly than we anticipated, and synergies remain in line with our expectations. Copaxone remains the market leader in the U.S., retaining over 40% market share and continues to grow outside the U.S. in terms of value and units sold. Outside the U.S., in-market sales grew by 15% in value and 26% in units sold over the first quarter of 2011. Copaxone remains the leading global therapy for the treatment of MS. Teva's global respiratory business grew by 4% over the first quarter of 2011. In the U.S., market share for both ProAir and Qvar continued to grow during Q1, with Qvar further strengthening its #2 position in the growing inhale corticosteroid market. We are very excited about our recent launch of Qnasal and have received U.S. approval for our ProAir dose counter, which we expect to launch this fall. Finally, I am pleased to report that as part of our strategy to turn our women's health business into a global franchise, we have launched our women's health product, ZOELY, in select EU countries and have submitted Seasonique for approval in the EU As you all know, I will be stepping down today after 5 deeply rewarding years as President and CEO of Teva. When I joined Teva, the company was already a generics powerhouse, with annual revenues of over $8 billion. The growth strategy we have implemented over these last 5 years has turned Teva into a larger, highly diversified global pharmaceutical company. As CEO, it has been extremely gratifying to lead Teva through this exciting period in its history. At a personal level, it has been a true privilege to work with Teva outstanding management team and employees to create a stronger and more balanced Teva. I'm very grateful to the entire Teva family. Over the last few months, I have had the genuine pleasure of working closely with my successor, Dr. Jeremy Levin, to ensure a smooth transition of leadership. I have gotten to know Jeremy well and I am completely confident that he will lead Teva to even greater heights. Jeremy, I wish you and the whole Teva family every success in the future. As you can understand, it was not -- be appropriate at this time for me to provide any forward-looking statements. But I'm sure that after undertaking his own processes and conducting his assessments, Jeremy will share his thoughts with you. It has been a pleasure to work with all of you. I would like to thank you very much and wish all of you the best going forward. And with that, I will now turn the call over to Eyal. Eyal?

Thank you, Shlomo, and good day to everyone. The first quarter of 2012 marks a positive start of the year for Teva. We are reporting today solid growth in our key quarterly parameters: net revenues, non-GAAP operating income, non-GAAP net income and non-GAAP EPS, as well as the GAAP results. The main drivers of this solid growth were the performance of our U.S. generic business, which is back on track with 7 new product launches during the quarter; strong performance of our global branded business, notably in Europe, where we have successfully taken back all rights for Copaxone; and consistent growth of our markets in the Rest of the World. In addition, the growth also reflects the contribution of our M&A activity last year, primarily the acquisition of Cephalon and Taiyo. There were 3 factors that provided headwinds to our result this quarter. First, the renegotiation of certain distribution service agreements in the U.S. in order to establish a new fee structure resulted in a reduction of approximately $180 million of branded sales. We believe this move will yield benefits to Teva in the short and midterm. Second, the continued regulatory changes that created pricing pressure on the pharmaceutical industry in Europe, stemming from the general macro environment in the continent. And third, negative impact of foreign currencies on our sales. I would like to touch on 2 issues before I review the first quarter numbers. First, I would like to remind everyone that we are presenting GAAP and non-GAAP results. In our non-GAAP presentation, we have excluded the following items: amortization of purchased intangible assets totaling $414 million, of which $402 million are included in cost of sales and the remaining $12 million in selling and marketing expenses, amortization this quarter mainly represents the provision patent expiration and is expected to be lower for the rest of the year; inventory step-up of $56 million in connection with the Cephalon acquisition, this amount would be significantly lower next quarter; costs related to regulatory actions taken in facilities of $38 million, which relates primarily to our Irvine and Animal Health facility; impairment of long-lived assets of $87 million; restructuring and other expenses of $43 million related primarily to the Cephalon and Taiyo acquisition; legal settlement and reserves of $19 million, mainly related to U.S. product liability matters; and related tax benefits of $216 million. Please review our press release and related tables for complete information, including reconciliation to GAAP figures. As we have indicated in the past, we'll present non-GAAP figures to show how we, the management team and our board, look at our financial results. And second, I would like to cover the impact of foreign currencies on our P&L, as well as our balance sheet. In the first quarter, foreign currency differences had a negative impact of approximately $81 million on sales. This resulted primarily from the weakening of some European currencies, mainly the euro, relative to the U.S. dollar. Currencies had minor positive effect on our operating income this quarter as it has impacted our expenses in a different manner. We expect foreign currencies to continue to have adverse impact on our sales during 2012. On the other hand, foreign currencies had a positive impact on our equity, increasing it by $772 million. So with those background points, looking at consolidated results for the first quarter, net revenue had reached $5.1 billion, an increase of 25% compared to the first quarter of last year. As we started doing last quarter, I will turn now to the description of a breakdown of our sales by business lines and by geography. Generic products net sales for the first quarter of 2012 were approximately $2.6 billion, including API sales of $199 million, an increase of 12% when compared to $2.3 billion in the first quarter of 2011. Our generic business in the U.S. had a strong quarter with sales of $1.2 billion, an increase of 29% compared to the first quarter of 2011. This was the result of the launch of 7 new generic products, which are escitalopram, modafinil, progesterone, irbesartan and irbesartan/HCTZ, quetiapine, and olanzapine ODT. We also continue to benefit from our agreement with Ranbaxy relating to its launch of generic Lipitor. In Europe, our generic business had a challenging quarter, with sales of $775 million, a decrease of 15% or 12% in local currency terms compared to Q1 2011. The decline was primarily the result of various regulatory measures aimed at reducing health care and drug expenditures in key European markets. The generic business in our Rest of the World market had another good quarter, with sales of $623 million, an increase of 30%, driven primarily by sales in Eastern Europe, the Latin America, as well as the inclusion of Taiyo, slightly offset by a decrease in generic sales in Canada. Let's turn now to our branded business where we had a good quarter across most product lines. Total net sales in the first quarter were approximately $2.1 billion, an increase of 54% when compared to the $1.4 billion in the first quarter of 2011. Branded products revenues this quarter comprised 41% of our total revenue. Branded product sales in the U.S. this quarter were $1.5 billion, an increase of 60% compared to the first quarter of 2011. This was mostly the result of the inclusion of Cephalon. In Europe, our branded business has a good quarter with sales of $365 million, an increase of 43% compared to Q1 2011, driven by the successful completion of the take-back of Copaxone sales in Europe from Sanofi, the inclusion of Cephalon and strong sales of each product. In the Rest of the World market, branded sales were $212 million, an increase of 32%, driven primarily by strong sales of Copaxone in Russia and certain Latin America countries. Finally, turning to our OTC business, net sales for the first quarter of 2012 were $196 million, an increase of 7% when compared to $184 million in the first quarter of 2011. OTC sales are made primarily in non-U.S. dollar currencies, and in local currencies, they increased by 10%. Moving on now to our non-GAAP operating income, which totaled $1.6 billion in the first quarter, up 42% compared to Q1 2011, reflecting mainly the inclusion of Cephalon strong sales of our branded products and the 7 generic launches in the U.S., as well as tight expense management. Non-GAAP net income and fully diluted earnings per share for the quarter were $1.3 billion and $1.47, respectively, up 39% and 41%, respectively, compared to Q1 2011. For the first quarter of 2012, the weighted average share count for the fully diluted earnings per share calculation was 882 million shares on both GAAP and non-GAAP basis. As of March 31, 2012, the share count for calculating Teva's market capitalization, was approximately 872 million shares. Now let's discuss profit margins and operating expenses. Non-GAAP gross profit margin for the quarter, which excludes amortization of purchased intangible assets, costs related to regulatory actions taken in facility and inventory step-up, was 60.9% in the first quarter compared to 58.8% in the comparable quarter of 2011. The higher margins this quarter primarily reflect the inclusion of Cephalon and the new generic launches in the U.S. Net R&D expenses reached $292 million this quarter compared to $239 million in the first quarter of 2011, mostly reflecting the inclusion of Cephalon. Selling and marketing expenses for the quarter, excluding amortization of intangible assets, totaled $916 million compared to $825 million in the first quarter of 2011. The increase was primarily due to the inclusion of Cephalon and Taiyo, as well as the take-back of distribution and marketing responsibility for Copaxone in Europe, partially offset by lower royalty payment on generic products in the U.S. and changes in currency exchange rates, which had an impact on expenses as well. Total G&A expenses this quarter were $312 million compared to $221 million in Q1 last year, primarily due to the acquisition of Cephalon and Taiyo and a gain from the sale of our Peruvian pharmaceutical chain recorded in the comparable quarter. This was partially offset by lower legal costs. Non-GAAP operating margin for the quarter reached 31.1%, significantly up from 27.3% in the comparable quarter last year, driven primarily by the inclusion of Cephalon, the new launches in the U.S. and tight expense management. We recorded $70 million of financial expenses on a non-GAAP basis in Q1 compared with $38 million in the comparable quarter of 2011. The increase is mainly due to higher interest expenses resulting from adding debt incurred to finance the acquisitions of Cephalon and Taiyo, partially offset by income from hedging activities. The provision for non-GAAP tax for the first quarter of 2012 was 13.7% and amounted to $207 million on pretax non-GAAP income of $1.5 million. The provision for tax in the first quarter of 2011 was $121 million on pretax income of $1.1 billion or 11.2%. We experienced an increase in our annual tax rates for 2012 compared to annual tax rates in 2011, primarily as a result of change in geographical and product mix following the Cephalon and Taiyo acquisition. That tax benefit for the first quarter of GAAP results amounted to $9 million on pretax income of $885 million compared with $49 million on pretax income of $829 million in the comparable quarter of 2011. Now let's look at our cash flow. Cash from operations in the quarter was $756 million, a decrease of 16% compared with the first quarter of 2011. Our free cash flow, excluding net capital expenditures and cash dividends, amounted to $414 million, a decrease of 19%. The decrease is mostly the result of one-off items such as legal settlement, tax advances and restructuring costs and an increase in inventory level. During the quarter, we bought back approximately 11.9 million shares at an average price of approximately $44.67 per share for a total of $533 million. On March 31, our cash and marketable securities and our total outstanding loans, bonds and convertible debentures remain unchanged compared to the first quarter of 2011 at $1.7 billion and $14.5 billion, respectively. Our financial leverage as of March 31, 2012, were 38%, up from 23% as of March 31, 2011. The increase in financial leverage is attributed primarily to the financing incurred in relation to the Cephalon and Taiyo acquisition. We expect to gradually reduce our financial leverage in the coming year. Net capital expenditures reached $168 million this quarter, a decrease compared to $280 million in the previous quarter and $184 million in Q1 2011. Yesterday, Teva's board approved the quarterly dividend for the first quarter of ILS 1.00 per share, in line with the increase -- or quarterly dividend announced in the previous quarter. Based on the rate of exchange on May 8, 2012, of the sheqel to the U.S. dollar, this translates into approximately $0.263 per share or total amount of approximately $229 million for the quarter. Before I conclude, I would like to extend my warmest wishes to Shlomo, who is completing today 5 very successful years as President and CEO of Teva, and wish his successor and my new boss, Dr. Jeremy Levin, the best of luck taking our extraordinary company to new heights in the future. Thank you all for your kind attention today. Now let me turn the call to Dr. Jeremy Levin. Jeremy, please?

Thank you, Eyal. I'm delighted to be here today to speak to you as Teva's President and CEO. It's an honor and privilege to lead this great company. Here with me today are some of the key members of Teva's global management team. Together, we'd like to thank Shlomo Yanai for his leadership over the last 5 years. And from me, particularly for all of his time and effort during the transition period that we worked together. As a result specifically of this effort and of the very smooth handover, I take over this flagship company having had an initial immersion in Teva's operations, activities and culture. Thank you, Shlomo. Teva is a remarkable company in a prestigious industry. It has a strong historic heritage, an impressive record of achievement and many competitive advantages. I joined Teva because of its potential to make a difference in patients' lives around the globe, and I believe I can make a difference here. Together with the great people of Teva, I am confident that we can have an increasingly significant positive impact on patients around the world through innovative ideas, excellence in operations and performance, superior solutions, product and commitment. In the past few months, I've had the opportunity to meet many of the leaders and some of the talent that have made Teva the company that it is today. As I've traveled around the company in Israel and abroad, I've been very impressed with the people that I've met and what I've seen. Teva has some of the best people in the industry, diffused [ph] with an entrepreneurial drive, commitment to patients and the desire to succeed at all levels that is unparalleled. As I take the reins of my new role, I'm examining where we will take Teva in the next part of its journey, how we can build on our strength and past achievements and to seize and capitalize on the unique opportunities that can drive our future. To that end, we've already put in place a set of initiatives designed to address key needs and articulate opportunities, which will help formulate Teva's agenda and develop its long-term strategy. We expect to unveil our strategy later in the year. I understand that, from time to time, Teva has commented on our guidance during these quarterly calls and in our other communications. As you know, I'm currently conducting a detailed business performance review for 2012, which is still underway. Once it is complete, I'll be able to talk about 2012. Until that time, we'll not be addressing our guidance. We have a covenant with our shareholders and investors to maximize value. And I want to emphasize how important it is and will be for us as a company to unrelentingly drive value for our shareholders and investors. As part of that, I'm committed to having an ongoing and in-depth relationship with you, our investors. And to that end, I'll be embarking on a series of meetings, conferences and roadshows in the coming months, both to listen to your views and to develop an open dialogue. As you know, Teva is a widely admired and respected -- and respected internationally and within the pharmaceutical industry. It has accomplished a great deal. I look forward to reporting to you about our progress and achievements as we embark on the next steps of our continued journey to drive the company to an even more successful and sustainable future. Thank you.

Thank you very much, Jeremy. And now, we'll open the call for your questions. Operator?

[Operator Instructions] [Technical Difficulty] The first question is from Chris Schott of JPMorgan.

My question here was for Jeremy. Based on your first few months of immersion in the Teva business, can you just articulate at this point what you see as the key needs for the company based on your time so far? And then the second question for Jeremy as well. Obviously, your prior company was faced with a significant patent expiration cycle. Obviously, a different situation here. Do you think there are lessons that you can apply to Teva in the way the company is managing itself for thinking about future growth given the Copaxone uncertainty?

First of all, my apologies to everybody. I can't say that this has been an exciting moment, my first quarter call and guess what happens, we go silent. So all I can say is that probably one for the record and we'll put it down to the fact that hopefully we'll get this -- it will never occur again, hopefully. Anyway, look, a couple of really good questions there. Thanks for them. Number one, I've not finished my assessment of the needs for the company. I will say that a couple of things have played out and have been quite remarkable in my assessment of it. Having seen a number of other companies, Teva's footprint is most unusual. I think global footprint, extraordinary footprint, array of products, these things are extremely, extremely important to the company. Geographic dispersion, as well as the capabilities that underline not only its manufacturing commercial, but also its generic research, very, very unusual. So I'm going to continue that process of looking at some of the needs. I will be coming back to you and talking about those and how they fit into an overall strategy a little later on in the year. My sense is that it will be premature for me to give you a comprehensive look. I will say though, there are some very impressive aspects to the company. Particularly and perhaps the striking note that I would say to you is, having been in different companies, each company has, for want of a better word, let's call it a soul, and that really reflects the culture and the intent behind the people. And I'd say that this aspect of Teva is second to none. Let me just turn briefly to your question about patent expiries and Copaxone. Look, first of all, this is something that happens across the industry. Every single company experiences it. Different companies react differently to it. I would say that reacting to a single product patent expiry is part of the norm for every company and it's put in the context of an overall strategy for that company. And part of that has been initiated by the company in the years gone by in the sense that the dependence on Copaxone has been sequentially reduced over the years in terms of its revenue to the company by virtue of dispersion across different geographies and the acquisition of some of the specialty products that it has. So some of the steps are there. There's lots of lessons to be learned from other companies that have dealt with patent expiry, and we're going to go through that process as well. And I'm bringing some of those lessons with me as well. That's for sure.

Your next question is from Ronnie Gal of Sanford Bernstein.

A couple of questions, if I may. Jeremy. I'm going to -- I think you're going to get a lot of those today, but I understand from talking to some of your partners that you began to do an extensive process of reviewing the R&D pipeline. And given this is kind of like an area of strength for you, can you give us a -- idea about assets you're particularly excited about? And moreover, there's been quite a day for a while about whether Teva should have a high level of branded R&D, and I just wonder if you have a thought -- if you came to an initial conclusion around that. Second, and it's a bit more of a couple of product-specific questions. Any first impression of Qnasal support in the marketplace, and the status of the tamper-resistant Hydrocodone?

So let me just touch on the reviews. As I've said to you the -- we are conducting an extensive review. This is not just of pipeline, it's across the board, it's the business, it's the -- in the different geographies. It's also the manufacturing footprint. It's the pipeline, our capabilities in R&D and the individuals, the people that we have. This is part of a normal process that any CEO does. It's not something unusual to what -- is undergoing in Teva. We've identified a number of different processes that we'll undergo to look at that. And amongst those is the process to look hard at the pipeline. Now as you know, that pipeline was looked at last year, and I think at this stage it's premature to say that there's any changes whatsoever from that. But I anticipate as Michael comes on board and works with me and others around the table, we'll have a much clearer view of that a little later in the year. And as regards to the other 2 products, I'll hand over to you, Bill.

Just a quick follow-up on that. With respect to Qnasal, we had a great launch meeting and we're very excited about it. And of course, the product didn't launch until March 23. So very early on. Again, we're very, very excited about the formulation and we think this is the right product and it's a very large market. So we're pretty excited about that.

How are you looking in terms of managed care coverage?

Sorry, I didn't -- you broke off.

I'm sorry. How are you looking in terms of management -- managed care coverage? I heard there might be some issues there?

No. We have not had any issues yet with managed care coverage. We think we'll be fine there. With respect to your second question on TD Hydrocodone, that study unfortunately was a negative study. We actually got very good Hydrocodone scores on our pain side. But quite unusually, our placebo scored very well too so we did not get significant. So that is a failed study at this point in time. But I would also add, Ronnie, that the Nuvigil first study came back on bipolar and that was a positive study.

And you need to -- why don't you explain the next one?

We've got 2 other studies out there, right? The second study should read out by the end of the year.

The next question is from David Amsellem of Piper Jaffray.

This is Traver Davis on for David. So just a quick question on the fentanyl brands, Actiq and Fentora. So I think, arguably, it's a little bit more of a crowded competitive landscape at this time. We saw a fentanyl sublingual spray launch recently. So can you talk about what you are doing there to defend that franchise?

Yes, David, this is Bill Marth. With respect to that franchise right now, we do have Fentora and we do have Actiq. The TD Hydrocodone was going to be our next product in this market. Fentora is still great product, still exclusive at this point in time, but we had hopes for TD Hydrocodone. We are going to reevaluate that. But right now, there's no other addition for that particular portfolio.

Okay. That's helpful. And just moving to the generics business. So is there any additional color you can give us on generic pricing in the EU, maybe, particularly what countries you saw the largest pricing headwinds and maybe some countries that you saw better pricing than expected?

David, this is Rob. What you're seeing in Europe is actually a combination effect stemming from the overall difficult macroeconomic environment. And the crisis has caused health care reforms basically all over, but especially in the larger European markets. And they are not only affecting pricing, but also the overall commercial environment in Europe with all the conditions in there. What we see is that this impacts -- there has been strong pricing impacts in countries like Spain, France, but also in -- and they are some of the big markets. What we see is that there was a reform going on and it's very difficult at this moment in time to really predict how it's going to roll out further. Reforms happen, changes in governments are happening. The good news though, is what we also see is that there is an underlying strength of Teva. We are in all of the European markets. Our geographic spread and also the diversified business help us to come through this. We really are very well positioned. And in some of the smaller markets in Europe, we have seen really very good growth of generics. And so the markets in countries like Germany, France, Spain have gone from growth to no more growth or even sometimes negative, but we see very good developments in smaller countries. Offset [ph] also some of the volume and price growth by new launches where we are -- have been quite successful. The one thing that is going to be very difficult to predict, and I cannot do it at this moment in time, is how the economic environment is going to roll out further in the year in Europe.

The next question is from Corey Davis of Jefferies.

I have 2. First, can you elaborate a little bit more on your recent announcement of hiring Dr. Michael Hayden as head of R&D and what Dr. Hayden brings to the company?

Corey, this is Jeremy. I assume the question is posed to me, right?

Yes, sir.

Right. Look, I think one of the elements that is important as we look to the future of the company is to understand how we can leverage some of the assets that are internal in the company. And so a couple of things were important in thinking through who would be -- what was required. Number one, we have a number of dispersed assets in R&D across the company. So I needed to bring together an organization that is currently geographically dispersed, multiple sites, multiple different programs so that we can really get a clear handle on what it is that we most want to spend our money on. And with that in mind, this includes across the generics R&D and also what, for want of a better term, is called branded R&D. So I've known a number of different individuals across the industry who are people who are capable of leading this kind of a process. One of them -- there are a number, certainly. They're rare. And amongst them, Michael brought a couple of qualities that I think made him outstanding. The first is that we are a company that's committed to medicines. And those medicines are not just medicines that are -- start with an NCE. These are things that effectively are medicines that are generics often, different kinds of approaches to providing a good medicine and different formulation. Michael understands this deeply and has a firm belief in the use of medicines as it applies to patients. His understanding of how medicines apply to patients is unique as a physician. Secondly, Michael, over the years, has had a track record of either working with or finding or developing himself or through companies that he's developed, interesting and very potent and very important medicines. And this has not been -- this has been a very unusual track record. And as you look into his background, and I'm sure he'll have the opportunity to meet you all and I'll make sure that he does, you'll get a sense of exactly what this character of experience actually is. Coupled with that, of course, is that there's some deeply experienced people within Teva who have had the experience of developing product in the generic area and also in some of the branded area. And when you couple that with Michael's vision of what's required for patients, what's required from different marketplaces and his international background, and I'll repeat that, his international background, it's not just America. We are a global company and he has a deep understanding of the requirements across multiple societies. He have a very unusual combination of positive attributes, which provide for an individual who can lead an organization of the kind that is suited to Teva and particularly suited to the structure and types of medicine we produce. And perhaps, I'll let Michael say 1 or 2 words.

Well, thank you, Jeremy. I'm delighted. I've just been on the job here in Teva a few hours, so I'm not going to comment too much about vision. But rather just to say that the reason I was attracted to Teva is this is a very patient-focused company. And the opportunity to think about products that range from all aspects, going from target identification, all the way through, through a life cycle of the drug, both through its patent protected life cycle and then its off-patent life cycle, gave me an opportunity to really think deeply and gives me this opportunity to focus on the patient. And I think Teva's global footprint gives us an opportunity to think specifically about patients and patients' needs in specific geographic areas, and so I'm thrilled to be part of this very imaginative and creative team.

Thanks, Michael. Corey, I hope that answers your question.

Perfect. Second quick one, probably for Bill. I was a little surprised to see you settle for generic entry on Nuvigil in 2016 especially with what you just said about the first positive bipolar study. If you get a second study, is that still worth filing and commercializing given the time frame of generic entry now?

We think so, yes.

The next question is from David Buck of Buckingham Research Group.

Two questions for Jeremy. First, from an investor standpoint, the expectation for this year was largely a pause in big deals and a focus on return of cash to shareholders. Can you talk about conceptually whether we should still be thinking that, that's the case. And then secondly, if you look at Teva, I know you're not done with your full strategic review, but if you look at sort of the patent cliff for generics or the waning of the U.S. patent expiries over the next few years, can you talk about your views on Europe in particular as a way to offset some of the potential slowdown in the U.S.? Does the strategy make sense and are we seeing that as sort of an offset to that going forward?

So perhaps I'm not quite understanding the question. Let me understand it. I'm going to repeat your question and then just tell me if I've got this right. The second one was really, given the patent cliff diminution and therefore the reduction on Paragraph IV type products, does this mean that we should be focusing elsewhere, and in particular, as what you've described in Europe. Is that the question -- the second half of the question?

Yes. I guess more simply does the diversification into Europe, in particular, make sense given the pricing environment and the outlook for the next couple of years in Europe?

Yes, it does make sense. And so I think this is a global company. We look at opportunities in each of the different marketplaces and I think we would be wise to consider all of these marketplaces with our footprint in the future. So I certainly envision that and I, let me -- perhaps could give some of the color to that back to Shlomo because some of the thinking was set in place previously or perhaps to Rob, one of the 2 of you should handle that.

Thank you, Jeremy. And David, thank you for the question because I think it's a good opportunity to explain that what you see in Europe and maybe in some other countries where your under a price pressure may create a kind of a short-term thinking on the future of generics. So first of all, let look at Europe -- at Europe, sorry. The 400 million inhabitants, aging population, high need for life standards and a very huge economic pressure. Definitely they are going to end by giving or having more generics. The level of -- the current generics penetration in the Europe is still below the U.S., which is almost 80, and Europe, the average is about 50 and in certain big countries, even below that number. So it's strategically important market for the future of the Generics business. I can make the same point for Japan where the government of Japan just last month, as part of their view on that, made a decision to increase their support in generics in order to increase the level of penetration in Japan to 35%, previously they were aiming for 30% and you can just tell that they are giving incentives for pharmacies who sell more generics. This is a world trend. Generics business has a future out of United States, not less than in United States. In United States, of course, the business is going into a kind of a transformation once the, what you call, the patent cliff is going to arrive, but that's mainly by 2015. And by this time, our businesses around the world will be such that they will be compensate or actually will get us another source for growth and stability in the business and so in the Generics business.

Maybe -- this is Eyal. Maybe I'll take the question about our shareholders' return. As you remember, we have announced a pretty comprehensive program for shareholder return, increased our dividend last quarter by 25% and continued with this run rate this quarter. In the first quarter, we have executed a little over $0.5 billion in share buyback and we believe that we are going to be very disciplined with capital allocation, and we'll examine the proper [ph] opportunities every quarter and come back to you and report at the end of the quarter.

Okay. So on that first question, it sounds like it remains in place.

Yes.

The next question is from Gregg Gilbert of Merrill Lynch.

First for Bill and then Jeremy. First, Bill, is SUBOXONE film a when or an if? And on LOVAZA, what's your launch readiness and capacity if you get that rolling in your favor this month?

Gregg, we're not going to address that at this time.

Either of them?

I didn't -- I heard the LOVAZA, I didn't hear the...

The SUBOXONE film, is that a when or an if?

SUBOXONE?

Yes.

I'm not going to talk about that right now either.

So for Jeremy, I have an industry question for you. Just looking for your view on companies being diverse in terms of geographic mix and business mix as opposed to more of a focused model, and maybe you can attack that from both an operational standpoint as well as a stock price standpoint and how that influences your thoughts on, to be diverse or not to be diverse?

Well, I think that's -- it's kind of an important question. I think you're -- if the word diverse means different kinds of products that's different from different kinds of geographies. Let me address the geography aspect because that's really perhaps, from an industry perspective, the most important. Certain companies have a significant advantage in North America where they have a predominant one kind of product that really is the most important in that class, in that marketplace, and they don’t tend to diversify out of these areas. However, Teva, amongst others, in fact, has looked at the demography of the middle classes and those who are able to consume medicines around the world. And if you look at that demography, what you see are trends that Shlomo alluded to, which are extremely favorable in many different parts of the world outside of America where often people are not able to consume the same kinds of medicines that are consumed in America for a number of different reasons, either they aren't launched there or, in fact, culturally they don't take them. I view the -- if you look at the growth over the next 10 years, the predominant growth in markets will be outside of United States and Europe, but that doesn't mean one can't win and be successful in those markets playing an exceptionally good game. And the goal for Teva is to play in all these markets so that we can actually leverage our size, our skills and definitely our cultural ability. This is not -- we can't -- this is a multinational company with a cultural diversity, which is most unusual, that allows us to understand whether you're in Chile or whether you're in Japan, how to actually access the marketplace. And I think that in those, thinking about the modern companies of the future, you should be asking the question in my mind, how do people, how do companies, how do organizations address growth outside and both bridge the gap of addressing growth outside of the major markets as they exist today and prepare and be ready to take advantage of the predicted and likely growth in the other marketplaces.

And one more on the people angle. As you meet with those talented and proud people around the company, and once you get past the I'm-trying-to-impress-the-boss theme, are there certain themes that come up consistently that you sort of try to explore, be them good ones or bad ones? The company has become quite large and has changed quite a bit over the past decade or so.

You know, this is one of the fun things that you do. Each time you go through this, you try and understand where are the solid foundations of any company. I'd say to you that given the growth trajectory of the company over the last 10 years, that trajectory is nearly unparalleled. And what that has occasioned is the development of an enormous amount of resilience and determination to -- either when problems crop up to fix them or in fact to, in a very spirited fashion, to be aggressive in trying to succeed in their business goals. And you have to dig down below that because, as you rightly point out, as the boss walks around, they ask themselves how can they impress the boss. Well the kind of questions that I'm asking are, just talk to me about -- tell me what's really bothering you, what's your strategy. Open-ended question which allows me to drill down a little bit lower and get a sense of who these people actually are. And it's my sense of, overwhelmingly, that you have incredibly committed people and people that, when given the opportunity to solve problems, will absolutely solve those problems in a very concerted and a cross-border fashion. Which is a little different from any other organizations I've seen where you tend to find people who are much more siloed than we are here. There a number of strengths there that I think will play very well to an organized, focused, highly efficient, highly strategic approach, which I hope we'll be able to roll out to you later on in the year.

The next question is from Jami Rubin of Goldman Sachs. Jami, are you on the line? [Technical Difficulty]

The next question is from Frank Pinkerton of SunTrust.

First, I'd just like to ask, can you please just provide an update on us -- for us on the European consolidation landscape? We see the headlines for the larger acquisition. Is there anything going on still more on the regional levels for some of the secondary manufacturers of smaller shares and how they are pricing, staying in business, or is there more consolidation going on there?

No, we don't really see -- this is Rob. I don't see -- well, obviously, there's now Watson Actavis. But for the rest, I don't see anything of the more consolidation going on at the moment. And frankly, it's also not something that we are particularly worried about in that sense. We are really well positioned. At some point, Europe is going to come back. There is a huge number of patients that could benefit from generics and we are in all 29 markets. And one of the -- and almost always leading, clearly leading in Europe. So for us, we're well positioned to use the momentum when it comes back.

Okay, great. And then just shifting, I appreciate very much the comments on R&D earlier, but if can just ask the question in a little different way. I typically think of generic companies spending approximately 6% on R&D, branded or specialty Pharma companies spending somewhere in the teens. When I look at Teva spend in the quarter, given that you have greater than 40% of revenue coming from the branded side. What can we expect as far as an R&D commitment? Or are there enough projects currently out there for Teva to spend enough to have sort of the historical sustainable branded pharmaceutical franchises?

Yes, this is Eyal. Maybe I'll put some light on the R&D spend for the quarter, which was lighter than planned and I can -- sorry to say that you can expect to see increased R&D spending later on in the year. But this quarter was a special quarter. Some of the R&D spending reduction was due to the currency. I mentioned that earlier it was a very long time ago, but before we had that break, I'm sorry. But we -- some of the reduction in costs was due to the exchange rate as a lot of R&D spending is down in Israel, some in Eastern Europe, part of the generic work that we do there. That has an impact. And we made very good progress on the integration and the synergy with Cephalon. Still, combining the 2 organizations together is taking a bit of time and we will definitely see an increase in the run rate of R&D spending later on this year and probably in the following year. Jeremy, Michael, do you want to add something on R&D?

Yes, just let -- I have a couple of views on that. Number one, who said that the level that you are citing is the right level for either the branded or the other? That's just historical. The question is not that. The question is what is the focus of -- what are the right kinds of monies to be spending on the right kind of projects? And that's what we're going to do here. My sense of the industry, and I'm sure that of yours, is that there are a tremendous number of overlapping projects across the industry, people spending a lot of money on those. And whether it be 16%, 20%, 19%, 21%, the issue is much more how are you spending your money and what are you spending it on. So as Michael enters into the role and as we look at our company and ask the question, what are we going to invest in? How are we going to invest? These questions will be dealt with in the context of an overall corporate strategy that allows a company like ours, which is a very unique animal, not the same as others, not to be bucketed in any one but much more focused around how do we take our R&D, our R&D, that is the Teva R&D, and invest with a terrific return on investment, which is our goal. And recognizing some projects that are multi-tens of hundreds of millions of dollars in the large pharmaceutical companies fail often. We're not really looking to try and emulate that. At the same time, we've had a lot of experience of investing small amounts of money in small projects in Generics and have had a tremendous return on investment. So there's a balance and it's very appropriate. Each company must carve its own route. I can assure you I don't feel that we should be held to the standards that have been held for other companies to-date.

And if I may add to that just to help you to read Teva's numbers. If you bear in mind that we have no discovery, so we have no any investment right now on discovery, and you split the company between the generic activities and the branded activities, you may find that we are quite in the norm that you use to compare companies.

Next question is from Elliot Wilbur of Needham & Co.

Maybe just a couple of functional questions, less strategic. First for Eyal. Specifically on the DSAs and the impact that had on the quarter. I'm assuming that basically you've entered new agreements and you pay a fee for better visibility into channel pipeline inventory and chose to reduce pipeline inventory to levels more consistent with where you want the business to be going forward. Am I reading that correctly? And then a follow-up question for Bill. If you could just maybe update us on the Irvine, California injectable business, kind of where that is in terms of returning to market. I mean, it looks like you've been able to take advantage of a couple of product shortage situations and pricing definitely seems to have kind of gone in your favor, but maybe just give us an update there in terms of where you stand currently relative to prior goals?

Elliot, this is Bill Marth. I'll try to do a twofer. So let's start out with the DSAs. I think the first thing we want do is level-set this. Everybody knows that the DSAs are the distribution service agreements, and those are with the primary wholesalers in the U.S. and that to hold the majority of the branded business that moves through the channel and most of that business, of course, passes through them. And they're all in the range of hundred billion dollar companies with very, very thin margins in the range of 2%. And so when you think about their business model, the ability for them or the desire for them to grab inventory, sometimes hold on to that inventory and wait for the price appreciation or price increases is part of their model in order to drive benefit for them. So we were seeking a solution this last year, took us most of the year, for us to be able to get better benefit for Teva with respect to price increases. When we take a price increase, we want to be able to get impact from that price increase, and we were finding it was taking way too long to get impact on the price increase because, obviously, the wholesalers were holding on to inventory and they were taking that benefit. We were able to work out an agreement with all the major wholesalers where we were to pay them a different fee. So they've got a more predictable fee, which is something they wanted, which is steady predictable income. And what we got for Teva was the ability for price increase. We now can bill them for all price appreciation or all price increases immediately when we do that price increase. So we'll get the immediate benefit from this. This has -- it does impact the pipeline but it has great value for us over the years. So it was a great deal for Teva and we think it was a good deal for the wholesalers as well. Now you think about the dynamic, the drawdown in inventory here, because now a wholesaler gets paid on a fee basis but doesn't get the price appreciation. They're going to carry what they need in the channel. And it's very important for them to carry just what they need in the channel. And this applies to all the branded business. So we're real happy with the way those agreements went off. That was the first one. The second one with respect to Irvine is, again, we're cautiously optimistic about Irvine. We hope to have all the lines up by the end of the summer. And we have recently had an inspection there. We're very pleased with that inspection. It did -- we did. We were issued a 2-item 483, but relatively minor, we think addressable. And so we will be addressing those 483s probably later this week and then after the lifting of the warning letter.

The next question is from Douglas Tsao of Barclays Capital.

Just first for Jeremy perhaps a conceptual question along the lines of R&D, you've obviously had experience across the drug industry. Do you think or when you think about Teva and into your new role broadly as a fully integrated company, obviously now not, at least [ph], a company that does not engage in drug discovery. I mean, is your expectation sort of increased that capability, perhaps not drug discovery but the stage at which products are brought in-house or do you expect to be much more focused on business development and late stage products acquisition?

I think -- let me -- I wasn't quite hearing the question clearly. Let me repeat it and see if I got it right. Do I envision Teva having much more of a discovery-based R&D versus a late-stage acquisition of product, late-stage pipeline acquisition. Is that -- am I interpreting your question?

Yes, broadly sort of do you envision sort of eventually building a fully integrated model, or do you anticipate to continue to be much more focused on sort of late-stage product acquisition?

Yes. So let's talk generally because this will require Michael rolling it out and showing you what we're going to be doing. But in general, there's no reason to suppose that the models that have existed in the pharmaceutical industry and in the generics industry are not interchangeable in some degree. But that being said, there's also no reason to suppose that the so-called integrated approach that have been adopted by the pharmaceutical industry is one which has been tremendously successful one way or another. It's clear, however, 2 elements are crucial. Number one, you do need to have in any organization a knowledgeable and thoughtful capability within the company that understands the language required to either diligence, or in fact, to integrate projects whether they be Phase III, Phase I or in discovery no matter what, or whether they be a new formulation being offered by an outside third-party or developed by yourself. So whatever you decide to do, there is no such model that will be successful unless you have at least some capability internally to interpret what you're doing on the outside. That being said, the other aspect that any company today, a modern company must understand is that across the world, there are literally hundreds of thousands of people generating interesting research, whether they are in academic centers, biotech companies, other pharmaceutical companies or indeed other organizations. In that regard, you must have the ability to be strategic and decisive in your ability to pull in things that meet your strategy. Perhaps, Michael, you'd like to comment?

Well it's just early to comment in detail. But just to say that certainly, as part of this initiative going forward, we're very open and interested in fostering novel relationships, both with academia, as well as small biotech. We recognize that many targets, many validated targets are available in numerous places and we want to foster these relationships and just generally have an interchange that allows us to learn more about what's happening in these communities, both in Israel and around the world. So I think we're -- I'm coming to this with a very open mind and certainly want to increase the pace of the dialogue with many nontraditional groups. But these include academic groups and small biotech in different parts of the world.

Okay, great. And then just one clarification in terms of Irvine. You've indicated that there are a couple of 483s you expect to address them and then assuming that you have the warning letter lifted, once the warning letter is lifted, what should we expect in terms of the sequence in terms of bringing all the lines back to production at that site?

Doug, this is Bill Marth. I think -- actually, it's my hope we'll have all lines up before the -- about the same time that the warning letter lifts. The warning letter is important for a couple of reasons. I mean, for us this has been a very, very difficult road and so we'd be very pleased to have that removed. For all the hard work people have done in Irvine and I think, to some degree, we'll begin to ease the shortage here in the U.S. So we'd be thrilled about that. And then the second piece, of course, is approvals and that's helpful. And I would just add, and none of this by the way -- none of this stops the fact that we are ongoing working hard to move products to Gotula [ph], as well. Gotula [ph] we had an inspection earlier this quarter as well and we received no 483s. So we are hopeful that we can move forward with that facility as well, getting the EIR on that facility.

Okay. And then just finally, do you have that backlog of new product approvals waiting for Irvine?

We have some launches that we may be able to get. But I really don't want to get too deep into that right now.

The next question is from Marc Goodman of UBS.

A few things, first on these distribution agreements. I just want to make sure I understand that all the pain has been felt with respect to the numbers, like in the second quarter, we don't have any more of an issue. And about how much of a change did we take these down in the channel? Where was inventory levels in the channel? How many weeks out there? Second, Eyal, can you talk about the gross margin? Is this a new range for gross margin or is this just kind of an unusual thing in the first quarter that's going to get back below 60 for the rest of the year? And then can you talk about Japan a little bit? Shlomo you mentioned 35%, when is the government pointing to a 35% penetration? And then also just talk about your business in Japan and how it did this quarter.

Mark, I'll take the question first. The weeks of inventory, it all depends on per product. I can't tell you specifically how many weeks of inventory they'll have. If you think about it now, they're incentivized to keep the most efficient number of weeks per product, right? So depending on the dynamics of that product, say something like a ProAir, it'll move up and down with the season so they might -- they would probably keep a few more days of that than they would something else. Provigil, Nuvigil, we managed somewhere between 13 to 15 days. Copaxone generally in the 20 days, in the 20-ish range. It can go from, say, 22 to 27 days. So it all depends. It's the wholesaler's decision on how much inventory to keep. That's the key. It's not my decision how much inventory to keep. They will keep what's there to be efficient, and that's what's important.

Yes. The question on the gross margin. I mean, I think we delivered very healthy gross margin this quarter. It's always a question of product mix. It might be the generic and where are the generic coming from. Base is different than the new launches and Europe is different than the rest of the world than Latin America and Eastern European countries. So the mix is changing with the moving parts of the business. But I think it's a healthy gross margin. We're not here to talk about guidance today. We have established this early on in the call, but there shouldn't be any major changes to these trends going forward.

Let me take the Japan part, and for the [ph] -- I would like to say that we are in line with our plans in Japan. We are very satisfied with the pace of the integration. As I said before, we are integrating there, four [ph] different kind of activities that we have in Japan. And definitely, the last year acquisition of Taiyo and the acquisition of our partner shares in the previous joint venture with the core company. All goes in line with the plans and basically, to give more color on that, we are working on 3 different areas of that integration. The first one is the go-to-market. And as I said in April 1, we launched our new Phase II, the Japanese market, under the name Teva Saikou [ph]. It has been well perceived and we believe that, that would enhance our sales in Japan and will promote our brand name, which is very good in Japan. Second one is, of course, the typical classical synergies exercise where we believe there is room to continue our efforts there. We have a plan, and that will definitely improve our profitability in Japan. And the last one, of course, is to take the advantage of our back integration with the Teva Pharmaceutical APIs where part of the product there are in the process of switching to Teva's API. That is, by definition, a time-consuming process. It will run from one year to 2 years. But all in all, all these 3 lines are working in parallel and we are very optimistic about this move and the achievements in Japan.

Next question is from Florent Cespedes of Exane BNP Paribas.

Two quick ones. First, which are the areas where you see a potential acceleration in the coming quarters. Could it be woman health, respiratory or even U.S. Generics or any other segment? And a follow-up on this one, could we have some color on how you see the quarterly performance as you did during the last call? And is an acceleration in Q4 still realistic?

First of all, regarding the area of economic development, I know we have talked -- definitely talked about Europe and I don't think that anybody can predict, but it'll stabilize. Our Eastern European and emerging markets are doing fine. It's too soon -- second quarter in a row that our Generic business is doing very well. So we look at many of parts the world where we operate, we have something to hope for. Regarding the quarterly progression, I think we have established early on in the call that we are not going to address guidance today. Once Jeremy Levin completes the business evaluation and assessment, we, of course, will go back and discuss what we believe and what we see.

Okay. And then maybe in terms of branded products, could you give us some colors on the woman health or OTC dynamic, please?

For Europe, we have launched ZOELY in 3 countries. We are about to launch in a fourth in the next couple of weeks. And for instance in women's health in Spain, we started this activity a good 14 months ago and we're now #2 on the Spanish market. So, so far we see very good dynamics and with ZOELY, which is really a fantastic new oral contraceptive of natural products. Doctors and patients alike are very happy with this product and so are we with the results so far.

Yes, and I would just add to that. Across our brands, we see strength in all our brands and we're excited about that. Copaxone, still, even though we've had the entry of Gilenya. We did expect Copaxone to tail off this year a bit. We've been as planned but we still have 40.2% share in the U.S. market. So it's an excellent product, and we are the global leaders. So Copaxone still continues to do well. But we're also excited about new launches like Qnasal we talked about earlier in the call, and additions to our respiratory franchise. Qvar has grown very nicely, prescriptions are up around 25% over last year doing very, very well. Nuvigil has been an exciting product for us. Growth there, 10% in TRxs and we've got almost 50% of the wakefulness market with Nuvigil, so a strong showing there. But if you go across our brands, just we're very excited about the growth.

And if I can add on the OTC, in this quarter we grow by local currency terms OTC by 10%, and that should be considered as organic growth due to the fact that we still don't launch or have the joint venture products that will come later. And we are starting to plan our next moves in that area based on our partner, Procter & Gamble, stronger branded products in certain part of the world where we believe we'll start the launch. We are going to see that by the later times of the year. So this is an area for definitely a big future, but again, don't get it from any kind of numbers or guidance point of view. I'm just pointing where the business is going to evolve in the coming future.

The next question is from Jason Gerberry of Leerink Swann.

A few questions for Bill. Bill, just first on Generic Cromacort, this has obviously been a nice steady contributor for you guys. And as we look at the next filers advancing through, I think there's a trial in '13. Kind of can you talk to us about your base case assumptions for when you see the current sort of exclusive market dynamic kind of eroding over time?

Well, Jason, that's a great question. But we know that's a market that's going to be tough to get into. Right now there's still a litigation pathway one has to go through, as well as approval. We are cautiously optimistic. It's a bit off. But even if we get competition in this space, this is going to remain an important product for Teva for a couple of years to come.

Okay. And if I can just ask a follow-up. Just on the DSAs, maybe if we can just think about it in terms of Copaxone, if you can talk about maybe what that $180 million headwind meant to Copaxone this quarter and how should we think about the price increases moving forward?

Good question. The impact on Copaxone was approximately $120 million of the $180 million. And that was the biggest single piece and about $50 million on the respiratory franchise, about $25 million on ProAir and about $25 million on Qvar. So it's in those ranges. As far as price increases, obviously we never, Jason, talk about price increases before we do them. But the impact here, or the value here for us is the fact that now when we take these price increases we'll be able to realize that benefit immediately.

So more than the 50% historically?

Yes.

Next question is from Shibani Malhotra of RBC Capital.

So first question for Eyal and Bill. I know you don't want to talk about guidance for 2012. But versus your expectations, clearly you missed consensus expectations on revenues, but versus your expectations apart from the currency impact, how would you characterize your revenue performance this quarter. And then second, Jeremy, a question for you. Again, we know you haven't had time to think through your complete strategy and you've talked a lot about the opportunities that may present to Teva. But I guess could you give us some understanding on your view on the challenges that you see with the company as well? How confident are you that the company can maintain growth, both the genericization of Copaxone and can it or should investors be rebasing expectations on that front?

This is Eyal. Let me take the first one. Yes, you're right, we will not provide any guidance or address the guidance. But I will not avoid a question on the foreign exchange impact compared to the rise that would prevail when we did our plan. We see a significant shift in exchange rate. I would estimate that this would reduce the total sales for the year. But between $650 million to $700 million, it was very, very limited impact on bottom line. If at all, part of that, of course, we have already seen in Q1.

Sorry, just if I can push you -- I mean, when you gave guidance last quarter, you clearly said that consensus was probably not getting quarter one correct. And I guess my question is more versus your expectations for this quarter, are you -- did results come in line with what you expected in terms of the DSAs, et cetera?

We never have expectation on exchange rates impact because we can't predict them. As you know, we're not hedging our top line. We're hedging only the balance sheet ramifications. But we have a very balanced model, which as you've seen are the reduction in sales for the quarter were very similar to reduction in expenses. So our profit has not been influenced by that and that's what my expectation for the future. But as to trying to guess on exchange rate I don't think we can.

Shibani, this is Bill Marth. Just one more point on DSA. I think you ask a good question, that if you know you're going to put DSAs into play, do you know ahead of time in the quarter what the impact of the DSAs will be. But you have to remember 2 things, which I will try to repeat on this call so that people understand. Number one, we put the DSAs in place but the wholesalers then decide, product by product, how much inventory they want to keep. And so therefore, the true total impact -- I can have estimates, and my estimates were not -- the market -- the change in inventory was more than I had anticipated. Then that was 2 reasons. The wholesalers, they're the ones who know how much inventory they want to carry. And so they have to make that very specific choice. The second piece was part of the negotiation. These are very, very tough negotiations. You don't go back to a wholesaler, as you know, very important people to us and our partners, and say I want to take money back from you. And so when you do that, it's a tough negotiation. In this negotiation in particular, with Amerisource, we pushed very hard and ended up into a position where we pulled their existing DSA and we had no visibility to the product they had in the pipeline. So they were buying in the blind from our perspective. So we weren't able to track where that inventory. Once we lifted that and we negotiated the new DSA with them, there was up a bit more inventory there than I had hoped for. But other than that, you just have to tie back to they decide how much inventory they keep.

Okay, great. And then Jeremy?

A couple of things. Look, Teva is faced with challenges that are similar to many other organizations in the industry. These challenges are not hidden from anybody, you know them probably better than I do at times because you've studied them for a lot longer in some senses. That being said, I would say to you that the advantages that Teva has in facing these difficulties, whether they be pricing in Europe, whether they be penetrating different geographies, whether they be increased competition, et cetera, have the potential to outweigh the deficiencies and the headwinds that we and others face. So our manufacturing footprint, our geographic footprint, our diversity of product lines, all of these represent opportunities to mitigate and/or potentially to obviate the headwinds that us and others face, but I am more focused on what we face. As regards Copaxone, I'm -- the, some of these advantages are what we should look at and ask the question, can they mitigate against what is the norm in this industry, the loss of a particular product. So I am much more focused right now in asking that kind of a question, then I am and I have a very -- I have high degree of confidence based on what I've seen that this is a terrific company and we'll be able to weather its way through what is the norm in the industry.

Before I ask Mr. Yanai to go ahead with his closing statements, I would like to remind participants that a replay will be available within 2 hours. In the U.S. and Canada, please dial 1 (877) 456-0009. In the U.K., please dial (0800) 02868377. In Israel, please dial (03) 925-5921. And internationally, please dial (972) 392-55921. Additionally, a replay will be available on Teva's website, www.tevapharm.com. Mr. Yanai, would you like to make your concluding statement?

Thank you. My children [ph] would like just to say thank you again to all of you, it has been a pleasure working or being working with you all, and I wish you all every success in the future. Thank you very much.

Thank you. This concludes the Teva Pharmaceuticals Industries Ltd. first quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.