First Quarter Highlights:

• Quarterly net sales of $4.1 billion, an increase of 12%.
• Quarterly non-GAAP net income and non-GAAP EPS of $936 million and $1.04, up 13% and 14%, respectively. Quarterly GAAP net income was $761 million, up 7%; GAAP EPS totalled $0.84, up 6%. 
• Quarterly non-GAAP operating income increased 11% to $1.1 billion; quarterly GAAP operating income up 4% to $867 million.
• Strong sales growth in Europe (66%) and in EEMA, Latin America and Asia (26%). 
• Strong sales growth in all branded franchises  respiratory (19%), women's health (30%), Azilect® in-market (16%), Copaxone® in-market (14%)  as well as API (32%). 
• Reiterating guidance for 2011 (excluding 2011 anticipated acquisitions) of revenues between $18.5 billion and $19.0 billion, with non-GAAP EPS in the range of $4.90 to $5.20.

"Teva's performance during the first quarter provides a good demonstration of the power of our balanced business model, as contributions from our European business, as well as high-growth generics markets in Eastern Europe, Latin America and Asia enabled us to deliver another quarter of double-digit growth," commented Shlomo Yanai, Teva's President and Chief Executive Officer.

Mr. Yanai continued, "We continue to make progress in executing our long-term strategy of building an even stronger and more diversified business. So far in 2011, we have taken two important steps through our planned partnership with P&G and acquisition of Cephalon."

Sales in North America in the first quarter were $2,064 million (representing 51% of total sales), a decrease of 11%. Generic and other sales in the U.S. were $952 million in the quarter, down 32%. The first quarter of 2010 benefited from new launches, product exclusivities and sales of key products including generic equivalents of Mirapex®, Eloxatin®, Protonix®, Adderall XR® and Lotrel®, which were absent or diminished in the current quarter, while there were no significant launches in the current quarter. The voluntary shutdown of the Irvine injectables facility, which continued into the first quarter of 2011, and the slowdown of the Jerusalem facility due to a FDA warning letter also negatively impacted the quarter's results. Production at the Irvine facility was resumed in April 2011 and a complete response to the warning letter related to the Jerusalem facility in which the FDA was requested to re-inspect the facility was submitted recently. Sales of generic pharmaceuticals in the U.S. are expected to expand above this level in each of the next three quarters. 

Sales in Europe in the first quarter of 2011 were $1,344 million, up 66%, accounting for 33% of total sales. This growth in sales resulted primarily from the inclusion of ratiopharm, mainly in Germany, France, Spain and Italy. Organic sales in Europe, excluding Germany, grew by 7% (in local currencies), while overall organic sales in Europe grew by 3% (in local currencies). Sales in Europe are also expected to expand above first quarter levels in each of the next three quarters.

Sales in EEMA, Latin America and Asia (International markets) in the first quarter of 2011 totalled $672 million, up 26%, accounting for 16% of total sales. The growth in sales was attributable to higher sales in all major markets across Latin America (organic growth of 16% in local currencies) as well as in Russia (organic growth of 25% in generic sales in local currencies). Sales in Asia also benefited from the first-time consolidation of certain sales from our joint venture in Japan. Sales of our joint venture in Japan grew by 29% in local currencies.

Global respiratory product sales totalled $229 million in the quarter, an increase of 19%. The increase in sales resulted primarily from growth in Europe, with strong sales of Qvar®. Teva's respiratory product sales in the U.S. totalled $127 million in the first quarter, an increase of 2%. As of March 31, 2011, ProAir™ strengthened its leadership position with a 50% market share in the SABA (short acting beta agonist) market in the U.S., while Qvar® further solidified its number two position in the inhaled corticosteroid category (ICS) market with a 22% market share in the U.S., an increase of 3.5%. 

Global women's health product sales were $103 million in the quarter, up 30%. The increase in sales was driven primarily by the inclusion of sales of Theramex products in Europe.

Global in-market sales of Azilect® reached a record $90 million in the quarter, an increase of 16%, primarily attributable to volume growth in Europe and in the U.S. 

Copaxone® is the leading multiple sclerosis therapy in the U.S. and globally with an improved global market share of 31%. Global in-market sales reached $907 million in the first quarter of 2011, an increase of 14%. In the U.S., in-market sales increased 22% to $624 million, as a result of price increases as well as volume growth. In-market sales outside the U.S. were flat at $283 million with 6% unit growth. Unit growth in several European and Latin American markets, including the U.K., Italy, Spain, Brazil and Mexico, was offset by price decreases in Germany and other markets. 

API sales to third parties totalled $184 million in the first quarter of 2011, up 32%. 

Exchange rate differences had a positive impact on sales in the first quarter of 2011 of approximately $27 million, while having a negligible positive impact on operating income. 

Non-GAAP net income and non-GAAP EPS for the first quarter of 2011 are adjusted to exclude the following items: 

• Amortization of purchased intangible assets and an inventory step-up of $168 million;
• Costs related to regulatory actions taken in facilities of $50 million; 
• Restructuring and acquisition expenses and impairment of assets of $33 million; 
• Income of $4 million in connection with a provision for legal settlements; and 
• Related tax effects of $72 million.
  
  

Teva believes that excluding these items facilitates investors' understanding of the trends in the Company's underlying business. In the first quarter of 2010, non-GAAP net income and non-GAAP EPS excluded amortization of purchased intangible assets, acquisition and restructuring expenses, legal settlements expenses, purchase of research and development in process and related tax effects. See the attached tables for a reconciliation of U.S. GAAP reported results to the adjusted non-GAAP figures.

Non-GAAP gross profit margin reached 58.8% in the first quarter of 2011, up from 58.4%. GAAP gross profit margin was 53.6% in the first quarter of 2011, compared to 55.1%. The decrease in GAAP gross profit margin primarily reflects amortization of purchased intangible assets related to the ratiopharm acquisition recorded this quarter for the first time and costs related to regulatory actions taken in facilities.

Net Research & Development (R&D) expenditures in the first quarter of 2011 totalled $239 million, or 5.9% of sales, an increase of 15%, compared to $207 million, or 5.7% of sales. The increase in R&D spending reflects greater investment in all businesses, particularly in branded products. Gross R&D in the first quarter of 2011, which includes participation of third parties, totalled approximately $267 million, or 6.5% of sales, an increase of 18%. 

Selling and Marketing expenditures (excluding amortization of purchased intangible assets) were $825 million, or 20.2% of sales, for the first quarter of 2011, compared to $744 million, or 20.4% of sales. 

General and Administrative (G&A) expenditures totalled $221 million, or 5.4% of sales, compared with $182 million, or 5.0% of sales. 

The non-GAAP tax provision for the first quarter was $121 million of pre-tax non-GAAP income of $1,076 million. Teva's current estimate of the annual tax rate of non-GAAP income for 2011 is 11%, compared to 13% of pre-tax non-GAAP income for 2010. The current estimate for the 2011 non-GAAP tax rate is based on a mix of products manufactured in jurisdictions where Teva benefits from tax incentives. Product mix in future years is expected to differ resulting in a higher tax rate. On a GAAP basis, the annual tax rate for 2011 is estimated to be 6%.

Cash flow from operations during the first quarter of 2011 was $900 million, compared to $886 million. Free cash flow excluding gross capital expenditures (of $234 million) and dividends (of $203 million), partially offset by proceeds from sales of assets ($50 million) reached $513 million. Cash and marketable securities as of March 31, 2011 were $1.1 billion. 

During the quarter, share repurchases totalled approximately 7.9 million shares for an aggregate purchase price of $400 million. Since the beginning of December 2010, Teva has repurchased 9.8 million shares for $499 million out of a total repurchase plan of up to $1 billion authorized in December 2010. In addition, during the quarter, Teva called for early redemption its $814 million principal amount of 1.75% senior convertible debentures due 2026 (convertible into 16 million shares). As a result of the share repurchases from December 2010 to March 2011 and the redemption these convertible debentures, Teva's share count was reduced by approximately 25 million shares as of March 31, 2011. 

Total equity as of March 31, 2011 was to $23.1 billion, an increase of $1.1 billion compared to $22.0 billion as of December 31, 2010. The increase in total equity is attributable primarily to the positive impact of currency translations as of March 31, 2011, resulting from the strengthening of various currencies compared to the U.S. dollar (primarily the euro) and GAAP net income of $761 million, partially offset by repurchase of Teva shares and dividends paid to shareholders.

For the first quarter of 2011, the weighted average share count for the fully diluted earnings per share calculation was 902 million on both a GAAP and non-GAAP basis. As of March 31, 2011, the share count for calculating Teva's market capitalization was approximately 893 million.

Dividend

The Board of Directors, at its meeting on May 8, 2011, declared a cash dividend for the first quarter of 2011 of NIS 0.80 (approximately 23.2 cents according to the rate of exchange on May 6, 2011) per share.

The record date will be May 17, 2011, and the payment date will be May 31, 2011. Tax will be withheld at a rate of 13%.