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Description:

Teva Pharmaceutical Industries is the largest generics pharmaceutical manufacturer in the world. The company is domiciled in Petah Tikva, Israel. It has a market presence in 60 countries, and employees more than 35,000 employees worldwide. Teva currently has a joint venture with Procter & Gamble to develop global branded items as over-the-counter pharmaceuticals.

Teva’s branded portfolio focuses on therapies in the CNS and respiratory areas, and its key products are Copaxone for Multiple Sclerosis and the ProAir albuterol inhaler for asthma and COPD.  The company recently acquired Barr Pharmaceuticals with the aim of exploiting synergies in the area of biogenerics.

The generic market is highly fragmented, and Teva maintains a critical market share in this market of about 25%. Their competitive advantages are broad market penetration, a massive and efficient manufacturing infrastructure, and good product acceptance in the US. And Teva is expected to defend its key position through further acquisitions in the future. Its closest competitor, Sandoz, a subsidiary of Novartis, has a much less aggressive marketing and development strategy, and with a total market share of only ca.12 %, is therefore not a direct threat.

Teva wants to expand in the area of specialty branded drugs, complex generics, and “New Therapeutic Entities”, which are reformulations of existing associations of molecules. These development steps would however be long and cost intensive.

The company’s new key product, Copaxone, is expected to generate a high free cash flow of USD 3.8 billion (about 71% in the US, about 26% in Europe and 3% for the rest of the world). These figures are based on the assumptions that one third of patients will switch to the new product formulation. The Copaxone patent is valid until 2030. 

The company has commenced a cost-cutting program in order to improve its bottom line by USD 1.5 to 2.0 billion by 2017. In comparison with the annual sales volume of about USD 20.5 billion, the cost savings ratio looks attractive. 

Strengths and weaknesses analysis / Fundamental analysis:
Strengths:

• The joint-venture with PG could create a compelling growth story
• As a key player in the generic market, Teva has the capacity to neutralize potential new entrants and low cost producers relatively quickly,
• Teva generates stable cash-flows and hence it is able to pro-actively engage in business development through R&D as well as through additional acquisitions.

Weaknesses:

• R&D failures in the pharmaceutical sector are high. This is especially the case when existing drugs are re-engineered and biosimilars created. Teva is not an exception in this field,
• The company’s sales, excluding the Copaxone product, are weak, and catalysts for medium term development are lacking, 
• Novatis’ products were refused patent protection in India. In a similar manner, India may protect its own industry in relation to Teva’s products such as Laquinimod, Huntexil and/or XEN402,
• Teva may fail to integrate its recent acquisition, Cephalon,