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Operating Environment
Customers
Customers: National pharmacy chains, hospitals and medical professionals Requirements: broad scope of products, inventory management, volume based discounts and pricing bundles Value: Low prices
Competitors
Competitors: Ranbaxy, Sandoz, Watson, Barr, Mylan, Dr. Reddys Competitor Strengths:
Barr R & D and patent litigation, Sandoz R&D & European focus, Ranbaxy and Dr. Reddys: low labor costs. Lack of rigorous execution in Filing ANDA applications Lack of economies of scale and Lack of broad generic portfolio.
Competitor Weakness:
Competitive strategy: higher R&D investment, Patent litigation, authorized generics and low labor costs
Opportunities: Aging populations Rising health care costs Expiration of patent protection for many innovative drugs Physician-driven markets are slowly trending towards becoming pharmacy-driven markets Fragmented global generic drug market is ripe for consolidation Niche and Biosimilar medications
Threats: Entry of Low cost firms from India reduced prices of generics by 15-30% in three years. 180 day exclusivity period Increasingly Innovative companies release their own authorized generic version High R&D investment & marketing outlays for innovative drugs
Least
Strategy
Produce Innovative Drugs by partnering w/ research institutions
Israel / Jewish roots and community resources
Attempting to
Increase certainty of profit margins
Developed 2 innovative drugs recently Working to gain 180 day exclusivity Erecting barriers to entry due to scale
Reduce competition
Price out through scale Acquisitions Produce own drug raw materials
Compete on price using economies of scale General Generic production Drug component production R&D Intensive Generics Innovative Drug Production
Products
Condition
Operating Income 4 times competitors
Greater $ for R&D and overall production Greater ability to research and produce new drugs Slightly lower than industry Generics have narrow margin Equity is making the shareholders money, perhaps to much given back to holders Assets working better than average competition, but not utilized to the fullest potential Low % for innovative industry Average for generics
Competitive Advantages
Imitable drugs
ROA 8.2%
Future Growth
Capital availability for expansion
Can acquire new generic producers to improve share and market price Can raise capital for expansion and research Utilizes 180 exclusivity Strong research means first to market
Strengths
Strongest
Weaknesses
Weaker
Strategy Imitability
No patents on generics Compete on price = low profit margin Limited innovative drugs Capacity pushes towards more generic production
Emphasis on acquisitions
Drug portfolio
Diverse medicines = diverse risk
New innovative drug every year by 2010 Improve profit potential in all situations Generic, innovative, niche
Corporate Culture
Billion Dollar Theory Willing to take risk Relation w/ Israeli Research
Weakest
Hi
Impact
Lo
Consolidate US generics markets through acquisitions Invest growth into R & D for innovative drugs
Lo
Hi
Probability of Growth
Focus On Customers
LOW
HIGH
LOW
HIGH
Focus On Competitors
Teva
Number of Drugs Produced / Company 600
Watson Labs
500
Mylan
400
Pfizer
300
Glaxosmithkline
200
Barr
100
0 0 50 100 150 200 250 300 350 400 450 Prescriptions Filled (in thousands)
Major Competitors
Teva currently fills more prescriptions than its competitors and provides a wider range of product offerings Teva also applies its scale and to keep prices low and offer the benefit of its cost savings to the customer Teva also provides capacity to customers to ensure product availability
Key Decisions
Most Significant
Big Pharma has increased presence in generics and has implemented aggressive tactics
Pursuing own generics Licensing 180 day exclusivity period
Big Pharma has more aggressively fought patents Companies have begun emulating TEVAs strategies and the competitive gap is closing Entrance of new types of competitors Pricing has declined 15-30% over the last 3 years in some markets TEVAs stock price has plunged 30%, which has erased billions in market capitalization Increases in overall health costs has led to greater demand for generics Large potential markets (Latin America and Asia) Growing and profitable biosimilar market Major drugs are coming off patents in coming years Insurance companies are pushing generic alternatives Countries opening up to generics (Germany, France, Japan)
Opportunities:
Least Significant
Alternatives
Most Significant
TEVA is a leader in ANDA filings TEVA very effective at acquiring and integrating existing companies
More companies vying for exclusivities Systemic erosion of prices
Cons:
Cons:
Least Significant
Alternatives (continued)
Most Significant
Move Up Value Chain from Low Cost Generics Into More Specialized Products (biosimilars or innovative)
Pros:
Cost to develop innovative drugs much lower than competitors Biosimilars expected to be high growth Theoretically, TEVA can produce one new innovative drug per year
Cons:
Innovative market growth expected to slow United States bogged down in regulatory impasse
Cons:
Difficult allocating funds between generic and innovative projects Hard to manage generic company when you are rich
Least Significant
Recommendations
Most Significant
I will not ever take a risk so big that it will jeopardize the company. I will risk quarterly profits, but never the company -Eli Hurvitz TEVA should pursue a mix of the three alternatives:
TEVA should maintain focus on U.S. generics market by attempting to consolidate the U.S. market by strategically acquiring competitors TEVA should focus on those global markets that have a structure for which it has previously been successful TEVA should pursue the biosimilar market as well as modestly increase research and development in innovative drugs
Many experts in the industry believe it is difficult to allocate funds between generic and innovative drugs, but TEVA has successfully released two innovative drugs and has thus far been able to allocate funds profitably
Least Significant
Most Significant
Corporate Strategy
U.S. Generics Market
Maintain existing relationships TEVA is currently very successful in the U.S. market and should not risk this market share due to expansion in other areas Acquire smaller competitors to consolidate market the U.S. market is extremely fragmented; a consolidation of the market would result in increased market share and higher profit margins Continue to improve supply chain and manufacturing efficiencies TEVA is a market leader in supply chain and production efficiencies and it should maintain this area of leadership Pursue markets that have structure in which TEVA has been successful TEVA has been successful in markets where generic penetration is high and there is low regulation; TEVA should not enter dissimilar markets because of the risk of pursing an unknown strategy Maximize market potential of Ivax markets (Latin America and Eastern Europe) Latin America and Eastern are rapidly growing markets; Ivax already has a market presence in these areas and this advantage should be maximized Continue to acquire companies that have access and expertise in rapidly growing markets TEVA is very good at acquiring and integrating companies; acquisition would be an effective way of entering unknown but potentially profitable markets Use profits from generic market to modestly increase research and development for innovative drugs TEVA should modestly increase research and development expenditures to gain profits from the lucrative innovative drug market, but should not aggressively pursue this market because of high risk and because it is not an area of expertise for TEVA Continue to use existing strategy for developing innovative drugs TEVA should continue to use local scientists to develop innovative drugs because this reduces the cost of drug development significantly Use profits from generic market to pursue the biosimilar market the biosimilar market is a rapidly expanding market that TEVA should use be able to utilize its expertise in generics to obtain substantial profits
Specialized Products
Least Significant
Innovative drugs, biosimilars, and high-end generics offer very high profit margins
Resources gained from consolidating the US generics market can be applied to R & D for innovative drugs
Teva must balance its resources between consolidating generics markets and investing in research for innovative products.
Overinvesting in R & D will limit Tevas adaptability Overvaluing acquisitions during consolidation could negatively impact growth and limit Tevas investment in R & D The proper proportions will allow Teva unprecedented growth in an uncertain market
Increased market share is expected, and will indicate the success of consolidation Higher margins will indicate wise consolidation, as well as intelligent investment in innovations Ultimate evaluation will be based on net profit