Teva Pharmaceuticals Ltd

Atharv Kumar 0335/57

Ashutosh Jadhav 0345/57

Mayur Gupta 0360/57

Shubham Baghel 0387/57

Vivek TV 0395/57
 Origins of Teva Pharmaceuticals Industries
1901 1930s 1950s 1960s 1968

• Originally known as • During 1930s highly • Trained as an • Eli Hurvitz began • In 1968, Teva was
Salomon Levine educated refugees economist, Hurvitz consolidation of the acquired by SLE
Elstein (SLE) a from Nazi Germany had started his fragmented pharma under Hurvitz.
Jerusalem based setup small career in 1953 at industry in 1962.
wholesale drug manufacturing Assia Chemical • In 1976, Assia
distributing plants for the Laboratories. • After put in charge merged with Teva to
company. company including of the negotiation form Teva
one which was • SLE acquires Assia and acquisition of Pharmaceutical
• Serving local called Teva a small companies Eli made Industries Ltd.,
population and (‘Nature’ in pharmaceutical the first acquisition Israel's largest
immigrants Hebrew) manufacturing in 1963 of a healthcare company,
company. company named under the leadership
Zori. of CEO Eli Hurvitz..
 Major Events and Milestones
Strategic Planning

• The company hired Dr. Joseph Billion Dollar Theory

Aleksandrowicz as the strategic
planning head and set a goal to
become a billion dollar company •
during the two year intensive
program for the executive team.
• In 1993 the company reached $500M
In mid 1980s Teva decided to expand
abroad to become a fulfil their Billion
Dollar Theory as they realised there
was a lot of potential for growth in •
the western market.
mark, halfway through their billion
dollar goal which they achieved four
years later in 1997.
Change in Leadership
Eli Hurvitz stepped down as the CEO of
Teva Pharmaceuticals after a tenure of 26
years and took up the position of
chairman thereafter. Israel Makov was
appointed as the new CEO
 Mergers and Acquisitions
The company acquired Ikapharm, the second largest pharma company in Israel
A
1980 after Teva in early 1980s

Teva entered US market by forming a joint venture with W.R Grace a major
M American conglomerate, which gave them access to capital and contacts
1980s
within the market

In late 1985, TAG jointly acquired Lemmon, US arm of German based

A Natterman after which the sales and market shares grew. Teva expanded
1985
throughout the next 2 decades acquiring 12 companies across 8 countries.

A
In 2003, under the Leadership of Israel, Teva acquired Sicor for $3.4B which
2003 was eight times the deal size of previous largest acquisition.

Teva acquired Ivax Corporation for $7.4B a move viewed positively for
A variety of reasons: Ivax’s strong first to file paragraph IV pipeline in US,
2005
strong position in global market where Teva had little presence.

Innovative Firms
• Novartis acquired two
generics companies
and merged them into
Sandoz placing itself
into the top position in • Tough competition from
the generics industry.
• This was the first
serious effort by an
innovative company to
compete in generics.
Barr
Sandoz
Watson
Global
Competitors
Mylan
Ranbaxy
Dr.
Reddy’s
Laboratory
Localized Nature of
Pricing and Regulations
• Sandoz focused on
Low-Cost Players Alliances with Innovative developing a top three
Firms presence in specific
Authorized Generic
• Generic firms entered markets whereas Ivax
Versions of Innovative
new players like profit sharing alliances expanded in numerous
Firms
Ranbaxy from India with innovative firms and markets with small
• Innovative firm releasing
which had the lowest focused on niche drugs market shares
generic version to curb
pharmaceutical prices in attracting less competition
the duopoly during 180-
the world day exclusivity
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 Markets for generic products

United States
• Contributed 42% revenue for
Teva
• Pharmacy-driven market
• The Hatch-Waxman Act -
Paragraph IV and ANDA
provisions increased generics
penetration
• Provided 180 day exclusivity
period
• 148 drugs worth $84 billion in
pipeline as of 2006
Europe – Pharmacists driven Europe – Physician Driven
• 49% generic penetration • Germany and France, two
in UK and The largest physician-driven
Netherlands markets
• UK market expected to • Both innovative and
grow to $5.6 billion from generic companies incurred
$2.9 billion the same marketing cost
• Pharmacists driven • Discounts were lower due
markets in Europe to government regulations
contributed 75% of • Ivax’s acquisition gave
revenue in Europe opportunity to capitalize
this market
Rest of World
• Structural barriers to generics
substitution
• Patient perception of
generic as inferior
drugs
• Physicians prescribed
and dispensed drugs
• Teva adopted a wait-and-see
strategy as it had limited
presence
• Developing markets were
becoming increasingly
attractive for generics
 Types of Generic Products
•• Typically,
Typically, in
in capsule/tablet
capsule/tablet form
form made
made up
up the
the bulk
bulk of
of traditional
traditional businesses
businesses of
of innovative
innovative firms
firms
and
and comprised
comprised largest
largest segment
segment of
of generics.
generics.
Commodity
Commodity
generics
•• The
The margins
margins on
on these
these drugs
drugs were
were lower
lower than
than niche
niche generics
generics and
and biosimilars
biosimilars once
once the
the 180-day
180-day
generics
exclusivity
exclusivity period
period expires.
expires.

•• Generic
Generic drugs,
drugs, either
either difficult
difficult to
to ssynthesize
ssynthesize active
active molecules
molecules or
or with
with non-standard
non-standard delivery
delivery
mechanisms
mechanisms are
are classified
classified as
as niche
niche drugs.
drugs.
Niche
Niche
generics
•• Generic
Generic companies
companies realized
realized higher
higher gross
gross margins
margins on
on these
these products
products than
than commodity
commodity generics
generics
generics
while
while the
the capital
capital required
required was
was also
also greater.
greater.

•• Biosimilars
Biosimilars were
were the
the generic
generic versions
versions of
of the
the so-called
so-called “bio-tech”
“bio-tech” drugs.
drugs. The
The active
active compounds
compounds
in
in these
these drugs
drugs were
were highly
highly complex
complex proteins
proteins oror other
other hard-to-replicate
hard-to-replicate large
large molecules.
molecules.
Biosimilars
•• The
The prices
prices of
of these
these drugs
drugs were
were expected
expected toto be
be discounted
discounted by
by only
only 10-20%
10-20% off
off the
the branded
branded
Biosimilars
prices
prices and
and the
the margins
margins were
were closer
closer to
to innovative
innovative drugs.
drugs.
 Innovative Pharma
Firms
Patent and Protection
• Within US, patent and trademark
office granted 17-20 years of
protection to new drugs
• Effective protection of 10-12
years because of legal
procedures
Pharmaceutical Research
• Pharma research was a high risk
activity. One out of every 5000-10000
compounds tested became an approved
drug.
• Seven in every ten marketed drugs did
not produce revenues exceeding their
Research and Development costs.
Generic Pharma
Bioequivalent Versions
• They were bioequivalent versions of
their innovative counterparts and in
effect duplicated the active compounds
developed by the original drug maker
• They were subject to the regulatory
standards and could only be
manufactured and sold if the original
drugs were not protected by patents
Affordable
• Generics were typically priced
significantly lower than their original
versions because the drug makers did
not need to incur the R&D and other
associated costs like marketing and
sales.
 Supply chain of TEVA and IVAX
IVAX
Operated as a series of independent
TEVA companies with very little cross-
Low-cost culture, scale benefits and border interaction
competitive advantage over raw
materials and production capacities

IVAX
TEVA Lower production capacities spread
Localized management and across various geographic locations
marketing in each region and global
backend in R&D, manufacturing and
APIs

IVAX
TEVA One batch at Teva requires 5-6 runs at
2 plants in Israel and 1 in Canada Ivax all at different locations making
each with 8 billion tablets capacity , it much more costly.
center of excellence for different
fields.
 Innovative vs Generics
Innovative Generic

Hig
hig h Risk • Bioequivalent version of
hc AN
• US offered 10-12 years of ost with DA innovative counterparts,
effective patent life with R& Fili
D ngs priced much lower than
gross margins typically
between 85-95% original versions
Low • Significantly lower R&D
• R&D was attributed as risk
‘high-risk activity’, $38.3 R& with costs, 7-9% of net sales as
Dc
billion of annual sales had osts low compared to 15% of
lost patent protection innovative companies
during 2005-06 • Teva filed and won most
• Teva had notably low number of 180-days
research budget and exclusivities in the
capabilities, ‘few million industry
dollars’ as compared to
$45 billions of the top 10
firms “It is very easy to manage a generic company when you are poor. It becomes very
complicated to act poor. As long as we remember this equation, and we do not become
bureaucrats, and as long as we fight the fat culture, we will succeed” -Hurvitz
 Industry Analysis

Threat of New Entrants Threat of Substitutes Bargaining Power of Bargaining Power of Competitive Rivalry
Suppliers Buyers

Generic: Moderate Generic: High Generic: Low Generic: Moderate to high Generic: High
Innovative: Low Innovative: Low to Innovative: Low Innovative: Moderate Innovative: Moderate
Moderate
- Patents act as a - Less R&D cost - Numerous - High fixed cost
Government for generic due independent & high
restriction to which - Switching cost is
suppliers within bargaining of
- Lot of investment is substitution is low for buyers
the industry power leads to
needed in R&D high once they - Increasing
- Most suppliers lowering of
- Existing economies get into market customer demand
depend on the prices
of scale due to - For innovation
pharma - High
strong industry product, threat is companies fragmentation
consolidation low before the
patent expires
 Success of TEVA in Israel
Favorable conditions
Israel offered a big pool of highly-
educated scientists, physicians and
engineers, as many German refugees
migrated there in the 1930s. These
conditions as well as the economic
structure of that time that included
limited foreign direct investment
created a favourable atmosphere that
resulted in the emergence of a domestic
industry
Compulsory licensing
Like most countries, domestic firms
could invoke compulsory licensing to
foreign firm since they cannot do any
business in domestic Israel which
provided domestic firm an opportunity
to make drugs with their name and sell
in their country.
Strong leadership
Eli Hurviltz performed a series of
acquisition within Israel to establish the
largest pharmaceutical firm in Israel –
TEVA, with his strong leadership and
negotiation skills he became the driving
force behind the success of TEVA
 Success of TEVA in Israel
EARLY ACQUISITONS
Teva’s success in Israel can be explained
by its early recognition of the need for
consolidation of the pharmaceutical
domestic industry
Eli Hurvitz understood the power of
synergy and recognized the potential of
the industry. This is what set Teva apart
from its competitors.
FOCUSED COMPANY
Decided to be a focused
company(unusual for Israeli companies
at the time) rather than a conglomerate
and choose the risky, high rewarding
pharma industry than being a chemical
company.
STRATEGIC PLANNING
Organized strategic planning which was
unheard of by any other Israel
company(informally run business) at
that time
Two-year intensive program for the
executives and bringing professors from
leading business schools in the US to
educate them
As the CEO of TEVA which market would you
focus on?
TEVA’s strategy should be focus on it’s strength i.e.,
01 Generics market.

Analysis suggests that Innovative market is going to grow

slow after 2009-10 as there are less drugs in pipeline and
more drugs are going to expire.
02
A heavy pipeline after the acquisition of IVAX and the
number of drugs expiring in future opens the opportunity to
Teva's to further strengthen its generics
03 To deal with the threat of Innovative companies licensing
authorized generics to other firm, TEVA should look for an
option of getting into coalition with prominent innovative
04 firms

Innovative companies are finding it difficult to move in to

generics market and TEVA could look take advantage of the
glut of small firm to strengthen its position in the generics
05
As the CEO of TEVA which market
would you focus on?
TEVA should continue the way it is operating in
01 innovative market by outsourcing to the R&D firms

TEVA can leverage resources from the acquired firm SIRCA

which gives it some amount of in-house R&D capabilities
02
TEVA should focus on diversifying to biosimilars and niche
generics which might be more riskier than commodity and
higher R&D cost but it will also involve higher returns
03 Being one of few firms having capabilities to exploit
biosimilars and niche, TEVA may try to capture most of the
market share in the industry, hedging its risk from
04 commodity generic market

TEVA should also try and grow its dominance over physician
driven market instead of wait-and-see strategy which might
result in lost market share
05
As an executive in ‘big pharma’, what approach
would you take to deal with Teva?

For US markets: Since Teva has a greater ability to be the first to

launch the genetic version of an original drug which allows the
company to be the only one offering the drug for first six months (As
case states, Teva sustains a large pipeline of paragraph IV challenges),
01 ‘Big Pharma’ focus should be on forming profit sharing alliances with
the other major generics manufacturing companies or acquiring
minor generics company like Novartis to tap on the potential for price
war with Teva.

For France and Germany: Since like most other countries in the
region, markets are ‘physician driven’ or ‘branded generics’, the
generics drugs are marketed in the similar manner as innovative
02 companies. Big pharma should focus on leveraging their already
established cost structure for large sales force and marketing costs to
increase their market share in generics industry

For niche and biosimilar generics market: Significant barriers to entry

for the generic firms because of the large capital and expertise
03 required. Big pharma innovative firms can exploit their high-end
resources to get into biosimilar generics market.
 Vulnerabilities of TEVA

Innovative companies diversifying to

Low presence over Physicist-driven
generic market
market
Ex: Sandoz generics arm of Novartis
- Risk from wait and see strategy

Less dependent on 180 day Low-cost firms from developing

exclusiveness nations entering US Market 
- Profit sharing alliance between Ex: Ranbaxy from India
innovative and generics firm .
Thank You