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Teva Pharmaceutical Industries (TEVA) |
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WIKI ANALYSIS
Teva Pharmaceutical Industries (TEVA) is the world’s largest producer of generic drugs by revenue. With 36 manufacturing facilities across the globe, Teva's scale-- 4 to 6 times that of competitors Mylan and Watson Pharmaceuticals-- allowed it produce its drugs more cheaply and consequently price its drugs lower. 60% of the company's sales come from the US and 25% come from Europe.[1] The company earned $13.9 billion in revenue and $2 billion in net income in 2009.[2]
Teva has filed more patent challenges than any other generic pharmaceutical company. Rather than waiting for patents to expire, Teva files challenges which, when successful, allow it to produce the "challenged" drug for 180 days without other generic competition. This strategy, however, comes with the risk of increased exposure to lawsuits by the brand manufacturers.
Company Overview
Based in Israel, the Teva has locations worldwide and employs over 25,000 people. Its products range over all the major therapeutic areas including anti-infective, cardiovascular, oncology, dermatological and anti-inflammatory. Teva USA, the largest domestic subsidiary of the international corporation, markets over 300 generic products, the largest pipeline of any generic manufacturer. Teva’s most significant products are the generic versions of, Zocor (simvastatin), Zoloft (sertraline), Wellbutrin XL (bupropion) and Pravachol (pravastatin). These generics were all produced under 180 days of exclusivity, meaning that Teva reaped very large sales as a result. Teva currently has 162 product registrations awaiting approval from the Food and Drug Administration, with 45 potential candidates for exclusivity.
Sales by Channel[3]
- Drug store chains - 54% of net sales
- Drug wholesalers - 33% of net sales
- Managed care organizations - 6% of net sales
- Generic distributors - 6% of net sales
- Governmental facilities and others - 1% of net sales
Business Growth
FY 2009 (ended December 31, 2009)[2]
- Net sales increased 25% to $13.9 billion.
- Net income more than doubled to $2 billion, compared to $609 million in the previous year.
Trends and Forces
- Teva loses ground as others grow: Teva was a monolith in the generic drugs (Small Molecule) industry until its competitors started expanding. With the largest sales by volume, the largest number of products and dosages, the most patent challenges, etc. only Novartis AG (NVS) generic subsidiary Sandoz had manufacturing potential anywhere close to Teva's. This, however, has been changing. Mylan's and Barr's acquisitions of other generics have made them into major players. Specifically, Mylan acquired Merck's generic business in Europe and Matrix, a generic producer based in India. While they are still small compared to Teva, these companies are beginning to expand their product lines, manufacturing capabilities, and geographical reach, and these combined forces are digging into Teva's market share. This is particularly noticeable in Mylan's case. Since its acquisition of Merck's generic business, Mylan's international sales jumped from around $5 billion to $75 billion. These companies are thus able to compete for the first time in the international arena with Teva.
- Gaining exclusive rights to a generic through patent challenges: Generic drugs are equivalents of brand name products, and they can be made under two conditions. When a patent on a drug expires, other companies can then produce that drug. Alternatively, a generic company can challenge a brand name drug and claim that parts of it should not be protected under patent. When this occurs and the generic manufacturer wins the challenge, it gets 180 days of exclusivity in which only it can produce the drug. Teva gained the 180 day exclusivity on several major generic versions of Zocor (simvastatin), Zoloft (sertraline), Wellbutrin XL (bupropion) and Pravachol (pravastatin). Pharmaceutical patents are generally short, and the process for gaining FDA Approval for a generic drug is much less rigorous than for a new medication. Often, generic manufacturers only have to prove that their product is equivalent; they do not have to go through the lengthy and expensive process of clinical trials. Thus, many generic manufacturers will wait for the patents to expire.
- Teva is more dependent on patent challenges than other generic manufaturers. In recent years, manufactures have begun fighting patent challenges by licensing their drugs to a single generic, making the 180 day exclusivity period less meaningful for patent challengers. If exclusivity is slowly eliminated by brand manufacturer manipulation, Teva will be more affected than some of its smaller competitors.[4]
- Large buyers have less leverage over TEVA: Retail chains, large distributors, etc. buy in bulk, and this allows them to negotiate lower prices. Wal-Mart for instance offers $4 prescriptions; because the company has the power to negotiate prices on huge quantities, it can offer consumers lower prices. While such pricing pressure is a major concern for smaller firms, Teva is in a unique position because of its size. Teva’s larger size, however, allows it resist much of the pricing pressure that effects other companies. There are two reasons for this. First, its economies of scale allow Teva to produce at low cost, and so it can absorb extra pennies that its competition simply cannot. Secondly, because Teva holds such a large share of the supply of drugs, it can more effectively bargain.
- Medicare: Medicare is the government's health subsidy plan. Over the past few years, both states and the federal government have begun suing pharmaceutical companies, including generic manufacturers such as Teva, because of alleged price fraud. The states are suing based on alleged defrauding of the state health care assistance programs, Medicaid. If the states win, the pharmaceutical companies will be forced to pay hundreds of millions of dollars and change pricing schemes. While the first trial will not be finished for at least another year, Teva is named in some of the lawsuits as a defendant and as the largest generics company probably stands to lose the most.
- Legal challenges halt product sales: Teva faces law suits from brand manufacturers. Brand companies can file a suit claiming patent infringement in order to stop generic production temporarily, even if there were not necessarily infringement. This delaying tactic can be very costly, both in legal terms and in terms of lost production time.
Competition
While Teva is used to dominating the generic industry with its size, it has seen an increase in competition over the past few years. The growth through acquisition of Mylan and Barr Pharmaceuticals (BRL) have begun posing a challenges to the company. Teva has relied on its size to maintain very low costs which allows it to price below its competitors, but their growth undermines this ability.
Over 12% of Teva’s sales come from innovative products such as Copaxone, and so it faces challenges including (ironically) generic competition from other companies on this drug.
- Mylan Laboratories (MYL) is the third largest generic producer in the US. Mylan also owns subsidiaries that produce proprietary drugs and hospital packages.
- Barr Pharmaceuticals (BRL) is a split generic/brand manufacturer with about 75% of its sales in generics. Its main product line is contraceptives, and it is dominant in this market.
- Sandoz, a generic division of Novartis AG (NVS). Sandoz's major therapeutic areas include antibiotics, preparations for treating the central nervous system, cardiovascular, hormones and antiallergics.
- Dr. Reddy's Laboratories (RDY) is one of the largest generic manufactures in the US by revenue. It also manufactures branded products. Dr. Reddy's products include those for hypertension, allergies, urological disorders, cardiovascular, and antibiotics.
References
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