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>>> How Teva Is Fighting (and Losing) the Big Pharma Battle



By Craig Adeyanju

May 25, 2017



http://www.investopedia.com/news/teva-fighting-losing-big-pharma-battle/



In a 2010 edition of the “World Preview Report” published by the pharmaceutical research team at Evaluate, it was estimated that Israel’s Teva Pharmaceutical Industries (TEVA) would grow its worldwide prescription annual sales by roughly 7%, from $12.6 billion in 2009 to $20.8 billion by 2016. In January 2010, Teva itself announced a goal of generating $31 billion in revenue by 2015. The optimistic projection was simply because Teva, being a leader in the generics market, was well positioned to benefit from a massive patent cliff that was imminent at the time. The generic drug giant estimated that branded products with sales of about $150 billion, as of 2010, would lose their patents by 2015. (For related reading, see: Analysts Slash Teva Ratings.)

The Israeli drug maker’s revenue reached a peak of roughly $20.32 billion in 2012 and declined every year until 2015 when it reported a revenue of roughly $19.65 billion. Teva’s only revenue growth since 2012 came in 2016 when it reported revenue of roughly $21.9 billion. The story of how Teva is fighting – and losing – against big pharma lies in the fact that it missed the target it set for itself, despite the said patent cliff actually hitting big pharmaceuticals.

Pfizer, for instance, saw its revenue dip between 2011 and 2015 because of the expiration of certain key patents. In another sign of a reversal of the trend, pharmaceutical analysts at Evaluate, which had estimated that Teva’s global prescription drug market share would grow from 2% in 2009 to 2.7% in 2016, re-estimated in a 2016 report that the drug maker’s prescription drug market share would plummet from 2.3% in 2015 to 1.6%. So what happened to Teva’s $31 billion dream?


Teva's Questionable Generic Drug Moves

At the time Teva set a target of $31 billion in revenue by 2015, the company was working with a seven-point growth strategy, one point of which was to increase its market share. To achieve that, the company made a number of acquisitions.

In 2010, Teva acquired German pharmaceutical company Ratiopharm for $5 billion, a deal which made Teva Germany’s largest generic drug maker. In the fourth quarter of 2010, the acquisition of Ratiopharm made the Israeli drug maker’s sales in Europe grow by 43%. In 2011, the drug maker continued its acquisition spree with the acquisition of U.S. biopharmaceutical company Cephalon in a $6.8 billion deal and a 57% stake in Japanese generic drug company Taiyo Pharmaceutical for $460 billion. Taiyo, at the time, was the third largest generics drug maker in Japan—the world’s second largest drug market after the U.S. It also acquired the 50% interest held by Japan’s Kowa Co. in the Teva-Kowa joint venture initiated in 2008. At the time, Teva-Kowa Pharma Co. was one of the top five generic drug makers in Japan with sales of $200 million in 2010.

One of the reasons Teva upped its acquisition game at the time was to diminish its dependence on its blockbuster multiple sclerosis drug Copaxone, which was to lose patent protection in 2014. It was only logical to grow its generic drug business ahead of the then impending patent cliff in the pharmaceutical industry to grow its business. However, even in its peak revenue year of 2012, Copaxone accounted for 20% of its revenue, compared to 16% in 2011. By contrast, its generic drug business accounted for 51% of its revenue, down from 52% in 2011.

The Israeli company first suffered a setback in 2011 when the U.S. raised quality assurance concerns at the drugmaker’s Jerusalem plant, an event that saw the company’s generic drug sales in the U.S. dip by over 30% in 2011. The U.S. is Teva’s biggest generic drug market. Despite acquiring Actavis Generics from Allergan Plc (AGN) in 2016, it only grew its generic drug sales by roughly 2.7%, on a CAGR basis, between 2011 and 2016. Considering that the company was eyeing a sizable chunk of the estimated $150 billion in branded drug sales that were to lose patent protection by 2015, a 2.7% CAGR growth rate isn’t impressive. (For more, see also: TEVA's Ever-Narrowing Margin for Error.)

Actavis Generics Criticism

The aforementioned acquisition of Allergan’s generics unit Actavis Generics, in a $41 billion deal, has also been under scrutiny by investors. Teva had signaled that, in addition to using the deal to grow its generics market share, it intends to leverage Actavis’ assets to develop complex generics. Complex generics are considered more profitable given that they’re harder to copy. Still, a report in the Financial Times, published on May 29, 2016, quoted an unnamed Teva investor as saying the Israeli company overpaid for Actavis by around 25%.

Another investor said Teva was aiming to grow its generics business at a wrong time, saying the company should have put the acquisition cash toward the development of branded medicines, which are more profitable and face less competition. The problem is compounded by the fact that the deal pushed the drug maker’s total long-term debt from around $9.943 billion at the end of 2015 to around $35.80 billion by the end of 2016.

Putting it all together, Teva, while still the largest generics drug maker in the world, has been struggling to catch up with big pharmaceuticals because of its unrelenting desire to grow its generics business, when a focus on branded medicines could have helped.

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