Abstract: This case study was written to assess if it is practical for drug manufacturers to stick to one particular business model given the intense competition in the pharmaceutical industry. It is suitable for courses on strategy and entrepreneurship. Global pharmaceutical industry is highly fragmented with fierce competition between big pharma companies and generic drug companies, which were considered as the dark horses of the pharmaceutical industry. During 2004–2007, the world generic pharmaceutical market grew at a CAGR of 16.4% whereas the overall global pharmaceutical market grew at a CAGR of 8.3%. The case describes Teva Pharmaceuticals Industries Ltd., an Israeli company’s success in the pharmaceutical industry with a hybrid business model for manufacturing both generic and blockbuster drugs. With the major markets of the US and Europe maturing, Teva announced its plans to enter the generics market of Japan in 2008. Japan is opening up its market for generics due to the rising healthcare cost challenges. However, it has been conservative in its approach towards generic drugs. Will Teva be successful in Japan with its strategies of globalisation and acquisition? Will Teva’s hybrid business model help it overcome the challenges of the changing pharmaceutical industry?
During its investor meeting today, Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) presented an updated strategy, highlighting key opportunities for growth and announcing its long-term goals of reaching revenues of $31 billion and non-GAAP net income of $6.8 billion, or 22% of revenues, by 2015.
“In the years to come, Teva will seek to extend our global leadership and deliver profitable growth, doubling our revenues by 2015 and reaching net income margins of 22%”
"In the years to come, Teva will seek to extend our global leadership and deliver profitable growth, doubling our revenues by 2015 and reaching net income margins of 22%," said Shlomo Yanai, Teva's President and CEO. "Our core business, generics, will continue to drive our growth. At the same time, we will continue to expand our branded business, further leveraging the diversity of our balanced business model.”
The growing worldwide demand for generic pharmaceuticals – as a means to expand access to affordable high-quality medicine and control healthcare costs – will continue to drive the growth of Teva's core business in the U.S. and globally. A significant portion of this growth is expected to come from those European and international markets that are currently characterized by low generic penetration rates. Teva's branded business will be further strengthened through internal R&D, licensing and other business development opportunities, and geographic expansion of its existing product portfolio – thereby enhancing its balanced business model. Biogenerics is another important growth driver in Teva's future. Teva remains committed to becoming a leading player in this evolving market and has taken significant steps to build the necessary infrastructure to accomplish this goal.
Teva's growth will be driven by its market leadership and competitive advantages, including its scale and global footprint, its high degree of back integration, the robustness of its product portfolio and track record in being first to market in the U.S. and other regions and its commitment to high quality. With these competitive advantages, Teva will seek to outpace market growth.
Mr. Yanai continued, "All of us at Teva are enthusiastic about what we plan to achieve in the next five years, and in particular about the value we expect to create for all of our stakeholders." With an aging U.S. population and the government trying to reduce the costs of various national health care programs, generic pharmaceutical firms such as Teva Pharmaceutical Industries (NASDAQ:TEVA) are primed to benefit substantially. Teva isn’t a new name, but with strong growth prospects lying ahead, this isn’t an old dog...
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