Current Strategic Profile
More than 100 years ago Teva Pharmaceuticals opened their doors as a wholesale drug distributor in Jerusalem. Today they have become the world’s leading producer of generic pharmaceuticals. Revenue has grown from $91 million in 1985 to $8.5 billion in 2006. This growth has not been easy and derives from key strategic decisions made along the way in order to amass these huge dollars amounts. Teva’s mission is to play a leading role in the transformation of the healthcare system through the development, manufacture and marketing of generic pharmaceuticals. Teva’s organizational structure is a symbol of their fundamental business strategy, highlighting their global strength and pharmaceutical diversity. This allows them to continue to expand their core generic business across all geographies and leverage their global reach and scientific strength to develop new innovative products and technologies. Teva has picked an industry in which there will always be a need, medicine. However, it is their approach to prescription medicine that will decide the future of Teva. In the start up of a pharmaceutical company an important strategic decision must be made between becoming an innovative and a generic medicine company. Each has its advantages and disadvantages, however Teva works as a generic pharmaceutical company. As a generic company they have been incredible successful in setting goals and executing them in a successful fashion. They have successfully expanded abroad, developed competitive advantages, created innovative business, successfully executed mergers and acquisitions, and maintained a rigorously low-cost culture and achieved greater scale benefits in its supply chain.
The first strategic issue that faces the firm lies at the very root of pharmaceuticals, the decision to be either an innovative or generic pharmaceutical company. Thus far Teva has opted to be a generic pharmaceutical company.
In order to understand the success of Teva in the generic market we must also look at the innovative market. Innovative firms focus on the creation of a drug; hiring scientific entrepreneurs to create new drugs. Patents protect these drugs for 10-12 years upon which generic companies may duplicate the drug. The typical return on equity for an innovative firm is around 20%, amid the highest of any industry. The advantage to being an innovative firm is the margins gained while a drug is patented. However, with great return comes great risk and not every new drug will make it through the approval process. Along with risk is the amount of time it takes to develop these drugs. Some of these steps in the approval process include: compound discovery, preclinical trials, three phases of clinical trials, and government approval. Each of these steps takes time and sometimes take years to fully complete. These steps fall under the category of research and development. Research and development account for 14% of innovative firms’ revenue. Another cost that cuts into innovative firms revenue is sales and marketing costs and can range from 30-35%. With such high percentages of revenue in creating these drugs and the likely hood of the drug being approved, .01333%, it is no wonder that returns on one drug can be immense. The opposite is true for a generic company that wishes to sell large quantities. The biggest advantage to being a generic company is cost. Being able to sell generic drugs cuts cost in areas such as marketing and research and development. Pharmaceutical companies can create medicine without having to recover massive debts in marketing the new product as well as the R&D it takes in developing this type of medicine. The cost comparison between innovative firms and generic firms can be seen in exhibit 2. The opportunity for growth is predicted to be as much as 16% in major markets, growing from $52...
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