Strategic Management Major Assignment
-Analysis on Teva Pharmaceutical Industries Ltd.
1.1 Teva at a Glance
Founded in 1901, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) was formed by three young pharmacists in Jerusalem, Israel. Teva is a leader in the global pharmaceutical industry: one out of every seven prescriptions in the US and one out of every six prescriptions in the UK is filled with a Teva product. Ranking among the top 10 pharmaceutical companies in the world, it specializes in generic and specialty drugs and is the largest global producer of generic medicines. Headquartered in Israel, Teva has a global product portfolio of more than 1,000 molecules, sold in more than 100 countries. It operates in 60 countries worldwide and has approximately 55,000 employees and net revenues of $20.3 billion in 2013. 1.2 Business Segments
Teva operates through 3 segments: generics, specialty and others. The generics segment provides chemical and therapeutic equivalents of originator medicines in tablets, capsules, creams, liquid, ointments, injectables, and inhalants. This segment generated revenues of $9.9 billion in 2013, making up 49% of Teva’s revenues, among which 42% were attributable to the US market, 35% were from Europe and 23% were from the rest of the world. The specialty segment is the second largest and accounts for about 41% of the total revenue of Teva in 2013. The specialty segment focuses on areas including medicines for respiratory and CNS disorders, oncology and women’s health. CNS’s leading brand is Copaxone, in 2013, which generated $4.3 billion in sales, making up 21% of the company’s sales and constituting 42% of the company’s earnings. The others segment accounts for 10% of sales. In this segment, Teva has built a unique relationship with P&G and operates in 65 markets outside North America, selling cough/cold and allergy, digestion, vitamins, minerals and supplements, and painkillers. 1.3 Current Situation and Challenges
Although Teva is one of the largest pharmaceuticals companies in the world, it is not experiencing an easy time in the recent few years. Based on the data given in Teva’s financial statements (figure1), revenues have flattened in 2013 after a few years of rapid growth, and after experiencing a surge in GAAP- net income (audited net income) in 2010, Teva’s net income has been decreasing in the same period. Teva’s average net operating margin of the past 3 years is only about 10.36%, while the average net operating margin of its peer group is about 18.4%. In October 2013, in order to cut costs and save $2 billion a year, Teva announced a workforce cut and reduced the number of employees from 55,000 to 45,000 (a reduction of 11% of its global workforce). In addition, the patent of the best-selling drug Copaxone has just expired on May 24, 2014, therefore, the longer-term prospects of Teva seem challenging. In the following few sections, analysis and comments will be made on both Teva’s general strategies and the strategies of its two main business segments. Based on the analysis, suggestions will be given and investment forecasts will be made. 2. General Strategic Management Analysis
2.1 Questionable M&A Decisions
In the previous few years, Teva has made a string of questionable M&A decisions, which didn’t create expected synergies, and in contrast, impacted the company’s profits and growth. Teva’s current market value is about $48.21 billion, but between January 2008 and September 2011 it made a series of ineffective M&A with a total value of $22 billion. These acquisitions boosted sales from $8 billion to $18 billion but generated profit growth of only $800 million and earnings per share increase of only 71 cents. In 2009, in particular, Teva failed to buy Zytiga, a drug used in the treatment of prostate cancer, from Cougar Biotechnology Inc. Teva’s competitor, Johnson & Johnson bought Cougar and Zytiga’s sales totaled $1.2 billion just in the...
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