Download - Kevin Kato Fischer Swot Analysis
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Purpose
: Ana lyze
Tevas
st ra tegy & pro f i t g rowth
potent ia l
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Systemic erosion of generic drug prices in U.S. due to entry of low-cost drug manufacturers fromIndia and China
Future of generics industry is uncertain due to fractured industry and volume of generic firms
Generics entry rates into a new market largely driven by the structure of the market (Physiciandriven vs. Pharmacy driven) government regulation and perception of inferiority
More global consolidation predicted among large generic companies due to low price strategy
adopted by smaller players
High competition among generic manufacturers; after the 180-day exclusivity period ended, 18competitors were poised to enter with their version
Aging population and rising health care costs bodes well for Pharmaceutical industry in general andgenerics industry in particular
Generics business is currently profitable as more innovative drugs lose patent protection
The Innovative drug market was expected to slow to 5-8% while Generic Industry predicted to growworldwide at around 16% and to double to $100 billion in sales by 2010
External Analysis- General EnvironmentLeast
Beneficial
to Teva
Most Beneficial
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Operating Environment
Customers
Customers: National pharmacy chains, hospitals and medical professionals
Requirements: broad scope of products, inventory management, volume based
discounts and pricing bundles
Value: Low prices
Competitors
Competitors: Ranbaxy, Sandoz, Watson, Barr, Mylan, Dr. Reddys Competitor Strengths:
Barr R & D and patent litigation,
SandozR&D & European focus,
Ranbaxy and Dr. Reddys: low labor costs.
Competitor Weakness:
Lack of rigorous execution in Filing ANDA applications
Lack of economies of scale and
Lack of broad generic portfolio.
Competitive strategy: higher R&D investment, Patent litigation, authorized
generics and low labor costs
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Opportunities and Threats Opportunities:
Aging populations
Rising health care costs
Expiration of patent protection for many innovative drugs
Physician-driven markets are slowly trending towards becomingpharmacy-driven markets
Fragmented global generic drug market is ripe for consolidation
Niche and Biosimilar medications
Threats:
Entry of Low cost firms from India reduced prices of generics by 15-30%in three years.
180 day exclusivity period Increasingly Innovative companies release their own authorized generic
version
High R&D investment & marketing outlays for innovative drugs
Greatest
Least
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Present Situation Internal Analysis Strategy
Produce Innovative Drugs by
partnering w/ research institutions Israel / Jewish roots and community
resources
Produce R&D intensive generics Direct correlation of profit and R&D
expense
Achieve 180 day exclusivity for filingpatent of generics
Easily Imitable
Advantages ofTevas size
Acquire other generic producers Prop up prices by eliminating competition
Expand into other areas
Compete on price using economies ofscale
Products General Generic production
Drug component production
R&D Intensive Generics
Innovative Drug Production
Attempting to Increase certainty of profit margins
Developed 2 innovative drugs recently
Working to gain 180 day exclusivity
Erecting barriers to entry due to scale
Build competitive advantages Scale
University Partnership
R&D capabilities / facilities
quality
Reduce competition Price out through scale
Acquisitions
Produce own drug raw materials
Expand Market Share Acquisitions
Building relationships in Israeli way
Provide volume and steady supply
Assure Distribution supply Spread out manufacturing
Secure alternate routes during conflict
Avoid conflict zones for key research,manufacturing and distributioncenters
More
Profit
More
Market
Share
Most
Resources
Devoted
Leastresources
devoted
Most
Important
Sub-bullet
Mostsuccessful
Least
Important
Sub-bullet
Least
successful
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Financial Resources Internal Analysis Condition
Operating Income 4 times competitors Greater $ for R&D and overall
production
Greater ability to research and producenew drugs
Gross profit margin 42% Slightly lower than industry
Generics have narrow margin
ROE 18.8% Equity is making the shareholders
money, perhaps to much given back toholders
ROA 8.2% Assets working better than average
competition, but not utilized to thefullest potential
Only 47% profit put into R&D Low % for innovative industry
Average for generics
Ability to meet demands Strong Operations Support
Operating budget and scale
Difficult to imitate scale Can meet any capacity demand with
just one plant compared to acompetitor
Small portfolio of Innovative Drugs Unsure profit margins, no competitive
advantage
Imitable drugs Easy substitutes
Low Margins On Generics Difficult to make money with many
players
Future Growth Capital availability for expansion
Can acquire new generic producers toimprove share and market price
Good return attractive to investors Can raise capital for expansion and
research
R&D Pipeline Utilizes 180 exclusivity
Strong research means first to market
Advantages
forinnovation
Advantages
for generic
production
Competitive
Advantages
Potential
Weaknesses
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Strengths Weaknesses
Size of production facilities Low cost strategy
Price skimming
180 day exclusivity advantage
Understanding supply chain Raw material sourcing
Reorganize after every large acquisition
Disaster planning
Emphasis on acquisitions Supplement capabilities to improve
profitability (HGH)
Consolidate fragmented market
Gain market share while raising prices byeliminating competition
Sell drug components to other companies
Drug portfolio Diverse medicines = diverse risk
New innovative drug every year by 2010
Improve profit potential in all situations Generic, innovative, niche
Attracts large investment from Israel
Corporate Culture Billion Dollar Theory
Willing to take risk
Relation w/ Israeli Research
Strategy Imitability No patents on generics
Compete on price = low profit margin Limited innovative drugs
Capacity pushes towards more genericproduction
Limited Research Budget Thin profit margins reduce R&D
Greater risk with innovation
Longer lead time on new products Heavy Investment in US market
Changing health standards could cripplemarket
Concentrated risk
Missing opportunities for global share
Avoids physician driven markets
Shift of core focus Lack of marketing experience for new
drugs Lack of direct access or direct to
consumer ads
Low budget for advertising
Move to innovation increases risk Most investment is in pension funds
Risking yearly profit risks dividends forpensioners
Strongest
Weakest
Weaker
LessWeak
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Analysis of Environmental Trends
Competitor introduces innovative
drug
International exchange fluctuations
Focus on innovative drugs
higher margins, higher risk
Patents and other legal
regulations
Complacency failure to
acknowledge competitiveness of
industry
Maintain current structure
Consolidate US generics
markets through acquisitions
Invest growth into R & D for
innovative drugs
Lo Hi
Hi
Lo
Probability of Growth
Impact
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Customer Focus Fulfill demand for low-cost
alternatives
Effort to win over physician-driven
markets
Aging population requires more
medicines
Market Focus Advanced pipeline for bringing
generic drugs to market
Expanding to new territories
Governments demand less expensive
alternatives
Work with universities to gain newideas for undiscovered drugs
Internal Focus
Redesign supply chain as needed
Billion Dollar Theory
Strong reorganization and integration
efforts after an acquisition
Competitor Focus
Realize need for market
consolidation
Production facilities are larger than
competitorsStrong department for ADA filings
Focus on Consumers and Competitors
Teva Pharmaceuticals is in the Market Focus category
LOW HIGH
Focus On Competitors
LOW
HIGH
FocusOnCustomers
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Teva
Watson Labs
Mylan
Pfizer
Glaxosmithkline
Barr
0
100
200
300
400
500
600
700
800
0 50 100 150 200 250 300 350 400 450
Numbero
fDrugsProduced/Company
Prescriptions Filled (in thousands)
Customer Value Analysis
Major Competitors
Teva currently fills more prescriptions than its competitors and provides a wider range of product offerings
Teva also applies its scale and to keep prices low and offer the benefit of its cost savings to the customer
Teva also provides capacity to customers to ensure product availability
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Key Decisions
What are the problems and opportunities? Problems:
Big Pharma has increased presence in generics and has implemented aggressive tactics Pursuing own generics
Licensing 180 day exclusivity period
Big Pharma has more aggressively fought patents
Companies have begun emulating TEVAs strategies and the competitive gap is closing
Entrance of new types of competitors
Pricing has declined 15-30% over the last 3 years in some markets
TEVAs stock price has plunged 30%, which has erased billions in market capitalization
Opportunities: Increases in overall health costs has led to greater demand for generics
Large potential markets (Latin America and Asia)
Growing and profitable biosimilar market
Major drugs are coming off patents in coming years
Insurance companies are pushing generic alternatives
Countries opening up to generics (Germany, France, Japan)
What should be the focus of the recommendations? Maintain annual growth rate of 33% for last 5 years
Raise stock price
Most Significant
Least Significant
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Alternatives
Maintain Focus on U.S. Generics Market Pros:
TEVA is a leader in ANDA filings
TEVA very effective at acquiring and integrating existing companies
Cons: More companies vying for exclusivities
Systemic erosion of prices
Focus on Global Generics Market Pros:
Generic penetration high (U.K., Netherlands)
Generic market large (Germany, France)
Rapidly growing market (Latin America, Eastern Europe, Russia, India, China)
The growth of the global market is expected to speed up
TEVA purchased Ivax which has strong presence in Latin America and Eastern Europe
Cons: Market heavily regulated (Germany, France, Japan, Latin America, Eastern Europe, Russia, India, China)
Generic penetration low (Japan)
Other companies already expanding into Europe
The structure of Europe is not the structure in which TEVA excels
Most Significant
Least Significant
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Alternatives (continued)
Move Up Value Chain from Low Cost Generics Into More SpecializedProducts (biosimilars or innovative) Pros:
Cost to develop innovative drugs much lower than competitors
Biosimilars expected to be high growth
Theoretically, TEVA can produce one new innovative drug per year
Cons: Innovative market growth expected to slow
United States bogged down in regulatory impasse
Some Combination of the Three Pros:
Diversify risk among a number of markets
Maintain leadership in generics while expanding into highly profitable innovative market Take advantage of economies of scale and supply chain expertise in other markets
Cons: Difficult allocating funds between generic and innovative projects
Hard to manage generic company when you are rich
Most Significant
Least Significant
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Recommendations
I will not ever take a risk so big that it will jeopardize the company. I will risk quarterlyprofits, but never the company -Eli Hurvitz
TEVA should pursue a mix of the three alternatives: TEVA should maintain focus on U.S. generics market by attempting to consolidate the U.S.
market by strategically acquiring competitors
TEVA should focus on those global markets that have a structure for which it has previously
been successful TEVA should pursue the biosimilar market as well as modestly increase research and
development in innovative drugs
Support for Recommendation A mix of these three strategies will allow TEVA to diversify its risk so as not to jeopardize the
company
By pursuing all three alternatives, TEVA will be able to pursue those portions of the market inwhich it will be the most successful
For example, if TEVA were to ONLY pursue the global generics market, to reach the market growthdesired by management, TEVA would probably have to pursue nearly all global generic markets
On the other hand, if TEVA is pursuing market growth in all three alternatives, it can pick and chosethose global generic markets that have the structure in which TEVA has previously been successful
Many experts in the industry believe it is difficult to allocate funds between generic andinnovative drugs, but TEVA has successfully released two innovative drugs and has thus farbeen able to allocate funds profitably
Most Significant
Least Significant
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Corporate Strategy U.S. Generics Market
Maintain existing relationships TEVA is currently very successful in the U.S. market and should not risk thismarket share due to expansion in other areas
Acquire smaller competitors to consolidate market the U.S. market is extremely fragmented; aconsolidation of the market would result in increased market share and higher profit margins
Continue to improve supply chain and manufacturing efficiencies TEVA is a market leader in supply chainand production efficiencies and it should maintain this area of leadership
Global Generics Market Pursue markets that have structure in which TEVA has been successful TEVA has been successful in
markets where generic penetration is high and there is low regulation; TEVA should not enter dissimilar
markets because of the risk of pursing an unknown strategy Maximize market potential of Ivax markets (Latin America and Eastern Europe) Latin America and Eastern
are rapidly growing markets; Ivax already has a market presence in these areas and this advantage shouldbe maximized
Continue to acquire companies that have access and expertise in rapidly growing markets TEVA is verygood at acquiring and integrating companies; acquisition would be an effective way of entering unknownbut potentially profitable markets
Specialized Products Use profits from generic market to modestly increase research and development for innovative drugs TEVA
should modestly increase research and development expenditures to gain profits from the lucrativeinnovative drug market, but should not aggressively pursue this market because of high risk and because it isnot an area of expertise for TEVA
Continue to use existing strategy for developing innovative drugs TEVA should continue to use localscientists to develop innovative drugs because this reduces the cost of drug development significantly
Use profits from generic market to pursue the biosimilar market the biosimilar market is a rapidlyexpanding market that TEVA should use be able to utilize its expertise in generics to obtain substantialprofits
Most Significant
Least Significant
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