kevin kato fischer swot analysis

7/28/2019 Kevin Kato Fischer Swot Analysis

1/17

Purpose

: Ana lyze

Tevas

st ra tegy & pro f i t g rowth

potent ia l


2/17

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


3/17

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


4/17

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


5/17

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


6/17

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


7/17

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


8/17

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


9/17

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


10/17


11/17

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


12/17

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


13/17

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


14/17

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


15/17

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


16/17

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


17/17

kevin kato fischer swot analysis

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