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Teva Turns the Corner

After a tumultuous year of ups and downs, Teva Pharmaceuticals seems to be slowly turning the corner.

The Israel based company saw a significant downturn in performance during 2017 attributed in part to shortsightedness of trends in the market, too rapid growth and leveraging, and most critically, failure to diversify its portfolio. Its focus on maximising Copaxone which in previous years has generated 40% of Teva’s revenues was seriously impacted by its end of patent in 2017 with other generic producers now rolling out copies of this product – ironically a tactic Teva has been using for decades.

However, Teva has also been attacked by aggressive headwinds that have battered the entire industry since 2010. Prices continue to move downwards for all generic products largely driven by better collaboration between retail chains and wholesalers creating buying giants who can arm twist significant price reductions from pharma producers.

This perfect storm has forced Teva to focus its strategy in the last 12 months, and some positive pictures are now emerging in the market. Earnings have slowly risen in recent months, mirroring investor confidence that the wide ranging and global organisation restructure will bear some fruit.

Diversification is also beginning to bear some fruit with new products now moving into the pipeline having received regulatory approval. Of particular interest to global patients with significant allergies, approval of the GX Epipen brings significant relief to a worldwide shortage of these devices especially in North America and European Markets.

In North America,Teva now accounts for 14% of generic market share and 24% in Canada, while losses from Copaxone begin to stabilise with sales in the US and European markets now showing limited variation over the last three quarters (see below – data taken from Teva Q3 reports)

The proposed company restructure is expecting to realise $4bn of savings by the end of 2019 which will improve its cash position for R&D activity and potential acquisitions in the pipeline. Additionally, the company, with the support of Warren Buffet, will now focus much more closely on its portfolio of products, seeking to maintain only those that are truly profitable and ignore those with smaller returns on R&D investment – an activity that is mirrored across the Big pharma firms at the moment.

While Teva continues to address the impact of the last 12 months and the cumulative effects of the market headwinds, there is still a long way to go, but early signs are positive. If the current strategy to address cost, leverage ratios and portfolio diversity continue, we can expect Teva to return to a position of market leadership and strength during 2019-20.

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