TEVA - Teva Pharmaceutical Industries Ltd Table of Contents...

Teva Pharmaceutical Industries, Ltd

Table of Contents
Table of Contents
Issues ............................................................................................................................................... 1
Financial Analysis ....................................................................................................................... 1-2
Porters 5 Forces .......................................................................................................................... 2-4
Alternatives Identification ............................................................................................................. 4
Evaluation of Alternatives .......................................................................................................... 4-5
Recommendation ............................................................................................................................ 6

Issues
Since becoming a global giant, Teva is now forced to compete with a low-cost prices for
innovative drugs by other emerging pharmaceutical companies. Teva must also compete with
research and development from other larger pharmaceutical companies while developing their
own innovative drugs. The question of expanding their scope or expanding geographically
becomes an essential issue. The main issues surrounding this case can be ultimately broken down
into four issue; emerging markets, valuation, political risks, and debt ratings. Like any good
company should, Teva must assess the risk involved in an emerging market and build strategies
to counter these threats. Differentiation will also be a challenge and a necessity in order for Teva
to deliver value added product. Political risks are always present in any foreign investments and
Teva must assess risks associated with its own foreign investments. In an industry dependent on
good debt, Teva must consider their debt rating in an emerging market.
Teva Financial Analysis
Teva is a fast growing company that has doubled its sales in the past six years while
maintain a good debt to capital ratio. Teva has sustained an average ROA of 7% a year over the
past five years and 64% of its revenues come from North America. Teva’s Return on Equity has
averaged 15.5% over the last five years doubling the ROA of their investors. In addition, Teva
has experienced great profit increase from their brand name drug for multiple sclerosis,
Copaxone. In 2005, Copaxone’s sales reached $1.2 billion and Teva received an estimated 55%
($647 million) of these sales through their affiliation with Sanofi-Aventis. According to the 90-
95% estimated gross margins, 10% is deducted for cost of goods sold. Research and
development expenses are estimated at 14% and the Administrative, General, & Selling (AGS)
1

Costs are estimated at 10%. The AGS may be lower due to Sanofi-Aventis having a large share
of these expenses. In the table below, is an estimate of Teva’s operating margin from Copaxone