Teva - a case study
As I wrote in the last article on generic industry consolidation, the start of the year saw the creation by Sandoz of the world’s largest generic company. However, the middle of the year saw the position change again and revert to what it was previously as Teva announced its acquisition of the American company IVAX.
Since Teva’s action has helped to keep the issue of consolidation as a live issue, it is worth using the company as a case study by looking at some of the companies that they have added to their organisation. I write “some” because a full list of all their acquisitions would fill this article by itself, so instead I will look at the strategic value of a few of them.
Teva’s trail of acquisitions started in its domestic Israeli market with its major competitor Ikapharm in 1980. This gave it as fairly dominant role locally which was reinforced in 1998 when it secured its supremacy in the domestic market by buying the only remaining local competitor of any significance, Abic.
In the meantime, though, the company’s gaze had started to turn outwards as it realised that the tiny size of the local market with a population at the time of only around 5 million was a limiting factor in its expansion plans. In 1982 Teva was granted FDA approval for its Kfar Saba (originally Ikapharm) manufacturing plant but the company did not just want to be a foreign supplier to the US.
Logic therefore dictated that Teva should look at another way to make an entry into the world’s largest pharmaceutical market, which it did in 1985 when it acquired 50% of the US company Lemmon Pharmaceuticals in a joint venture with W.R. Grace. This was really the breakthrough that set the company on its path to becoming the world generic industry leader and it was thus of major importance strategically.
This acquisition in itself could not guarantee the company success, since many companies have bought subsidiaries in the USA without becoming world-beaters as a result. What made the difference was the way that Teva set about building on its purchase. From the outset, it had a significant advantage over a lot of its competitors because Teva manufactures many of its own actives. In addition, it enjoyed a relatively low cost of manufacture in Israel for its formulations and a highly educated and skilled staff.
Does any of this begin to sound familiar? If so, it is because these are the same advantages and the same approach that Indian companies are now exploiting 20 years later.
As Teva’s success with Lemmon in the US market grew, it reached a position where it was able to buy out Grace’s share of the joint venture such that Lemmon became a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd in 1991. Once again, though, this in itself was no guarantee of success.
What did bring Teva success was using the provisions of the Hatch-Waxman act in the USA to aggressively challenge patents and so enjoy the benefits of being the first to market. For those not familiar with the specific legalisation relating to generics in that country, I should explain that being first to market in the US can bring a 180-day exclusivity period thus allowing the beneficiary to take a major share of the generic market at high prices before its competitors can even get into the market.
There were further acquisitions that helped to strengthen the company’s position in the US and move it towards market dominance. In 1996, Lemmon merged with Biocraft Laboratories and changed its name to Teva Pharmaceuticals USA and then in 1999 Teva added Copley Pharmaceutical, Inc to its collection.
The activity in the US did not mean that Teva was neglecting other geographical areas since during the 1990’s the company went on the acquisition trail in the larger and better developed generic markets of Europe.
The first of these was in Europe’s largest generic market, Germany, when Teva bought GRY-Pharma in 1992 after which it went east and acquired Biogal in Hungary as its first venture into the Eastern Bloc, now free of Communism.
The company’s focus continued to be on spreading itself geographically into the mature generic markets of Europe through the UK’s APS-Berk in 1996, the Dutch Pharmachemie in 1998 and then back across the Atlantic to Canada in the shape of Novopharm in 2000.
One interesting point is to look at where Teva has focussed since then as this reflects the company’s view of which were to be the growing markets that offered future potential as an alternative to the generic-saturated markets where it was already present.
Thus the company followed up its previous acquisitions with a new shopping list that included France (Bayer Classics in 2002), Italy (Dorom in 2004) and the setting up of subsidiaries in Portugal, Spain, Slovakia and Sweden.
Then finally, Teva topped everything and provided its latest surprise by negotiating a takeover of IVAX.
A number of question marks must hang over this project though, as it would give Teva absolute domination of the US market, through its existing business plus IVAX, and in the UK through the combination of the former APS/Berk combined with IVAX UK. Will the authorities in the US, the UK or Europe allow Teva such a massive share of the market?
No doubt several months of lobbying and persuading and arguing and horse-trading will ensue before we know. This will be an interesting one to watch, but whether it goes through or not, Teva is likely to carry on shopping after it takes a pause for breath and time to digest IVAX if the deal is allowed to proceed.
Peter Wittner
August 2005
Home
INNform