Case Discussion on Teva Pharmaceutical Industries, Ltd

Introduction

Teva Pharmaceutical Industries is a world leading company in the production of different pharmaceuticals ranging from commodity generics to biosimilars and innovative drugs. The roots of Teva go back to the early 20th century, when Salomon, Levine and Elstein (ELS) was distributing drugs to the local population and immigrants from Europe. The real start of Teva and growth of the company arose when the highly educated European immigrants set up some drug manufacturing plants, including one called Teva. At first there were many small family-owned manufacturing plants, which were able to grow because of certain regulations that did not allow patent-holding foreign firms to do direct business in Israel. Instead, the patent-holding firms needed to license their pharmaceuticals to local companies to be able to do business in the country. After some early growth of multiple pharmaceutical companies, two men, Nachman Salomon and Eli Huvitz, became convinced that the industry needed consolidation by the merge and acquisition of multiple companies which resulted in Teva Pharmaceutical Industries, the largest pharmaceutical company in Israel.

Further expansion and challenges

To grow further, Teva needed to expand abroad, however this would be a serious challenge as the capital that was needed for desired expansion was not there. Instead, Hurvitz managed to close a deal to become a joint venture with major American conglomerate W.R. Grace, which gave Teva access to capital and contacts in the U.S. This was the first step of many for getting foothold in other Western markets. Due to great strategic planning Teva was able to become the most active acquirer in the industry and became owner of multiple pharmaceutical companies in Europe and North America.

As becoming one of world’s leading pharmaceutical companies, several challenges for Teva occurred. First of all, Teva has a lot of competition from other companies. To beat their competition, Teva could acquire them to gain an even bigger market share, or Teva had to make strategic plans to work smarter than their competition. Teva developed a competitive advantage by focusing on working in a cost efficient way. The company did this by providing services that many other big companies found less valuable. These services were inventory management, volume-based discounts and pricing bundles. Another way of keeping their competitive advantage was by guaranteeing their customers the lowest price. Sometimes this caused the company to give their customers credit and forego part of the short term income for the long term. Furthermore, by following these regulations, Teva was able to not only always keep their market share, but also to keep growing. A second challenge for Teva was entering the innovative drug market in the early 1980s, as Teva’s branches abroad were merely generic pharmaceutical companies. Entering the innovative drug market is high risk and high potential as there is much capital needed to develop new drugs. Once a successful new drug enters the market the company has a huge advantage as the drug will be protected by a patent and the company will be the sole distributor of the drug which makes them a temporarily monopoly. The high risk lays in the fact that patents cost much money and the patent of new drugs need to be acquired before the drug can enter the market. The moment a drug gets patented is the moment when clinical trials can start. These clinical trials last for years before the drug gets FDA approved. This shortens the effective time of the patent and the time the company can earn money on their new invention. The trial period of generics, which was the early main focus of Teva, however, is much shorter. The costs and prices of generics can be much lower with high potential as well. The third challenge for Teva arose when Teva acquired their two biggest acquisition yet. As Teva first focused on commodity generic drugs and innovation as of the early 1980’s, by acquiring Sicor and Ivax in the 2000’s, Teva broadened their market into biosimilars, niche generics, and even further