Teva's Long-Term Outlook Looks Promising on Biosimilar Wins and Growing, Innovative Portfolio

Teva is the leading generic drug manufacturer in the world. By our estimate, roughly 70% of its total sales are derived from generics and off-patent branded drugs, and the company continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, Teva has been downsizing its generics pipeline and focusing on complex generics. It historically went after 80% of drugs coming off patent, but it will now focus on just 60% because the incremental value from the remaining 20% is marginal. This enables the company to allocate development spending to other more profitable avenues, such as complex generics—drugs that have complex formulations or dosage forms or are injected or have more-complex administration. Complex generics are more difficult to manufacture, which limits competition. Price, volume, and margin are highly dependent on the competitiveness of a drug, so complex generics pave an opportunistic road for Teva. However, other players in the industry are employing a similar strategy, so success in this area relies on Teva’s ability to seek out profitable drugs and efficiently launch them to market.