Teva Pharmaceutical Industries Ltd (ADR) (TEVA): Will The Transition Be Effective?

New Therapeutic Entities

This new idea has got me excited regarding Teva’s future drug pipeline. Often during the course of research we find molecules that are implicated in various disorders because they are a part of several physiological processes in the body. Therefore, Teva’s plan to work on integrated generic drugs that would offer greater benefits in terms of risk and development is welcome. The development of about 10 to 15 NTEs is planned for 2013. One of the ideas is to combine an antipsychotic with a weight-loss drug to reduce the weight gain associated with antipsychotics. A simple combination such as this is good for a start. Eventually, studying the effects of molecules over multiple disorders and pursuing the most promising therapies will lead to greater success for the company.

Competitors

One of Teva’s competitors, Actavis Inc (NYSE:ACT) witnessed a 70% fall in its revenues in the 4^th quarter. The company, earlier called Watson Pharmaceuticals, recently acquired a Swiss-Icelandic generics manufacturer, and decided to adopt its name since it is more recognized globally. This large acquisition might lead to some growth pangs for Actavis Inc (NYSE:ACT), and the effects of its multi-year rebranding campaign will only be seen in the coming few years. The company’s operating margin is 12%, which is substantially lower than Teva’s 21%.

Another one of Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s competitors is Mylan Inc. (NASDAQ: MYL), which is a generics drugs manufacturer. Like other generic drug makers Mylan Inc. (NASDAQ: MYL) is set to benefit from the patent cliff, however, it does not compare with Teva in the type of revenue generation (Mylan’s $6.7 billion compared to Teva’s roughly $20 billion revenues) that the latter can achieve with branded drugs as well. Also, a point to note is that Mylan Inc. (NASDAQ: MYL) lost out when Teva contested its ANDA application for a Copaxone generic this year. Such losses are not favourable because they indicate a company’s inability to effectively gauge the type of drugs they can attempt to replicate, and hence, place a question mark against their competency.

Conclusion

Teva’s new strategy in terms of organic and inorganic growth looks very promising. It is preparing itself well against the loss of revenues due to patent expirations. On the other hand, being a generics manufacturer itself, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) will benefit from the patent cliff. Teva’s transition is likely to be effective with long-term benefits, making it a buy.

The article Teva Pharmaceuticals: Will the Transition Be Effective? originally appeared on Fool.com and is written by Sujata Dutta.

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