How Actavis Generics Drive Revenues



Segment overview

North American Generics and International is Actavis’s (ACT) biggest segment, accounted for approximately 51.7% of total net revenues in fiscal 2012, 74.0% in fiscal 2013, and 75.2% in fiscal 2014. This segment is highly dependent on the US market. North America contributed approximately 78% of segmental revenues in 2012, 61% in 2013, and 61.9% of segmental revenues in 2014.

However, the high exposure to the US market is gradually reducing due to the acquisition of Actavis Group in 2012. Teva (TEVA) derives around 55% of its generics revenues from the markets outside the US. Mylan (MYL) derives ~41% of its total revenues from the non-US markets.

Actavis’s North American generics grew 7% year-over-year (or YoY) to $4,173.6 million in 2014. According to the company, on the basis of US sales, it was the second leading company behind Teva (TEVA).

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Actavis’s International segment grew 3% on a YoY basis to $2,573.6 million in 2014, primarily due to its acquisitions of Forest Laboratories and Warner Chilcott, as well as growth in international markets such as the UK, Russia, and Thailand. This was partially offset by the decrease in revenues associated with divested Western European assets.

Key products

As of fiscal 2014, Actavis marketed approximately 550 generic products globally, including around 250 generic products in the US portfolio. In 2014, US generics revenue was driven by the generic version of Lidoderm and Concerta.

Actavis made significant launches in 2014 in the US market, particularly Gx Intuniv and Gx Celebrex, which contributed significantly to segmental revenues. Approximately $1.6 billion in sales came from new product launches in 2013 and 2014. The company will continue to drive substantial value in 2015 from launches in 2014.

Gross margins

Actavis’s gross margin improved to 53% in 2014, up by 440 basis points, from 48% in 2013. This increase in gross margin occurred following a decline in the cost of sales, led by cost savings and increased international revenues from branded products that have high margins over unbranded products. However, its gross margin adjusted for non-recurring expenses was up by 340 basis points from the prior year.

In the same year, Teva (TEVA) generated a gross margin of 43%, up by ~200 basis points from the prior year.

The profitability derived through the generics business can be accessed through investing in pharmaceutical ETFs like the iShares US Healthcare ETF (IYH) and the SPDR S&P Biotech ETF (XBI).


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