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Why Teva’s Business Model Is Progressively Evolving

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Teva’s business model

Teva (TEVA) intends to target a minimum profit of $4.3 billion annually, or $5 EPS (earnings per share), through 2016. In order to achieve this, Teva started to reorient its business model from volume-driven to value-driven in 2014. The company is focusing on leveraging its generics and specialty capabilities to develop complex products of higher value. This transformation is expected to accelerate during 2015.

Here are a few key focus areas of Teva’s business model reorientation:

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  • Continue to shift generic pipeline and portfolio to complex products.
  • Focus on select geographies in the European generics market.
  • Establish leadership in emerging generics markets. According to IMS Health, emerging generics markets are expected to have a potential in the range of $233 billion to $252 billion in 2017.
  • Develop specialty products to cater to unmet needs of patients.

To support its business model evolution, Teva is leaning toward mergers and acquisitions (or M&A) in 2015. The company has been inactive in M&A activity for the past three years. But now, it’s focusing on acquiring a US company that develops complex generics, has a presence in emerging markets, and has an attractive specialty product pipeline in core therapeutic areas.

On March 30, 2015, Teva announced the acquisition of Auspex Pharmaceuticals to strengthen its central nervous system (or CNS) franchise. Auspex has an attractive specialty product pipeline in CNS.

Change in leadership

For the execution of business model changes, Teva revamped senior leadership, trimming its executive committee from 15 to nine members. Erez Vigodman served on Teva’s board of directors in 2009 and became president and CEO (chief executive officer) in February 2014. He led a turnaround in his previous role as CEO of Makhteshim Agan.

The company appointed Sigurdur Olafsson from Actavis (ACT) as president and CEO of the Global Generic Medicines group. He is expected to improve the profitability of the generics segment. Timothy R. Wright is head of business development, strategy, and innovation.

Teva’s growth can be monetized through ETFs such as the iShares U.S. Healthcare ETF (IYH), which covers generic and specialty companies such as Actavis (ACT), Hospira (HSP), Mallinckrodt Plc (MNK), Impax (IPXL), and Perrigo (PRGO). These companies make up about 5.38% of the fund’s total holdings.

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