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Teva Aims to Improve Its Position with Actavis Generics Acquisition

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Acquisition of Actavis Generics

After the completion of Teva Pharmaceutical’s deal with Actavis Generics in June 2016, the combined company is expected to leverage its increased scale to create a competitive position in the global generic pharmaceutical market. Peers such as Perrigo (PRGO), Mylan (MYL), and Akorn (AKRX) have also opted for acquisitions and licensing deals to strengthen their product portfolio and expand their geographic presence.

The above diagram shows the timeline for the deal and the various regulatory milestones completed since February 2016. After the completion of this deal, Teva will be a leading player in 14 markets around the world.

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Market dynamics

Teva Pharmaceutical (TEVA) currently serves customers who have themselves witnessed consolidation on a massive scale. Only three customers account for 82%–86% of the US generic pharmaceutical market as well as 55%–60% of the European market. Teva Pharmaceutical’s focus on scale will enable the company to have bargaining power with these large customers.

Additionally, the combined company is expected to invest about $700 million to $750 million annually in its research and development (or R&D) pipeline. These investments are further expected to strengthen Teva Pharmaceutical’s position in both contract and complex generics segments in the US and international markets.

Productivity gain

Teva Pharmaceutical expects to benefit from improved productivity after the completion of the deal with Actavis Generics. The company currently manufactures drugs in Europe, Spain, and Croatia at rates equivalent to those witnessed by generic players in India. Teva Pharmaceutical aims to improve its efficiency levels for manufacturing both complex generics as well as volume generics.

In case these synergies are realized, Teva Pharmaceutical is expected to witness a significant rise in its share price. This is also expected to boost share prices of the SPDR MSCI ACWI ex-US ETF (CWI). Teva Pharmaceutical makes up about 0.32% of CWI’s total portfolio holdings.

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