In 2Q16, the generic pharmaceutical industry witnessed YoY (year-over-year) price erosion of around 4% in the US and 5% globally. The industry has been known to suffer from pricing fluctuations, mostly in the range of 2%–7%. For this reason, a few generic players have been aggressively focused on increasing their market shares at the cost of optimal pricing. But this practice hurts value in the longer term.
Teva Pharmaceutical Industries (TEVA) is uniquely positioned to combat these issues and is expected to witness minimal value erosion due to pricing changes in 2016. The company offers about 400 products in any single market and across multiple disease segments.
The size of the company’s portfolio, dominance in the generic pharmaceutical space, and its extensive and flexible drug manufacturing network helps it withstand pricing pressures in few product categories. A larger product portfolio and greater financial strength also secures reliance from its customer community.
Teva FDA filings
The above diagram shows Teva Pharmaceutical’s ANDAs (abbreviated new drug applications), which are currently being reviewed by the FDA (US Food and Drug Administration). Of the total pending filings, one-third are first-to-file applications, and one-third are for first-wave products. With 70% of its total filings in later stages of approval, Teva is confident that it will benefit from the FDA’s increased pace of generic drug approval. The company believes that it will witness a higher rate of ANDA approvals than other generic pharmaceutical players.
With this limited price impact, Teva is expected to pose strong competition to other generic pharmaceutical players like Mylan (MYL), Perrigo (PRGO), and Novartis (NVS). Notably, the Market Vectors Pharmaceutical ETF (PPH) has about 4.3% of its total portfolio holdings in TEVA.
In the next and final part, we’ll analyze Teva Pharmaceutical’s dominant position in the US generics market.