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Teva Pharmaceutical Focusing on Per Product Operating Profits

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Teva’s shift in business strategy

Teva Pharmaceutical Industries (TEVA) has been focused on maximizing its revenues through its market-leading generics portfolio. The company, however, has been facing stiff competition in the generics market from Mylan (MYL), Gilead Sciences (GILD), and Pfizer (PFE), which has resulted in price erosion in the generics market. These companies, along with Teva, have recently been witnessing weaker sales. Teva’s CEO (chief executive officer) Kåre Schultz said at the JPMorgan Healthcare Conference on January 9, 2018, that the company “used to focus on maximizing revenue in the generics business” but that is not sustainable and “you always need to maximize operating profit.”

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Teva Pharmaceutical also plans to increase the prices of certain products in its portfolio since the current prices are cited as unsustainable by the company. According to Schultz, “You always need to maximize operating profit. So when you think about it, if you maximize revenue, you’re taking really any deal you can get, just to get the volume, but you don’t really stay super focused on what is the per product, per SKU profitability. That’s what we want to do going forward.”

Teva’s recent performance

In fiscal 3Q17, Teva Pharmaceutical registered a YoY (year-over-year) decline of 18% in its operating income; however, sales increased 1%. Its net income fell ~21% on a YoY basis. So Teva failed to report sustainable profits since the company has been working in silos and plans to optimize its portfolio and operational dynamics to improve its profitability. We’ll look at its plans to optimize its organizational structure in the next part of this series.

Investors interested in exposure to Teva Pharmaceutical but want to diversify the company-related risks can consider the BLDRS Developed Markets 100 ADR ETF (ADRD). TEVA makes up ~0.41% of ADRD’s total portfolio holdings.

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