MAURICIO CARABALI EMBA 5

TEVA PHARMACEUTICAL
About TEVA
Began in 1901 as a small wholesale drug business in Jerusalem distributing imported medicines,
TEVA is now one of the top 20 pharmaceutical companies in the world, with operations in over 50
countries, 26,000 employees worldwide and production facilities in Israel, North America, Europe
and Latin America.
MAURICIO CARABALI

How is TEVA doing

TEVA was more than the world’s leading producer of generic pharmaceuticals. As we can see in the
Exhibit 1a and Exhibit 1b, TEVA is a successful company in both revenue growth and its financial
structure. As you can see in the Exhibit 1b TEVA have acquired credits to leverage and ensure
financial stability and on the other side in Exhibit 1a shows an increase in sales more than doubled
of revenues in the last five years (comparing 2001 and 2005).

As we can see from Exhibit 1a to the company maintained a growth of approximately 32% between
2001 and 2005. Although the growth was only 9% from 2004 to 2005 due to the highly competitive
industry and the entry of large players on the market, the company continues to show growth both
operating income and net income. This means that, despite its high rate of growth (approximately
26%) compared to their rivals in the last five years, TEVA has to do everything possible in order to
restore growth and position it acquired in previous years. On the other hand, as shown in Exhibit
1b, especially in the item of total assets of the company we can see a substantial growth the last five
years, indicating that TEVA is making good use of their assets.

Despite the socio-political site location of its principal office conditions, TEVA knew establish itself as
a global company, making 64% of their revenues come from the US market.

External Factors that explain the performance of TEVA

Innovative Pharmaceuticals. They are protected under a patent granted to the pharmaceutical
company that discovers drugs. After approval by the FDA in the United States, new chemical entities
having 10 to 12 years of exclusivity for the commercialization of the new drug. Among the relevant
factors of the industry are the following:

- Pharmaceutical research is high risk, 5,000-10,000 One test compounds became an approved
drug. Seven in every 10 marketed drugs did not produce revenues exceeding their R&D costs.

- Gross margins on patented drugs typically range from 85% to 95%.

- Annual industry growth of the traditional (non-biotech) pharmaceuticals firms was predicted to
slow to 5% to 8% annually.

- Slow development process, from discovery of the compound to the approval of the
government it can take 10 to 15 years.

- High costs associated with research and development.

- High costs in sales and marketing force.

MAURICIO CARABALI

Generic Pharmaceuticals. Generic drugs are off patent drugs. They are bioequivalence in terms
of form, dosage,quality, effect, side effects, and the route of administration of the branded drugs.
These drugs are subject to the same regulatory standards and can only be manufactured and sold
when the original medicines are not protected by patents, within the industry stands out:

- The price of generics is considerably less than the original versions.

- Low costs of R & D, marketing and sales.

- America is the largest market for generic drugs in the world

- 13% of medical prescriptions in 1983 to 50% in step 2006.

- The Hatch-Waxman 1984 Act allowed to generic firms challenge to innovative firms long before
its patent expire and acquire an exclusivity period of 180 days for marketing their drugs.

- It is a highly competitive industry due to the entry of low-cost manufacturers and innovative
firms entering the industry.

- It is an attractive Industry in terms of return on equity, as can see in the Exhibit 2, the return on
equity of generic firms is sometimes greater than innovative firms.

Internal Factors that explain the performance of TEVA

TEVA has developed into a leading company in Israel medicines, until consolidate the leading
company in the production of generic pharmaceuticals worldwide.With corporate offices located in
Israel, these are some of the factors that determine their performance in the industry :

- Strategy of inorganic growth through Mergers and Acquisitions which allowed him entry
successfully in various markets worldwide (Exhibit 6), because of that TEVA is known for its
ability to manage its resources and capabilities in search of his goal of creating a global brand .

- TEVA has maintained a rigorously low-cost culture and achieved greater scale benefits in its
supply chain than any of its competitors. The supply chain started with active pharmaceutical
ingredient (API) production (Backward Integration), a step which many of TEVA’s competitors at
least partially outsourced, often to TEVA.

- Product diversity is one of the most important key to success for TEVA.

- Entered to the innovative drug market, by 2006, TEVA's strong relationship academic
Institutions with yielded 150 to 180 proposals for new drugs per year.

- Rigorous execution, filing ANDA applications earlier and with fewer revisions than its
competitors.
MAURICIO CARABALI

The Big Challenge for TEVA

Due to the decrease in market share of approximately 30% from January to June 2006 and the
present conditions of high competition market, TEVA is in the need to determine which are the
clear directions to enable it to ensure the constant expansion, growth and consolidation
as the main company in the pharmaceutical industry.

Recommendations
In order to continue a pattern of success TEVA need to focus on the following factors:

- Increase leadership in key markets (US and international markets). Through key acquisitions
that will allow enter other markets or diversify its product portfolio.

- Focus on maintaining a leadership position in the use of Paragraph IVs.

- Should continue its innovative program in a focused and controlled manner. Due to the high
competition that develops in the generics industry, acquisitions no longer guarantee success,
and organic growth through effective R&D will become an important growth driver for the
company.

- Betting on the new wave of technology in generics and try to gain competitive advantage in the
biogenerics at lower cost and higher value.

Thank you very much for consider my recommendations.

Sincerely,

Mauricio Carabali