Brought to you by: Hl Helen Wu Kar Seng Yee Ken Chen Meghana Reddy Nicu Mihai Achihaei

Transcription

1 Brought to you by: Hl Helen Wu Kar Seng Yee Ken Chen Meghana Reddy Nicu Mihai Achihaei

2 What are Generics? Macro Trends in the Industry Overview of TEVA Risks Valuation

3 Branded Medicines are Expensive Brand name name Pharma (PFE, GSK) apply for patents to be sole distributors of their products Branded drugs sell for very high margins Prozac, Paxil, Advil, Tylenol

4 Generics: Cheaper Drugs for Everyone!

5 Hatch-Waxman Encourages Generics 180 day exclusivity period for the first generics producer to challenge a patent TEVA is particularly adept and has taken advantage of this in the past Also allows for patent owners to put a 30 month stay on generics companies by litigating Congress placed restrictions in July 08.

6 What are Generics? Macro Trends in the Industry Overview of TEVA Risks Valuation

7 Catalysts Global acceptance of generics as quality products Push to lower healthcare costs Aging population Many blockbuster drugs coming off patent in 2009 TEVA is positioned to capitalize Expansion into overseas markets

8 Generic Drugs in the U.S. Generic drugs currently dominate over 65% of prescriptions in the United States. 20% of industry profits

9 Many Blockbuster Drugs Coming off Patent in 2009 Desloratadine ~400 million in sales Levetiracetam 700+ million in sales Ramipril 700+ million in sales Sumatriptan 1 billion in sales Rabeprazole 11billion 1.1 in sales Lamotrigine 1.1 billion in sales Tamsulosin 1.3 billion in sales Valacyclovir 13billion 1.3 in sales Rosiglitazone 1.5 billion in sales Escitalopram oxalate 1.9 billion in sales Lamotrigine 2.2 billion in sales Topiramate 2.2 billion in sales Lansoprazole 3.3 billion in sales Atorvastatin Calcium 6 billion in sales (2010) 18.7 billion coming off patent tin 2009 from 13 drugs alone in the U.S.

10 Overview of TEVA: Generics (cont.) Generics market share Mature generics markets Growth Growth Growth Emerging generics markets

11 TEVA is Poised to Take Advantage 20% Market share in the U.S. US (before Barr acquisition) 150+ generic drugs waiting for approval The drugs they re replacing are worth more than 90 billion in annual sales

12 Obama s Presidency is a Boon Obama s plan specifically calls for allowing the importation of safe medicines from other developed countries, increasing the use of generic drugs in public programs and taking on drug companies that block cheaper generic medicines fromthemarket market.

13 Many Countries Favoring Generics Particularly mature countries where the population is aging Japan Governments are realizing generics are the most effective way to rein in soaring healthcare costs TEVA is well positioned ii

14 What are Generics? Macro Trends in the Industry Overview of TEVA Risks Valuation

15 Why TEVA is a great company World s largest player in the generics industry Vertically integrated Big to big model dl Skilled at incorporating strategic acquisitions Expertise in research and development Diversified Products International exposure

16 Overview of TEVA: An Introduction Headquartered in Petah Tikva, Israel Revenue of 9.4 billion USD in 2007 Presence in over 60 nations

17 Overview of TEVA: Company Strategy Product/geographic diversity Vertical integration Increase organic growth through h R&D Intellectual property Strategic acquisitions

18 Overview of TEVA: Revenue Breakdown (by region) TEVA s Salesin 2007 (by Region) Israel 4% Others 10% Europe 28% North America 58%

19 Overview of TEVA: Revenue Breakdown (by segment) TEVA s Revenuein 2007 (by Segment) API, 6%* Innovative Pharma, 19% Generics, 75% *most API sales are internal; this revenue reflects only external sales

20 Overview of TEVA: Company Strategy (cont.) TEVA has been steadily increasing their R&D expenditure to spur organic growth R&D Expenditure (millions of USD) R&D Expenditure as % of Revenue % 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 00% 7.10% 7.00% 5.90% 6.20%

21 Overview of TEVA: Company Strategy (cont.) Intellectual property More than 90% of all submitted patents are granted Number of Granted Patents (TEVA)

22 Overview of TEVA: Company Strategy (cont.) Strategic Acquisitions IVAX in January 2006 Added huge respiratory drugs portfolio IVAX previously had problems with costs as competition increased and generic drug prices decreased TEVA s vertically integrated model solved this problem Barr Pharmaceuticals in December 2008 tap into US market ktthrough h Barr and the Central/East t European market through its subsidiary Pliva Barr 2007 revenue: 2.5 billion

23 Overview of TEVA: Company Strategy (cont.) Strategic acquisitions provide TEVA with more diverse products, forward vertical integration and local expertise

24 Overview of TEVA: Big to Big Model Big player getting bigger Faster organic growth Better at M&A

25 Overview of TEVA: Generics International Market Share Breakdown in 1997 and % 90% Others 80% 45% Sandoz 70% WatsonPharma 65% 60% Ml Mylan 50% 10% TEVA 40% 11% 30% 7% 13% Barr had 6% of 20% 8% international market 10% 12% 21% share in This 8% 0% was not included in TEVA s figure Consolidation of generic industry evident: top 4 players currently hold 55% (or 61%if you consider TEVA s acquisition of Barr) of the market share compared to just 35% a decade ago.

26 Overview of TEVA: Generics (cont.) TEVA is the world s largest producer and distributor of generic pharmaceuticals

27 Overview of TEVA: Innovative Pharmaceuticals Copaxone o First innovative drug developed in Israel to receive FDA approval Proven to reduce relapses and new lesions in Multiple Sclerosis (MS) patients Only injected therapy not associated with flu like symptoms, increase in MS related fatigue or depressive symptoms Approved for marketing in 47 nations Number 1 MS drug worldwide, $562 million in sales in Q3 2008

28 Overview of TEVA: Innovative Pharmaceuticals (cont.) Azilect Leading drug for treatment of Parkinson s disease Drug in tablet form Proven to slow the progression of Parkinson s Most other drugs are aimed only at symptomatic relief Proven to work during every stage of Parkinson s Approved for marketing in 32 nations

29 Overview of TEVA: Innovative Pharmaceuticals (cont.) Looking to the future Department looking into oncology Tightrelationship with the Israeli academic community Early access to potentialprojectsprojects Focus on products with meaningful differentiation from existing ones Clinical attributes Expected economic value/benefit to patients

30 Overview of TEVA: Active Pharmaceutical Ingredients Portfolio of over 250 compounds 18 production facilities worldwide 89% of API sales are internal External sales more prevalent in China, India and Australasia Provides outsourced solution to achieving efficient pharmaceutical manufacturing Provides custom synthesis services

31 Overview of TEVA: API (cont.) TEVA API provides TEVA Pharmaceuticals with backward vertical integration, allowing TEVA to build on its big to big model

32 Overview of TEVA: Company Outlook Management guidance: EPS range of $2.79 to $2.85, above analyst predictions of $2.74 Increased from previous forecast of $2.69 to $ products awaiting FDA approval 41 tentative approvals Branded products generated annual US sales of 96 billion in totalt

33 Overview of TEVA: Company Outlook TEVA s 20/20 aim (by 2012) REACH $20 billion sales EXCEED 20% net income margin

34 What are Generics? Macro Trends in the Industry Overview of TEVA Risks Valuation

35 Risks: Increased Competition Generic market Price reaching AC after 8 entrants Innovative DrugsMarket 6/2008, Mylan Inc Copaxone alternative From Brand Name Manufacturers From Retailers That are Building Up to Manipulate Prices

36 Risks: Modification in Regulation Hatch Waxman Act day exclusivity for ProAir HFA (Albuterol Inhaler), Pantoprazole 2007 Zocor, Zoloft, Wellbutrin XL and Pravachol Medicaid/Medicare Deficit Reduction Act of 2005 average manufacturer price benchmark for prescription drug reimbursement instead of average wholesale price

37 Risks: Failure to Win Patent Litigations TEVA producing drugs before litigation ended 2008 produced dall Allegra, Neurontin, Lotrel and Protonix January 2008 sued for Protonix

38 Risks: Forex, M&A Forex M&A Ex. Mylan acquiring Merck division

39 Risks: Political Military conflict

40 Risks: Political (cont.)

41 Why TEVA is a good buy Global acceptance of generics as quality products TEVA is the largest player in the generics industry Most nations trying to lower healthcarecosts costs Many blockbuster drugs coming off patent TEVA is positioned to capitalize TEVA s vertically integrated business model Strategic acquisitions TEVA s international exposure

42 Q&A

43 What are Generics? Macro Trends in the Industry Overview of TEVA Risks Valuation

44 Relative Valuation Op Margins (TTM) Net Income Margins (TTM) TEVA WatsonPharma Mylan Novartis (Sandoz) 20.51% 13.17% 19.74% 19.29% 17.58% 8.75% 30.38% 17.89% ROA (TTM) ROI (TTM) ROE (TTM) Current Ratio (last quarter) % of Revenue from Generics % 57.04% 86.98% 18.33% Revenue from , ,918 Generics (Lt Q)