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Teva Ends Hoechst's Generics Misery

Executive Summary

Teva Pharmaceuticals is buying Copley Pharmaceutical, another demonstratiion of brand-name companies' disappointment in generics as a business. Hoechst paid more than $500 million for Copley, which it bought in the heyday of brand-name companies' infatuation with the strategy of getting into the generics business in order to ward off fierce generics competition when key branded drugs go off patent. But Copley ran into regulatory problems above and beyond a flawed strategy. Teva, on the other hand, becomes the biggest US maker of generic pharmaceuticals in terms of volume, although Mylan is still slightly ahead in terms of revenues. This comes at a time when size is a key ingredient for success in generics due to the commodity-like nature of the business and customer consolidation.

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Teva's Growth Momentum

Teva has built a successful generics business by being nimble, aggressive and opportunistic, and is betting heavily that by dominating global markets it can prosper even after the end of the current spate of patent expirations. The success of its innovative drug Copaxone has given it a hedge against the volatility of generics and also changed the company in many ways. While Teva has to balance two very different businesses with limited synergies, it also must come up with a viable successor to Copaxone in order to secure its foothold in proprietary pharmaceuticals while continuing its investment in generics.

Teva's Growth Trend

Teva's strategy of becoming a leading global supplier of generics by acquiring companies in the US and Europe is paying off--the company's revenues grew nearly 40% last year. Moreover, the company's first branded product, Copaxone for multiple sclerosis, is finally garnering strong growth after a slow start.

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Despite spiraling inflation, branded OTC product demand remains high, according to Bayer Consumer Health, which posted Q2 sales up by 16.0%. But with consumer incomes increasingly squeezed, the company is working on ways to defend its market share against cheaper private-label alternatives.

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