A little over a year ago, Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) top management presented the company's strategic plan for 2010-2015 to analysts. In the long presentation you will find no discussion of the over-the-counter (OTC) market for non-prescription drugs, and it was not mentioned as an interesting market or a future growth engine for the company.
Teva is working on expanding and diversifying its activity, in order not to be dependent on one successful product (multiple sclerosis treatment Copaxone, which accounts for a third of its profits). But while specific geographic markets were marked out as possible targets, and the broadening of the basket of original products was mentioned as a goal, the OTC market was seemingly forgotten.
As far as Teva's current activity is concerned, OTC is negligible, accounting for less than 5% of annual sales.
For these reasons, today's announcement by Teva and Procter & Gamble can be seen as a surprise. Nevertheless, it is clear what attracts the two companies to a market estimated to be worth $200 billion annually, "This is a field that has not been at the forefront of our activity, and it has been subsumed under generic sales. However, we have many good reasons to think that this market will develop, among them the desire of governments and insurers," Teva president and CEO Shlomo Yanai said today.
Among those good reasons, Teva lists the rise in life expectancy. "The companies expect to stimulate faster growth in the nearly $200 billion OTC market as the global population continues to age, consumers increasingly focus on quality of life and wellness and more consumers personally manage their family’s health care choices and rely on trusted brands. In addition, economies in emerging markets continue to grow quickly and consumers are gaining purchasing power. All of these factors will contribute to continued strong growth of the global consumer health care market," the announcement said.
Teva, perceived as a leader in the global pharmaceuticals market, will not wish to be left behind and miss out on a substantial and growing market. What's more, its entry into this market does not involve an acquisition or large investment. Investors are seeing this positively, and Teva's share price, which ahs underperformed in the past year, opened with a strong rise on Nasdaq today.
There is also a potential loser from the new venture: pharmaceuticals company Perrigo Company (Nasdaq:PRGO; TASE:PRGO), for which OTC is its main market. Perrigo began activity in Israel and listed on the local stock exchange when it bought Agis a few years ago. As soon as Teva's announcement was released, Perrigo share price went from a slight rise to falls on the Tel Aviv Stock Exchange, and Wall Street investors do not like the announcement either.
Perrigo has enjoyed handsome growth in its market in the past few quarters. Within the OTC market, the company leads the store brand segment, that is, drugs that Perrigo manufactures and that are sold under the brand names of retail chains such as Walmart. At the same time, it is looking to switches, the transfer of prescription drugs to OTC. The company estimates that drugs that currently have sales of over $10 billion will switch from prescription to non-prescription status in the next five years, among the drugs for treating high cholesterol levels.
Now, Teva and Procter & Gamble, two large and experienced companies, are setting their sights on this field, and it looks as though investors believe that Perrigo has challenges ahead.
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2011
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