Teva Pharmaceutical (NYSE: TEVA), the world's largest generic drug manufacturer and one of the world's fifteen largest pharmas, does not have a substantial presence in China. But the company's CEO, Jeremy Levin, believes China is a natural fit for Teva: "Our portfolio more closely matches the needs of that nation than nearly any other company in the world," he told the Reuters Health Summit in a telephone interview (see article). The reason? Teva's focus on generic drugs and respiratory treatments.
Teva is known for its audacious M&A transactions. Not only has the company been active, but many of its takeovers have been expensive. In fact, over the past 10 years, Teva has made $30 billion worth of deals, though it emerged from a decade of blockbuster deals with a market capitalization of just $32.7 billion.
Teva acquired Cephalon for $6.8 billion in 2011, even though its major products were only a few years from expiration. In 2010, Teva paid $5 billion for Germany's Ratiopharm, just before Germany scaled back payments to pharmas. It bought Barr Pharma (along with its European subsidiary Pliva) for $7.5 billion in 2008; IVAX Corp in 2006 for $7.4 billion and Sicor for $3.4 billion in 2004.
None of those companies involved much in the way of Asian assets. However, in 2011, Teva did spend $934 million to purchase the third largest Japanese generic drug company, Taiyo Pharmaceutical Industry. The acquisition gave Teva a production facility in Japan, where it has substantial sales.
Nevertheless, in the two emerging markets with the highest rates of growth - China and Brazil - Teva is not an active participant.
CEO Levin wants to change that. "As the healthcare system changes in China, we certainly will be looking to embark on ways of bringing what the Chinese government and Chinese companies want," Levin told Reuters. And the company will tailor its operation to China's needs. "Teva has been extremely successful in understanding the cultures that it works in. We have no intent on being one size fits all across the globe."
Levin was hired in to help Teva just one year ago, so none of the problems of the past can be blamed on him. Born in South Africa, Levin said he knows about China from experience at his previous employers - he worked for both Bristol-Myers Squibb (NYSE: BMY) and Novartis (NYSE: NVS).
At BMS, Levin was responsible for the "String of Pearls" partnering strategy. That replaced the blockbuster transaction (although BMS did pay $2.4 billion to acquire Medarex) with smaller deals, including partnerships on individual drugs.
Most likely, Teva will enter China with an M&A transaction. In the past, that could easily have been a substantial acquisition, one that could be transformative. That strategy seems less likely now. With a joint venture Levin could show that he was serious about adapting to China's culture, while preserving Teva's cash. Perhaps, Teva's foray into China, when it finally comes, will show a new flexibility.