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This article is based on the Israel-based pharmaceutical company, Teva Pharmaceutical Industries Limited (NYSE:TEVA). Let us see what the future holds for the company in the wake of new generic and specialized drugs entering the market, the CEO dispute, and expected future sales of the company.

Revenue Drivers

Teva is a multinational company involved in the manufacturing and marketing of both generic and specialized drugs. The company mainly generates its revenues from the US and European regions, with a relatively small percentage of revenues attributed to the remaining geographical locations. The following tables indicate the revenue distribution of the company based on products and geography.

Source: Form 20F, 2014

As evident from the tables above, more than half of the revenues of the company are attributed to the US region. Teva's global revenue attribution from generic medicines is following a downward trend, whereas the specialty medicines are experiencing an upward trend. Total generic revenues of the company have declined by approximately 5% YoY. The decline, however, was offset by the 3% YoY increase in specialty medicine revenues and 13% YoY increase in other revenues of the company. Due to these offsetting effects, the total revenue base of the company remained flat on an annual basis.

Further segregating the revenue distribution, I found that the specialty medicines segment is performing particularly well in Europe, marking an 8% YoY increase.

The Company, the Industry, and the Future

Jeremy Levin was recently ousted from the position of CEO following a dispute with the board of directors regarding the overhaul of the company, and Erez Vigodman replaced him. Although the CEO change did generate negative sentiments amongst investors, but Vigodman seems to be a suitable candidate and he has proven his ability to turn around operations at Makhteshim Agan. However, dealing with the challenges of a global company that deals in both specialized and generic drugs is going to be a demanding task for him. Teva announced in its 2013 annual report that the company will be slashing its global workforce by 10% by the end of 2014. The workforce slash will improve the margins of the company by reducing its operational costs.

Besides that, the ongoing debate about the patent expiry of Teva's most popular drug, Copaxone, dampened the future revenue projections of the company. The company tried to defend its future margins by developing a longer-lasting version of the drug. The 20mg daily injection will now be marketed as a 40mg injection required three times a week, with a patent protection to last till 2030.

The drug's revenue grew at a CAGR of approximately 10% over the past three years and accounted for $4.2 billion sales in 2013. Note that there is stiff competition facing the drug, such as offering oral medication as an alternative to Copaxone's injected medication. Copaxone's patent will expire by mid-2014, after which the daily injectable drug's revenues are expected to nosedive by 56%. However, the position is fairly covered by the introduction of the upgraded version of the drug. The company hopes to transfer a majority of its Copaxone patients to the lower-dose frequency version of the medicine. Patients who are presently satisfied with the drug are much less likely to switch to the generic drug replacements. The successful history of treating multiple sclerosis favors the drug as well. Moreover, the reliability factor is of key importance. The results shown by Copaxone show much more consistent results, whereas a high level of inconsistency exists among the generic medications to treat multiple sclerosis. Based on this research, I believe that the total revenue base from Copaxone will actually rise in the foreseeable future.

Furthermore, the company recently announced it would acquire NuPathe, Inc. (PATH) to expand its standing amongst Central Nervous System-related medicines. NuPathe's drug, Zecuity, is the only prescription migraine patch approved by the FDA as of now, and that gives Teva a significant edge over its peers in the CNS business. Besides Zecuity, the company also treats Parkinson's disease and schizophrenia through patches.

Two more important drugs need to be mentioned here that are expected to boost the topline of the company going forward. The company is expected to start the production and sale of two of Pfizer Inc.'s (NYSE:PFE) drugs whose patents are expiring. Teva has received the authorization of generic production of Detrol; the drug accounts for about $571.5 million sales annually in the US alone. For Teva, the generic version of the drug will at least generate a couple hundred million dollars per annum, as a rough estimate. Moreover, the company has received a tentative FDA approval to start the production of a generic version of Pfizer's Viagra from 2017 onwards, or earlier if circumstances favor the company.

Lastly, the company is on course to produce an inhalable powder in Europe for the treatment of asthma and Chronic Obstructive Pulmonary Disease (COPD). The powder drug, DuoRespSpiromax, is targeted to provide effective and consistent medication in reference to bronchoconstriction that occurs as a result of asthma and COPD. The drug awaits final approval from the European Commission (EC) that is expected to be received in a few months' time. The competing products are not as effective and lead to under-treatment of the patients suffering from these two diseases. As a rough estimate, 23 million people are afflicted with COPD annually and 30 million with asthma. This entails significant costs for the country. DuoRespSpiromax is expected to reduce this cost by providing a more effective treatment.

Conclusion

Based on my research, I believe that the company is a long-term buy. The company is expanding its exposure in the generic drug market by means of generic versions of Detrol and Viagra. The production of these two generic drugs is expected to favorably impact the margins of the company. Furthermore, Copaxone and DuoRespSpiromax will also boost the company's topline.

Source: Teva Offers A Good Long-Term Investment Opportunity