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Presentation AgendaPurpose: To provide an in depth analysis of Tevas current situation and strategies concluding with recommendations for future strategy and implementation for continued growth.Structure of Analysis: Internal Analysis Present Situation, Financial Resources, Strengths and WeaknessesExternal Analysis General and Operating EnvironmentCompetitive Forces & StrategyOpportunities and ThreatsKey DecisionsAlternative StrategiesRecommendationsImplementation & Evaluation1Present SituationWorld leading producer of generic pharmaceuticalsCurrent products: Generics: Zocor, Zoloft Innovative: Copaxone, AzilectCurrent generic market share:18% of U.S. generic market Significant presence in U.K. and the NetherlandsSmall presence in Germany, France, JapanIncreasing competition in authorized generic marketFinancial Position:Cash flow from operations for 2006 was over $2 billionNet sales for 2006 reached $8.4 billion, a 60% increase over 20052007 Outlook Net sales to exceed $9 billion

2Low cost manufacturing strategy esp. supply chainAcquisition capability size & global footprintHighly efficient Paragraph IV pipelineStrategic relationships National pharmacy chainsIsraeli academic institutions (R&D)Market leader in U.S. genericsBackward integration active pharmaceutical ingredientsIncreasing diminishing returns on acquisitionsHeavy dependence on U.S. marketOver reliance on few products Copaxone: 11% of revenueSmall R&D Budget

WeaknessesStrengthsIMPORTANCE3General EnvironmentIncreasing acceptance of generic drugs worldwideIncreasing health care costs Aging population esp. North America and Japan Developing marketsCommodity nature of industry

Jason4Operating EnvironmentCurrent Customers:Generic Drug MarketPharmaciesDoctors (physician-driven markets)Governments

Target Customers:Developing markets Latin America, India, ChinaBiosimilar/Niche generic and/or innovative drug markets

Region% of SalesNorth America64%Europe and CIS26%Israel6%Other countries4%5Competitive ForcesCompetitors:Big PharmaSandoz, Barr, Mylan, Ranbaxy, etc. Buyers:PharmaciesGovernmentsDoctorsMEDIUM-HIGHSubstitutes:Authorized genericsOther genericsBrand name drugsHIGHSuppliers:Chemical companiesLOWPotential Entrants:Big Pharma (generics)MEDIUM6Competitive Group AnalysisPriceQuality Perception Teva JapanBig Pharma Other GenericsJapanTevaU.S.Other GenericsU.S.Focus on Competitors Focus on CustomersLowHighHighBig Pharma

TevaLowOther Generic companies7Competitive StrategyTevaTraditionally cost leadershipFocused on national pharmacy chainsGrowth driven by systematic acquisitionsSupply chain/ manufacturing scale advantagesBig PharmaDifferentiationFocus on markets by drug purposeHeavy investment in R&DHigher marginsOther Generic Companies4th generic strategyMimicking TEVA

8OpportunitiesMany blockbuster patents expiring in near future Potential consolidation in global generic marketNiche and biosimilar markets largely untappedDecreasing government regulation in Asian marketsDeveloping markets need for low cost health careEurope opening up to generic drugsInnovative pharmaceutical marketsIMPORTANCE9ThreatsNew low-cost entrants from India and Eastern EuropeIncreasing competition for authorized generic drugsBig Pharma plans to enter generic marketsIncreasing complexity in drug formulationsErosion of generic drug prices in the U.S. IMPORTANCE10Analysis of Environmental TrendsNew entrants from India and Eastern EuropeBig Pharma plans to enter generic marketsIncreasing competition for authorized generic drugs

Global demand for generics increasingInnovative pharmaceutical marketsIncreasing complexity in drugsNiche and biosimilar markets largely untapped

Erosion of generic prices in the U.S.

Probability of GrowthImpactLow HighLow HighMany blockbuster patents expiring in near future11Key DecisionHow to expand in the future?Continue U.S. and similar market consolidationExpand into global branded generic marketsLarge, established markets (Japan, Germany, France)Emerging markets (Latin America, Asia)Increase specialization Niche and biosimilar generic drugsInnovative drugsOr some combination12Continue consolidation in U.S. marketProsStreamlines the marketSavings through synergyIncreased scale/productionLess price competitionEasily add products/markets

ConsIncreased anti-trust riskIncompatible networksIncreases G&A expensesDeclining prices for commodity generics

13Expand into Emerging MarketsProsLarge potential marketRapidly growing prescription market in Latin AmericaCurrent core competencies match market needsIvax acquisition included access to Latin American markets

ConsHigh competition from local companies (i.e. Ranbaxy in India)Highly regulated markets

ProsInstant access to:Large PopulationsWealthy PopulationHigh usage of prescription drugsHigher price point

ConsPhysician based systemHarder to enterHigh sales costPrefer name brand products

Expand into large, established markets14Niche and biosimilar marketsProsHigher margins than current commodity genericsUntapped segment of generic marketRapid growth expected and increasing importanceVery few competitors

ConsHigher production costsHigher initial capital requirementsRequire physician prescriptionRegulations in U.S. undecidedSandoz first to market in Europe

Pros100% market sharePortfolio growth and diversityHigh profitability over longer period

ConsHeavy capital & R&D investmentHigh risk of failureDifferent business model than genericsInnovative Drugs15Recommendations How to expand in the future?Maintain market share in U.S. Expand into global markets that deregulating to become more pharmacist driven Follow CVS and the like into emerging marketsIncrease specialization into niche and biosimilar generic drugs16Implementation ChallengesUnknown FactorsNew MarketsProductionEstimating production for emerging marketsPriceCreating a proper pricing models for various markets

17ImplementationThe prior recommendations take into account the Strength, Weaknesses, Opportunities and Threats. TEVA should partner with large national pharmacy chains to enter emerging markets.Further TEVA should enter developed markets as they deregulate to pharmacist driven markets.TEVA should also take advantage of its current relationship with academic institutes in order to create niche and biosimilar product, which have a lower R&D cost than innovative products.

EvaluationTEVA should evaluate generic sales on a quarterly basis for each country they sell to. Research should be done to gauge:Consumer reaction to the introduction of generics in marketsConsumers expectations of appropriate price, placement, and quality

18Questions?