With active pharmaceutical ingredient sales of $1,460m (€960.8m) in 2007 and a portfolio of more than 250 compounds, Teva Pharmaceutical Industries is by a long stretch the dominant supplier in the global API market.
Speaking at the Israeli company's recent Investor Day, where Teva presented the results of a strategic review and announced its goal of doubling in size by 2012 to generate revenues of $20bn and net income margins of more than 20 per cent, Amir Elstein, executive vice-president, global resources, described the API segment as "an enormous machine that can leverage a global file portfolio on a global scale".
The bulk of Teva's APIs feed the company's pharmaceutical business, in which the core generics range is supplemented with branded products such as the multiple sclerosis treatment Copaxone (glatiramer acetate) and Azilect (rasagiline mesilate) for Parkinson's disease. Last year total API sales rose by 10 per cent over 2006, while internal sales to the pharmaceutical business were 21 per cent higher, reflecting "the impact of vertically integrated product launched in 2007", Teva reported.
API sales to third parties actually fell by 4 per cent to $561m and in the fourth quarter they were 8 per cent lower at $140m. Quarterly sales of APIs overall reached $463m, a 65 per cent increase over the same period of 2006, with internal sales to the pharmaceutical business jumping 150 per cent.
The proportion of third-party sales in the total API business, and indeed in Teva as a group, is expected to continue declining in the years ahead, particularly as Teva's interests swing more towards branded and innovative drugs while sustaining strong growth in its finished generics business.
At the Investors Day, chief financial officer Dan Suesskind gave a breakdown of group sales that are expected to show compound annual growth of 15-18 per cent between now and 2012, climbing to $19.0-$21.5bn from $9.4bn in 2007. Within that evolution, the Teva Active Pharmaceutical Ingredients (TAPI) business - meaning third-party sales only - is projected to grow from $0.6bn in 2007 to $0.9bn in 2012.
On that basis, the respective shares of generics, branded pharmaceuticals and APIs in Teva's overall turnover would shift from 75 per cent, 19 per cent and 6 per cent in 2007 to 74 per cent (generics), 22 per cent (branded) and 4 per cent (APIs) in 2012. All the same, Suesskind noted, "we have to remember that most of the value of TAPI resides in the other businesses".
And as Elstein pointed out, even stripping out internal sales still left Teva ahead of its nearest (unnamed) western API competitor, with estimated sales of $550m in 2007, and far ahead of the nearest Indian rival with sales of $360m. Moreover, those competitor sales included both internal and third-party business.
The breadth of Teva's API range also puts it ahead of the pack, Elstein added. "We lead them not only in value - actually we have the portfolio to serve the industry", he said. This enabled the company to offer a highly responsive, "on-time" supply source with a light cost structure and "huge" capacity that was "available and growing".
It included 1,500 active patents, a resource that was also expanding rapidly. According to Elstein, 90 per cent of Teva's patent applications for APIs are granted "year in, year out".
The company filed 126 basic R&D files for its molecules worldwide in 2007and intends to more than double that number by 2010. More than 50 per cent of these molecules are first to market in multiple countries, "so the portfolio has a lot of value", Elstein commented. That value is also expected to double by 2010.
In terms of API filing, Teva is shifting from a "unifocal" strategy centred on the US to a "multifocal approach", he noted. "We can leverage a lot of the work done in and for the US … and actually this is very cost-effective, because the cost added provides a USA-ready file to International and Europe," Elstein explained, adding: "It's a residual cost."
"So what we have on the table," he commented, "is not only the momentum going forward, it's a huge base of available products that were created for the US until today."
The company's "excellent" vertical integration was part of that proposition. In 2007, Elstein noted, it was designed to cover 50 per cent of the Teva pharmaceutical portfolio by volume and about 70 per cent by value. "We are committed to provide by 2012 70 per cent coverage of the Teva product arsenal, with more than 85 per cent of the value," he told the Investors Day conference.
Vertical integration was "a very strong and effective top-line and bottom-line enhancer" for Teva, Elstein added. According to president and chief executive officer Shlomo Yanai, it is another feature that puts the company's API business ahead of the field.
"While some of our competitors have been struggling with back integration, we are enjoying it, and it's part of the Teva DNA for many years," Yanai said.