The German generic drugs market is worth €8 billion a year, but for Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), the world's biggest generic drug company, it is almost virgin territory. Teva's revenue from Germany is pretty low, and in fact that country is one of the few regions where the description "leading company" is not justified. Teva derives at most $150 million annually from its activity in Germany, which places it somewhere between 15th and 20th in the rankings there.
However, all that seems to be about to change following legislative change. German health funds can now negotiate themselves with manufacturers over discounts on drugs. Under the new rules, AOK, or to give it its full name Allgemeinen Ortskrankenkassen, the largest health fund in Germany, held a tender at the beginning of the year for 46 molecules (or active pharmaceutical ingredients). Teva won with six of the molecules it offered. At the beginning of the summer, AOK held another tender, this time for 83 molecules, worth an aggregate €2.7 billion ($3.8 billion), in a move aimed at saving Germany's health system some $1 billion. For each molecule, AOK was to select at most three preferred suppliers for the period 2008-2009.
Today, Teva announced officially that it was "very pleased to have been awarded a significant increase in the number of molecules for which it can contract to supply during 2008-2009; compared to the six products it was awarded in the first tender earlier this year." The company did not provide further details about quantities, at AOK's request, and it will do so in the coming weeks, after the agreements for each molecule have been signed.
It is not possible to tell how many molecules are involved, but Teva's statement that the addition is "significant" hints that earlier reports, which spoke of revenue in the low double digits, were conservative. Teva has already said that with the win it can double its sales in Germany, and so the additional sales must amount to hundreds of millions of dollars.
"We have always sat on the fence as far as the German market is concerned," Teva CFO Dan Suesskind said today, "and the reason for that is that it didn't fit our business model. AOK's tender is the first step in a change in the generic drugs market in the country to make it more sophisticated, to the point where we would like to get involved and know how to do so. So our seriousness about an acquisition there has risen, as have the chances that we will find something we want. I can't tell you if it's by 2% or 20%, but they've risen."
Published by Globes [online], Israel business news - www.globes.co.il - on September 19, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007