The world’s largest generic drugmaker, Teva Pharmaceutical Industries Ltd., aims to tie up with the producer of the Chinese version of Viagra to crack the world’s second-largest medicine market — at least that’s what Guangzhou Pharmaceutical Holdings Ltd. Chairman Li Chuyuan told Bloomberg News Thursday.
Teva’s spokespeople denied the companies have any current agreement on a China joint venture. The non-denial denial suggests this is far from a final deal. In any case, Teva should probably take a closer look before signing on the dotted line.
For one thing, the Israeli drugmaker has enough headaches with its current business. Shares plunged to a 17-year low in New York on Thursday after the company warned (again) it would miss 2017 profit forecasts. A $35 billion debt burden, about three times the drugmaker’s market cap, has ratings companies on watch for a credit downgrade.
Sure, the company’s new CEO, Kare Schultz, could make the case that a little foresight could go a long way in finding another revenue stream to help make up for a slide in sales of its copycat drugs amid what Gadfly’s Max Nisen has termed the great generics slump of 2017.
With a large, aging population and growth of chronic diseases, China sounds like a no-brainer for turning around plunging sales elsewhere. Beijing says it’s keen to open up the generic drug market in hopes of getting its hands on intellectual property that could speed the improvement of Chinese pharmaceuticals.
Guangzhou Pharma could provide Teva with the factories, distribution networks and employees to churn out drugs, and the political savvy to secure the Israeli company a spot on Beijing’s ever-changing shortlist of foreign firms in good standing, potentially removing roadblocks to regulatory approvals.
That all sounds… nice. But it’s worth remembering that very few foreign businesses in China get the kind of sales their consultants and bankers promise right out of the gate. Teva needs a more imminent win and the Chinese market doesn’t move fast. Just look at the retailers and carmakers that have operated through ventures there for dozens of years: some have prospered but many are still waiting on unmet pledges of billions of new customers.
Even McDonald’s Corp., one of the most visible consumer success stories, sold a controlling stake in its China business in the biggest foreign exit from the mainland this year. And last month, North America’s Cardinal Health Inc. said it would sell its Chinese distribution unit six years after entering the market. Bloomberg News has reported that government-backed Shanghai Pharmaceuticals Holding Co. is a top bidder.
As any doctor would advise, Teva should carefully consider the risks and not let the promise of a short-term cure to a chronic illness cloud its judgment.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Matthew Brooker at [email protected]