Analyzing Business Risk: A Case Study on Teva Pharmaceutical

This essay conducts a comprehensive business risk analysis, focusing on Teva Pharmaceutical Industries Ltd. It begins by defining risk in a business context and then provides an overview of Teva, including its history, financial performance, and global operations. The essay identifies and examines various international risks faced by Teva, categorizing them into strategic, financial, reputational, compliance, and operational risks. Strategic risks include globalization strategies and the generic drug market. Financial risks cover potential impacts from generic drug protests and political instability. Reputational risks stem from declining revenue, employee layoffs, and CEO changes. Operational risks involve the reliance on external suppliers. The analysis highlights the interconnectedness of these risks and their potential impact on Teva's performance and reputation. The essay underscores the importance of proactive risk management for the company's long-term success and sustainability.

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Risk can be defined as the situation where an individual or a business organization is
a position where it is liable to lose or gain something which is of value to it (McNeil, Frey
and Embrechts 2015). Therefore, risk forms an important aspect of the various companies as
well as business organizations. Risk in business can be defined as the situation in which a
company or business organization experience a loss in profit margin rather than the expected
hike or experiences a situation in which the strategies implemented by it backfires (Glendon,
Clarke and McKenna 2016). Therefore, it can be said that risk is a common aspect faced by
almost all the major companies as well as business organizations by the world. This essay
intends to shed light on the process of risk faced by a company or business organization. This
essay intends to study the process of risk in business through the pharmaceutical company
Teva Pharmaceutical Industries Ltd.
Teva Pharmaceutical Industries Ltd. is an Israeli company which was founded in
the year 1901 by Chaim Salomon, Yitschak Elstein and Moshe Levin (Tevapharm.com
2018). The company Teva is the 485th largest company in the world and the 25th largest
pharmaceutical company in the world with an annual turnover of more than $32.4 billion as
per a 2017 statistics (Forbes.com 2018). The company had its humble beginning in the year
1901 when it used to take the assistance of camels to deliver its products to the customers
(Tevapharm.com 2018). However, in the recent times, the company has evolved as one of the
largest pharmaceutical companies of the world. The company specializes in the manufacture
of various pharmaceutical drugs, the chief among them being the generic drugs
(Tevapharm.com 2018). Some of the financial details of the company are provided by the
below given figure-

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Figure 1: Financial statistics of Teva Pharmaceutical Industries Ltd.
Source: Factset, Bloomberg, S&P Cap IQ; Forbes.
The company Teva provides its services in various diverse countries of the world like
North America, South America and various European countries with its headquarter being
located in Israel (Tevapharm.com 2018). The company is one of the largest manufacturers of
the generic drugs and provides cheap drugs and other useful services to the customers from
various parts of the world. The company operates on a global scale and therefore is
susceptible to the same kinds of international risks as are the other major pharmaceutical
companies of the world.
Globalization has opened up many new opportunities and unheard of possibilities for the
various major companies of the world. However, with the process of globalization entails
various kinds of international risks which, on the one hand, can lead to the overall growth as
well as the development of the company or the business organization concerned and on the
other hand, it can also lead to extensive loss for the company or the business organization
concerned (Verbano and Venturini 2013). There are various kinds of international risks
which a company or a business organization needs to deal with. The major kinds of

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international risks which a company or business organization needs to deal with are listed
below-
 Strategic Risks
 Financial Risks
 Reputational Risks
 Compliance Risks
 Operational Risks
 Others
Strategic risks can be defined as the risk which a company or a business organization
faces on the basis of the strategies which it decides to follow for the overall growth as well as
the development of itself (Frigo and Anderson 2012). It is to be noted that the concept of
strategic risk is often confused with operational risks (McNeil, Frey and Embrechts 2015).
However, the primary difference between the two lies in the fact that good operational
denotes doing the right things, whereas good strategy denotes doing the things which are
right (Frigo and Anderson 2012). It is often seen that the various companies or business
organizations set too high strategic objectives for themselves and thus fail to achieve the
goals set by them (Hopkin 2017). The pharmaceutical company Teva has recently decided to
follow the path of globalization and expand its business in different countries of the world
like North America, South America, Europe and other parts of the world in a bid to increase
its annual profit and also to reach out to a larger customer base (Tevapharm.com 2018). The
company in a bid to outrival its competitors also provides generic drugs to the customers
along with the traditional kinds of drugs sold by it (Tevapharm.com 2018). The company in
order to lower the cost of production of the drugs manufactured by it takes the help of the
latest technologies as well as innovations. The company in a bid to expand its customer base
also provides cheap drugs to the customers in comparison to its rivals. These are some of the

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international strategies followed by the company. However, there is a certain element of risk
associated with them as well. For example, the decision to follow the path of globalization by
the company Teva might not actually increase the annual profit of the company and cause the
overall growth as well as the development of it, the way it happened in the case of the
American company, Disneyland, whose expansions in the countries of France, Japan, China
and other countries backfired (Hull 2012). The decision of the company to enter in the
business of the generic is a dicey one as there has a lot of protest recently against the use and
the manufacture of the various generic drugs. Many companies claim that the use as well as
the manufacture of the generic is complete piracy and should be stopped at once. It is be
noted that the company Teva sells generic drugs at a much cheaper rate in order to outsmart
its rivals and also to reach out to a larger customer base (Tevapharm.com 2018). Therefore, if
this particular product sold by the company is taken away then the company will be in a very
vulnerable position.
Financial risks are the risk which are associated with the financial aspects of a company,
like the various financial transactions which a company or a business organization needs to
conduct or the situation which the capital invested by the various stakeholders of the
company is at risk (Aebi, Sabato and Schmid 2012). It is to be noted that financial risks is one
of the major risks faced by almost all the major companies or business organizations of the
world (Christoffersen 2012). Therefore, various companies as well as business organizations
in order to safeguard themselves against this particular risk tend to develop strong
stakeholders network and also try to invest in diverse products instead of putting all their
focus as well as resources in one particular product or service (Aebi, Sabato and Schmid
2012). It is to be noted that the primary product of the company Teva is the various generic
drugs and it is one of the largest manufacturers of generic drugs in the world presently. In the
recent times there have been protests against the use as well as the manufacture of the various

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generic as they cause huge amount of loss to the parent company which had actually
manufactured them. Therefore, the company faces considerable amount of risk as the primary
product sold by it is critical scrutiny and is likely to go off the market if the protests from the
various other companies continue. Moreover, the company Teva operates in some of the most
politically as well as socially turbulent countries of the world like Israel and others where the
chances of property damage are very high due to political as well as terrorist activities. The
company boasts of loyal investors like Northern Cross LLC, Abrams Capital Management
LP, Fidelity Management & Research Co., Berkshire Hathaway, Inc. and others
(Tevapharm.com 2018). However, the international market is very fickle and if the
performance level of the company drops then there are chances that the investors as well as
the shareholders might pull off.
Reputational risk can be defined as the risk which a company or a business organization
faces on the basis of the reputation which it holds in the international market (Hopkin 2017).
This particular kind of risk might from arise from incidences which can destroy the reputation
of the company or the business organization concerned, the increasing capital, operational or
regulatory costs, decline in the annual revenue of the company or the business organization
concerned, the destruction of the shareholders value and for various other factors (Verbano
and Venturini 2013). The company Teva Pharmaceutical is a global brand and therefore it
faces a significant amount of reputational risks which might destroy the reputation held by it
in the international market. In the recent times, there have been several incidences which
have adversely affected the reputation of the company concerned. Firstly, in the years 2015
and 2016, a decline in the annual revenue of the company was noticed (Tevapharm.com
2018). According to a report, in the 2016, due to the decline in the annual revenue the
company lost 11% of its shareholders and in the year 2017, it lost 38% of its shareholders
(Tevapharm.com 2018). Secondly, the company in order to lower its operational costs in the

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year 2017 terminated more than 14,000 employees worldwide with 1,750 of them being from
Israel itself (Schindler 2018). The frequent change of the CEOs of the company is another
factor which the company has been facing in the recent times. It is to be noted that all these
factors can damage the global reputation of the company Teva Pharmaceuticals significantly.
Therefore, the company needs to take effective remedial measures in order to ensure that its
global reputation does not gets destroyed as it is often seen that most of the major companies
of the world do not like to trade with a company or a business organization with a negative
reputation.
Operational risk can be defined as the risk which a company or a business organization
faces on the basis of the operational strategy or policy followed by it (Chapman 2012). It is to
be noted that the operational risk is "the risk of a change in value caused by the fact that
actual losses, incurred for inadequate or failed internal processes, people and systems, or
from external events, differ from the expected losses" (O'Connor 2012). Since operation
forms one of the most important aspects of any company or business organization therefore,
the operational risks which a company or business organization face is one of the most
penultimate ones (Chapman 2012). The operational aspect of any company or business
organization takes into consideration the marketing, promotion, maintenance of the supply
chain, manufacturing, inventory, task distribution with the organization, expense as well as
capital requirements and various others (O'Connor 2012). Therefore, the risks associated with
them will also be substantial. The company Teva Pharmaceuticals at the time of its
foundation used to take the help of camels for the process of delivery of its products.
However, presently the company takes the help of various primary as well as secondary
suppliers in order to deliver its products to the customers and also to procure raw materials
for the manufacture of the products. According to an estimate the company spends roughly
around $11 billion across its various supplier systems like “Direct Materials, Manufacturing

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Goods & Services, Indirect and Third Party Operations” (Tevapharm.com 2018). Thus, it can
be said that the company spends a huge amount of capital just of the supplier which could
have been saved had the company developed its own supplier system (Sodhi, Son and Tang
2012). Also, if the company had developed its own supplier system the saved capital could
have been allocated to other aspects of the business and the supplier system could have been
more reliable (Alexy and Reitzig 2012). It is often seen that the external supplier system used
by the company is not very reliable and often it is seen that the finished products or the raw
materials are not delivered on time (Alexy and Reitzig 2012). It is to be noted that the
company specializes in the manufacture of the various generic drugs which has come under
the axe in the recent times and can even go off the market in the future because of the rising
protests from the different other pharmaceutical companies who had to spend greater amount
of capital to manufacture the same king of drugs but had to sell them at lower price because
of the competition given by the various generic drugs. Therefore, it can be said that the
company Teva Pharmaceuticals faces significant amount of operational risk.
The company Teva Pharmaceuticals Industries Ltd. as already mentioned had its humble
beginning in the year 1901 in Israel where its only competitor was Salomon, Levin, and
Elstein Ltd (Tevapharm.com 2018). The first major industrial site of the company was built
in the 1951 with the help of the capital provided by Tel-Aviv Stock Exchange
(Tevapharm.com 2018). However, the first major breakthrough for the Israeli company came
in the year in 1982 when it was granted permission by the U.S. Food and Drug
Administration (FDA) to build its company on the American soil (Tevapharm.com 2018).
This was the beginning of the policy of the globalization followed since then by the company.
It is interesting to note that the company follows a unique policy to out rival its competitors
in comparison to the other countries. The company follows a policy of merger and acquisition
in order to out rival its competitors (Yedidia Tarba, Almor and Benyamini 2012). It is to be

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noted that when the company initially started in Israel there were other two companies out
there, namely, Zori and Assia (Tevapharm.com 2018). However, by 1964, both the
companies were acquired by Teva with the intension of establishing their monopoly over the
Israeli pharmaceutical industry (Tevapharm.com 2018). The company followed the same
policy with regard to other international competitors as well. Some of the rival companies
acquired by Teva Pharmaceuticals are Gecko Health Innovations (2015), Actavis Generics
(2015), Taiyo Pharmaceutical Industry (2011), Cephalon (2011), Auspex Pharmaceuticals
(2014) and various others.
The major breakthrough for the company came with its decision to start the manufacture
of the various generic drugs. Generic drugs can be said to be the chemically replicated
versions of the actual drugs with the only difference being that they can be manufactured at a
relatively much lower price (Yedidia Tarba, Almor and Benyamini 2012). Therefore, with the
help of the various generic drugs manufactured by it, the company sought to capture the
international market and also to increase its customer base significantly by out rivaling its
competitors who were still selling the drugs manufactured by the traditional techniques.
According to a statistics, the company manufactures “120 billion tablets and capsules a year
in 87 pharmaceutical and API facilities around the world” (Tevapharm.com 2018). It is a
reflection of the wide range of cheap generic drugs provided by the company that it holds
monopoly in more than 40 countries (Tevapharm.com 2018). In addition to this, the company
holds the patent for various kinds of rare drugs like Copaxone, which is used to cure multiple
sclerosis and was rated the MS drug of the world and Azilect, which is used to cure
Parkinson's disease (Tevapharm.com 2018). The company "accounted for 68.5 percent of
total Copaxone prescriptions in the United States” (Tevapharm.com 2018). The company also
specializes in the manufacture of anti-cancer drugs and was involved a landmark deal of
$41.6 million with Ignyta Inc. for manufacture of cancer curing drugs (Tevapharm.com

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2018). The wide range of cheap generic drugs offered by the company has greatly
revolutionized the pharmaceutical industry. It is a reflection of the influence wielded by the
company Teva Pharmaceuticals that presently it competes with some of the biggest
pharmaceutical companies of the world like “Zocor, Merck & Co.; Ranbaxy Laboratories, Dr.
Reddy's Laboratories” and various others (Tevapharm.com 2018).
Therefore, from the above discussion it becomes obvious that Teva Pharmaceutical
Industries Ltd. is a leader in the pharmaceutical sector and offer cheap as well as reliable drug
options to its customers. The company has been in operation for more than 100 years and has
its presence in most of the major countries of the world (Tevapharm.com 2018). However,
the pharmaceutical giant faces significant amount of risk which can disturb the course of its
overall growth as well as development. The company needs to develop effective strategies in
order to mitigate the amount of risks faced by it. In order to reduce the amount of strategic
risks faced by it, the company can focus on the manufacture as well as the sale of other kind
of drugs apart from the generic ones in order to increase its annual revenue. It is often seen
that the major companies of the world like Starbucks, McDonalds and others sell a range of
products to their customers apart from their main product in a bid to avoid too much reliance
on one product (Christoffersen 2012). The company Teva can follow this particular strategy
to mitigate the amount of risk incurred by it through its over-dependence on the generic
drugs. The company can mitigate the amount of financial risks faced by it developing strong
as well as effective relations with their investors and shareholders and also by the
establishment of a strong investor chain (Wilson and Wilson 2017). The company can
mitigate the amount of reputational risks incurred by it by the effective use of media and
various social media platforms to create a positive brand image for themselves (Lam 2014).
The organization of various social, charity as well as youth events can also help in the
process (Lam 2014). The amount of operational risks incurred by the company can be

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mitigated by the appointed of effective leaders who can help the company in their operations
(Verbano and Venturini 2013). The company can also develop their supplier systems to
reduce the huge amount of capital spent by them on the various supplier systems used by
them.
Therefore, from the above discussion it becomes clear that risk is an important aspect for
any company or business organization which it needs to mitigate in an effective manner in
order to cause its overall growth as well as development. The company Teva Pharmaceutical
faces significant amount of risk on the score of its international business operations which it
conducts in most of the countries of the world. The company therefore, needs to develop
some effective strategies as well as measures in order to mitigate the amount of risk faced by
it. It is to be noted that the risks faced by the company varies from country to country and
therefore, the company needs to develop effective strategies for the each of the countries in
which it operates taking into consideration the kind of risks faced by the company over there.

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