P&G, Teva deal: A complementary alignment

WHAT IT MEANS AND WHY IT'S IMPORTANT — In the universe of business partnerships, a joint venture between Teva Pharmaceutical Industries and Procter & Gamble is like two galaxies coming together.

(THE NEWS: P&G, Teva enter partnership. For the full story, click here.)

Market analysts see a lot of potential in the deal. Morgan Stanley called it a “modest positive” due to the strong growth potential, despite combined joint venture sales being 1.5% of the mix and “of limited importance to the stock.” In addition, Morgan Stanley pointed out that the venture would promote cross-channel growth by taking advantage of Teva’s presence in pharmacies and P&G’s presence in supermarkets and other stores.

Over-the-counter switches represent another major opportunity, with Teva having a natural advantage as a generic drug manufacturer; P&G sold its prescription drug business to Warner Chilcott in 2009.

With P&G controlling 51% of the venture and Teva controlling 49%, Teva’s OTC drugs will add about half a billion dollars to P&G’s sales. Most of Teva’s OTC business is in the European Union — especially Germany — as well as Eastern Europe, Russia and Latin America.

To be sure, Teva and P&G have strengths that will complement each other — P&G with its portfolio of globally recognized brands and Teva with its enormous manufacturing capacity. With Teva doing the manufacturing, P&G will have greater access to a host of new markets, especially emerging economies and Europe. Teva, which is more well-known in the United States for generic prescription drugs, will be able to take advantage of P&G’s brands.