Procter & Gamble's plan to ride Teva's manufacturing expertise shows just how valuable a manufacturing operation can be. That's not to say that the ops boost for P&G is the essence of the joint-venture deal struck late last week by the two. Teva will enjoy the ride in P&G's marketing and brand management limo.
"P&G's over-the-counter and beauty divisions have had an acceptable, if imperfect, manufacturing track record," says Donald Riker, president at On Point Advisors, via email. "Teva I will presume is much more skilled."
Gilad Alper, an analyst at Meitav Investment House, sees it that way, too. "Procter's interest is, they need Teva's manufacturing capabilities, Teva's products and Teva's international infrastructure," he says, as quoted by Reuters. "It's a smart way to use each other's strengths."
P&G is essentially outsourcing OTC and possibly skin care manufacturing and QA, Riker says. "P&G has sought to re-center its business on brand management. It's also buying or off-loading prescription-switch capability and other regulatory functions."
The joint-venture deal, with its healthcare-wide and consumer-level scope, creates a competitor to Johnson & Johnson with the limping McNeil Consumer Healthcare operations providing a contrast to the manufacturing acumen that P&G sees in Teva. Riker says he sees P&G and J&J as competitors in certain OTC categories. J&J "would seem a disadvantage" compared with P&G because it "hasn't proposed a similar hook up."
Reuters notes that J&J's ongoing struggles to fix manufacturing operations that over the past 15 months have driven recalls of more than 300 million packages and bottles of its Tylenol and Motrin painkillers and other well-known consumer brands. "The long list of recalls has dented J&J's reputation with consumers," in addition to creating McNeil brand-quality and -availability problems.