UPDATE 3-Teva, Procter & Gamble create OTC drug partnership

* P&G, Teva create consumer drug partnership

* Venture seen generating sales of up to $4 bln

* Teva shares rise 2.8 pct, P&G shares up a hair
(Adds details on companies, deal strategy, adds CHICAGO to
dateline)

By Toni Clarke and Jessica Wohl

BOSTON/CHICAGO, March 24 (Reuters) – Procter & Gamble Co
(PG.N: Quote, Profile, Research) and generic drugmaker Teva Pharmaceutical Industries Ltd
(TEVA.O: Quote, Profile, Research) are joining forces to sell over-the-counter medicines
as both companies try to expand their reach, particularly in
developing markets.

The joint venture unveiled on Thursday includes the
companies’ over-the-counter businesses in all markets outside
North America, which combined, generated sales of more than $1
billion in 2010.

The deal gives P&G access to Teva’s extensive product
portfolio and gives Teva the benefit of P&G’s marketing
expertise. Teva has a strong presence selling drugs to
pharmacies, while P&G has a strong presence in supermarkets and
other retail outlets.

“Teva’s goal is to use Procter’s brand to increase Teva’s
revenue,” said Gilad Alper, an analyst at Meitav Investment
House. “Procter’s interest is, they need Teva’s manufacturing
capabilities, Teva’s products and Teva’s international
infrastructure. It’s a smart way to use each other’s
strengths.”

Teva’s shares were up 2.8 percent at $50.51 on Thursday
afternoon, while P&G stock was up 0.1 percent at $61.00.

The joint venture, which will be 51 percent owned by P&G
and 49 percent owned by Teva, is expected eventually to
generate sales of up to $4 billion, the companies said.

The venture’s chief executive officer, Briain Debuitleir,
and chief financial officer, Markus Xander, will come from P&G.
Its chief operating officer, Eli Shani, will come from Teva.

Tom Finn, president of P&G’s health care business, will
serve as chairman of the partnership and joint venture.

In its first year, the joint venture should add $500
million to $600 million to P&G’s sales, P&G Chief Financial
Officer Jon Moeller said on a conference call.

Shlomo Yanai, Teva’s chief executive, said the company
generated $650 million in sales from over-the-counter products
in 2010 and it expects that figure to rise 50 percent. Teva
will take over manufacturing of all the products.

Sales generated by the venture could be further enhanced by
the companies’ plan to turn prescription medicines into
over-the-counter products.

“This makes sense if governments are under pressure to
reimburse drugs to shift the burden on to consumers,” said
Corey Davis, an analyst at Jefferies & Company.

Many of the current top-selling OTC medicines were created
from such “switch-overs,” including P&G’s version of the
heartburn drug Prilosec and versions of heartburn drug Pepcid,
made by a joint venture of Johnson & Johnson (JNJ.N: Quote, Profile, Research) and Merck
& Co. (MRK.N: Quote, Profile, Research)

The companies did not identify specific products that they
could target for the over-the-counter market but said they
might look at gastrointestinal, allergy and respiratory
conditions.

The market for over-the-counter medicines is nearly $200
billion, the companies said, and is expected to increase as the
global population continues to age and emerging markets spend
more on healthcare.

P&G’s best-known over-the-counter medicines include Vicks,
Metamucil and Pepto-Bismol. Teva’s over-the-counter products
are sold mainly in local markets and have limited brand
recognition. The deal will give P&G more products, and Teva’s
products a stronger brand.

“One of the biggest advantages we see is that this
diversifies Teva’s revenue stream away from dependence on
traditional prescription drug reimbursement in markets like
Western Europe, which are experiencing constant and frequently
austere government pricing cuts,” Davis said.

The deal comes as consumer healthcare company J&J struggles
to fix quality-control problems that have forced it over the
past 15 months to recall more than 300 million packages and
bottles of its Tylenol and Motrin painkillers, Benadryl allergy
drug, Rolaids antacid and other well-known brands.

The long list of recalls has dented J&J’s reputation with
consumers and sidelined a big company plant in Pennsylvania and
dozens of consumer brands made there.

The Teva-P&G transaction is expected to close in the
autumn, subject to regulatory approvals.
(Additional reporting by Ransdell Pierson in New York and Tova
Cohen in Tel Aviv; Editing by Lisa Von Ahn, Maureen Bavdek and
Matthew Lewis)

UPDATE 3-Teva, Procter & Gamble create OTC drug partnership