Teva Pharmaceutical Industries Limited (Teva) is a global pharmaceutical company that develops, produces and markets generic drugs covering all treatment categories. The Company has a pharmaceutical business, whose principal products are Copaxone for multiple sclerosis and Azilect for Parkinson’s disease, respiratory products and women’s health products. Teva’s active pharmaceutical ingredient (API) business provides vertical integration to Teva’s own pharmaceutical production. The Company’s global operations are conducted in North America, Europe, Latin America, Asia and Israel. Teva has operations in more than 60 countries, including 38 finished dosage pharmaceutical manufacturing sites in 17 countries, 15 generic research and development (R&D) centers operating mostly within certain manufacturing sites and 21 API manufacturing sites around the world. On January 29, 2009, the Company sold its Israeli animal health product line to Phibro Animal Health Corporation.
Analysis:
Teva is one of the world’s largest generic pharmaceutical in the world. As most of us know, the pharmaceutical industry has gone through a major sea change in the last decade. Generic drugs have taken a larger share against their branded counterparts in recent years due to a multitude of factors. The most prominent being the patent expiration cycle is peaking. With a number of key branded drugs coming off patent, the opportunity for generic drug makers has never been better. Secondly, the generics have a favorable political tail wind as they offer cheaper alternatives to senior citizens. The generic drug industry does have some potential risks, however. Pricing in this segment can be rather fierce and competition is robust. Ironically with fewer branded drugs in the pipeline, the potential for generic drug candidates could also decline. The emergence of new issues such as biologics may make generic penetration more difficult.
This may change in the future. Below is an excerpt from a Boston Globe article from 2009;
WASHINGTON - President Obama's budget would pave the way for government to approve generic versions of biologic drugs, an administration official said yesterday, a move that could save taxpayers, insurers, and patients billions on the world's most expensive drugs but could hurt profits of some Massachusetts biotechs.
The Food and Drug Administration currently has no process for approving biogenerics, also called "follow-on biologics" and "biosimilars." Such drugs are made from living organisms, not chemicals, and are extremely difficult to duplicate precisely. Congress in the last few years has haggled over how to create regulations to approve generic versions of biologics.
The generic industry has proposed letting companies copy biologics after three to five years, similar to rules set for conventional drugs under the 1984 Hatch-Waxman Act. The administration's proposal suggests the time frame would be consistent with Hatch-Waxman, though administration officials could not confirm that last night.
But biotechnology companies have fought to keep a monopoly on their drugs for at least 14 years. They say they need that amount of time in order to ensure a return on the significant investment required to develop biologics. Companies also fear patents will not fully protect biologics since competitors could make a similar molecule that may not be covered by the patent.
Due to Teva’s size, the economies of scale offer a large competitive advantage for the company. This is due to the vertical integration of its product line and sheer volume moved through the system. Lastly, the emerging market opportunity is huge.
Valuation:
Ratios – P/E (ttm) 14.2X
P/S 3.1X
P/B 2.1X
EV/EBIT 14.8X
Discounted Cash Flow Analysis –
The market is currently discounting very little to no growth for the company. Any future growth will provide a meaningful margin of safety.
10 year growth Margin of Safety
5% 34%
10% 46 %
15% 56%
Financials:
Book Value / Share Return on Equity Return on Assets
Dec 2010 $24.47 15.2 8.7
Dec 2009 $21.72 10.4 6.0
Dec 2008 $18.42 3.7 1.8
Dec 2007 $16.99 13.9 8.2
Dec 2006 $14.05 4.6 2.5
Dec 2005 $9.34 17.7 10.3
Dec 2004 $8.81 6.2 3.4
Dec 2003 $6.02 21.0 11.7
Dec 2002 $3.48 22.4 8.9
Dec 2001 $2.69 20.1 8.0
Current Developments:
NEW YORK (AP) -- Teva Pharmaceutical Industries said Wednesday its allergy drug Qnaze met its goal in a late-stage study that tested its ability to treat year-round allergies.
Teva said the clinical trial showed Qnaze was more effective than a placebo at treating morning and evening nasal allergy symptoms like congestion, runny nose, itching, and sneezing. In the study, 470 patients were given either Qnaze or placebo once a day for six weeks. The most common side effects were nasal discomfort and nosebleeds. Teva said those side effects occurred at similar rates for Qnaze patients and placebo patients.
Qnaze is a corticosteroid that is delivered into the nose by an aerosol instead of an aqueous or "wet" spray. In November, Teva said a separate late-stage trial showed Qnaze is effective as a treatment for seasonal allergies.
Q4 sales $4.4 billion, vs. consensus $4.6 billion
Q4 Copaxone sales of $938 million
Guidance: 2011 revenue $18.5-$19 billion, non-GAAP EPS $4.90-$5.20
Raises dividend, shares down 6 percent
TEL AVIV, Feb 8 (Reuters) - Teva Pharmaceutical Industries reported a one-third rise in adjusted quarterly earnings that missed expectations and a profit outlook falling short of forecasts. Teva posted strong sales of its branded multiple sclerosis (MS) drug Copaxone, which raked in a record $938 million in the quarter, up 26 percent year-on-year.
Copaxone, given by injection and the leading MS therapy, now faces competition from Novartis's new pill Gilenya."Copaxone will be with us for many years and it will be profitable," chief executive Shlomo Yanai said. "It won't last forever because technological advances bring new products, including Laquinimod."
He said Laquinimod, Teva's MS pill being developed with Swedish group Active Biotech would complete clinical trials in the summer and would be fast-tracked at the U.S. Food and Drug Administration for approval. "Somewhere in mid-2012 we expect to get approval," he said. Chief financial officer Eyal Desheh said a little more than half of the sales gain for Copaxone was due to higher quantities sold with the rest due to price increases. Generic sales in the United States fell 5 percent to $1.29 billion in the quarter as Teva pushed back launches of generic versions of blood thinner Lovenox and cancer drug Gemzar. It launched generic Gemzar last month.
Risk:
- FDA approval risk
- Regulatory risk
- Heavy competition and pricing
Conclusion:
Poor recent quarter presents an opportunity to buy shares at a cheaper level. Shares are inexpensive relative to its superior franchise and trade at a discount to its peer group. Furthermore, the industry has plenty of potential growth in the future. Bruce Berkowitz, Fairholme Fund, believes the shares have value and recently added a position for international exposure.
The Buffett-Munger screener is designed to find Buffett-type investments with extraordinary profitability, consistency, and future prospects. Our monthly Buffett-Munger Best Bargains Newsletter picks one stock from the screener. Our in-depth analysis shares with you why younger Buffett and Munger would like this stock. If you are a premium member, you can download it here. If you are not, we invite you for a 7-day Free Trial.
Analysis:
Teva is one of the world’s largest generic pharmaceutical in the world. As most of us know, the pharmaceutical industry has gone through a major sea change in the last decade. Generic drugs have taken a larger share against their branded counterparts in recent years due to a multitude of factors. The most prominent being the patent expiration cycle is peaking. With a number of key branded drugs coming off patent, the opportunity for generic drug makers has never been better. Secondly, the generics have a favorable political tail wind as they offer cheaper alternatives to senior citizens. The generic drug industry does have some potential risks, however. Pricing in this segment can be rather fierce and competition is robust. Ironically with fewer branded drugs in the pipeline, the potential for generic drug candidates could also decline. The emergence of new issues such as biologics may make generic penetration more difficult.
This may change in the future. Below is an excerpt from a Boston Globe article from 2009;
WASHINGTON - President Obama's budget would pave the way for government to approve generic versions of biologic drugs, an administration official said yesterday, a move that could save taxpayers, insurers, and patients billions on the world's most expensive drugs but could hurt profits of some Massachusetts biotechs.
The Food and Drug Administration currently has no process for approving biogenerics, also called "follow-on biologics" and "biosimilars." Such drugs are made from living organisms, not chemicals, and are extremely difficult to duplicate precisely. Congress in the last few years has haggled over how to create regulations to approve generic versions of biologics.
The generic industry has proposed letting companies copy biologics after three to five years, similar to rules set for conventional drugs under the 1984 Hatch-Waxman Act. The administration's proposal suggests the time frame would be consistent with Hatch-Waxman, though administration officials could not confirm that last night.
But biotechnology companies have fought to keep a monopoly on their drugs for at least 14 years. They say they need that amount of time in order to ensure a return on the significant investment required to develop biologics. Companies also fear patents will not fully protect biologics since competitors could make a similar molecule that may not be covered by the patent.
Due to Teva’s size, the economies of scale offer a large competitive advantage for the company. This is due to the vertical integration of its product line and sheer volume moved through the system. Lastly, the emerging market opportunity is huge.
Valuation:
Ratios – P/E (ttm) 14.2X
P/S 3.1X
P/B 2.1X
EV/EBIT 14.8X
Discounted Cash Flow Analysis –
The market is currently discounting very little to no growth for the company. Any future growth will provide a meaningful margin of safety.
10 year growth Margin of Safety
5% 34%
10% 46 %
15% 56%
Financials:
Book Value / Share Return on Equity Return on Assets
Dec 2010 $24.47 15.2 8.7
Dec 2009 $21.72 10.4 6.0
Dec 2008 $18.42 3.7 1.8
Dec 2007 $16.99 13.9 8.2
Dec 2006 $14.05 4.6 2.5
Dec 2005 $9.34 17.7 10.3
Dec 2004 $8.81 6.2 3.4
Dec 2003 $6.02 21.0 11.7
Dec 2002 $3.48 22.4 8.9
Dec 2001 $2.69 20.1 8.0
Current Developments:
Teva: Qnaze met goal in perennial allergy study (Associated Press)
On Wednesday February 9, 2011, 10:19 am ESTNEW YORK (AP) -- Teva Pharmaceutical Industries said Wednesday its allergy drug Qnaze met its goal in a late-stage study that tested its ability to treat year-round allergies.
Teva said the clinical trial showed Qnaze was more effective than a placebo at treating morning and evening nasal allergy symptoms like congestion, runny nose, itching, and sneezing. In the study, 470 patients were given either Qnaze or placebo once a day for six weeks. The most common side effects were nasal discomfort and nosebleeds. Teva said those side effects occurred at similar rates for Qnaze patients and placebo patients.
Qnaze is a corticosteroid that is delivered into the nose by an aerosol instead of an aqueous or "wet" spray. In November, Teva said a separate late-stage trial showed Qnaze is effective as a treatment for seasonal allergies.
Teva Q4 Earnings – February 8, 2011 (Associated Press)
Q4 non-GAAP EPS $1.25, vs. consensus $1.29Q4 sales $4.4 billion, vs. consensus $4.6 billion
Q4 Copaxone sales of $938 million
Guidance: 2011 revenue $18.5-$19 billion, non-GAAP EPS $4.90-$5.20
Raises dividend, shares down 6 percent
TEL AVIV, Feb 8 (Reuters) - Teva Pharmaceutical Industries reported a one-third rise in adjusted quarterly earnings that missed expectations and a profit outlook falling short of forecasts. Teva posted strong sales of its branded multiple sclerosis (MS) drug Copaxone, which raked in a record $938 million in the quarter, up 26 percent year-on-year.
Copaxone, given by injection and the leading MS therapy, now faces competition from Novartis's new pill Gilenya."Copaxone will be with us for many years and it will be profitable," chief executive Shlomo Yanai said. "It won't last forever because technological advances bring new products, including Laquinimod."
He said Laquinimod, Teva's MS pill being developed with Swedish group Active Biotech would complete clinical trials in the summer and would be fast-tracked at the U.S. Food and Drug Administration for approval. "Somewhere in mid-2012 we expect to get approval," he said. Chief financial officer Eyal Desheh said a little more than half of the sales gain for Copaxone was due to higher quantities sold with the rest due to price increases. Generic sales in the United States fell 5 percent to $1.29 billion in the quarter as Teva pushed back launches of generic versions of blood thinner Lovenox and cancer drug Gemzar. It launched generic Gemzar last month.
Risk:
- FDA approval risk
- Regulatory risk
- Heavy competition and pricing
Conclusion:
Poor recent quarter presents an opportunity to buy shares at a cheaper level. Shares are inexpensive relative to its superior franchise and trade at a discount to its peer group. Furthermore, the industry has plenty of potential growth in the future. Bruce Berkowitz, Fairholme Fund, believes the shares have value and recently added a position for international exposure.
The Buffett-Munger screener is designed to find Buffett-type investments with extraordinary profitability, consistency, and future prospects. Our monthly Buffett-Munger Best Bargains Newsletter picks one stock from the screener. Our in-depth analysis shares with you why younger Buffett and Munger would like this stock. If you are a premium member, you can download it here. If you are not, we invite you for a 7-day Free Trial.
