Francis Chou (Trades, Portfolio), manager of the Chou Associates Fund, increased his pharmaceutical exposure during the second quarter. The guru increased his Valeant Pharmaceuticals International Inc. (VRX, Financial) position approximately 29.74% and his Teva Pharmaceutical Industries Ltd. (TEVA, Financial) position approximately 134.88%.
Valeant
Chou added 700,000 shares of Valeant for an average price of $11.96 per share. The guru increased his portfolio 3.81% with this transaction.
While the company reported lower first-half revenues compared to the prior-year period, Valeant said in its second-quarter 10-Q that management continued to execute on key initiatives, including emphasizing core businesses with sustainable competitive advantages, improving internal capital allocation and operating more efficiently.
Valeant identified two key businesses in its Branded Rx segment: the gastrointestinal (GI) business and the dermatology business. Company management said Valeant launched SiliqTM, a treatment for moderate-to-severe plaque psoriasis, on July 27. The company expects SiliqTM sales to reach $5 billion in the U.S.
Valeant also mentioned (in the quarterly report) two new initiatives to the GI business, including a new form of rifaximin and NER1006. For the latter, the company announced in June it expects a decision from the Food and Drug Administration in 2018.
The company has good growth potential even though Valeant has negative margins and returns. Valeant’s profitability ranks 7 as the company’s three-year revenue growth rate of 24.80% and three-year earnings growth rate of 47.70% outperform over 89% of global competitors.
Teva
Chou added 290,000 shares of Teva for an average price of $30.90 per share. The guru increased his portfolio 3.03% with this transaction.
Teva reported net revenues of $11.316 billion for the six months ending June 30, up approximately $1.5 billion from net revenues in the prior-year period. The increase in net revenues was driven by strong growth in Actavis Generics, which contributed to 22% year-over-year revenue growth in Teva’s generic medicines segment for this year’s six-month period. Segment revenues increased 43% year over year in the U.S. and 25% year over year in Europe.
Although the company reported higher revenues, Teva reported a net loss of $5.33 billion for the six-month period, reflecting a goodwill impairment charge of $6.1 billion. The company lowered its revenue, operating income and EBITDA guidance for the full year due to potential headwinds in Venezuela. Despite this, CEO Dr. Yitzhak Peterburg still highlighted strong milestones for the quarter, including several product launches in the Specialty business segment. Peterburg asserts the company will “continue to take action to aggressively confront [Teva’s] challenges” and strengthen the balance sheet.
Disclosure: I do not have positions in the stocks mentioned.
