TEVA - Teva Pharmaceuticals

[constructive]

Pretty hard to imagine the Valeant and Teva shareholder bases coexisting. I think a large chunk of people will be unhappy if Teva does a share deal to acquire management.

[no_free_lunch]

I was just going to ask about Valeant.

 

Xtreeq, do you think such a deal would be doable given Valean'ts reputation for mass layoff's?  I guess there is also there tax haven status as well although it doesn't look like Teva pays much taxes.  Thoughts?

[ubuy2wron]

I was just going to ask about Valeant.

 

Xtreeq, do you think such a deal would be doable given Valean'ts reputation for mass layoff's?  I guess there is also there tax haven status as well although it doesn't look like Teva pays much taxes.  Thoughts?

ain't gonna happen the guy driving the bus at teva is no dummy valeant is a frAnkenstein co rapidly built through a bunch of acquisitions. I think this is just a planted story to get teva some attention and maybe start the takeover ball rolling I own a boat load by the way and some how find myself in the black on this

[no_free_lunch]

I own Valeant and Teva via options.  If Valeant could merge with Teva the cash it would throw off would be pretty amazing.  Of course, yes, it would probably be throwing away an empty husk in 10 or 20 years but I think the shareholders would do very well nevertheless.

 

[xtreeq]

I was just going to ask about Valeant.

 

Xtreeq, do you think such a deal would be doable given Valean'ts reputation for mass layoff's?  I guess there is also there tax haven status as well although it doesn't look like Teva pays much taxes.  Thoughts?

 

Hey nofreelunch,

 

Sorry for the late reply but I'm away on business with a tight schedule. Mass layoffs in Israel are likely the most rational thing but it will be very difficult. TEVA announced it would cut opex back in Dec 2012 but it took it 9 months to announce the plan and I think there was a large fight between Levin and some  BOD members and other BOD members about the extent of the layoffs.

 

Even if the company is bought, which is a big if, the only way to get appproval for the deal will be through an agreement with the union and that is less likely given the very strong reaction of the union workers to the milder announced plan.

 

Also the union can involve the Histadrut (national labor union organization) and they can go to court or cause mass disruption through a general strike.

 

I must go now but I think that Teva is in a large catch22 here ...

 

Will try to write more tonight

 

Cheers!

 

[krazeenyc]

anyone have access to the artcle in the marker?

 

http://finance.yahoo.com/news/teva-comments-recent-article-054200217.html

 

[frommi]

I just revisited my TEVA investment and came to the conclusion that its only undervalued by around 20% and with reduced growth going forward i am leaning towards reducing my position. Is there something that i overlooked when i calculate with "normal" eps of 3-3.3$?

[no_free_lunch]

For what it's worth, their are 10 analysts forecasting 2015, with an average EPS of $5 and a low of $4.67.  I think $3 is fairly worst-case.  That is assuming a complete loss of earnings from coxapone (this is most likely the case but not certain), basically no new drugs, and mildcost-saving initiatives.  I think the analysts are forecasting for some partial drug replacement which seems likely, there is quite a bit in their pipeline. 

[no_free_lunch]

I forgot my other point.  I disagree on the earnings forecast but I agree in general on the stock.  I have been investing via options and the implied volatility has really spiked in the past couple of weeks, presumably on takeover rumors (even though people generally think it will be a merger).  I liked it before since the implied volatility was so low it was like you were investing in general mills.  At this point, the options are a lot less attractive.  As an example, I managed to sell my 2015 $45 calls for twice what I paid for them, in spite of the fact that the price is only only went from $37.5 to $40.5 and the timeline has been reduce by a quarter.

[xtreeq]

Teva unveils new pipeline assets from the NTE program of 2013 in the 2nd Teva R&D In-Focus Webinar

- December 4th @ 8:00am Eastern Time –

 

Webinar access details:

Meeting Title: Teva NTE Webinar

Meeting Date: December 4th, 2013

Meeting Time: 8:00 AM [Eastern Time]

Duration: 1 Hour 30 Minutes

Webcast Link: http://www.media-server.com/m/p/m753rv5e

 

http://www.tevapharm.com/Media/News/Pages/2013/1878259.aspx

[xtreeq]

Teva Provides 2014 Financial Outlook

 

http://ir.tevapharm.com/phoenix.zhtml?c=73925&p=irol-newsArticle&ID=1883417

[xtreeq]

A good article from The Marker.com (in Hebrew) that discusses the challanges of Teva's newly elected CEO, Erez Vigodman

 

http://www.themarker.com/markerweek/1.2213335

 

I tend to agree with the article and I would not sell Vigodman short - he's proven he can turn around a problematic company like Machteshim Agan Industries, and while he is unknown to US institutional investors, I think Teva's search committee (sans Dr. Frost, of course) made a good choice for Teva. Will he be able to overcome the impending loss of Copaxone exclusivity, I do not know, but this fact would remain the same regardless of the identity of the new CEO.

 

[Makisig]

Hello all,

 

I am new here and this is my first post.  A little background:  I live in Ireland and I manage institutional money - have done so for around 15 years.  I am delighted to have found such a high quality forum for idea exchange.

 

I would like to post some thoughts on Teva Pharmaceutical and would love to hear some feedback.  I don't own the stock but am reviewing it currently and may or may not buy when my work concludes.  I have already seen a number of interesting posts here on Teva, especially from Xtreeq.  My research is not complete but a summary of key investment strengths and weaknesses, as I see them, are as follows.

 

Positives:

1. As we know the stock has under-performed, especially against an extraordinarily strong specialty drug group, and is at least somewhat out-of-favour.  It may prove to be very cheap (I haven’t done detailed valuation work yet), but to be clear, the stock is not remotely in the "ignored" category.

2. Copaxone presents uncertainty but this topic has been talked to death - I can't believe the market has not already had a reasonable stab at discounting this risk.

3.  The company has changed a lot in the past ten years and arguably capital has been squandered on numerous acquisitions.  On the upside, times were good for so long that I suspect integration was not prioritised and I suspect there is significant integration potential, which could result in meaningful cost reductions, perhaps well above the existing $2bn target.  Maybe the new CEO can exploit this?

4. Complex generics are a source of potential competitive differentiation though the bulls may be underestimating the difficulties/risks in achieving this.

5. There is an extraordinary M&A spree in progress in the specialty drug space.  It is not obvious who would want to/be able to acquire Teva but IF it could be acquired there is likely substantial cost saving potential (efficiencies across COGS, SGA and perhaps tax)- this value could be realised in part by existing shareholders.

 

Negatives:

1.  The generic business has been changing and has become more competitive.  Once, Teva was an efficient, low cost company with an edge in paragraph 4 patent challenges.  But its market share and that of Sandoz, etc has been declining as Indian companies have entered the market.  Prices are declining every year and it isn't clear how Teva can compete in the long-term with Indian/Chinese producers that have lower costs and improving quality/technology.  This is exacerbated by the reality that the market for paragraph 4 patent challenges is declining.  What is Teva's competitive advantage these days?  This, in my opinions is an issue of far greater importance than any surrounding Copaxone?

2. Complex generics/Biosimilars: the use of submarine patents and other tricks by brand owners, new market entrants and high hurdles imposed by regulators/doctors/patients may restrict the attractiveness of this space. The biosimilar market has not really been tested yet and Teva is perhaps at a disadvantage to some of its peers here.

3. Capital Allocation/Earnings power:  Teva has made expensive acquisitions in the past and still aims to acquire assets in the future - how much value might be destroyed here?  Furthermore how much of its 'earnings' will be reinvested in acquisitions in the future just to keep the 'earnings' flat?  (in other words what will bona fide owners earnings really be?).  Be wary of the company's guidance on "adjusted eps" - drug companies habitually dress these up by removing various expenses.  I haven't yet done my own earnings power calculation but I suspect management's guidance may not be representative of earnings power.

4. True benefits of cost reduction:  Almost all of the first $1bn in costs cuts will be re-absorbed in 2014 meaning hardly any of it falls to the bottom line in 2014.  Maybe most of the cost-cutting potential will be reinvested to remain competitive? 

5. Corporate governance: I can't add much here but the new CEO and his relationship with the board in an unknown quantity.  Also, as has been detailed by Xtreeq, there are clearly political/labour issues that are unresolved.  Furthermore there are various legal cases overhanging that could prove costly.

6. Tax: The tax rate is low and had been declining but it now expected to rise, in part because of the way Copaxone is treated.  I haven’t been able to get comfort on the likely future tax rate.

 

I haven't done a proper valuation analysis yet because I am trying to clarify my thoughts on some of the above.  I would love to hear any thoughts on any of the above, especially any thoughts on the competitive position.

 

Cheers,

 

Makisig

 

[Ross812]

Makisig,

 

I’ve owned TEVA in the past, but haven’t taken a look at it recently. There are a lot of unknowns with regards to Copaxone and a “fuzzy” discount rate makes valuation difficult. I would be more excited about the company if their management had not proven to be short term oriented in their approach. The patent cliff and the decline of Copaxone revenue has been evident for the last 5 years, but Teva only started to react when the market began punishing them for resting on their laurels. I suspect this is a case of the market discounting Teva because it is apparent that the next few years are going to be difficult and they are going to show stagnant or declining growth; in the long term the company will be fine and emerge more efficient than it went in. Teva is on my watch list and I’ll wait until a real turn can be seen to get into it. Right now I feel like any investment into the name is betting on the market being too harsh about it’s assumed discount rate; a bet that Teva will get approval for another branded drug; and/or a long term bet that the factory is still intact and the company will return to profitability with time. I’m not thrilled with the management because this is not a case where the company had a crisis dropped on them like the banks did in 2008. They knew 2012-2014 was coming and waited until the 11th hour to “find synergies” and become more efficient.

[xtreeq]

Hi Makisig and welcome to the Corner  :) Thanks for sharing your thoughts about Teva!

 

Let me try to respond to your points in brief:

 

Positives:

1. I do not think we are even close to the point of (maximum) widespread pessimism about Teva, so I would be wary of making any buy decision on relative over/under performance.

2. While the market may have discounted the risk to Teva, I personally think it has not done so fully yet - Teva's trading range is pretty narrow, we are pretty much at a 12-month high for the stock and the last time the stock was higher was April 2012 when it was at 45. For a company about to lose a significant part of its NI and FCF, I do not see the discount yet.

3. Integration is a nice word but (a) if Teva was not reasonably good at integration it would not have been able to absorb so many companies as it did for the past decade; and (b) please realize that Teva has factories in over 40 countries, global operations tend to be "messy" and not so amenable to integration. Nonetheless, there is much "fat" at Teva, as has been discussed ont his thread, though perhaps removing it is politically impossible ...

4. No way for a short comment on this one :)

5. Maybe, a very big maybe and I suspect that the BoD will give the new CEO at least a few quarters to improve things before they seek "strategic alternatives"

 

Negatives:

1. Agreed in principle but still Teva has several more elements to its moat, namely: (a) a very large range of generics; (b) a strong leadership  position in many markets; and © long term relationships with various HMOs;

2. I personally don't understand enough about biosimilars to have something meaningful to say here;

3. I agree with your point;

4. Unknown at the moment and almost entirely dependent on what the new CEO does and the effects of this will take at least 3-4 quarters, if not 6 to 8.

5. The new CEO has been a member of the Board since 2009 and is not exactly a nobody - I find it very hard to imagine he would agree to become CEO without some clear assurances from the Board about the timeframe and leeway he has to achieve the goals they set out for him. As for the labor issues, they are back under the surface for now but once cuts are made there is a 90%+ chance for  an all out fight between management and labor.

6. Tax rate is likely to go up some but not much - the Israeli government is under criticism for allowing Big Companies to enjoy "absurd" tax breaks, so they will have to raise taxes but in a way that will make it foolish for Teva to depart.

 

I hope you share your analysis with us!

 

Disclaimer: I have never held any postion in Teva

[Makisig]

Thanks for your comments guys.

 

I will indeed share my analysis with you when I am done - some way to go yet.

 

Xtreeq, some further thoughts I have on the ‘moat’.  As we all know, the assessment of competitive advantage is delicate and there are multiple factors that may help shield Teva from intensifying competition, but some of these may not be all they seem to be.  For example, the leadership position in some key markets seems to be eroding – according to a report I read recently, Teva’s share in the US generic market has declined from 23% to 12% since 2009.  The Indian companies are improving all the time and are themselves set on utilizing more sophisticated technology – for example, Dr Reddy has filed a Copaxone ANDA in the US (let’s see what comes of it).  Furthermore when you look at the consolidation in the PBM and HMO space and amongst the retail/wholesale infrastructure (e.g. Walgreen + Alliance Boots and the Mckesson + Celesio merger attempt), perhaps Teva will increasingly find itself in a weaker position in negotiations.  It is quite scary to hear management talk of annual price declines of “mid single digits %” – this is typically not a hallmark of a business with a moat.

 

Now, Teva aims to reduce its generic cost base and increasingly move towards more complex products to sustain its competitive edge.  The trouble here may be the democracy of technology allows today’s complex products to be tomorrow’s commodities – what will Teva do then?

 

As you can tell, I tend to focus a lot on the negatives to clarify my position but I haven’t made up my mind yet and I’m still thinking through all of this.  With this in mind, I appreciate your and everybody’s contribution.  I will keep digging and hope to come back with some firmer findings when I am done.

 

Makisig

 

[krazeenyc]

I've always been fascinated by how the market reacts to little tidbits of Copaxone news.

 

OK. I can't help it -- I sold 1/2 my position. avg price $43.85.

 

My fear has been that whenever I sold at all -- TEVA would just absolutely SPIKE. lol

[krazeenyc]

So 2 pieces of news today:

 

1) Teva does not infringe on Purdue patents

2) Teva thinks extremely likely to get approval soon on 3x week Copaxone.

3) CFO vows to reduce costs

 

Since I view TEVA as an athlete who has gotten very very out of shape (FAT) -- getting in shape would do wonders for the company. That being said .... I guess I hedged the outcome by selling 1/2 my shares today. So disappointing...

[Makisig]

Teva + almost 7% in NY yesterday after appearing at the JPM conference.  Having read the transctipt there is essentially nothing new at all in here, bar perhaps a confirmation that the new CEO will remain on the board.

 

Last week ENDP rose 8% in two days.  The only reason I could find is that Valeat's stock rose sharply after issuing guidance and speaking at a Goldman conference - ENDP (baby Valeant) seemed to rise in sympathy.

 

Just look at the moves in the Biotech sector: BTK + 8.5% already this year.

 

I don't know if these price advances are unjustified but there is clearly alot of exuberance amongst investors in these sectors.

[krazeenyc]

Teva + almost 7% in NY yesterday after appearing at the JPM conference.  Having read the transctipt there is essentially nothing new at all in here, bar perhaps a confirmation that the new CEO will remain on the board.

 

Last week ENDP rose 8% in two days.  The only reason I could find is that Valeat's stock rose sharply after issuing guidance and speaking at a Goldman conference - ENDP (baby Valeant) seemed to rise in sympathy.

 

Just look at the moves in the Biotech sector: BTK + 8.5% already this year.

 

I don't know if these price advances are unjustified but there is clearly alot of exuberance amongst investors in these sectors.

 

I think on the news itself the price movement is not justified. Obviously TEVA has its issues but on a relative basis to its peers it's very cheap. I think people have been waiting on the sidelines to get in . But then again, I sold half my position that I've been holding for over 2 years (can you say investor fatigue?).

[krazeenyc]

http://finance.yahoo.com/news/teva-announces-u-fda-approval-233000216.html

 

Wonder how fast they can move patients to 3x week Copaxone.

 

Just recently sold the rest of my TEVA position appx 45.60 (it must be poised to surge from here). After a pretty lousy 2 years TEVA has had a sensational couple months or so. I'm selling because I am coming to the realization that I don't understand their business as much as I thought. Although I still think if they can cut the fact they can maintain profitability much better than the market "thought" they could.

[ValueMaven]

Hello!  I’ve been taking a hard look at generic pharmaceutical maker Teva (NYSE: TEVA) particularly after their most recently EPS miss.  Stock is trading at 8x earnings, and is the worlds #1 producer of generic drugs.  There seems to be pricing erosion and increased competition which are cutting into revenue – however I would argue most of this is being priced into the stock at this point.  Plus a 3.8% dividend?!

 

Sincerely,

ValueMaven

[Guest roark33]

Seems like a large portion, over 50% of their profits are still from MS and Speciality drugs, i.e. non-generic drugs, which contain a lot of patent cliff risk and science risk.  Looks like a generic on the surface, but not really a generic when it comes to major profit drivers. 

[ValueMaven]

4% Yield…multiple analyst downgrades…Trading at 7x earnings…World’s largest producer of generic drugs…Continued cost synergies (roughly ~$1.6bn) from Actavis buyout…Deep pipeline after acquiring several biotech companies from 2009 – 2013 which Mr. Market is assigning little value too.  These levels are very attractive from a valuation perspective for the name…

[no_free_lunch]

Writeup on VIC:

 

Teva Pharmaceuticals stock has been cut in half since the start of 2016 but looks close to finding a floor as much of the bad news appears priced in.  The stock’s decline can be traced back to several factors including concerns about U.S. healthcare reform and the impact to pharmaceutical pricing practices, rising leverage due to a poorly executed and expensive acquisition of Allergan’s generics business and the continued overhang of generic competition on their largest (and most profitable) drug franchise, Copaxone.  In addition, the CEO left in early 2017 and the company is currently conducting a search for his replacement.  Given the amount of negative news over the past year, the sell-off is not surprising.  AT current levels, however, the high free cash flow yield (and potential to delever) make the stock attractive

..

In  fact if you look at the free cash flow profile things start to look a little more attractive.  The company guided to $8.0-$8.4bn in EBITDA for 2017 and expects to pay $850MM in interest expense and has an 18% tax rate.  Using their guided $1bn in capex, gest you to free cash flow of $5-$5.3bn before changes in working capital and divestitures (the Company guided to $5.7-$6.1bn in cash flow from operations in 2017).  If they can come in a $5bn (prior to divestitures) that represents a 15% free cash flow yield on the equity.  Reducing the cash flow for the potential loss of Copaxone 40mg (estimated at $1.2bn in EBITDA) you still get to a 12% free cash flow yield.

 

https://www.valueinvestorsclub.com/idea/TEVA_PHARMACEUTICALS_TEVA/140065

 

Stock is down to ~$28 or another 10% drop since the write-up.  Not sure this is a business I want to own for the long-term but seems very attractive at current valuations.  For instance, there are 20 analysts providing profit forecasts and the minimums for this year and next are in the low $4 range of earnings, against a $28 stock.  The debt IS an issue but with a projected $5B free cash flow they should be able to pay it down fairly quickly.

 

While the valuation is attractive and debt should be manageable I am still not 100% on the company.  For now, I have some $25 jan-2019 calls.