As politicians race to replace Obamacare, researchers are racing to replace drugs that are on the verge of patent expiration. One opportunity points the way: biologics.
Teva Pharmaceuticals (TEVA) is an emerging leader in biologics, but its share price is getting unduly punished by the legislative circus in Washington, D.C. That spells a buying opportunity for contrarians.
Israel-based Teva is the world's biggest manufacturer and marketer of generic drugs. The company also develops patented biologic treatments, which are derived from humans, animals or microorganisms. Biologics can be composed of proteins, sugars, or living cells and tissues.
Biologic drugs include antibodies and vaccines. Teva also is pursuing the market for "biosimilars," which are generic, less costly copies of biologics.
Teva is readying several new biosimilar drugs for market, to complement its existing pipeline of products. Gene-based biologics are in the vanguard of cancer research, but as they lose patent protection the door is opening for biosimilars.
Teva has captured the lead in these hot areas of drug research. And yet, shares of Teva have been steadily falling for over a year now, as concerns about patents, management shakeups, and a debt-creating purchase have spooked investors. Political grandstanding on health care this week has furthered the decline.
But investors are missing the point: Teva is a smart pharmaceuticals play with exposure to both generic and branded portfolios. And it's a great growth stock for investors to hang onto for the long run.
Year to date, Teva's stock has plunged by more than 9.2%. But in 12 months, its losses have been much deeper, at nearly 42%. While 2016 was a rough year for all Big Pharma players, Teva faced additional challenges.
The company's operations in Mexico, Russia, and Ukraine came under investigation by the Department of Justice and Securities and Exchange Commission concerning the Foreign Corrupt Practices Act of 1977. The U.S. Patent Office invalidated two of Teva's patents, including one for the lucrative multiple sclerosis drug Copaxone, which was contested by rival Mylan (MYL) .
Teva also initiated the acquisition of Allergan's (AGN) generics unit, which cost $40.5 billion and increased the company's debt burden.
And, most recently, Teva announced the sudden departure of CEO Erez Vigodman. On the day the resignation was announced, the company lost $1.5 billion of its market capitalization
Also pressuring Teva's stock are the challenges facing the entire drug industry, such as Trump's Twitter threats to take on pharmaceutical prices and the Republican Party's ongoing Obamacare repeal and replacement debacle.
The "Trumpcare" replacement bill appears to be dead on arrival, a fact that's punishing drug and health services stocks across the board.
None of these events have sat well with investors, which is their loss. They've unfairly punished Teva's stock. But that's a gain for savvy investors who realize the "pluses" in Teva's column. The Allergan purchase made Teva the world's largest manufacturer of generic drugs. And in the most recent quarter, it helped boost revenue 33%.
The company also has plenty of assets it can sell to reduce debt and invest in new drug research to pump up its pipeline.
Teva just needs the proper management, and once it is able to install a permanent CEO (currently chairman Yitzhak Peterburg is serving as interim chief exec), Wall Street will change its mind about this drug kingpin and its stock.
That means, right now, Teva is cheap. If the company can meet its earnings-per-share target of $4.90 to $5.30, its forward price-to-earnings (P/E) ratio is currently around 7.
Nor should investors ignore the fact that Teva pays out a healthy dividend of nearly 4%. That should yield steady income while bullish investors wait for their deserved long-term gains. <<<
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