TEVA: What's your thoughts

So I had a good friend Salomon ask me about a company that I think looks really good. The ticker is TEVA. I'm seeing double-digit returns at the current price and cash flow expectations. I'm curious to see what some others think about the pick?


  • HI @Preston,

    surely an interesting pick. But there are many things I dislike or which at least require further research
    -$33 billion long-term debt
    -negative tangible equity (Goodwill+Intangibles are almost $70 billion)
    -They recently made an acquisitation for over $30 billion. What did they buy? Did they surely not overpay?

    I am really allergic to debt. So even if I might miss out on great opportunities sometimes, I do not feel comfortable buying a company with too much debt.

    But again, this is my result after just 5 minutes looking. I surely did not get the full picture.

    Thanks, Preston. Always great to hear from you!

  • Hi. It's Salomon. This is my favorite market pick right now.
    Regarding debt and acquisition: Yes, they paid a high price, but nowhere justifying to bring down the company so much in valuation. Mgmt has committed to bringing down debt level by 5bn this year alone. They have excellent cash flow profile due to the nature of their business, hence I am comfortable with the gearing in the balance sheet. (the same I'd be comfortable to take high leverage on real estate if I have a good tenant with long term lease). There will be 1.5bn cost synergies in addition yet to be realized.
    The elephant in the room is Capaxone - which is their specialty drug for which the exclusivity has now run out. However, they have brought out a new dosis (40mg) which is much easier to take and has exclusivity again. In any case no competitor has put out a generic version of copaxone yet, and even once they do it will only eat into Teva's market share marginally, in my opinion.
    Also, TEVA has an excellent product pipeline, which will more than compensate for any losses in revenues from their specialty business.
    TEVA to me is the best value play with sufficient margin of safety I can find. In addition they have the ability to grow revenues by bringing medicines to so many places in the world that are underserved. (so growth play as well)

    PS: Due to the nature of impairment tests which impact the PnL (and only ever downwards), I believe the net income needs to be ignored and FCF needs to be looked at instead when applying multiples to determine proper valuation.

  • Salomon,

    Do you know how much of their revenue is derived from Copaxone? It is interesting that you bring it up because I've spent the last 3 weeks working in a multiple sclerosis clinic, so I might have some insight for you. I would not worry about a generic nearly as much as a competition from better drugs. From what I've understood, most providers that are still prescribing Copaxone are only doing it because they have prescribed it forever. That isn't to say they will suddenly stop, because habits are hard to break. Plus Copaxone is extremely well tolerated by patients. The down-side is that you have to inject Copaxone twice a day with a needle. There are now multiple drugs that are either oral or you have to infuse them into your blood only a few times a year. For example, Gilenya has the low-risk side effect profile like Copaxone but is an oral tablet instead of an injectable like Copaxone. People do not like using needles daily if they do not have to

    Lastly, there is a large wave of new MS drugs coming out that have doctors very excited. Ocrelizumab came out in April and almost every patient the last 3 weeks have asked about it or signed up for it. It is a medication that you receive just once every 6 months and there is a possibility that after a few years you won't need any more MS therapy. It is also the first drug that has been shown to reverse the progression of MS, meaning the patients gain function of their nerves back.

    Lastly, take everything above with a grain of salt. I work at a large academic medical center. The kind of place patients get sent to if their local doctor can't figure out how to treat them. So that patient I have been seeing are typically worse off than your average patient, meaning they probably need the newer better medication more than the average MS patient. Just some food for thought

  • Down 33% in the past 5 days. This is a big reason I am invested almost 100% in ETF's. Just when you think you found the best value play with margin of safety it blows up in your face.
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