Undervalued Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Must Enter New Markets

Page 1 of 2

Generic producers are often regarded as the safer players within BioPharma. They take existing drugs that have fallen off patents, tweak them a bit, and release a product into the market. R&D expenses are kept low, and business is relatively predictable.

Similarly, medical device companies have lower risk profiles by virtue of their more predictable operating model. However, they both have experienced their own problems and are not resting on their laurels. To create value, they need to innovate and grow returns above the weighted average cost of capital. Below, I present my take on several companies within these two markets.

What Teva can gain from entering new markets

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has been aggressively trying to shift away from its multiple sclerosis Copaxone, which makes up the bulk of its revenue. Its new $90 million plant in India recently began construction and is expected to produce consumer health-related products, which include inhalers, syrups, and other similar products. This new plant will operate under a local brand name of “Vicks” and should be completed by 2015. While relatively minor, it is a step in the right direction. Larger steps include the focus on executing a “pearl of strings acquisition” strategy akin to what the new CEO implemented over at Bristol-Myers.

The world’s largest generic producer should explore takeover activity in the medical device market to limit downside and shift towards greater predictability. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) should look towards adopting a more predictable business model by expanding into the medical device market. Failing to receive FDA approval for a drug versus a medical device product may mean the difference between having to start from scratch versus simply having to just follow-up on what works.

The medical device market also involves much less “shooting in the dark” than, say, the pharmaceutical market. And unlike many emerging firms, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s medical device division (“Teva Medical”) fortunately comes equipped with strong liquidity from a recognizable parent company. Why not use some of that $2.9 billion in cash to add obvious free cash flow generators? This would certainly take more of the attention off of patent cliffs by giving investors some “breathing room.”

Reasons to buy Teva irrespective of business shift

If nothing else, Teva has a lot to offer to defensive investors. It was recently named one of the top 10 companies in the Dividend Channel’s International S.A.F.E. 10 because of its current 2.90% dividend yield and a track-record of strong growth over the past five years. The S.A.F.E. status can only be achieved if all of the four marks –S for “solid return,” A for “accelerating amount,” F for “flawless 5-year track-record,” and E for “enduring”– come above average.

Ultimately, I remain very optimistic about Teva. The stock trades at only 7.3 times forward earnings and is more than 60% less volatile than the broader market. Free cash flow yield is strong at 7.3%, and the firm is expected to show 8.9% annual EPS growth over the next five years, which is relatively predictable. Combined with the dividend yield, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is a winning stock for defensive investors.

Will Mylan Inc. (NASDAQ:MYL) continue to soar?

Mylan Inc. (NASDAQ:MYL) is yet another company that has had difficulties but managed to correct them. Operational scaling — like expanding internationally by opening a new arm in Ireland — has strengthened upside prospects. The result is that the generic manufacturer has been on a relentless 50%+ rise to its 52-week high. Thus, it too provides a perfect case study for Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) turnaround executives.

The company has, however, run into its share of problems. The company is now facing a lawsuit from Santarus, which filed a patent infringement lawsuit for its Fenoglide tablets product. The reason for this lawsuit was the ANDA Mylan signed to create generic versions of Santarus’ product, but Fenoglide is still under a patent protection until 2024.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!