Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Teva About to Tear Itself Apart?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

According to Israeli newspaper Haaretz, Teva Pharmaceutical (Nasdaq: TEVA  ) is considering dropping its entire branded drug segment. Depending on what type of investor you are, that's either the best decision ever or a reason to hit the sell button.

Let's start with why it's a horrible idea, so we can end on a positive note.

Simply put, I see branded drugs as the biggest growth driver for Teva. The company has become such a large generic-drug player that there are limited opportunities to expand further through acquisitions. The company will continue to develop new generic drugs, but it's hard for those to produce exponential growth. There are only so many opportunities for new generics, and as more generics are developed for the same drug, prices are pushed downward, so some of every new drug launch is just replacing lost sales on older generics in the portfolio.

Of course, competition also happens for branded drugs. Copaxone, Teva's best-selling branded drug, has to compete with Biogen Idec and Elan's (NYSE: ELN  ) Tysabri, Merck and Pfizer's (NYSE: PFE  ) Rebif, and other multiple sclerosis drugs. Furthermore, Copaxone will eventually face generic competition. Momenta Pharmaceuticals (Nasdaq: MNTA  ) and Mylan (Nasdaq: MYL  ) have already said they're developing generic versions of the drug. Selling branded drugs provides increased growth, but it's also riskier.

Getting rid of the branded drugs would also substantially decrease the amount of money spent on research and development, which will be higher this year after the acquisition of Cephalon. If Teva divests of its branded drugs, that spending can trickle to the bottom line and could be used to boost the dividend that stands at just a 1.8% dividend yield. Capital growth would decrease, but the move would likely attract more dividend investors.

Of course, this might all be a moot point if Teva can't maximize value by selling off the assets. When Mylan bought Merck's generic-drug business it came with branded drugs, which the company wasn't able to find a buyer for.

Teva could just spin off the branded drugs into a new company, which might be the best move since it'll satisfy both growth and dividend investors that can pick and choose whether they'd want to own the generics, the branded side, or both.

Looking for more dividend ideas? Check out the Fool's new free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." Just click here to get your free copy.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Momenta Pharmaceuticals. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries, Momenta Pharmaceuticals, and Pfizer. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2012, at 12:35 AM, mrconnors0531 wrote:

    If you want to put even more into the discussion what about OTC drugs that Teva can put on the shelfs that J&J has failed to keep there. I can't begin to think of the lost revenues in the last couple of years do to recalls. Replace branded drug revenue with a major line of OTC's. They have shown the ability to make deals in generics why not add to that by putting a J&J mix of their own together isn't that where old generics go, to the counter.

  • Report this Comment On April 14, 2012, at 4:04 PM, constructive wrote:

    "According to Israeli newspaper Haaretz, Teva Pharmaceutical (Nasdaq: TEVA ) is considering dropping its entire branded drug segment."

    Brian, the lack of reading comprehension (or maybe it's exaggeration for page views) puts this article way below your usual standards.

    The new CEO merely wants to review the development pipeline (not the established branded drugs) on a case by case basis. There is absolutely no hint of "dropping branded drugs" or "spin-off".

  • Report this Comment On April 14, 2012, at 11:33 PM, steven107 wrote:

    Thanks megashort for redirecting me to the original article.

    There are two places I no longer like to read at: Fool and SeekingAlpha.

    Problem that I have with the Fools is that the articles headlines are exagerated advert-hooks to draw in people and usually but not always do not even mention the specific company in order to not limit the number of potential suckers to draw in. They do tend to drop enough tickers in an article to leave open the possibility that you will see that in the news feed that you use, and will assume one of the others that you are interested in may be the one being discussed. At least in this one they mentioned the specific company by name in the title (congrats).

    Also the sales pitches at the bottom of the articles and in the videos (We know a particular stock that will go up through the roof, but its secret and no else knows, just give us money to let you know) just makes me think scam. Some articles have been sales articles from top to bottom; An article with numerous random name and ticker dropped througout that talks about nothing but how you would like us to sign up for some offer at the end of the article. I no longer know if you still do that, but that always got on me.

    There has to be ways of making money for the site that doesn't compromise the brand image of (lost any value to me a few years going now) and insult visitors (no longer have any idea why I continue to come here except due to the Shock-hook headline method, which works but then insults the person who falls for it afterward. Then I usually feel compelled while im here to express my dislike for the site afterward, which im sure ya'll get tired of. I do too).

    I come here via and I blacklisted your site from their news feeds a long time ago (you have to be logged in for it to take affect) and If I weren't so lazy that I read the feeds without logging in, I wouldnt have to see a headline of yours and feel compelled via the titles to come here and then hafta log in to mention that I don't like coming here or being here or commenting here.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1861790, ~/Articles/ArticleHandler.aspx, 10/24/2016 1:16:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
TEVA $44.00 Down -0.21 -0.48%
Teva Pharmaceutica… CAPS Rating: ****
ELN.DL2 $0.00 Down +0.00 +0.00%
Elan CAPS Rating: ***
MNTA $11.98 Down -0.28 -2.28%
Momenta Pharmaceut… CAPS Rating: ****
MYL $37.02 Down -0.59 -1.57%
Mylan CAPS Rating: ***
PFE $32.18 Down -0.36 -1.11%
Pfizer CAPS Rating: ****