You don't often get a shot at buying market-leading firms at attractive prices, so you have to be willing to be both patient and opportunistic. And opportunity may just be knocking with Israeli generics giant TevaPharmaceuticals (NASDAQ:TEVA).
Investors certainly didn't like what Teva had to offer in its first quarter since the acquisition of IVAX. Sales and earnings were both below estimates, and the company's guidance was also below the preset hurdle of Wall Street analysts.
But you know what? I don't really care. Let the analysts go play with their models and host their rubber chicken dinners for clients. They've never really made me much money, anyway.
Sales this quarter were up 28%, with 17% growth in both North America and Europe. Copaxone (the company's branded drug for multiple sclerosis) posted a solid 29% gain as well. And while bottom-line adjusted profits were only up about 10% (and actually down per share because of dilution), I'm not going to let one quarter spoil my appetite for a good story.
The fact still remains that Teva has more drug applications on file with the Food and Drug Administration than any other generics firm (by a large margin). Teva also has numerous potential patent challenges in the works. And that's one area where scale matters -- Teva might lose some cases, but the sheer volume lends a bit more stability to the future.
And let's not forget that there are some high-potential drug targets in Teva's sights. It should have exclusivity on a generic form of Merck's (NYSE:MRK) Zocor, and it's going after other high-potential drugs like Actonel (Procter & Gamble (NYSE:PG) and Merck), Avandia (GlaxoSmithKline (NYSE:GSK)), Gemzar (EliLilly (NYSE:LLY)), and Lexapro (ForestLabs (NYSE:FRX)).
All that said, don't be oblivious to the risks here. There could be bumps in the road with the IVAX integration, and I still think the issue of authorized generics is going to get hotter. What's more, there's a reserve/chargeback component to sales recognition here that requires a lot of estimates, and estimates can be wrong. Now this is a highly audited part of Teva's finances, but it's a risk factor nonetheless because it makes the revenue picture murkier.
Down 10% on today's news, Teva shares are at least worth a look. So sharpen your pencils, do your due diligence, and find out for yourselves whether this might not be an opportunity to buy up an industry-leading company at a temporary discount.
For more Foolish pharmaceutical fribbles:
- Still Waiting for Teva to Tumble
- Glaxo's Story Still Worth Reading
- Short-Term Fears Chip Into Forest
Merck, GlaxoSmithKline, and Eli Lilly are Motley Fool Income Investor recommendations. Want to get paid to invest? Mathew Emmert can show you how.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
