It's human nature to tell ghost stories. Whether it's the bogeyman, kelpie, al-gul, or lupe garou, every culture has its own legendary monster. When pharmaceutical executives gather around the campfire, one good way to frighten them is to mention TevaPharmaceuticals
Israel-based Teva is not only a very effective developer and marketer of generic drugs but also an aggressive challenger of drug patents. As Merck
Teva has built itself into the largest generics maker in the world and one of the largest pharmaceutical companies overall. As testament to Teva's size and influence, nearly 1 in 16 U.S.-filled prescriptions goes to Teva.
Sales for the fourth quarter grew 40% to $1.3 billion. While this growth rate is inflated by currency effects (10%) and the absence in the year-ago period of business from Teva's Sicor acquisition, top-line growth was still quite strong. While net income grew 50%, a significant increase in shares outstanding muted the EPS gain to 32%.
Although it looks as though the generics industry as a whole may have reached a cyclical peak in 2004, Teva's pipeline remains robust. The company has more than 140 applications on file for new generics in the United States with branded sales of more than $82 billion. What's more, Teva has moved to develop its own proprietary drugs, and new products for conditions such as Parkinson's and other central nervous system disorders should help boost sales.
Teva's branded multiple sclerosis drug Copaxone totaled more than $260 million in sales for the fourth quarter and held almost one-third of the market share for MS drugs. While competition is now coming from Tysabri, a drug shared between BiogenIDEC
Teva's management is still sticking to its impressive goal of doubling revenue every four years. That said, guidance for 2005 suggests revenue growth on the order of 11-17% -- a little bit below the pace needed to double in four years' time.
There is no doubt that Teva is among the creme de la creme of the generics business and the pharmaceutical industry in general. With good margins, good growth, and a return on assets of over 12%, there is equally no doubt that Teva is a solid growth stock.
A trailing P/E and EV-to-FCF of roughly 21 aren't really out of line for a highly profitable growth company like Teva. That said, concerns that the generics industry as a whole may have peaked could put periodic pressure on the shares. If Teva shares should get just a bit cheaper, growth-oriented Fools would do well to take a long look at the shares.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
