Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is not exactly one of the first companies we would think of as offering a bond issue, and it might normally lead us to think that Teva was on the verge of making another acquisition. The company is raising debt capital but it does not seem to be signaling any imminent deal is coming.
The company’s finance unit is selling some $750 million with fixed and floating rates. The floating tranche is said to be $500 million expected at about 50 basis points over LIBOR and the $250 million fixed piece had price talk of 70 to 75 basis points above Treasuries.
This appears to be debt that can be used to refinance other debt coming due without tapping into the cash coffers. The official use is “for general corporate purposes.”
Teva was already carrying $4.331 billion in long-term debt and carried more than $2 billion between ‘other liabilities’ and deferred long-term liability charges. The company’s market cap is now back down to $42.7 billion now that shares are this far off its 52-week high. With shares down 1.9% at $47.53 today, Teva’s 52-week trading range is $46.99 to $64.95
JON C. OGG
Prana Biotechnology (NASDAQ: PRAN) is up 8.77% a half hour before close after announcing this morning that it had secured several key patent extensions from the United States Patents and Trademark Office (USPTO) and the European Patent Office (EPO). The company recieved received up to 2.5-year extensions for its PBT2 line, which has been used to treat Alzheimer’s disease. The extension was granted in part because it is now considered a valid treatment for Huntington’s disease as well.
The company has traded 44,529 shares in volume, above it’s average volume of approximately 40 thousand. PRAN, which is currently priced at $1.18 is close to its 52-week low of $1.02.
-Michael B. Sauter
This week we started compiling a list of safe stocks for a new bear market, and Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) came up in our screens. We ran the piece during this morning there, and unfortunately the slide continued on Friday.
For starters, these are of course very long term in nature. Pharmaceutical stocks have historically offered safe havens during harder times due to the nature of your life depending upon them. Healthcare reform is changing that and many drug stocks have been dead money for quite some time.
Teva does have a disadvantage over some of the other large-cap pharma stocks. Its dividend is low. It is also based in Israel, but most of its revenue comes from North America. The latest quarter’s North America revenues rose 17% to $2.48 billion out of $3.8 billion in revenues. The company also just closed on its RatioPharm deal for $5 billion.
Despite beating earnings expectations, shares remain weak. After a 1.2% close on Friday at $49.97, Teva is relatively close to its 52-week low as the range is $46.99 to $64.95. The thought of getting a shot of owning Teva after a 23% sell-off is enticing.
Here was our note on “Safe stocks in a new bear market”:
The drug and pharmaceutical sector has been a defensive sector in the past, but that has been less of a case with healthcare reform coming. Generics offer some safety in a stormy sea, and no company has been better than Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) in the group. Teva is actually based in Israel, it has been making selective acquisitions to get a larger international footprint, it has some branded drugs that are not generics, and its stock has pulled back considerably from the March and April highs when it almost reached $65.00 per share. Because it has been an acquirer and because its stock has risen, its dividend yield is lower than most drug companies at an implied yield today of roughly 1.3%.
What investors have here is growth that has not been seen elsewhere. Earnings were $3.37 EPS in 2009, but Thomson Reuters has estimates of $4.56 EPS in 2010 and $5.10 EPS in 2011. Based on the near 20% pullback from the highs, this gives forward expected P/E ratios of 11.1 for 2010 and 9.9 for 2011. There is a substantial room for dividend growth ahead. Its $45 billion market may sound high, but that is actually nowhere near the largest drug makers. Thomson Reuters also shows an average analyst price target of above $67.00, implying upside of more than 30% because of the pullback.
We’ll be keeping our eyes out on the tape for any extra news. So far, the recent pullback looks to have created a better long-term opportunity.
JON C. OGG
According to Bloomberg, the Sanofi-Aventis (NYSE: SNY) last week to potentially purchase generic drugmaker Genzyme Corp. (NASDAQ: GENZ) is on track to become an actual bid, worth potentially as much as $18.7 billion. Last week, rumors were flying that struggling GENZ would be competed over by as many as three major drug companies (Sanofi-Aventis, GlaxoSmithKline, and Johnson & Johnson) but SNY was expected to be the most likely, and that notion has been reinforced by the bid, which was recently approved by the Sanofi board.
The acquisition is not set in stone, however, as Genzyme refused to facilitate the talks Sanofi-Aventis requested for the unsolicited bid. Analysts expect the $70/share may be refused by the generic drug producer as well, which will send the bidder back to their drawing board. Meanwhile, no reports have surfaced regarding bid plans from GSK or JNJ.
-Michael B. Sauter
Momenta Pharmaceuticals, Inc. (NASDAQ: MNTA) was up $7.62 (63.87%) this morning to $19.55 on the recent FDA approval of a generic, yet therapeutically equivalent, Lovenox. The drug is enoxaparin sodium for injection.
Momenta Pharmaceuticals, Inc. is a biotech company that specializes in the analysis of complex mixture drugs such as proteins, polypeptides, and cell surface polysaccharides.
-Michael B. Sauter
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is slowly becoming one of the biggest drug makers in the world. This morning the company is up on the news that it won the bidding process to acquire German generic drug maker Ratiopharm GmbH. The price tag: 3.6 billion Euros, or about $5 billion today in a cash and debt deal. Had this been 2009, the price tag would have been closer to $6 billion in the Euro currency.
Ratiopharm is a top generic drug maker in Germany and Pfizer Inc. (NYSE: PFE) was supposed to be one of the other bidders as it has not frowned upon having generic drugs of its own. Ratiopharm had about 750 drugs and a solid pipeline.
Teva is now one of the top drug companies in the world with most operational sales in North America and in Europe. Teva’s last big transaction was Barr Pharmaceuticals Inc. for about $7.46 billion. The company said this deal will allow growth in Germany, as well as higher growth markets in Spain, Italy and France.
Usually companies buying other companies suffer a drop on dilution concerns. Not Teva. Shares are up 4% after the open and the $62.58 price hit today was not just a 52-week high. That marks an all-time high. Its $55 billion market cap is still far from the mega-cap status of the $100 billion mark. But there are only a handful of companies there at that level of a mega-cap status. Pfizer Inc. (NYSE: PFE), Novartis AG (NYSE: NVS), Merck & Co. Inc. (NYSE: MRK) and Sanofi-Aventis (NYSE: SNY) are all among those which have a $100 billion market cap and higher.
The last date you have to go back to see a TEVA stock double is December 2006 when the stock was just under $30.00. Calling for stocks to double yet again is tricky and that is not quite our intent here. But if the company continues to make acquisitions, the market cap can get there without the stock needing to double.
Teva has shown that it likes to do deals. Analysts are looking for 10% organic earnings growth ahead as the Thomson Reuters estimate for 2010 is $4.55 EPS versus $5.04 EPS in 2011. That is not considering the effects of this merger, and the deal is expected to close late this year.
As far as other top drug companies, here is how Teva’s $55 billion market cap compares:
- Pfizer Inc. (NYSE: PFE) $138.9B
- Novartis AG (NYSE: NVS) $124.7B
- Merck & Co. Inc. (NYSE: MRK) $118.6B
- Sanofi-Aventis (NYSE: SNY) $101.6B
- GlaxoSmithKline plc (NYSE: GSK) $95.9B
- Abbott Laboratories (NYSE: ABT) $84.6B
- AstraZeneca plc (NYSE: AZN) $64.9B
- Bristol-Myers Squibb Company (NYSE: BMY) $44.5B
- Eli Lilly & Co. (NYSE: LLY) $39.8B
JON C. OGG
The Changing Landscape of Biotech Valuations (ACOR, CBST, MNKD, INCY, SGEN, ITMN, IPXL, MRX, SVNT, VPHM)
The biotech and biohealth universe is changing in size. In 2008 and 2009, partly due to mergers and partly due to market valuations, there had become a surprisingly small number of biotech stocks which had market capitalization rates of more than $1 billion. At one point there were only about 10 or 11 in our universe of biotech stocks that actually had market caps which were very far north of $1 billion, or at least out of the biotech stocks which followed at BioHealth Investor.
We have recently seen Acorda Therapeutics, Inc. (NASDAQ: ACOR), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), MannKind Corporation (NASDAQ: MNKD), Incyte Corporation (NASDAQ: INCY), Seattle Genetics, Inc. (NASDAQ: SGEN), InterMune, Inc. (NASDAQ: ITMN), Impax Laboratories Inc. (NASDAQ: IPXL), and Medicis Pharmaceutical Corporation (NYSE: MRX) either get into or get back into the $1 billion market cap club. And then we have Savient Pharmaceuticals Inc. (NASDAQ: SVNT) and ViroPharma Incorporated (NASDAQ: VPHM) that have been in the club and are currently just short of it.
Due to waves of big emerging drug news and due to strong performance we now have 16 of the biotech and related stocks (at least of those which we cover as pure biotechs) which have market caps north of $2 billion. More importantly, the biotech news flow and he bull market has suddenly helped many stocks rise or at least get back above the $1 billion mark. Many of these had been there before, but the market has helped many new names get back above the $1 billion market capitalization level. And waves of mergers in the last two and three years sort of thinned out the group.
In these we did not take into consideration revenues, earnings, and not even cash. This has largely been news-driven and momentum-driven. Below is a review of each.
Generic drugs are just one of the many combined issues that are coming front and center in the world of healthcare reform. Frankly this is not a new notion. Not all. This weekend came a feature in Barron’s “Asian Trader: Pill Maker That’s Set To Pop” calling Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) of India the next big drug play for investors. We wanted to look closer under the hood here.
The Indian generic drug company’s ADR closed at $24.61 Friday and Barron’s noted two analysts with big price targets: one giving it room up to $29.63 and and another implied rupee price we pegged around $30.82.
Sales are expected to approximately double to around $3 billion by 2013 and the waves of name brand drugs coming off patent in the U.S. may offer some added hope there. That is the biggest wild card with many noting that generics have a chance to capture a part of what is put at $70 to $80 billion.
Dr. Reddy’s is thought of by the US investor public as a generic player, but it has its own products. It produces finished dosage forms, active pharmaceutical ingredients and intermediates, and biotechnology products; and it conducts R&D in cancer, diabetes, cardiovascular, inflammation, and bacterial infection.
There are some issues here in other drug makers. Teva Pharmaceutical Industries (NASDAQ: TEVA) is perhaps the best generics player out there with a whopping $53 billion market cap today versus about $4.1 billion as Dr. Reddy’s market cap.
Teva is a large customer and Dr. Reddy’s also has a distribution pact with GlaxoSmithKline (NYSE: GSK) for emerging markets and there are some who expect GSK to take a significant stake in the Indian drug maker. Teva’s stock is right around $60 and analysts on average have a price target of $63 and the highest target seen is $70.00. If Teva gets more downgrades on valuation, it seems as though it could pull Dr. Reddy’s down simply as the best can drag down or pull peers higher.
If the markets are flat or solid, it seems that Dr. Reddy’s may have a 2% or so Barron’s-pop. Our problem here with this one is that Dr. Reddy’s shares are up almost 200% in the last year. Its 52-week range is $7.27 to $27.33.
Dr. Reddy’s may have more room to run, but the big move has probably been seen. The recalls may be behind and they may not, ditto with FDA scrutiny. The stock is not cheap by some Indian company valuation standards, so it seems that waiting may offer better risk-reward here than chasing.
JON C. OGG
This weekend we ran screens of several drug and biotech companies in our quest for ‘cheap stocks’ in the BioHealth sector. The intent is not solely for buyout targets because we prefer to look at value stocks rather than just picking buyout hopefuls. The obvious issue that makes most of these cheap is because there have been problems or have been issues that made these look cheap on the surface. To look for sub-market valuations, we used Thomson Reuters estimates for 2009 and 2010 earnings. We then set a maximum target of 15-times earnings and screened out the companies that gave the ‘false positives’ as there were many.
Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB), Cephalon Inc. (NASDAQ: CEPH), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), and PDL BioPharma, Inc. (NASDAQ: PDLI) all made the cut. We initially wanted to look for market caps over $1 billion, but we set the bar at $500 million and tried to focus on companies with growth. We included valuation data, performance, and some color on each name. Some, but not all of these, are also in our upcoming biotech buyout targets for 2010.
Amgen Inc. (NASDAQ: AMGN) is one we have long noted during its waves of problems and as it was under future reimbursement pressure that may be more like an old fashioned drug company now as it has matured. The company’s market cap is $56 billion, which is actually now the largest market cap since Genentech is now Roche. Its stock trades at $55.48 and its 52-week trading range is $44.96 to $64.76. Because of the pressure and past issues, it trades at only about 11-times earnings for 2009 ($5.03 est.) and 2010 ($5.14 est.) both. It also trades at under 4-times 2009 and 2010 revenue expectations and it sits with an arsenal of almost $14 billion in cash and equivalents, yet has over $10.5 billion in long-term debt.
Biogen Idec Inc. (NASDAQ: BIIB) is no stranger to issues… another activist was just out this week calling for more action and the company has not been able to get out from under the TYSABRI PML despite the notion that this is a very low risk. At $46.38, its market cap is $13.4 billion and its 52-week trading range is $37.21 to $55.34. Biogen has over $3.1 billion in cash if you include its short-term and long-term investments and it carries just under $1.1 billion in long-term debt. Biogen also trades at 11.6-times the $3.99 EPS target for 2009 and only 10.5-times the $4.42 target for 2010; and Biogen trades at 3-times 2009 expected sales. The risk is here is of course the TYSABRI risks. You never know if they will have to pull it again. This is an opinion rather than a formal target, but TYSABRI is good enough in treatments of MS that it could quite literally have two or three times the number of patients using it if the PML risk can either be quantified better or could be mitigated. Another issue is that it is trying to acquire Facet Biotech Corporation (NASDAQ: FACT) as a diversification and added pipeline move.
The Obama Administration in a letter released Thursday recommended that seven years is enough time to protect brand-name biotech drugs from cheaper generic competition, roughly half the time sought by industry lobbyists.
“Innovation is driven by appropriate competition, and the administration’s policy will spur that competition,” said the letter from Office of Management and Budget Director Peter Orszag and Nancy-Ann DeParle, director of the Office of Health Reform.
Making generic biotech drugs, called biosimilars, available to the masses is part of the Obama Administration’s strategy to lower the price of the prescription drugs, many of which can cost in excess of $20,000 a year per patient.
A shorter time of market exclusivity for brand-name drugs may be detrimental to some biotech companies. Brand-name biotech drug makers such as Amgen Inc. (Nasdaq: AMGN), Genentech Inc. (NYSE: DNA) and Genzyme Corp (Nasdaq: GENZ), Gilead Sciences Inc. (Nasdaq: GILD) and Celgene Corp. (Nasdaq: CELG) are fighting against biosimilars to protect exclusivity for their products.
The Biotechnology Industry Organization, which represents brand-name companies, “is extremely concerned” that seven years is not enough time, and may limit product development.
Yet it could be beneficial to generic drugmakers such as Novartis AG (NYSE: NVS), as well as drugmaker AstraZeneca plc (NYSE: AZN), which recently began targeting the biosimilars market.