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Top 10 Forever Stocks | a series brought to you by Wyatt Investment Research ----------------------------------------------------------------------------------------- Forever Stock No. 4 is Teva Pharmaceutical (Nasdaq: TEVA). For this report, I researched a range of industries to bring you stocks that should hold up regardless of market conditions. To keep your portfolio diversified, I chose companies across several unrelated industries, including energy, healthcare, financials, technology, industrial goods and consumer staples. What’s more, several pay healthy dividends, a must in today’s low-interest-rate environment. These stocks are built to last, meaning you should hold onto them for the long haul. I’m sure you’ll be pleased with their performance for many years to come. -----------------------------------------------------------------------------------------
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This Sector Will Thrive For Years to Come
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Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA)
When President Obama's healthcare reform bill passed in late March 2010, name-brand pharmaceutical companies immediately scrambled.
The timing could not have been worse.
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Most branded pharmaceutical companies were already nervous about the lack of drugs in the pipeline. They were all privy to the fact that several best-selling drugs were losing their patent protection in 2011 and 2012. They knew several of the industry's cash cows - including Lipitor, Plavix and Seroquel - were coming off patents over the next two years.
So the announcement of upcoming healthcare reform coupled with
a loss of patents led to the inevitable: a sharp increase in the price of brand-name drugs.
PRICE INCREASE
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Brand pharmaceutical companies know that healthcare reform will severely eat away at their profits, so they’re trying to get as much profit out of their current pipelines as possible.
Blue Shield of California Vice President Nancy Stalker agrees, “...because of the increased number of drugs going generic, they profit more from the brand drugs on the market by increasing prices.”
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Generic drugs already make up 70% of all prescriptions in the U.S., but that percentage will ultimately increase when new healthcare laws begin to roll out. The government will place significant cost pressures on pharmaceutical companies to keep prices low. Lower-priced generics mean lower costs for government programs, private insurance companies and most importantly, patients.
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Given these industry changes, there is little doubt that generic drug makers will thrive in the upcoming cost-driven environment.
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But there is one area of generics that will thrive more than any other: biosimilars.
Biosimilars are the generic equivalent of brand-name
biologics. Biologics are brand-name products created by biologic processes, rather than being chemically synthesized. Biologics are used heavily in the treatment of various cancers, rheumatoid arthritis and adverse cardiovascular conditions.
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For the first time in history, Congress has passed legislation through the new healthcare reform, more specifically the Patient and Protection and Affordable Care Act, that will allow generic drug companies to work toward creating an equivalent to the branded biologic.
Prior to healthcare reform, branded biologics were manufactured by the likes of Amgen and had 20-year, data-exclusivity patent protection. Under the new legislation, these brand-name products will have only 12 years of data exclusivity, which will certainly speed up the approval process for biosimilars.
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The new law will bring in more competition, and more importantly, create a new multibillion-dollar market. There are currently very few players in the biosimilar arena, which is why I recommend that you don’t need to know much about what’s in Teva’s pipeline. Actually, it’s irrelevant. Teva produces cash, and lots of it, partially because they don’t have a pipeline … they have the competition’s.
That’s because Teva Pharmaceutical is the world’s largest generic drug manufacturer and the 15th largest pharmaceutical company. More importantly, Teva is the major player in the biosimilar space.
WORLD’S LARGEST GENERIC DRUG MANUFACTURER
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The company operates in 60 countries and distributes its products to 100 different marketplaces. It also has a large portfolio of branded drug products, led by Copaxone and Azilect, which are used in the treatment of multiple sclerosis and Parkinson’s disease, respectively.
The patent for Copaxone runs out in 2014, but Teva is trying to
convince customers to switch to its new branded version that doesn’t expire until 2030. The drug represented 21% of total revenue for Teva in 2013.
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Teva recently gained approval to sell the generic equivalent to Evista, an Eli-Lilly product to prevent and treat osteoporosis in post-menopausal women. The generics industry provides a relative safe haven in an uncertain global economy. And Teva, in particular, is the company best positioned to succeed over the long term in the generic pharmaceutical space.
GENERIC EQUIVALENTS
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Strong growth opportunities exist for Teva all over the globe, especially in Japan and the emerging market countries of Brazil, Russia, and Latin America. Additionally, the generic market is only now maturing and represents just a modest slice of the global drug industry.
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While the drug sector is prone to regulation challenges and costly research expenses, it is a relatively safe industry for investors. Healthcare is viewed as a consumer staple, meaning that people will use medicines regardless of economic conditions.
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generic substitutes become popular alternatives in tougher economies, such as we’re currently experiencing. What’s more, consumer staples are usually more resistant to downturns in the stock market as well.
many drug companies trade at incredible discounts. Teva has grown earnings by 15% over the past 10 years, but the stock doesn’t even trade at 10 times forward EPS. While not a growth stock, TEVA has traded as high as 16 times earnings. Analysts are looking for expected earnings of around $4.59 per share this year.
In fact,
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Furthermore,
Given Teva’s position in the generic drug market—and speculation that the company is ripe for a buyout—the stock is a great play for anyone looking for an incredible value investment in the healthcare sector.
AN INCREDIBLE VALUE INVESTMENT
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