23. Investment Thesis II:Growth, Yield, Value Generous dividend payments Dividend yield of 1.77%, growing at an 25% annual clip 15 dividend increases in the last 5 years
24. Investment Thesis II:Growth, Yield, Value Nearing lower end of 52-week trading range Currently trading at 11.9 times current year earnings Discount of 15.2 times earning level that 52-week trading range: 46.99 - 62.82
29. Case Study 2: February through October 2008 Teva demonstrates price stability in turmoil February through October 2008 Teva stock declined in price only about 22% NASDAQ declined 47%
33. Management Superior Management team that aims to maximize value for shareholders “Thanks to the expertise of our integration teams, we will be able to hit the ground running terms of maximizing our new scale and seizing the opportunities for further growth that our leadership position brings us.” CEO ShlomoYanai
34. Competitors Analysis Superior Management team that aims to maximize value for shareholders TevaPharma (TEVA) Watson Pharma (WPI) MylanInc (MYL) ROA: 9.43% ROE: 16.28% Prof. Marg: 8.75% Op. Marg: 23.38% ROA: 3.13% ROE: 5.85% Net Prof. Marg: 5.14% Op. Marg: 8.55% ROA: 3.09% ROE: 6.64% Net Prof. Marg: 6.34% Op. Marg: 13.34%
35. Key Financials Revenue and positive key financials over industry From 2009 to 2010, Teva increased sales 16%, earnings per share 35%, and cash 23% On pace to nearly double sales by 2015
36. Valuation DCF Analysis Target Price: $58.6 WACC: 12% Terminal Growth: 2% TVM of FCF: 10x Catalyst Recent company acquisitions Generic pharmaceutical growth Slowed revenue growth due to competition Time Horizon Approximately 1 Year
Healthcare costs are rocketing higher in the U.S. and it won’t be long before the Baby Boomers push our healthcare spend over 20% of GDP. Cuts to Medicare and medical device/pharma levy taxes aside, we’re going to need to focus more of our efforts on generic drugs; particularly in the biogenerics space. So much innovation in the therapeutics space comes at the hand of biotech companies these days, and their biologic drugs can cost anywhere from $10,000 to $150,000 per year. The health reform bill aims to implement a path for biogeneric or biosimilar drugs that will continue to reward innovative biotech companies for their work, but that will also bring down drug costs. TEVA is at the forefront of biogeneric innovation and stands to benefit once final legislation is put into place.
Net sales grew to $16.1 billion, an increase of $2.2 billion from 2009 salesSales grew in each principle market in North America by $1,403 million, in Europe by $676 million and in our International markets by $143 million, with growth in local currency Historical growth rate of 28% a year, 5 times the growth rate of the S&P of 5.2%Dividend growthMerck & Co grew 3.5% and Pfier grew 8.1%J&J grew 10.4%Teva Pharmaceuticals is the leading generic drug company in the US400 generic products in more than 1,300 dosage strengths and packaging sizesGlobal presence covers North America, Europe, Latin America, Asia, and Israel with operations in more than 60 countries38 finished dosage pharmaceutical manufacturing sites in 17 countries15 generic R&D centers operating mostly within certain manufacturing sites and 21 API manufacturing sites around the world
RatiopharmOn August 10, 2010, we acquired the Merckleratiopharm Group (“ratiopharm”), a global pharmaceuticalcompany with operations in more than 20 countries, for a total cash consideration of $5.2 billion. Ratiopharm’sresults of operations were included in our consolidated financial statements commencing August 2010. With theclosing of the acquisition, we are now the leading generic pharmaceutical company in Europe, with the numbertwo position in Germany and leading market positions in other key European markets and in CanadaLaboratoireThéramexOn January 5, 2011, we acquired LaboratoireThéramex for €269 million paid at closing (approximately$360 million at current exchange rates) and certain limited performance-based milestone payments. Théramexoffers a wide variety of women’s health products, and expands our women’s health business into importantgrowth markets in Europe and the rest of the worldCorporaciónInfarmasaOn January 26, 2011, we acquired CorporaciónInfarmasa (“Infarmasa”), a top ten pharmaceutical companyin Peru. Infarmasa’s product offerings significantly enhance our portfolio in the market, especially in the area ofantibiotics, where Infarmasa has the leading brand in Peru. The combination of Corporación Medco (our existingoperation in Peru) and Infarmasa will be one of the top two pharmaceutical companies in the countryOn January 26, 2011, we acquired CorporaciónInfarmasa (“Infarmasa”), a top ten pharmaceutical companyin Peru. Infarmasa’s product offerings significantly enhance our portfolio in the market, especially in the area ofantibiotics, where Infarmasa has the leading brand in Peru. The combination of Corporación Medco (our existingoperation in Peru) and Infarmasa will be one of the top two pharmaceutical companies in the country
Initiatives to promote generic pharmaceuticalsNegative impact on big pharmaceuticalsCutting the number of years a drug maker could market brand-name biologic drugs to seven years from 12 yearsLimits on “pay-for-delay” deals that set back lower cost rival drugs with settled patent challenges and agreements between big pharma and generic manufacturers
In 1994 the dividend was a little more than half a cent per share per quarter. In the year 2000 the dividend was about a penny and a half per share per quarter. By 2007 they were up to about 10 cents per share per quarter and they are currently at about 18 cents per share per quarter. The math shows 15 dividend increases in the last 5 years, with a 197.9% dividend growth rate over 5 years and a very sustainable 15.9% payout ratio.
The company is in the right business for the foreseeable future. They make cheap drugs for an aging population, and they make them well. They have over 400 generic products with 216 more potential ones currently in the pipelines. The company is managed well financially, they do not have a lot of leverage, they are growing earnings, making strategic acquisitions, have a strong pipeline and are rewarding shareholders with a fast growing dividend. If the economy is to stay weak for the foreseeable future, health care is one thing that people can’t scrimp on due to inelastic demand.
