Generic drug suppliers continue to be out of favor with value investors. Teva Pharmaceuticals (NYSE: TEVA), which doubled its efforts to dominate the market when it bought the generics unit from Allergan (NYSE: AGN), is stuck in a trading range for now. The company’s falling revenue but surge in profits failed to move the stock. Still, at below $20 a share, TEVA stock is compelling.
Teva reported revenue falling 10.4% to $5.065 billion as Copaxone, which lost patent protection, recorded a 40.3% drop in sales to $476 million. The market completely ignored Teva’s bump in 2018 guidance when it raised its non-GAAP and revenue outlook slightly.
The company’s aggressive cost cuts, which will total $1.5 billion in savings, is on track for 2018. By the end of next year (2019), it will save $3.8 billion. This cost cut will more than offset the weakness for Copaxone and the generic unit.
At a 6.4 times forward P/E and a more than manageable debt profile of 2.1 times debt/equity, buying Teva alongside the likes of Berkshire Hathaway should pay off. The biotech market is out of favor because the government threatens to clamp down on drug price hikes. It is also cutting the regulatory hurdles in FDA approvals, which raises competition. Still, the latter move speeds up drug approval and ultimately benefits the sector as a whole.
