A health care winner no matter what
Generic drug makers like Teva see upside in health care debate
In that effort, requiring that health plans replace proprietary
drugs with generics is an easy way to cut costs (or to look like you're
So, generic drug makers win once because any legislation will expand the number of insured able to afford drugs, and twice, because economics will continue to move patients, doctors, and health care bill payers to generics.
No wonder Teva Pharmaceutical Industries (TEVA) is guiding Wall Street to 30% earnings growth in 2010.
is the world's largest generic drug maker. In generic drugs, bigger is
better, since it allows a company to spread development, manufacturing,
and marketing costs over a larger customer base.
So, for example, the company's 2008 acquisitions of Barr, the
number-four generic drug company, and Bentley Pharmaceuticals added
market share in Europe, which in 2008 accounted for just 28% of the
In the longer range -- say, five years out or so -- Teva looks
to be one of the best positioned generic companies to tackle the new
market for biogenerics. These drugs are generic versions of the drugs
developed by biotech companies.
So far, the size of this market has been extremely limited by
the lack of an appropriate regulatory framework for ruling on what
constitutes a safe generic version of a biotech drug. Legislation is
likely this year or next, and Teva is one of a small number of generic
companies with the financial resources to tackle this new market.
The company estimates that it will cost about $100 million to
$150 million per drug to reverse-engineer a similar drug from a
biotechnology company, versus about $10 million to $15 million to
reverse-engineer a conventionally small molecule drug.
As of October 13, 2009, I'm adding Teva Pharmaceutical
Industries to Jubak's Picks with a target price of $61 a share by
October 2010. That values Teva at about 14x my estimate of 2010
earnings of $4.35 a share.
As of October 13th, the stock traded above $51 -- 14.25 times Standard & Poor's estimate of 2009 earnings.
At the time of this writing, Jim Jubak did not own or control shares of any company mentioned in this post.
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