Top Global Guru's Take on Teva
05/25/2016 10:00 am EST
Speaking 7 languages and constantly traveling the world, Vivian Lewis is a leading expert in international investing; her Global Investing newsletter specializes in global stocks that are available on US exchanges, such as this long-standing drug sector favorite.
Steve Halpern: Our guest today is international investing expert and one of the advisory world’s smartest investors, Vivian Lewis, editor of Global Investing. How are you doing today, Vivian?
Vivian Lewis: I’m fine, how are you Steven?
Steve Halpern: Very good, thank you so much for joining us. Today we are going to talk about one of your long-standing recommendations – Israel-based Teva Pharmaceuticals (TEVA). Could you give our listeners a brief overview of the company?
Vivian Lewis: Yes. It was founded in 1901 and it was originally a distributor of foreign drugs in Israel and then it spread out and became a marker of lots of generics and then it also started making patented drugs.
These are drugs that were not generics, that were not copycats, but brand new and it’s been a wonderful play. I’ve made a lot of money with the stock. It’s the star of my IRA.
Steve Halpern: You believe the stock is currently undervalued; in fact, you call it “cheap”. Could you expand on this and why you feel it’s not trading at a fair enough price?
Vivian Lewis: It’s trading at a price earnings forward ratio of about 12, which is cheap and it pays a decent dividend of nearly 3%, but the main reason it’s cheap is not the numbers, but a bit of history.
There was very bad patch in management between 2012 and 2014. They hired a rainmaker -- and then they fired him -- to be the CEO and this caused the company to look bad. They have subsequently engaged in a good strategy, but people don’t quite believe in it.
Steve Halpern: Now you point out Teva is focusing on its non-generic pipeline including products that are focused on the central nervous system, an area in where you see a lot of future promise. Could you explain some of the opportunities here and also talk about scientific talent behind the company?
Vivian Lewis: First of all, Teva has been in central nervous system diseases for a long time, in fact, one reason for negativism now, is that its multiple sclerosis drug, Copaxone is now off patent, as the result of which, obviously, copycat companies -- not Teva, but others -- can make generic copies of Copaxone.
Central nervous system was always part of the deal, but they have become much more so. The man who was hired alongside Dr. Jeremy Levin as CEO, was the new head of research at Teva; he is a central nervous system’s specialist from the get go.
He is the world’s living expert on Huntington disease, also known as Woody Guthrie disease and he, himself, has been pushing into various areas of central nervous system research, including all the diseases named after somebody: Huntington’s, Parkinson’s, Alzheimer’s, and also migraine, which is a big bore for many women.
And the work that’s being done is being spearheaded by Michael Hadden, who was born in South Africa, studied in Britain and the US and was a Canadian before he hopped over and became Israeli -- when he was offered the job of chief scientist at Teva. He’s spearheading this central nervous system work and research.
Steve Halpern: You have also suggested that Teva is looking towards Japan. Could you explain what this means in the broader scope of the company’s outlook?
Vivian Lewis: Well, Teva grew by taking over other companies. It started out taking over companies in Israel and then it moved to the US and western Europe, India, Latin America.
And what it did was either buy small cap companies or buy from big companies in the chemistry industry or sectors that had pharmaceutical subsidiaries that they really didn’t know what to do with.
Teva would come in and mop them up. The newest manager at Teva is a former general and a non-pharmaceutical expert, who is big on dealmaking -- so an Israeli-Donald Trump-type, if you can believe it.
He has been buying into Japanese generic and regular pharmaceutical companies in order to build-up the market there, which had been closed to foreign drug makers because of some “theory” the Japanese had bodies that are different from other people and therefore can’t take drugs that are not made specially for them, which is just pure protectionism, of course.
Japan is a big comer and they’ve now expanded that strategy to encompass nearby South Korea, which is also a closed drug market.
Steve Halpern: Japan also, I understand, demographically would be a favorable market; is that true?
Vivian Lewis: Absolutely, they’re older and sicker than anybody and we’re all getting older and sicker, but the Japanese are a couple of years ahead of the rest of the world. They face the survival of old age pensioners who need a lot of medication.
Steve Halpern: So is it fair to say that you look at this stock as a very long term play and that you would be comfortable recommended this to investors to buy and hold through whatever ups and downs might come over the next year.
Vivian Lewis: I think they are more likely to have ups than downs, to be perfectly honest, but there is a lot of worry about their loss of the multiple sclerosis patent.
And there are people who don’t like Vic Godman, because he not really part of a pharma group and there are people who are worried about the impact of US crackdowns on excessive pricing in the drug field, which actually is an argument in favor of generics rather than against it.
There are a lot of clouds over the drug business right now, but I don’t think it is going to affect Teva.
Steve Halpern: Again our guest is international expert Vivian Lewis, editor of Global Investing. It’s always fascinating talking to you. Thank you so much for your time today.
Vivian Lewis: Thank you.
By Vivian Lewis of Global Investing