Health and Healthcare

Why the Teva Acquisition Proves It Is a Stock to Own for the Decade

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It is no secret that drug price pressure and the winds of political change have been hurting almost every large company tied to the pharmaceutical and biotech industries. Even though the trend toward generic drugs is only likely to grow, that negative price pressure hanging over the sector also hurt most generic drug makers. Now Teva Pharmaceutical Industries Ltd. (NYSE: TEVA), the largest generic drug outfit of them all, is up for consideration.

Teva has so far been unable to escape the rough patch in 2016. There now may be some light at the end of the tunnel. Teva has issued an update on its Allergan PLC (NYSE: AGN) acquisition, and it simultaneously may be gaining a huge edge against other major pharmaceutical companies, while proving why 24/7 Wall St. recently included it back on a list of 10 stocks to own for the decade.

The company recently has extended its deal with Allergan to late October (26), as opposed to July 26. Originally the deal was expected to close somewhat earlier, but some antitrust concerns had arisen, prolonging the regulatory review process. The U.S. Federal Trade Commission is currently reviewing the deal.

Overall the deal is valued at a little over $40 billion, and Teva is only looking to pick up Allergan’s Generic segment. Allergan’s total market cap totals about $96 billion, while Teva’s cap is $50 billion.

In order to deal with the antitrust concerns, Allergan is expecting to exclude both Actonel and Carafate from the deal, as well as reducing the cash that it will pay by roughly $221 million. At the same time, Teva is divesting assets as well, selling of some of its groups of drugs to third parties.

Impax Laboratories Inc. (NASDAQ: IPXL) is looking to pick up a good chunk of the portfolio for just over half a billion ($586 million). Ultimately this deal includes about 15 currently sold generics, some drugs that are still in the pipeline and the rights to generic Concerta.

24/7 Wall St. views Teva as a stock to own for a decade for a few reasons. Teva has been another laggard in the group versus the market since 2010, but what Teva has going for it on top of a branded portfolio is being the world’s most dominant player in generic drugs. A pending acquisition should help out as well, assuming Teva’s deal reaction recovers in the wake of pricing concerns.

Teva has doubled its dividend in the past five years. It is also valued at about 10 times earnings. The 2016 election rhetoric around drug prices remains a risk, but this has happened before, and generic drugs are only going to see their shares of all drug prescriptions rise through time. Saving money in drugs at a time when health care costs are rising is a must.

Shares of Teva were trading up about 4% at $54.55 on Wednesday, with a consensus analyst price target of $71.50 and a 52-week trading range of $48.01 to $72.31.

Allergan shares were up 2% at $243.90. The consensus price target is $293.06, and the 52-week range is $195.50 to $340.34.

Impax were last seen up 1.5% at $31.78, in a 52-week range of $27.62 to $51.42. The consensus price target is $34.86.

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