Teva Pharmaceuticals reported dismal figures for the first quarter of 2013 with a 4% decline in net revenue, 6% in operating income and 27% in net income. However, much of it is explainable as the company made a $330 million one-time adjustment and suffered due to weakness of the Japanese and some Latin American currencies. However, Teva is a good investment opportunity as its growth story is intact. Despite having lost patent on its blockbuster sleep disorder drug, Provigil (modafinil), the company was able to maintain revenue of its specialty business.
Talking of competitors, Actavis’ other competitor, Mylan Inc. (NASDAQ:MYL), reported first quarter 2013 profit of $107 million on $1.63 billion revenue. Mylan operates at a 20% margin with a net profit margin at 9%. The company trades at 21.21 P/E with forward P/E ratio for December 2013 at 9.83, with all the implications of a long term healthy stock.
What the Warner Chilcott deal means for Actavis
The generic drug business is traditionally a low profit business with price being the only consideration. Actavis needed the deal very badly to boost its specialty branded medicines segment as it was under performing since long.
The acquisition marks the intrusion of Actavis into Teva’s gastroenterology and dermatology domain and strengthens its existing product line in women’s healthcare and urology. The company reported revenue of $5.91 billion for the year ended December 31, 2012. The combined entity after the merger will have total revenue of $11 billion.
Besides, the acquisition also gives Actavis the ability to explore opportunities in new product lines and allows it to expand its Anda Distribution segment that services independent pharmacies, physician’s offices, alternate care providers and large pharmacy chains in emerging markets.
In addition, since Warner Chilcott is an Irish company, it provides Actavis a $4 per share tax benefit. Besides bringing the tax rate down from 28% to 23%, the coming together of the two companies can potentially bring down the operating expenses of the new entity by $120 million.
Conclusion
Cost saving, and increased profitability potentially place the company in a better position to compete with larger drug makers. With improved cash flows, the company may even look at more acquisitions, overseas and/or domestic. From a long term investment point of view, Actavis is a good stock to have in your portfolio.
My only concern is that the stock has gone up by more than 80% in last one year and more than 40% since January this year. I would wait for some time and buy only when the price comes down to what Mylan offered: $120 a share.
The article Is Actavis a Buy at This Price? originally appeared on Fool.com.
Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Kanak is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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