Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares reached as high as $83 per share in pre-market trading Monday, or over 18% higher than the stock’s closing price on Friday, as the firm announced that it will acquire Allergan, Inc. (NYSE:AGN)’s generic drugs business. Teva Pharmaceutical, the world’s largest generic pharmaceutical company, also announced that in light of the purchase of Allergan’s generics arm, it is quitting its quest to purchase Mylan Inc. (NASDAQ:MYL).
According to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), the deal worth $40.5 billion will give patients easier access to affordable medicines. Allergan, Inc. (NYSE:AGN) says the acquisition of its generic drug business will help them focus on the higher-margin and higher-profit branded medicines business. Under the deal, Allergan will be paid $33.75 billion in cash and $6.75 billion in Teva stock.
Allergan, formerly known as Actavis before the latter acquired it earlier this year and took on the Allergan name, will also retain 50% of Teva’s future economics from the generic drug lenalidomide (Revlimid®). Allergan expects $36 billion after taxes from the deal. This means that also taking into account the firm’s free cash flow, it expects to virtually erase its $42 billion in debt once the deal is completed. Meanwhile, the withdrawal of Teva’s proposal to acquire Mylan Inc. (NASDAQ:MYL) comes after the latter fought the offer saying that Teva is not interested in reinvesting money in the company but rather in returning money to shareholders.
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The boost to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) this morning also comes after it reported preliminary results that beat Wall Street expectations for the April – June quarter. The firm said that it earned $1.43 per diluted share, up 15% year-on-year and a beat of analyst expectations of $1.31 per share. Preliminary revenues for the quarter is $4.97 billion, according to Teva, also beating Wall Street expectations of $4.91 billion. Hedge funds appear to have anticipated the successive good news for Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) as they have been bullish on the company. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) was included in 77 hedge funds’ equity portfolios at the end of March, an increase of 10 funds over the quarter. In addition, these funds held around $4.0 billion worth of stock, up by 5.4% on the quarter. However, the stock gained some 8.30% during the same period, which means that there was a slight outflow of capital.
Why are we interested in following the hedge fund sentiment? We use hedge funds’ 13F filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period from 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 135% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
With this in mind, let’s take a closer look at hedge fund activity surrounding Teva Pharmaceuticals.
