Sell Teva Pharmaceutical (TEVA)

When a “buy” no longer enjoys the strengths that made it a buy, you should sell it.

I think that’s now the case with Teva Pharmaceutical Industries (TEVA). I’m selling it out of my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ portfolio today.

The company’s recent earnings stumble—fourth quarter 2010 earnings came in 6.3% below fourth quarter 2009 earnings—and the continued uncertainty about when Teva’s Copaxone will see generic competition are certainty significant worries about the stock.

But what really bothers me—what goes to the heart of why I bought Teva in the first place—are the manufacturing problems the company has had with its Irvine, California, and Jerusalem plants. Teva voluntarily shut down the Irvine plant after receiving a warning letter from the U.S. Food and Drug Administration. The company is planning on reopening the plant in March.

Investors hoping that this was a one-time problem involving an older plant were disappointed when the FDA opened an inquiry into the company’s new Jerusalem plant in October. That concern turned to worry when the FDA decided that the company’s response wasn’t sufficient and issued a warning letter. The Jerusalem plant makes generic versions of Ambien among other drugs.

One plant with problems is a mistake. Two plants with problems raise questions about management and company standards.

The two incidents are particularly troubling to me because one of the reasons to own Teva instead of other generic drug makers is the company’s reputation for high manufacturing standards. The ability to routinely manufacture generics to a high standard of quality looks likely to get even more important—and more valuable—under the FDA’s new rules for generic versions of biotech drugs, what are called biosimilars.  If Teva’s reputation for quality has been compromised, there’s less reason to own the stock.

Right now that’s an open question. But one that carries a substantial element of risk with it. And my calculations don’t give me enough potential upside to offset this risk. Read more

Update Teva Pharmaceuticals (TEVA)

All it took on December 9 to pop shares of Teva Pharmaceutical Industries (TEVA) was good news on the Phase III study on oral laquinimod for multiple sclerosis. The two-year study found that patients experienced a statistically significant reduction in relapse rate and a significant reduction in the progression of the disease. Additional results of the study will be released by Teva and its partner Active Biotech (ATVBF).

Shares of Teva finished December 9 up 6.8%. Shares of Active Biotech were up almost 80% on the day.

Laquinimod received Fast Track designation from the U.S. Food and Drug Administration in February 2009. A second Phase III trial is still in progress with results anticipated in the third quarter of 2011. The companies expect to submit the drug to regulators in the United States and the Europe Union shortly after that. Teva, the world’s largest maker of generic drugs, submitted a patent application for laquinimod after the test results were released.

Needless to say the successful development of laquinimod would be a huge boost for Teva’s ambitions to become a developer of new drugs as well as the leading generic drug company. Read more

Buy Abbott Laboratories (ABT)

At current prices I think you’re getting two of Abbott Laboratories (ABT) most interesting growth opportunities at a deep discount.

Abbott is a good mainstream pharmaceutical company. Abbott’s blockbuster drugs include Humira (for rheumatoid and psoriatic arthritis: $5.5 billion in 2009 sales), Kaletra (for HIV/AIDS: $1.4 billion in 2009 sales), the TriCor/Triplex combination (for cholesterol and cardiovascular disease: $1.3 billion in 2009 sales) and Lupron (for prostate cancer: $800 million in 2009 sales) The patent on Humira doesn’t expire until 2016. Pharmaceuticals accounted for 53% of operating revenue in 2008.

Abbott’s vascular products unit—9% of operating revenue—is on a new product roll with the release of its new Xience drug-coated stent. Launched in 2008, Xience is the market’s leading drug-coated stent in the U.S. market for coronary and carotid stent.

My guess, though, is that most investors aren’t as familiar with Abbott’s nutritional and emerging market/generic businesses. And I don’t think the current stock price fully reflects the growth prospects in those areas of the company.

Nutritionals made up about 17% of Abbott’s sales in 2009. Products include infant formula (Similac and Isomil are the brands) and adult nutritionals (Ensure and Prosure.) This business segment grew revenue by 7.3% from 2008 to 2009 and I think growth could actually accelerate. Rising income levels are driving sales of infant and adult nutritionals in emerging markets and Abbott has been increasing its penetration, especially in China, South East Asia, and Latin American through moves like the 2009 acquisition of the nutritional business of India’s Wickhardt Ltd.

The other unrecognized part of Abbott’s business is epitomized by its acquisition of Solvay Pharmaceuticals Read more

Update Teva Pharmaceutical Industries (TEVA)

It’s great earnings for the second quarter (announced on July 27) versus long-term worries for Teva Pharmaceutical Industries (TEVA) right now. With an assist from sell on the good news, long-term worries are winning at the moment.

For the second quarter earnings climbed to $1.08 a share. That was an increase of 30% from the 83 cents a share in the second quarter of 2009. The Wall Street consensus had projected earnings of $1.04. 

In its conference call the company raised its guidance for the year to $4.50 to $4.60 a share, up from the prior forecast of $4.40 to $4.60.

Oddly enough for the world’s largest maker of generic drugs, the long-term worries focus on a proprietary Teva drug, Copaxone. Read more

Update Teva Pharmaceutical Industries (TEVA)

Shares of Teva Pharmaceutical Industries (TEVA) plunged almost 8.6% on Friday on news that a competitor Momenta Pharma (MNTA) had beaten Teva and would be the first company to get U.S. Food and Drug Administration approval for a generic version of Sanofi Aventis’ (SNY) Lovenox, a drug used to combat blood clots to prevent deep vein thrombosis. Lovenox sales came to $2.billion in 2009.

This bad news follows pretty closely on the heels of other bad news. Read more