Teva: Babe Ruth on Steroids

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The 2006 season is shaping up to be a great year for this grizzled veteran. Last week, Teva announced a 77-percent surge in second-quarter sales to $2.2 billion. Fully diluted earnings per share soared 83 percent to 66 cents. That jump blew the doors off analysts’ original estimates of 46 cents by a whopping 50 percent.

Even more impressive than Teva’s earnings surprise was the expansion of its margins, which rose to 55.4 percent from 47.4 percent. Teva’s secret weapon? The largest launch of a generic drug in the history of the industry.

While the June 23rd patent expiration on Zocor — a $4.4 billion drug — was a major blow to Merck, it’s been a boon to the generic manufacturer. Teva had secured the rights to produce simvastatin — a generic version of Zocor — with only limited competition for a period of 180 days. Such rights are granted to the first company to file for approval of a generic version of a branded drug. Teva was well-prepared to milk this exclusivity for everything it was worth, with several 18-wheelers loaded up, ready to ship simvastatin the minute Merck’s patent expired.

Just a few days after the Zocor patent expired, Pfizer’s patent ran out on the antidepressant Zoloft — a $3.3 billion drug in 2005. Teva has exclusive rights for 180 days to make the generic form of this blockbuster — called sertraline — as well. And Teva has been already producing pravastatin since April, when the generic version of the cholesterol-cutting drug Pravachol from Bristol-Myers Squibb Bristol’s patent ran out. The combination of big sales in high-margin generics guarantee that this year will be one that Teva fans will remember.

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Indeed, the benefits of exclusivity on three former blockbusters will make Teva’s 2006 sales and earnings a hard act to follow. But Teva is not a company to rest on its laurels. It has 148 more applications for generic drugs filed with the Food and Drug Administration and has first-to-file status with 46 of those applications. That represents $84 billion in U.S. sales, and potential exclusivity for $35 billion in U.S. brand-name sales. The old slugger may have many more years like 2006 left in him.

So buy Teva (TEVA) at market today, and place your stop at $29.50. For even more upside, I recommend the January $35 call options (TVQAG.X)

PORTFOLIO UPDATE

Six of our seven Global Bull Market positions are showing a profit. With Northern European Oil (NRT) showing a profit of over 8.5%, move your stop to $41.50 to lock in your profits.

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