WENDY TREVISANI
CO-PORTFOLIO MANAGER
THORNBURG INTERNATIONAL VALUE FUND

COMPANY: Teva Pharmaceutical Industries
TICKER: TEVA (Nasdaq)
PRICE: $40.92 (as of 4 p.m. yesterday)
52-WEEK RANGE: $29.50-$45.91
MARKET CAPITALIZATION: $25.4 billion

Wendy Trevisani is a co-portfolio manager at the Thornburg International Value Fund (TGVAX), with net assets under management of more than $3 billion. Teva is one of the largest pharmaceutical companies in the world. Ms. Trevisani spoke to David Dalley of The New York Sun about why she believes the company’s stock could increase by 40% over the next 12 to 18 months.

What does Teva do?

Teva is primarily involved in three key areas. Firstly, generic drugs, which is what they’re known for and which is where they get the bulk of their revenues from. The second is what’s called active pharmaceutical ingredients, APIs, which they both use for their own products and sell to the competition. And the final area is branded pharmaceuticals, the primary drug there being Copaxone, which is used to treat multiple sclerosis. The most compelling part is the generics business. Teva is the global leader in generics, and it has about 150 products in its pipeline.

Why you like the stock?

There are a few different reasons both company specific, and industry-oriented. They benefit from being the largest in the industry due to economies of scale and vertical integration. For example by having the API business, they’re able to better control costs because they can utilize their own ingredients in their end products.

The other part of the story is the generic drug market generally, which is in a very good spot right now with many new drugs coming off patent. It’s the antithesis, really, of what we’re hearing in relation to the branded drug market. And demographically, the population is aging, so demand for generic drugs is increasing very significantly.

How do you expect the generic drug industry to perform going forward?

Over the next five to 10 years, multiple blockbuster drugs are set to come off patent, including Lipitor, which is about a $12 billion drug. That represents a huge opportunity for the generic space. Over $140 billion in branded sales will be coming off patent in the next 10 years, and 30% of those will come off patent in the next two to three years.

What is Teva’s share of that?

The 150 products Teva has in its pipeline represent more than $90 billion roughly in branded sales. That doesn’t translate into genetic value, but of these Teva is ‘first to file’ for about 30 [which allows them 180 days of exclusivity on the generic sales]. It’s a big benefit for them. Their margins for that six-month period will be significantly higher. Teva is so big that it can work on multiple products years before they come off patent, so that they can be the first to file as soon as the opportunity arises.

What do you think the stock is worth?

In terms of valuation, I think that Teva over the next three years should grow its earnings 15% to 20% per annum. I believe that it could trade at a multiple somewhere in the mid-20s, in line with historical averages. That gives the stock a 40% upside from where it’s currently at on 2007 earnings.