After Copaxone, Is Teva's Future Bleak?

By Motley Fool Staff Markets Fool.com

Teva Pharmaceutical (NYSE: TEVA) has its hands full. Its peers are challenging patents protecting its best-selling drug, Copaxone, and that puts billions of dollars at risk. However, Teva Pharmaceutical's shares may already be pricing in a lot of that bad news, and there could be some bright spots that long-term investors shouldn't ignore.

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In this clip from The Motley Fool's Industry Focus: Healthcarepodcast, analyst Kristine Harjes is joined by Todd Campbell to offer insight into this generic drug powerhouse.

A full transcript follows the video.

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Kristine Harjes: Let's take a minute to consider Teva as a whole. Copaxone is a very important part of this company, but it's not the entire company. Where's your head at regarding Teva as an investment as a whole?

Todd Campbell: I think it's too risky to jump in right now until we get a little bit more clarity on when those generics might launch. I have short-term glasses on when I say that. If I put my long-term glasses on, then I guess I would change my mind a little bit and say, "Let's see how this shakes out, see how much the stock sells down." If we assume that not all of the sales will flow to the generics, and they will maintain some sales, and maybe there's a headwind of $1-2 billion, that's a lot smaller of a headwind than it was maybe a few years ago, before they also had acquired Actavis' generic unit. You're still talking about a big chunk of revenue, and a big part of their operating profit, and that creates a big short-term risk. But they do have a lot of opportunities to roll out biosimilars, which we talked about on the show before, which are basically, we'll call them generic alternatives to some of the top selling biologic drugs that are available today for conditions like cancer, etc. They also have some intriguing stuff going on in their research pipeline, in asthma and pain management and migraines. Those could be top sellers too. I think you need to stay on the sidelines here, watch and see how this plays out, see where the stock sells out. If you can buy this thing for bargain prices, if these generics launch, maybe I would step up at that point, for a long-term portfolio.

Harjes: Right. I'll also point out -- I think you made some great points, and I'll add to it by saying if the company is trading at just 6.5 times this year's earnings estimates, and it pays out a 4% dividend yield, which isn't growing a ton, but it only has 28% of its free cash flow in the past four quarters to pay it. So, it seems like that's pretty safe. If you already hold Teva, I would say you probably want to just keep on holding on to it.

Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy.