May 24, 2017
By Mark Terry, BioSpace.com Breaking News Staff
May 15 was the day that money managers handling more than $100 million in assets filed 13F forms with the U.S. Securities and Exchange Commission (SEC). This is generally of interest to investors, because it gives some insight into what the billionaire investors are doing, even if there is about a 45-day lag period. Sean Williams, writing for The Motley Fool, analyzes three biopharma stocks that big investors seem to be unloading.
1. Teva Pharmaceutical Industries
Based in Petah Tikva, Israel, Teva Pharmaceutical Industries develops branded drugs and is the world’s largest manufacturer of generic drugs. According to WhaleWisdom, money managers unloaded approximately 34 million shares of Teva. David Tepper’s Appaloosa sold off 2.88 million shares, accounting for 56 percent of its stake. Paul & Co. ditched 4.93 million shares, or 30 percent of its holdings.
Williams writes, “Teva has four main issues that have weakened its share price recently. First, it’s lugging around more than $34 billion in debt following its acquisition of generic-drug maker Actavis, and investors are clearly worried its debt is too burdensome. Secondly, it recently settled bribery charges in three countries, which has reduced trust in management. Third, Teva has seen turmoil at the top with its CEO and CFO leaving. And finally, there’s worry about generic competition for lead branded drug Copaxone, an injectable multiple sclerosis treatment.”
However, Williams feels that Teva has several ways of handling the debt organically and is still a good investment.
Teva is currently trading for $28.26.
Headquartered in Dublin, Ireland, Allergan recently sold its Actavis generics brand to Teva. That seemed like a popular thing initially for investors, but then they started unloading the stock. Tepper’s Appaloosa got rid of 1.32 million shares, close to half its stake, Paulson & Co. unloaded 613,000, but still owns 2.94 million, Seth Klarman’s Baupost Group ditched 1 million shares, and Carl Icahn sold all 425,000 shares he owned.
Williams writes, “Why no love for Allergan? One of the bigger issues (as it is with all three of these drugmakers) is the company’s debt. Allergan’s debt situation has improved since selling Actavis, but it’s still carrying around almost $32 billion in debt, or $22.8 billion in net debt. There are concerns that this debt constrains Allergan’s ability to be financially flexible.”
A few other concerns, apparently, include the GOP’s talk of a border-adjustment tax, which would affect the Ireland-based company’s U.S. revenues and profits, and concerns over the Teva-Actavis deal. Allergan sold Actavis for $33 billion in cash and 100 million shares of Teva stock. Teva stock is worth less now, which caused a $2 billion writedown on the value of its stake in Teva.
Allergan is currently trading for $222.57.
The often controversial Valeant Pharmaceuticals is based in Laval, Quebec. Even though Joe Papa is trying to turn the company around and restore its reputation, it’s turning out to be an uphill battle. Aggregate ownership, according to WhaleWisdom, dropped by 12 percent, or 24 million shares. Bill Ackman’s Pershing Square Capital Management unloaded all 18.1 million shares, and James Simons’ Renaissance Technologies, has also sold all 2.91 million shares it held.
Williams notes three major issues. First, its former chief executive admitted to making “mistakes” in drug pricing, which is a euphemism for price gouging. Secondly, Williams writes, “its core operations have struggled under an unfavorable drug distribution deal and poor PR.” And finally, it has $28.5 billion in debt.
Unlike with the first two, Williams is inclined to think getting out from under Valeant is a good call. “Despite reducing its debt by $3.5 billion over the past year,” he writes, “Valeant’s actually in worse shape than it was when it had $32 billion in debt. The reason? Valeant has had to restructure its debt on multiple occasions over the past year, and each time it does so it accepts fees and higher interest rates. During the first quarter, Valeant paid $471 million in interest expenses, but saw its EBITDA fall to only $861 million. That’s an EBITDA-to-interest coverage ratio of just 1.83-to-1. If this ratio continues to fall, it could eventually trigger a debt covenant default from the company’s secured lenders.”
Valeant is currently trading for $12.94.
