Berko: Rx for animal health companies?
Friday, December 13, 2013 7:00 AM
Dear Mr. Berko:
I have arthritis pretty bad and have been taking a 200-milligram Celebrex pill daily. The pills help, but I still have very bad arthritis pain. Celebrex costs me $5.80 a pill. (I don’t have insurance.) I can afford it, but it still makes me angry because the identical pill in the same size only cost me about 70 cents when my wife and I were living and working in Mexico City. Two years ago, our 12-year-old yellow Lab, Sammi, had arthritis. The veterinarian here prescribed a once-a-day carprofen pill. A bottle of 60 75-milligram pills costs $35 (60 cents a pill), and they work very well. Sammi died last March. We didn’t toss his unused carprofen, so I decided to try it. It works better than Celebrex or any of the other things I have taken. However, the veterinarian won’t write me a prescription for it. Who makes this fantastic drug, because I would like to own the stock?
J.S., Vancouver, Wash.
First, contact your doctor and ask him whether it’d be safe for you to take two 200-milligram Celebrex pills a day instead of one. He might even prescribe Celebrex in a 400-milligram dose. Celebrex, a $1.8 billion-revenue blockbuster drug manufactured by Pfizer Inc. (PFE-$31.34), was due to come off patent May 30, 2014. It’s an enormously profitable prescriptive, the ingredients of which cost PFE less than a penny a capsule. So the big generic drug companies – such as Teva Pharmaceutical Industries, Mylan Laboratories and Lupin Pharmaceuticals and Actavis – were geared up and ready to manufacture millions of those 200-milligram babies, which would retail at CVS or Walgreens for about 40 cents each. However, PFE’s highly connected drug lobbyists encouraged a very malleable Congress to extend PFE’s patent protection by 18 months, until Dec. 2, 2015. PFE, by the way, is an excellent long-term investment.
Carprofen is a nonsteroidal anti-inflammatory drug like ibuprofen. It is manufactured by a few companies, including Cipla Ltd. (CIPLA.NS-$388.60), which is based in Mumbai, India. And 1,000 of Cipla’s 75-milligram carprofen pills wholesale for $14, or 1.4 cents each, but retail for 67 cents a pop. Cipla, founded in 1935, is an $87 billion-revenue pharmaceutical company. It had $16 billion in profits in 2012 and exports a wide range of impressive pharmaceuticals to nearly every country. Its shares, up more than 100 points in the past 12 months, trade at a bit less than 20 times earnings of $20 a share. Next year, revenues may reach $98 billion, and earnings could come in at $23 a share. Cipla’s target price is $465. And livestock and companion-animal drugs are only a small percentage of Cipla’s revenues. This company is half again as large as Pfizer and may be the largest pharmaceutical company in the world.
You might also consider Zoetis Inc. (ZTS-$31.36), a January 2013 spinoff from Pfizer, even though its share price is basically unchanged since January. ZTS is a pure play for investors seeking exposure to the animal health care market and is the largest animal health care company in the world. ZTS, with $4.4 billion in revenues, develops, manufactures and sells medicines and vaccines for livestock and companion animals. ZTS produces Rimadyl, a brand of carprofen that’s prescribed by most American veterinarians. If you talk really nicely to your family physician, he might even prescribe Rimadyl for you. The Street expects ZTS to produce $4.8 billion in 2014 revenues, with per-share earnings improving from $1.40 to $1.70 in 2014. ZTS produces a significantly larger range of animal pharmaceuticals than Cipla, including biologic preventives, oncology products, genetic tests, diagnostics, medicated feed additives and a highly regarded line of very effective nutrients. ZTS shares have lagged the market, but some observers think the stock could be a sleeper. They say ZTS is quietly exploring acquisitions to fortify its portfolio of existing products and to build a presence in new geographies. This could be a $50 stock in the next two years. However, the 26-cent dividend stinks.
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