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Why Buffett Just Increased His Position In This Beaten Down Biotech Stock

Why Buffett Just Increased His Position In This Beaten Down Biotech Stock

Buffett’s Berkshire Hathaway increased its stake in the stock by over 3 million shares signaling that investors might want to consider this drug maker.

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Shares of Teva Pharmaceuticals (NYSE: TEVA) climbed early this week on the news that Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A, BRK.B) had increased its position in March in the pharmaceutical giant to 43.2 million shares up from 40.5 million shares.

Berkshire disclosed its increased stake in TEVA in a Form 13-F filing with the SEC after the market close on Tuesday. Its shares of the drug maker were worth $1.05 billion as of June 30.

TEVA took a sharp dive a year ago on the news that the FDA had approved its rival Mylan’s (NASDAQ: MYL) generic version of copoxone which was a big portion of TEVA’s business at the time. That news was followed by a negative earnings report and analyst downgrades which further pushed the stock down.

In December, the company unveiled a restructuring plan that included lowering its total cost base by $3 billion by the end of 2019 from its estimated base of $16.1 billion in 2017 by cutting 14,000 jobs globally over the next two years.

So far, TEVA’s new president and CEO, Kare Schultz, reports that the restructuring plan is “on schedule,” noting that the company had “already achieved a significant cost base reduction towards our target for the year, and we continue to reduce our debt.”

In its August 2 earnings report, the company posted net debt at $28.4 billion, down by roughly $1 billion from the prior quarter.

While revenue fell 18% year-over-year to $4.7 billion, that result was in line with analysts’ expectations. Q2 non-GAAP diluted earnings per share came in at $0.78 compared to analysts’ estimates of $0.65 per share.

But the good news for TEVA came Thursday when the FDA approved its generic version of Mylan’s EpiPen, an emergency autoinjector treatment for allergic reactions.

The approval comes two years after TEVA first submitted it for approval and was rejected, and is a blow to Mylan as it faces a mounting list of issues with the branded drug.

Mylan has faced controversies with the drug as it has been called out for monthslong shortage problems, dramatic price hikes, and has been hit with several class-action lawsuits and accusations that it has been overcharging the U.S. government for EpiPens by $1.27 billion.

For TEVA, the FDA approval clears the path for the market-dominating product’s first real generic rival and sent the stock soaring by over 7% in intraday trading.

“Today’s approval of the first generic version of the most-widely prescribed epinephrine auto-injector in the U.S. is part of our longstanding commitment to advance access to lower cost, save and effective generic alternatives once patents and other exclusivities no longer prevent approval,” FDA Commissioner Scott Gottlieb said Thursday.

The FDA approved both the adult- and child-appropriate dosage levels of TEVA’s generic epinephrine autoinjector. The company has not yet said how much the product will cost, nor when it will become available, but it represents a big win and opportunity for the company.

Mylan reportedly was raking in $1 billion per year in EpiPen sales with little direct competition as Mylan’s products accounted for 75% of U.S. prescriptions for epinephrine autoinjectors. Mylan does offer an “authorized generic” version of the EpiPen for $320 for a two pack—compared to $630 for a two pack of the brand-name EpiPen—which is aimed at undercutting any generic competitor.

However, with its supply issues and other controversies, patients may well jump ship to TEVA’s generic when it becomes available should the price of its generic beat Mylan’s. If TEVA is able to take market share from Mylan in this $1 billion drug market, it could send TEVA’s stock soaring.

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