Drug Overdose? Ivax is poised to get bigger in generics. But too many pills may spoil the stock.
Ivax, a generic and proprietary drug company, has been on a roll. It has won more than a dozen generic drug approvals from the Food and Drug Administration in the past 12 months -- and expects to have about 75 generic drug applications pending by the end of this year.
The Miami company, with a market capitalization of $4.7 billion, recently received tentative approval to sell gabapentin, the generic version of Pfizer's epilepsy drug Neurontin, which has U.S. annual sales of $2.2 billion. And a patent trial is about to begin, involving the company's right to sell the generic equivalent of Zyprexa, Eli Lilly's antipsychotic drug, which has U.S. sales of more than $3 billion.
Ivax is also in the running to peddle a generic version of Flonase, GlaxoSmithKline' s medication for rhinitis, which has annual sales of $875 million.
While the shares could continue to perform admirably -- many of Wall Street's bulls have a $30 price target, up from $24.45 now -- they are certainly no longer undervalued, and taking profits could easily be justified. Shares have risen 128% since we profiled the company ("Taking the Cure," July 8, 2002), and the stock now trades at 49 times expected 2003 earnings estimates of 50 cents a share and 27 times Wall Street's earnings target of 90 cents for this year. That's a vast improvement from the forward multiple of 12 that the stock sported back in July 2002.
Fans argue that if Ivax receives any big approvals, earnings could rise dramatically, and the stock would no longer look expensive. "I still don't think the stock reflects the true value of our generic and proprietary drug lines," says Ivax's president, Neil Flanzraich. "We have a long way to go."
However, the fates are often fickle when it comes to drug approvals and legal wrangling over patents. The stock's improved valuation has drawn a Neutral recommendation from Corey Davis, a U.S. specialty pharmaceutical analyst with J.P. Morgan. In a recent report, he wrote: "Although the positives seem to outweigh the negatives, the current valuation (26 times 2004 EPS) at a 13% premium to its generic peer average (23 times) seems to already reflect this."
For the bulls, that could be tough medicine to swallow.
-- Jacqueline Doherty (Barrons) |
