Written by: Aaron Katsman | May 25, 2007
By Aaron Katsman
IsraelNewsletter.com
Teva (TEVA) investors are anxiously awaiting Tuesday’s court decision regarding the patent infringement charge brought against it by Novartis (NVS). Novartis claims that its drug Lotrel has valid patent rights until 2017 and Teva’s generic version of the high blood pressure drug infringes on that patent. This past Sunday Teva received final U.S. Food and Drug Administration approval to sell a generic version of Lotrel, which has annual U.S. sales of about $1.5 billion.
But then a New Jersey court granted an emergency request made by Novartis for Teva to halt shipments of the drug. Though no one knows how much Teva was able to ship in that short period, CIBC analyst Elliot Wilbur said, “Though unclear how much inventory has been shipped, we would have to assume more than enough.”
This is no small case for TEVA. Analysts think that this drug can add between $180-$210 million to sales or about 9-12 cents a share. It appears that investors aren’t too worried. The stock traded at a 52 week high earlier this week, and while it has dropped over the last few days, the drop has been in parallel with the overall market, with no significant jump in volume. Perhaps investors are looking at history. TEVA has a long track record of winning these types of battles.
The complacency worries me a bit. A Novartis win would possibly send TEVA stock down 5%, or maybe more. I would expect a pick up in volume in TEVA stock today with markets closed on Monday for Memorial day, as investors square positions leading into the verdict. Speaking of complacency, it’s interesting that very little has been made of this issue in the Israeli financial press. With almost the whole country owning TEVA either directly, through mutual funds or their pension funds, I would have thought that this would have attracted more attention.
Disclosure: Author’s fund is currently long TEVA, though that position is subject to change at any time without notice.
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*** Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com <mailto:aaron@profile-financial.com>.
Written by: Aaron Katsman | May 24, 2007
By Aaron Katsman
IsraelNewsletter.com
I was recently reminiscing with my brother about the fun we used to have in 1999 picking stocks. I recall how he had told me that he had made such-and-such profits in a stock. I asked what did the company do, and he said, “Who cares what they do. What’s important is that they have four letters in their symbol and they trade on Nasdaq.”
A perfect case in point was Commtouch (CTCH), at that time in the email hosting business, which was a high flyer that at that time traded above $80/share, and then proceeded in the course of two years to trade well under a dollar a share. As I have mentioned numerous times, this is another example of a hyped Israeli company that flew and then, when the hype died down and investors started focusing on the business, crashed and burned. At that time I was working at a venture capital firm and I accompanied a company that we were doing due diligence on to meet with Commtouch to get their opinion of the company. The one thing I remember from that meeting was how they kept saying over and over how email is the “killer-app.” Eight years later the irony of that comment as it pertains to the “ new” Commtouch is striking. Email turned out to be the “killer-app” in more ways than one. Due to spam and viruses, email that is left unprotected can literally kill a network, and cause huge amounts of damage. And that’s where Commtouch is looking for its niche. Today, they are focused on email defense. By the year 2010, Gartner predicts that there will be 2.5 billion mailboxes. With over 180 billion messages per day, 85% of which are spam, Commtouch develops and provides proprietary anti-spam, Zero-Hour™ virus protection and Reputation Service solutions.
Commtouch appears to have found its business model. Q1 revenues increased over 63% from same period last year, and they generated operating cash flow of $953 thousand during Q1 2007.
Gideon Mantel, CEO and Chairman of the Board said, “Again, we achieved good financial results with increasing revenues and profitability. To cap it off, we generated almost one million dollars in positive operating cash flow and signed a record eleven new licensing deals during the quarter.
“The majority of our revenues is derived from our anti-spam product,” Mr. Mantel continued. “We are now just starting to see the demand and revenue growth in our Zero-Hour virus outbreak protection product line, which we launched in 2005. Most recently, we rolled out our new Reputation Service at the end of last year, and we expect to see the benefits from this product starting in several quarters. It has been quite an accomplishment to continue developing leading edge security solutions while at the same time increasing our profitability.”
It goes without saying that this is for speculative investors, but with the company turning profitable in a market that is growing quickly, the future looks bright.
Disclosure: Author’s fund is long CTCH
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | May 22, 2007
By Aaron Katsman
IsraelNewsletter.com
Yesterday’s news that Alltel (AT) was being purchased for $24 billion by a private equity consortium sent investors scrambling to try and find the next telecom company that may be in play. This news sent companies like Amdocs (DOX) soaring over 6.5% on speculation that they could be next in line. IBM and SAP were mentioned as potential suitors. One company that seems to be ripe for the picking is Comverse Technology (CMVT.pk). Comverse has been embroiled in the options backdating scandal and was sent packing by the NASDAQ. Now they find themselves trading on the pink sheets. With probable board nomination and the naming of former AT&T Wireless executive Andre Dahan as the new CEO, it seems that the company is priming itself for some kind of takeover.
On the business side, the company has been performing well. 2006 sported a 33% increase in sales over ’05 at $1.59 billion, and they were showing an order backlog of $800 million heading into ’07. With a market cap of $4.2 billion and a large stockpile of cash, currently at $2.3 billion, the company is trading at a slight premium to sales. In coming up with a potential value for the company, you also need to have a look at their subsidiaries, which include Verint Systems (VRNT.PK), a leading provider of analytic software-based solutions for communications interception, networked video security and business intelligence, and Ulticom (ULCM.PK), a leading provider of service enabling signaling software for wireline, wireless and internet communications.
Most analysts have discussed a breakup value of the company at around $28 a share. I think that they are missing a crucial point. Comverse currently owns a privately held company call Starhome, a provider of roaming services and converged solutions for Mobile Network Operators, which would have been public by now had there not been all of these scandals. And rumors have it that Starhome could go public at a market cap north of $500 million. This should add about $3 or so a share, so that should get us to over $31 as a breakup value. With the trend in private equity to pay high premiums, I think that CMVT.pk could fetch an attractive price for investors and payoff handsomely for the acquirer in a few years when all the scandals have passed and the market realizes the full value of the company.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | May 22, 2007
By Aaron Katsman
IsraelNewsletter.com
With an aging baby boomer population who have substantial disposable income, it’s no wonder that companies that deal in cosmetic procedures have performed well. It’s no secret that this generation wants to recapture their youthful appearance, and as they continue to age, they will turn more and more to medical solutions. When searching for smaller companies that show growth potential, it pays to take a look at Syneron (ELOS). This small Israeli company designs and sells medical products based on their own proprietary Electro-Optical Synergy, or ELOS technology. They promote their non-invasive procedures, like wrinkle reduction, hair removal, and skin rejuvenation.
Most interesting for long-term investors is the recent agreement signed with Proctor and Gamble (PG) to develop an ELOS-based home-use device. David Schlachet, CEO of Syneron said, “The highlight of the first quarter was the signing of the collaborative agreement with Procter & Gamble for the commercialization of Syneron’s ELOS(TM)-based, home-use devices. Progress continues on the development of the product, and we recently completed our internal second phase clinical trial, which demonstrated excellent clinical results and high satisfaction levels. We are confident that the P&G partnership will not only position Syneron as a leader in the energy-based home use market, but also will allow us to achieve deeper penetration of our broad product offering.”
As I have mentioned before, many Israeli technology companies start out hot because of the hype caused by the innovative technology they are creating, and then proceed to crash and burn. Syneron, however, has been executing its business model more carefully. And though the company was once a high flyer that crashed, the stock has re-emerged. The first quarter of ’07 showed a 36% rise in revenue over Q1 ’06. The company also re-affirmed Q2 estimates and has succeeded in the implementation of cost cutting measures by reducing investments in marketing and sales, which peaked in the fourth quarter of 2006, by approximately 7% (on a Non-GAAP basis) compared to the prior quarter. Trading with a PEG of 0.88, strong margins and with about $180 million in the bank and little debt, Syneron, looks like an attractive way to play the aging population game.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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