Monday, October 31, 2005

Phil Frost Does it Again: Teva/Ivax Merger

One of the first stocks I ever fell in love with was Ivax.

Ivax was the ultimate turnaround play -- promising drugs in the pipeline, beneficial action on Capitol Hill (Congress had just passed a bill - S.812 - that would make it tougher for brand name drug giants to sue smaller generic companies), and heavy insider buying -- all of them came together in the Fall of '03 to create the perfect storm for the Florida-based generic drug company (IVX).

We started buying Ivax at 15$ and rode it up to $22 and change as buyout rumor drove shares higher.

Phil Frost, IVX's CEO, is probably the smartest guy in the generic drug business.

The sale of IVAX to Teva, which shareholders approved just last week, marks the second time that Frost, a dermatologist, has built up a major pharmaceutical firm.

In 1986, he sold Key Pharmaceuticals for $800 million to Schering-Plough (SGP).

In fact, we were absolutely convinced Frost was ready to sell IVX because he was buying stock at levels not seen since right before he sold Key.

Here's the note we sent to clients in August 2003:
With the stock at 17 -- down from its 2001 high of 41 -- it's takeover time. Joseph Zock of Capital Management Associates, who has owned shares since 2001, bases his investment decisions on his close reading of the CEO. At a recent stockholders meeting, Frost seemed "distant," says Zock, and seemed less involved in Ivax' daily operations, very unlike the hands-on boss he used to be. After nearly 20 years at the helm, Frost could be ready to cash in, says Zock. Harvey Eisen of Bedford Oaks Partners also likes Ivax as a takeover play. "I'm convinced that at one point, Phil will sell." He expects Ivax stock to leap to the low 20s in 2003 and fetch up to 30 in a deal...
Ivax was a veritable slam dunk.

There's plenty of money to be made in the stock market by just looking at 13Ds/SEC filings and, more importantly, catching their nuances.

Fast forward to the present day: Frost stands to make $1 billion from the Teva deal -- we think he'll start his 3rd pharma company sooner than later.

If and when he does, we'll make sure we go long that position, as well: Su casa is nuestra casa.

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