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Drug Deal Offers Big Bennies to This Biz

Warner Chilcott has jumped 47% since announcing it would buy Procter & Gamble’s drug division, and for a mere $3.1 billion at that. There’s still “a ton of upside” to be had, though, Cramer said. So late-to-game investors haven’t missed the move.

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How does he know? Because Chattem , maker of the Icy Hot, Gold Bond and Selsun Blue products, followed a “strikingly similar” track to Warner Chilcott , Cramer said, “and I wouldn’t be surprised if the stock mirrors Chattem’s performance.”

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Chattem virtually stole five brands from Johnson & Johnson at the behest of antitrust regulators when J&J was buying Pfizer’s consumer health-care business. A month later Chattem shares were up 30%, they reached 50% higher after three months, and now, after three years, the stock is up 91%. The S&P 500 is down 21% over that latter time period.

Cramer likes the fundamentals of the Warner Chilcott-Procter & Gamble deal, too, though. Procter’s selling because it’s in the middle of a restructuring, leaving the company no choice but to sell off its pharmaceuticals business. As a result, Warner gets a stable of impressive drugs and a strong pipeline, which are expected to add $1.55 a share to the company’s 2010 earnings. That alone is almost double 2009’s $1.66 a-share expectation.

Warner Chilcott trades at just 11.6 times 2011 earnings, which is cheap considering the company’s earnings are expected to grow 22% from 2010 to 2011. And that’s without including the benefits of the Procter deal. When that happens, Warner “will immediately become the fastest-growing drug company I follow,” Cramer said, “which means people will pay up big for its earnings.”

Cramer recommended getting in WCRX before the agreement with Procter closes on Nov. 1. Eight of the nine analysts covering the stock already rate it a buy, and he assumes that others will pile in soon enough.

“The more attention Warner Chilcott gets from the Street,” Cramer said, “the higher it should go.”

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