Just as generic medications offer low-cost alternatives to branded drugs, stocks of generics manufacturers can provide more bang for the buck than those of pharmaceutical giants.
That’s because the generics market, worth $27 billion in 2001, is expected to surge to $57 billion within five years as patents on a raft of blockbuster drugs expire and pressure grows to contain drug costs.
“Generics have a strong run ahead of them,” said Todd Libor, a pharmaceutical analyst at Morningstar, who expects companies in the sector to see annual revenue growth of 10 to 15 percent over the next few years.
That’s pretty good, considering generics firms spend much less on research and development than big pharma and have comparable profit margins.
Andrx Corp. alone would see a $1 billion windfall in a six-month period if it wins a patent dispute against AstraZeneca to manufacture a generic form of Prilosec, noted Neal Hansen, a senior pharmaceuticals analyst for Datamonitor based in London.
“The potentials for Andrx are huge,” said Hansen, who figures patents on 42 blockbuster drugs with combined sales of $82 billion will expire by 2007.
But he cautioned that revenue pops for generics firms are short-lived because they typically may sell their product exclusively for just six months after a successful patent challenge.
But challenging patents, as Barr Laboratories did to win the right to market a generic form of Eli Lily’s Prozac last year, could get easier. Congress is considering bills to expedite introduction of cheaper forms of prescription meds.
For the year ending June 30, Barr’s revenue was $1.2 billion, more than twice the year-ago period. And operating profit rocketed more than 430 percent to $294 million.
Analysts favor Barr, even though sales of its generic Prozac have dwindled since the end of its six-month exclusivity period. The company is also profiting from an aggressive push into generic contraceptives.