In the battle against generic rivals, it seems pharmaceutical companies would rather switch than fight. A pair of deals yesterday heralded Big Pharma's latest moves into the generic-drug world.
And who can blame them? The generic-drug industry has done O.K. for itself in the past, and its future looks pretty bright:
Company |
Last 5 Years' Annual EPS Growth |
Next 5 Years' Estimated Annual EPS Growth |
---|---|---|
Teva Pharmaceuticals |
19% |
15% |
Mylan |
3.4% |
19% |
Watson Pharmaceuticals |
4.3% |
9.7% |
Perrigo |
20% |
14% |
Source: Yahoo! Finance.
Going all in
The biggest pharmaceutical player in the generic world is Novartis
Yesterday, Novartis added to its generic arsenal with the acquisition of EBEWE Pharma's specialty generic injectables business, for about $1.2 billion. The acquisition adds a nice array of injectable cancer drugs -- a growing opportunity, since some $9 billion in annual sales are expected to lose patent protection by 2015.
EBEWE Pharma had operating income of about $77 million last year, so the acquisition of the injectables business doesn't look particularly cheap. But Novartis should be able to use its size to expand margins, and the new drugs -- along with new developments -- should help grow earnings from here.
sanofi-aventis
Dabbling
Some pharmaceutical companies have just started to get their toes wet with generic drugs.
Pfizer
The company now has 128 non-Pfizer drugs to market, but it'll have to add a heck of a lot more to make any meaningful contribution to the $47 billion in annual revenue.
GlaxoSmithKline
Go big or go home
Pharmaceutical investors interested in grabbing some of the generic-drug growth should avoid looking for an all-in-one package. In my opinion, it's better to buy the best of each world, rather than buying a pharmaceutical company just because it's moving into generic drugs.
Like Costco
The exception to avoiding an all-in-one drugmaker is Global Gains selection Novartis. It's large and growing generic-drug division is big enough to compete with Teva and Mylan.
Generic drugs are here to stay and pharmaceutical companies aren't going away anytime soon. Take one of each. They're cheap.