Why Hi-Tech Pharmacal Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of generic drug maker Hi-Tech Pharmacal (Nasdaq: HITK  ) exploded higher by as much as 16%, after reporting better-than-expected second-quarter results.

So what: For the quarter, the company noted a 1% improvement in year-over-year revenue, to $57.5 million, as EPS declined 35%, to just $0.66, from $1.04 in the year earlier. Sales of its best-selling drug, Fluticonase Propionate, a generic version of GlaxoSmithKline's (NYSE: GSK  ) allergic rhinitis treatment Flonase, fell 6.5%, to $21.5 million, and Hi-Tech Pharmacal was hurt by supply disruptions due to Superstorm Sandy. On the plus side, its ECR Pharmaceuticals segment witnessed a 59% boost in sales, primarily due to higher sales of Bupap and Tussicaps.

Now what: As expected, increased competition from an Indian peer further reduced sales of the drug that led Hi-Tech to its greatest success – Fluticonase Propionate. I'm relatively certain that, as a generic drug maker, Hi-Tech Pharmacal will find other drugs in its pipeline to step up and fill the growth void, but it's going to be multiple quarters before this happens. Even though Hi-Tech sailed by EPS expectations by $0.13 this quarter, the simple fact that sales growth will likely be flat next year is enough reason to take a step back and avoid this company altogether.

Craving more input? Start by adding Hi-Tech Pharmacal to your free and personalized Watchlist, so you can keep up on the latest news with the company.


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  • Report this Comment On December 07, 2012, at 8:56 AM, lsr18 wrote:

    I think you are being a little to harsh on hitk. Yes, even though it beat estimates it is down based on year to year comparisons. And yes, its biggest product has competition. But there is still room for growth on its biggest product, even with competition. And its margins were up, showing that its present products are producing.

    It will be a few quarters before real fda approvals come into play (based upon hitk's management's comments). But it has a new product to be introduced in the next 6 months (hitk says about 5, but its been delayed twice). And its present lines are expanding with some efficiency. Even if it takes a year to get real fda approvals and new products, to hang around with a 15 pe ratio for the present with growth (in your opinion) in a year isn't bad. Mylan, Watson, and Teva have higher pe ratios at this time.

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