Many generic drug makers began the year with a strong start after a dismal performance in 2019. The recent market plunge from the COVID-19 pandemic caused many pharmaceutical stocks to lose decent portions of their market values. Despite a broad market recovery, some of these stocks are still selling at bargain prices and could potentially be lucrative over the long term.
There are three small-cap and mid-cap generic drug stocks that are about to soar in 2020 and beyond. Each stock has a unique catalyst that will drive its stock higher through a variety of scenarios including a potential drug approval, formation of a new company, and market exclusivity in a large health space.
Let's take a look.
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1. Endo International
Irish generics maker Endo International (ENDP 16.67%) seems like an attractive stock at its current price. It's nowhere near its highs from the beginning of the year and is down nearly 4% year to date. It boasts a P/E ratio of 1.51, which is significantly undervalued to the sector average of 22.23 and shares look poised to run higher.
This company easily outperformed revenue and earnings estimates in its first-quarter report. Endo International's first-quarter revenue increased 14% year over year to $820 million. The recent quarter saw sales growth of nearly 7.3% from higher patient demand and increased customer purchasing due to COVID-19. Although this quarter was better than the past three quarters in sales growth, this trend may be temporary and investors have their sights on something bigger.
There has been plenty of investor sentiment for this stock, with over 83.73% of its shares owned by institutional holders including some notable ones such as Blackrock and Vanguard Group. What's driving this bullishness is an upcoming catalyst that could propel the stock even higher in the coming months.
Endo is awaiting a decision from the Food and Drug Administration (FDA) for its collagenase clostridium histolyticum (CCH) for the treatment of patients with cellulite and a PDUFA date is set for July 6. While other cellulite-targeting therapies exist, this would be the first FDA-approved injectable treatment. An approval would drive the stock higher and the company anticipates a product launch in the first quarter of 2021, which makes this a great long-term pick for investors.
2. Mylan
Mylan (MYL) is another solid stock that is poised to move higher. It's down almost 8% year to date and still fairly undervalued to the sector with a P/E ratio of 3.92. That means there's plenty of room for the stock to run higher.
Despite the challenges caused by the pandemic, the company's first-quarter results didn't appear negatively impacted as it reported total revenue of $2.62 billion, up 5% year over year (or 8% on a constant currency basis, an exchange rate to eliminate fluctuations for financial performance). However, a more detailed look shows that quarterly sales growth was down 18% compared to the previous three quarters. North American and European markets saw an increase in demand and patient prescriptions from COVID-19 which offset the decrease in sales volume in the "rest of the world" business from foreign currency translation and countries where the pandemic began early in the first quarter. Management expects that the current operations will be able to meet the anticipated demand going forward. Investors remain optimistic about the company's outlook and excited about some upcoming developments.
Investor sentiment remains high and many are still quite bullish on this stock. In fact, 548 institutions hold 87.5% of the total outstanding shares, including Vanguard Group, Wellington Management Group, Blackrock and State Street. One reason is the pending merger with Pfizer's Upjohn business that will form a new company called Viatris. This merger will create new opportunities for Mylan's growth and potentially drive shares higher.
Investors should note that management expects total revenue for 2020 to be in the range of $11.5 billion to $12.5 billion and accounts for the COVID-19 impacts in the second quarter. The company has outlined a plan for restructuring program that will improve operating performance and allow the company to reach its targets for the year.
Some other areas of growth may come from its recent regulatory decisions. Mylan and its partner Lupin Pharmaceuticals recently announced that European Commission approved its marketing authorization for Nepexto, a biosimilar to Enbrel for treatment of rheumatoid arthritis, other forms of arthritis, and plaque psoriasis for pediatric and adult patients. This will create new sources of revenue and potentially drive the stock higher in the long run.
Investors should grab shares at the current prices as the stock is still undervalued and its nowhere near its 52-week high of $23.11, suggesting there's plenty of room to run.
3. TherapeuticsMD
Women's healthcare company TherapeuticsMD (TXMD -1.06%) is an attractive under-the-radar bargain for investors. Its stock is down nearly 42% year to date and is considered cheap at its current price. The stock boasts a price-to-sales ratio of 5.17, which is undervalued to the sector average of 6.25, suggesting that this stock can run higher.
The company reported mixed first-quarter results, but beat analyst estimates for revenue despite the impact from COVID-19. It generated net product revenue of $12.3 million in the first quarter from its three health products for women, Annovera, Imvexxy, and Bijuva, as well as sales from prenatal vitamins.
The company's lead product, Annovera, will be key for revenue growth and driving the stock higher. Annovera is a contraceptive that differentiates from intrauterine devices (IUDs), implants, and other combination hormonal treatments because it provides patients long-lasting protection (up to one year) that is patient-controlled and procedure free. It's the company's first orange-book-listed patent, a publication by the FDA that's the gold standard reference for generic drug alternatives, which provides extended exclusivity through 2039. Moreover, the company has FDA regulatory exclusivity via the Hatch-Waxman Act on a specific compound called segesterone acetate, providing it protection until 2023. The company also has additional patent applications pending to strengthen its exclusivity position.
That said, Annovera is positioned for growth, as contraception is the largest health category at $5 billion. There are 18 million women on prescription birth control annually and TherapeuticsMD has a salesforce ready to accelerate awareness and create growth.
The stock is nowhere near its 52-week high of $4.32, and there's plenty of room for it to run higher. Its largest institutional holders include T. Rowe Price, J.P. Morgan Chase, Blackrock, and Vanguard and 51 investors increased their positions in the most recent quarter. This suggests bullish sentiment ahead. The current prices are extremely attractive, and investors should grab shares at this level while they last.
