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What: Shareholders of generic-drug maker Impax Laboratories (NASDAQ:IPXL) suffered through a miserable day, with their stock falling as much as 18%, following the release of disappointing third-quarter earnings results.
So what: One upside to generic drugs: There's a potentially unlimited supply of prospective drugs, thanks to limited patent periods. The downside: Every other company is looking to copy you as well! That was Impax's story this quarter as generic drug sales fell 12%, and both EPS of $0.48 and total revenue of $145.6 million widely missed Wall Street's forecast.
During the quarter, the Food and Drug Administration noted its generic antidepressant Budeprion XL 300 mg wasn't therapeutically equivalent to GlaxoSmithKline's (NYSE:GSK) Wellbutrin, coercing its marketing partner Teva to pull that dosage of the drug. Also, its best-selling generic, Adderall, which is supplied by Shire (NASDAQ:SHPG), faces new competition from Actavis, which is being acquired by Watson Pharmaceuticals (NYSE:AGN). Finally, generic TriLipix stands to face new competition from Mylan (NASDAQ:MYL) which had a generic version of the lipid-treating drug approved last week.
Now what: It's a little concerning how reliant Impax is on Adderall sales, but the upside to a generic producer like Impax is that the sea of focus drugs it could add to its portfolio is huge. Generics have relatively steady margins, and demand for them should only increase as health-care companies look for ways to reduce medical costs. At just 10 times earnings, I'd consider today's earnings miss a possible long-term opportunity in a well-run generic drug company.
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Fool contributor Sean Williams has no positions in the stocks mentioned above. The Motley Fool owns shares of GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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