In a sector where big is almost always better and companies swallow rivals that are twice their size, one small generic-drug maker has done quite well over the last year.
With revenues of just $117 million in its last fiscal year, Caraco Pharmaceutical Laboratories
In 2002, Caraco set up a partnership with Indian drugmaker Sun Pharmaceutical to trade formulas for making drugs in exchange for stock compensation. Sun now owns 66% of the company, and that number is expected to go up to 78% as the technology transfer continues. While insider investing is usually a good sign, there's always the possibility that Caraco might enter into a future deal that's more beneficial to Sun than it is to Caraco. I think it's probably a minor risk, since Sun's investment is a way for it to push into the U.S. market without having to deal with the FDA directly, but it's something for investors to watch out for.
Caraco currently sells 35 different products and is expanding its product line as well. Last month, Caraco announced that it received tentative approval from the FDA to market Cephalon's
Caraco has been assigned a five-star rating by the Motley Fool CAPS players, with outperforms leading underperforms 26-to-2. Even with the recent run-up in price, its price-to-earnings ratio is still well under 20, and with the potential for substantial growth in revenues as it expands its product line, I can see why they like it. As long as Caraco can keep its margins up, it should be able to compete with its big brothers and continue the growth in the bottom line it's seen over the last year.