With Brighter Outlook, Generics Could Be Ripe for Investment

Of the top 10 generic drugmakers in 2021, only one scored an increase in share price during the past year. It was Sun Pharmaceutical Industries Ltd. (NSE:SUNPHARMA, Financial), which shot up 27%. The Mumbai, India-based company earned the number four spot on Fierce Pharma’s list with sales of $4.64 billion, up 3% from 2020.

Even though it saw sales jump 9%, London’s Hikma Pharmaceuticals PLC’s (HKMPF, Financial) took the biggest hit to its stock price of 45%, a decline due in part to investor concerns about the resignation of the company’s CEO.

Generic sales have been stuck in neutral for the past several years, whipsawed by increased competition, the inability to raise prices and approval delays caused by the pandemic. But things are looking up.

The reasons for optimism include patents expiring on many blockbuster medications, government focus on cutting drug prices and the rise of chronic diseases. Automation is also helping reduce regulatory and production expenses. In fact, the industry is forecasted by German marketing and consumer data research firm Statista to break out, reaching nearly $100 billion by 2026. This rosy outlook could entice investors to get into generic stocks at what appear to be bargain basement prices.

Could we even see a revival in shares in the top-selling generics company, Teva Pharmaceutical Industries Ltd. (TEVA, Financial)? From nearly $60 a share about seven years ago, the Israel-based company has plunged to about $7.

The odds of a Teva turnaround still look sketchy. The company’s generic sales have declined for five straight years, with steep drops in the U.S. and Canada. This comes on top of pricing pressures and legal programs, among others. On the plus side, Teva’s brand-name drugs have driven growth. Looking at the total picture, I would steer clear of this stock until its path forward crystallizes. I am also skeptical because several former employees have told me the company is mismanaged.

Sun Pharma had the fourth-highest generic sales in 2021 at $4.64 billion, up 3% from the previous year. The Indian company took a blow when it had to shell out $485 million to settle a lawsuit involving the 2014 acquisition of Ranbaxy Laboratories. What helps make Sun stand out among generics is its geographic coverage; it provides medicines to more than 100 countries worldwide. Sun is ranked number two in the U.S. dermatology market by prescriptions as well.

Following is a list of the top 10 generic companies by 2021 sales:

Source: Fierce Pharma