Generic-drug sales were up 4.5% in July in the U.S., a rare spot of good news for manufacturers, whose stocks have been battered by litigation this year.
In a note out Friday, Raymond James analyst Elliot Wilbur argues that the trend in generic-drug sales is returning to growth, and that stocks in the sector are being undervalued.
“Equity prices have fixated on everything but changing fundamental dynamics[,] with liability related concerns triggering another significant downward move in prices over the past several months,” Wilbur wrote. “Concerns are valid but risk is overpriced in our view. Forward valuations are at levels seen on just four occasions in the past 15 years, and growth dynamics continue to support a more positive setup for generic drug stocks over the next 12-18 months.”
The point may be tough to swallow. Litigation over opioid drugs, in which many of the generic drugmakers are involved, has dominated headlines in recent weeks. But improving sales could provide succor to value investors confident that the drugmakers can weather the opioid storm.
Generic-Drug Sales Rose in July: Rare Good News for Manufacturers - Barron's The back story. Shares of generic drugmakers are struggling this year. Teva Pharmaceutical Industries (ticker: TEVA) is down 54.8% since the start of the year, while Mallinckrodt (MNK) is down 80.5%, and Endo International (ENDP) is down 66.3%. What’s new. Generic drug prices declined for the month, and sales volume dropped as well, but an increase in generic-drug approvals brought year-over-year sales growth of 4.5%, according to data cited by Wilbur.
“It only took a near 30% decline in overall industry sales to get to this point but the sputtering growth recovery in U.S. generics is getting some legs,” Wilbur wrote. “Overall U.S. generic industry sales increased 4.5% in July, second best reading since March 2019 when sales increased 4.7% marking the first positive top line comparison in nearly three years.” Looking ahead. Over the next few months, as action around the opioid litigation increases, it will be hard for health care investors to focus on the positive in the generic-drug sector. The first trial in the vast federal opioid proceeding is scheduled for October, and while Endo and Allergan (AGN) have both reached narrow settlements to stay out of the courtroom, other generic drugmakers remain.
The back story. Shares of generic drugmakers are struggling this year. Teva Pharmaceutical Industries (ticker: TEVA) is down 54.8% since the start of the year, while Mallinckrodt (MNK) is down 80.5%, and Endo International (ENDP) is down 66.3%. What’s new. Generic drug prices declined for the month, and sales volume dropped as well, but an increase in generic-drug approvals brought year-over-year sales growth of 4.5%, according to data cited by Wilbur.
Generic-Drug Sales Rose in July: Rare Good News for Manufacturers - Barron's
“It only took a near 30% decline in overall industry sales to get to this point but the sputtering growth recovery in U.S. generics is getting some legs,” Wilbur wrote. “Overall U.S. generic industry sales increased 4.5% in July, second best reading since March 2019 when sales increased 4.7% marking the first positive top line comparison in nearly three years.” Looking ahead. Over the next few months, as action around the opioid litigation increases, it will be hard for health care investors to focus on the positive in the generic-drug sector. The first trial in the vast federal opioid proceeding is scheduled for October, and while Endo and Allergan (AGN) have both reached narrow settlements to stay out of the courtroom, other generic drugmakers remain. Write to Josh Nathan-Kazis at [email protected]
MYX Price at posting:
44.5¢ Sentiment: Hold Disclosure: Held
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