Wendy Boyd
5
All posts from Wendy Boyd
Wendy Boyd in Historical Parallels,

Forget the Elections - 2016 is the Year of the Generic Drug

The consensus view is that the generic wave is nearing an end, but Goldman Sachs thinks otherwise.

"We refreshed our generic launch calendar and think the upcoming bolus of new generics may be underappreciated by investors given the consensus view that the generic wave is nearing an end," analysts including Robert Jones wrote in a note.

Jones continued, "In 2016, we estimate that $26bn worth of traditional, non-specialty brand drugs could face generic competition, the highest since the peak of $32bn in 2012. We think these launches should provide much-needed support to ‘core' growth at a time when recent upside drivers have slowed."

"Our in-depth analysis of the launch schedule suggests that new generics could add 200-400 bps to EBIT growth in FY16-FY17 on average for the wholesalers, reinforcing our view that the 5-8% ‘core' growth needed to get to our estimates is very achievable," the analyst elaborated.

Further, the analyst noted "2016 generic calendar is marked by eight blockbuster ($1bn+) drugs going generic, including Crestor (high cholesterol), Gleevec (oncology), and Zetia (high cholesterol) as the three largest per IMS."

"Additionally, we estimate $21.6bn (82%) worth will launch with exclusivity, typically a more profitable period for the wholesalers. During exclusivity, the generic manufacturer will often provide incentives to the wholesalers to push the generic and grow market share," Jones said.

According to the analyst, "the calendar picks up starting in 2Q16 with the launch of generic Crestor ($6.3bn in brand sales per IMS) and we think it could start to become a bigger focus for investors in 2H16."

In addition, he noted 2017 could be a "quiet year for new launches" due to the adoption of biosimilars.

"We've identified just $7bn of brand drugs expected to go generic in 2017, a notable drop vs. 2016. We note 2016's launches are 2H-weighted, providing some follow-through into 2017. However, as generic launches fade, we see the pace of biosimilar adoption as the next profit opportunity," the analyst added.

Meanwhile, the brokerage continues to recommend Cardinal Health Inc  and McKesson Corporation  "as offering the most upside." Both are Buy-rated stocks, with price targets of $105 and $188, respectively.

Read more: benzinga.com