Focus on Health Care Savings: 5 Generic Drug Stocks to Buy

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With controversy surrounding the high price of several branded drugs, the time is ripe to take a look at generic drug manufacturers. Generic drugs are significantly cheaper versions of branded drugs.

The importance of generic drug manufacturers can't be undermined considering that generic drugs lead to enormous health care savings. According to a Generic Pharmaceutical Association (GPhA) report, the U.S. health care system saved approximately $254 billion in 2014 and $1.68 trillion in the last 10 years from the use of generics.

Apart from the much talked about "price gouging" tweet, Democratic Presidential candidate Hillary Clinton has laid out a plan to lower health care spending, which includes reducing the market exclusivity for biologics from 12 years to 7 years and funding the FDA's Office of Generic Drugs to clear their multi-year generic drug approval backlog.

Meanwhile, a large number of branded pharmaceuticals have gone off-patent and many more are set to lose patent exclusivity in the next few years. This is going to be a big boost for generic drug makers. Last month, Teva Pharmaceutical Industries Ltd. TEVA exclusively launched the generic equivalent to GlaxoSmithKline's GSK Avodart, while Mylan MYL launched the generic version of Spectrum Pharmaceuticals, Inc.'s SPPI Fusilev, among others. These drugs are expected to rake in multi-million dollar revenues.

Meanwhile, September saw the first U.S. launch of a biosimilar with Novartis' NVS generic arm, Sandoz, bringing its biosimilar version of Amgen's AMGN Neupogen to market. Several other companies are looking to introduce biosimilars in the U.S as well.

There is a lot of consolidation going on in the generic industry as well. Earlier this year, Teva entered into an agreement to buy Allergan's AGN global generic pharmaceuticals business for a total of $40.5 billion.

Heated debates about pricing in the pharmaceutical industry and better-than-expected earnings from several companies like Mylan and Teva have brought the spotlight on generic drugs. The sector offers some good investment opportunities. In this context, we have identified five favorably placed stocks carrying a Zacks Rank #1 (Strong Buy) or #2 (Buy).

5 Generic Drug Picks

Our first pick is not surprisingly Mylan , which specializes in the development, manufacture, marketing, and distribution of generic, branded, and branded generic pharmaceutical products, as well as active pharmaceutical ingredients (APIs). The company reported impressive third-quarter results on Oct 30, driven by strong sales of the Generics segment. The company posted a positive earnings surprise of 3.62% in the third quarter. The stock carries a Zacks Rank #2.

Second on our list is Teva , which markets both branded and generic drugs including tablets, capsules, ointments, creams, liquids, injectables, and inhalants as well as APIs. Teva not only reported impressive third-quarter results with a positive earnings surprise of 4.65%, but also raised its outlook for 2015. The company carries a Zacks Rank #2.

Next on the line is Impax Laboratories Inc.IPXL , a specialty pharmaceutical company with a presence in the generic as well as branded product markets. This Hayward, CA-based company has received several FDA approvals in the last few months including a nod for its generic versions of Intuniv and Mestinon. The company carries a Zacks Rank #2.

Investors should also watch out for Teligent, Inc.TLGT , a specialty generic pharmaceutical company, formerly known as IGI Laboratories, Inc. Teligent has posted encouraging third-quarter results with a positive earnings surprise of 50% and carries a Zacks Rank #2.

Pernix Therapeutics Holdings, Inc.PTX with a Zacks Rank #2 is another company to keep an eye on. Operating out of Morristown, NJ, Pernix markets its generic portfolio through its wholly owned subsidiaries, Macoven Pharmaceuticals, LLC and Cypress Pharmaceuticals, Inc.

The Bottom Line

The five generic drug companies listed above offer strong potential going forward. You can consider these while doing your own research to see which stock(s) could be the best fit for your portfolio.

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ALLERGAN PLC (AGN): Free Stock Analysis Report

AMGEN INC (AMGN): Free Stock Analysis Report

IMPAX LABORATRS (IPXL): Free Stock Analysis Report

PERNIX THERAPTC (PTX): Free Stock Analysis Report

NOVARTIS AG-ADR (NVS): Free Stock Analysis Report

TEVA PHARM ADR (TEVA): Free Stock Analysis Report

SPECTRUM PHARMA (SPPI): Free Stock Analysis Report

GLAXOSMITHKLINE (GSK): Free Stock Analysis Report

MYLAN NV (MYL): Free Stock Analysis Report

TELIGENT INC (TLGT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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