New Buy in the Healthcare Sector

Robert Hsu, January 02, 2008

The company differentiates itself by balancing its portfolio with generic and branded drugs. Branded drugs are more valuable because they have long patent lives and high and sustainable profit margins -- well over 80%. Comparatively, generic drug margins average at around 50% (but that's still very high!).

The company also makes the raw materials that go into its drugs. This allows the company to manage its supply chain and keep costs down. And it sells raw active ingredients that it makes on the open market.

Its first brand-name drug was launched in the U.S. in March 1997. Two years later, it had become the company's top seller. It has the nation's second-largest market share among multiple sclerosis drugs. In 2006, global sales of it hit $1.4 billion -- up 20% from 2005. The drug represents 17% of the company's total sales. One reason the company's earnings have grown so fast over the last few years is because of the success of the drug.

But its core business is still generic drugs. The company produces copycat drugs in all major treatment categories. It has a 21% share of world's generic drug business. Its large stake in the generic industry gives it an edge over rival generic drug makers. The company has a very diverse line of drugs that makes it a "one-stop" shopping company for pharmacies. It markets 151 generic drugs in more than 400 dosages and package sizes in the U.S. In Europe, it makes over 300 generic drugs in more than 1,700 dosage strengths and package sizes.

Additionally, the company has 43 drug applications in the U.S. awaiting regulatory approval. The brand-name versions of these products accounted for more than $38 billion sales in the U.S. The company has even more applications under regulatory review in Europe. The cheaper generic drugs from the company will post huge challenges to drug heavyweights like Pfizer, Merck and Wyeth. I expect its lineup to continue to grow as more brand-name drugs lose patent protection.

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