Analysts Tout Generic Drugs as Growth Stocks

By Wiggins, Phillip H. | THE JOURNAL RECORD, June 27, 1989 | Go to article overview

Analysts Tout Generic Drugs as Growth Stocks


Wiggins, Phillip H., THE JOURNAL RECORD


Many generic drug stocks have captured the attention of analysts who believe the group is significantly undervalued despite its buoyant earnings prospects.

Analysts point out that generics, which are copies of brand-name drugs and sell at significant discounts, are experiencing a 15 to 20 percent average growth rate in earnings while the overall economy is expected to expand by only 2 to 3 percent this year. Because of the rapid earnings momentum of generics, many experts believe they should be viewed as growth stocks and command high market multiples.

The group also has been helped by growing customer acceptance of generic drugs, by patent expirations and by efforts to control health-care costs.

A.L. Laboratories of Fort Lee, N.J., is one of the higher-quality, undervalued producers of generics, said Jerry Treppel, a pharmaceuticals analyst for Swergold, Chefitz Inc.

With a commanding 40 percent market share of the liquid generic drug market, A.L. Labs, through its Barre-National Inc. subsidiary, is the nation's largest manufacturer in this sector.

Analysts note that this is the fastest-growing generic area, helped by the increasing use of liquid medications by the elderly.

According to some analysts, A.L. Laboratories' other businesses, including animal health and international pharmaceuticals operations, provide a level of stability and predictability to earnings that many generic drug companies lack.

Treppel ranks the stock as ``accumulate.'' He estimates that A.L. Labs will earn about $1.05 a share in 1989, up almost 20 percent from 87 cents in 1988.

The stock closed unchanged Tuesday, at $16.375, on the New York Stock Exchange.

The Bolar Pharmaceuticals Co. in Copiague, N.Y., has strong niche positions in the tablet and capsule market, enabling it to avoid much of the pricing competition characteristic of the generic drug group.

Bolar's generic form of Dyazide, an anti-hypertension drug produced by SmithKline Beckman, is considered crucial to Bolar's earnings growth in 1989.

Stuart Levine, who follows Bolar for Gruntal & Co., has raised his 1989 per-share earnings estimate for the drug maker to the $1.70 to $1.75 range. The company earned $1.51 a share in 1988.

Levine said that one reason he is looking more favorably on Bolar is because it ``is on the road to establishing its own proprietary products. …

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