(Bloomberg) -- Generic drug companies have taken a beating in the past year and a half, so when the group saw a 12 percent rally over seven days, investors could be forgiven for calling a turn around.
The market may think the tide has turned as the Trump administration promises to bring down drug prices and to continue to increase generic approvals. The Food and Drug Administration approved more than 1,000 generic drugs last year -- a record-setting pace -- while the government’s plan to bring down drug prices for consumers was described by Guggenheim’s Rohit Vanjani as “generally favorable for generics.”
Plans include targeting strategies often used to delay generic products reaching the market and encouraging the development of lower-cost “biosimilars.” Proposals to allow more substitution in Medicare’s prescription drug benefit program, however, may be negative for generic drug-makers, according to Vanjani.
RBC’s Randall Stanicky remained cautious following the President’s remarks Friday, saying he saw the sector moving "through a period of ‘stabilization”’ rather than entering a cyclical upturn. “Complex generics are important growth drivers but we fear expectations are in many cases overstated and that is a risk,” he wrote in a note Monday.
Analysts also note that more competition in generics may result in lower prices. Companies such as Endo International Plc. and Teva Pharmaceutical Industries Ltd. remain deeply in debt, and the increasing scrutiny around raising drug prices leaves them with few levers to face challenges to bottom lines. Competition from India is also “wild card,” Stanicky said.
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