2 Generic Drug Stocks Ready to Surge in 2025

November 27, 2024 at 08:30 AM EST

Medicine background - stock image

Generic and biosimilar drugs are often preferred over the brand name version due to their cheaper prices. Generics are exact duplicates of the branded counterparts, while biosimilars are "similar" and often require clinical trials. Health insurance companies, Congress, and patients love generics. It’s a growth industry in the medical sector as drug patents generally expire after 20 years after they are filed. The Trump administration is expected to streamline the U.S. Food and Drug Administration (FDA), which could result in faster approvals. Here are two generic drug stocks that will continue to grow in 2025.

Teva Pharmaceuticals: The King of the Generics Mountain

With a portfolio of over 500 generic drugs, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is the world’s largest generic drug maker. Its generic drugs revenue surged 17% YoY, crushing the industry compound annual growth rate (CAGR) of 5.4%, as estimated by KPMG. Teva also develops its own branded drugs, including AUSTEDO for movement disorders, AJOVY for migraines, and UZEDY for treating schizophrenia, which are their growth engines. Teva produces a generic version of metformin, the world's most widely used drug for type-2 diabetes, as a first-line treatment to lower blood sugar levels.

Third Quarter Results Were Robust

In its third quarter of 2024 earnings report, Teva reported 66 cents per share, beating consensus estimates by 3 cents. Revenues grew 13% YoY to $4.33 billion, handily beating consensus analyst estimates of $4.14 billion. The company generated $693 million from operating activities and $922 million in free cash flow.

Teva’s Generic and Branded Drug Business Is Growing by Double-Digits

The generics business surged 30% YoY in the United States, 8% in Europe, and 13% in international markets. Its branded AUSTEDO revenues rose 28% YoY to $435 million. Teva reaffirms its 2024 revenue outlook of $1.6 billion. AJOVY revenue rose 21% YoY to $137 million. UZEDY's revenue continues to gain momentum, generating $30 million in the quarter as the company raises its 2024 revenue forecast to $80 million to $100 million. Teva submitted its generic version of Amgen Inc.’s (NASDAQ: AMGN) osteoporosis drug Prolia to the FDA and European Medicines Agency (EMA) for review.

Market Expected More Than In-Line Guidance

Teva issued in-line guidance for the full year 2024: EPS between $2.40 and $2.45 versus $2.30 to $2.50 consensus estimates. Full-year revenue is expected between $16.10 and $16.50 billion versus $16.27 billion analyst estimates. Adjusted EBITDA is expected between $4.7 billion and $5.0 billion. The company expects COPAXONE revenues of $500 million in 2024.

Teva Pharmaceuticals CEO Richard Francis commented, "I am confident that with our newly accelerated innovative pipeline, both early- and late-stage, we are well-positioned to provide meaningful access to medicines for patients who need them while also delivering continued growth for our shareholders.” He concluded, “With these strong results, we are raising our 2024 financial outlook, including revenues, Adjusted EBITDA, and Non-GAAP EPS.” Incidentally, Teva's stock fell 12% following the news.

Viatris: Merged Origins to Form a Leading Generics and Branded Pharma

Spawned from the merger of generic drug maker Mylan and Pfizer Inc.’s (NYSE: PFE) legacy business Upjohn in 2020, Viatris Inc. (NASDAQ: VTRS) is a leading generic, biosimilars and branded pharmaceuticals company with over 1,400 drugs in its portfolio. Its branded drugs include former blockbuster drugs from Pfizer that have since gone off patent, including cholesterol drug Lipitor, Viagra, antidepressant Zoloft, Lyrica, Influvac, and Norvasc for hypertension and chest pain. The company entered into an exclusive licensing agreement with Lexicon Pharmaceuticals Inc. (NASDAQ: LXRX) for INPEFA (sotagliflozin) in October 2024 to expand its cardiovascular diseases portfolio.

Falling Revenue Offset by Debt Reduction and New Revenue Growth

Viatris reported Q3 2024 EPS of 75 cents, beating analyst estimates by 7 cents. Revenues dropped 4.8% YoY to $3.75 billion, handily beating consensus estimates for $3.72 billion. Its portfolio of legacy blockbuster drugs continues to decline in revenue as expected, but its new drugs are growing in Emerging Markets, Europe, and China. Generics saw divestiture-adjusted growth of 4% versus 2% YoY growth in Branded drugs.

Viatris has been paying down its debt from $17 billion at the start of 2024 to a projected $14 billion by the end of the year. The company plans to return 50% of the free cash flow to shareholders and apply 50% for stock buyback upon achieving a 2.8x to 3.2x EBITDA range.

The company will be releasing EFFEXOR for anxiety and INPEFA for heart failure, which are highly anticipated growth drivers. The new products revenue forecast was raised from $500 million to $600 million by year's end. Shares surged 13% the following day after its earnings release.

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