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Published: January 4, 2010
As the debate surrounding health care
reform begins to wind down, it's clear that big changes are
coming. And while it's easy to note the companies that are
fearful of the proposals, it's far more advantageous for
investors to figure out who is chomping at the bit.
Partisan rancor aside, we all have a common enemy in spiraling
costs. So it stands to reason that companies capable of trimming
fat from the system will have powerful allies on both sides of
the aisle.
That makes the health care IT sector a safe bet, although stocks
in this niche are becoming pricey.
Instead, I predict that an entirely new industry in the
healthcare sector will be born 2010 -- one that will
revolutionize the way we treat illnesses. It will save lives
(not to mention millions of dollars), and line the pockets of
shareholders.
My prediction is this: 2010 will finally be the year when
biogeneric drugs break through.
Generic prescriptions now account for almost 70% of all pills
taken nationwide. These inexpensive alternatives have saved more
than $730 billion during the past decade. But pharmaceutical
firms like Pfizer (NYSE: PFE) still rake in piles of cash
while their products are under patent protection, a fair reward
for their efforts and ample incentive to spur future innovation.
I think we can strike a similar balance in the biotech world.
Biogenerics (or biosimilars) are already cutting healthcare
costs in Europe, and bipartisan legislation pushing for a formal
FDA approval "pathway" has been introduced in both the House and
Senate.
The potential for consumers (and Medicare) to shave one-third
off the $40 billion we spend on biotechs each year will prove
irresistible. Replicating drugs based in living cells is a
tricky business, but companies like Teva Pharmaceuticals (Nasdaq:
TEVA) are up to the challenge -- and a regulatory green
light could send this stock and several others soaring.
The average daily cost of a biotech drug is 22 times greater
than a traditional drug -- some are considerably higher.
Generics could shave those expenses by up to one-third and
generate $100 billion in cost savings during the next decade.
That's a much more politically expedient reform than tax hikes,
and thus the path of least resistance. Opposition has melted to
the point where even biotech hardliners are now fighting for
lesser concessions.
In other words, the debate is over. Biogenerics are coming --
it's just a matter of the fine print.
This comes at a time when biotech's share of the overall
pharmaceutical industry is in the process of doubling from 15%
to 30%. Just two years ago, biotech drugs accounted for roughly
$40 billion in annual sales. At the current trajectory, sales
could top out at $100 billion within the next three years.
All it will take is one stroke of the pen and biogenerics could
quickly carve out a large slice of this booming market.
At times, there can be as many as 10 different companies
fighting to sell the same generic drug, making economies of
scale critical to maintaining low production costs and
undercutting the competition. In other words, this is an
industry where size matters -- and Teva towers over its
competition.
During the past decade, the Israeli company has literally become
synonymous with generic drugs. At less than 12 times forward
earnings, the shares trade at an attractive discount to the
firm's projected growth rate. And when biogenerics hit the
market, Teva could benefit handsomely.
Good Investing!
-- Nathan Slaughter
Editor
StreetAuthority Market Advisor
The ETF Authority
Half-Priced Stocks
P.S. -- The biogeneric breakthrough is just one of my 11
investment predictions for the coming year. For my complete list
of forecasts -- including a takeover play that could earn you
+1,300% in 2010 --
please click here. |
