Investor panacea?

Generic drug sector holding its own.

In sharp contrast to the branded pharmaceutical market, which has stalled in this difficult economy, the generic drug market is enjoying financial success.

The generics market remains a major growth area in the global healthcare market. That growth has been partly driven by cost containment in several national healthcare sectors, with governments seeking to promote the use of generic products over higher-priced originator products. Demographic trends also support this industry, with an aging population requiring more medication.

The generic pharmaceuticals sector has been expanding strongly in recent years as the need for cheaper medicines worldwide has increased. The next five years will see more leading drugs going off patent, thus increasing opportunities for generics producers.

These upcoming patent expirations present downside risk for branded pharmaceutical companies, and upside potential for generic companies. Regulations by insurance companies favouring generic products also give cause for optimism in the generics sector, while still leaving scope for novel branded drugs.

Irrespective of the economy, consumers will continue to encounter illnesses and the need for medication will increase. Therefore, overall, the generic market is structurally set to experience high growth. While the number of new branded, mega-drug products ready for marketing is relatively small, the outlook for generic-drug producers is more positive.

Industry in an uptrend

We have identified the generic- drug industry group as being in an Uptrend, and SmarTrend has identified Uptrends in the stocks of several companies in this sector.

Hi-Tech Pharmacal Co. Inc. (HITK) is a specialty pharmaceutical company that develops, manufactures and markets generic prescription, over-the-counter and nutritional products in liquid and semi-solid dosage forms.

The company offers a range of products for various diseases to chain drug stores, drug wholesalers, managed care purchasing organizations, U.S. Federal government agencies, generic distributors, mass merchandisers and mail-order pharmacies. SmarTrend shows shares of HITK in an Uptrend and issued the alert on September 1, 2011 at $28.49. In late September, HITK was trading at $33.11, representing an increase of 16.2%.

Perrigo Company (PRGO), through its subsidiaries, develops, manufactures and distributes over-the-counter and generic prescription pharmaceuticals, infant formulas, nutritional products and active pharmaceutical ingredients worldwide.

PRGO sells its products through chain drug stores, wholesalers, distributors, hospital systems and group purchasing organizations, as well as retail drug, supermarket and mass merchandise chains. PRGO is in an Uptrend called by SmarTrend on August 11, 2011 at $86.82. With a price of $96.72 in late September 2011, this stock increased 11.4% since SmarTrend’s Uptrend Alert was issued.

Watson Pharmaceuticals, Inc. (WPI), a specialty pharmaceutical company, develops, manufactures, markets, sells and distributes generic and brand pharmaceutical products focused on urology and women’s health in the United States, Canada, Western Europe, Australasia, South America and South Africa. During late September, WPI stock was trading at $69.40 and SmarTrend issued an alert on its Uptrend on August 15, 2011 at $64.71, an increase of 7.1%.

During these volatile market times, it’s great to see some stocks holding their own and appreciating in value. Even when you see an Uptrend on a particular stock, it’s important to research your investments thoroughly.

Remember also—especially now—to expect the unexpected and stay on top of your stock selections. Use a trusted trading system so you base your buy and sell decisions on reliable data, rather than on emotions.

Chip Brian is founder and CEO, SmarTrend® www.mysmartrend.com