A Wachovia analyst upgraded the generic drug sector on Monday, and raised his ratings on Teva Pharmaceutical Industries Ltd. and Watson Pharmaceuticals Inc. because they are trading at discounts to their peers.
Michael Tong said blockbuster drugs with $103 billion in sales will lose patent protection in the next three years, allowing the sale of lower-cost generic drugs, and pharmacists will continue to substitute generics for their more expensive branded equivalents. He estimated that about $70 billion of those sales will come from the U.S.
He lifted his rating on the sector to "Overweight" from "Market Weight."
Tong said substitutions of generic drugs for branded ones should keep rising. He said the substitution rate is around 65 percent in the U.S. and should rise to 70 percent -- but there is much more room for growth in international markets.
The analyst upgraded shares of Israel-based Teva and Corona, Calif.-based Watson to "Outperform" from "Market Perform," saying both stocks are trading at discounts of greater than 20 percent. He maintained a "Market Perform" rating on Mylan Inc.
Regardless of who wins the November Presidential election, Tong said the federal government will probably move to encourage greater generic use in order to keep drug costs down. He added that Congress may create legislation that creates a way for generic versions of biotech drugs to reach the market.
Michael Tong said blockbuster drugs with $103 billion in sales will lose patent protection in the next three years, allowing the sale of lower-cost generic drugs, and pharmacists will continue to substitute generics for their more expensive branded equivalents. He estimated that about $70 billion of those sales will come from the U.S.
He lifted his rating on the sector to "Overweight" from "Market Weight."
Tong said substitutions of generic drugs for branded ones should keep rising. He said the substitution rate is around 65 percent in the U.S. and should rise to 70 percent -- but there is much more room for growth in international markets.
The analyst upgraded shares of Israel-based Teva and Corona, Calif.-based Watson to "Outperform" from "Market Perform," saying both stocks are trading at discounts of greater than 20 percent. He maintained a "Market Perform" rating on Mylan Inc.
Regardless of who wins the November Presidential election, Tong said the federal government will probably move to encourage greater generic use in order to keep drug costs down. He added that Congress may create legislation that creates a way for generic versions of biotech drugs to reach the market.
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