Generics : A ChangeWave Tsunami

08/01/2003 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

"With the new rules on generic drugs that start Aug. 18, a tsunami of new drug applications will be filed with the FDA that will be approved 12-18 months faster than before," says Tobin Smith, editor of ChangeWave Investing "This makes the growth rate of generics even stronger than we had previously forecast. The industry is a sure winner." Here are two "generic" buys.

"We are adding Hi-Tech Pharmacal (HITK NASDAQ) to our aggressive growth portfolio. Hi-Tech is one of the best-positioned companies in the generic drug space. This company serves many niche markets. The company has more than 70 products and sells to more than 100 customers. It has 14 new drugs under ANDAs, with four new products out in the last six months. Their Diabetic Tussin is the largest selling OTC diabetic drug in the US and the anchor of a rapidly growing diabetic product line. They also offer a generic version of the oral form of Prozac. We see the business growing more than 50% next year after growing 68% over the last year. The stock has been weak due to momentum traders moving in and out of this stock, but it now looks like they are out, and it's time to build positions. Buy HITK under $32. My target is $50 by next year.

"We also continue to recommend Interpharm (IPA NYSE). The company has added new capacity, and I expect full year sales to be up 35%-40% overall with earnings up in the same range. First-quarter sales of $7.2 million will grow to around a $10 million run rate by the first quarter of 2004, and we may raise our forecast depending on the size of the new contracts. In addition, one of the largest generic drug manufacturers contract with IPA to manufacture FOUR generic drug lines. Now is the time to start to build positions. When the news about new drugs and new manufacturing deals are announced, it will be a $15-$16 stock. This may be your last chance to catch this ‘gem in the rough’ under our $8 buy limit."

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