German Generics

11/28/2003 12:00 am EST

Focus:

Vivian Lewis

Editor and Publisher, Global Investing

"Given my bearish position on the market, I want to increase our exposure to non-cyclical stocks whose profits do not depend on economic expansion - and drug stocks are my pick," says Vivian Lewis, editor of Global Investing. Here she offers her latest recommendation, a German generic drug firm.

"Stada Artzneimittel (STDAF NASDAQ), an unsponsored ADR, is a favorite of US institutions (Fidelity owns 5%, and the stock accounts for 3.6% of the New Germany Fund). As a generics firm, Stada will gain from recent German drug benefits reforms, which require that patients pay more of medication costs. About 75% of Stada sales now are of generics, with Germany its largest market, but Italy its fastest growing one. It operates in 20 other countries including the US (which is marginal with $25 million in sales, but is fast growing.) The push into generics was a deliberate strategy move. About $5-$7 billion (Euro) in drug company patents in European will run out, from this year until 2007. That is the main reason for buying a German generics company like Stada.

"Its current major products are Omeprazol and Ranitidin (for stomach ailments), Naproxen (for pain, the fastest growing drug in its range), Amoxicillin antibiotic, and ACE inhibitor Enalapril. In addition Stada makes over-the-counter drugs: sunscreen, medication for colds and cold sores; sleeping draughts; and magnesium supplements. It is also Eli Lilly's licensee for chemotherapy drugs. Its results have been excellent, and 2003 will be another record-breaking year, to judge from the first half. This saw sales up 16% while profits rose 17%. This followed an excellent 2002 during which net more than tripled on sales up 18%. The stock is at about $52, roughly at the middle of its range in the last year. The p/e is 20."

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