Mylan: Top Bet on Biosimilars

07/24/2014 8:00 am EST

Focus: STOCKS

Andy Crowder

Editor, Wyatt Investment Research

There is no doubt that generic drug makers will thrive in the upcoming cost-driven environment of US healthcare reform. But one area of generics will thrive more than any other, suggests Andy Crowder in Daily Profit.

Biosimilars are the generic equivalent of brand-name biologics. Biologics are brand-name products created by biologic processes, rather than being chemically synthesized.

Biologics are used heavily in the treatment for various cancers, rheumatoid arthritis, and adverse cardiovascular conditions.

According to research group Datamonitor, the global market for biosimilars should grow from $243 million in 2011 to an astounding $3.7 billion in 2015—a growth rate of 1,422% in just four years.

One of the catalysts of such staggering growth in the biosimilar arena will be the inevitable "patent cliff" facing some of the largest name brand biologics. With biologic patents running out, biosimilars are likely to sweep in and grab market share.

What’s more, there is a dearth of replacement biosimilars in the development pipeline. And with generic biosimilars eating away an average of 75% of profits from brand-name biologic counterparts, you can quickly see the adverse effect the "patent cliff" will have on the brand-name biologic industry.
 
Meanwhile, brand-name biologics are some of the most expensive drugs in the world and finding ways to keep costs low will be a priority.
 
So, how can we profit from this inevitable upcoming biotech boom, and, more specifically, in biosimilars?  My favorite company in the biosimilar space is Mylan (MYL).

The company should outperform its peers due to cost controls under healthcare, as well as the firm’s EpiPen allergy treatment and huge strides in the biosimilar space.

Mylan is, by far, the purest play in the industry, with more than 80% of sales coming from the manufacture and sale of generics.

Mylan has established aggressive growth targets over the next six years and has achieved early milestones. The balance sheet has improved dramatically over the past several years.

Furthermore, successful investors such as Paulson & Co. are significant shareholders. This could indeed be a huge opportunity for investors over the next few years.

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