Mylan Inc. (MYL) has been on a roll for the last year, rising 40%. But the number three generic drug maker should get a further boost from Obamacare.
The company's recent rise is due to the "patent cliff," a host of popular drugs coming off-patent, available to companies like Mylan. Among the most important is atorvastatin, sold for years by Pfizer under the name Lipitor. It's the most potent of the statins, the only one successfully tested at high dosages. It is already taking share from simvastatin, developed under the trade name Zocor, and should remain the best-seller going forward.
Now, the margins on generics are tiny. Some estimate prices have fallen 96% below the earlier wholesale price of Lipitor due to competition. But that is the environment a company like Mylan is used to.
What matters is the size of the market, in terms of doses delivered, and a generic maker's ability to seize a big share of that market. In that, the company is bound to benefit from the rise of Accountable Care Organizations, encouraged by the Affordable Care Act.
ACOs don't do fee-for-service. They collect a set fee per-patient, and work to keep patients well in order to make a profit on that fee. They are more aggressive on wellness than traditional practices. And when they do prescribe drugs, they have a financial incentive to prescribe generics. Add to that new research indicating statins can reduce the risk of some forms of cancer, and you have a demand explosion.
Mylan does not offer a dividend, but it has built up an acquisition war chest some estimate at $4 billion. This will help Mylan grow, especially in faster-growing markets like South America and Asia. Mylan is based in the U.S., but like many of its biggest competitors has a major presence in India, having entered that market with HIV drugs this year. If it can acquire one of its major Indian competitors, its growth could go into overdrive.
Combine an American brand's reputation in generic drugs with Indian production economics and you can see some fat profits ahead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.