So how significant is the news of Actavis Inc (NYSE:ACT) receiving generic approval for suboxone, for both it and Reckitt Benckiser Group Plc (LON:RB)? The answer is that it is an absolute game changer! Actavis earned $4.4 billion for its global generic business last year, which was a 32% gain over the previous year. Now, the company is adding a $1.4 billion per year drug that is not even close to tapping its peak sales potential. Therefore, Actavis, with a cheaper drug, will capture most of suboxone’s current sales, plus more.
For the sake of argument, even if Actavis only captured 70% of suboxone’s current sales, it would still be an additional $1 billion on top of Actavis’ current $4.4 billion business, therefore representing a near 25% gain in revenue, minimum, and this does not account for growth within the current business model, which is also expected to grow 30% alone. When it’s all said and done, this one segment could see an additional $2 billion in sales. This is a stock with significant upside potential.
In regards to Reckitt Benckiser, with just one product that makes up 20% of its profit and 15% of its revenue, this is a stock that could be highly affected by generic competition. Suboxone is its money maker, as almost all of its gains have occurred post-suboxone era, therefore it carries a lot weight on the stock. As a result, with the stock trading at 3.0 times sales and with a P/E ratio of 18.66, it is fairly valued. Therefore, expect the stock to lose great value once the market realizes the impact of this new generic competition.
The news of Actavis Inc (NYSE:ACT) receiving rights to suboxone in generic form is huge for the company, yet it has flown under the radar. In the last month Actavis has gained 5.6%, but the return has come as a result of the company receiving generic approval for the $521 million per year Exelon Patch, not the $1.4 billion per year suboxone.
In fact, there’s been hardly any news regarding this catalyst, therefore it is not priced into the stock. Lastly, I must reiterate and take notice of the peak sales potential for a drug such as suboxone that is priced attractively. Currently, with less than 150,000 patients treated annually, and more than 2.6 million people who abuse prescription meds (mostly opiates), there is a massive market for a cheaper suboxone, and Actavis is going to capitalize.
This is a stock that you want to buy now!
The article One of the Best Under-the-Radar Investment Catalysts of the Next Year originally appeared on Fool.com and is written by Brian Nichols.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.