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Walgreen Company (WAG), Rite Aid Corporation (RAD): Make No Mistake, the Best Days Are Yet to Come in This Space

Like I said, new generics are reshaping the outlook of this space, thus the “patent cliff” among big pharma is a blessing for pharmacies. In the last couple years we’ve seen Lipitor, Lexapro, Seroquel, and Plavix, among many more, lose patents and be offered in generic form.

According to Evaluate Pharma, between the years 2011 and 2016, drugs that generate $133 billion in U.S. sales alone will face generic competition. Here are a few of those drugs that will soon face generic competition (along with some that just recently made the move to generic).

Drug Annual Sales Generic Year
Oxycontin $2.8 billion 2013
Suboxone $1.5 billion 2013
Zometa $1.5 billion 2013
Asacol $900 million 2013
Nexium $4.9 billion 2014
Cymbalta $4 billion 2014
Celebrex $2.5 billion 2014
Symbicort $3.1 billion 2014
Evista $1.3 billion 2014
Sandostatin $1.3 billion 2014
Actonel $1.6 billion 2014
Abilify $4.6 billion 2015
Copaxone $3.6 billion 2015
Gleevec $4.3 billion 2015
Crestor $6 billion 2016
Benicar $2.5 billion 2016

Just to be clear, the above list is just a sampling, showing the number of blockbuster drugs that will be generics in the next three years. The improved margins that we’re seeing among pharmacies is mostly due to generic introductions from 2011 and 2012. In reality, 2013 has been a slow year, but in 2014 pharmacies are likely to have an incredible year with so many new generic introductions.

The point of my generic chart is to show you that any temporary weakness in pharmacies should be used as an opportunity, as the best days are yet to come. If you listen to a conference call or read an earnings transcript from any of the big three pharmacies, then you will quickly notice that every single company credits their margin improvements to new generic drugs, further proving that the next few years could be especially rewarding for investors.

Final Thoughts

With Rite Aid Corporation (NYSE:RAD) and Walgreen trading at just 0.10 and 0.64 times sales, respectively, I think this space has a lot of room to run higher. Currently, Walgreen is trading at just 12 times next year’s earnings and Rite Aid is trading at 11.5 times the last 12 month’s earnings.

Thus, these are cheap stocks, and with new generics, the future may be brighter than ever. So, the moral of the story is to not be spooked by temporary weakness in either stock — it simply provides a better entry point, with the most lucrative days yet to come.

The article Make No Mistake, the Best Days Are Yet to Come in This Space originally appeared on is written by Brian Nichols.

Brian Nichols is long RAD. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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