Can This Pharmaceutical Company Make You Rich?

Today, Par Pharma PRX held an investor day to discuss the state of the company and how it plans on generating growth over the next few years. The company has a portfolio of branded and generic drugs in development and on the market, and forecasted that it would achieve record gross margin in the coming years. It also projected that its pipeline of drugs had a strong outlook and that R&D expenses would increase as a result of recent acquisitions. Par Pharma generates nearly 90% of its business from generic drugs, a market that has grown rapidly over the past few years as more critical drugs come off patent and consumers have looked to cut costs. The company focuses primarily on drugs in more specialized markets, allowing them to gain marketing exclusivity when drugs are approved by the FDA. The company also has signed marketing agreements with large branded drug makers like Pfizer PFE to become the official generic maker of their drugs, allowing Par to charge a slight premium on name recognition. While this strategy has allowed Par to remain efficient with their drug development program, it has also prevented it from becoming as large as some of its generic competitors like Teva Pharma TEVA or Mylan (NASDAQ). Generic drug makers often rely on large economies of scale given their razor thin profit margins and Par investors have to bank on the company producing higher margin drugs in the near term. Par Pharma said today that they would not give specific 2012 guidance, but stated that CAGR would grow at a rate of 8%. The company also said it could see share buybacks if it felt it was an appropriate use of cash. In an analyst note, Needham & Co stated, "PRX's generic division has been a strong execution story since its initial turnaround in late 2008 and major cost restructuring in early 2011. Clearly generics represent the immediate and intermediate future. Given strong pipeline dynamics, we continue to believe reward/risk remains favorable in shares." While Par Pharma does not have the same high profile as some of its competitors, it may represent a good opportunity for investors who want to avoid the risk associated with most biotech stocks. The company could see some upside, as the company announced today that it sees an uptick in new product launches in 2012-14. If the company can maintain its history of producing high margin generics, investors could be well rewarded in the long run.