Health Insurance Reform To Benefit Generic Makers

This reform aims to expand affordable health insurance coverage to 46 million Americans under 65 who do not have any medical plan coverage. The Obama plan hopes to expand health care coverage while reducing the cost of health programs administered by the State by 600 billion dollars over the course of the next 10 years.

"Generic drugs should be the beneficiaries of the reform of U.S. health care system because they allow the government to achieve savings," said Scott Hirsch, an analyst at Credit Suisse. Generic drugs are the copies of original prescription drugs that are no longer under patent protection. This situation in turn fosters competition lowering prescription drug prices and thus, lowering the cost of health care.

Generic drug maker Teva Pharmaceutical (Nasdaq: TEVA) from Israel, a global leader in the industry, currently offers an interesting investment opportunity in the long term, according to Mr. Hirsch. "It has acquired its rival Barr Pharmaceuticals and can achieve significant savings through its size as its revenue sources are diversified," says Hirsch. Randall Stanicky from Goldman Sachs sees that Teva will experience strong growth through 2012.

Generic manufacturers may also benefit from the growing interest of the traditional pharmaceutical market segment. In fact Sanofi-Aventis, Johnson & Johnson and Merck have recently announced their intention to increase their activities in the generic drug market. Novartis is already well represented in this market through the acquisition of Sandoz, and through its recent bid for the multinational Austrian EBEWE.

The urgent need to diversify their sources of income should grow pharmaceutical accelerate the momentum of consolidation in the generics. We only need to wait and see how the health insurance reform will affect the generic drug maker market. The president hopes to have a health care reform by the end of the year.

Materials by Yannick Clérouin are used in this report.