Generic drugmakers continue to face mounting pressure not only from pricing competition but also from Trump’s push for pharmaceutical import tariffs and the proposed “most-favored-nation” pricing model. While these policies aim to reshore drug manufacturing and align U.S. drug prices with global benchmarks, they risk disrupting both revenues and profitability across the industry.

Branded drugmakers, essentially big pharma, are better positioned to withstand these pressures due to market exclusivity and stronger pricing power. Generic drugmakers, on the other hand, are more vulnerable to cost inflation and pricing restrictions as they operate on tighter margins.

In this regard, we highlight three generic drugmakers — Sandoz (SDZNY Quick QuoteSDZNY - Free Report) , Teva Pharmaceuticals (TEVA Quick QuoteTEVA - Free Report) and Viatris (VTRS Quick QuoteVTRS - Free Report) — which are well-positioned to navigate these headwinds due to their global scale, diversified portfolios and strategic emphasis on complex generics and branded generics. These firms are also undertaking cost optimization policies to improve margins and increase the efficiency of available resources.

Industry Description

The Medical - Generic Drugs industry comprises companies that develop and market chemically/biologically identical versions of a brand-name drug once patents expire, providing exclusivity to branded drugs. These drugs can be divided into generic and biosimilar categories based on their composition. The generic segment is controlled by a few large drugmakers and generic units of large pharma companies. Several smaller companies also develop generic versions of branded drugs, significantly cheaper than the original ones. Competition in this segment is stiff, resulting in thin margins for manufacturing companies. A few companies in this industry have some branded drugs in their portfolio, helping them tap a higher-margin market.

3 Trends Shaping the Future of the Generic Drugs Industry

Loss of Patent Exclusivity of Branded Drugs: Generic drugmakers mainly rely on the loss of patent exclusivity of branded drugs. They file with the FDA to market versions of drugs that have lost patent protection. A company may launch an authorized generic version of a branded product, gaining exclusivity over other generic versions of the same drug for several months. This is advantageous to generic players, especially in the case of complex generics, which require significant R&D investments and expertise compared to traditional generics. These generic drugmakers even face litigation to market the generic version of the branded drugs.

Key generic launches this year include that of Stelara biosimilars by generic drugmakers like Amgen and Teva. Several biosimilar versions of blockbuster drugs like Amgen’s Prolia/Xgeva and Regeneron’s Eylea are also expected to be launched this year. Some generic drugmakers, like Dr. Reddy’s, have already started developing biosimilar versions of Merck’s blockbuster oncology drug Keytruda, which is set to go off-patent in 2028.

Stiff Competition: The generic drug industry competes with original branded drugs. When a branded drug loses exclusivity, generic competition intensifies as rivals undercut prices. As a result, drugmakers aim to achieve the medicines' first-to-file (FTF) status. The current generic market is already crowded, with many drugmakers having several generic filings pending before the FDA. With several generic/biosimilar drugs set for launch over the next couple of years, these firms’ revenues are likely to improve.

Patent Settlements: The successful resolution of patent challenges continues to be an essential catalyst for the growth of generic drugmakers. The settlement of these challenges accelerates the availability of low-cost generic products and removes uncertainties associated with litigation. However, pursuing these challenges often requires costly litigation, leading to higher costs.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Medical – Generic Drugs industry is a small 10-stock group housed within the broader Zacks Medical sector.

The group’s Zacks Industry Rank is the average of the Zacks Rank of all the member stocks. The Zacks Medical – Generic Drugs industry currently carries a Zacks Industry Rank #184, placing it in the bottom 25% of the 244 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Against this backdrop, we will present a few noteworthy stocks. But before that, let’s look at the industry’s stock market performance and current valuation.

Industry Versus Sector & S&P 500

The Zacks Medical – Generic Drugs industry has underperformed both the broader Zacks Medical and the S&P 500 Index year to date.

The industry has plunged about 10% over this period compared with the broader sector’s 4% decline. Meanwhile, the S&P 500 has lost nearly 2%.

YTD Price Performance

Image Source: Zacks Investment Research

The Industry's Current Valuation

Based on forward 12-month price-to-earnings (P/E F12M), which is a commonly used multiple for valuing generic companies, the industry is currently trading at 10.40X compared with the S&P 500’s 21.96X and the Zacks Medical sector’s 19.13X.

Over the past five years, the industry has traded as high as 11.64X, as low as 6.51X, and at the median of 9.21X, as the charts below show.

P/E F12M Ratio

Image Source: Zacks Investment Research

 

Image Source: Zacks Investment Research

3 Generic Drug Stocks to Keep an Eye On

Sandoz: This Swiss-based generic drugmaker, which spun off from Novartis in 2023, is turning its biosimilar segment into a growth machine.

In the first quarter of 2025, Sandoz achieved net sales of $2.48 billion, up 3% (excluding Fx). This growth was mainly driven by double-digit gains in its biosimilars business, led by strong demand for Humira-biosimilar Hyrimoz. The recently launched Stelara-biosimilar Pyzchiva also contributed to the company’s top line.

Looking ahead, Sandoz expects continued momentum in 2025, driven by new product launches. Last week, the company announced the commercial launches of Tyruko and Wyost in the United States, which are biosimilars to Biogen’s Tysabri and Amgen’s Xgeva, respectively. It expects net sales to grow by a mid-single-digit percentage and aims to achieve a core EBITDA margin of around 21%. This guidance, which includes the impact of potential U.S. tariffs on its business, reflects confidence in its expanding biosimilars portfolio.

The stock has risen 51% in the past year. The consensus estimate for 2025 EPS has increased from $3.14 to $3.17 in the past 60 days.

Sandoz carries a Zacks Rank #3 (Hold) at present.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price & Consensus: SDZNY

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Teva: This Israel-based company is the world’s largest generic drug company. It enjoys a leading position in the United States, which is the world’s largest generic market. Teva commands a share of around 7% in the U.S. generic market. Over 60% of Teva’s generics revenues come from outside the United States, especially Europe and emerging markets, where it is seeing continued growth. Teva regularly pursues FTF and first-to-market opportunities and seeks approval for complex generics, which are likely to face less competition. This should help the company maintain its strong position in the global generics market.

In the past few quarters, Teva has achieved several successful launches of biosimilars and other high-value complex generics, including Novo Nordisk’s Victoza, Roche’s cancer drugs Rituxan (Truxima) and Herceptin (Herzuma), AbbVie’s Humira (Simlandi), J&J’s Stelara (Selarsdi), Novartis’ Sandostatin LAR and AstraZeneca’s Soliris (Epysqli). The company has a significant manufacturing footprint in the United States that positions it well against Trump’s tariffs.

Teva’s U.S. generics/biosimilars business looks stable now, much more than it has been in years. The company has a decent pipeline of biosimilars, with some being developed in partnership with Alvotech. Biosimilar versions of Amgen’s Prolia, Regeneron’s Eylea and J&J’s Simponi are currently under review. Teva expects to launch seven biosimilars in the United States and four in Europe between 2025 and 2027.

The consensus estimate for 2025 EPS has declined from $2.55 to $2.51 in the past 30 days. The stock has gained about 6% in the past year. TEVA currently carries a Zacks Rank #3.

Price & Consensus: TEVA

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Viatris: Viatris offers a broad mix of generics, including oral solids, injectables and topicals. These products have outperformed expectations due to strong demand in North America. The launch of generic versions of Restasis and Revlimid, and the full FDA approval of generic Symbicort (Breyna) have boosted the company’s top line and should accelerate growth. However, Viatris’ generics segment has faced a setback due to an FDA import alert on its Indore facility, which restricts product shipments from that site. The company is currently working with the agency to resolve the issue.

Viatris’ branded business, which comprises two-thirds of its portfolio, is also doing well, with brands like Yupelri, Lipitor and Dona driving the company’s top line.

The stock has lost 17% in the past year. The consensus estimate for 2025 EPS has increased from $2.24 to $2.25 in the past 60 days. Viatris carries a Zacks Rank #3 at present.

Price & Consensus: VTRS

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