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3 Generic Drug Stocks to Watch Despite Industry Headwinds
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Generics may still account for the majority of U.S. prescriptions, but they no longer guarantee attractive economics. Aggressive competition and steady price declines have eroded profitability in traditional molecules, turning much of the segment into a high-volume, low-margin exercise. The challenge is less about demand and more about monetization.
To preserve returns, drugmakers are migrating toward areas where scientific complexity acts as a moat. Complex generics, specialty injectables and biosimilars provide a layer of insulation against immediate price collapse and offer better margin profiles. In parallel, generic companies are running leaner operations — rationalizing product lines, eliminating redundancy and investing selectively in advanced manufacturing — in an effort to stabilize earnings in an increasingly efficiency-driven landscape.
Here, we highlight three generic drugmakers — Teva Pharmaceuticals (TEVA - Free Report) , Sandoz (SDZNY - Free Report) and Dr. Reddy’s Laboratories (RDY - Free Report) — which appear well-positioned to navigate the evolving landscape.
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 generic 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.
Recent high-profile launches have included biosimilars of blockbuster drugs like J&J’s Stelara, Amgen’s Prolia/Xgeva and Regeneron’s Eylea. Generic drugmakers are already advancing biosimilar candidates for Merck’s blockbuster oncology drug Keytruda, which is expected to lose patent protection 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: Resolving patent disputes remains a critical growth driver for generic drug manufacturers. Successful settlements can expedite market entry for generic alternatives, enabling earlier access to lower-cost medicines while eliminating prolonged legal uncertainty. Still, pursuing patent challenges typically involves significant legal expenses, which can weigh on costs even when outcomes are favorable.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Medical – Generic Drugs industry is a small 12-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 #165, placing it in the bottom 32% of the 243 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 us look at the industry’s stock market performance and current valuation.
Industry Versus Sector & S&P 500
The Zacks Medical – Generic Drugs industry has outperformed the broader Zacks Medical and the S&P 500 Index in the past year.
The industry has surged nearly 69% over this period compared with the broader sector’s 1% growth. Meanwhile, the S&P 500 has risen about 22%.
1-Year Price Performance
Image Source: Zacks Investment Research
The Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E F12M), a commonly used multiple for valuing generic companies, the industry is currently trading at 15.14X compared with the S&P 500’s 22.41X and the Zacks Medical sector’s 21.24X.
Over the past five years, the industry has traded as high as 15.66X, as low as 6.51X and at the median of 9.66X, 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
Teva: This Israel-based company is the world’s largest generic drug company, in terms of both total and new prescriptions. The company enjoys a leading position in the United States, the world’s largest generic market, where the company commands a share of about 7%. Teva regularly pursues FTF and first-to-market opportunities and seeks approval for complex generics, which are likely to face less competition.
Teva’s U.S. generics/biosimilars business looks stable now despite headwinds, more than it has been in years. Teva’s U.S. generics/biosimilars business rose 15% in 2024, driven by product launches. In 2025, U.S. generics/biosimilars sales rose 2% as a strong biosimilars performance was offset by lower revenues from generic Revlimid and Victoza.
Teva’s global generics business was flat in 2025 from the 2024 levels. However, the company expects its global generics business to improve going forward, driven by complex generic launches in the United States, several generic launches in ex-U.S. markets and biosimilar launches. In 2026, Teva expects its global generics business to rise in a low-single-digit range.
The consensus estimate for 2026 EPS has been unchanged at $2.72 in the past 30 days. Teva’s stock has skyrocketed 103% in the past year.
Sandoz: This Swiss-based generic drugmaker was spun off from Novartis in 2023. For 2025, Sandoz achieved net sales of $11.1 billion, up 5% year over year (excluding Fx). This growth was mainly driven by double-digit gains in its biosimilars business, led by strong demand for Stelara-biosimilar Pyzchiva, Humira-biosimilar Hyrimoz, Jubbonti (biosimilar to Amgen’s Prolia) and Wyost (biosimilar to Amgen’s Xgeva).
Sandoz expects the top line in 2026 to grow in the mid to high-single-digit percentage, driven by product launches and continued expansion of its biosimilars portfolio. In the fourth quarter of 2025, the company launched Eylea-biosimilar Afqlir, Jubbonti and Wyost in Europe. However, pricing pressure is expected to persist, with the company guiding for a low to mid-single-digit price erosion.
In the past year, the stock has surged about 90%. The consensus estimate for 2026 EPS has increased from $4.15 to $4.22 in the past 30 days.
Sandoz carries a Zacks Rank #2 at present.
Price & Consensus: SDZNY
Image Source: Zacks Investment Research
Dr. Reddy's Laboratories: The India-based company enjoys a strong position in the U.S. generics market. Dr. Reddy’s also markets its products in countries like the U.K., Germany, Russia, Venezuela, Romania and South Africa. To ensure steady growth in these markets, the company is focused on accelerating the development of its complex generics portfolio. RDY is also making efforts to ensure timely approvals through effective risk management and proactive measures to address potential deficiencies.
As of Dec. 31, 2025, a total of 73 generic filings were pending approval from the FDA, comprising 71 abbreviated new drug applications and two new drug applications. In the first nine months of fiscal 2026, Dr. Reddy’s launched 18 products in North America, including six in the third quarter.
The stock has gained 10% in the past year. The consensus estimate for fiscal 2027 (year ending March 2027) EPS has been unchanged at 59 cents in the past 30 days. RDY carries a Zacks Rank #3 (Hold) at present.
Price & Consensus: RDY
Image Source: Zacks Investment Research
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3 Generic Drug Stocks to Watch Despite Industry Headwinds
Generics may still account for the majority of U.S. prescriptions, but they no longer guarantee attractive economics. Aggressive competition and steady price declines have eroded profitability in traditional molecules, turning much of the segment into a high-volume, low-margin exercise. The challenge is less about demand and more about monetization.
To preserve returns, drugmakers are migrating toward areas where scientific complexity acts as a moat. Complex generics, specialty injectables and biosimilars provide a layer of insulation against immediate price collapse and offer better margin profiles. In parallel, generic companies are running leaner operations — rationalizing product lines, eliminating redundancy and investing selectively in advanced manufacturing — in an effort to stabilize earnings in an increasingly efficiency-driven landscape.
Here, we highlight three generic drugmakers — Teva Pharmaceuticals (TEVA - Free Report) , Sandoz (SDZNY - Free Report) and Dr. Reddy’s Laboratories (RDY - Free Report) — which appear well-positioned to navigate the evolving landscape.
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 generic 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.
Recent high-profile launches have included biosimilars of blockbuster drugs like J&J’s Stelara, Amgen’s Prolia/Xgeva and Regeneron’s Eylea. Generic drugmakers are already advancing biosimilar candidates for Merck’s blockbuster oncology drug Keytruda, which is expected to lose patent protection 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: Resolving patent disputes remains a critical growth driver for generic drug manufacturers. Successful settlements can expedite market entry for generic alternatives, enabling earlier access to lower-cost medicines while eliminating prolonged legal uncertainty. Still, pursuing patent challenges typically involves significant legal expenses, which can weigh on costs even when outcomes are favorable.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Medical – Generic Drugs industry is a small 12-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 #165, placing it in the bottom 32% of the 243 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 us look at the industry’s stock market performance and current valuation.
Industry Versus Sector & S&P 500
The Zacks Medical – Generic Drugs industry has outperformed the broader Zacks Medical and the S&P 500 Index in the past year.
The industry has surged nearly 69% over this period compared with the broader sector’s 1% growth. Meanwhile, the S&P 500 has risen about 22%.
1-Year Price Performance
Image Source: Zacks Investment Research
The Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E F12M), a commonly used multiple for valuing generic companies, the industry is currently trading at 15.14X compared with the S&P 500’s 22.41X and the Zacks Medical sector’s 21.24X.
Over the past five years, the industry has traded as high as 15.66X, as low as 6.51X and at the median of 9.66X, 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
Teva: This Israel-based company is the world’s largest generic drug company, in terms of both total and new prescriptions. The company enjoys a leading position in the United States, the world’s largest generic market, where the company commands a share of about 7%. Teva regularly pursues FTF and first-to-market opportunities and seeks approval for complex generics, which are likely to face less competition.
Teva’s U.S. generics/biosimilars business looks stable now despite headwinds, more than it has been in years. Teva’s U.S. generics/biosimilars business rose 15% in 2024, driven by product launches. In 2025, U.S. generics/biosimilars sales rose 2% as a strong biosimilars performance was offset by lower revenues from generic Revlimid and Victoza.
Teva’s global generics business was flat in 2025 from the 2024 levels. However, the company expects its global generics business to improve going forward, driven by complex generic launches in the United States, several generic launches in ex-U.S. markets and biosimilar launches. In 2026, Teva expects its global generics business to rise in a low-single-digit range.
The consensus estimate for 2026 EPS has been unchanged at $2.72 in the past 30 days. Teva’s stock has skyrocketed 103% in the past year.
TEVA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: TEVA
Image Source: Zacks Investment Research
Sandoz: This Swiss-based generic drugmaker was spun off from Novartis in 2023. For 2025, Sandoz achieved net sales of $11.1 billion, up 5% year over year (excluding Fx). This growth was mainly driven by double-digit gains in its biosimilars business, led by strong demand for Stelara-biosimilar Pyzchiva, Humira-biosimilar Hyrimoz, Jubbonti (biosimilar to Amgen’s Prolia) and Wyost (biosimilar to Amgen’s Xgeva).
Sandoz expects the top line in 2026 to grow in the mid to high-single-digit percentage, driven by product launches and continued expansion of its biosimilars portfolio. In the fourth quarter of 2025, the company launched Eylea-biosimilar Afqlir, Jubbonti and Wyost in Europe. However, pricing pressure is expected to persist, with the company guiding for a low to mid-single-digit price erosion.
In the past year, the stock has surged about 90%. The consensus estimate for 2026 EPS has increased from $4.15 to $4.22 in the past 30 days.
Sandoz carries a Zacks Rank #2 at present.
Price & Consensus: SDZNY
Image Source: Zacks Investment Research
Dr. Reddy's Laboratories: The India-based company enjoys a strong position in the U.S. generics market. Dr. Reddy’s also markets its products in countries like the U.K., Germany, Russia, Venezuela, Romania and South Africa. To ensure steady growth in these markets, the company is focused on accelerating the development of its complex generics portfolio. RDY is also making efforts to ensure timely approvals through effective risk management and proactive measures to address potential deficiencies.
As of Dec. 31, 2025, a total of 73 generic filings were pending approval from the FDA, comprising 71 abbreviated new drug applications and two new drug applications. In the first nine months of fiscal 2026, Dr. Reddy’s launched 18 products in North America, including six in the third quarter.
The stock has gained 10% in the past year. The consensus estimate for fiscal 2027 (year ending March 2027) EPS has been unchanged at 59 cents in the past 30 days. RDY carries a Zacks Rank #3 (Hold) at present.
Price & Consensus: RDY
Image Source: Zacks Investment Research