Generic drugs may seem dull to investors due to their lower margins and intense competition, but they can offer a steady cash flow base to fund higher-margin patented drugs.

ANI Pharmaceuticals (ANI) combines a steady generics business with a growing rare disease portfolio. 

Despite strong fundamentals, the stock trades at just 11x P/E due to market concerns. 

If ANI continues to execute on its pipeline and strategic acquisitions, the market may be underestimating its upside.

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At first glance, generic drugs might not capture the attention of many investors. 

Often seen as a stable but less thrilling segment of the pharmaceutical industry, generics typically involve lower profit margins compared to innovative, patent-protected medications. 

The market for generics can also be highly competitive, with multiple manufacturers fighting for market share once the original drug’s patent expires. 

This might lead investors to initially overlook companies with a significant presence in the generics space, viewing them as lacking the high-growth potential associated with novel drug development.

However, a reliable generics business can serve as a crucial foundation. 

The steady cash flow generated from these established products can provide the financial strength needed to pursue more ambitious and potentially more profitable ventures, like the development of treatments for rare diseases. 

ANI Pharmaceuticals (ANIP) operates with this dual strategy. 

The company manufactures generic drugs while also targeting the development and commercialization of treatments for rare diseases, which typically offer higher profit margins.

In its latest earnings report, ANI raised its guidance for 2025 primarily due to the recent FDA approval and subsequent launch of two key drugs: TEZRULY and INZIRQO.

These medications address a critical unmet need for patients who experience difficulty swallowing tablets and capsules, a condition known as dysphagia. 

The patient population for these drugs includes individuals in nursing homes and hospitals, where such formulations are particularly beneficial.

Both TEZRULY and INZIRQO benefit from patent protection until at least 2042, providing a significant period of market exclusivity. 

Furthermore, these drugs are new formulations of already established and widely prescribed medications, which were previously only available in tablet or capsule form. 

Reformulating existing drugs minimizes the expenses typically associated with launching entirely new chemical entities, thereby maximizing their potential and profitability.

Analysts project that INZIRQO and TEZRULY have the potential to generate substantial revenue for ANI. 

Estimates suggest that INZIRQO could reach annual revenues of $1 billion, while TEZRULY could contribute around $350 million annually.

Beyond these two key launches, ANI is also expanding its focus to rare disease ophthalmology. 

The recent FDA approval of a prefilled syringe format for Purified Cortrophin Gel simplifies administration for patients using this drug. 

Additionally, the expanded label for ILUVIEN, an existing ophthalmology asset, to include the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye, further broadens its market reach. 

Potential positive results from the ongoing New Day study for ILUVIEN could further expand its use in treating diabetic macular edema, potentially increasing the target patient population significantly.

Furthermore, the company has a history of making strategic acquisitions, like Novitium Pharma and Alimera Sciences, which have broadened its product portfolio and pipeline. 

The acquisition of Novitium Pharma, for instance, added over 20 new generic product launches, many with Competitive Generic Therapy (CGT) designations, providing periods of market exclusivity. 

All these factors combined have allowed ANI to achieve a Uniform return on assets ”ROA” of 27% with strong 29% asset growth last year.

Despite this performance, the company’s stock only trades at a Uniform P/E ratio of around 11x, reflecting the market concerns over competitive pressures in generics and the company’s future drug pipeline.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform ROA to decline to around 13% from 27% last year.

If ANI can effectively utilize the consistent cash flow generated from its generics business to invest in promising opportunities within its pipeline, the company could be well-positioned for substantial future growth.

Its unique combination of a stable generics business and a growing rare disease portfolio, coupled with strategic acquisitions and successful product launches, can change the market’s mind. 

The increase in 2025 guidance, driven by the launch of TEZRULY and INZIRQO, along with advancements in its rare disease ophthalmology segment, suggests a positive near-term outlook. 

While market concerns regarding competition and pipeline exist, ANI’s strategic execution and recent successes indicate a strong potential for material upside.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research