Credit Suisse bullish on supermarket pharmacy

Generic wave expected to boost grocery earnings by as much as 5%

NEW YORK — This year’s upcoming $29 billion wave of margin-friendly generic pharmaceuticals will be as big a growth catalyst for supermarket pharmacies as it will be for their pureplay drug store cousins, Credit Suisse research analyst Ed Kelly stated in a note published Thursday.

Conservative projection models place the generic impact at 3% to 5% accretive to 2012 earnings, he reported, given that the channel fills between 10% and 15% of all retail prescriptions.

“While it’s unclear if the benefit will flow to the bottom line, we note that it at least provides some operating cushion to this structurally challenged industry,” Kelly wrote. “We remain somewhat cautious on the group, although we continue to believe that investors can make money selectively trading the stocks.” Credit Suisse recommends Kroger but not Safeway or Supervalu.

At the crest of the generic wave will be Lipitor, a $7.5 billion blockbuster that should face generic atorvastatin competiton on Nov. 30. That quickly will be followed by Lexapro (escitalopram, $2.8 billion), Seroquel (quetiapine, $4.1 billion), Plavix (clopidogrel, $5.6 billion) and Singulair (montelukast, $3.7 billion).

“While the number of generic launches ease after 2012, the following few years should still be good by historical standards,” Kelly wrote. “We project that $18 billion and $14 billion in branded sales will convert to generic in 2013 and 2014, respectively.”

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