IGI Laboratories Inc (NYSEMKT:IG) has a very straightfoward business: It makes creams.
Now that doesn’t necessarily set many hearts beating faster, but think about the amount of creams around your house. One or more of them was almost certainly developed, manufactured or marketed by IG.
Now assume that most every house has a product or two that IGI Labs has had something to do with. That business adds up pretty quickly.
It’s a low-profile business, but a very profitable one. IGI stock is up almost 120% in the past year.
The point is, topical applications are ubiquitous in our modern lives. And IG offers its clients turnkey solutions for everything from making the products to packaging them and manufacturing all of it. IG will even help with packaging design.
IG’s biggest proprietary product is its Novasome line of topicals. Essentially, the formulation allows active ingredients, whether they are drugs or analgesics or cosmeceuticals to work more effectively without skin irritation and other negative effects.
And judging from a partial client list, Novasome is very popular with some of the biggest names in fashion and pharma: Johnson & Johnson (NYSE:JNJ), Estee Lauder Companies Inc (NYSE:EL) as well as other specialized pharmaceutical companies that it licenses its Novasome base to so they can test its efficacy with their proprietary compounds.
Big Opportunity for IG Laboratories
The company’s current goal is to become one of the top five companies in the generic topical prescription drug market. To that end, the company has almost two dozen applications in front of the Food and Drug Administration for approval of new products.
Currently, the U.S. topical market is $13.5 billion a year industry; generics make up $4.5 billion of that pie. But the generic space is growing rapidly, growing more than 30% a year for the past 3 years.
All the shifts in the U.S. healthcare system favor this space. First, generics are cheaper than name brand drugs, so the system encourages generic purchases by consumers. Second, pharmaceuticals are better first-step to treatment than tying up doctors, hospitals and surgeons. And third, demographically, more and more people will be consuming healthcare in the next 20 years as the baby boomers starting hitting their golden years.
These changes spell a lot of opportunity for IG. And the space is highly competitive, so IG isn’t just a play on its organic growth — it also represents a potential takeover opportunity by one of the bigger players.
In most of the markets where IG competes, Sandoz is a major player and would benefit from buying a company like IG once some of its FDA applications get approved.
Bear in mind this is an aggressive play; this is a relatively small company and the stock is volatile. And recently there has been a growing amount of short interest on the stock, which can be a double-edged sword.
Any bad news will be magnified in a selloff as the shorts grow. But good news will force the shorts to cover, sending the stock higher than expected.
However, given IG’s long-term prospects and its well-managed growth, it’s worth a buy now.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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