Generics to Gold: Why Teva and Amneal Are Betting on Biosimilars for Margin Growth

The generics pharmaceutical sector has long been synonymous with price competition and thin margins, but a strategic shift is underway. Goldman Sachs' recent bullish analysis on Teva Pharmaceutical (TEVA) and Amneal Pharmaceuticals (AMRX) highlights how these companies are leveraging high-margin biosimilars and branded drugs to transform their financial profiles. Amid near-term headwinds like tariffs and legacy product erosion, both firms are positioning themselves as leaders in a sector primed for margin expansion.

The Strategic Shift: From Generics to High-Margin Innovators

Generics firms are no longer content with low-margin commoditization. By pivoting to biosimilars—cost-effective alternatives to biologic drugs—and specialty branded products, Teva and Amneal are targeting higher-margin opportunities.

Teva Pharmaceutical: Building a Biosimilar Powerhouse

Teva's biosimilar pipeline is its crown jewel. With five U.S. launches planned through 2027—including SELARSDITM (a Stelara® biosimilar) and SIMLANDI® (Humira® biosimilar)—the company aims to double biosimilar revenue to $800 million by 2027. These products, approved as interchangeable with their reference biologics, offer significant pricing power.

Key Drivers:
- Branded drug momentum: Austedo (for Huntington's disease) grew 39% in Q1 2025 to $411 million, while AJOVY (migraine prevention) hit $139 million.
- Margin targets: Teva's restructuring aims to boost operating margins to 30% by 2027, supported by $700 million in cost savings.
- Debt reduction: Free cash flow is projected to hit $2.7 billion by 2027, enabling net leverage to fall to 2x.

Amneal Pharmaceuticals: Executing on Complex Generics

Amneal's focus is on specialized generics—injectables, inhalers, and biosimilars—that command higher margins than traditional generics. Its FDA-approved Brekiya (a migraine auto-injector) and Parkinson's drug Crexont are critical growth engines.

Key Drivers:
- Pipeline execution: 20–30 new complex generic launches annually, targeting $1.6 billion in 2027 revenue.
- Margin resilience: Gross margins rose to 43.1% in Q1 2025, up 120 bps YoY, as higher-margin products dominate sales.
- Undervalued stock: At $7.34, Amneal trades at a ~35% discount to Goldman's $12 price target, despite its robust execution.

Risks and Challenges: Navigating Sector Headwinds

Both companies face hurdles, but their strategies are designed to mitigate these risks:

1. Tariff Pressures:
   U.S. tariffs on Indian-made pharmaceuticals remain a concern, but Teva and Amneal are diversifying manufacturing and sourcing to offset costs.

2. Legacy Product Erosion:

3. Teva's gRevlimid settlement expires in 2026, but biosimilar launches and branded growth will compensate.

4. Amneal's Rytary exclusivity ends in 2025, but Crexont and Brekiya are already filling the gap.

5. Regulatory Uncertainty:
   U.S. drug pricing reforms could pressure margins, but Goldman argues these risks are already priced into valuations.

Investment Thesis: Buy the Transition

The case for Teva and Amneal is compelling:

• Teva: Its deep biosimilar pipeline and branded drug tailwinds justify Goldman's Buy rating and $24 price target (a 38% upside). The stock's P/E ratio of ~10x 2025 estimates is undemanding for a company targeting 30% operating margins.

• Amneal: Despite near-term revenue misses, its execution in complex generics and undervalued shares make it a Buy at ~$7.34. The $12 price target implies a 63% upside, driven by Brekiya's 2025 launch and margin expansion.

Conclusion: Margin Expansion is the New Growth

The generics sector is evolving, and Teva and Amneal are leading the way. Their shift to biosimilars and specialty drugs is not just a tactical move—it's a strategic realignment to higher-margin, defensible revenue streams. While tariffs and patent cliffs loom, these firms have the financial flexibility and execution track records to thrive. For investors seeking undervalued growth in healthcare, now is the time to buy the transition.

Disclosure: This analysis is based on publicly available data and does not constitute personalized investment advice. Risks, including regulatory changes, remain.