(FORTUNE Magazine) – Congress gave the generic drug industry a bottle of uppers last September, and investors are stoned on the stocks. The Waxman-Hatch bill produced a tradeoff: major drug manufacturers got longer patent protection for newly developed drugs; generic drug producers got faster Food and Drug Administration approval for generic versions of drugs whose patents have expired. Overnight the $900-million-a-year generic drug industry had an easier shot at some 150 top-selling prescription medications, with annual sales of $4 billion, that have recently lost, or soon will lose, patent protection. Price-earnings multiples for four publicly traded generic drug makers have gone right off the fever charts. Yet the multiples -- up to 35 times estimated 1985 earnings -- could prove justified if, as the Wall Street consensus predicts, the generic companies' sales quadruple by the end of the decade and earnings grow 25% to 45% a year. The federal crackdown on Medicare costs has spurred sales of generics, which retail for 30% to 50% less than branded drugs, and so have laws in many states that require pharmacists to inform patients when generics are available to fill prescriptions. Mylan Laboratories of Pittsburgh, the biggest publicly traded generic drug maker, has been phenomenally successful recently. Sales advanced 45% and earnings rocketed 165% in the fiscal year that ended March 31. The elixir was the company's new drug, Maxzide, a diuretic prescribed for high blood pressure. Surprisingly for a generic drug company, Mylan didn't merely copy an existing drug but came up with an improved formula of its own. The company convinced FDA officials that Maxzide is superior to SmithKline Beckman's Dyazide, one of the most widely prescribed drugs in the U.S. With other new products due to reach prescription counters soon, including a generic version of the popular arthritis drug Indocin, analysts expect another explosive year ahead for Mylan. ''Despite an already generous multiple, the stock will move higher,'' says analyst David F. Saks of the Los Angeles brokerage firm of Morgan Olmstead Kennedy & Gardner. Samuel Talbot of Growth Stock Services, a Boston investment advisory firm, likes Bolar Pharmaceutical because of its speed in getting sophisticated drugs to market. ''As soon as a drug is approved, they can literally ship the next day,'' he says. The 25-year-old Long Island-based company will introduce a raft of new products this year. Included will be Bolar's first venture into transdermal medication: a patient with, say, angina sticks a patch on his chest that slowly feeds nitroglycerin into the body. Saks of Morgan Olmstead expects Bolar's earnings per share to jump 72% in 1985 and 38% in 1986. Zenith Laboratories' torrid multiple may reach its apogee this year, some analysts say, because the New Jersey company expects imminent approval for four major drugs. Among them are generic versions of Hoffman-La Roche's fashionable tranquilizer Valium, and Merck's hot-selling Aldomet for high blood pressure. John P. Curran of L.F. Rothschild Unterberg Towbin points out that Zenith Laboratories was a mediocre performer before new management took control last year. David Crossen of Sanford C. Bernstein & Co. expects the company's per-share earnings to grow at least 30% in 1985, and adds that earnings will shoot much higher once the new drugs are approved. Since six-year-old Par Pharmaceutical went public in late 1983, the stock price has zoomed 400%. The New Jersey company currently manufactures about 40 generic drugs and is seeking FDA approval for a lot more. Ronald Koenig of Ladenburg Thalmann & Co., which underwrote Par's original public offering, thinks the company's recent acquisition of BetaMed, a producer of injectable products such as intravenous solutions, will greatly boost sales.

CHART: COMPANY 1984 NET STOCK PRICE RECENT REVENUES INCOME RANGE PRICE in millions in millions last 12 months P/E multiple 1 Mylan $53.6 $12.5 $5.75-$24.125 $22.00 Laboratories 2 29.3 Zenith $37.5 $2.9 $8.00-$41.00 $39.50 Laboratories 34.6 Bolar $29.1 $5.3 $22.50-$44.125 $44.00 Pharmaceutical 23.6 Par $17.5 $2.8 $6.25-$20.25 $18.50 Pharmaceutical 29.8 1Based on estimates of current fiscal year's earnings compiled by Institutional Brokers Estimate System. 2Figures are for fiscal year that ended March 31, 1985.