If hospital systems were to launch a generic drug company, such a move could have a small impact on pharmaceutical firms, according to Mizuho analyst Irina Koffler.

In a note on Thursday, Jan. 18, Koffler reaffirmed her buy rating on drug makers Endo International plc (ENDP) and Mylan NV (MYL) .

A group of hospital systems led by Intermountain Healthcare said Thursday they are planning to form a not-for-profit generic drug firm to address drug shortages and high costs. The New York Times first reported the news.

The group, which includes Ascension, SSM Health and Trinity Health, said the new firm intends to be a Food and Drug Administration-approved manufacturer and will either directly make generic medications or work with contract manufacturing organizations.

An Intermountain representative said the group hopes to have the company up and running in the next year. The drugs the company will focus on have not been decided yet, the representative said.

In a note, Koffler wrote that the "headline is understandably scary for companies with meaningful hospital injectables businesses like Endo (~20% of 2017 revenues are for sterile injectables) and Mylan ($1.0B in 2016 sales attributed to injectables) but we believe that the risk to the sector is modest, and the event presents an attractive entry opportunity instead."

The theoretical impact "could be small, and the hospital program may never get off the ground as increased generic competition escalates due to FDA initiatives already underway," she wrote. The FDA, for instance, has a policy to speed up the review of generic drug applications where competition is limited.

The costs of forming a generics company "may prove cost prohibitive to hospitals" and it is challenging to predict drug shortages, Koffler added.

However, if hospital systems pursue the initiative, Koffler thinks they would chose to team up with third-party manufacturers to supply select products, or to negotiate additional discounts as a group when drug shortages cause prices to rise.

An Endo representative said the company has no comment beyond what Allen Goldberg, a spokesman for generic manufacturers trade group Association for Accessible Medicines, told the New York Times: "The whole generic industry is premised on competition, and that competition brings dramatic savings for patients."

A representative for Mylan did not immediately return a request for comment.

Shares of Endo closed at $7.35 on Thursday, down 4%. Mylan's shares ended the trading session at $46.51, down 0.6%.

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