Challenges and opportunities abound as generic wave hits the shore

WHAT IT MEANS AND WHY IT'S IMPORTANT — One analysis report after another seems to confirm that the generic drug market is in for a huge shift as the number of blockbuster drugs losing patent protection is set to dwindle over the next several years. A recent report by Frost & Sullivan seems to confirm that sentiment.

(THE NEWS: Frost & Sullivan forecasts strong growth in generic drug market through 2017, click here.)

Generic drug makers accustomed to reaping profits from the 180-day exclusivity periods they get when they are the first to file for Food and Drug Administration approval of a drug will face new challenges as those exclusivity periods end as part of the broader trend commonly called the patent cliff. For example, Ranbaxy Labs may have hit pay dirt on Nov. 30, when it launched the first generic version of Pfizer's cholesterol drug Lipitor (atorvastatin calcium), but at the end of May, when Ranbaxy's exclusivity period ends, any generic drug company that wins FDA approval will be able to market its own version.

In response, many are looking to move up the value chain, creating products that are more innovative, such as branded generics, and also delving into biosimilars. Sandoz has some big plans in this area, with clinical trials of biosimilar versions of Amgen's Neupogen (filgrastim) and Neulasta (pegfilgrastim) that it hopes will support their approval in the United States. Of course, this all costs money for generic drug makers, which will have to hire new scientists and develop new infrastructure to support these investments.

While this transition will be a complicated and difficult one for generic drug makers, it also may open opportunities for pharmacy retailers. According to analysis by the Federal Trade Commission, generics tend to generate higher profit margins for retailers, and analysis by Credit Suisse showed that the generic wave could add 6% to 7% to their earnings in 2012. And unlike drug makers, retailers can offer a wide range of other products and services to customers who come through the door to pick up their prescriptions, meaning that even a 30-day supply of a generic drug sold for $4 can have a multiplier effect.