Driven by escalating medical costs, generic pharmaceuticals are playing a greater than ever role in disease management. They provide high quality treatments at a lower cost, thereby making drug therapy readily available to those in need. A generic medicine is a pharmaceutical product that is no longer protected by a patent and which can be copied by competitors. The drugs may be marketed either under their own brand or as an unbranded product. Generics are referred to by their chemical or generic name.

The use of these generic products is a worldwide trend. Health care providers around the world are increasingly turning to generics to counter rising healthcare costs and provide appropriate patient care. The global generics market was valued at $63.7B in 2005, registering a growth of 20% over the previous year, 4 times the growth rate for patented drugs, which for the same period grew at 5%. (Pharma biz services, Nov 30 2006) According to IMS, generics account for around 12% of the $550 billion pharmaceutical market and sales are growing at a double digit rate.

In the less-fortunate countries around the world, the need for cost effective drugs affects directly the quality of life and has led to an increased requirement for generic drugs. Also, with 45 million Americans not having any kind of medical health insurance and access to less expensive medicines from Canada and Mexico being rapidly foreclosed, the need for less expensive medicines is becoming more urgent and critical.

An important characteristic of a free and open pharmaceutical market is that competition is encouraged across a product life cycle. Dynamic competition from multiple branded entrants and from generics after patent expiration is an effective way to control prices while, at the same time, offers more options to patients and health care providers.

The growth of generics is a vital and urgent economic imperative for the millions of people who cannot afford costly branded medicines. As generics continue to expand, more and more pharmaceutical and biotech companies will either incorporate a generic strategy into their strategic plans or be obliged to develop and launch more patented drugs. Given the inconsistency of drug development, the length of development time, the uncertainty of the FDA approval process and the considerable costs associated with this process, the latter activity is considered to be challenging

Drug therapy varies from country to country and is influenced by the role of the public and private sectors in financing, distribution and use of these products as well as the incentives for achieving a balance between maximum efficiency and cost controls for both the government and the private sector. Pharmaceutical coverage for a country’s population involves a highly regulated and technically complex system. This system must ensure that the demand for drugs is met in a timely manner with high quality, efficient branded products and increasingly now, with more cost effective generics.

       Source: IMS Health, Espicom Research, Visiongain Intelligence, Canadian Generic        Pharmaceutical Association (CGPA), Ernst & Young, JGPMA.

In 2005, U.S. branded pharmaceutical manufacturers sold products for $229.5 billion while U.S. generic pharmaceutical manufacturer sold $22.3 billion (IMS). Though the U.S. generic trend seems to be on the low side of market penetration, this figure represents only the dollar value sales of the market. Generic medicines accounted for 56% of all prescriptions (3.6 billion) dispensed in the U.S. (IMS). In the U.S., generics cost, on average, 30% to 80% less than their brand counterparts (GPhA).

Global generic pharma companies continue to acquire niche manufacturers and enter lesser markets, which results in tougher competition for small to medium and local specialty and generic companies.

Indian manufacturers have already proven their ability to take a product from API to finished dose form at a level of quality fit for use in regulated markets. If this capability is combined with the low manufacturing costs available in China, there is the potential to create a significant competitive force in the near future generic market place. An API manufacturer that combines the low R&D costs of India with the extremely competitive manufacturing costs of China will produce active ingredients at an exceptional price . Further, if this API manufacturer were to vertically integrate with a dose form manufacturer, it would be able to supply generic products at a very competitive price.

The future trends for the generic pharma sector can be summarized as follows:

• Slowing growth in key mature markets
• Accelerated growth in less developed markets such as China and Latin America
• Eastern Europe will maintain a high growth rate for generics
• Russia will become a relevant consumer of generics
• There will be increasing competition from India, China in both APIs and FDF (Finished Dosage Forms)
• Products manufactured in China and India will be rapidly integrated into regulated global markets
• China is becoming an accepted outsource supplier for APIs and eventually FDFs
• Continued M&A activity by U.S. and Indian companies in the European Union
• The emergence of world class scientific capabilities in India has the potential to establish the country as one of the world’s most creative hubs for generic drugs
• Although the European Union’s will continue to be a fragmented entity, its members will contribute to the development and global expansion of bio-generics

The overall potential for further growth is substantial. Blockbuster products coming off patent were valued at $22 billion in 2006, $27 billion in 2007, and $29 billion in 2008. (Bain & Company)