Generics are prescription medicines that have lost patent protection and are being marketed by one or more companies that did not originally develop the drug. They are essentially similar to the original product, are approved through a simplified regulatory process, and are sold under a common name with very little promotion. Biogenerics are generic versions of pharmaceutical preparations involving a biologically active substance that has generally been created using modern biotech tools. These products are still in their infancy due to the relatively recent patent expirations of the first branded set of biotech products. Biotech-engineered drugs are products based on large molecule proteins. On the other hand, generics generally refer to non-biological products, also called small molecule drugs.

Generic and biogeneric drugs are emerging as strong contenders to branded medications in virtually all global pharmaceutical markets. This growth is the result of the twin influences of growing demand for pharmaceutical products in all market regions and the factors specific to the generic drug industry such as:

" Desire on the part of payers of healthcare products and services to curb spending on costly prescription drugs
" Large number of patent expirations on blockbuster drugs (products with annual revenues of $1 billion or more)
" Regulatory reforms in various regions to speed the introduction of generic (and in some cases, biogeneric) products
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Global Industry Statistics

In 2004, overall generic and biogeneric revenues worldwide totaled almost $39 billion, with an average annual growth rate of 10%. The United States comprised the largest portion with $17.4 billion. This was followed by Europe with $12 billion, Asia with $5.5 billion and the ROW region with $4.1 billion.

Regulatory hurdles facing biogenerics are expected to be resolved and the first of such products is likely to be introduced in the United States and Europe in the 2006-2008 timeframe. The total number of prescriptions for generics and biogenerics, as well as the total number of patients using the products, is expected to continue rising through 2010 as new generic products are introduced and the aging populations in the United States, Europe, and Japan require more medicines. Total worldwide generic and biogeneric prescription volume is expected to rise from $1.80 billion in 2003 to $3.27 billion in 2010, reflecting a CAGR of 8.9 per cent. The growth in number of prescriptions will lag revenue growth, reflecting slowly increasing prices of generic and biogeneric products.

The average annual cost savings from the use of generic and biogeneric products varies significantly among the market segments, and varies further within segments that comprise different countries and regions. For example, Eastern Europe tends to use more generics, and particularly biogenerics, than Western Europe, so proportionate cost savings are greater in that part of the overall European market. Similarly, generics
represent a low proportion of overall drug use in Japan compared to China and India.

Nonetheless, in all regions, savings from the use of these products is likely to grow at a good rate. Total worldwide savings was almost $88 billion in 2004, with the US leading the way with net savings of $41 billion. Total cost savings in Europe, Asia and the ROW region were much lesser than the US, and are usually tied to their overall lower drug use compared to the US.

Despite a variety of factors that are likely to have the net effect of driving strong growth of generics and biogenerics worldwide, the industry is nonetheless facing certain challenges that could mitigate expected growth. These challenges could be broadly summarized as follows:

" Regulatory and patent uncertainties constrain development of biogenerics in the US and Europe
" Some consumers remain resistant to the use of generics
" Weak patent laws encourage the introduction of counterfeit drugs, rather than true generics, in developing countries
" Quality control remains a problem in Asia and the developing ROW nations
" Increasing Rx-to-OTC switch activity in the United States, Europe, and Canada could cannibalize some generic sales

These factors are resulting in a strong and growing market for generic and biogeneric products in all the world regions. However, biogenerics are in a slightly earlier phase of their growth cycle than generics due to the lack of clear regulatory processes to approve the drugs in the key US and European markets.

Competitive Structure

The overall market for generics and biogenerics market is extremely fragmented, with a large number of both multinational and domestic participants. It does not include revenues derived from other lines of business such as proprietary branded products of active pharmaceutical ingredients (APIs). Most of these manufacturers are primarily active in the United States. However, some are based in Europe and others are headquartered in Asia.

The proposed merger of Sandoz (Novartis) with Eon Labs and Hexal will make the new venture the global leader in generic drugs, ahead of Teva, which held the number one position for so long with sales of almost $3 billion. Merck Generics, Mylan, and Watson trail the two leaders; Mylan and Watson derive their positions from their strength in the US market while Merck Generics is the leader in Europe and Asia. Watson has posted the strongest growth among the three. As in many large and swiftly growing markets, no single company dominates the fragmented global generics and biogenerics drug market. Instead, many companies are jockeying for share as participants in all parts of the world attempt to cash in on the lucrative opportunity to capitalize on upcoming patent expirations of blockbuster drugs and possess a universal desire to contain drug spending.
The following figure gives the break-up of market share by manufacturer for the world generics and biogenerics market. Sandoz, Eon Labs and Hexal have been taken as separate entities for this calculation.

Market shares of leading players in generics and biogenerics space were computed by including only revenues derived from generic and biogeneric products; they do not include sales of proprietary branded products, active pharmaceutical ingredients (APIs), or other products.

In conclusion, it is seen that the opportunities that exist for manufacturers in the areas of generics and biogenerics are manifold. With drugs worth over $50 billion going off-patent in the next 5 years, generic formulators, as well as API manufacturers are showing utmost prudence in timely introduction of the generic product to market. FDA approved facilities, sound knowledge of process chemistries, ability to adapt modern technologies, efficient time management, and appropriate marketing strategies can help companies get a higher share in this extremely fragmented, yet lucrative market.