Global generics market was valued at USD63.66 billion during 2005, registering a growth of 20% over the previous year which is 4 times that of patented drugs, which grew at 5% in the same period. The higher growth rate is attributed to the increasing number of patent expiries and the governments' measure to popularize the use of generics in their countries to contain the healthcare costs. Cardiovascular (CVS) and central nervous system (CNS) were the top two therapeutic segments accounting for one-third of the total generics market.

Generic drugs are increasingly attracting the attention of governments of various countries, patients and also the industry due to their lower costs and less R&D investment needed, compared with patented drugs.

The global generics market has grown at a rate of 20% in 2005, which is four times that of patented drugs and over three times that of pharmaceutical market. This chapter gives insight on the generic drug industry in terms of market size, geographical and therapeutic segmentation and the major players in the industry.

Global generics market
In 2005, the global generics market was valued at USD63.66 billion, a growth of 20% over the previous year. The market has grown at a CAGR of 16.6% during the five year period 2001-05. Increasing number of patent expiries of blockbuster drugs and government encouragement on usage of generics for containing the rising healthcare expenditure of the countries across the globe are the major driving forces of the generics market.

Pharmaceutical market vs. Generics and Patented drugs
Generics grew at a higher rate of 20% in 2005 compared with the growth rate of patented drugs at 5% and that of total pharmaceutical market at 6%. One of the major reasons for the accelerated growth rate of generics was the patent expiry of drugs with an estimated value of USD12 billion in 2005. Growth rate of patented drugs is facing a decline with decreasing number of new product launches. The total pharmaceutical market declined as a result of gaining acceptance of generics that are priced comparatively lower than the patented drugs.

Geographicalsegmentation
North America accounted for about half of the global generics market, where, the US was the major contributor with 44% and Canada contributed 5%. Asia-Pacific accounted for 30% of the market in 2005, while Europe accounted for 21% to the overall generics market. Germany and the UK were the major contributors in the European generics market.

Therapeutic segmentation
Cardio Vascular System (CVS) was the major therapeutic segment accounting for 19% of the global generics market in 2005. CNS was the second major therapeutic segment with a percentage share of 15%. Oncology accounted for 7% of the total market. The above three lifestyle segments together grew over 15% annually due to trend of increasing lifestyle disorders across the globe. The share of anti-infective and gastro-intestinal declined to 9% each in 2005, from 12% and 15% in 2002, respectively.

Ethical vs. OTC generics
Sales of ethical generics accounted for 77% of the total generics market in 2005. The higher contribution is from the ethical generics segment because prescription sales contribute a high proportion in pharmaceutical sales together with efforts from government in increasing the generic drug prescription through generic substitution route. OTC generics accounted for the remaining 23%.

Top 10 products in world's largest generics market
Among the top 10 generic drugs in the US, Hydrocodone/ acetaminophen combination topped the list with a sale of USD1.477 billion in 2005 (refer Figure 3.6).In the top 10 list, about eight of them are prescribed for lifestyle disorders such as CNS and CVS disorders, diabetes and pain. Two in the top 10 list were anti-infectives that included amoxicillin and the same in a combination with potassium clavulanate.

Major generic companies
The top 10 generic players accounted for one-third of the global generics market. Teva was the leading generics company in the year 2005 with annual revenue of USD5.25 billion. It is expected to be the leading player in future also, as it has acquired Ivax in January 2006. Sandoz, generic subsidiary of Novartis gained the second position with revenue of USD4.84 billion in 2005. Merck KgaA was the third largest generics company followed by Ratiopharm and Watson in the fourth and fifth position. India's largest pharmaceutical company Ranbaxy also featured in the top 10 lists by gaining ninth position with revenue of USD1.14 billion in 2005.

Mergers and Acquisitions (M&A) activity for generics was at its zenith in the year 2005. M&A deals in 2005 grew by 97% over the previous year. The largest deal in 2005 was the acquisition of Hexal and Eon Labs by Novartis for its generic subsidiary, Sandoz. Number of Para IV filings made by generic drug companies has increased by 6.4% in 2005 over the previous year. Moreover, the regulations governing generics industry has witnessed certain amendments. For instance, the Japanese government issued a notice to companies to provide additional data in the package insert of generic drugs in March 2006.

North America was the major generics market accounting for about half of the global market in 2005. The US market alone accounted for 44% of the total generics market growing at a rate of 26% in 2005 over the previous year. In Europe, Germany was the largest generics market, valuing USD6.28 billion in 2005. The market in France and Italy grew by 22% and 25% respectively in the year 2005. In Asia Pacific, the Japanese market has grown at a rate of 10% in 2005 over the previous year.

The inherent cost advantages associated with generic drugs coupled with patent expiry of block buster drugs are the prime drivers of the industry. In 2005 alone, drugs worth USD12 billion are estimated to have lost their patent protection. The most recent patent expiry in 2006 was that of Pfizer's Zoloft, which lost its patent protection in the US on June 30, 2006. Increasing healthcare expenditure in both developing and developed countries, changing demographic profile and disease pattern and greater M&A activity are the other factors that drive the growth of the industry.

One of the major challenges faced by the industry is authorized generic, which has been eating into the profits of a successful patent challenger during the 180 day market exclusivity period. Brand drug companies use patent strategies such as approval for additional indications, paediatric extensions, next-generation product launches such as combinations and new formulations and patent litigation to postpone the exposure of their blockbuster drugs to generic competition and discourage generic companies from challenging their patents. Steep price erosion is yet another challenge faced by the industry as price of a generic drug drops to as low as 90% of the patented drug after the expiry of the 180 day exclusivity period granted to a successful patent challenger.

To market a generic drug in the US, an Abbreviated New Drug Application (ANDA) has to be filed and approved by the Office of Generic Drugs of Centre for Drug Evaluation and Research (CDER) of Food and Drug Administration (FDA), as per the Hatch Waxman Act enacted in 1984. The act also provided provisions to challenge the patent of a drug. For a generic approval, pre-clinical and clinical study data are not needed. However bio-equivalence to the original brand drug has to be proved. In Europe, generic drugs are approved by the European Medicines Agency (EMEA). In Japan, Pharmaceutical and Medical Devices Agency (PMDA) reviews the generic drug application and the final approval is given by the Ministry of Health, Labour and Welfare (MHLW).Israel based Teva Pharmaceuticals is the world's largest generic drug company with revenue of USD

5.25 billion in 2005. Teva acquired Ivax Corporation (US) in January 2006. The second largest generics company is Sandoz, a subsidiary of Novartis, which generated revenue of USD4.84 billion in 2005. Merck KgaA and Ratiopharm were the third and fourth largest companies in 2005. Ranbaxy, India's largest pharmaceutical company was the ninth largest generics company in the world in 2005 with revenue of USD1.14 billion in 2005. The top 10 generics companies accounted for one-third of the global generics market in 2005.

By venturing into biogenerics, generic companies can reap huge profits in future as a number of patented biopharmaceutical products are expiring in the next 3 years. This segment ensures better margins, as its complexity will limit the number of entrants. The first biogeneric human growth hormone Omnitrope from Sandoz was approved by FDA in May 2006. European Union has recently put together the process for approval for biogenerics. The recent biogeneric drug approved in the EU was Swiss based Biopartners Valtropin, a biogeneric version of Humatrope.

Outlook
Cygnus estimates that the global generics market will register a growth rate of 13.35% in 2006 to reach USD72.16 billion and will sustain the growth at a CAGR of 13.62% during the period 2006-10. Patent expiries of blockbuster drugs and increasing healthcare expenditure will continue to drive growth of the industry. The large generic firms will become more dominant with more acquisitions in future. Factors that will determine the success of generics companies in future include: R&D to cut costs, outsourcing manufacturing activity to low cost destinations, venturing into "difficult- to-make-generics", novel drug delivery system (NDDS) and identifying the right patents to challenge.
(Compiled at Cygnus Business Consulting & Research)