The long overdue consolidation in the generic drug industry appears to be in full swing based on about $15 billion in deals announced recently. Teva Pharma (TEVA) is the largest public company in the generic drug industry with a $34.8 billion market cap, which just got even bigger with a $7.5 billion buyout of Barr Pharma (BRL) that follows a smaller $350 million deal announced earlier for Bentley Pharma (BNT). Other recent deals in the generic industry include a $2.7 billion offer for Czech-based Zentiva (which the company has officially rejected as of today) and a $4.6 billion buyout of India-based Ranbaxy (Bombay: 500359) by Daiichi-Sankyo (Tokyo: 4568). However, Teva is not a pure-play on generic drugs as the Company also offers branded and specialty products such as Copaxone for multiple sclerosis.

Other major players that do not trade directly as public companies include the Sandoz division of Novartis (NVS), privately-held Apotex (Canada), the Greenstone division of Pfizer (PFE), and the Mallinckrodt division of Covidien (COV) (formerly Tyco Healthcare). The major companies involved in the generic drug industry are based in North America, Europe, and India. India boasts a wide a range of companies involved in supplying both finished products and chemical intermediates to the generic drug industry with shares of Dr. Reddy’s Lab (RDY) listed for trading on the NYSE with a market cap of $2.5 billion and trailing 12-month sales of $1.4 billion.

The global generic drug industry is poised to capture an increasing share of the market for pharmaceuticals based on key patent expirations, a focus on healthcare cost containment, the possible introduction of “bio-similar” or “bio-generic” drugs (which are copycat versions of lucrative biotech treatments), and a trend of overall prescription growth – especially in the United States with the significant demographic trend of aging Baby Boomers. Industry reports suggest that the growth rate for the unbranded pharmaceutical industry will continue to outpace both the branded and biotech drug industries. The generic drug industry is expected to maintain double digit growth rates through 2011 and reach a level of $69 billion at that time or about 20% of the total pharmaceutical industry.

In addition, key patents of multi-billion dollar brand drugs are set to expire within the next few years, including Risperdal and Fosamax in 2008, Prevacid and Topamax in 2009, Lipitor and Effexor XR in 2010, Plavix and Actos in 2011, Singulair and Seroquel in 2012. According to IMS Health statistics, generic medications accounted for 63% of all medications dispensed in the United States in 2006, representing a growth rate of over 22% for unbranded generic drugs. The National Association of Chain Drug Stores estimates an average retail price of about $32 for generic prescription drugs, representing a significant savings to consumers compared to an average retail price of $111 for brand prescription drugs.

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