Global generic drug industry

Unlike other parts of the pharmaceutical industry, the generics industry has been favored on Wall Street since President Obama unveiled his healthcare plan.

The US represents one of the world’s largest economies. The country’s per capita income and spending are rated among the highest in the world. On the back of rapidly growing consumer spending on branded products, total healthcare spending of the US reached up to an estimated value of around US$ 2.5 Trillion in 2009, which appears very high when compared to the population. The government is now emphasizing to minimize the healthcare spending by using generics drugs and promoting other low cost healthcare. This has created huge opportunities in the country’s generics industry.

The US generics market is anticipated to grow at a CAGR of around 8.8% during 2010-2013, says our recent research report “Booming US Generic Drug Market”. Currently, the market growth is largely fuelled by the emergence of new products as patents of branded drugs are getting expired, and the trend is likely to continue over the next 3-4 years also. Anticipating the future growth, big pharma players are making deals with some generics manufactures from the Asian countries, like India, to access their products and market them in the US. This trend will emerge more strongly during our forecast period, providing opportunities to the local players to widen their product portfolios.

All of the top five rated generic drug companies and over two-thirds of the 44 companies in the index are based outside of the United States; so a Global Generic Drug ETF would provide investors with access to this rapidly consolidating industry. Most of the companies in the index are small and mid caps with Teva Pharma (TEVA) as the industry leader in terms of market cap and sales, which is about to get even bigger with its pending acquisition of Barr Pharma (BRL).

Trends in favor of the global generic drug industry include the following: nearly $70B in brand name drug sales with looming generic competition through 2012, push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70% to save money for the consumers and the government (through Medicare Part D spending), continued industry consolidation of small and mid-caps by industry leaders such as Teva and Mylan Labs (MYL), and the potential for legislation next year regarding generic versions of high-cost biological agents – with Momenta Pharma (MNTA) as a pure-play in this space with a pending ANDA for a generic version of the injectable blood thinner Lovenox, which had nearly $4B in sales last year for Sanofi-Aventis (SNY).