An Overview and Analysis of the Global Generic Drug Industry

The accompanying tables provide a snapshot of my 38-company Global Generic Drug Index, which is rapidly consolidating amidst a flurry of recent M&A activity -- including the following buyout offers:

Industry leader Teva Pharma (TEVA): buyout bids for Barr (BRL) ($7.5B) & Bentley Pharma (BNT) ($350M)

Sanofi-Aventis (SNY): a $2B bid for Czech-based Zentiva

Daiichi-Sankyo (Tokyo: 4568): a $4.6B bid for India-based Ranbaxy (500359)

Fresenius Medical (FMS): buyot of generic injectable firm APP Pharma (APPX) valued at up to $4.6B

India-based Sun Pharma (524715): offer to buy its remaining stake in Taro Pharma (TAROF)

Existing benchmark funds for my Global Generic Drug Index include the pharmaceutical ETFs which contain a mix of biotechs, brand pharma, and generic pharma companies -- including the Pharma HOLDRs (PPH), PowerShares Dynamic Pharma (PJP), iShares Dow Jones US Pharma (IHE), and the S&P Pharma SPDR (XPH). As a pure play index and ETF idea, the global generic drug industry has outpaced all of its drug ETF benchmarks over the past year thanks to widespread M&A, a large number of small/mid-caps, and upcoming key patent expirations for blockbuster brand drugs.

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. Finally, Momenta Pharma (MNTA) is included in my index as a leader in biogenerics. Momenta has surged nearly four-fold since the rejection late last year on word that the FDA is not requiring additional clinical trials for the generic form of Lovenox, with US sales of $750M in 2007 for Sanofi-Aventis. Momenta also recently filed a patent challenge to produce a generic form of the multiple sclerosis drug Copaxone, which is made by Teva.