Although patent expirations are set to increase the size of the generic drug market, the impact of greater scrutiny from healthcare policymakers means that generic manufacturers may make more drugs but not necessarily more money.
The findings of a new market research report from Datamonitor show that the ever-increasing costs of healthcare provision globally are forcing many governments to promote generic prescriptions in order to keep costs down and this has a knock-on effect on the prices of generic medicines.
So despite the fact that drugs worth $160bn (€125bn) in sales will come off patent by 2015, the growth in generic volume sales is unlikely to directly translate into a significantly higher value for the generics market because of the cost-containment policies of many countries.
Some of the measures governments take that have a deflationary effect on prices are allowing pharmacists to substitute generic drugs for branded ones, increasing patient co-payments for branded drugs while waiving them for generics, and imposing generic prescribing and dispensing targets on physicians and pharmacists respectively.
At the same time, the strong competition within the generic industry is turning many players to mergers and acquisitions, with several multi-billion dollar transactions taking place over the last two years.
Sealing its dominant position, Israel's Teva bought major US player Ivax in January 2006, creating a company forecast to generate over $7bn in sales in 2006.
The second leading generics company, Sandoz, a division of Novartis, has also been feeling acquisitive, signing two major deals in 2005, the acquisition of Hexal in June and of Eon Labs in August.
This year so far has seen Watson launching a successful $1.9bn bid for fellow US company Andrx, while Pliva recently announced it would be willing to be acquired by Barr for $2.2bn after rejecting a lower offer from Icelandic newcomer Actavis, although both companies have since raised their offers.
Of particular interest in 2006 has been the expansion of Indian manufacturers in Europe, as Ranbaxy bought Romania's Terapia and Belgium's Ethimed, while Dr Reddy's bought Germany's Betapharm.
Another strategy drugmakers use in response to competition is partnering with a branded pharma company to market and distribute an authorized generic.
Thus, products are manufactured by the originating brand company but distributed and sold as generics.
These agreements offer several benefits, including ongoing revenue from an off-patent product, either through royalties or a share of the profits, solving excess manufacturing capacity issues and also serving as a useful tool for settling patent litigation.
Things however are more difficult for small generic companies that face pricing pressures, increasing competition and the rise of multi-billion dollar behemoths.
Nevertheless, according to the Datamonitor report there are several opportunities to be seized, including the major patent expiries in certain therapy areas such as HIV, cardiovascular and asthma, where novel approaches to developing generics could translate into considerable sales.
Indeed, 2006 is expected to be a very significant year for patent expiries, with the key blockbusters Merck's Zocor (simvastatin) and Bristol-Myers Squibb's Pravachol (pravastatin) already having lost patent protection.
Several more blockbusters are also expected to become subject to generic competition, including Pfizer's Zoloft (sertraline), Sanofi-Aventis' Ambien (zolpidem), GlaxoSmithKline's Zofran (ondansetron) and Novartis' Lamisil (terbinafine) family.
This wave of patent expiries will continue over the next decade, with a range of key products losing patent protection in this period: Pfizer's Norvasc (amlodipine), Lipitor (atorvastatin) and Viagra (sildenafil), Merck's Zetia (ezetimibe) and Cozaar (losartan), GlaxoSmithKline 's Avandia (rosaglitazone) and Johnson & Johnson's Levaquin (levofloxacin) and Topamax (topiramate).
The biosimilars market also promises future growth, with the first products approved in the EU in April 2006 and, somewhat unexpectedly, the US in May 2006.
Overall, within the next five years an estimated $80bn in 2005 product sales will be exposed to generic competition, while a further $77bn will be subject to generic incursion between 2011 and 2015, the report claims.