To compete in pharmaceuticals, many small companies feed off their bigger competitors, pouncing on the drugs that are removed from patent protection. These makers of generic drugs are poised for some far times ahead, with about 150 drugs worth $4 billion at manufacturer's prices being made available to generic manufacturers in the next five years alone.
Cheap knockoffs of these drugs, which include such hot sellers as Inderal, Motrin, and Valium, could bring an extra $1 billion in sales for the manufacturers of generics, according to Hemant Shah, a pharmaceuticals analyst for Mabon, Nugent & Co., in New York City. They have never had it so good. The generic segment of the drug industry is more than 30 years old, according to Shah, and has been growing unspectacularly over the years. But this wave of patent expirations, combines with a new law freeing generic-drug makers from repeating costly efficacy tests, could transform some of the two dozen producers into major industry players. Most of them grossed less than $50 million last year.
There are two strategic considerations in this burgeoning market, says Roy McKnight, chairman of the board and chief executive officer of Mylan Laboratories Inc., in Pittsburgh, a generic-drug company with $38 million in sales. One is timing. "The first to market can get the pricing he wants," McKnight says. The second consideration concerns the choice of which drugs to pursue. Some companies will avoid the most lucrative products because the competition is too stiff. Bolar Pharmaceutical Co., in Copiague, N.Y., for instance, has no intention of chasing the Valium market, according to its president, Robert Shulman. It prefers more modest drugs that are less likely to interest competitors.
No matter what the strategy, the generics boom will mean lower prices for consumers.