How will the generics biz cure its blockbuster hangover?

Anyone who's been watching pharma knows that the number of big new drugs has been dropping. That's obviously a problem for Big Pharma. But it's going to become a problem for branded drugmakers' major nemesis: the generics industry. Makers of copycat meds like to knock off blockbusters because they stand to deliver more return on the up-front investment. As branded drugmakers increasingly turn out smaller, more specialized meds, there will be fewer big drugs to copy.

Much has been made of the fact that Big Pharma's patent losses over the next few years will be the generics business's gain. Drugs accounting for billions in sales are falling off patent, and copycat drugmakers will reap the benefits from that steady stream of big new products. It's like a baby boom; after the boom generation moves through, there's a bust. The difficulty branded drugmakers have had in getting new meds approved means that there will be fewer products for generics makers to copy as time goes on.

"What has happened is that the approval of new products over the last many years has not gone significantly beyond 25-30 per year. And not many of these products have become very large," Sun Pharmaceutical Chairman Dilip Shanghvi told MarketWatch. "All of this has created a challenge both for Big Pharma as well as the generic industry."

And what do leading generics companies plan to do to deal with that eventuality? The strategies will sound familiar. They're eyeing geographical expansion in emerging markets and preparing for possible consolidation through M&A. And they're also looking to build up businesses in brand-name specialty drugs. All strategies that Big Pharma is using right now to deal with its own blockbuster withdrawal.

In his interview with MarketWatch, Shanghvi talked about possible acquisitions in emerging markets, as well as organic growth in those countries, partly through a partnership with Merck. Brand-name specialty meds are in his sights, too. "[I]t's natural for us to also look at growing by becoming a specialty pharma company," he said. "Because then we can introduce our own products and use those for future growth."

- read the MarketWatch interview