Generic Drug Firms Jockey For Position In Changing Market; Sandoz, Teva Lead The Way; New rules might create some short-term pain, but long-term outlook is strong.(HEALTH & MEDICINE)

Byline: GLORIA LAU

The generic drug industry was hailed as a great place for investors to put their money for the past five years, when some $50 billion in branded drugs lost patent protection. That attitude is changing, however.

At least one analyst says short-term industry trends suggest the next two years will be tough. But further out, industry growth remains strong.

"Over the long term, it's still a growing industry," said analyst Arthur Wong of Standard & Poor's. "But in the intermediate term, there will be rougher waters ahead. Increased competition and other challenges will make this period weaker from an earnings standpoint compared to 2000 to 2005."

Some of the weakness is due to a move toward authorized generics, he says. Authorized generics give drug makers fewer exclusive periods to sell their drugs.

Before 2003, when a generic drug maker was first to win regulatory permission to sell a drug, it received six months of marketing exclusivity. The generic firm could price its product at about 70% of the original drug's price.

In late 2003, brand-name drug makers found a loophole in the law that allows them to sell authorized generics and compete against a generic drug during its six months of exclusivity.