The Stock Side of Generic Drugs

All FDA approved unique medications are patented for a specific time period

. Generic drugs are essentially copies of brand name medicines that are ready to hit the market as soon as the patent expires on the drug. Typically, patents expire 10 to 14 years after the drug is available in the marketplace. Stock market investors closely follow the off patent dates for popular drugs in the market today.

Starting in 2008, numerous best selling medications began going off patent. This pattern is due to continue well into 2012 as many of America's most-well known drugs for conditions like high cholesterol, depression and diabetes are expiring. For consumers, the expiration of a patent on a brand name medication can mean savings at the drugstore.

It is not unusual to find that stock in competing drug companies shows a decline when a drug goes generic. While initially reluctant to prescribe "off brands," doctors now often choose a generic medication when a patient is first begins a new medicine. While it does not seem logical, sometimes a pharmaceutical will mark a decline in the sales of a brand name medication still patented because a competitor's version goes generic.

Investing in pharmaceutical stocks based upon patent expirations is not for novices. Besides actual off patent dates there is another factor called exclusivity. Generic drugs can hit the market before a patent expires. This generally happens when the original manufacturer becomes involved in litigation with a generic company. The firm holding the patent wants to avoid drawn out patent-infringement litigation by permitting the generic product to be marketed before the drug goes off patent.

Exclusivity negotiations can go either way. In the advent that the patent holder has the advantage, it is common to see the company require a percentage of the generic firm's sales in royalties. In some cases, the generics can be in production and in the drugstores as much as 10 years prior to patent expiration. Another method of protecting exclusivity is for a drug maker to officially research how a top seller may be used for children. In this case, the manufacturer can receive exclusivity for six additional months from the FDA.

A number of best sellers will go off patent in 2011 and 2012. Crestor, the cholesterol lowering medication from AstraZeneca, is due for expiration in 2012 along with Symbicort, an asthma medicine. Another asthma drug, Advair, manufactured by Glaxosmithcline, is due to go off patent in 2010. Eli Lilly's Zyprexa, faces generic competition starting in 2011. With so many top sellers nearing the end of exclusivity, manufacturers and investors in generic drugs will be in for an interesting ride on the stock market roller coaster.

The Stock Side of Generic Drugs

By: Kim Rogers

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