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Generic drug companies have long salivated over the arrival of 2012. Lexapro, an anti-depressant medication, loses patent exclusivity in the United States next week, opening up a $2.8-billion market to generic competition. And it is just one of many. This year, branded drugs that brought in $34-billion of revenues for their respective manufacturers in 2010 will lose exclusivity in the U.S. -- the biggest ever shift to generic medication, says Credit Suisse. And that does not include Lipitor, formerly the world's top-selling drug, which lost its patent last year. In Europe, Teva, the world's largest generics company by sales, thinks the overall generic market will grow up to 3 per cent this year.

Of course, the 2012 patent cliff is no secret. Generics companies are readying themselves. Last year, there were six acquisitions in the industry, and seven in 2010; more than any year in the preceding six.

So it may appear strange that global generics companies trade at just 10 times their expected 2012 earnings, about two-fifths lower than their average over the past decade. One reason is competition. Of the top 22 product launches (by sales of the branded drug) this year, almost three-quarters will see at least two generic competitors, says JPMorgan. Lexapro expects to have 10 generic competitors by the end of the year. On top of that, pharmaceutical companies have begun to compete. Pfizer has kept hold of one-third of Lipitor's market share through aggressive discounts and marketing.

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Some generics companies are better positioned than others. Mylan this year will launch drugs against relatively fewer rivals compared with peers. This could prompt a two-thirds jump in earnings per share. Yet the company trades at just 9 times its 2012 earnings. Generic drug makers may produce identical drugs, but that does not mean investors should treat them all the same way

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