The lines that separate the branded pharmaceuticals and generic pharmaceutical industries are increasingly murky, according to the report "Combating Generics: Pharmaceutical Brand Defense," published recently by Cutting Edge Information, a business intelligence firm.

A contributing factor driving this trend is the constant legal tug of war between branded and generic companies. The enormous cost associated with legal battles is draining both industries, pressuring executives to solve disputes with colicensing agreements. The report stated that 70% of patent infringement cases are settled in favor of generic companies, and these companies are becoming more skilled at choosing arguments they know they can win.

When pharmaceutical companies enter into manufacturing and distribution agreements with generic challengers, it allows them to retain a portion of the market share lost to generic drug sales and to continue operating manufacturing plants at capacity. On the flip side, prominent generic drugmakers are building innovative research and development competencies so that they can start reaping the higher-margin benefits of branded, proprietary drug sales.

"Many of these companies are targeting niche markets left open by large pharma companies such as urology, contraception, and treatments of lupus and other diseases," said John Hess, senior analyst at Cutting Edge Information. "These markets are characterized by smaller populations but still offer longer market exclusivity and higher margins than generics."