Although consumers often disdain generic retail products, they readily abandon their fixation on brand when they buy pharmaceuticals. That’s because consumers typically spend three times more money for brand name drugs when a generic is unavailable—even when they have health insurance.

Consequently, generics continue to expand their share of the US drug market. In 2010, generic sales represented 78 percent of the US market, a significant increase from their 63 percent share of the US market in 2006.

Innovative drugs are expensive because patent protection affords drug makers time to both recoup their substantial research and development costs and profit without competition. Once brand-name drugs lose their patent protection, however, generics can enter the market just a few months later and absorb up to 90 percent of the original drug’s sales.

The pharmaceutical industry faces an enormous patent cliff over the next few years. An estimated $250 billion in patented drugs are set to expire by 2015. Drug companies that specialize in generics should benefit considerably from this windfall. In the near term, 13 blockbuster drugs, representing over $30 billion in annual sales, are set to lose patent protection by 2013.

Teva Pharmaceutical Industries (NSDQ: TEVA), the world’s leading generic pharmaceutical company, is in a position to capitalize on this imminent wave of patent expirations. The company already holds a 21.1 percent share of the US drug market and boasts a portfolio of over 1,300 variations of its 400 products. It operates in 60 countries, primarily in the US and Europe, but with a growing presence in Asia and Latin America.

Unfortunately, Teva faces its own patent cliff, with the patent of its blockbuster drug Copaxone set to expire in May 2014. Copaxone, which is the leading treatment for multiple sclerosis, accounted for $3.3 billion in sales in 2010, about 20 percent of the company’s 2010 total sales.

Despite the loss of such a huge cash cow, Teva still has plenty of growth opportunities and continues to expand through acquisition.

In October, Teva acquired biopharmaceutical company Cephalon in a $6.8 billion deal. The combined company is expected to increase Teva’s annual sales of branded drugs to $7 billion from $4.6 billion. With

Cephalon’s drug pipeline incorporated into its portfolio, Teva now has over 30 innovative drug products in late-stage development.

The acquisition of Cephalon dovetails with what could be Teva’s biggest opportunity for growth in its generics segment: the market for biosimilars, which are generic versions of the biologic drugs developed by biopharmaceutical firms. The large biological molecules used to develop biologics make these drugs vastly more complicated for generics makers to replicate than traditional small-molecule pharmaceuticals. That limits the number of participants in this arena, and Teva’s technological expertise should give it an edge over its peers.

Teva’s margins remain among the highest in the industry, as net income rose to $4.1 billion in 2010 from $3 billion the previous year. The company has reported double-digit sales growth in the last four years. According to analyst estimates, Teva is set to deliver another double-digit gain in sales growth in 2011.

Teva’s shares were pummeled during the third quarter following news that its stage III clinical trial for oral multiple sclerosis drug Laquinimod revealed the drug’s efficacy lagged similar drugs produced by its competitors. However, that decline has presented long-term investors with an affordable opportunity to purchase Teva’s long-term growth story.