"Like others, I've been trying to figure out how to play President Obama's policy initiatives in healthcare," says Glenn Rogers.

The contributing editor to Internet Wealth Builder adds, "I think the generic drug makers have the best chance of coming out of the upheaval in healthcare smelling like roses." Here, he looks at one favorite: Perrigo (NASDAQ: PRGO).

"I've chosen a lesser-known generic drug maker that I think should reward investors over the next 12 months with a market-beating performance; Perrigo Company is a leading manufacturer of generic over-the-counter and prescription pharmaceuticals.

Today marked intra-day 2009 for the S&P 500 and NASDAQ, although these might not have closed on the highs for the year. Also that won't be known until the formal 4:30-ish closing reset adjustment. This came on the heels of slightly less-bad jobs data and on some confusing retail gains. Unlike earlier Treasury auctions, today's 30-year Treasury Bond auction was a help to the markets as yields reached a high enough level that investors jumped in. Here are today's unofficial closing bell levels:

Dow 8,770.92 +31.90 (0.37%)
S&P 500 944.88 +5.73 (0.61%)
Nasdaq 1,862.37 +9.29 (0.50%)

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In a period of economic distress, owning stocks with stable cash flows is a great way to avoid the carnage found in other parts of the market. One sector traditionally known to provide consistent cash flow to investors is the pharmaceutical industry.

Patent protection on drugs provides the industry with the ability to generate revenue unencumbered by competition. Investors generally pay a premium to own a piece of that stream -- no matter what is happening in the economy.

During the last few years, market premium for drug companies has been diminished. As drugs from the major pharmaceutical makers come off patent, revenues and cash flow suffers.

That fact explains why drug companies invest so much money on research and development. When older drugs come off patent they are replaced by a steady stream of new drugs.

What happens when that pipeline goes dry? Obviously, the company is not worth as much.

That has been the situation at Pfizer (NYSE: PFE). During the last five years, we have been hearing about a dwindling drug pipeline with no sign of abating. During that time, patents for working drugs only aged

For the phamra industry, the long-term trends look promising, especially in light of the aging population. While companies face lots of pressure to cut costs, this is a good thing for the generic drug industry. And, as should be no surprise, we are seeing some dealmaking.

Today, Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) has agreed to purchase Barr Pharmaceuticals Inc. (NYSE: BRL) for a cool $7.46 billion (rumors have been swarming about this deal since July 16th).

Israeli generic-drug maker Teva is looking for opportunities to bolster its markets. Acquiring Barr would give it a nice platform in Europe (this was actually because of an acquisition of Pliva in 2006). What's more, the company has a nice offering of drugs such in the contraceptives category.

Teva, already the largest generic drug company in the world, has gotten even bigger with this deal. Taken together, the combined entity will have revenues of close to $12 billion.

With its resources, Teva can continue to snap up some pretty big deals. In the case with Barr, the premium was a whopping 42% (as of Wednesday's close).

So far in today's trading, Teva's shares are up 2.2% to $42.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

There is a report out of Reuters that may get the drug sector up in a whirlwind if it comes to pass. The implications aren't just that Pfizer Inc. may want to try to counter Japanese drug maker Daiichi Sankyo's bid for a majority stake in India's largest generic drug maker Ranbaxy. Daaichi Sankyo has put in a bid of roughly $4.6 billion for that majority stake.

Pfizer is stuck along with Merck & Co. Inc. (NYSE: MRK) and other Big Pharma drug players between a rock and a hard place as it has a mountain of cash, makes money, but has a perceived weak drug pipeline. If you thought that Big Pharma drug companies were under fire because of generic drugs, the issues may get much more convoluted.

Ranbaxy is India's largest generic drug maker, and India also has some restrictions on foreign ownership of its key companies and infrastructure. Whether or not the Pfizer deal comes to pass, it is becoming more and more inevitable that the big drug companies are going to have to either make more biotech buyouts to purchase better drug pipelines or that generic makers will become targets as a way to fend off the generic pressure. No wonder the short selling is lower in major biotechs.

A graph from the May 2008 issue of Harvard Business Review tells a story about the dumbing down of the global economy.

From an article, Rebuilding the R&D Engine in Big Pharma [subscription required] the graph shows the total shareholder returns for various industries in two time periods: from 1985 to 2000 and from 2001 to 2007. Here are three of the leading sectors from 1985 to 2000 (average annual shareholder returns are in parentheses):

• Pharmaceuticals (20.0%)
• Financials (18.8%)
• IT (17.4%)

Between 2001 and 2007, three of the leading sectors were:

• Energy (15.2%)
• Materials (14.3%)
• Financials (7.0%)

Chantix, an anti-smoking drug from Pfizer (NYSE: PFE), would seem to be good for people. Smoking causes heart and lung problems and who knows what else. The trouble with the drug is that it seems to cause heart problems, called cardiac arrhythmia, all on its own. That seems counter-productive.

The drug may also make some people crazy, at least to the level of causing suicide and depression in a portion of patients.

The Institute for Safe Medication Practices said, "Based on the data available now, the existing warnings are completely inadequate," according to The Wall Street Journal.

The news points to an ongoing problem in the drug industry. Big Pharma wants to get products to market fast and sell as much as it can. Many of the current drugs that get them revenue are going "off patent" and will be sold by generic drug companies. That kills most of the profits on the treatments.

But, in the race to get the drugs out, it seems that side effects are overlooked and overlooked often.

Profits versus people being sick or dead. Hard decision.

Douglas A. McIntyre is an editor at 247wallst.com. and author of the Ten Stocks Under $10 letter.

At their investor day, Teva Pharmaceutical Industries Ltd. (ADR) (NASDAQ: TEVA), the world's largest generic drug maker, said that they expect to double revenues over the next 4 years. Teva predicts that they will grow faster than the generic market. While that is interesting in its own right, their view on the generic market in general is astounding.

"By 2012, Teva expects to have 30% of the U.S. market for generic prescriptions, up from about 20% now. Over 75% of U.S. prescriptions will be filled by a generic by 2012," the company said.

Wow! Three out of every four prescriptions will be filled by a generic in just four years from now. That's huge. If that is indeed the case Big-pharma needs to look out. Where are their profits going to come from? Even the big Bio-tech players are squirming over the possibility of bio-generics.

Teva Pharmaceutical Industries (NASDAQ: TEVA), the world's largest generic drug maker, yesterday announced a change in top management. George S. Barrett, Chief Executive Officer, Teva North America, Corporate Executive VP, Global Pharmaceutical Markets has resigned from the Company. William S. Marth, currently President and Chief Executive Officer of Teva USA, will replace Mr. Barrett and assume the additional role of Chief Executive Officer of Teva North America effective immediately.

Marth is no newcomer to the Israeli TEVA. He has been a key player in the launch of new drugs in recent years. He knows the organization well, and I expect business to continue as is. With a really strong pipeline for '08 and '09, yesterday's 5% drop on the news, presents an attractive entry point for investors who want to catch the generic wave and invest in the 'best of breed' company.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has a position and owns stock in TEVA and is long the stock. He has no positions in any other stock mentioned as of 1/11/08.

Salix (NASDAQ: SLXP) has announced it will launch a generic version of its Colazal (treatment for ulcerative colitis) with Watson Pharma (NYSE: WPI). Mylan (NYSE: MYL), Apotex, and Roxane have received FDA clearance to market their own generic versions of SLXP's Colazal.

SLXP is recently down $1.01 to $8.00 in pre-open trading. Wachovia says, "Valuation range: $9 to $10."

SLXP January option implied volatility of 104 is above its 26-week average of 72 according to Track Data, suggesting larger risk.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

The pharmaceutical sector, due to its complexity, is not for the novice investor. Further, not every pharmaceutical company represents a defensive pick. But one that meets the bar, due to its niche, is Teva Pharmaceutical.

Teva Pharmaceutical Industries Ltd. (ADR) (Nasdaq: TEVA), via an assertive product development program and acquisition schedule, has achieved a leadership position in the global generic segment.

Through a U.S. subsidiary Teva makes generic versions of brand-name antibiotics, heart drugs, and heartburn medications, among other drugs. The company boasts a 150-drug portfolio, including generics for blockbusters Prozac and Mevacor.

Teva Pharmaceuticals (NASDAQ: TEVA) raised its guidance for '07 after Teva launched a generic version of Wyeth (NYSE: WYE) Protonix over the weekend, to the apparent surprise of Wyeth management. It's clear that Teva must have started shipping the drug, and that's why it is raising guidance. Goldman Sachs analyst Randall Stanicky reaffirmed a "Buy" rating on Teva, saying the launch was unsurprising and the company has likely already shipped a decent amount of the generic drug to pharmacies.

This is just the latest in a long line of setbacks for big pharma, as generics continue to scoop up market share of drugs that come off patent. Teva, as the world's leading generic company, continues to grow and has a great pipeline for '08, and as a result the stock should continue climbing as well.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has a position in TEVA and is long the stock. Writer has no position in any other stock mentioned as of 12/24/07.

It was only a couple of months ago when drug maker Novartis AG (NYSE: NVS) announced that it would be slashing 1,260 jobs in the U.S., and today we get news of another 2,500 job cuts worldwide by the year 2010.

Novartis has been particularly hard hit lately in the generic drug market from increased regulatory demands and Increased competition. During the July through September quarter, the company showed that profit fell by over 12 percent. The company did, however, benefit nicely from the sale of its Gerber baby foods and Medical Nutrition units to Nestle SA.

Looking ahead, the company is hoping that it will be able to regain momentum though engineering new drugs and streamlining its units.

Friday's news that the Israeli generic drug maker Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA), has received tentative approval from U.S. health regulators to market its generic version of GlaxoSmithKline Plc's (NYSE: GSK) Requip (Ropinirole HCl) tablets is just more proof that for investors, generics are the way to go. The tablets treat idiopathic Parkinson's disease and primary restless leg syndrome. The brand product had annual sales of approximately $455 million in the United States.

The bigger fundamental question has to do with the future of "big pharma"? Certainly companies like Merck and Co. (NYSE: MRK) and GlaxoSmithKline aren't going away anytime soon. The question is over the long run, with drug's continuously coming off patent, where is the growth going to come from? Generic makers like Teva (the world's largest generic firm) keep waiting for drugs to come off-patent, get approval to market a generic version, and immediately take significant market share away from the big pharma company. (Check out Zack Miller's analysis of this and other generic trends.) According to a report published by PriceWaterhouseCooper, by 2020 the pharmaceutical market is anticipated to more than double to US$1.3 trillion, but with weak pipelines, and soaring R&D costs, as well as higher legal costs, the big-pharma industry is at a crossroads.

Until we hear of a real long-term growth plan for big pharma, it seems like the best way to play the surging growth in he pharmaceutical market is to buy the generics.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock and is long TEVA. He has no position in any other stock mentioned as of 12/2/07.

Savient Pharmaceuticals, Inc. (NASDAQ: SVNT), surged yesterday on analyst comments regarding their promising new treatment for Gout. Savient is a biopharmaceutical company. It engages in the development, manufacture, and marketing of pharmaceutical products that target unmet medical needs.

Savient makes Oxandrin, which treats involuntary weight loss caused by trauma, surgery, or diseases such as HIV. The company reported a 3rd quarter loss due to increased generic competition for the drug. This is just another in a long line of Pharmaceutical companies to lose market share to the generics. Nonetheless, Citi Investment Research analyst Andrew Swanson started coverage of the drug maker with a "Buy/Speculative" rating and $21 price target. Which is 50% higher than yesterday's closing price.

The company's biggest growth prospect is Puricase which treats gout, a painful inflammation of the joints caused by having too much uric acid built up in the blood. Swanson notes that gout is a large and untapped market, as three million patients await their first new therapy in more than 30 years. At $15,000 per year, even making modest market share assumptions, Swanson's peak sales forecast for Puricase is $600 million.

With such a promising drug in the pipeline this looks like an interesting play. Savient's entire market-cap is $767 million, so this could be a huge opportunity for investors. But as the case with all potential blockbuster drug in trial, if the trial fails, look out below! In a note to clients, Swanson estimates the chance of positive data at 80%, but warned that if the trial fails, Savient shares could fall to as little as $3. Yikes.

Clearly this isn't for the faint of heart, but if you can stomach the potential downside, the upside potential will be well worth the risk.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 11/29/07.