IVAX Corporation (AMEX:IVX), a generic and branded drug maker, rose after the Food and Drug Administration (FDA) tentatively granted it U.S. approval to market a generic version of Johnson & Johnson's (NYSE:JNJ) anti-seizure drug, Topamax. Final approval is pending the expiration of J&J's patent, which is slated to end September 2004, although J&J expects to get an extension to at least 2008.

A novel drug is protected, on average, about 10 years once it reaches the market. Drugs are given 20 years of patent protection, but patents are granted early in a drug's clinical development, long before the compound hits the market. Once a drug comes off patent, one generic drug maker is typically granted approval to market a biological-equivalent drug, and does so at a fraction of the original's price. Soon after, other generic drug makers are allowed in the market.

A generic drug can nab about 30% to 40% of the original drug's market share within a year. Johnson & Johnson's Topamax grew sales 44% to $687 million in 2002, and sales topped $785 million in the 12 months ended June. With approval for its generic equivalent, IVAX could see a few hundred million in additional yearly sales.

Just yesterday, IVAX offered bullish projections for its generic drug program. Management expects to file 10 Abbreviated New Drug Applications (ANDA) this year and make 50 new submissions in 2004. Generic drugs undergo significantly shortened studies before approval, primarily to prove bio-equivalence.

Over the next 15 months, the company expects approval and launches of as many as 19 generics and believes six of these are the important "first to file" drugs likely to command a generic market for a number of months before competition. These six have branded U.S. sales topping $6 billion.

IVAX expects to have 75 new generic drugs pending FDA approval by the end of next year -- it currently has 39 -- and 10 of these may be first to file submissions in markets with branded drug sales totaling $14 billion. At $19 per share, IVAX trades at a one-year forward P/E estimate of 22.

You can see how generic drug makers can make for attractive investments. Patent expirations will hit major drug makers every year this decade, opening up billion-dollar markets to generics. Early this year, the Fool studied the generic drug industry and companies to consider, including IVAX, American Pharmaceuticals (NASDAQ:APPX) and others.

For its part, Johnson & Johnson has other uses for Topamax, and some of the drug's patents extend to at least 2008. Topamax is in late stage-trials or pending FDA approval for partial onset seizures and for frequent, severe migraines.

J. Fischer has a stake in J&J.