There's no doubt that psychiatric drugs are big business for some drugmakers. In years past, all you had to do was show that a drug was better than placebo, throw up a bunch of direct-to-consumer advertisements, and watch the sales come rolling in.

But we've entered a new era with a high number of generic drugs, which should have you thinking twice before investing in companies with new drugs that are trying to enter the market; the current treatments just aren't as ripe for being picked off as they are for some other markets.

This'll make you depressed
The top-selling drugs for depression are a good example of how hard it is for an antidepressant to enter the market.

Drug

Sold by

Generics Available?

Lexapro

Forest Labs (NYSE: FRX)

No

Zoloft

Pfizer (NYSE: PFE)

Yes

Cymbalta

Eli Lilly (NYSE: LLY)

No

Effexor

Pfizer

Yes

Desyrel

Apothecon

Yes

Celexa

Forest Labs

Yes

Prozac

Eli Lilly

Yes

Source: Forbes.

Back in the day, Forest Labs was able to switch patients from Celexa to Lexapro, but now new entrants have a lot more drugs to contend with. Add in a plethora of cheap generics and it becomes extremely difficult to compete. Before Pfizer bought Wyeth, Wyeth launched a me-too version of Effexor called Pristiq, but sales only amounted to $223 million in the first half of the year; not horrible, but a far cry from a blockbuster.

And perhaps a little crazy
It's the same situation for schizophrenia drugs. There's plenty of competition between AstraZeneca's (NYSE: AZN) Seroquel, Pfizer's Geodon, and Eli Lilly's Zyprexa. And Johnson & Johnson's (NYSE: JNJ) Risperdal recently went off-patent, adding a cheap generic to the mix. As more of the top sellers go off-patent, the challenges of launching a new drug to treat schizophrenia are only going to get tougher.

This is painful
Vanda Pharmaceuticals (Nasdaq: VNDA) was the Cinderella of 2009, turning rags into riches with an unexpected approval of its schizophrenia drug, Fanapt.

But fast-forward to present day, with the drug now licensed to Novartis (NYSE: NVS). After initial stocking by pharmacies in the first quarter brought in sales of $20.7 million, Novartis ended up selling just $0.7 million in the second quarter. That's not a typo. It's not Vanda's royalties, which amount to about 10% of that or a little less than $70,000. Doctors just aren't prescribing Fanapt in large numbers, which isn't all that surprising given the other options.

Killing the pain
Eli Lilly saw the writing on the wall and expanded the use of depression drug Cymbalta into fibromyalgia. The expanded use helped the drug top $3 billion in sales last year.

The patent expiration on Cymbalta is approaching quickly, but Eli Lilly is going after one last hurrah, trying to get the drug approved for patients with chronic pain. A Food and Drug Administration advisory panel voted 8-6 in favor of the expanded use, which isn't exactly a ringing endorsement. We'll have to wait and see what the agency decides to do since it has the final call.

Pfizer tried to go the other direction, attempting to get its fibromyalgia drug, Lyrica, approved to treat generalized anxiety. After a couple of failed attempts, the company gave up -- probably a good move given the competition.

Buyer beware
Investors really need to be cautious about buying into this space. Management will tell you that patients often need to take multiple drugs before they find one that works, and it's true. But the last one into the mix is also likely to be the last one tried by doctors, especially when there are cheap generics around. 

Pfizer is a Motley Fool Inside Value selection. Novartis is a Motley Fool Global Gains recommendation. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Johnson & Johnson and has a disclosure policy.