Given the aging population and the increase in health care costs, there is an increasing awareness about generic products. Government agencies and privately managed care or insurance programs are taking initiatives encouraging the substitution of brand-name pharmaceuticals for low-cost generics. The U.S., which is the world's largest market for generics, is undertaking a health care reform that will give more people access to prescription drug benefits; this will in turn boost sales for a few pharmaceutical companies.

Let's take a look at three of these pharmaceutical companies to see how they are positioned to profit from this trend.

Actavis: Growing in specialty pharma
The first company to analyze is Ireland-based Actavis (AGN), which is a front-runner in the development, manufacture, and sale of generic pharmaceutical products. It is also a leader in women's health.

Actavis has very good momentum. Its third quarter net revenue of $2.01 billion increased 57% as compared to the year-ago quarter. Revenues were up as well by 56.6%, indicating powerful growth across all of its business units.

The company has a strong position in the generic pharmaceutical market, focusing on developing products that are difficult to formulate or manufacture. It also develops products that are complementary to its existing product lines. By the end of the second quarter, Actavis had more than 190 abbreviated new drug applications (ANDAs) pending U.S. approval.

In addition to the generics business, Actavis has more than 40 product families in its expanding pharmaceutical business. The recent $8.5 billion acquisition of Warner Chilcott is a smart move in line with the company's expansion plans, and will push its product offerings and pipeline on a global scale. The combined company is now third in market share in the U.S. specialty pharmaceutical market.

Mylan: Weak results but strong pipeline
The second company to consider is Mylan (MYL), which derives more than 90% of its revenues from generics.

Third-quarter earnings per share came in $0.01 lower than in the same period last year due to lower revenues which were negatively affected by foreign currency movements. Revenues decreased 2% to $1.77 billion, but if we exclude the negative effects of the currency translation then total revenues were essentially unchanged.

Mylan's strategy is to focus its generic product development on products with significant sales in specialized or growing markets. The company has a deep generic pipeline, which by the end of September of this year had 178 ANDAs pending for U.S. approval. This means that we'll see quite a few launches coming soon. Altogether, these applications represent $83.8 billion in annual sales, which isn't bad.

Mylan's specialty business also has a very promising star, the EpiPen Auto-Injector. This product, which is used for the treatment of severe allergies, should continue to drive growth looking forward.

Teva: It's all about the U.S.
Finally, we have Israel-based Teva Pharmaceutical Industries (TEVA 3.01%), which is the world's largest generic drug company in terms of both total and new prescriptions.

Third quarter net revenues reached $5.1 billion for Teva, showing a 2% increase year over year. Generic medicines account for 49% of this amount, showing how important this business is. In fact, the main driver behind the growth was stronger sales of generics in the U.S.

The company is aiming at streamlining its pipeline and expects to start developing 10-15 new therapeutic entities (NTEs) by 2015. Regarding generics, the company is pursuing first-to-file and first-to-market opportunities. This quarter, it had six successful generic product launches in the U.S. alone. The country accounts for 54% of Teva's total revenues, and U.S. revenues increased 4% compared to the same quarter last year. Teva remains the leader in the country, with 16.2% of generic prescriptions in 2012.

Some of its branded products like Copaxone, which is a leading multiple sclerosis therapy product, might potentially face new competition soon, however.

Bottom line
Actavis' exceptional quarter with double-digit net revenue will help the company establish itself as a global specialty pharmaceutical leader. Regarding the growth of generics, Actavis should see substantial benefits since the U.S. alone accounts for about 82% of the company's business.

Despite the quarter's weak performance, Mylan's fundamentals remain strong. Its strong geographic reach and product portfolio should drive growth in the long term. Keep an eye on competitiveness and market share growth.

Teva is a leader in the U.S. and will continue to grow in that market. The company is in the best position to profit from a growth in sales in the country, especially in generics where it is well-established.