Following last month's $7.4 billion bid for

Ivax

( IVX) by

Teva Pharmaceutical

(TEVA) - Get Report

, it didn't take long for people on Wall Street to ask, "Who's next?"

The same question emerged a few months earlier, when

Novartis

(NVS) - Get Report

made two bids -- for a German generic-drug company, as well as for U.S. generic-drug maker

Eon Labs

.

For a few years, bigger generic companies have been buying smaller ones, although none of the deals has been as massive as these last two. So maybe the appropriate question now is, "Who's left?"

"This raises the stakes for the midsized generics players," says Arthur Wong, a credit analyst at Standard & Poor's. Last month, he issued a report predicting "tougher times ahead" for generic-drug makers because of more competition.

"Consolidations that produce a larger, financially stronger generic player would be favorable developments," he said in that prescient report on an industry that's still fragmented.

But don't expect a massive merger trend. "There won't be a wave of acquisitions," says Richard Watson of William Blair & Co. "It will come in increments over

two to four years. It will be an ongoing process."

Foreign Affairs

Some analysts figure Novartis has enough spare change and ambition to bulk up its

Sandoz

unit again. Sandoz is the world's largest generic-drug producer, at least until the Teva-Ivax deal is approved.

The conventional wisdom says Big Pharma won't try to emulate Novartis. "History has shown that conglomerates don't do well with generics because it's such a cutthroat business," Watson says.

Instead, analysts predict what Watson calls "bolt-on acquisitions." These are strategic purchases meant to expand a company's geographic reach or expertise in a specialty area.

Across the generics industry, some companies have moved into selling higher-margin brand-name drugs, and some have dropped their brand-name aspirations. Some focus on certain diseases and conditions. Others have acquired foreign operations, hoping to win big stakes in underserved markets rather than devoting all their efforts to slugging it out in the U.S.

"We will see more growth opportunities in the foreign markets," says Albert Rauch of A.G. Edwards. "We need capacity taken off in the U.S to make things more attractive. Generic companies will realize that international markets are the places to be."

Small U.S. companies will have a tough time entering foreign markets. Even larger independent players, such as

Mylan Laboratories

(MYL) - Get Report

, must decide if they want to adjust their U.S.-focused strategies, Rauch says.

Israel's Teva and Miami's Ivax were way ahead of the pack in seeking overseas markets even though both do most of their business in the U.S. Each made a series of foreign-company acquisitions, and Ivax's presence in Latin America was one reason why Teva decided to buy the company.

The foreign influence works both ways, as overseas companies buy U.S. firms, invest in them or sign alliances. For example, Iceland's

Actavis Group

-- which derives about half of its $560 million in sales from Germany, Bulgaria and Turkey -- recently bought New Jersey's

Amide Pharmaceuticals

, which had $107 million in sales last year.

There are other foreign companies that operate in the U.S. and they could have an appetite for acquisitions or alliances. Examples include Germany's

Schwarz Pharma AG

, which offers brand name and generic drugs, and India's

Ranbaxy Laboratories

, which may be best known for suing to break

Pfizer's

(PFE) - Get Report

patent on Lipitor.

At this point, foreign companies whose stocks trade in the U.S. include India's

Dr. Reddy's Laboratories

(RDY) - Get Report

and Israel's

Taro Pharmaceutical Industries

(TARO) - Get Report

. An Indian company is the majority shareholder in

Caraco Pharmaceutical Laboratories

( CPD) of Detroit.

Big Pharma's Place

Some giant companies, such as Pfizer and

Schering-Plough

( SGP), have generic units, but they represent an attempt to soften the blow from losing patent protection and to maintain a certain level of manufacturing capacity.

Analysts doubt the corporate cultures or bureaucratic structures of big, research-oriented and marketing-driven companies could accommodate the low-margin copycat business.

Consider: Last year, six of the top 10 most prescribed drugs, and 11 of the top 20, in the U.S. were off-patent products made by many companies, according to data from NDCHealth and Rxlist.com. But on the list of top revenue producers, the first generic drug appears in 97th place.

Or look at

Forest Laboratories

(FRX)

and its antidepressant Celexa. For the quarter ended June 30, 2004, Celexa had $261 million in sales when there wasn't generic competition. For the same period in 2005, Forest recorded $4.2 million in sales for brand-name Celexa and its own generic version.

There are other reasons that could prevent a big venture by Big Pharma into generics. "Drug distributors will also be more likely to buy generic drugs from a full-line generic drug maker," says an S&P report. Because drug distributors make "significantly higher" profit margins on generic drugs vs. brand-name drugs, "a reliable supply of a broad line of generic drugs is critical," S&P says. "Big Pharma has yet to show a strong commitment at being a provider of a broad line of generic drugs over the long term and are unlikely to do so."

Unconventional Wisdom

When trying to handicap the next generic drug deal, stock watchers should be prepared for surprises that, in retrospect, might have been sensible strategic decisions that were hiding in plain sight.

Could

Sanofi-Aventis

(SNY) - Get Report

try to mimic Novartis? The French drug giant has consolidated disparate generic products into a single division,

Winthrop

, which operates in 14 countries. Sanofi-Aventis says its plans to be "a major actor on the generics market."

How about the German chemicals and pharmaceuticals conglomerate

Merck KgaA

, which just established a generic drug unit,

Genpharm

, in New York to "help solidify our position as the world's third-largest global generics company."

The company, which is unrelated to

Merck & Co.

(MRK) - Get Report

of the U.S., has generic operations in 11 countries, including the U.S.-based

Dey Inc.

Generic drugs accounted for $1.98 billion of the company's $6.64 billion sales last year.

Then, there's

Tyco

(TYC)

. The conglomerate's

Mallinckrodt Pharmaceuticals

unit is among the leaders in dispensing generic drugs in the U.S., focusing on pain relievers and neuroscience drugs. "Look for us now and in the future to grow by leveraging our ability to produce quality generics from start to finish," Tyco's Web site says.

Tyco doesn't identify generic drugs' contribution to the company's health-care division, which had $9.1 billion in sales for the fiscal year ended Sept. 30, or 22% of corporate revenue. The division has the highest operating profit margin among Tyco's five operating segments. It makes 50,000 products ranging from surgical supplies to medical monitoring equipment, and Mallinckrodt is the world's largest producer of acetaminophen.