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Americans looking for the next investment opportunity in generic drugs might be well advised to look overseas, because more than likely, that's where the big stories are going to take shape.

Many top generic-drug makers are already prowling the European countryside, searching for new markets with great growth potential and trying to gobble up companies as the industry consolidates.


Schwarz Pharma

, a maker of generic and proprietary drugs, just received a

buyout bid from Belgium's


, but that's only the latest deal.

In recent years, an Indian company has acquired a Belgian company and another bought a German company. A Czech firm has acquired a Romanian company, and Iceland's



taken over one U.S. company and the U.S. generics business of another.

During the next few years, drug companies can expect "increased generics penetration in Western European markets

and rapidly increasing per capita pharmaceutical expenditures in Central and Eastern European markets," says a market analysis by Actavis, a generics seller that has made 25 acquisitions in seven years.

In addition, many major brand-name drugs will lose patent protection in Europe's largest markets throughout this decade, Actavis says, opening up a potentially mad scramble among generic makers to try and capitalize with their copies of the most popular products.

A recent report by Credit Suisse says investors should consider Middle Eastern markets as well as those in Central and Eastern Europe.

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All of these areas have an aging population, a fragmented market and prospects for rapid growth, the investment-banking firm says.

"Most of these markets are experiencing a strong background of economic growth driving increased health care expenditure and hence expansion of the generics market," Credit Suisse says.

However, the risks are considerable, considering the likelihood of volatile oil prices and chaotic political situations, the firm says.

Finding the next attractive overseas generic-drug company investment, especially as a takeover play, isn't necessarily easy.

Although many companies such as Actavis trade publicly in their home markets, they aren't formally listed in the U.S.

Others are, such as India's

Dr. Reddy's Laboratories

(RDY) - Get Dr. Reddy's Laboratories Ltd. Sponsored ADR Report

or Israel's

Taro Pharmaceutical Industries

(TARO) - Get Taro Pharmaceutical Industries Ltd. Report


Teva Pharmaceutical Industries

(TEVA) - Get Teva Pharmaceutical Industries Limited Sponsored ADR Report

, which offer American depositary receipts.

If you're thinking of investing overseas, you'll have to do a lot of detective work. Credit Suisse warns that the generic-drug industry in emerging markets is "under-researched."

And you may have to move fast, because the industry's consolidation is already under way.

Many companies have been picking and choosing targets for several years.

Actavis has made acquisitions in Eastern and Central Europe, and it recently tried to buy Croatia's Pliva but was outbid by

Barr Pharmaceuticals

( BRL).

If Pliva shareholders accept Barr's tender offer, the combined company will be the world's third-largest generic-drug maker, behind Teva and the Sandoz division of Switzerland's


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Teva became the biggest by virtue of its acquisition of Miami-based Ivax, and Sandoz has recently made sizable purchases in the U.S. and Germany.

The interest in foreign generic-drug makers owes to the fact that the U.S. market is becoming more competitive and more commoditylike, while many areas abroad have plenty of room to grow.

Additionally, production is cheaper outside the U.S. and Western Europe.

Among the companies Credit Suisse expects to outperform its peers is


. The company was founded in Amman, Jordan, and is listed on the London Stock Exchange.

Although Hikma's U.S. business accounted for 44% of its sales last year, Credit Suisse sees bigger gains from the "highly profitable, rapidly growing" division that primarily serves the Middle East, as well as the generic injectable-drug division that supplies the U.S., Middle East and Europe.

The Middle East is a "fragmented market potentially ready for consolidation," says Credit Suisse, whose analysts don't own shares in Hikma or any of the companies mentioned in their research report.

Despite the risk of political instability, this is "something that Hikma has dealt with in the past," Credit Suisse says.

Another company with an outperform rating is


of the Czech Republic, whose stock is traded on the Prague and London exchanges. Zentiva already caught the eye of France's


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, which just bought 24.9% of the company to become the largest shareholder.

Zentiva's biggest market is Central and Eastern Europe. The company will probably see the most success in Poland, Russia and Romania, Credit Suisse says.

The investment-banking firm says Zentiva has better gross margins and operating margins than its peers.

Credit Suisse is neutral on Hungary's

Gedeon Richter

, with 60% of last year's sales in Central and Eastern Europe and 10% in the U.S. Russia looks like the best growth opportunity, but Credit Suisse warns that Barr's acquisition of Pliva could put pressure on Gedeon Richter.

"The company's relative lack of appetite for acquisitions has left it lagging behind" regional peers that are buying other companies and diversifying their product offerings, Credit Suisse says.