The pharmaceutical industry

The pharmaceutical industry is facing many challenges. The governments claim that overpriced patented drugs are inflating health care budgets. The regulators accuse pharmaceutical companies of rushing drugs to the market without comprehensive testing. The consumers crib that pharmaceutical companies charge too much, while investors believe that drug companies are not doing enough to get new drugs to the market. Yet the pharmaceutical industry has done much to extend life expectancy.

The pharmaceutical industry is fragmented with a large number of companies. The players range from chemical companies to bulk drugs and intermediate producers to research-driven companies. The leading pharmaceutical companies despite a global presence do not account for a sizeable share of global retail sales. The big research-based pharmaceutical companies in the pharmaceutical industry include:

• Pfizer,
• GlaxoSmithKline,
• Merck,
• AstraZeneca
• Novartis.

Sales in the pharmaceutical industry

The global audited pharmaceutical sales totalled US$550 billion in 2004. Over 80 per cent of the global audited sales of the pharmaceutical industry came from North America, European Union countries and Japan in 2004. The leading therapeutic classes include cholesterol and triglyceride reducers, antiulcerants, cytostatics, antidepressants, antipsychotics, antirheumatic non-steroidals, angiotensin-II Inhibitors, calcium antagonists plain, erythropoietin products and anti-epileptics.

Broadly, drugs can be classified into three categories:

• prescription drugs,
• generic drugs and
• over the counter drugs.

The pharmaceutical industry relies heavily on patented prescription drugs. The patented drugs with sales over US$1 billion are called blockbusters. The number of blockbusters in 2004 totalled 82. Some leading blockbusters include Lipitor, Zocor, Plavix, Nexium and Zyprexa.

With several blockbusters set to lose patent protection in the next few years, the research-based pharmaceutical companies of the pharmaceutical industry are likely to run into choppy waters. The pressure on these companies would have been less if they had been able to come up with new drugs. Unfortunately, the new drug pipelines of major research-based companies are thinning despite attempts to bolster them through mergers and acquisitions in the pharmaceutical industry. Falling research productivity and lengthening drug approval periods are partly to blame for the current problems of pharmaceutical companies. In the next few years, most research-based companies in the pharmaceutical industry will be exposed to cut-throat competition from cost-competitive generic companies.

Most pharmaceutical companies have realigned their research priorities in the past few years owing to the aging of the population worldwide and emergence of lifestyle diseases such as obesity. Yet basic research from the pharmaceutical industry has not yielded as many new drugs as expected.

The aging of the population together with rising drug prices has also increased government spending on health care. Consequently, the governments are putting pressure on the pharmaceutical industry to cut prices while promoting the use of generics.

Further, the withdrawal of high profile drug like Merck’s Vioxx, an anti-arthritis drug, shook the confidence of consumers in pharmaceutical companies. The high cost of patented drugs and attempts to extend the patent protection period of drugs are also testing the patience of consumers.

However positive news for the pharmaceutical industry is that the demand for drugs is increasing in markets such as China and India. The biotechnology is opening new doors for the pharmaceutical industry. The biotech drugs accounted for 10 per cent of global audited sales in 2004. The biotech drugs account for 27 per cent of research and development pipeline. The cost-efficient producers from China and India are driving the cost of producing drugs down. Increasing consolidation is expected to reduce fragmentation in the pharmaceutical industry.

Also see the Pharmaceutical industry Profile document.