Pharmaceuticals Industry Profile

From: Yahoo Finance, September 13, 2005
The US leads the world in pill popping, claiming both the largest market share and five of the ten largest druggernauts (Bristol-Myers Squibb, Johnson & Johnson, Merck & Co., Pfizer, and Abbott Laboratories). Pfizer, already the top drug company, pushed itself even farther out in front with its 2003 buy of rival Pharmacia. The company now boasts a whopping 14 drugs that are the top-sellers in their therapeutic categories. Europe takes second place, even as the industry faces more and more regulation there. It is home to the other five of the world's top pharmas (AstraZeneca, Sanofi-Aventis, Novartis, Roche Group, and GlaxoSmithKline). Japan comes in third, as its hyper-regulated drug industry recovers from the economic turmoil that plagued the region in the late 1990s. After a period in second place, it has taken a back seat to Europe in total sales, as its major players (Sankyo Co., Takeda Chemical Industries, and Yamanouchi Pharmaceutical) have been largely left out of the Japan's domestic products. Although the rest of the world Demand directs drug development. With R&D costs climbing, drugmakers tend to focus on products for chronic rather than acute diseases with large patient populations (such as cancer, arthritis, cardiovascular conditions). Ulcer medications, cholesterol treatments, and antidepressants are the top three drug categories; the world's two best-selling drugs, Merck's Zocor and Pfizer's Lipitor, both treat high cholesterol. Advances in biotechnology are not only opening up new product opportunities but are also trimming the time and expense of development.
F. Another factor driving the industry is the world's increasing elderly population.
The over-65 set, which consumes three times as many drugs as younger populations, is expected to reach 690 million by 2025, and people are living longer thanks to drugs. Some 150 products for age-related conditions were brought to market in the 1990s, and some 600 more are in development. The aging population has also increased the demand for low-cost prescriptions. As drug prices continue to climb, many states are taking hard-line bargaining positions to reduce their Medicaid drug costs. The industry also faces new challenges with the Medicare prescription drug benefit poised to roll out in January 2006.
G. While the buyers may be living longer, monopoly profits from patents don't last
forever. Patent expiration, in part, is fueling the M&A activity reshaping the industry. Although holders try to extend those precious patents with lawsuits and reformulations (such as Eli Lilly's failed move to extend its Prozac patent) or by simply paying generic rivals to keep generic versions of popular drugs off the market, such generic drugmakers as Barr Laboratories, Mylan Laboratories, Teva Pharmaceutical Industries, and Watson Pharmaceuticals will be adding big sellers to their product lists.
H. Building a bigger, stronger drug pipeline can stave off losses when best sellers go
off patent, and the push for new blockbusters is also driving industry consolidation. Pooling R&D potential has been part of the logic behind such megamergers as those between Pfizer and Pharmacia, Glaxo Wellcome and SmithKline Beecham, and the companies that today are known as Sanofi-Aventis, Novartis, and AstraZeneca. Couplings with biotechnology companies provide another possible stream to fill emptying pipelines. More companies will be merging and seeking collaborations as competition to discover another blockbuster wonder drug ramps up.



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