05 Nov Slowdown in world pharma market due to blockbuster drug patent expirations
Since the days when I was a pharmaceutical sales rep overseas, I always waited with great excitement and anticipation the annual ranking of pharma companies to see which company was the overall leader, which companies had gained in rank, and which had dropped. Sort of like the Oscars of “Big Pharma!”
The next day you would see in the faces of your competitor reps in the hallways of hospitals or doctors offices with either big smiles on their faces or ready to defend and argue why their company had dropped. It always made for an interesting few days!
This year’s pharma ranking had a few interesting surprises, the first of which is that Pfizer is no longer the absolute leader in sales – it has been surpassed by Johnson & Johnson. It also is expected that Pfizer will further drop in the rankings as the worldwide impact of its largest drugs become generic due to patent expiration.
To be fair, the sales represented below are NOT just Pharma (drug) sales but also include other healthcare related products such as diagnostics, medical devices, nutritional products, etc., so it is not quite an apples-to-apples comparison. Nevertheless, it is a fascinating guide for us into the ups and downs of these companies.
Almost all of the companies have grown by aggressive multiple company acquisitions, with perhaps the exception being Takeda, which has relied for the most part on internal growth (although it has become aggressive in product licensing in recent years).
Some salient facts:
• There are five U.S. companies in the top 10 companies and 12 U.S. companies within the top 25 companies, with the Midwest having three of those companies (Abbott, Lilly, and Baxter).
• There are eight European companies within the top 25 companies
• There are now four Japanese companies in the top 25 companies (but none yet in the top 10 companies); interestingly, the U.S. headquarters of two of these Japanese companies, Takeda and Astellas, is in the Midwest
• There is one Israeli company, TEVA, in the top 25 companies, which not so coincidentally has the highest growth rate of any of the companies: + 58 percent.
• There are two biotech companies in the 25 companies: Amgen and Genentech (Roche owns a significant chunk of Genentech).
Leading pharma companies by healthcare revenue 2006
|Company/Rank||2006 Sales ($B)||% Growth|
|1. J & J (U.S.)||$53.3||+6%|
|2. Pfizer (U.S.)||$48.4||+2%|
|3. GlaxoSmithKline (U.K.)||$42.8||+7%|
|4. Novartis (Switzerland)||$37.0||+15%|
|5. Sanofi-Aventis (France)||$35.6||+4%|
|6. Roche (Switzerland)||$33.5||+18%|
|7. AstraZeneca (U.K.)||$26.5||+10%|
|8. Merck (U.S.)||$22.6||+3%|
|9. Abbott Labs (U.S.)||$22.5||+1%|
|10. Wyeth (U.S.)||$20.4||+9%|
|11. Bayer* (Germany)||$18.2||+82%|
|12. Bristol-Myers Squibb||$17.9||<7%>|
|13. Eli Lilly (U.S.)||$15.7||+8%|
|14. Amgen (U.S.)||$14.3||+15%|
|15. Boehringer Ingelheim (Germany)||$13.3||+11%|
|16. Schering-Plough (U.S.)||$10.6||+12%|
|17. Baxter International (U.S.)||$10.4||+13%|
|18. Takeda Pharmaceutical (Japan)||$10.3||+5%|
|19. Genentech (U.S.)||$ 9.3||+41%|
|20. Procter & Gamble (U.S.)||$ 9.0||+14%|
|21. TEVA Pharmaceutical (Israel)||$ 8.4||+58%|
|22. Astellas Pharma (Japan)||$ 7.9||+7%|
|23. Daiichi Sankyo (Japan)||$ 7.2||+7%|
|24. Novo Nordisk (Denmark)||$ 6.5||+14%|
|25. Eisai (Japan)||$ 5.6||+12%|
Source: MedAd News, Sept. 2007
2006 also saw a number of mergers, including:
• Bayer’s acquisition of Schering AG.
• Merck kGa’s acquisition of Serono.
• UCB (Belgium) acquires Schwarz Pharma (Germany).
• Nycomed’ acquisition of Altana.
• Novartis’ acquisition of Chiron and the increase in its share position in Roche.
• Amgen’s acquisition of Ilypsa, Alantos Pharmaceuticals, and Avidia.
• Gilead acquisition of Myogen.
• AstraZeneca acquisition of Medimmune.
• Genentech’s acquisition of Tanox.
• Genzyme’s acquisition of Bioenvision and Anormed.
• Watson Pharmaceuticals acquisition of Andrx and Sekhsaria Chemicals (India).
• Mylan Labs acquisition of Merck kGa’s generic business Matrix Labs (India).
Although a number of American companies bought into the fast-growing Indian pharma market via local acquisitions, the large Indian pharma companies, themselves, were active expanding presence in both U.S. and Europe. Interestingly, continuing this trend just last week, the Indian pharma company Wockhardt acquired the pediatric generic pharma company Morton Grove Pharmaceuticals in Chicago for less than $100 million.
What drives all of this activity is the lucrid worldwide pharma market, which had sales of $604.5 billion in 2006 and grew about 8 percent.
Worldwide pharma market by region – 2006
|Region||2006 Revenue ($B)||% Growth||% Share|
|3. Japan||$ 57.7||<3%>||10%|
|4. Asia Pacific||$ 43.0||+14%||7%|
|5. Latin America||$ 29.3||+21%||5%|
|6. Middle East/Africa||$ 20.8||+13%||3%|
|7. Canada||$ 15.3||+19%||3%|
Source: MedAd News, Sept. 2007.
The slow down in the Japanese market has to do with the Japanese government’s concern about the rising cost of healthcare and its moves to cap the growth and cost of pharmaceuticals by its continued policy of bi-annual, across-the-board price cuts, and its newer policy of allowing for generic drugs to play a central role for the first time.
As a result of this, there will continue to be further consolidation of Japanese pharma; just one example is the recent acquisition of Kyowa Hakko Kogyo this year by Kirin Brewery.
The Asia Pacific market growth is principally being driven by the growth of both India and China. The Canadian market growth is in part due to the strong revaluation of the Canadian currency to the U.S. dollar, and growth of the Canadian biotech industry. The Latin American market reflects the growth of both the Brazilian and Mexican markets.
Another recent article by pharma market research giant, IMS Health predicts a number of things about the world pharma market:
• Overall market growth will begin to further slow from the eight percent seen this year, six to seven percent next year, and five to six percent in 2008.
• This growth slowdown most impacts the U.S. and Europe, where $20 billion/year of annual drug sales will disappear due to patent expiration of blockbuster drugs (Pfizer will be particularly affected).
• As a result, the overall U.S. share of the world pharma market will most likely drop its share to under 40 percent and eventually even 33 percent of the world market.
• Although 29 new drugs are expected to be approved and launched next year, most of these drugs will not be blockbusters as they are for less common diseases, therefore not replacing the lost sales of blockbuster patent expirations.
• The growth of the generic pharma business, representing about 60 percent of the actual volume of drug sales and prescriptions, will continue.
Pharma R&D: The Lifeline
As an industry that has traditionally invested heavily in R&D, in great part due to the long time and high cost it takes to develop and bring a new drug to the marketplace, this year’s ranking of Pharma R&D expense and investment is an important indicator of the industry.
Leading healthcare companies R&D expense 2006
|Company/Ranking||2006 R&D Expense ($ B)||% Growth||% of Healthcare Revenue|
|10. Eli Lilly||$3.2||+7%||20.4%|
|12. Bristol-Myers Squibb||$3.1||+15%||17.3%|
|13. Abbott Labs||$2.3||+28%||10.2%|
|15. Boehringer Ingelheim||$2.0||+18%||15.0%|
|18. Takeda Pharmaceutical||$1.6||+14%||15.5%|
|19. Daiichi Sankyo||$1.5||+7%||20.8%|
|20. Astellas Pharma||$1.4||+17%||17.7%|
|21. Novo Nordisk||$1.1||+22%||16.9%|
|24. Forest Labs||$ .9||125%||26.5%|
|25. Eisai||$ .9||+13%||16.1%|
Source: Med Ad News, Sept. 2007
The leading Big Pharma companies have R&D expenses larger than the total revenues of many of the rest of the pharma companies. As pharma R&D is incredibly intense and competitive, R&D growth levels continue to outpace sales growth.
Remember that this heavy investment in new products does not mean that the drugs come from internal company development. Forty to 50 percent (and in some companies even more) of drug sales and drug development expenses come from in-licensed or acquired drugs, and this trend is likely to continue.
There will be a real transformation of the U.S. pharma industry over the next few years not unlike the transformation underway in the U.S. auto industry, which itself is under siege from low-cost producers (the generics of the auto industry) in Korea and shortly India and China, and innovation and design leaders such as BMW, Toyota, and Honda (the equivalent of biotech companies in the Pharma industry).
It doesn’t help that the U.S. currency is so weak these days as it makes it even more attractive for foreign companies to gobble up weaker smaller pharma companies in the U.S. I submit that we will see a major Indian pharma company within the ranks of the top 50 pharma companies very shortly. The sales of the 50th largest company, the Danaish company Lundbeck, $1.6 billion/year, will shortly be surpassed by either Ranbaxy, Dr. Reddy, Cipla, Sun Pharma, or other Indian companies.
The lesson to American Big Pharma can be seen in the travails of the auto industry – you must be both cost competitive AND compete on innovative product design for a world customer to thrive today.
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: University research and life science collaborations drive new approaches to disease
• Michael Rosen: The ease of biotech beyond the Midwest and the U.S.
• Michael Rosen: Japanese biotech: A Midwestern perspective
• Michael Rosen: The cost of doing biotech business: Midwest cheaper than the coast, but not by much?
• Michael Rosen: Midwest nanotechnology whittles away at top states
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission.
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