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This is free marketing research on the pharmaceutical industry and can include information on the background, market structure, definitions, competitors, trends and developments of pharmaceuticals and is related to other topics such as drugs, medicine, vitamins and health.
Table of Contents
[edit] Background
The pharmaceuticals industry consists of drug manufacturers and biotechnology companies along with the distribution and wholesale companies handling their products. The industry is composed of medicinal and veterinary chemical and biological compounds. Companies that make related products, which are not necessarily, classified as drugs, such as vitamins and other health supplements, or diagnostic substances are also a part of the pharmaceutical industry. The major part of the industry is composed of the various drug companies that make prescription, generic, and over the counter (OTC) drugs for medical or veterinary uses.
Compared to most other industries, the pharmaceuticals industry boasts higher percentages of funds that are regularly spent on research and development. It is also one of the largest employers of scientists. Historically the pharmaceuticals industry was based in Europe. However, from the beginning of the nineteenth century, the United States has steadily been overtaking Europe as the leader in the industry, considering both new developments and revenues. The U.S. is now the undisputed world leader in the pharmaceuticals industry, followed by Europe and Japan.
With declining returns from drug development pipelines and generic erosion of drug market shares, it is a very challenging time to be in the drug manufacturing business. However, with the increasing levels of M&A and licensing activity, the big players are still able to get access to novel drugs without all the draining costs of research and development.
Biosimilar launches
Healthcare expenditure in most developed countries has been increasing steadily in recent years, driven by an aging population, the higher cost of some therapies and the increase in the number of patients diagnosed. Consequently, governments and healthcare providers have been implementing methods of cutting spending.
One of the main cost-containment measures being introduced is the promotion of generic products. In 2006, the drive for greater cost savings by healthcare providers also influenced the development of the biosimilar market. With a regulatory approval pathway in place in Europe and substantial guidelines to support biosimilar development, two biosimilars were launched in 2006 in Europe: Sandoz's Omnitrope and BioPartners' Valtropin, both of which are human growth hormones (HGHs).
Sandoz has also launched Omnitrope in the US, although unlike the EU regulator, the FDA has not established a specific biosimilars regulatory pathway. Consequently, the biosimilars regulatory environment in Europe is currently considerably more advanced than in the US. However, the debate surrounding the approval and regulatory process has continued into 2007, with renewed support for the speedy introduction of biosimilars in order to slash astronomical healthcare costs. 2007 could therefore be a watershed year for biosimilars in the US.
M&A activity set to continue
In an increasingly challenging operating environment, companies are turning to a range of strategies in order to improve sales and profit growth. Of these, inorganic growth has been used to provide growth through acquisition, cooperative agreements with other companies, and in-licensing agreements. This allows branded pharmaceutical companies to expand their geographical presence, while enhancing the strength and breadth of their pipelines.
The key M&A deals of 2006 were: Bayer's acquisition of Schering AG for $21.6 billion; Merck KGaA's surprise acquisition of Swiss biotech company Serono for $13.3 billion; and Teva's completion of its $7.4 billion acquisition of Ivax in January 2006.
The first significant acquisition of 2007, announced in March was Schering-Plough's decision to buy AKZO Nobel's healthcare division (Organon) for $14 billion. As such, Schering-Plough stands to gain access to one of the strongest women's health portfolios in the industry, and a CNS franchise that boasts a potential blockbuster in asenapine. Furthermore, with a sizable injection of capital at its disposal, the deal has opened the door for AKZO Nobel to conduct significant M&A driven-growth of its own, with strategically-motivated acquisitions in chemicals a likely scenario. Ultimately, the deal presents benefits to all parties.
M&A deals are likely to continue throughout 2007 at a similar level of intensity to that seen in recent years, with a focus primarily upon continued mid-Pharma, biotech and generic mergers. Consolidation at the top of the pharmaceutical industry will subside.
With the globalization of the pharmaceutical and biotech markets, manufacturers are increasingly outsourcing and offshoring a range of drug development functionalities to emerging markets, particularly in India and China. These include numerous stages of drug development, as well as manufacturing active pharmaceutical ingredients, and intermediate and final stage drugs. These strategies alleviate the pressures of rising costs of drug development, competition for participants and clinical trial investigators, brand revenue erosion due to generics and cost-containment issues driving down prices.
As part of offshoring, western pharmaceutical manufacturers are continuing to invest in China and India by setting up wholly owned R&D subsidiaries. Meanwhile, in addition to acting as key sights for off-shoring drug development and manufacturing, India and China are increasingly becoming key targets for Western companies aiming to expand their global pharmaceutical revenues.
Leading Western manufacturers in China, including AstraZeneca and Novo Nordisk are continuing to expand their Chinese-based operations to take advantage of China's growing pharmaceutical market. The rapid growth of these emerging markets is fueled by the rapid economic expansion, increasing healthcare spend, improved intellectual property protection and the huge populations.
[edit] Market Structure
The leading companies in the pharmaceutical market, often referred to as “Big Pharma,” generate more than 50% of the industry’s sales. The remainder of the industry, however, is very fragmented, with numerous specialty companies, small biotech firms, and start-up companies concentrating on specific products. Pharmaceutical leaders include such diversified companies as Johnson & Johnson and Abbott Laboratories, as well as non-diversified companies such as Pfizer and Merck. Amgen is the biggest player among the biotech segment of the Pharmaceutical companies.
Currently, patent expiration is one of the biggest issues being faced by a number of pharmaceutical companies. Expiring patents are making their principal product producible and available generically, cutting down on their profits. A number of recent product recalls and safety issues with testing have created waves for many of these companies as well, especially with respect to products like Vioxx and Celebrex. Among other concerns that are being raised in recent years are the moral and ethical issues involving gene manipulation, pricing and patenting strategies of Big Pharma products, and clinical trial practices with the trials taking place in less developed countries.
[edit] Industry Definitions
- Pharmaceuticals: are substances aimed at curing, preventing, or recognizing diseases and relieving pains through their application.
- Generic medicines (Generics): are equivalent medicines with the same quality, safety and therapeutic efficacy as the originator product; containing the same active substances in the same pharmaceutical form; marketed after the patent has expired. Generics are normally 20% to 90% cheaper.
- Patent: A document granting an inventor the exclusive rights to exploit an invention for a given period of time. In return, the inventor submits the complete information necessary to repeat the invention, to public access. The patent prohibits others from making, using or selling the invention without the inventor’s permission in the territory where the patent was issued.
[edit] Market Metrics
Despite some troubles, the pharmaceuticals industry is showing promising growth and possibilities for the future. An aging population across the world is consuming three times as many drugs as younger people would. They are driving demand up and increasing opportunities. Drug spending is expected to triple in the fist half of this century, by 2050. In the U.S., the pharmaceuticals industry is the fifth most profitable, continuing to grow. Worldwide, it is still one of the most profitable industries, and alongside the established North American and Western European markets, many new, or smaller, international markets including Brazil, China, India, and Turkey are showing great promise and a substantial amount of growth.
Global pharmaceutical market segmentation by value, 2006
Geographical Area % Share
Americas 53.5%
Europe 28.0%
Asia-Pacific 18.5%
Global pharmaceutical market share, by value, 2005
Company % Share
Pfizer 8.7%
GlaxoSmithKline 6.3%
Sanofi-Aventis 5.5%
Novartis 5.0%
Others 74.4%
[edit] Industry Players
Revenues of US Big Pharma ($ millions)
Rank Company Global 500 rank Revenues Profits
1 Johnson & Johnson 112 53,324.0 11,053.0
2 Pfizer 115 52,415.0 19,337.0
3 GlaxoSmithKline 147 42,730.6 9,915.0
4 Novartis 168 37,020.0 7,175.0
5 Sanofi-Aventis 169 36,998.4 5,026.1
6 Roche Group 188 34,702.8 6,285.4
7 AstraZeneca 252 26,475.0 6,043.0
8 Merck 308 22,636.0 4,433.8
9 Abbott Laboratories 312 22,476.3 1,716.8
10 Wyeth 346 20,350.7 4,196.7
11 Bristol-Myers Squibb 406 17,914.0 1,585.0
12 Eli Lilly 481 15,691.0 2,662.7
Profits of US Big Pharmaceutical Companies as % of
Company Revenues % Assets %
Johnson & Johnson 20.7 15.7
Pfizer 36.9 16.8
GlaxoSmithKline 23.2 19.8
Novartis 19.4 10.6
Sanofi-Aventis 13.6 4.9
Roche Group 18.1 10.3
AstraZeneca 22.8 20.2
Merck 19.6 9.9
Abbott Laboratories 7.6 4.7
Wyeth 20.6 11.5
Bristol-Myers Squibb 8.8 6.2
Eli Lilly 17.0 12.1
[edit] Recent Trends and Developments
Big Pharma companies forecast about 60% of revenue growth to come from biologic products. The forecast revenue growth rate to 2010 for biologics is 13%, compared to 0.9% for small molecule products.
In 2006, North America, grew 8.3 %, compared to 5.4 % the previous year, due to the impact of the Medicare Part D benefit and the increase in prescribing volume. There was a solid 7.6 % growth in Canada. The five major European markets (France, Germany, Italy, Spain and the U.K.) experienced 4.4 % growth which is lower than the 4.8 % growth in 2005, the third year of slowing performance. Sales in Latin America grew 12.7 %, while Asia Pacific, not counting Japan, and Africa grew 10.5 %. Japan experienced a 0.4 % decline due to biennial price cuts imposed by the government.
Pharmaceutical sales in China grew 12.3 % in 2006, compared to 20.5 % the previous year. This slowdown was due to the government’s introduction of a campaign to limit physician promotion of pharmaceuticals. India was one of the fastest growing markets in 2006, with pharmaceutical sales increasing 17.5 %. With many multi-national pharmaceutical companies tapping into the huge potential the Indian market offers, factors like the acceptance of intellectual property rights, a robust economy and the country’s burgeoning healthcare needs have contributed to accelerated growth.
Overall, 27 % of total market growth is now coming from countries with a per-capita Gross National Income of less than $20,000. As recently as 2001, these lower-income countries contributed just 13 % of growth.
Big Pharma rushing for foothold in emerging markets despite challenges
Faced with dwindling growth rates in the US and Europe, drug companies are turning their attention towards emerging pharmaceutical markets where recent economic booms have fuelled double-digit growth. However, although the patient potential of these countries is enormous, foreign pharmaceutical companies are currently tapping into only a fraction of the market.
Poor access to drugs in countries like India and China, and to an extent in Russia, Brazil and Turkey limits the potential market available to pharmaceutical groups. Nevertheless, many companies are keen to get a foothold as the purchasing power of the booming middle class is rising, driving market growth. Governments are improving public provision of healthcare, and more individuals can pay for drugs out of pocket, so the largest companies are ready to profit, compensating for lower growth in mature markets.
Double-digit rates of growth
With slowing growth rates in western pharmaceutical markets, the fast growing emerging markets may be necessary as new sustainable sources of revenue growth. Some of the countries that have attracted the most attention are Brazil, Russia, India, China and Turkey. Although the current pharmaceutical market values in these countries are not impressive compared to more mature markets, most are experiencing tremendous growth rates compared to the modest 4-6% growth seen in the US and Europe.
The Brazilian retail pharmaceutical market was worth $8.4 billion in 2006 and growing at a rate of 24%. Russian market research company Pharmexpert puts the value of the Russian pharmaceutical market at $10.7 billion in 2006, noting a record 27% growth from 2005. China and India both grew at 15%, bringing the hospital market value in China to $10.7 billion, compared to India's retail market sales of $5.5 billion. Turkey's total market value in 2006 was $7.3 billion with 5% annual growth.
Large populations and growing economies
Although the Russian market has demonstrated tremendous growth over the last few years, and Brazil and Turkey's healthcare systems are more mature, it is China and India that have attracted the most interest from drug companies. The key attraction of India and China is obvious; their huge populations. Even if only a fraction of the population has access to modern drugs, that group still represents a sizeable number of consumers.
The increase in the elderly population, compounded with an increasingly westernized lifestyle, is also resulting in epidemiological trends in emerging market countries becoming more similar to the major markets. A shift in therapeutic focus is evident as sales of anti-infectives, which traditionally dominate emerging markets, are slowing down. These are being overtaken by drugs targeting the nervous system, and cardiovascular, gastro-intestinal and metabolic diseases such as diabetes. Although sales of oncology drugs are still low compared to the major pharmaceutical markets, they are growing at a fast rate.
Recent rapid economic growth seen in the emerging market countries is one of the key drivers of the growth of their pharmaceutical markets. Growing disposable income, particularly of the new middle class, and the resulting increase in out-of-pocket expenditure on drugs, combined with the investment into public health provision seen in some countries, is resulting in increased drug consumption. Modern western drugs have seen particularly strong sales growth. However, these markets are vulnerable to any downturn in the economy: China's economy's over-reliance on exports to the US makes it vulnerable to economic turmoil in the west, while Russia's economy is over-reliant on the natural resources industry, making it vulnerable to fluctuations in oil and gas prices.
On the other hand, India's booming middle class, created by the growth of the services industry, accounts for only a tiny proportion of the total population and still has significant growth potential. However, the country's poor infrastructure may limit future growth.
Insufficient IP protection and low public funding
Despite the passing of the Patent Act of 2005, recognizing product and not only process patents for pharmaceuticals, India has failed to deliver on its initial promise of improved intellectual property protection. Since the Patent Act was passed patent applications for Eli Lilly's Forteo (teriparatide), Novartis's Glivec (imatinib) and AstraZeneca's Iressa (gefitinib) were rejected mostly on the grounds of prior known use, or incremental innovation that is not recognized in India. Despite Novartis's appeal to the Chennai High Court the initial decision was upheld. Multinational pharma companies active in India are now reconsidering their portfolio of marketed drugs and may decide to focus on more mature products. In view of the court's decision on Glivec, there is concern that the trend for rejecting the patents of life-saving drugs may continue.
However, in December 2007 Pfizer's HIV/AIDS drug Celzentry (maraviroc) became the first known HIV/AIDS drug to get a patent in India. Although this event may signal a change in the tide for patent protection in India, post-grant opposition from local manufacturers and patient groups could still result in the decision being overturned.
China also failed to improve its IP laws and, in a move that surprised the industry, Brazil issued a compulsory license for Merck's HIV/AIDS drug Sustiva (efavirenz) in May 2007. Thailand has also issued a line of compulsory licenses and should this trend continue in other countries, or expand beyond HIV/AIDS drugs, it may seriously undermine the position of foreign pharma.
Another major obstacle to the higher uptake of branded drugs in emerging markets is poor access to pharmaceuticals through public health provision. However, as their economies strengthen, many of these countries are investing in improving access and quality of healthcare to their citizens: Turkey, Brazil, Russia and China have all made steps to improve access to healthcare services through public systems. The potential impact of increased public healthcare spending on the uptake of drugs produced by global pharma is twofold. First of all, increased access to healthcare facilities means the population is more likely to receive prescriptions and purchase drugs. Added to this, patients will have wider access to drugs through expanded reimbursement on the public health systems.
A clear example of how expansion of the reimbursement system can influence market growth can be seen in Russia. The introduction of the federal reimbursement system (the DLO) has fuelled rapid market growth, reaching double digits in 2005 and 2006. However, sustainability of such systems is key; poor planning and high demand are threatening the future of the DLO.
Price controls threaten potential
A major challenge for pharma operating in emerging markets is tight drug price controls. In 2004, Turkey introduced a reference pricing system that resulted in it having lower drug prices than any other European country, and this has impacted market growth negatively. Other countries, such as Brazil and India, also have different mechanisms for price controls that may be expanded in the future.
China is implementing a strategy of price cuts on reimbursable drugs. This practice is leaving global pharma with a choice of opting out of price cuts, thereby losing the reimbursable status that would reduce their market penetration, or sticking to their reimbursable status with lower margins, and hoping that the pricing environment will improve and that drug consumption will grow. Russia is an exception, with virtually free drug pricing. Consequently drug prices in Russia are among the highest in Europe, however, this may change in the future if the recently introduced reimbursement system becomes unable to cope with growing demand.
Although tight drug price controls and poor IP protection threaten the potential of many emerging markets, global pharma is becoming increasingly active in these countries as the potential for higher healthcare spending in the future is outweighing any potential setbacks.
In addition, the preference for foreign brands exhibited by the rising middle class in many emerging market countries, especially in India and China, is translated into healthcare, thus enabling branded companies to compete with generics in certain market segments. Therefore, emerging markets present new opportunities for mature drugs whose sales are declining in major western markets, which is a highly attractive option, especially at a time when many drugs are on the verge of patent expiry.
New Drug Applications: FDA increases focus on data integrity
Data issues regarding a second antibiotic NDA may lead to drastic changes for drug approval reviews.
The fact that the New Drug Application for Theravance's antibiotic is being delayed by further investigations into monitoring issues at its study sites shows that the FDA is getting serious about reconsidering its drug approval processes.
The approval of telavancin, an antibiotic in development for the treatment of complicated skin and skin structure infections, has been delayed after the FDA informed manufacturer Theravance that it needs more time to further evaluate the drug.
The agency said that it needs more data with regards to study site monitoring and study conduct to ensure data integrity in telavancin's ATLAS Phase III program. The planned review by the Anti-Infective Drugs Advisory Committee (AIDAC) was cancelled on February 23, only four days before the review was due to take place. The FDA indicated that, due to study monitoring issues at a single study site managed by the primary contract research organization for the ATLAS program, the agency intends to evaluate additional sites, and that more questions could arise after further evaluation.
It is not a coincidence that the FDA now focuses on data integrity issues: the agency's credibility took a serious hit when Sanofi-Aventis's antibiotic Ketek (telithromycin) led to the death of five patients. Although the drug was given a black box warning, many critics questioned whether faulty data and fraud were involved in the FDA's approval process for the drug. Consequently, Iowa Republican Senator Chuck Grassley issued new rules for drug approval processes, stipulating that the FDA cannot continue to consider an approval application where there is even a hint of data integrity problems.
In the case of Theravance, the FDA adopted this new rule unequivocally by informing the company that it was unwilling to review the application after it had removed data from one study site. This decision related directly to a letter sent by Grassley to the FDA on December 19, stating that a sponsor cannot resolve a data integrity issue by simply removing the results from the questioned center or investigator.
Although it is unclear to what extent these new rules may delay or even prevent a drug from reaching the market, other NDA sponsors would be well advised to be more scrupulous with regards to their data integrity issues: judging from its response to the telavancin trials, the FDA is clearly gearing up towards an overall revision of its drug approval processes.
[edit] Sources
- Datamonitor
- egagenerics.com
- Deloitte
- investmentcommission.in
- Marketreports.com
- globaledge.msu.edu
[edit] Next Steps
If you would like a more detailed report on pharmaceuticals, we offer an affordable in-depth report. You can review the Table of Contents on Global Pharmaceuticals and Medicine Manufacturing. This report is approximately 40 pages with data, charts and graphs fully updated for the industry in 2007.
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