The nine blockbuster drugs are: Bristol-Myers Squibb/sanofi-aventis’s Plavix, AstraZeneca’s Seroquel, Eli Lilly’s Zyprexa, Pfizer’s Lipitor/Tahor, GlaxoSmithKline’s Seretide/Advair, Merck’s Singulair, Novartis’s Diovan, J&J’s Lavaquin, and Roche’s Xeloda.

Worldwide, these nine patents are collectively worth US$77 billion, and each of the nine medicines currently reports annual sales of over US$1 billion. However, when their patents expire, the introduction of generic versions will reduce their sales by US$13.9 billion before the end of 2012. This will also mean that generic sales will rise from US$27 billion (12%) of Europe’s total drug sales to US$44 billion (17%) by 2014.

This increase in generic market share will also be driven by longer R&D cycles and tougher regulatory procedures. This means that, compared with previous years, fewer newly patented drugs are making it to market. In addition, in developed countries, most governments are trying to reduce their public healthcare spending by encouraging clinicians to prescribe generic drugs rather than branded medicines.

The top five generic companies (Teva, Mylan, Sandoz, Watson, and Stada) now account for 40% of the generics market and over the last five years, their operating profit ratio (operating profit–turnover) has risen from around 10% to approximately 18%. This means that, on average, these companies are nearly now as profitable as the eleven largest pharmaceutical companies Pfizer, Merck, GlaxoSmithKline, Novartis, Roche, AstraZeneca, sanofi-aventis, J&J, Abbott, Eli-Lilly, and Bristol-Myers Squibb. These ‘Big Eleven’ are expected to report an average 2011 operating profit ratio of around 22%.

The increased competition from the generics companies has not been unexpected, and the major pharmaceutical companies have already cut costs. Notably, over the last four years, the Big Eleven have reduced their workforce by an average of 18%. Pfizer has lost the highest proportion of staff, with as many as 36% of Pfizer employees leaving the company in this same four-year period. Many experts now believe that Big Pharma will seek to take advantage of the generics boom by forming their own generics operations.

It is not all bad news for Big Pharma though. Healthcare spending in developed countries continued to rise during the 2008–2009 crisis, and the ageing population means that global demand for medicines is likely to continue to increase over the next 20–30 years. Indeed, French data suggest that as the proportion of patients aged 60 years and above gets higher, the need for medicines will grow by 2.4–3.2% each year, for at least the next 25 years.

Reference

1. World pharmaceuticals: an industry on the defensive. Analysis by the credit insurer Euler Hermes. Presented on 24 February 2011. Available from: www.eulerhermes.com/en/documents/2011/euler_hermes_sector_studies_pharmaceutical_industry_february_2011.pdf