Healthy Skepticism Library item: 513

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

The global pharmceutical industry
College Journal (Wall St Times) 2005 Mar;
http://www.collegejournal.com/researchindustries/researchindustries/pharmaceuticals-v.html

Full text:

The pharmaceutical industry is a global powerhouse, worth an estimated $593 billion in 2003 with year-over-year growth averaging 8 percent, according to research by the Business Communications Company. A host of factors have led to the industry’s healthy profits in recent years, including an aging population, increased awareness and use of drugs, and innovative new cures and preventive treatments for ailments ranging from asthma to toenail fungus.

The industry derives nearly half of its profits from the U.S. market, which lacks price controls on prescription drugs. This, of course, has been a hot topic on Capitol Hill — a Medicare reform package in 2003 attempted to address the issue, but advocates for the elderly and other groups are increasingly vocal about what they see as an unfair system.

Pfizer Profits

Leading the pack is Pfizer, the world’s largest drug company, with $45.2 billion in revenues in 2003, up a whopping 40 percent over the previous year. Based in New York, Pfizer owns many of the most widely used drugs on the market, including Lipitor (the top seller among all drugs in 2003), Celebrex, Norvasc, Zoloft, Zyrtec, and the star of the late-night comedy circuit, Viagra. Pfizer also owns dozens of over-the-counter drugs (from Actifed to Zantac) and a range of consumer products such as Listerine, Dentyne and Visine. Pfizer’s closest rivals in terms of market value are Johnson & Johnson and GlaxoSmithKline, followed by Novartis and Merck, according to research firm MedTRACK.

Coming Together

Mergers and acquisitions, along with other deals like co-development and co-marketing, have driven a rash of consolidation during the past decade. According to Business Communications Company research, the market share of the industry’s top ten companies rose to 46 percent in 2002, from 28 percent in 1990. In April 2003, Pfizer – already the world’s largest drug company – acquired Pharmacia, the eighth-largest drug company. The $60 billion deal was the largest ever in the pharmaceutical industry. Other corporate marriages in recent years include the merger of Britain’s Zeneca Group and Sweden’s Astra in 1999 (now called AstraZeneca), Pfizer’s purchase of Warner Lambert in 2000, and GlaxoWellcome’s acquisition of SmithKline Beecham in 2000 (now called GlaxoSmithKline).

Patently Challenging

Pharmaceutical companies are constantly challenged to stay one step ahead of expiring patents. Drugs receive 20-year patents — but the clock starts ticking the day the compound is discovered, so this time period includes the development process, clinical trials and an FDA review process, all of which together can take between eight and 12 years. When the patent expires, the company’s market share for that drug plunges as other companies swoop in to offer cheaper generics. In recent years, blockbuster drugs like AstraZeneca’s Prilosec and GlaxoSmithKline’s Paxil lost their “exclusivity” and fell off the top-ten charts after 2002, to be replaced by similar-acting products Nexium and Zoloft, according to research by IMS Health.

Sometimes, these drugs are replaced by generic equivalents, offered at a much cheaper rate than their brand-name counterparts. Business Communications Company research indicates an average annual growth rate of more than 11 percent for the generic market alone through 2008, with sales in this sector reaching $64 billion by that year.

Meanwhile, drug companies continue their quest for the next Viagra — another blockbuster drug that will boost their bottom line. When Pfizer launched its “little blue pill” in 1998, it caused a veritable uproar around the world and doubled the company’s stock price. In its first month on the market, the anti-impotence pill generated over $100 million in sales to become the fastest-selling new drug in history. Even in the face of new competition from similar drugs, Viagra will likely remain a cash cow for Pfizer for some time since its patent doesn’t expire until 2011. In 2003, the top therapy categories for prescription drugs were cholesterol and triglyceride reducers, anti-ulcerants, antidepressants, and antirheumatic nonsteroidals (NSAIDS).

Busy in the Labs

Constant innovation is the key to survival and profit in the industry. In 2003, pharmaceutical companies poured an estimated $33.2 billion into discovering and developing new treatments (Pfizer leads the R&D pack with a budget of $7.9 billion for 2004). But the research can be a slow and costly process: out of every 5,000 to 10,000 compounds that are tested, only one ever reaches the pharmacy shelf. In addition, the technology used in the development process is very expensive and constantly changing.

Soaring Drug Costs in the U.S.

The world’s most popular drugs are often up to four times as pricey in the U.S. as in other industrialized nations. That’s because the U.S. is the only industrialized country that does not institute price controls on pharmaceuticals. The industry says the high prices help offset the costs of research and development, and provide an incentive for further development. According to AARP, prices charged by manufacturers to wholesalers for widely used brand name drugs increased by an average of three times the rate of inflation in 2003. Over the four-year period beginning in 1999, AARP tracked an average cumulative price increase of more than 25 percent for major prescription drugs.

Even with the benefits contained in the reform package of 2003 — which allows Medicare beneficiaries to buy a card for about $30 that may save them 10 to 15 percent off drug prices — many Americans are asking for relief from the rising prices. Several members of Congress have introduced proposals that aim to lower prescription drug prices, increase access to generic drugs and expand prescription coverage to Medicare recipients.

Other legislation seeks to allow the re-importation of U.S.-made drugs from other countries where the drugs cost less. But some Americans aren’t waiting around for the legislation to be passed. They’re getting their prescriptions filled in neighboring Canada and Mexico, where the prices are almost always cheaper. In fact, even some municipalities have gotten into the so-called “re-importation” game. In July 2003, the mayor of Springfield, Mass. announced that the city would begin buying drugs from Canada through a voluntary program for city workers and retirees. The initiative was expected to save the cash-strapped city up to $4 million.

Even the nation’s most conservative lawmakers are putting pressure on the industry, with Sen. Trent Lott (R-MS) declaring in early 2004 that he would no longer vote against measures allowing Americans to purchase their prescriptions overseas.

The rumblings have the industry worried — in January 2004, Pfizer sent a warning to Canada, with a letter to all licensed Canadian pharmacies indicating that those caught breaching the company’s ban on exporting its products from up north would result in Pfizer cutting off further supplies of its products. GlaxoSmithKline, AstraZeneca and Eli Lilly also have attempted to curtail re-importation of their drugs. One lawmaker, Sen. Chuck Grassley (D-IA), came up with a compromise in April 2004, suggesting legislation that would reward drug makers that don’t actively prevent the cross-border sales of their drugs, and penalize those that do.

Safety Concerns

Of primary concern to detractors of re-importation is safety — the Food and Drug Administration doesn’t have jurisdiction over products coming from overseas. Consumer advocacy groups have conducted tests, however, finding no difference in the active ingredients of drugs purchased in the U.S. and those sold with Canadian labels. Still, the FDA, worried about counterfeiting and contamination of prescription medications, maintains a loose definition of “unapproved” drugs. In 2003, the agency intercepted two packages of prescription drugs from overseas, deeming nearly 90 percent “unapproved,” though it never tested the drugs for their chemical contents.

Power Players

Pharmaceutical companies still wield plenty of power in Washington — according to research by consumer advocacy group Public Citizen, the industry employed 675 lobbyists in 2002, spending a record $91.4 million on lobbying activities that year. Industry trade group the Pharmaceutical Research & Manufacturers of America (PhRMA), representing more than 100 brand-name drug companies, is reported to have shelled out $14.3 million in 2002. And they have friends in high places — Public Citizen says 26 lobbyists representing the industry’s interests are themselves former members of Congress.

The industry is expected to continue to reap the rewards of the marketing bonanza begun a few years ago, when restrictions on drug advertising on television and in other media were loosened. According to IMS Health, drug companies spent $2.6 billion on advertising in 2001, including $424 million on advertising in professional journals alone.