Selling pharmaceuticals ain't what it used to be

By Jeffrey Young

The pharmaceutical industry isn't at the top of its game these days. Some of the big players are having real problems developing new drugs, more generics keep entering the market, Democrats run the Food and Drug Administration and the Congress, the dollar is weak and the economy's in the tank, to name a few reasons.


A quick perusal of the health care business stories on the Wall Street Journal's website will give you good sense of what's going on. Several pharma companies issued their quarterly earnings reports in recent days, and Wall Street wasn't exactly thrilled with what they learned (e.g., GlaxoSmithKline, Genzyme). Roche just saw its drug Avastin disappoint in a colon cancer study; the drug was developed by Genentech, which Roche recently acquired for $48.6 billion.

Then there's this striking article Forbes put out Wednesday. Here's the lede: "The global pharmaceutical market, measured in dollars, will shrink in 2009 for the first time in 25 years, according to a new report." Forbes bases its story on a report issued by IMS Health, a company that tracks pharmaceutical sales figures.

"The economic crisis is adding another layer of complexity to an already challenging market environment," IMS' Murray Aitken said in the company's press release.

It's not all bad, of course. "Selling prescription drugs is still a highly profitable, high-growth business," Forbes justifiably points out. Just not necessarily as highly profitable or high-growth as it has been. In 2008, global pharmaceutical sales totaled $773 billion, according to IMS. This year, IMS projects it will fall to $760 billion-$770 billion. (Forbes says that, excluding the unfavorable dollar exchange rate, sales would actually be up 3% -- but as recently as October, IMS thought sales would reach $820 billion this year.)

The federal government recently affirmed that this was coming but that it would be temporary. In a January report, federal health officials credited sinking prescription drug sales with the fact that national health care spending grew in 2007 at the lowest rate since 1998. Drug spending in 2007 grew at the lowest rate since 1963.

The crummy economy is a factor from a consumer perspective. As Reuters notes in its coverage of the IMS report, when people are broke (or uninsured) they consume less health care and fill fewer prescriptions.

This business environment could make more government control of the health care market relatively more palatable for drug makers (with emphasis on "relatively") if health reform includes more generous insurance coverage of pharmacueticals. The industry's top lobbyist recently went as far as to say even if prices go down under health reform, tapping into the 50 million people who currently have no drug coverage could generate enough volume to make health reform a winner for the industry.

Jeffrey Young is a staff writer at The Hill.

This article available online at:

http://www.theatlantic.com/business/archive/2009/04/selling-pharmaceuticals-aint-what-it-used-to-be/16531/