Biotech Values

[DewDiligence]

Growth in Drug Sales to Slow in 2008

[This write-up quantifies the effect of the changes that seasoned investors in the drug/biotech sector have known about for some time.]

http://online.wsj.com/article/SB119387833538878513.html

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By JEANNE WHALEN
November 1, 2007

Sales of prescription drugs in the U.S. are set to grow next year at their slowest pace in decades, as tougher regulation and cost-control measures take their toll, according to IMS Health Inc., a health-care information and consulting firm.

The slowdown in the industry's largest market will contribute to a global deceleration in pharmaceutical sales, IMS reports today in its annual forecast. The report, closely watched in the pharmaceutical industry, forecasts that U.S. sales of branded and generic prescription drugs will grow between 4% and 5% next year, to as much as $305 billion. That is a deceleration from a rate of between 5% and 6% this year, and the slowest pace since 1963.

IMS, which analyzes sales and prescription data, expects global pharmaceutical sales to grow between 5% and 6% next year to as much as $745 billion. That compares with growth of 6% to 7% this year.

Several factors are contributing to the slowdown. For one, many of the industry's top-selling branded drugs are losing patent protection, giving cost-conscious insurers the opportunity to use cheaper generics. IMS forecasts that about two-thirds of prescriptions dispensed in the U.S. next year will be generics, up from 50% in 2003.

Drug companies, meanwhile, aren't churning out enough new medicines to keep dollar sales growing at the same pace. And regulators such as the Food and Drug Administration, burned by several drug-safety scandals, are casting a tougher eye on new products before allowing them on the market.

Some of the industry's biggest companies -- including Pfizer Inc., GlaxoSmithKline PLC and Novartis AG -- have announced job cuts and other cost-saving measures in recent months as they adjust to leaner market conditions [#msg-21837592]. More belt-tightening could come, says Murray Aitken, senior vice president of health-care insight at IMS. "There will be a need for further restructuring and adaptation of the business model to reflect the realities of what companies have in the pipeline and the environment they face," he says.

In a mark of how much the U.S. market has changed, it is set to grow next year at the same rate as Europe's, where frugal state-run health systems long ago began reining in drug spending.

Emerging markets will continue to be a bright spot for the industry. The top seven emerging markets will grow at a rate of 12% to 13% next year, IMS forecasts. Improving economies and greater spending on health care will drive the growth. These emerging markets will make up about 12% of global sales but will contribute 24% of sales growth next year.

By contrast, the industry's top seven markets, including the U.S., Europe and Japan, for the first time will contribute less than 50% of global sales growth. In 2006, they made up 60% of growth.

Drugs with $20 billion in annual global sales could lose patent protection next year [#msg-23029249 lists some of the upcoming patent expirations for biologics], becoming the latest blockbuster drugs launched in the 1990s to meet generic competition. Because so many generics are coming to market, the cost of treating patients for cholesterol, depression, osteoporosis and other illnesses is falling sharply, IMS reports.
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