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| Simon Smyth

January 12, 2004 | The environment confronting the pharmaceutical and biotechnology industry is harsh indeed, as cut-throat competition, regulatory restraint, patent expiries on major products, and healthcare cost-containment measures all conspire to constrain revenue and profit growth.

The annual number of new product approvals has dropped by almost 50 percent since 1996, starving the industry of the product flow required to reinvigorate portfolios and drive near-term growth.

Nonetheless, the industry is keeping its head above water. Wood Mackenzie forecasts that the global market will reach a sales value of more than $600 billion by 2007, with a compound annual growth rate (CAGR) of 9.7 percent. However, an evaluation of current product portfolios and R&D pipelines suggests the future sales performance of individual companies will vary considerably. Changes in the company landscape appear likely.

In 2002, the pharmaceutical industry witnessed the creation of its first "super company" with Pfizer's acquisition of Pharmacia. This deal was essentially product-driven, designed to secure clear leadership for Pfizer in several major therapeutic areas (including cardiovascular disease, neurological, musculoskeletal, and genito-urinary), while enhancing its portfolio in other key fields (anti-infectives, respiratory, and metabolism). Pfizer has also established a presence in the growing oncology market.

The impact of the Pharmacia acquisition is such that Pfizer's 2003 ethical drug sales are forecast to be 25 percent greater than those of its closest rival, GlaxoSmithKline. On the basis of our analysis of current portfolios and pipelines, that gap could extend to almost 40 percent by 2007 (see figure). In the absence of further mergers and acquisitions, Pfizer appears to have an unassailable "lead."

Continuing the analysis of existing portfolios and pipelines, our expectation is that Pfizer, GSK, and Merck will retain their positions as the top three pharmas in 2007. However, other companies have the potential to climb in the global ethical drug sales rankings in 2003-2007. They include:

ASTRAZENECA, currently forecast to climb from 6th place in 2002 to 4th in 2006 and poised to challenge Merck for the number 3 position in 2007. The company is expected to recover strongly from Prilosec's U.S. patent expiry in 2002, driving growth through the performance of key brands Nexium, Seroquel, and Crestor, and the development product Exanta.

NOVARTIS is expanding aggressively into the all-important U.S. market. Armed with a plethora of dynamic young products (e.g., Gleevec, Zometa, Diovan, and Lotrel) and a rich pipeline, Novartis is forecast to climb from 9th place in 2001 to 6th in 2007.

HOFFMANN-LA ROCHE has re-established itself as a strong player in high-growth specialty markets, re-entering the top 10 in 2002. Genentech has provided Roche with access to several novel compounds in the rapidly growing oncology sector, notably Herceptin and MabThera/Rituxan.

ELI LILLY, ranked 12th in 2002, is forecast to enter the top 10 in sales by 2007. Its pipeline delivered three promising products last year — Cialis, Strattera, and Forteo — further boosting a strong portfolio.

AMGEN has performed remarkably well over the past few years. Ranked a distant 20th in 2000, Amgen is expected to reach 12th place in 2007, and could break into the top 10 shortly thereafter. Amgen's CAGR from 2002 to 2007 is expected to be a healthy 25 percent, thanks to a highly focused portfolio that is unexposed to patent expiry.

Wood Mackenzie has been analyzing the pharmaceutical industry for more than 25 years. The firm's forecasting tool PharmaQuant Plus evaluates the prospects for current products, R&D pipelines, and the company spectrum as a whole. The most recent edition predicts changes ahead. This article reports on the latest analysis. 

On the flip side, our analysis of current portfolios and pipelines suggests others may see their rankings come under challenge, including:

MERCK & CO., although likely to maintain its number 3 position, could face pressure from AstraZeneca by 2007. Merck has a mature portfolio, with its patent on key brand Zocor expiring in 2005. The company recently announced the termination of two leading Phase III compounds, leaving gaps in the late-stage pipeline.

BRISTOL-MYERS SQUIBB ranked 4th in 1998 but is forecast to fall out of the top 10 by 2007. Drug sales have been hurt by the patent expiry of a number of key U.S. brands, notably Taxol, Glucophage, and Buspar.

AVENTIS is expected to drop to 7th in 2007 from 4th in 2003, reflecting its fragmented portfolio and long tail of mature products. Recognizing this, Aventis is divesting mature "noncore" products and refocusing on several core brands in an effort to stimulate growth. Nevertheless, the looming patent expiry on Allegra and a relatively thin R&D pipeline are likely to drag down growth.

The next few years will be fascinating to watch: Will the decline in rankings forecast for BMS, Aventis, and others, coupled with the creation of a dominant leader in Pfizer, prompt further consolidation? Will others such as Merck abandon their organic growth strategies and embark on the licensing and acquisition trail? Will Amgen break into the top 10 before the end of this decade?

While it is impossible to accurately forecast the future, one thing is certain: The pharmaceutical market will not stand still.

Simon Smyth is an analyst with Wood Mackenzie in Edinburgh, Scotland. E-mail:

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