Big Pharma ends difficult 2005 to face crunch year

By Wai Lang Chu

- Last updated on GMT

Related tags Big pharma Astrazeneca

According to a new report, 2006 will be a crunch year for companies
that have expiring product patents looming. With generics
increasingly penetrating the market, this has thrown into doubt the
growth of this industry in the foreseeable future.

The industry is at a crossroads at the moment with much hinging on how pharma deal with such patent expirations of Zocor and Pravachol, two blockbuster cholesterol-lowering drugs. Where it used to be that a major product went generic, the remaining patented brands continued to grow despite the generic presence.

This has not been the case in recent months with the branded pharmaceutical market not achieving growth at a rate set in previous years. For example, growth in proton pump inhibitors Prevacid (from Abbott Laboratories Inc.) and Protonix (from Wyeth), while still positive, slowed following the patent expiration of AstraZeneca PLC's Prilosec.

The three major rated pharmacy benefit managers (PBMs) are all reporting increasing generic penetration, at greater than 50 per cent, and expectations are for this number to grow further and drive earnings.

The analysis of big pharma's performance is the latest examination by RatingsDirect, Standard & Poor's online credit analysis reference service, which comments that its overall outlook on the US-based Big Pharma companies remains negative, with four of eight issuer credit ratings currently carrying negative outlooks.

"We believe that the industry outlook, while still ultimately negative, is less so than it was a quarter ago for individual companies like Schering-Plough Corp., Wyeth, Bristol-Myers Squibb Co., and even for Merck with its recent trial win,"​ the report commented.

Pharma has had to deal with tightening legislation as the Food & Drug Administration (FDA) has become increasingly discriminating in terms of granting product approvals-a natural reaction to the embarrassing withdrawals of Vioxx and Bextra over the past year.

Analysts have previously commented that Vioxx's makers, Merck and Co. will suffer more from lack of rich near-term products in its pipelines than any impending lawsuits. Indeed, the problem of poor product pipeline is affecting several of the major Big Pharma players.

It's not just patent expiration and generic competition that pharma has had to contend with. They have had to consider the increasing attention being paid to health care spending control.

With the move by major PBM Express Scripts Inc. to take Lipitor off the preferred list, this can only cause concern that other PBMs and HMOs will take similar actions.

The report reckoned that the Medicare drug benefit might lead to major shifts in market share. Branded pharmaceutical companies will still get their share of the revenues, but the effort that goes into achieving sales will have to increase.

The full report can be read on Standard and Poor's website here.

Related topics Preclinical Research

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