A slightly healthier forecast for global pharmaceutical sales in 2010

The global pharmaceutical market is set to grow 4 percent to 6 percent next year, exceeding $825 billion, market intelligence and research company IMS Health (RX) said on Oct 7. This is higher than previous IMS estimates by one percentage point. Through 2013, the researcher predicts worldwide pharmaceutical sales will grow at a 4 percent to 7 percent compound annual growth rate and reach a market value of more than $975 billion in that year.

Is this prediction too optimistic? After all, industry observers are buzzing about the "patent cliff" in 2012-2013, when so many blockbuster drugs are due to lose patent protection and face increased competition from generic drugs. Worse, Big Pharma's new-drug pipeline has been less than stellar, with very few promising blockbuster drugs on the way to replace the lost big sellers.

The latest IMS forecast still shows growth at a historically low level, but it's quite a change from the group's more gloomy April predictions. According to IMS, the raised forecast partly results -- somewhat surprisingly -- from stronger near-term growth in the U.S. market.

IMS also says its new forecast is partly due to stronger demand so far in 2009. The report identifies these key market dynamics:

  • Growth prospects in the U.S. market improve. Price increases and tightly managed inventory levels led to unusually high sales growth in the first quarter of 2009 relative to forecasts. U.S. market growth in 2009 is now likely to be 4.5 percent to 5.5 percent, and 3 percent to 5 percent in 2010. But current pricing practices, including rebates and off-invoice discounts, which IMS doesn't track, could be inflating sales.
  • The economic downturn affects markets to varying degrees. The extent of differences across national economies in public funding of drug purchases and in the economic downturn has led to national variations in pharmaceutical sales growth.
  • The imbalance between innovation and patent losses dampens growth prospects. This is where IMS touches on the patent cliff and the drug pipeline problem. This is the primary factor limiting global pharmaceutical market growth to the mid-single digits through 2013, the IMS report said. For example, three drugs -- Pfizer's (PFE) cholesterol drug Lipitor, Bristol-Myers Squibb (BMY) and Sanofi-Aventis' (SNY) blood thinner Plavix, and GlaxoSmithKline's (GSK) asthma drug Seretide -- currently generate an unprecedented $137 billion in sales, but are likely to face generic competition during the next five years. Generally, once generics hit the market, a drug loses some 80 percent of sales. And while drugmakers are taking innovative approaches for treating different conditions, these are unlikely to generate the same magnitude of sales as products losing patent protection.
  • The so-called pharmerging markets in aggregate will sustain strong growth. Despite current economic conditions, the seven pharmerging countries -- the BRIC nations (Brazil, Russia, India and China) plus Turkey, Korea and Mexico -- are expected in aggregate to grow by 12 percent to 14 percent in 2010, and 13 percent to 16 percent over the next five years. China's pharmaceutical market is forecast to continue growing at a 20 percent-plus pace annually, and contribute 21 percent of overall global growth through 2013.

IMS adds that numerous factors can affect its projections, not the least is the potential passage of a health care bill in the U.S. Long-term, that could boost prescription volumes as more people become insured. Also, the magnitude and effect of the H1N1 pandemic is still undetermined, likewise the extent of the global economic recovery. All could affect the predictions significantly.

Of course, not all pharmas are created equal, and some have better pipelines than others. According to MorningStar, based solely on pipeline strength, GlaxoSmithKline appears best positioned over the next five years with a large number of near-term product launches, while Abbot's (ABT) pipeline is relatively weak. Taking into account not just pipeline, but patent exposure as well, Novartis (NVS) achieved MorningStar's best ranking, while AstraZeneca (AZN) is at the bottom. In addition, Novartis also landed the biggest contract for H1N1 vaccine from the U.S. GSK, Sanofi and AstraZeneca also make the vaccine and will supply the U.S.


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