Why Generic Drug Companies Will Dominate Future Pharmaceutical Markets
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The loss of over 200,000 pharmaceutical jobs over the past three years has been mainly driven by the anticipated loss of revenue from blockbuster drugs that will lose patent protection by 2013. While drug makers frequently cite blockbuster patent expiry as the reason for the need to downsize, they rarely provide the business and economic metrics, numbers and statistics that have influenced their decisions.
Patricia Van Arnum, Senior Editor of Pharmaceutical Technology wrote a fascinating article in this month’s issue of Pharmaceutical Technology Europe that skillfully outlined the economic forces that are driving branded pharmaceutical companies to downsize and reorganize. According to the article, in October 2009 the pharmaceutical intelligence firm IMS estimated that the global pharmaceutical market is expected to growth 4-6% in 2010 and reach $825 billion. Market growth at an annual rate of 4-7% is expected to continue through 2013 and the size of global pharmaceutical market is projected to exceed $975 billion. The US pharmaceutical market, the largest in the world, is expected to drive much of this growth. However, the growth of the American market is only expected to be 3.5% in 2010. In market contrast, China’s pharmaceutical market is expected to increase by a staggering 20% per year and contribute 21% to the overall growth of the global pharmaceutical market by 2013.
While prospects for the US market are better than originally anticipated, the loss of nearly $137 billion in revenues in 2013— because of patent expiry of blockbuster products—coupled with fewer new drug approvals are the factors that will limit the growth of the global pharmaceutical market to single digits through 2013 and likely beyond. Some of the drugs slated to lose patent protection by 2013 include Lipitor (atorvastatin) by Pfizer, Plavix (clopidogrel) by Sanofi-Aventis and Bristol-Myers Squibb and Seretide/Advair (salmeterol and fluticasone) by GlaxoSmithKline. Lipitor, Plavix and Seretide were the number one-, two- and foruth best-selling drugs in 2008 with global sales of $13.7 billion, $8.6 billion and $7.7 billion respectively.
The increasing growth of the generic pharmaceutical industry is best reflected in the concomitant growth of merchant active pharmaceutical ingredient (API) manufacturing industry. In the API world, there are two types of manufacturers; the so-called captive API producers or companies that exclusively manufacture APIs for finished, branded products and merchant manufacturers which are third party providers of APIs. Over the past four years or so, the growth of the merchant API market for generic products has substantially outpaced the growth of the API for innovator products. For example, from 2004-2008 the merchant market for generics grew at an average annual rate of 9.1% from $12 billion in 2004 to $17 billion in 2008 according to a recent report by the Chemical Pharmaceutical Association (CPA). In contrast, the CPA determined that the merchant market for innovator/branded APIs only increased at an average annual rate of 4.4% from $16 billion in 2004 to $19 billion in 2008. Looking ahead, the worldwide market for merchant APIs is projected to grow at an average annual growth rate of 6.8% through 2013 to about $50 billion. During this period, growth of innovator APIs is expected to be about 1.8% whereas the growth of generic API is expected to be a robust 11.4%.
The US is currently the largest market for generic APIs and consumed roughly 22.9% of the total global demand for generic APIs in 2008. China, which is the second largest consumer of generic APIs, consumed 19.2%. While the US is expected to remain the largest consumer of both innovator and generic APIs, China is projected to become the largest consumer of generic APIs in 2013 capturing a 26% share of the total generic API market (the US will be number 2 with 20.5% market share).
According to industry analysts, China, India, Latin America and Central and Eastern Europe (most notably Russia), represent attractive growth opportunities for generic APIs. India and China now account for roughly 25% of the global generic market and demand in these countries is expected to remain strong for the foreseeable future as the middle class continues to emerge. To that end, China is projected to have the highest average annual growth rate at 18.4% and India’s market will grow by 14% through 2013. Similar growth is expected for the Eastern European, Russian and Brazilian generic API markets.
While the economic size of emerging generic markets is still small compared with those of the US, Western Europe and Japan, it signals that generic drugs will likely drive the future growth of the pharmaceutical industry. The lack of innovation and rising costs of branded, prescription drugs in developed nations is the main driving force behind the rapid emergence of the generic drug industry. That said, is it any wonder why Pfizer is thinking about entering the generic pharmaceutical business and that Western drug companies are shedding scientists and sales people in the US and Europe and growing the sizes of their R&D and sales force staffs in Asia, Eastern Europe and Latin America? Honestly, if I had any money left to invest, I would seriously be considering traded generic pharmaceutical manufacturers—their future success is almost guaranteed!
Until next time...
Good Luck and Good Job Hunting!!!!!!!
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Somebody once said “Jews know two things—suffering and where to find good Chinese food”. Since I am Jewish, it is not surprising that I have experienced a fair amount of suffering throughout my life and, wherever I go, I seem to know where to find “good” 
to set up manufacturing and research operations in Ireland? In my opinion, the recent Irish pharma and biotech explosion has little to do with luck and everything to do with strategic vision, excellent planning and a well trained, inexpensive workforce.
