Traditionally, one of the largest and most profitable industries in America has
been pharmaceuticals. Pharmaceutical companies are interesting in that they
make products that no one wants, but hundreds of thousands of people must have
The pharmaceutical industry as we know it is due for some big changes. Last
month, DailyTech reported that former
Intel CEO Andrew S. Grove ripped the pharmaceutical industry for its
underperforming research operations. The Wall
Street Journal is reporting that high profile medications coming off
patent between now and 2012 will result in a loss of about $67 billion USD in
income for top U.S. pharmaceutical companies. That amount is about half what
the pharmaceutical industry made in combined sales during 2007.
Few will feel sorry for the declining sales of these pharmaceutical giants
since many Americans are literally forced to decide between food and their life
saving medications each month. Medications moving from patented status to
non-patented status allow much lower cost generic medications to come to
The Wall Street Journal says that 2010 could be the worst year for
Pfizer when it loses its patent for the drug Lipitor -- the most successful
medication ever. Drugs are given a patent of 20 years where no other
manufacturer can legally make a generic version of the medication. The catch is
that it can take large amounts of that 20-year period to get the drug to
market. However, drug companies can reap profits on patented medications in the
90% to 95% range.
Three high profile medications from Merck & Co have patents expiring in
2012 including Fosamax, Singulair and Cozaar. Those three drugs combine to
provide 44% of Merck’s revenue. To continue operating many of the
pharmaceutical companies, like Merck, are diversifying and buying biotech
companies, which are seen as the next big area of breakthrough for medications
and disease treatments. The reason biotech firms are popular purchases for pharmaceutical
giants is that there is currently no U.S. regulatory pathway for generic
biotech drugs, effectively allowing biotech drug inventors to sell a brand only
product indefinitely until new legislation is mandated.
Many pharmaceutical companies are cutting staff to maintain profits with
companies like Eli Lilly & Co announcing it will cut 10% of its workforce
and Bristol-Myers Squibb Co. announcing it will cut about 4300 jobs and close
27 manufacturing facilities. Some drug makers are also looking to outsource the
manufacture of their medications overseas where the costs are much lower. Such
costs saving measures are unlikely to mean lower drug prices for U.S. consumers
where the brunt of the cost of development of a medication is made back by drug
The U.S. is one of the few developed nations that doesn’t mandate medication
prices. This is the reason so many U.S. consumers flock to Canadian pharmacies
where they can get the same medications they would purchase in the U.S. at a
fraction of the cost. Drug companies have spent millions lobbying congress to
prevent the importation of drugs from Canada, not because of safety concerns
but because of profit loss. Canada’s government negotiates the price for
medications sold nationally making them significantly cheaper than buying the
same medications here.
The fear for many is that the dropping profit margins will result in less
research and development funding, leading to less new drugs being developed.
This is not only a concern for disease conditions that have few or no
treatments, but a concern for more common conditions requiring antibiotics.
Antibiotics that worked well in the past are beginning to lose effectiveness as
bacteria and viruses mutate into forms that are resistant to current antibiotics.
The FDA says it hasn’t changed the way it approves drugs to make
requirements stricter, that drug companies simply don’t submit as many drugs