"You typically see pharmaceutical drug sales range from $300 M to $375
M globally in 2001, depending if you include OTC. What were the
revenues generated from 2001 ethical (no-OTC) drug sales globally?
Ofthose, what approximate percentage were new drugs (first year
onmarket) versusexisting drugs, versus existing drugs w/product
extension (ie extendedrelease version of a previously approved drug)?"
Answer:
Before we dig into the numbers, I want to stress that the 2001 figures
I produce are probably not a good predictor of future results. R&D
productivity has been falling in recent years. A variety of anecdotal
sources suggests 2001 may have been the poorest year for drug research
in decades, which means the percentage of revenue from new drugs is
almost certainly artificially low. Powerhouses like Bristol-Myers,
Merck, Ely Lilly, Pharmacia, and Wyeth generated no incremental sales
from new products at all in 2001. There may have been product
extensions that were not broken out of broader sales numbers, but no
meaningful new-product launches.
A number of attractive new drugs are slated to launch in the next 18
months, suggesting the percentage of sales attributed to new drugs
should rise going forward.
In addition, new drugs always take some time to get off the ground.
Many of these drugs see sales increase 50% to 100% annually for one to
four years before they level off, but 2002 numbers are likely to be
much, much higher, simply because 2001 new-product sales were so
anemic.
That said, here are the raw figures:
Total sales vary according to whom you ask. The U.S. Bureau of Labor
Statistics (cited in an industry data report at
http://www.phrma.org/publications/publications/profile02/chapter2.pdf)
estimated that Americans spent an average of $416 per person on
prescription drugs in 1999. the U.S. Census Bureau estimate of
America’s 1999 population is 279 million (
http://eire.census.gov/popest/data/counties/tables/CO-EST2001-12/CO-EST2001-12-00.php?PHPSESSID=7278b21adb4364203838515779052b97
). Using those numbers, $116 billion was spent in the U.S. A study by
the National Institute of Health Care Management (
http://www.nihcm.org/spending2001.pdf ) bears out those numbers,
estimating spending of $111 billion.
According to a corporate research letter at
http://www.goodjobsfirst.org/crp/dec00.htm, 39% of ethical-drug sales
took place in the United States. Based on that percentage, total
global spending was $297 billion, starting with the BLS number.
Taking an alternative tack for 1999 sales volume, the corporate
research letter cited above said sales of ethical drugs were $337
billion in 1999.
For the sake of this analysis, I’m going to assume the BLS numbers are
more accurate. They are probably a bit low because of undercounting
and a bit high because they reflect retail, not wholesale, sales data.
So for purposed of discussion, let’s assume 1999 ethical-drug sales at
the wholesale level were $290 billion.
According to the Value Line Investment Survey’s Drug Industry Review,
industry sales have increased at an annualized rate of 9.1% since
then. A study by the Pharmaceutical Research and Manufacturers of
America ( http://www.phrma.org/publications/publications/profile02/appendtables.pdf
) suggested its members saw sales of ethical drugs rise between 10%
and 11% in 2000 and 2001. Splitting the difference of those estimates
yields a growth rate of roughly 9.8%. Using that growth rate and 1999
sales of $290 billion, 2001 sales were $350 billion.
For a percentage of new-drug sales, I looked at data from
Bristol-Myers Squibb, Eli Lilly, Merck, Schering-Plough, Pfizer,
Pharmacia, and Wyeth, which combined to sell nearly $106 billion in
prescription drugs last year, or 30% of the total. That sample size is
significant, and should provide a reasonable estimate of industry
sales trends.
Most of the growth these the drug industry saw came from their largest
drugs, well-established names. New-product data I got from a Nov. 19
Merrill Lynch research report entitled “Major Pharmaceuticals.” The
information is proprietary, so I’ll only provide percentages, rather
than actual data. I had to refer to earnings releases from the
companies (available at corporate Web sites) for other data necessary
to compute total sales of ethical drugs. These new-product numbers are
only as good as the estimate made by Merrill Lynch analysts, but no
other numbers will be any better, and these are more complete.
Here are the percentages:
2001 2002 2003
% of sales from new drugs (new and extensions) 0.03% 1.13% 3.31%
This number is pulled from anecdotal evidence from a number of
sources. As I said earlier, few companies break this material out.
% of sales from just extensions (very rough est.) 0.02% 0.5% 1.7%
In conclusion, I’ll say that 2001 was a terrible year, and not a good
one from which to create a benchmark. The percentage of sales from new
drugs is likely to rise for at least the next three or four years.
Other drug-industry facts:
· The global drug industry spends nearly $50 billion a year on
research and development. (Dow Theory Forecasts newsletter, Oct. 28
edition, page 4 article entitled “Drugmaker, heal thyself”)
· The eight largest U.S. drugmakers have lost 28%, or $295 billion, of
their stock-market value in the last two years.
· The organization Pharmaceutical Researchers and Manufacturers of
America estimates the average drug takes 15 years to develop and costs
$500 million. Only one in 5,000 compounds in preclinical testing
yields a drug approved for use on humans. Both stats come from
industry group at http://www.phrma.org/publications/publications/profile02/chapter2.pdf
.A World Health Organization paper (
http://www.worldmun.org/2003/pdfs/istanbul/xcomwho.pdf ) pegs the
development cost at $250 million. Given the conflicting missions of
the two groups, the truth is probably somewhere in the middle. But
it’s still a mighty big number.
· Between 1% and 2% of all drugs sold are fakes, with the vast
majority of counterfeits sold in developing countries (
http://biz.yahoo.com/rc/021129/health_pharmaceuticals_counterfeit_1.html
). According to the International Federal of Pharmaceutical
Manufacturers Associations, about half of the medicine sold in Nigeria
is phony.
Other useful sites:
Check out this McKinsey report on the importance of size in the drug
industry ( http://www.yakup.co.kr/fileup05/ya0203291310.pdf ). The
research suggests that while size doesn’t make for a more efficient
R&D system, it does matter when it comes to who releases the
biggest-selling drugs.
This National Academy Press report from 1983 (
http://books.nap.edu/books/0309033969/html/index.html ) offers a
detailed and fascinating history of the U.S. drug industry. Another
useful paper from Princeton (
http://www.wws.princeton.edu/cgi-bin/byteserv.prl/~ota/disk3/1981/8119/811905.PDF
) discusses innovation in the industry.
The Pharmaceutical Research and Manufacturers of America has produced
an industry profile (
http://www.phrma.org/publications/publications/profile02/index.cfm )
packed with facts about costs, benefits, and a host of other topics.
Keep in mind that this is an industry advocacy group, and not
particularly objective. But the data is still top-notch, and very
useful when considered in context.
The National Institute of Health Care Management (
http://www.nihcm.org/spending2001.pdf ) has produced a study
addressing rising prescription spending. I referred to the data in
passing earlier in the answer. But the data and analysis are
interesting, if a bit shrill at times, and deserve a stand-alone
mention.
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