Healthcare reform will support revenue growth as it extends coverage to more people
Los Angeles, CA (PRWEB) December 15, 2012
While the $109.6-billion Brand Name Pharmaceutical Manufacturing industry may have proven resilient to the economic downturn, competition from generic drugs has hampered its performance over the past five years; revenue is expected to fall at an average annual rate of 2.6%, including a 3.5% drop in 2012. According to IBISWorld industry analyst David Yang, “Historically, sales have been bolstered by favorable demographic trends and the use of medication as a significant part of healthcare in the United States.” Manufacturers benefit from patent protection, but the patent cliff of 2011, when numerous patents on blockbuster drugs expired, has begun hurting revenue. Because generics are sold at a significant discount to brand-name drugs, companies have come under pricing pressure from downstream customers, causing operating profitability to decrease.
Players in the industry have tried to adapt to expiring patents by investing more in biologic medicines. “The Patient Protection and Affordable Care Act of 2010 introduced a method for the US Food and Drug Administration to approve generic biologics, but also initiated a 12-year patent period on these types of drugs,” says Yang. While this legislation increases the threat from generic pharmaceutical manufacturers in this segment of the industry, it also paves a clearer path for operators to manufacture generic biologic drugs. Consequently, biologics will continue to play an important role in shaping this industry's future.
The Brand Name Pharmaceutical Manufacturing industry is moderately concentrated, with the top four players accounting for about half of industry revenue. Consolidation in the industry has been occurring for more than five years, but a marked increase has occurred in recent years. The biggest headlines involved the Pfizer-Wyeth, Merck-Schering-Plough and Roche-Genentech mergers in 2009. Merger and acquisition (M&A) activity has been primarily driven by the escalating costs of research and development (R&D), shorter exclusivity times and the need for global marketing power. Additionally, consolidation has been spurred by changes to the pricing and other competitive strategies of pharmaceutical companies, which include information technology, new federal legislation and the emergence of institutions that include health maintenance organizations (HMOs) and pharmacy benefit managers (PBMs). The industry has also undergone significant structural changes that include growth of the generic drug segment and acquisitions of PBMs by drug companies.
Healthcare reform is also expected to boost sales as more individuals gain prescription drug coverage in 2014. IBISWorld forecasts revenue to increase during the five-year period. Nonetheless, the average operating profit margin is expected to decrease slightly as a result of the industry's agreement to pay out a significant amount in taxes and discounts over the next 10 years as part of the 2010 healthcare reform. To maintain profitability, industry operators are expected to continue consolidating and reducing costs, mainly through reductions in employment and research and development. During the five years to 2017, employment is projected to decrease 0.9% per year on average to 125,085 individuals.
For more information, visit IBISWorld’s Brand Name Pharmaceutical Manufacturing in the US industry report page.
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IBISWorld industry Report Key Topics
Brand-name pharmaceutical manufacturers develop prescription and over-the-counter products that are used to prevent or treat illnesses in humans or animals. Brand-name drugs are products with patent protection. This industry does not include nutritional supplement or cosmetic product manufacturers.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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