2008 drug sales: Slowest growth in 4 decades

Empty pipelines and generic competition will keep pharmaceutical sales down, according to forecast. Fortune's John Simons reports.

By John Simons, Fortune writer

NEW YORK (Fortune) -- A closely-watched forecast of drug industry revenue growth released today projects that sales in 2008 will expand at their slowest pace in more than four decades. The reason: A combination of virtually empty Big Pharma product pipelines and increasing price competition from inexpensive generic drugs.

According to market research firm IMS Health, the global pharmaceutical market will grow 5 to 6% during 2008 to as much as $745 billion, after a rather anemic 6 to 7% increase in 2007. In the world's two largest markets for pharmaceuticals, the U.S. and Europe, drugs sales are only projected to grow 4 to 5% next year, their slowest pace since the early 1960s.

What's bad news for Big Pharma investors is good news for patients. IMS expects generic competition to create price declines in 2008 for several drug treatment areas, such as cholesterol-lowering medicines, drugs to treat high blood pressure, remedies for depression and anxiety, osteoporosis therapies, and treatments for ulcers and acid reflux.

The drug business has been in the doldrums for a few years now. But the outlook for 2008 is particularly worrisome. The biggest problem is that many of the largest drugmakers such as Eli Lilly (Charts, Fortune 500), Johnson & Johnson (Charts, Fortune 500), Merck (Charts, Fortune 500), Pfizer (Charts, Fortune 500), and Wyeth (Charts, Fortune 500) are seeing their largest-selling medicines lose patent protection between 2006 and 2012.

At the same time, those companies possess pipelines of future products that are either nearly empty or filled with drugs whose potential sales won't fill the hole left by those going off patent.

To prepare for the hard times, a number of the largest drugmakers have recently announced staff reductions and other austerity measures. Among the deepest cuts in 2007, Pfizer announced it would cut 10,000 workers. AstraZeneca said it would fire 7,600 in the U.S. and Europe. Bayer plans to let go of 6,100 employees. Johnson & Johnson will axe 5,000. Amgen announced a reduction of 2,600.

Many companies are rethinking their approach to sales and marketing - which is where the bulk of the layoffs are taking place. Companies are convinced that their armies of door-to-door sales representatives are becoming a less effective way to communicate with doctors.

That explains Pfizer's recently-unveiled investment in Sermo Inc. The Cambridge, Mass.-based company runs a professional and social networking Web site for doctors. It claims to have 30,000 members. Pfizer sees its investment as a cheaper, more effective experiment in communicating with doctors.

Says Murray Aitken, IMS senior vice president for healthcare insight: "These indicators paint a stark reality of a marketplace in transition. The actions being taken by companies to reinvent themselves will need to continue at an accelerated pace."

Investors might take solace in generic drugmakers. The coming deluge of patent losses will be a boon to generic manufacturers such as Teva (the world's largest generic-maker), Barr Pharmaceuticals, Mylan Laboratories, and Watson Pharmaceuticals.

IMS's report projects generic drug sales to grow by 14 to 15%, to $70 billion worldwide in 2008. More than two-thirds of the prescriptions doctors write next year will be for generic medicines. Top of page