Drug companies face pressure on profits

BMJ 2002; 324 doi: (Published 12 January 2002) Cite this as: BMJ 2002;324:65
  1. Deborah Josefson
  1. San Francisco

    Major pharmaceutical corporations in the United States are bracing themselves for reduced profits as states, healthcare plans, and consumers lobby for lower prices for prescription drugs.

    Some manufacturers are also facing the expiry of patents on some of their biggest selling drugs, which threatens to further erode their profits. Among the expected casualties are such pharmaceutical giants as Merck, Bristol-Myers Squibb, Eli Lilly, Schering-Plough, and Pharmacia.

    Popular prescription brand name drugs such as Glucophage (metformin hydrochloride), Prozac (fluoxetine), Prilosec, marketed in the United Kingdom as Losec (omeprazole), Clarityn (loratadine), and Zestril (lisinopril) will soon face stiff competition from generic equivalents.

    Merck has already announced that its earnings in the coming year will be flat, causing its stock price to plummet 9.4% on the day of the announcement.

    After decades of unprecedented growth, the pharmaceutical industry is now confronting increasing resistance to previously proven sales tactics, as insurers, consumers, and state funded healthcare plans target the companies in an attempt to control soaring healthcare expenditures.

    Companies say that reduced profits will endanger investment in research and development and may therefore impede future healthcare progress.

    Pharmaceutical companies in the US have traditionally been consistently profitable. This is largely because the pharmaceutical industry in the US is free to charge whatever the market will bear. Until recently the market chose to bear nearly everything, with health insurers and individual consumers footing the bill.

    Unlike Canada and much of Europe, where the cost of prescription drugs is regulated by government, the US has as yet no federally imposed method for containing the cost of prescription drugs.

    Action on proposed legislation on prescription drug benefits for Medicare recipients has been suspended while Congress deals with the aftermath of the terrorist attacks on 11 September.

    Meanwhile prescription drug costs have been getting higher. According to the National Institute for Health Care Management, a non-profit making, non-partisan research group, spending on prescription drugs rose an unprecedented 18.8% from 1999 to 2000, to $132bn (£92bn; €148bn) (BMJ 2001;322:1198).

    Now individual states as well as insurers are banding together to negotiate lower drug prices. Alaska, Oregon, Washington, Idaho, and Montana, for example, are forming a purchasing consortium to negotiate lower prices from manufacturers.

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