Pharmaceutical Industry (Worldwide)

The pharmaceutical industry is one of the most important and powerful industries in the world, with global sales of pharmaceuticals expected to reach some $700 billion in 2007. In affluent societies, pharmaceutical treatment is now the main form of medical intervention for the majority of illnesses and most people take many prescribed medicines over the course of their lives, with pill use typically increasing markedly by the time individuals are aged 60 or over.

The industry is dominated by a small number of large multinational companies located in the United States and Europe, with the top 10 companies now accounting for over half of pharmaceutical sales worldwide. The dominance of the leading companies has resulted from a period of consolidation with numerous mergers and acquisitions taking place, particularly over the last two decades. This has increased the companies’ power and their market impact.

At the same time, however, there has also been considerable change and diversification in the industry. On the one hand, an emergent group of biotechnology companies has become of increasing importance to the generation of new product ideas and innovations, and the relations between biotechnology and pharmaceutical companies have developed and strengthened. On the other hand, there is growing [Page 1361]competition from drug companies in middle-income countries, especially China and India, with some of them starting to challenge the market dominance of Western companies.

In 2005, half of the top 10 leading pharmaceutical companies were located in the United States, which has by far the largest market for pharmaceuticals accounting for over half of worldwide sales by expenditure. The largest of the U.S.-based companies was Pfizer, which secured this position by taking over Warner-Lambert in 2000 and Pharmacia in 2003. Other U.S. companies in the top 10 in 2005 were Johnson & Johnson, Abbott Laboratories, Merck & Co, and Bristol-Myers Squibb.

The remainder of the top 10 have European headquarters. The largest of these in 2005 was Glaxo-SmithKline, the outcome of a merger between the British companies Glaxo and Burroughs Wellcome in 1995, followed by the merger of GlaxoWellcome with the Anglo-American SmithKline Beecham in 2000. The next largest was Sanofi-Aventis, the product of a merger between the German company Hoechst and the French Rhone-Poulenc in 1999, which created Aventis, and then a further merger of Aventis and the French company Sanofi-Sythelabo in 2004.

The remaining three in the top 10 in 2005 were the Swiss companies Roche and Novartis—the latter the product of a merger between two Swiss companies, Ciba and Sandoz in 1996—and AstraZeneca, which resulted from a merger between the British Zeneca, and the Swedish Astra in 1999.

Leading companies are highly commercial and highly profitable, amongst the most profitable companies in the world, currently only topped by the oil industry and banking. Most of their profits come from patented drugs—that is, drugs based on an idea or innovation whose ownership by the company has been successfully registered—although some of the companies have significant portfolios of over-the-counter (OTC) drugs and medicines that do not require a prescription as well as other health-related products. Patents are typically granted for 20 years (although they can be extended under certain restricted circumstances), and during that time, no other company can produce a drug using the patented chemical composition or process. This monopoly position enables the company to charge a relatively high price for the product.

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