Pharmaceutical stocks have certainly had their day in the sun. Take Pfizer (PFE), which soared from about $2 a share (adjusted for splits) in 1990 to over $45 a share in 2000. Similar trajectories can be tracked for other drug companies Merck (MRK), Abbott Labs (ABT), Bristol-Myers Squibb (BMY) and Eli Lilly (LLY), among others.
But things are pretty bleak at Big Pharma these days. Imminent patent expiration on blockbuster drugs, a rough economic environment and a bumpy stock market have held back shares and caused trouble for investors.
Unfortunately, it may get even worse. A recent report from IMS Health indicates emerging markets are going to surpass many developed markets in the west when it comes to writing scripts. And unfortunately, regional drug companies in Asia and South America could see the bulk of the profits.
Specifically, IMS predicts that by next year, drug sales in China will surpass prescriptions in France and Germany — while Brazil will be buying more medications than the U.K. That means drugmakers in emerging markets are on the verge of a tremendous explosion in sales and profits much like the U.S. pharmaceutical industry saw at the end of the 20 century.
There’s more. The report warned that unless the current leaders in big pharma get their act together, they will be forever eclipsed by the local players in these markets.
The biggest issue is that mature drug companies in the u.S. are struggling to grow sales . Companies based in the United and Western Europe have seen sales growth slow to the low single digits in the last eight years thanks to patent expirations and a growing use of generic drugs. But who do you think is making cheaper alternatives to all those treatments?
That’s right: Emerging market stocks.
The IMS report should have big pharma shaking in their shoes. With their most profitable medications becoming fair game for the competition at the same time that the customer base in merging markets is exploding, it could be very tough times ahead in the Western drug industry.
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