Big Pharma refers to the large pharmaceutical companies that wield enormous influence over medical devices and prescription drugs around the world. Deriving from an oligarchy of families across Europe and the United States, Big Pharma companies have pushed out competition and reign over the industry with enormous influence.

In 2013, the US company Pfizer made 42% profit margin that is incomparable to all carmakers, oil, gas, and media companies, leading to an industry veteran to claim “I wouldn’t be able to justify [those kinds of margins]” (Anderson, 2014).

According to Forbes, health technology was the most profitable sector in 2016 with a 21.6% average net profit margin. Taking a closer look at the sector, generic pharmaceuticals figured with 30% net margin in 2016 while major pharmaceuticals obtained 25.5% and biotechnology reached 24.6% net margin (Forbes, 2016).

Big Pharma companies justify the large profits from the high cost of research and development (R&D), stating that only 3 in 10 drugs are profitable while many other drugs do not even make it to the market (Anderson, 2014). But where does the line between profitability and profiteering lay? Studies have shown that pharmaceutical companies spend much more of the sales and marketing of their drugs than the R&D itself. Johnson & Johnson spent almost $17.5 billion USD on sales and marketing compared to its $8.2 billion USD in R&D in 2013. Only the Swiss company Roche spent more on R&D, but with a slight margin of $300 million USD (Swanson, 2015).

Sales vs. research

Source: Washington Post

While these companies acquire large profits, the Big Pharma also incur massive malpractice fines due to failure of disclosing safety information. In 2012 GlaxoSmithKline faced a fine of $3 billion USD due to misuse of branding and safety information with a diabetes drug (Wagstaff, 2014). This was the largest incidence of malpractice towards a drug company, however it only factored at 11% of Glaxo’s yearly revenue. Most companies would confront fatal bankruptcy from such a legal disaster, but for Big Pharma its mere business.

The global pharmaceutical market reached $1.1 trillion USD in 2016 with just ten pharmaceutical companies securing 40% of the market share in 2016.  The Top 10 Pharmaceutical Companies in 2017 list compiled by Igea Hub is calculated through a competitive analysis of the 2015-2016 revenues from products and growth in revenue. Pfizer remains at the top pharmaceutical company while Swiss-based Roche and Novartis maintain the fourth and sixth position respectively with the French company Sanofi in-between as fifth. In terms of total revenue, Johnson & Johnson made almost $72 billion USD, but only 47% of their revenue occurs from the pharmaceutical segment in comparison to Pfizer and Sanofi generating 100% of revenue from pharmaceuticals (Dezzani, 2017).

Top 10 Pharmaceutical companies

Future of the Pharmaceutical Industry

With or without Big Pharma, the pharmaceutical industry is changing thanks to the research and development of new drugs. Now there exists two different genetic make-ups of drugs: chemical and biological.

Biologic medication derives from living cells that have been genetically altered in order to produce compounds, such as large proteins to combat a specific disease. Whereas chemical drugs are synthesized from nonorganic material (Empire Life, 2013).

Manufacturers of biologic drugs face the high costs to develop a uniform drug that reacts within the body in the intended manner. Due to the organic nature of biologics, researchers generate high costs in producing the desired protein from the genetically altered cells to attack a health condition uniformly. Otherwise the body will react against the molecule, perhaps even causing greater problems for the patient. Many health conditions are treated with biologic drugs such as cancer, multiple sclerosis, anemia, and rheumatoid arthritis.

Unlike biologics, traditional drugs made from chemicals are more predictable and respond according to its chemical makeup. Biosimilars are a type of generic drug to the expensive biologics. However it entails a complex system to make an exact duplicate of the biologics for patient safety. The FDA in the US has yet to accept biosimilars as an interchangeable substitution to biologics.

Currently patents protect many biologics. Nevertheless the emergence of biosimilars will change the pharmaceutical industry once the patent for the biologic drug ends. For many patients who are unable to afford expensive biologics, yet the quality and survival of their lives depend on it, biosimilars will come serve as a more affordable option. Some biologic drugs cost from $500,000 to $1.5 million USD for just one patient’s yearly use. While biosimilars cost up to 75% less than the drugs they mimic (Nisen, 2016).

Now that Big Pharma companies are also producing biosimilars, they are eating away their own market of biologics and traditional chemical drugs. Roche will face a huge decrease in sales by 2018 once biosimilars are introduced to the market in 2018, losing up to $29.7 billion USD of sales while Johnson & Johnson may lose around $9 billion USD (Nisen, 2016).

forecast

Forecasted Pharmaceutical Sales at Risk from Biosimilar Market Entry

For about 50% of patients, traditional chemical drugs respond effectively to fight the undesired health condition. However for the other 50% whose life depends biologic drugs, biosimilars will serve as the accessible drug to a broader market of individuals. In the EU, biosimilars are already interchangeable from a legal point of view (Brennan, 2017). The rest of the world will soon follow.

Olivia Meiners

Sources

Anderson, R. (2014). Pharmaceutical industry gets high on fat profits – BBC News. [online] BBC News. Available at: http://www.bbc.com/news/business-28212223 [Accessed 10 Apr. 2017].

Brennan, Z. (2017). Are Biosimilars ‘Interchangeable’ in the EU? A New Perspective | RAPS. [online] Raps.org. Available at: http://www.raps.org/Regulatory-Focus/News/2017/03/31/27240/Are-Biosimilars-Interchangeable-in-the-EU-A-New-Perspective/ [Accessed 10 Apr. 2017].

Chen, L. (2016). The Most Profitable Industries In 2016. [online] Forbes.com. Available at: https://www.forbes.com/sites/liyanchen/2015/12/21/the-most-profitable-industries-in-2016/#6fecfbab5716 [Accessed 10 Apr. 2017].

Dezzani, L. (2017). Top 10 Pharmaceutical Companies 2017. [online] IgeaHub. Available at: https://igeahub.com/2017/03/14/top-10-pharmaceutical-companies-2017/ [Accessed 10 Apr. 2017].

Empire Life, (2013). “The Changing Drug Landscape – Biologics: the high cost of breakthrough medicine”. Video available at: http://www.empire.ca/ [Accessed 10 Apr. 2017].

Lorenzetti, L. (2016). Biosimilars Are Coming After Big Pharma’s Bottom Line. [online] Fortune.com. Available at: http://fortune.com/2016/01/12/biosimilars-big-pharma/ [Accessed 10 Apr. 2017].

Nisen, M. (2016). With Biosimilars, Big Pharma Fights Itself. [online] Bloomberg Gadfly. Available at: https://www.bloomberg.com/gadfly/articles/2016-07-12/biosimilars-get-more-generic-thanks-to-big-pharma [Accessed 10 Apr. 2017].

Swanson, A. (2015). Big pharmaceutical companies are spending far more on marketing than research. [online] Washington Post. Available at: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/?utm_term=.b6dbef6a7206 [Accessed 10 Apr. 2017].

Wagstaff, A. (2014). Big Pharma Has Higher Profit Margins Than Any Other Industry. [online] Andruswagstaff.com. Available at: https://www.andruswagstaff.com/blog/big-pharma-has-higher-profit-margins-than-any-other-industry [Accessed 10 Apr. 2017].

Images

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https://www.bloomberg.com/gadfly/articles/2016-07-12/biosimilars-get-more-generic-thanks-to-big-pharma