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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 1
IBISWorld Industry Report 32541a Brand Name Pharmaceutical Manufacturing in the US December 2018 Kelsey Oliver
On the mend: Raising prices on widely used specialty drugs will boost industry revenue
2 About this Industry 2 Industry Definition
2 Main Activities
2 Similar Industries
3 Additional Resources
4 Industry at a Glance
5 Industry Performance 5 Executive Summary
5 Key External Drivers
7 Current Performance
9 Industry Outlook
11 Industry Life Cycle
13 Products and Markets 13 Supply Chain
13 Products and Services
15 Demand Determinants
16 Major Markets
18 International Trade
21 Business Locations
24 Competitive Landscape 24 Market Share Concentration
24 Key Success Factors
24 Cost Structure Benchmarks
27 Basis of Competition
28 Barriers to Entry
29 Industry Globalization
31 Major Companies 31 Johnson & Johnson
32 AbbVie Inc.
33 Amgen Inc.
35 Merck & Company Inc.
36 Pfizer Inc.
37 Bristol-Myers Squibb
38 Eli Lilly and Company
39 Sanofi S.A.
40 GlaxoSmithKline
41 Operating Conditions 41 Capital Intensity
42 Technology and Systems
43 Revenue Volatility
44 Regulation and Policy
45 Industry Assistance
46 Key Statistics 46 Industry Data
46 Annual Change
46 Key Ratios
47 Industry Financial Ratios
48 Jargon & Glossary
www.ibisworld.com | 1-800-330-3772 | [email protected]
This report was provided to Rider University (2131532964) by IBISWorld on 15 March 2019 in accordance with their license agreement with IBISWorld
WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 2
Pharmaceutical manufacturers develop prescription and over-the-counter products that are used to prevent or treat illnesses in humans or animals. Brand
name drugs and medication have patent protection. This industry does not include nutritional supplement or cosmetic product manufacturers.
The primary activities of this industry are Pharmaceutical research and development
Manufacturing active ingredients used in pharmaceuticals
Manufacturing chemical pharmaceutical preparations
Manufacturing biological pharmaceutical products
32541b Generic Pharmaceutical Manufacturing in the US Generic pharmaceutical and medicine manufacturers develop drugs that are intended to be interchangeable with the original brand name product, marketed after the expiration of the patent.
32562 Cosmetic & Beauty Products Manufacturing in the US Cosmetic and beauty product manufacturers develop perfumes, shaving preparations, hair preparations, face creams, lotions (including sunscreens) and other cosmetic preparations.
42421 Drug, Cosmetic & Toiletry Wholesaling in the US Prescription drug wholesalers sell medical and pharmaceutical products to hospitals and private medical practices, supermarkets and mass merchandisers and pharmacies.
44611 Pharmacies & Drug Stores in the US Pharmacies and drug stores retail medicines and drugs to consumers.
54171 Scientific Research & Development in the US Companies in this industry conduct research and development in the physical, engineering or life sciences.
NN001 Biotechnology in the US Biotechnology is the application of science and technology to living organisms to alter living or nonliving materials for the production of knowledge and biotechnology products and services.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are Antidiabetes prescriptions
Antihypertensives and lipid regulator prescriptions
Dermatological prescriptions
Mental health and nervous system prescriptions
Pain and antibacterial prescriptions
Respiratory prescriptions
Other
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About this Industry
For additional information on this industry www.aaps.org American Association of Pharmaceutical Scientists
www.pharmamanufacturing.com Pharmaceutical Manufacturing Magazine
www.phrma.org Pharmaceutical Research and Manufacturers of America
www.pharmatimes.com PharmaTimes
Additional Resources
IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
Provided to: Rider University (2131532964) | 15 March 2019
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2412 14 16 18 20 22Year
Federal funding for medicare and medicaid
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Revenue Employment
Revenue vs. employment growth
Products and services segmentation (2018)
30.3% Other
4.1% Respiratory prescriptions
22.1% Antihypertensives and
lipid regulator prescriptions
2.5% Dermatological
prescriptions
19.6% Mental health and
nervous system prescriptions
16.4% Pain and antibacterial prescriptions
5.0% Antidiabetes prescriptions
Key Statistics Snapshot
Industry at a Glance Brand Name Pharmaceutical Manufacturing in 2018
Industry Structure Life Cycle Stage Mature Revenue Volatility Medium
Capital Intensity Medium
Industry Assistance Medium
Concentration Level Medium
Regulation Level Heavy
Technology Change High
Barriers to Entry High
Industry Globalization High
Competition Level High
Revenue
$174.1bn Profit
$34.0bn Exports
$40.9bn Businesses
3,141
Annual Growth 18–23
1.1% Annual Growth 13–18
3.9%
Key External Drivers Federal funding for Medicare and Medicaid Median age of population Number of people with private health insurance Research and development expenditure Regulation for the Brand Name Pharmaceutical Manufacturing industry Trade-weighted index
Market Share Johnson & Johnson 11.0% AbbVie Inc. 10.6% Amgen Inc. 10.6% Merck & Company Inc. 10.0% Pfizer Inc. 9.3%
p. 31
p. 5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 46
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Key External Drivers Federal funding for Medicare and Medicaid Prescription drug coverage is offered to Medicare patients. All states currently provide coverage for outpatient prescription drugs to eligible individuals and most other enrollees within their Medicaid programs. As Medicare and Medicaid funding increases, industry
products become more affordable for consumers with prescription drug coverage through these programs. As a result, demand for brand name pharmaceuticals increases. Federal funding for Medicare and Medicaid is expected to increase in 2018, representing a potential opportunity for the industry.
Executive Summary Over the past five years, the Brand Name Pharmaceutical Manufacturing industry in the United States experienced several new drug launches, with 42 new active substances (NAS) launched in 2017 alone. According to research by IQVIA, the number of new drug launches in 2017 was more than double the number launched in the prior year, with many new drug launches focusing on rare diseases and oncology. Given increasing price scrutiny and competition from generics, as well as intensifying market competition among brand name producers and rising research and
development (R&D) expenses, many manufacturers shifted their strategic focus to more lucrative therapy areas, such as rare diseases and oncology. Furthermore, generics account for the majority of prescription drugs in the United States and are expected to capture a growing size of the market following approaching patent expirations of numerous top-selling drugs. As a result, to maximize returns, many operators pivoted their pipelines to rare diseases, where low prescription volumes can be offset by high per unit costs and benefit from Orphan Drug Exclusivity
(ODE), which grants longer patent exclusivity in the United States and the European Union.
In addition, many brand name manufacturers expanded their product portfolios to include biologic drugs. According to EvaluatePharma, the global sales contribution from biologic drugs is forecast to jump from 23.0% in 2014 to 27.0% in 2020. However, growth in biologics is expected to be tempered by a growing market for generic biosimilars, which are akin to biologics already approved by the FDA. Despite intensifying competition from biosimilars, industry revenue is forecast to grow an annualized 3.9% to $174.1 billion over the five years to 2018, including 1.4% growth in 2018 alone. However, profit margins are expected to contract from 23.9% in 2013 to 19.5% in 2018, due to heightened competition between manufacturers and scrutiny of drug pricing.
Over the five years to 2023, revenue is forecast to grow an annualized 1.1% to $183.9 billion. Many pharmaceutical manufacturers are expected to drive sales volumes from biologic drugs, while also raising prices on widely used specialty drugs. Investments in R&D that generate a high return are expected to occur as many pharmaceutical manufacturers strengthen their drug pipeline with specialty therapies and orphan drugs, which typically have a smaller disease population and shorter clinical trial periods.
Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Many pharmaceutical manufacturers are expected to drive sales volumes from biologic drugs
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Industry Performance
Key External Drivers continued
Median age of population More than 90.0% of seniors and 58.0% of all adults rely on a prescription medicine on a regular basis, according to the Agency for Healthcare Research and Quality. Moreover, older individuals are more likely to contract illnesses and age-related diseases. As the US population ages, more people will demand industry products for treatment. The median age of the US population is expected to increase slowly in 2018.
Number of people with private health insurance Private health insurance can provide coverage for prescription drugs. As private health insurance coverage increases, industry products become more affordable for consumers, stimulating demand for brand name pharmaceuticals. However, some private insurers have set prescription drug formularies through pharmacy benefit managers (PBMs), effectively limiting beneficiaries’ access to brand name drugs. In 2018, the number of people with private health insurance is projected to increase.
Research and development expenditure Brand name pharmaceutical manufacturers’ expenditure on research and development (R&D) correlates with
the number of new drugs released. In the private sector, R&D is complemented by health-related research funded by the public sector, most of it through the National Institutes of Health. As R&D increases, the industry has more opportunities to discover products that generate revenue. R&D expenditure is expected to increase in 2018.
Regulation for the Brand Name Pharmaceutical Manufacturing industry The industry is subject to many regulations influencing the manufacturing, pricing and marketing of its products. Heightened compliance requirements place additional budgetary pressures on industry operators, reducing the average profit margin. Industry regulation is expected to increase slowly in 2018, posing a potential threat to the industry.
Trade-weighted index Brand name pharmaceuticals are traded on international markets. When the trade-weighted index declines, domestically manufactured drugs become relatively less expensive, compared with internationally manufactured drugs, for global consumers. As a result, global demand for industry exports rises, which benefits the industry. In 2018, the trade- weighted index is expected to decrease.
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2311 13 15 17 19 21Year
Median age of population
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Industry Performance
Diversifying drug pipelines
The biggest challenge that operators in the Brand Name Pharmaceutical Manufacturing industry experience is the loss of blockbuster drugs’ patent exclusivity. Following patent expirations, many low-cost generic versions of brand name drugs then inundate the market. According to data from US Pharmacist, once brand name drugs lose their patent protection, generic drugs siphon as much as 90.0% of manufacturers’ sales volumes. The wave of patent expirations for top-selling drugs, most notably the mini-cliff in 2015, caused many manufacturers to move toward biologic drugs, rare diseases and specialty therapy areas to support long-term growth. To maximize return on investment (ROI), many operators pivoted their pipelines to rare diseases, where low prescription volumes can be offset by high per unit costs and benefit from Orphan Drug Exclusivity (ODE), which grants longer
patent exclusivity in the United States and the European Union. Orphan drugs for rare diseases and cancer have become increasingly popular over the past five years. According to the US Food and Drug Administration (FDA), 21 of the 42 new drug launches in 2017 were for rare diseases, with the remaining 14 for various cancers. Furthermore, a recent study indicated that orphan drugs command higher margins and carry premium pricing, with orphan drug manufacturers receiving between 10.0% and 15.0% return on assets (ROA) than non-orphan drug companies.
In addition, manufacturers with heavy reliance on expiring blockbuster drugs also pivoted to include biologic drugs in their R&D drug pipeline, which slightly insulated sales from generic competition over the past five years. However, the entrance of more biosimilar drugs, which are essentially
Current Performance
Over the five years to 2018, revenue for the Brand Name Pharmaceutical Manufacturing industry is expected to grow an annualized 3.9% to $174.1 billion, with revenue expected to increase 1.4% in 2018 alone. Overall, total spending on pharmaceuticals grew due to increased access to insurance and rising total health expenditure, which IBISWorld expects to rise an annualized 2.4% during the five-year period. However, despite strong revenue performance, industry operators contended with a changing competitive landscape due to mounting competition from lower-cost generic drugs, biosimilars and the patent expirations of several blockbuster drugs. In addition, operators dealt with increasing research and development (R&D) costs and intensifying price scrutiny. As a result, profit as a percentage of total revenue declined during the period, falling from an estimated 23.9% in 2013 to 19.5% in
2018. To offset increasing R&D costs, many companies began outsourcing a larger portion of R&D and clinical trial testing services to contract research organizations (CROs) to improve their competitive positioning in specific therapeutic areas.
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Industry Performance
Diversifying drug pipelines continued
biologics that are similar to drugs already approved by the FDA, into the market is expected to offset any gains over the next five years. Still, according to a Fitch Ratings report, eight of the current 20 top-selling global
pharmaceuticals are biologic drugs that will lose patent protection by 2020, inciting many industry operators to enter the biosimilar market to sustain long-term revenue growth and diversify their product offerings.
Industry structure High R&D costs, coupled with rising generic usage rates and increasing price scrutiny over the past five years, have cut into potential revenue growth. In response, many industry operators trimmed their product lines and realigned R&D spending to specific pipelines. On average, the number of in-house developed products fell more than overall R&D expenditures, indicating higher per-drug development costs. In addition, according to Forbes, regulatory approval has become less of a precursor to a drug’s sales volumes because industry operators experience other significant barriers, such as securing a favorable formulary tier with pharmacy benefit managers in the United States (IBISWorld report OD4620). Despite these changes, over the five years to 2018, industry employment is expected to rise at an annualized rate of 3.5% to 197,370 workers.
Comparatively, the number of operators is anticipated to increase at a rapid annualized rate of 5.3% to 3,141 companies during the period. This trend is primarily attributed to the rise of smaller biologic and rare disease drug makers entering the market. However, the industry landscape has still been prone to a high level of competition from generic drug manufacturers. For example, in 15 states, physicians are required to dispense generic drugs when they are available, constraining demand for brand name pharmaceuticals.
Regulation and trade The regulatory environment has continued to limit industry revenue growth during the five-year period. To expand Medicaid, the government required some brand name manufacturers to pay more in rebates, with rebates set at 23.1% of the average manufacturer price (AMP) for innovator drugs and 17.1% of AMP for blood-clotting drugs. The federal government, to close the doughnut hole of Medicare patients incurring the full costs of their prescriptions while in the coverage gap, forced industry operators to provide a 50.0% discount on brand name drugs in an attempt to control costs for both parties.
As a result, industry operators became increasingly reliant on global demand from European and emerging markets for brand name pharmaceuticals to generate revenue growth. Exports are anticipated to grow at an annualized rate of 1.7% to $40.9 billion during the period. Comparatively, over the five years to 2018, imports are expected to grow an annualized 5.1% to $85.1 billion. According to the US Bureau of Labor Statistics, an estimated 40.0% of total pharmaceuticals used in the United States, including generic drugs, are imported. In particular, the United States relies on imports for drugs that include active and
Many industry operators trimmed product lines and realigned R&D spending to specific pipelines
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 9
Industry Performance
Industry Outlook
The outlook for the Brand Name Pharmaceutical Manufacturing industry is expected to remain broadly positive despite intensifying market competition and increasing price scrutiny on branded products. Still, the movement to provide low-cost drugs to a healthcare system that is acutely focused on containing rising costs is expected to dampen revenue prospects over the next five years. Consequently, industry revenue for the Brand Name Pharmaceutical Manufacturing industry
is slated to grow at an annualized rate of 1.1% to $183.9 billion. As leading operators shift product pipelines to drugs with higher return on investment (ROI), such as orphan drugs for rare diseases, many other operators are expected to follow suit, refocusing their research and development (R&D) expenditures to key specialty therapeutic areas. Profit is expected to remain decrease during the five-year period, reaching 19.3% in 2023 for the average industry operator.
Orphan drugs and specialty therapies
According to research by IQVIA, projections for price increases for branded products existing in the market decreased slightly on an invoice basis over the five years to 2022 (latest data available). Although price projections were revised downward, overall spending on medicine in the United States is expected to continue to rise, providing steady revenue for industry operators. IBISWorld estimates that total health expenditure in the United States will increase at an annualized rate of 2.9% over the five years to 2023. Moreover, growth in medicine spending during the outlook period is expected to be driven by specialty therapies and innovative medicines becoming available.
In addition, manufacturers will likely continue to heavily invest in research and
development (R&D) of orphan drugs, which tout low development costs while garnering higher prices than generalized pharmaceuticals. According to EvaluatePharma’s World Preview 2017, the orphan drug market is expected to nearly double between 2016 and 2022, bringing in an estimated $95.0 billion in additional sales globally by 2022 (latest data available). In addition, many manufacturers are expected to focus on specialty therapies, particularly oncology, one of the fastest-growing therapy areas.
Drug pipelines Generic biologic drugs, or biosimilars, are expected to shake up the industry landscape over the coming years. In response to mounting external
competition, brand name pharmaceutical manufacturers are anticipated to incorporate biologic and biosimilar production to diversify their product
Regulation and trade continued
bulk pharmaceutical ingredients. Many pharmaceutical manufacturers are either based in Europe or have expanded to
include European operations, which continues to provide revenue opportunities for the industry.
Projections for price increases for branded products existing in the market decreased slightly
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 10
Industry Performance
International trade During the outlook period, industry operators are expected to continue to derive a large share of revenue from global consumers, particularly the aging European population and untapped emerging markets. As a result, exports are anticipated to grow at an annualized rate of 2.8% to $47.0 billion over the five years to 2023. Demand for brand name pharmaceuticals, particularly biologic drugs, will strengthen as global consumers contend with a high prevalence of chronic illness. Comparatively, over the five years to 2023, industry imports are expected to grow at an annualized rate of 3.0% to
$98.6 billion. In particular, many emerging economies, including China, Brazil and India, will increasingly provide low-cost, brand name pharmaceuticals to the US market. This trend can be attributed to many brand name manufacturers expanding to include emerging markets, particularly to lower their R&D-related expenditures.
portfolios. Additionally, according to IQVIA, many brand name pharmaceutical manufacturers will focus on drugs within specific therapeutic classes, including oncology, diabetes and antitumor necrosis factor medications, which are used to treat the inflammatory response from autoimmune disorders. As a result, the number of industry
employees is expected to increase at an annualized rate of 1.2% to 209,781 workers over the five years to 2023. During the same five-year period, the number of industry establishments is anticipated to grow at an annualized rate of 2.2% to 3,958 locations due to some companies expanding their biologic drug operations.
Drug pipelines continued
Operators will continue to derive a large share of revenue from global consumers
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Industry Performance The pace of development has slowed considerably, while the cost of R&D has risen dramatically
The number of new entrants is fairly low, and some operators are exiting the industry or consolidating
The rate of blockbuster drug development has been slowing
Life Cycle Stage
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 12
Industry Performance
Industry Life Cycle The Brand Name Pharmaceutical Manufacturing industry is in the mature stage of its life cycle. Industry value added, which measures an industry’s contribution to the overall economy, is anticipated to increase at an annualized rate of 1.0% over the 10 years to 2023. Comparatively, GDP is expected to rise at an annualized rate of 2.2% during the same period. IVA is growing slowly, indicating that the industry is in the mature stage of its growth cycle. During the next five-year period, much of revenue growth will stem from companies focusing on specific therapeutic classes, trimming their workforce and consolidating their operations. This is indicative of an industry in the mature life cycle stage.
Pharmaceutical manufacturing has for years been one of the most profitable sectors in the United States. However, it has mainly grown by trimming costs, devising more efficient methods for research and development (R&D) and completing mergers and acquisitions (M&A). The industry relies on advances in medical technology to develop new
products that address unmet needs. Nevertheless, the pace of development has slowed considerably, while the cost of R&D has risen dramatically. The development of blockbuster drugs has been slowing, making it difficult for research-intensive pharmaceutical companies to recoup their R&D costs with multibillion-dollar products as in the past. Consequently, R&D focus is shifting to less lucrative products or to those that occupy niche product segments.
Increased scrutiny and growing safety concerns have also affected R&D productivity as industry players contend with more stringent government regulations. As an increasing number of key products lost their patent protection during the period, pharmaceutical manufacturers experienced heightened competitive pressures from generic products and from the healthcare sector, which is also consolidating. These trends have curbed industry growth and stimulated a period of change. M&A activity has been prevalent, particularly within the prescription product segment, over the past decade.
This industry is Mature
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Products and Services Within brand name pharmaceuticals and medicines, there are four main product categories that include pharmaceutical preparation products, medicinal and botanical products, biologic products and in-vitro diagnostic substance products. However, industry products are broken down by top therapeutic classes by dispensed prescriptions.
Antihypertensive and lipid regulators prescriptions Antihypertensive products account for 16.2% of total dispensed prescriptions,
compared with lipid regulator products, which make up an estimated 5.9%. Lipid- regulating drugs help treat high cholesterol. In the United States, an estimated 31.0 million adults have cholesterol levels that exceed 240 mg/dL, according to the CDC, and that has stimulated demand for lipid regulators over the past five years. Comparatively, antihypertensive drugs help control blood pressure. Antihypertensive products include diuretics, beta-blockers, ACE inhibitors and calcium channel blockers, among other products. While demand for antihypertensive products has
Products & Markets Supply Chain | Products and Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES 42421 Drug, Cosmetic & Toiletry Wholesaling in the US
Wholesalers distribute pharmaceuticals and medicines that are produced by the industry to retailers and healthcare providers.
44511 Supermarkets & Grocery Stores in the US Supermarkets and grocery stores account for a small percentage of final retail sales of certain industry products.
44611 Pharmacies & Drug Stores in the US Pharmacies and drug stores are key retailers of industry products.
62211 Hospitals in the US Hospitals are significant end users of medicines and pharmaceuticals.
KEY SELLING INDUSTRIES 32561 Soap & Cleaning Compound Manufacturing in the US
Surfactants produced by the Soap and Cleaning Compound Manufacturing industry are used in the manufacture of pharmaceuticals.
32599 Chemical Product Manufacturing in the US Organic and non-organic compounds, including various solvents, are used in the manufacture of various industry products.
33451a Navigational Instrument Manufacturing in the US Laboratory analytical instruments are used in the development, testing and analysis of industry products.
33451b Medical Device Manufacturing in the US Laboratory analytical instruments are used in the development, testing and analysis of industry products.
33911a Medical Instrument & Supply Manufacturing in the US Medical devices and instruments are used in the development and testing of pharmaceuticals and medicines.
NN001 Biotechnology in the US Advances in biotechnology are transforming drug discovery and development. Bioinformatics, a branch of biotechnology using information technologies to work with biological data like DNA, is a particularly dynamic new area of work.
Supply Chain
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Products & Markets
Products and Services continued
been high, demand for hypertensive drugs has been constrained by some patients being at risk for complications.
Mental health and nervous system prescriptions This product category includes mental health, nervous system and ADHD prescriptions, accounting for 8.9% and 8.7% and 2.0% of total dispensed prescriptions, respectively. According to a report by the Pharmaceutical Research and Manufacturers of America (PhRMA), industry operators increasingly invested in mental health drug development, which is expected to benefit the 61.5 million Americans who struggle with mental health disorders. In recent years, biopharmaceutical companies partnered with academia, government researchers and patient organizations to develop new products that help treat anxiety, depression, schizophrenia and substance abuse disorders. Over the next five years, demand for mental health pharmaceuticals is expected to rise.
Respiratory prescriptions Respiratory drugs may help treat Acute Respiratory Distress Syndrome (ARDS), asthma, cystic fibrosis, lung disease, pneumonia, sinus infections and other
ailments. According to the American Lung Association, asthma is the most common chronic disease that affects Americans of all ages, with about 40.0 million people having asthma. Over the past five years, this product segment has remained stable. Respiratory products are expected to account for 4.1% of total dispensed prescriptions.
Pain and antibacterial prescriptions In 2018, pain and antibacterial products account for 10.3% and 6.1% of total dispensed prescriptions, respectively. Over the past five years, more pain medications have become available over the counter (OTC), increasing consumers’ access to these products. Typically, consumers use OTC products to treat pain, with doctors prescribing pain medications if OTC medications do not provide sufficient pain relief. Over the past five years, many patients with chronic pain have relied on nonsteroidal anti- inflammatory drugs (NSAIDs), which come in both OTC and prescription forms.
Antidiabetic prescriptions According to the Centers for Disease Control and Prevention (CDC), the number of new cases of diabetes diagnosed in the United States slightly declined from 1.5
Products and services segmentation (2018)
Total $174.1bn
30.3% Other
4.1% Respiratory
prescriptions
22.1% Antihypertensives and
lipid regulator prescriptions
2.5% Dermatological
prescriptions
19.6% Mental health and nervous system prescriptions
16.4% Pain and antibacterial prescriptions
5.0% Antidiabetes prescriptions
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Demand Determinants
Demand for brand name pharmaceuticals is determined by several factors, including disease rates, prevalence of chronic illness, market availability of generic drugs and government healthcare policies. Other factors include the price of pharmaceutical products, doctors’ prescribing patterns, patient prescription usage rates and patients’ insurance coverage.
Insurance providers Insurance plays a significant role in determining consumer demand for prescription drugs. By incurring some of the costs for prescription drugs, health insurance providers’ prescription drug coverage typically stimulates consumer demand for industry products. The level of insurance coverage slightly drives consumer purchasing behavior, as individuals typically choose more expensive drugs when they do not incur the full cost of their medication. The expansion of Medicare Part D drug prescription coverage has bolstered demand for pharmaceuticals over the past five years. However, according to the Kaiser Family Foundation, Part D enrollees have increasingly turned to
generic drugs, which has constrained industry revenue growth.
Additionally, demand for brand name prescriptions is influenced by negotiations between brand name pharmaceutical manufacturers and health insurance providers. Insurance companies have formulary tiers, ranging from tier one to tier four, which determine co-payment prices. Tier one drugs consist of off-patent brand drugs and generics, tier two is brand drugs or expensive generics, tier three comprises brand drugs and tier four accounts for specialty drugs. If brand manufacturers effectively negotiate with pharmacies, brand drugs can become a “preferred brand,” or a tier two drug. Insurance companies use formularies to control costs by steering demand toward lower- cost drugs. Brand pharmaceutical manufacturers will increase demand for their product by negotiating for a lower formulary tier, therefore lowering consumers’ co-payment costs.
Population demographics Typically, research and development (R&D) spending rises in line with growth
Products and Services continued
million in 2011 to 1.4 million in 2014 (latest data available). While the number of new diabetic cases slowed during the five-year period, the number of total diabetics in the United States has still grown, enabling this product segment to slightly expand. In 2018, antidiabetic products are estimated to account for 5.0% of total dispensed prescriptions. Typically, antidiabetic agents include products that help patients mitigate symptoms such as thirst, weight loss and ketoacidosis. Over the past five years, demand for antidiabetic agents rose. Dermatological prescriptions Dermatological prescriptions account for 2.5% of total dispensed prescriptions.
This product segment has remained stable over the past five years. Prescriptions from this product segment treat common skin conditions such as acne, psoriasis, as well as skin conditions linked to autoimmune diseases such as vasculitis, eczema and other inflammatory diseases.
Other The other category includes the following products: thyroid therapies, antiulcerants, anticoagulants, hormonal contraceptives, corticosteroids, gastrointestinal (GI) products, ophthalmology products and other products.
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Products & Markets
Major Markets Pharmaceutical products are primarily used by consumers, though drugs and medication are distributed through a variety of channels. Typically, the bulk of industry products are sold to pharmaceutical wholesalers, such as AmerisourceBergen, Cardinal Health and McKesson, before being distributed to
pharmacies and other drug retailers. Major markets are segmented by end user distributors such as retailers and hospitals.
Retail channels Retail channels account for the bulk of dispensing prescription locations in the United States. These include chain stores,
Demand Determinants continued
in the prevalence of particular health ailments. The burgeoning elderly population, which typically has a high prevalence of chronic ailments, coupled with greater demand for drugs resulting from Medicare Part D coverage, will drive industry sales. As a result, drug markets are devoting more R&D resources to develop drugs for health ailments related to aging.
Demand for prescription drugs will be boosted by an aging population with a longer life expectancy, an increase in chronic illness and higher disability rates. The cost of managing chronic diseases and funding Medicaid, Medicare and Medicare Part D will be bolstered by the growing number of baby boomers that will live with numerous chronic illnesses and be eligible for these programs for longer periods of time.
Marketing Pharmaceutical manufacturers incur marketing expenditures to influence consumer demand and physician prescribing practices. Typically, the most heavily advertised products tend to be newer, more expensive drugs with the potential to increase overall revenue.
In recent years, total spending on consumer-directed promotion for prescription drugs has grown significantly. Consumers and their physicians report to the Kaiser Family Foundation that prescription drug advertisements are increasingly influential. Many physicians report that
their patients have asked them about drugs due to advertising. Companies that carry out successful marketing campaigns benefit from increased consumer demand. However, direct-to-consumer advertising is regulated by the FDA, which requires inclusion of a drug’s risk information and disclosure of sources for drug prescribing information.
Another form of marketing is the prevalence of pharmaceutical representatives in the healthcare system. A recent study conducted by the National Survey of Physicians found that 37.0% doctors surveyed will write a prescription for brand drugs, regardless of generic drug availability, if a patient requests it. Similarly, a study by the Journal of the American Public Health Association found that physicians who receive large quantities of brand name drug samples are more likely to prescribe them. Therefore, pharmaceutical representatives will be pivotal for brand drug sales. However, the 2013 Physician Payments Sunshine Act requires manufacturers of drugs, medical devices and biologic drugs to disclose all payments given to physicians and teaching hospitals to participate in US federal healthcare programs. An increase in pharmaceutical representatives’ transparency may curb consumer demand for brand name drugs, as consumers are wary of how gifts and other incentives may influence healthcare providers’ prescribing patterns.
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 17
Products & Markets
Major Markets continued
mail service retailers, independent retailers and grocery stores. Over the past five years, consumers increasingly turned to pharmaceutical retailers to purchase medication and drugs, resulting in strong revenue growth in this segment. Chain pharmacies, which are typically large national enterprises with extensive distribution networks, account for the largest share of revenue at an estimated 24.0% in 2018. Over the past five years, this market segment’s share steadily increased as large chain stores purchase pharmaceuticals in bulk at a lower price per unit and pass on discounts to consumers. Many chain stores also maintain online storefronts that enable consumers to fill their prescriptions at their convenience.
Mail service retailers are estimated to account for 18.3% of total revenue. Consumers order pharmaceuticals by mail or phone and have the product shipped directly to them. Over the past five years, the popularity of mail service retailers has grown, especially since many pharmaceutical manufacturers have established their own direct-to-consumer sales operations. However, over the past five years, independent drug stores have struggled due to a lack of purchasing power to negotiate favorable prices with
pharmaceutical manufacturers and wholesalers. In 2018, independent retailers are expected to account for 8.6% of total revenue, although this segment’s share of revenue steadily declined over the past five years. Food stores account for 5.1% of total revenue.
Healthcare providers This segment includes clinics, nonfederal hospitals, long-term care facilities, home healthcare and health maintenance organizations (HMOs). In total, healthcare providers account for 10.9% of total revenue in 2018. This segment is a major market for the industry, as hospitals and clinics purchase many pharmaceutical products to treat their patients. Clinics are the largest healthcare provider market for pharmaceutical manufacturers, experiencing steady growth over the past five years. Clinics typically have lower treatment costs compared with hospitals, which makes them attractive for consumers who aim to lower their healthcare costs. As a result, clinics have purchased more pharmaceutical products to meet growing demand over the past five years.
Hospitals’ share of industry revenue remained stable during the five-year period. While increasing hospital, costs
Major market segmentation (2018)
Total $174.1bn
24.0% Chain stores
5.9% Nonfederal hospitals
23.1% Exports
5.1% Food stores
4.1% Other
18.3% Mail service providers
10.9% Clinics
8.6% Independent retailers
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
International Trade The Brand Name Pharmaceutical Manufacturing industry is dominated by many multinational pharmaceutical companies, with research and manufacturing facilities located across the world. Similar pharmaceutical products are marketed in many different countries, and international trade is a major component of industry performance.
Exports Cost pressures, coupled with strong growth opportunities in global markets, have prompted many US pharmaceutical companies to shift their manufacturing facilities to emerging markets. In 2018, brand name pharmaceutical exports are expected to account for 23.8% of total industry revenue. Over the past five years, exports are anticipated to grow at an annualized rate of 1.7% to $40.9 billion.
The European Union is the primary destination for US pharmaceutical exports. Germany accounts for 10.3% of total exports in 2018, followed by the Netherlands (8.8%), Belgium (8.1%) and Italy (6.8%). All other countries account for the remaining 66.0% of industry exports. The rapidly aging population in
many global markets, especially in Europe, spurred demand for US pharmaceuticals.
Imports In 2018, imports of pharmaceutical products are expected to account for 39.4% of domestic demand. Over the past five years, imports grew at an estimated annualized rate of 5.1% to $85.1 billion. Ireland accounts for the largest share of imports, with an estimated 29.9%, followed by Germany (11.0%), Switzerland (10.7%) and India (5.9%).
Major Markets continued
caused some consumers to seek alternative treatment options, hospitals still provide some essential service, such as surgeries and overnight care. This sustained demand for hospital services over the past five years.
Other healthcare providers include home health providers. Both home care and long-term care providers need to supply drugs to patients and residents. However, these healthcare providers primarily serve senior citizens who often have Medicare coverage for their prescription drugs. Over the past five years, Medicare patients have increasingly turned to generic drugs, lowering demand for industry products.
Exports In 2018, exports are expected to account for 23.1% of total revenue. Over the past five years, exports have accounted for a smaller share of total revenue, which can be attributed growing demand for pharmaceuticals from patients in emerging markets, though export growth was outpaced by revenue growth. Still, about one-third of consumers in developing economies cannot afford essential medications on a regular basis, according to data from the World Health Organization (WHO). Moreover, rapid adoption of generic drugs in developed markets, such as Europe, has constrained demand for industry exports.
Level & Trend Exports in the industry are High and Steady Imports in the industry are High and Increasing
$ bi
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-30
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2410 12 14 16 18 20 22Year
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Industry trade balance
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
International Trade continued
Inherent risks come from buying pharmaceuticals from global pharmaceutical manufacturers. For example, differing standards for human and animal testing, counterfeit drugs and weak intellectual property protection make quality control difficult. The deaths caused by Baxter International’s blood thinner heparin, which was reportedly contaminated by an ingredient manufactured in a plant near Shanghai, showcased the risk of global pharmaceutical trade. Nevertheless, countries such as India and China are already improving their oversight of these industries and refining their intellectual property laws.
Pricing abroad Some economically advanced nations other than the United States control the prices of innovative pharmaceuticals at below-market levels. This structure is a political hot button because it leads to US consumers paying higher prices and essentially subsidizing the international market. However, in nations with price controls, patients contended with delays in the introduction and uptake of innovative new drugs, so there is a trade-off between high prices and drug development. Counterfeit drugs Counterfeit drugs are substandard medicines with compositions and
ingredients that do not meet the correct scientific specifications and are fraudulently labeled with respect to a product’s identity or source. The US Food and Drug Association (FDA) estimates that 10.0% of medicines on the global market are counterfeit, compared with an estimated 1.0% in developed markets such as the United States. Many countries in Africa, Asia and Latin America have counterfeit medications that account for 30.0% of total dispensed prescriptions. Currently, out of the 191 World Health Organization (WHO) member states, 20.0% have a well-developed drug regulation policy, while 30.0% of members have either limited regulation capacity or no drug regulation. In response, the FDA has been tightening border controls for drugs. The Drug Safety and Accountability Act granted the FDA additional authorities, such as the power to mandate a drug recall. Since 80.0% of active pharmaceutical ingredients (APIs), an essential component in manufacturing biologic drugs, used in the US are made overseas, increasing regulation will be vital for consumers to access safe biologic drugs, although the FDA currently inspects global and domestic manufacturing facilities.
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Products & Markets
International Trade continued
Imports From...
Total $85.1bn
5.9% India
10.7% Switzerland
11.0% Germany
29.9% Ireland
42.5% Other
Exports To...
Total $40.9bn
66.0% Other
10.3% Germany
8.8% Netherlands
8.1% Belgium
6.8% Italy
Year: 2018 SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC
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Products & Markets
Business Locations 2018
MO 2.7
West
West
West
Rocky Mountains Plains
Southwest
Southeast
New England
VT 0.2
MA 3.8
RI 0.4
NJ 7.2
DE 0.4
NH 0.4
CT 1.0
MD 2.4
DC 0.1
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ 1.5
CA 17.6
NV 0.9
OR 1.8
WA 2.0
MT 0.3
NE 1.1
MN 2.2
IA 1.6
OH 1.8 VA
0.8
FL 5.2
KS 1.3
CO 2.0
UT 2.6
ID 0.3
TX 4.6
OK 0.7
NC 3.8
AK 0.0
WY 0.3
TN 1.0
KY 0.6
GA 1.9
IL 2.8
ME 1.0
ND 0.1
WI 2.4 MI
2.2 PA4.1
WV 0.3
SD 0.2
NM 0.3
AR 0.6
MS 0.4
AL 0.9
SC 1.4
LA 0.5
HI 0.1
IN 2.0
NY 6.3 5
6 7
8
3 21
4
9
SOURCE: WWW.IBISWORLD.COM
Mid- Atlantic
Establishments (%)
Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
Great Lakes
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 22
Products & Markets
Business Locations Fewer clinical trials were conducted in the United States over the past five years. However, while India, China and Japan are exhibiting robust growth in their number of clinical trials, the United States still accounts for the largest share of clinical trials. According to the National Institutes of Health (NIH), 38.0% of total clinical trials were conducted in the United States in 2016, with an additional 6.0% of clinical trials being conducted in both US and non-US locations (latest data available). Location decisions by the industry for clinical trials appear to align more closely with pharmaceutical sales than with available patient populations. Strong pharmaceutical sales in the United States caused many manufacturers to invest in research and development (R&D), as well as drug testing.
Manufacturing locations The West and Mid-Atlantic regions are the most prominent pharmaceutical and drug manufacturing regions in the United States, comprising 22.4% and 20.5% of total establishments, respectively. Pfizer Inc., Merck & Company Inc. and GlaxoSmithKline are all located in the Mid-Atlantic region, significantly boosting sales and establishment numbers. However, California, where scientists formed the industry largely in the 1970s, is home to the most companies. This geographic clustering of industry operators yields benefits for companies in terms of a local specialized workforce, experienced business services and availability of facilities that are often highly specialized and expensive to build.
Sales by state Branded pharmaceutical sales generally follow population trends. The Southeast, which is home to a significant portion of the elderly population, accounts for the largest region in terms of revenue for manufacturers, as well as 17.4% of total
industry establishments. While major wholesalers, such as Cardinal Health, are headquartered in other states, these companies’ sales branches are typically located close to end market pharmacies and hospitals. States with large populations, such as California and New York, also account for considerable portions of industry revenue. California, New York and New Jersey account for 17.6%, 6.3% and 7.2% of total industry establishments, respectively.
Additionally, state laws for generic substitutions influence demand for brand name drugs. Generic substitution is not applicable for consumers if prescribers write “brand only” on the prescription. Some states mandate that generic medications are substituted unless the prescriber writes “brand only,” while other states permit but do not require generic substitution if “brand only” is not specified by the physician. Also, some states dispense brand prescriptions if requested by the patient or the physician. Varying laws cause generic substitution rates to substantially differ by state. For example, New Mexico has the highest generic usage rate, while New Jersey has
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Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Business Locations continued
the lowest. All in all, state laws influence demand for brand prescriptions because some states require generic substitution, curbing demand for brand drugs.
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 24
Cost Structure Benchmarks
Drug discovery and development is expensive, especially given that out of the numerous pharmaceuticals that are explored for use in humans, only a small fraction is eventually approved. This
approval comes only after substantial investment in preclinical development and clinical trials, as well as commitment to ongoing safety monitoring. Drugs that fail during this process often incur large
Key Success Factors Control of distribution arrangements Pharmaceutical distribution is highly complex and fragmented. Manufacturers seek to influence distribution in manage pricing, quality and end user data. Undertaking pharmaceutical and medicine R&D Companies incur high R&D costs on the search for blockbuster drugs with high revenue potential. In an effort to discover and bring innovative products to market that address unmet medical needs, substantial investments are made in R&D.
Degree of globalization in the company As the pharmaceutical industry becomes increasingly global, it is essential for
industry players to have access to foreign markets and manufacturing facilities to help control costs and boost sales.
Establishment of brand names In a competitive industry, using a reputable brand name is crucial to marketing’s success. Drug companies use several criteria in selecting a brand name, including how easy it is to remember and any subliminal connotation of the drug.
Ability to alter goods and services produced in favor of market conditions The development of new pharmaceuticals must address unmet needs of the population. This is particularly true in biologics, which develop immunizations and vaccines.
Market Share Concentration
The Brand Name Pharmaceutical Manufacturing industry is characterized by a moderate level of market share concentration, with the four largest enterprises accounting for more than 40.0% of total industry revenue. Since the patent cliff caused many brand name pharmaceutical manufacturers to lose their patent exclusivity, a wave of consolidation occurred over the past five years as many industry operators have attempted to mitigate lower sales volumes with operational efficiencies. Some major mergers include Pfizer and Wyeth, Merck and Schering-Plough and Genentech and Roche. Furthermore, escalating research and development (R&D) costs, shorter market exclusivity times and costs related to advertising
drugs globally incited operators to consolidate. Additionally, mounting competition from generic pharmaceutical manufacturers has spurred industry consolidation, which will increase market share concentration over the next five years.
Overall, market share concentration remained moderate over the five years to 2018, due to many operators contending with falling sales in line with robust competition from generic drug manufacturers. Also, as many operators have turned toward global markets to derive growth, they have allocated fewer resources exclusively to the US market. However, some enterprises, such as Bristol-Myers Squibb, have increasingly focused on the domestic market.
Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Level Concentration in this industry is Medium
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
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Competitive Landscape
Cost Structure Benchmarks continued
costs and do not generate revenue. A study by the consulting firm Bain & Company reported that the cost of discovering, developing and launching a new drug can exceed $1.5 billion. Eli Lilly and Company once pegged the average cost for developing a new drug at $1.3 billion. However, according to the Office of Health Economics, the typical cost for launching a drug has skyrocketed to $1.9 billion, compared with $199.0 million in the 1970s.
Profit Average industry profit, measured as earnings before interest and taxes, is high compared with other manufacturing industries because it charges high premiums on its products. Profit makes up an estimated 19.5% of industry revenue in 2018, but this figure varies considerably among pharmaceutical manufacturers based on enterprise size,
the type of products sold, quantity produced and contract agreements with pharmaceutical wholesalers. Typically, profit margins are high to reflect the considerable levels of risk associated with drug development. Pharmaceutical companies must make a profit to fund past and present research and development (R&D) efforts. Prescription drugs are priced to reflect not only the costs of production, but also significant R&D costs.
Due to downward pricing pressure from distributors, large retailers and major insurance providers, some industry operators have contended with lower profit margins during the five- year period. However, this trend has been somewhat counteracted by restructuring efforts, which have helped pharmaceutical manufacturers lower operational costs. Enterprises focused on biologic drugs have also experienced
Sector vs. Industry Costs
n Profi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other
Average Costs of all Industries in sector (2018)
Industry Costs (2018)
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7.3 19.5
35.3
1.0 1.02.1
31.3
9.8
21.0
1.9 0.4 2.4
54.5
12.1
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Competitive Landscape
Cost Structure Benchmarks continued
higher profitability due to the lower level of competition from generic, biosimilar drugs.
Purchases Purchases account for an estimated 31.3% of total revenue. In comparison, the industry’s R&D costs average 16.4% of total revenue in 2018 for the average operator. Purchase costs are relatively high because companies must ensure the safety and efficacy of drugs and medication. Some purchase costs include chemicals and active pharmaceutical ingredients (APIs). To make sure that pharmaceutical products are safe and efficacious, the US Food and Drug Association (FDA) periodically inspects the facilities and procedures of all US manufacturing operations as well as any overseas operations that sell products in the United States. Consequently, these facilities and procedures must be registered with the FDA and must comply with its established manufacturing practices.
Purchase costs have declined over the past five years. To offset the effects of rising costs of commercialization, shorter effective exclusivity periods and diminishing returns on R&D investment, manufacturing costs have been a source of savings for the industry. Most major players within the industry have implemented manufacturing restructuring programs that are intended to generate cost savings.
Research and development Many drug companies invest heavily in R&D because this expenditure typically drives revenue and profit growth. Typically, R&D’s share of total revenue falls between 15.0% and 25.0% with the industry’s largest companies devoting an average of 16.4% of total revenue to R&D in 2018. It is vital for key market players to maintain their brand awareness by providing a steady stream of products to
doctors and patients. Though discovering and developing new drugs is often a time consuming, risky and costly process, enterprises that succeed can earn sizable profit until generic versions of the drugs enter the market. Leading enterprises experience pressure to develop new and innovative drugs to lay a solid foundation for future growth because drug patents have a finite life.
Those companies whose development efforts falter often end up struggling to survive due to stiff generic competition for key drugs that are no longer patent protected. In recent years, some companies in this position have merged with larger, more successful companies to remain in business, while those that develop blockbuster drugs prosper. In addition, pharmaceutical companies are narrowing the focus of R&D units through a strategic concentration on key chronic illnesses that have an unmet market need.
Depreciation and wages Depreciation costs are higher in this industry than in other chemical manufacturing industries, reflecting the capital-intensive technology involved and the heavy emphasis on the continual pipeline of new products essential to the industry’s survival. In 2018, depreciation is expected to account for 2.1% of revenue. Comparatively, wages make up an estimated 9.8% of industry revenue. As industry players have increasingly produced orphan drugs for rare disease and cancers, they have required a specialized workforce.
Marketing and rent and utilities Marketing and administrative costs are also a significant expense and have increased in recent years. Companies are focusing more resources on promoting products due to waning exclusivity periods, shorter life cycles, rising R&D costs and increasing competitive
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Competitive Landscape
Basis of Competition The Brand Name Pharmaceutical Manufacturing industry contended with intensifying competition from both internal and external competitors. Pricing pressures from the government and health insurance providers, coupled with the proliferation of generic drugs, intensified competition for brand name pharmaceutical manufacturers. In response, many manufacturers moved toward specialization, with low-volume products as opposed to high-value, high-volume, primary care blockbuster drugs.
Internal competition This industry competes heavily on product innovation. Companies with a consistently strong drug pipeline will maintain not only steady demand from consumers, but a competitive edge over their counterparts. Nevertheless, product innovation is expensive and involves long lead times and high risk, with only one in 5,000 new drugs in preclinical testing making it to human testing. Furthermore, only one in five is approved for human use, according to the California Biomedical Research Foundation. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), it can take between 10 and 15 years and an estimated $1.5 billion to develop a new product, and only two out of 10 products recover their associated research and development (R&D) costs.
Companies also compete on the ability to market their products. Over the past five years, there was a growing need for pharmaceutical manufacturers to incur marketing expenses, given the rapid pace of growth in developing and launching
new versions of existing products. A report by the US Government Accountability Office noted that increases in direct-to-consumer (DTC) advertising contributed to overall increases in spending on both the advertised drug itself and on other drugs that treat the same conditions. Consumer surveys suggest that DTC advertising increases the likelihood that consumers will request the advertised drugs from their physicians.
Additionally, the industry is expected to increasingly compete on the basis of price. Downstream markets, such as pharmacies, are influenced by insurers and pharmacy benefit managers that use drug formularies to drive purchasing behavior. A drug formulary is a list of preapproved prescription drugs that will be reimbursed to the patient or pharmacy in three tiers. Tier one has the lowest co-payment and tier three has the highest, although some plans offer a fourth tier for specialty prescriptions. Tier one consists of generic drugs and off-patent brand drugs, while tier two and three are composed of brand name drugs. Brand pharmaceuticals offer rebates to insurers in exchange for their brand drug to be placed in a lower formulary tier. Studies from Harvard University and Medco Health revealed that consumers, when dealing with significant co-payment costs, such as tier three, may opt to stop taking their medication. Therefore, industry operators may compete by attempting to lower their formulary tier.
External competition Patent protection is a critical basis of competition for industry operators. As
Cost Structure Benchmarks continued
pressures. Direct-to-consumer advertising has also increased substantially in recent years in terms of dollars and percentage of revenue.
Marketing is estimated to total 1.0% of revenue in 2018. Rent and utilities expenses are expected to account for 1.0% of total revenue in 2018.
Level & Trend Competition in this industry is High and the trend is Increasing
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Competitive Landscape
Barriers to Entry Operators in the Brand Name Pharmaceutical Manufacturing industry contend with relatively high barriers to entry that stem from research and development (R&D) costs as well as government regulations. Pharmaceutical manufacturers invest a higher percentage of their revenue in R&D than companies in most other industries. As a result, new industry entrants will grapple with matching the level of R&D-related expenditures needed to succeed in this industry. Significant capital investments are required to establish manufacturing plants geared to produce drugs. Government regulatory policies also make it costly to develop and obtain approval for drugs.
High drug development costs, coupled with knowledge barriers, pose barriers for new industry entrants. Developing a new drug can cost more than $1.5 billion and entails extensive clinical trials to comply with regulations. In addition, a high level of proprietary knowledge is required to successfully compete as established companies are usually secretive about their drug discovery process.
The recent proliferation of small biotechnology companies suggests that
the barriers to entry are falling. These companies benefit from government tax incentives, which target small pharmaceutical manufacturers in particular. Nonetheless, major players control a significant share of high-value global products. The smaller companies also have to purchase their active ingredients, rather than incur the high costs associated with developing them in-house. This prevents them from benefiting from economies of scale, which present a barrier to prospective enterprises. However, R&D, marketing and operating efficiency is less important for over-the-counter products, thus enabling smaller enterprises to participate in this product segment.
Basis of Competition continued
industry products lose patent protection, brand name pharmaceuticals grapple with high competition from generic pharmaceutical manufacturers, which can replicate the drug without investing in R&D. According to IQVIA, a branded product can expect to lose up to 70.0% of its market share to its generic rival in just four weeks. Over the past five years, many top selling brand name drugs lost patent protection, thus causing external competition to intensify.
In some instances, even when a product’s patent has expired, the original innovator company can compete with its generic rivals, benefiting from brand
name recognition and brand loyalty. However, as competition levels increase, there has been a growing trend among companies to manufacture their own generic brands for drugs with expired patents. These companies market their drugs through generic pharmaceuticals companies or extend their product lines via next-generation products. Some companies, similar to Merck & Company, have resorted to purchasing generic companies. The biologic patent cliff through 2015 intensified external competition from biosimilar drugs as many blockbusters coming off patent are biologic drugs.
Barriers to Entry checklist
Competition High Concentration Medium Life Cycle Stage Mature Capital Intensity Medium Technology Change High Regulation and Policy Heavy Industry Assistance Medium
SOURCE: WWW.IBISWORLD.COM
Level & Trend Barriers to Entry in this industry are High and Decreasing
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Competitive Landscape
Industry Globalization
The pharmaceutical manufacturing landscape is highly globalized, with many companies in multiple markets across the world. Currently, less than 15 multinational companies dominate the industry. Much of the expansion into global markets has been attributed to a reduction of trade barriers and better- quality management. However, companies are also starting to go abroad to improve skills and research capability, rather than just focusing on low cost production. The rebalancing of the global market favors China and India, although European countries are still a strong presence.
Skilled labor can now be outsourced Over the five years to 2018, analytical testing performed at international contract laboratories has increased significantly as industry players seek to reduce costs, optimize speed and increase the flexibility of research and development. For instance, Pfizer Global Biologics has been using contract organizations located abroad for analytical testing for more than five years. This strategy has enabled an increase in the total number of drug development projects Pfizer can manage at any one time.
According to RNCOS Industry Research Solutions, the number of clinical trials conducted in India is expected to surge to 8.0% of the worldwide total in 2016 (latest data available). Easier clinical trial recruitment, lower labor costs, a rich talent pool and tax incentives to drug makers make the country very attractive to these companies. It is expected that every major drug developer will move toward establishing operations in India. Other countries, such as China, have also experienced growth in pharmaceutical and biotechnology research.
Rising healthcare needs and legal monitoring Similar to the United States, other places, including Japan, China and Western Europe, are dealing with aging populations and falling birth rates. As many global markets have a growing elderly population, demand for drugs will rise. Political factors will also be integral to industry revenue growth. Governments are trying to open up their pharmaceutical sector to global companies to benefit from their operational synergies, such as drug development processes. In many industrialized countries, the government purchases over 45.0% of drugs. Consequently, many global markets are being deregulated to permit pharmaceuticals from other manufacturers to compete, thus lowering the government’s cost of pharmaceuticals. Nevertheless, compulsory licenses, which authorize a global drug manufacturer to make and sell a generic version of a patented drug, may pose a threat to industry operators. Consequently, industry operators grappled with the inundation of low-cost generic versions of their drugs, which limited their ability to recoup R&D- related costs.
The importance of legal factors in the industry is illustrated by compulsory approval based on the Medicines Act in the United States, Japan and Europe, as well as mandatory compliance with World Health Organization requirements. In addition, the World Trade Organization establishes rules on patent protection that are increasingly being followed. Despite this factor, the problem of counterfeit production lingers; furthermore, some relaxation of the rules has been permitted in certain cases, such as the export of AIDS drugs to Africa.
Level & Trend Globalization in this industry is High and the trend is Increasing
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Competitive Landscape
Industry Globalization continued
SOURCE: WWW.IBISWORLD.COM
Trade Globalization Going Global: Brand Name Pharmaceutical Manufacturing 2005–2018
Ex po
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Imports/Domestic Demand Imports/Domestic Demand 0 040 4080 80120 120160 160
International trade is a major determinant of an industry’s level of globalization. Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries. Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.
Export ExportGlobal Global
ImportLocal ImportLocal
Brand Name Pharmaceutical Manufacturing
2005 2018
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Player Performance
Johnson and Johnson (J&J) is a household name with origins dating back to 1886. Currently, it is a holding company with more than 260 operating companies located in more than 60 countries. In total, the company employs 134,000 individuals. The group operates in three core segments, which are pharmaceutical, consumer products and medical devices. The company’s industry- relevant revenue is produced by manufacturing products for the pharmaceutical business segment. The company and its subsidiaries operate 125 manufacturing facilities, 40 of which are for manufacturing pharmaceutical products in the United States.
The company’s pharmaceutical segment focuses on six key therapeutic areas, including immunology, infectious diseases and vaccines, nervous system disorders, oncology, cardiovascular and metabolism and pulmonary
hypertension. According to the company’s latest annual report available, key brand name products manufactured by J&J in 2017 include Remicade, used to treat autoimmune inflammatory diseases; Simponi, a treatment for rheumatoid arthritis; Stelera, used to treat psoriasis; Prezcobix/Rezolsta, used to treat human immunodeficiency virus (HIV); and Concerta, used to treat ADHD. The company’s best-selling product is Remicade, which accounted for more than 8.0% of total net trade sales for 2017, according to the company’s annual report.
In 2013, J&J acquired Aragon Pharmaceuticals Inc. to advance its hormone-driven cancer drug portfolio and attain an inhibitor that is currently in phase II trials for prostate cancer patients. The following year, J&J acquired Covagen AG, a biopharmaceutical company. In 2017, the
Major Companies Johnson & Johnson | AbbVie Inc. | Amgen Inc. | Merck & Company Inc. Pfizer Inc. | Bristol-Myers Squibb | Eli Lilly and Company | Sanofi S.A. | Other Companies
29.3% Other
Johnson & Johnson 11.0%
AbbVie Inc. 10.6%
Amgen Inc. 10.6%
Merck & Company Inc. 10.0%
Pfizer Inc. 9.3% Eli Lilly and Company 6.3%
Bristol-Myers Squibb 6.8%
SOURCE: WWW.IBISWORLD.COM
Major Players (Market Share)
Johnson & Johnson (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 12,585.1 11.9 2,730.3 18.4
2014 15,120.4 20.1 4,182.9 53.2
2015 16,006.5 5.9 4,384.8 4.8
2016 17,600.6 10.0 4,848.3 10.6
2017 18,922.4 7.5 4,374.3 -9.8
2018 19,130.3 1.1 4,039.1 -7.7
*Estimates SOURCE: IBISWORLD
Johnson & Johnson Market Share: 11.0% Industry Brand Names Remicade Topamax Procrit
Player Performance
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 32
Major Companies
Player Performance Founded in 1888, Abbot Laboratories (Abbot) has grown to provide comprehensive healthcare products and services, including nutritional, diagnostic and medical products. In 2013, Abbot Laboratories spun off its biopharmaceuticals research and development (R&D) business to form AbbVie Inc. (AbbVie). AbbVie inherited 21,000 employees from Abbot’s pharmaceuticals business and supplies products to more than 150 countries.
Currently, the company employs an estimated 29,000 individuals and operates one business segment, which is pharmaceutical products. AbbVie participates solely in the Brand Name Pharmaceutical Manufacturing industry. AbbVie’s primary products include Humira, an arthritis medication, and a range of products treating dyslipidemia. AndroGel, a treatment for low testosterone, is also a major product for the company. Over the past five years, the
Player Performance continued
company advanced its pipeline by filing seven regulatory submissions and achieving seven regulatory approvals for new drugs.
Financial performance Over the five years to 2018, industry- relevant revenue is expected to grow an annualized 8.7% to $19.1 billion. In the beginning of the current period, revenue increased 11.9% in 2013 due to strong sales of biologic products, including Stelara, Simponi and Remicade. Additionally, in 2013, the company benefited from a positive adjustment to previous estimates for managed Medicaid rebates, which provided the company with a higher rate of
reimbursements than previously expected. In 2014, the company maintained strong sales in therapeutic areas, including immunology, infectious diseases and oncology. Also, in 2014, operating income rose 53.2%, driven by operating gains related to divesting its Ortho-Clinical Diagnostics business segment. In 2016, pharmaceutical sales posted strong growth, generating $33.5 billion in global sales. According to the company’s latest annual report available, J&J’s pharmaceutical segment sales increased 7.5% globally in 2017. The company will continue to have patent exclusivity for some brand name drugs, such as Remicade, which is set to expire in 2018.
AbbVie Inc. Market Share: 10.6%
AbbVie Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 10,249.1 2.2 2,908.4 -6.9
2014 10,887.3 6.2 1,292.2 -55.6
2015 12,468.5 14.5 3,624.5 180.5
2016 13,984.4 12.2 4,300.4 18.6
2017 15,390.5 10.1 4,214.7 -2.0
2018 18,375.2 19.4 4,883.0 15.9
*Estimates SOURCE: IBISWORLD
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 33
Major Companies
Player Performance Founded in California in 1980, Amgen Inc. (Amgen) is a biotechnology company that focuses on developing biopharmaceutical products for human therapeutics, especially in the areas of nephrology, supportive cancer care and inflammatory diseases. Amgen’s manufacturing infrastructure is primary located in the continental United States and Puerto Rico, although the company distributes its products across the world and has a presence in 100 countries. Amgen has more than 19,200 employees, with more than 6,500 staff members focused on research and development (R&D). The company primarily focuses on the therapy areas of oncology/hematology,
cardiovascular disease, inflammation, bone health, nephrology and neuroscience. Overall, in the United States, the company relies on sales to pharmaceutical wholesale distributors, with AmerisourceBergen Corporation, McKesson Corporation and Cardinal Health Inc. accounting for 96.0% of total US sales in 2017.
Amgen has a diverse portfolio of biopharmaceutical products, including ENBREL, Neulasta, Aranesp, Prolia, Sensipar/Mimpara, XGEVA and EPOGEN. Aranesp and EPOGEN stimulate the production of red blood cells. ENBREL treats inflammatory disease, while Neulasta and Neupogen both increase production of infection-
Player Performance continued
Amgen Inc. Market Share: 10.6%
company has focused on R&D to maintain a diverse portfolio of products. In particular, the company has focused on areas including immunology, virology, oncology, renal disease, neurological diseases and women’s health. In 2013, the company collaborated with Alvine Pharmaceuticals Inc. to develop an oral treatment for individuals with celiac disease, which is still in the developmental process. In 2015, AbbVie acquired Pharmacyclics, a company that was a leading provider in hematological oncology drugs. Also, in 2015, AbbVie acquired Stemcentrx, a privately held biotechnology company, for $9.8 billion. This acquisition represents a significant expansion in AbbVie’s oncology pipeline by several pipelined assets, including Rova-T, which is in registrational trials for small cell lung cancer and other tumors.
Financial performance Over the five years to 2018, industry- relevant revenue is expected to grow at an annualized rate of 12.4% to $18.4 billion. The company’s products
experienced minimal competition from generics. The company benefited from Abbot’s medical and diagnostic devices business, which although not industry relevant, helped fund research expenditure for the pharmaceuticals business segment. In 2014, the company incurred operating costs related to restructuring certain commercial operations in response to the loss of patent exclusivity of certain products. Nevertheless, the company’s main drug, Humira, continues to successfully maintain patent exclusivity. Furthermore, according to the Express Scripts 2016 Drug Trend Report, Humira is the most expensive drug overall, accounting for 11.3% of total specialty drug spending (latest data available). In fact, according to Reuters, AbbVie has raised the price of Humira more than 126.0% between 2011 and 2016 (latest data available). Despite increasing prices on widely used pharmaceuticals during the five-year period, net earnings fell 6.9% and 55.6% in 2013 and 2014, due to the company repurchasing nine million and four million shares, respectively.
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 34
Major Companies
Player Performance continued
Amgen Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 14,480.0 7.9 3,939.4 16.7
2014 15,396.0 6.3 3,958.2 0.5
2015 17,167.0 11.5 5,499.1 38.9
2016 18,194.7 6.0 6,111.1 11.1
2017 17,959.5 -1.3 1,555.5 -74.5
2018 18,255.3 1.6 1,475.9 -5.1
*Estimates SOURCE: IBISWORLD
fighting white blood cells. These leading products accounted for 84.0% of total sales in 2017.
In 2013, Amgen acquired Onyx Pharmaceuticals (Onyx) to strategically position itself in the oncological drug market. Moreover, the acquisition enabled Amgen to acquire drugs currently in Onyx’s pipeline, including the multiple melanoma drug, Kyprolis. In 2015, Amgen acquired Dezima Pharma B.V., a Netherlands-based biotechnology company and leading provider of cardiovascular disease drugs. Recent significant developments for the company have advanced the company’s drug pipeline. Several bone health, cardiovascular, nervous system, oncology and hematology drugs were approved by the US Food and Drug Administration (FDA), expanding the company’s product portfolio.
Financial performance Over the five years to 2018, industry- relevant revenue is anticipated to grow an annualized 4.7% to $18.3 billion. Amgen exhibited growth in brand name pharmaceuticals due to the company’s focus on strengthening its position in the United States rather than expanding to global markets similar to its competitors. Furthermore, the company has benefited from the relative lack of generic competition for its biopharmaceutical products. For example, in 2012, the company obtained a 16-year extension of patent protection for ENBREL, which will bolster industry revenue over the next five years. ENBREL is Amgen’s leading product, with total sales of ENBREL accounting for 25.0% of total global revenue in 2017. In 2018, revenue is expected to grow 1.6%, due to steady sales of the company’s leading brand name pharmaceutical lines.
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 35
Major Companies
Merck & Co. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 14,795.1 -5.7 1,863.1 -35.8
2014 14,416.8 -2.6 5,899.2 216.6
2015 15,304.1 6.2 2,092.7 -64.5
2016 16,169.5 5.7 1,892.5 -9.6
2017 16,593.7 2.6 2,100.3 11.0
2018 17,491.8 5.4 2,758.6 31.3
*Estimates SOURCE: IBISWORLD
Player Performance Merck & Company Inc. (Merck) operates in four segments that include pharmaceutical, animal health, alliances and healthcare services. Within the pharmaceutical business segment, Merck produces human health pharmaceuticals and vaccine products. Headquartered in Kenilworth, NJ, Merck employs 69,000 people worldwide, though the company has been steadily trimming its workforce over the past five years. In 2017, the company generated $40.1 billion in total revenue.
According to the company’s website, Merck’s core product categories include diabetes, cancer, vaccines and hospital acute care. In addition, as a research- driven company, significant resources are devoted to producing new drugs. In 2017, the company incurred $10.2 billion in research and development (R&D) costs, or 25.0% of total company revenue, up from $7.5 billion in 2013 (latest data available). Over the past five years, the company continuously invested in R&D to develop a stronger biologic drug portfolio. The company has been cutting jobs since 2005 and has trimmed its
workforce by 36,000 jobs over the past five years. In 2015, Merck acquired cCAM, a biopharmaceutical company that has focused on developing cancer immunotherapies. More recently, in 2017, Merck acquired Rigontec GmbH (Rigontec), which specializes in cancer immunotherapy, for $140.0 million. Additionally, in 2017, Merck entered an agreement with AstraZeneca to collaborate on global approaches to oncology product development, according to a recent quarterly report.
Financial performance Over the five years to 2018, Merck’s industry-relevant revenue is expected to grow at an annualized rate of 3.4% to $17.5 billion. However, Merck dealt relatively well with the recent patent cliffs, which caused many drugs, including Singulair, Maxalt, Propecia and Temodar, to lose their patent exclusivity during the current period. In 2018, the company is expected to benefit from the FDA’s approval Zepatier, which treats chronic HCV GTI or GT4 infections (Hepatitis C).
Merck & Company Inc. Market Share: 10.0% Industry Brand Names Gardasil Januvia Zocor
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 36
Major Companies
Pfi zer Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 9,418.9 -18.1 2,869.6 21.3
2014 9,217.9 -2.1 2,274.5 -20.7
2015 11,769.1 27.7 2,159.8 -5.0
2016 14,598.5 24.0 2,331.7 8.0
2017 14,528.6 -0.5 3,402.3 45.9
2018 16,180.6 11.4 3,524.7 3.6
*Estimates SOURCE: IBISWORLD
Player Performance Pfizer Inc. (Pfizer) is the world’s largest research-based pharmaceutical company and operates in two business segments, which are innovative health and essential health. Headquartered in New York City, NY, Pfizer has an estimated 90,200 employees and 58 manufacturing facilities across the world. The company’s diversified portfolio includes biologics, small molecule medicines and vaccines. Industry-relevant operations include the company’s innovative health segment, although industry-relevant revenue only includes US revenue. Pfizer’s research and development (R&D) facilities are located globally, with heavy concentration in North America due to the United States being the company’s largest market, although international sales are increasing due to improving patent protection abroad. In 2017, total company revenue reached $52.5 billion.
In 2014, Pfizer acquired Innopharma Inc., a pharmaceutical company that has a strong pipeline of injectable and ophthalmic products. In the same year, the company acquired Baxter’s vaccine product portfolio for $648.0 million. In 2016, the company also acquired the commercialization rights to
AstraZeneca’s small molecule anti- infectives business, including the rights to the newly approved EU drugs Zavicefta, Merrem/Meronem and Zinforo. In addition, Pfizer acquired Anacor for $49.0 billion in 2016. In 2017, Pfizer sold all assets of Hospira Infusion Systems to ICU Medical. The same year, the company received 10 product approvals from the FDA.
Financial performance Over the five years to 2018, industry- relevant revenue is expected to grow at an annualized rate of 11.4% to $16.2 billion. Despite strong revenue growth during the period, the company contended with the loss of US exclusivity for several of the company’s key drugs, such as Lipitor, Xalatan, Caduet, Viagra and Lyrica. Despite these patent expirations, the company continues to benefit from sales of Ibrance, Eliquis and Xeljanz, which have many years of patent protection remaining. According to the company’s most recent annual report, continued growth in emerging markets fueled revenue expansion. In addition, the company’s biosimilars business has thrived in recent years.
Pfizer Inc. Market Share: 9.3% Industry Brand Names Lipitor Norvasc Zoloft
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 37
Major Companies
Bristol-Myers Squibb (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 7,864.8 N/C 1,238.4 N/C
2014 7,716.0 -1.9 1,157.0 -6.6
2015 8,188.0 6.1 1,027.0 -11.2
2016 10,720.0 30.1 3,264.0 217.8
2017 11,468.4 7.0 1,981.7 -39.3
2018 11,855.4 3.4 1,995.1 0.7
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance With origins dating back to 1887, Bristol- Myers Squibb (BMS) is another key player on the US pharmaceutical stage. In 1989, Bristol-Myers merged with Squibb to form BMS, which was then the second-largest pharmaceutical group in the world, although its position has slipped significantly since. It currently operates solely in pharmaceuticals after splitting off its holdings in the infant-formula maker, Mead Johnson Nutrition. The company operates one business segment, biopharmaceuticals, and generated $20.8 billion in total company revenue in 2017. The company’s product pipeline is concentrated in cancer medicines. BMS is currently headquartered in New York City, NY, and operates facilities across the world. In the United States, the company operates four manufacturing facilities and five research and development (R&D) facilities. The company employs 23,700 individuals globally. In 2017, product sales in the United States accounted for 55.0% of total company revenue.
The company specializes in several therapeutic areas, including cardiovascular diseases, cancer, HIV and other serious diseases. In recent years, BMS has acquired numerous other pharmaceutical companies, expanding its product portfolio. Acquisitions include
IFM Therapeutics in 2017, Cardioxyl and Flexus in 2015 and iPierian in 2014, according to the company’s most recent annual report. In addition, the company has entered several alliance arrangements with third parties, including Pfizer Inc. and AbbVie Inc., to develop and manufacture certain pharmaceutical products, according to the company’s most recent annual report. These arrangements enable companies to share R&D expenses, although these products can result in reduced profit margins, as profits are shared between the participating alliance parties.
Financial performance Despite increased competition from generic pharmaceutical products, industry- relevant revenue for BMS increased 30.9% and 7.0% in 2016 and 2017, respectively, due to increased demand for prioritized brands including Opdivo and Eliquis, according to the company’s latest financial filing. Over the five years to 2018, industry- relevant revenue for the company is expected to increase at an annualized rate of 8.6% to $11.9 billion. While many brand name pharmaceutical manufacturers have focused on expanding into global markets, BMS has strengthened its presence in the United States.
Bristol-Myers Squibb Market Share: 6.8%
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 38
Major Companies
Eli Lilly and Company (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 7,285.6 N/C 835.7 N/C
2014 8,041.4 10.4 926.8 10.9
2015 8,488.1 5.6 1,024.3 10.5
2016 9,793.9 15.4 1,263.4 23.3
2017 10,536.7 7.6 1,012.3 -19.9
2018 10,892.3 3.4 1,225.8 21.1
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance Eli Lilly and Company (Eli Lilly) is a global pharmaceutical company focused on discovering, developing and marketing drugs for neuroscience, endocrinology, oncology, cardiovascular, anti-infective and other healthcare markets. The company is headquartered in Indianapolis, IN, and manufactures and distributes its products in facilities across the United States and Puerto Rico, with major production sites in Indiana, Puerto Rico, Iowa and New Jersey. The company operates facilities in 14 countries outside the United States and Puerto Rico and sells products in 125 countries.
Prior to the current period, the company experienced some relatively high-profile setbacks in its pipeline after it stopped the development of Semagacestat, which is for Alzheimer’s disease, in August 2010, and the FDA issued a complete response letter on Bydureon in October 2010. In addition, Eli Lilly placed Tasisulam, which is for unresectable or metastatic melanomas, on clinical hold, terminated the agreement of Teplizumab, which is for
type 1 diabetes and stopped enrollment in one of the two phase III trials of Necitumumab. Eli Lilly is aiming to overcome the loss of patents on medicines without a major acquisition by investing in research. The company has other treatments for Alzheimer’s disease, diabetes and cancer in final-stage trials. As Eli Lilly awaits these results, it is focusing its efforts on growth areas such as emerging markets and animal health.
Financial performance In 2013, the company grappled with the patent loss of Cymbalta, which accounted for the largest share of industry revenue in 2013. In 2014, the company contended with Evista losing its patent exclusivity, which failed to offset volume growth in other product categories. Nevertheless, other pharmaceuticals, such as Alimta, which treats some cancers, and Humalog, an injectable insulin analog that treats diabetes, lessened industry-relevant revenue declines. Over the five years to 2018, the company’s industry-relevant revenue is projected to grow at an annualized rate of 10.6% to $10.9 billion.
Eli Lilly and Company Market Share: 6.3%
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 39
Major Companies
Sanofi S.A. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2013 8,227.7 -10.0 1,335.5 -21.1
2014 8,817.8 7.2 1,704.0 27.6
2015 10,292.3 16.7 1,699.5 -0.3
2016 1,087.9 2.9 2,045.5 20.4
2017 10,129.9 -4.3 1,676.9 -18.0
2018 10,649.0 5.1 1,952.8 16.4
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance Sanofi S.A. (Sanofi) is a French pharmaceutical company formed in 2004 following the acquisition of Aventis by Sanofi-Synthelabo. The company employs more than 100,000 employees and operates in 170 countries. In total, the company has 79 manufacturing sites, as well as 20 research and development (R&D) locations, in 36 countries. Sanofi operates five global business units, including general medicine and emerging medicine, consumer healthcare, specialty care and vaccines. In 2017, total company revenue reached $40.7 billion (EUR 35.1 billion). The company focuses on therapeutic products in a few key areas, including diabetes, oncology, rare diseases, multiple sclerosis and cardiovascular disease. Moreover, within the vaccines segment, the company focuses on five areas that include pediatric, influenza, adult and adolescent boosters, meningitis and travel vaccines.
In 2016, the company announced its plan to engage in an asset swap with Boehringer Ingelheim. The company divested its animal health business, with Sanofi purchasing Boehringer Ingelheim’s consumer health care business in early 2017. In early 2018, the
company announced its plan to acquire Ablynx and Bioverativ. The Ablynx acquisition is expected to strengthen Sanofi’s platform in rare blood disorders, and the Bioverativ acquisition is expected to expand Sanofi’s presence in the specialty care and rare disease pharmaceutical market.
Financial performance Over the five years to 2018, industry- relevant revenue is expected to grow at an annualized rate of 5.3% to $10.6 billion. The company plans on building or maintaining a competitive position in therapeutic segments, including multiple sclerosis, oncology, immunology and consumer health care. While the company generated $2.2 billion (EUR 1.9 billion) in global generic sales, which are excluded from industry-relevant revenue, it only generated $2.0 million (EUR 171.0 million) in generic sales in the United States in 2016. In 2018, the company announced plans to divest its European generics business. As a result, a large share of the company’s total US sales are generated by brand name drugs. Over the next five years, the company’s business is expected to continue to be defined by brand name drug development.
Sanofi S.A. Market Share: 6.1%
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 40
Major Companies
Other Company Performance
GlaxoSmithKline (GSK) was formed in 2001 with the merger of Glaxo Wellcome and SmithKline Beecham. Headquartered in Brentford, United Kingdom, GSK has three primary segments that include pharmaceuticals, vaccines and consumer healthcare. The group operates 74 manufacturing sites across 38 countries, producing 1,400 branded products for 140 global markets. The company employs more than 16,600 people in the United States. In 2013, GSK completed its acquisition of US biotech company Human Genome Sciences for $3.6 billion.
The deal illustrates the trend of pharmaceutical companies moving toward biopharmaceutical manufacturing. In 2013, strong performance in therapeutic areas, including respiratory, oncology and vaccines, propelled industry revenue forward. In 2014, the company’s industry-relevant revenue declined, due to poor sales of some industry products, particularly respiratory, cardiovascular, metabolic and urology drugs. In 2018, the company is expected to generate between 3.0% and 4.0% of total industry-relevant revenue.
GlaxoSmithKline Market Share: 3.0%- 4.0%
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 41
Capital Intensity The Brand Name Pharmaceutical Manufacturing industry is moderately capital intensive. Pharmaceutical manufacturing requires research laboratories and facilities, manufacturing machinery as well as other technology and equipment, which add to capital costs. However, wage costs are also high as this industry requires skilled labor to provide value-added services. For example, pharmaceutical researchers, scientists, technicians and laboratory assistants typically have considerable education and training, thus resulting in a high average wage. In 2018, for every dollar spent on labor, an estimated $0.21 is spent on capital.
Over the past five years, capital expenditures have moderately declined
and are expected to continue steadily falling over the next five years. As industry operators have consolidated their
Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM Dotted line shows a high level of capital intensity
Capital units per labor unit
Brand Name Pharmaceutical Manufacturing
ManufacturingEconomy
Level The level of capital intensity is Medium
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Operating Conditions
Technology and Systems
Technological change in the Brand Name Pharmaceutical Manufacturing industry is high because companies must be able to consistently introduce new products to sustain growth. Spending on research and development (R&D) can often reach greater than 16.0% of revenue, and drug companies generally have large investments in laboratories and equipment. The bulk of R&D is devoted to developing new products, though companies also seek to modify or improve existing products. Drug development is risky, costly and time consuming, often taking over 10 years and costing over $1.2 billion. Few drugs recover their average development costs; according to the Pharmaceutical Research and Manufacturers of America (PhRMA), only two out of every 10 marketed drugs generate revenue sufficient to cover or exceed their R&D costs.
Technology is more than R&D Pharmaceutical companies have increasingly streamlined operations to increase efficiency, especially during the patent cliff. Advances in chemical reactor design (devices used to contain chemical reactions) over the past decade have enabled research efforts to grow dramatically. Other key developments include an increasing reliance on internet technology and online services. Companies have implemented automated supply change management systems, which have increased operating efficiency.
The FDA’s regulation for manufacturing, called current Good Manufacturing Practices (cGMPs) assesses a drug’s identity, strength, quality and purity, requiring technology and systems to be up to date. While cGMPs prevent contamination, mix-ups and errors, key players within the industry typically implement technologies that exceed the FDA’s requirements.
Additionally, the FDA’s Process Analytical Technology (PAT) encourages industry operators to develop innovative technologies by developing a regulatory framework. PAT streamlines the manufacturing process by introducing measurement devices, such as data analysis, to ensure quality for brand name and generic products. In addition, PAT takes a manufacturing approach based on chemical and mechanical properties of the drug’s components, aiming to ensure quality by design rather than quality from testing.
E-prescribing, electronic health records and single-use technology Other technologies, such as e-prescribing, which is when a prescriber electronically sends prescriptions to a pharmacy, streamlines the quality of patient care by increasing prescription accuracy. However, according to a study by IMS Health, e-prescribers, compared with traditional prescribers, are more likely to prescribe generic drugs once a generic version is available. Overall, this technology hampers industry profitability
Capital Intensity continued
production facilities, they have benefited from lower capital outlay. Additionally, industry operators have cut their product portfolios, especially as many drugs lost their patent exclusivity during the period. Many manufacturers have moved toward biopharmaceutical research and development, which have less generic
competition compared with other types of pharmaceuticals. Wages have remained relatively constant, only marginally increasing as a share of revenue. Nevertheless, the average wage has remained relatively high, as companies had to retain their research personnel to develop new products after the patent cliff.
Level The level of technology change is High
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Operating Conditions
Revenue Volatility The Brand Name Pharmaceutical Manufacturing industry has a moderate to high level of revenue volatility. The mini patent cliff in 2015 and expected patent expirations for many blockbuster drugs during the outlook period lends the industry to a moderate degree of revenue
volatility. According to US Pharmacist, between 2012 and 2015, the expiration of patents for blockbuster drugs caused a loss of $250.0 billion in sales, thus adding to fluctuations in the industry’s revenue. Typically, revenue for individual brand name drug manufacturers is highly
Technology and Systems continued
by boosting demand for tier one drugs, which are generics, while reducing demand for tier two and three drugs, which are brand name. This trend can be attributed to e-prescribing providing physicians with access to generic drug’s formulary information and updates on new generic drugs. Also, Electronic Health Records (EHRs), or electronic versions of a patient’s medical history, cut costs and increase efficiency because physicians and hospitals use EHRs to coordinate care for Medicare and Medicaid patients. In the future, EHR’s vendors will partner with the pharmaceutical industry to meet regulatory requirements and introduce drugs to patients faster.
Single-Use Technology (SUT) has transformed the production process for biologic manufacturing due to reducing contamination risk, increasing efficiency
for cleaning and validation, significantly lowering production time and reducing the costs associated with setting up a new facility. According to a report from Pharmaceutical Manufacturing Magazine, SUT enables industry operators to start a new production line between 15 and 18 months, compared with three to five years for conventional production technology. Implementing SUT will enable small industry players to enter the biologics market due to lower fixed costs. While the industry contends with heightened competition from generic drugs, implementing SUT in the future will enable pharmaceutical manufacturers to quickly respond to pandemics by producing vaccines. Also, manufacturers that can maximize the efficiency and flexibility of disposable biomanufacturing systems will sustain strong growth in the long run.
Level The level of volatility is Medium
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 44
Operating Conditions
Regulation and Policy The Brand Name Pharmaceutical Manufacturing industry is highly regulated because drugs can be lifesaving, life altering or life threatening. Government regulators, especially the US Food and Drug Administration (FDA), have imposed increasingly strict requirements on pharmaceutical companies to ensure a product’s efficacy and safety. Marketed products are subject to continual review even after regulatory approval. Later discovery of previously undetected problems may result in marketing restrictions or the suspension or withdrawal of the product, as well as an increased risk of litigation.
FDA regulation The FDA exercises strict authority over pharmaceutical advertising practices, and all drugs and medical devices must be approved before they can be marketed. The Prescription Drug User Fee Act (PDUFA), first passed in 1992 and renewed in 2012, gives the FDA authority to collect user fees from pharmaceutical companies to fund reviews of drug and biological product’s marketing applications in a timely and efficient manner. With each reauthorization over the past two decades, Congress has given the FDA more power to regulate and monitor pharmaceutical products, making it costlier for these companies to develop drugs.
The Drug Safety and Accountability Act of 2010 provided the FDA with
additional authorities, such as the power to recall drugs. The legislation required the FDA to establish accurate, interoperable information systems to track all plants making drugs and active pharmaceutical ingredients for the United States. To boost manufacturing standards, the bill also required companies to institute quality- management plans to ensure the quality and safety of drug components. Oversight for over-the-counter (OTC) drugs was increased, resulting in higher development costs for industry players.
Getting generics going The 25th anniversary of the Drug Price Competition and Patent Term Restoration Act, which is also known as the Hatch- Waxman Act, occurred in 2009. This legislation increased the availability of less costly generic drugs by enabling the FDA to approve applications for generic versions of brand name drugs without repeating the research that proved the safety and effectiveness of the brand name drugs. While this increased generic competition to industry operators, the legislation also enabled brand name companies to apply for up to five years of additional patent protection for in-development products. This has partly made up for lost sales from generic competition.
A Supreme Court ruling mandated that pay-for-delay agreements, when brand manufacturers pay generic
Revenue Volatility continued
volatile, which can be attributed to the uncertainty of US Food and Drug Administration (FDA) approval and costly R&D expenditures.
Furthermore, the industry exhibits seasonal variations for some drugs. For example, seasonality affects demand for vaccines and cold medications, while other products, such as pain medication, have stable demand. Additionally, a
portion of a company’s revenue is often made to pharmaceutical distributors and retail chains. As a result, fluctuations in the buying patterns occur due to changes in pricing, retail buying decisions and changes in overall consumer demand. Other factors, such as changes in drug use, healthcare policies and pricing pressures play a role in revenue volatility as well.
Level & Trend The level of Regulation is Heavy and the trend is Increasing
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 45
Operating Conditions
Industry Assistance The federal government plays a varied role in the commercial development of new medicines. This role encompasses a variety of laws and programs, including research and development (R&D) funding, safety and marketing regulations, patent protection, education support, Medicaid and Medicare, and subsidies for health insurance. This industry does not benefit from tariff protection.
Patent protection and R&D Industry companies typically apply for patent protection for compounds that have medical potential. Patents are valid for 20 years from the date of application. However, due to the gap between discovery and approval of a new drug, the effective protection lasts about 12 years unless the company gains extensions. Only a small number of new molecular entities (NMEs) and Biologics License Applications (BLAs) are approved by the US Food and Drug Administration (FDA) annually, but thousands of patent applications are submitted to protect variations of existing products. Industry revenue relies on patent protection, since prescription drug sales and profitability fall dramatically once generic competition occurs. Without patent protection, R&D would slow down since companies would be less willing to incur the large fixed costs of drug development.
Taxation Drug manufacturers benefit from tax policies promoting R&D. Currently, the orphan drug program provides tax incentives to companies developing drugs to treat rare diseases or conditions when no therapy exists or if the proposed product would be superior to the current therapy. The FDA designates orphan status to drugs that treat diseases affecting less than 200,000 people in the United States. According to the FDA, about one-third of all new medication approved over the past five years were orphan drugs. Also, the FDA gives incentives for industry operators to invest in R&D for rare diseases by granting industry operators seven years of marketing exclusivity.
Federal healthcare reform, passed under the Obama administration, also implemented tax incentives for small enterprises that invest in pharmaceutical research. Specifically, the Qualifying Therapeutic Discovery Project Program gives tax credits to small pharmaceutical companies that develop new drugs to treat areas of currently unmet medical need or to prevent, detect or treat chronic or acute diseases and conditions. All in all, this program aims to bolster biomedical research in the United States, cut long-term healthcare costs and cure cancer within 30 years.
Regulation and Policy continued
manufacturers to delay introducing their drug to the market, can be illegal because it violates antitrust laws. While this court ruling will enable consumers to access generic drugs at lower prescription costs, it will greatly hinder revenue for both generic and brand manufacturers. Pay-for-delay agreements enable brand drugs to have market exclusivity and
brand manufacturers to partly share their revenue with generic manufacturers. In June 2013, the Supreme Court also ruled that drug makers cannot be sued for failing to adequately design their drugs. While this benefits the industry, brand manufacturers are still exposed to lawsuits from mislabeling, fraud or adverse drug reactions and side effects.
Level & Trend The level of Industry Assistance is Medium and the trend is Steady
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Key Statistics Revenue
($m)
Industry Value Added
($m) Establish-
ments Enterprises Employment Exports
($m) Imports
($m) Wages ($m)
Domestic Demand
Total health expenditure
($ trillion) 2010 160,558.0 60,716.4 2,537 2,241 181,237 40,291.5 74,864.3 16,563.3 195,130.8 2.7 2011 164,805.7 58,060.2 2,665 2,350 177,674 37,669.2 77,675.7 15,893.8 204,812.2 2.7 2012 149,034.7 55,510.0 2,722 2,380 175,605 38,523.0 70,595.2 16,049.8 181,106.9 2.8 2013 144,102.7 52,088.1 2,752 2,429 166,568 37,586.9 66,405.3 14,780.0 172,921.1 2.8 2014 154,893.0 55,635.3 2,938 2,612 171,341 38,617.7 71,211.5 14,710.8 187,486.8 2.9 2015 166,502.8 55,620.0 3,209 2,838 187,580 41,557.9 84,787.8 15,950.7 209,732.7 3.1 2016 170,326.5 61,398.3 3,385 2,988 192,612 40,350.4 87,717.2 16,414.6 217,693.3 3.2 2017 171,763.8 53,895.6 3,455 3,053 194,906 40,005.8 88,695.3 16,686.5 220,453.3 3.2 2018 174,105.0 54,484.9 3,550 3,141 197,370 40,871.2 85,073.0 16,923.5 218,306.8 3.2 2019 175,558.5 54,931.9 3,620 3,206 199,666 43,414.5 87,477.5 17,123.4 219,621.5 3.3 2020 178,665.5 55,938.5 3,691 3,269 202,426 44,336.8 89,793.7 17,403.7 224,122.4 3.4 2021 181,289.7 56,719.3 3,776 3,346 205,246 45,502.9 92,760.7 17,674.3 228,547.5 3.5 2022 182,595.6 57,078.8 3,863 3,428 207,438 46,255.6 95,380.0 17,863.5 231,720.0 3.6 2023 183,918.0 57,421.5 3,958 3,516 209,781 46,993.9 98,593.8 18,063.7 235,517.9 3.7 2024 184,598.0 57,541.7 4,049 3,601 211,774 47,860.5 101,871.7 18,221.1 238,609.2 3.8 Sector Rank 5/193 2/193 34/193 34/193 9/193 5/184 3/184 7/193 3/184 N/A Economy Rank 65/694 57/694 426/694 400/694 175/694 6/216 4/216 108/694 4/216 N/A
IVA/Revenue (%)
Imports/ Demand
(%)
Exports/ Revenue
(%)
Revenue per Employee
($’000) Wages/Revenue
(%) Employees
per Est. Average Wage
($)
Share of the Economy
(%) 2010 37.82 38.37 25.09 885.90 10.32 71.44 91,390.28 0.39 2011 35.23 37.93 22.86 927.57 9.64 66.67 89,454.84 0.37 2012 37.25 38.98 25.85 848.69 10.77 64.51 91,397.17 0.34 2013 36.15 38.40 26.08 865.13 10.26 60.53 88,732.53 0.32 2014 35.92 37.98 24.93 904.00 9.50 58.32 85,856.86 0.33 2015 33.40 40.43 24.96 887.64 9.58 58.45 85,034.12 0.32 2016 36.05 40.29 23.69 884.30 9.64 56.90 85,221.07 0.35 2017 31.38 40.23 23.29 881.26 9.71 56.41 85,613.06 0.30 2018 31.29 38.97 23.48 882.12 9.72 55.60 85,745.05 0.29 2019 31.29 39.83 24.73 879.26 9.75 55.16 85,760.22 0.29 2020 31.31 40.06 24.82 882.62 9.74 54.84 85,975.62 0.29 2021 31.29 40.59 25.10 883.28 9.75 54.36 86,112.76 0.29 2022 31.26 41.16 25.33 880.24 9.78 53.70 86,114.89 0.28 2023 31.22 41.86 25.55 876.71 9.82 53.00 86,107.42 0.28 2024 31.17 42.69 25.93 871.67 9.87 52.30 86,040.31 0.28 Sector Rank 26/193 56/184 61/184 26/193 147/193 78/193 17/193 2/193 Economy Rank 321/694 62/216 71/216 96/694 543/694 115/694 92/694 57/694
Figures are in inflation-adjusted 2018 dollars. Rank refers to 2018 data.
Revenue (%)
Industry Value Added
(%)
Establish- ments
(%) Enterprises
(%) Employment
(%) Exports
(%) Imports
(%) Wages
(%)
Domestic Demand
(%)
Total health expenditure
(%) 2011 2.6 -4.4 5.0 4.9 -2.0 -6.5 3.8 -4.0 5.0 1.4 2012 -9.6 -4.4 2.1 1.3 -1.2 2.3 -9.1 1.0 -11.6 2.1 2013 -3.3 -6.2 1.1 2.1 -5.1 -2.4 -5.9 -7.9 -4.5 1.2 2014 7.5 6.8 6.8 7.5 2.9 2.7 7.2 -0.5 8.4 3.2 2015 7.5 0.0 9.2 8.7 9.5 7.6 19.1 8.4 11.9 4.6 2016 2.3 10.4 5.5 5.3 2.7 -2.9 3.5 2.9 3.8 3.1 2017 0.8 -12.2 2.1 2.2 1.2 -0.9 1.1 1.7 1.3 2.6 2018 1.4 1.1 2.7 2.9 1.3 2.2 -4.1 1.4 -1.0 -1.3 2019 0.8 0.8 2.0 2.1 1.2 6.2 2.8 1.2 0.6 2.6 2020 1.8 1.8 2.0 2.0 1.4 2.1 2.6 1.6 2.0 2.8 2021 1.5 1.4 2.3 2.4 1.4 2.6 3.3 1.6 2.0 2.8 2022 0.7 0.6 2.3 2.5 1.1 1.7 2.8 1.1 1.4 2.9 2023 0.7 0.6 2.5 2.6 1.1 1.6 3.4 1.1 1.6 3.4 2024 0.4 0.2 2.3 2.4 1.0 1.8 3.3 0.9 1.3 3.5 Sector Rank 123/193 117/193 36/193 31/193 79/193 42/184 43/184 93/193 106/184 N/A Economy Rank 494/694 485/694 192/694 175/694 381/694 45/216 51/216 423/694 119/216 N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
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WWW.IBISWORLD.COM Brand Name Pharmaceutical Manufacturing in the US December 2018 47
Apr 2016 - Mar 2017 by company revenue Apr 2013 - Apr 2014 - Apr 2015 - Apr 2016 - Small Medium Large Mar 2014 Mar 2015 Mar 2016 Mar 2017 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.9 1.9 2.1 2.0 2.6 1.8 1.8 Quick Ratio 1.0 0.9 1.1 1.0 1.4 0.9 1.0 Sales / Receivables (Trade Receivables Turnover) 8.7 9.0 8.9 8.9 10.7 8.9 8.2
Days’ Receivables 42.0 40.6 41.0 41.0 34.1 41.0 44.5 Cost of Sales / Inventory (Inventory Turnover) 4.0 4.2 3.8 4.2 3.9 4.7 4.3
Days’ Inventory 91.3 86.9 96.1 86.9 93.6 77.7 84.9 Cost of Sales / Payables (Payables Turnover) 9.2 9.4 9.2 9.8 13.6 9.6 9.3
Days’ Payables 39.7 38.8 39.7 37.2 26.8 38.0 39.2 Sales / Working Capital 7.0 6.9 6.0 6.5 5.3 7.5 6.5
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) / Interest 6.9 8.1 11.0 7.0 9.2 6.4 6.8
Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 3.7 4.6 5.0 3.4 n/a 4.1 3.0
Leverage Ratios
Fixed Assets / Net Worth 0.7 0.6 0.5 0.6 0.2 0.7 0.9 Debt / Net Worth 1.5 1.5 1.3 1.4 1.1 1.3 1.6 Tangible Net Worth 30.4 28.7 32.0 28.3 34.6 30.9 21.2
Operating Ratios
Profit before Taxes / Net Worth, % 24.4 27.3 31.1 27.1 37.1 21.3 27.1 Profit before Taxes / Total Assets, % 10.8 9.2 11.3 8.4 14.6 6.3 9.9 Sales / Net Fixed Assets 9.2 9.8 11.7 10.3 22.3 8.6 9.9 Sales / Total Assets (Asset Turnover) 1.5 1.8 1.6 1.6 2.1 1.6 1.5
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading 42.8 40.5 40.7 45.5 59.4 39.9 45.2 Cash after Operations 9.0 7.2 9.4 9.1 9.7 7.2 12.1 Net Cash after Operations 8.0 6.1 9.0 8.3 11.5 6.3 10.4 Cash after Debt Amortization 2.9 2.2 3.6 3.5 5.9 2.4 3.8 Debt Service P&I Coverage 3.1 2.7 4.5 3.1 3.6 2.3 3.4 Interest Coverage (Operating Cash) 9.4 6.7 11.5 7.2 8.2 7.0 9.1
Assets, %
Cash & Equivalents 14.2 12.9 16.8 14.2 17.8 13.0 13.2 Trade Receivables (net) 19.6 20.1 19.8 19.6 19.2 20.0 19.5 Inventory 22.3 23.5 21.5 22.4 26.6 21.9 20.3 All Other Current Assets 3.0 2.8 3.0 2.9 2.8 2.3 3.7 Total Current Assets 59.1 59.4 61.1 59.1 66.3 57.1 56.7 Fixed Assets (net) 23.5 22.7 20.7 22.3 20.1 24.3 21.4 Intangibles (net) 11.5 10.8 11.8 12.6 7.6 11.9 16.6 All Other Non-Current Assets 5.9 7.1 6.4 6.0 6.0 6.6 5.3 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 12,867.2 12,602.9 13,857.7 11,745.4 223.4 1,938.7 9,583.4
Liabilities, %
Notes Payable-Short Term 5.3 6.6 5.5 6.5 11.9 6.1 3.5 Current Maturities L/T/D 4.2 3.2 2.6 3.2 2.3 2.7 4.4 Trade Payables 13.6 14.8 13.3 12.5 9.9 13.4 13.0 Income Taxes Payable 0.3 0.3 0.3 0.2 0.2 0.2 0.4 All Other Current Liabilities 10.6 10.3 10.9 10.7 9.0 10.7 11.7 Total Current Liabilities 34.1 35.2 32.6 33.0 33.2 33.0 32.9 Long Term Debt 17.5 15.5 14.9 15.6 13.8 13.9 18.9 Deferred Taxes 1.1 0.9 1.1 1.1 0.1 0.8 2.1 All Other Non-Current Liabilities 5.4 8.9 7.6 9.3 10.7 9.4 8.3 Net Worth 41.9 39.5 43.8 40.9 42.2 42.8 37.8 Total Liabilities & Net Worth ($m) 12,867.2 12,602.9 13,857.7 11,745.4 223.4 1,938.7 9,583.4
Maximum Number of Statements Used 291 279 293 245 55 103 87
Industry Financial Ratios
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
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Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor. CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator. DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry. ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States. INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%. LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.
Industry Jargon
IBISWorld Glossary
BIOLOGIC A drug made from large-molecule living matter, as opposed to small-molecule chemicals. BIOSIMILAR A drug derived from living organisms and marketed after the patent expiration of similar therapies. Also known as flow-on biologics or biogenerics. BLOCKBUSTER DRUG A drug that generates annual sales of more than $1.0 billion. ORPHAN DRUG A pharmaceutical or medicine designed to treat certain rare diseases. OUTSOURCE To procure goods or services under contract with an outside supplier.
OVER-THE-COUNTER (OTC) DRUGS Medicines that may be sold directly to a consumer without a prescription from a healthcare professional. PATENT CLIFF The period when numerous patents on blockbuster drugs are set to expire. REVIEW The basis of the FDA’s decision to approve an application. It is a comprehensive analysis of clinical trial data and other information prepared by FDA drug application reviewers.
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Jargon & Glossary
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.
IBISWorld Glossary continued
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