According to EvaluatePharma’s World Preview 2013 report *, the past two years have seen one significant negative development (the fact that in dollar terms, worldwide prescription drug sales fell due to a loss of patent protection on a number of popular brands and fiscal austerity measures in Europe) and a host of positive developments that bode well for the future (a massive number of new drug approvals, biological products that will support future sales growth and improvements in research and development productivity.)

No predictions about the future are complete without a look at past performance, in order to provide perspective. The World Preview report points out that in 2012, sales in the three most developed markets (the USA, Europe and Japan) fell 2.4%, with the Japanese market performing at a slightly better rate.

However, 2012 was a banner year for new drug approvals by the United States Food and Drug Administration – in fact, the best in over 15 years. The number of new drugs approved rose by 23% and sales potential rose by over 50%. Out of the new products approved in 2012, six of them (Eliquis, Strilbid, Kalydeco, Xeljanz, Xtandi and Kyprolis) are all forecast to sell more than $1bn in the USA five years after theiur launch.

Oncology was the largest therapeutic category in 2012, and in terms of worldwide prescription drug sales, Pfizer was in the lead, closely followed by Novartis. Teva Pharmaceutical was far and away the worldwide leader in generic drug sales, topping a market that grew 2% overall.

When ranked by enterprise value, Johnson and Johnson topped the list at $190bn, with Roche and Pfizer following closely behind. Pfizer led the way in net income, but the most profitable pharma company of 2012 was PDL BioPharma, which was over $16bn more profitable than its closest rival, Warner Chilcott. AbbVie’s Humira was the top-selling product in the United States and around the globe, after a rise in sales of 17% compared to 2011.

What’s more, 2012 saw a significant drop in mergers and acquisitions, with overall transactions down 21% and transaction value down 37%. However, on the positive side of the ledger, venture financing deals (and their associated value) were up significantly from 2011, though still down from 2007’s high point.

In business, the best predictor of future behavior is past behavior. In that spirit, EvaluatePharma’s report has taken consensus forecasts of equity analysts and seamlessly combined them with leading pharmaceutical firms’ past results. This gives us a view into the industry’s future that would be hard to come by from any other source. EvaluatePharma’s data shows that the market for prescription drugs will grow by 3.8% per year between 2012 and 2018 to $895bn. Loss of patent protection will continue to be an issue, but less so than before as a growing amount of sales are from biotechnology products, sales of which are expected to contract at a slower rate.

By 2018 Swiss multinational Novartis is projected to hang on to its position as number one among the world’s top ten pharmaceutical companies, $3.3bn ahead of second-place finisher Sanofi. Pfizer, Roche, GlaxoSmithKline, Merck & Co, Johnson and Johnson, Novo Nordisk, Bristol-Myers Squibb and AbbVie round out the top ten.

In a sign of things to come, by 2018 worldwide sales from Biotech products will be ahead of sales from Small Molecule products, and will be quickly gaining on the sales of conventional/unclassified products. Roche will continue to dominate the biotechnology market, with sales growing at a rate of 5% per year. Gilead’s Sofosbuvir, a hepatitis C polymerase inhibitor, will be the industry’s most valuable product, with a valuation of around $7.4bn by 2018. The total industry pipeline is estimated to be worth over $286bn, which should support continued growth for the foreseeable future.

One of the key factors contributing to a bright future for the industry is an increase in funds allotted to research and development. The World Preview 2013 report points out that total worldwide pharmaceutical R&D spending will jump from $135bn in 2013 to $149bn in 2018, with Novartis and Roche spending the most, followed by Merck & Co, Pfizer, and Sanofi.
When evaluating what world sales in 2018 will look like by therapy area, oncology takes the lead, followed closely by anti-diabetics, anti-rheumatics, vaccines and anti-virals. The top-selling product in the world by 2018 will be AbbVie’s Humira, which is forecast to grow by 5% annually between today and 2018 and reach sales of $12.8bn in 2018.

To sum up, increasing prescription drug sales from 2014 and better quality new drug approvals due to improved research and development should provide a strong pace of growth for the pharmaceutical industry in the foreseeable future. The investment community would seem to agree – after a decade of lowered investment, the share price of the top 20 pharmaceutical firms actually outperformed the S&P 500 in 2012, a likely sign of things to come. In an economic climate that’s still rife with uncertainty, the best indicator of a strong future for the industry is that investors are coming to once again view it as a safe bet.

* World Preview 2013, Outlook to 2018 Returning to Growth Report by EvaluatePharma

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