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World drug industry less hot in 1990s.

World Drug Industry Less Hot in 1990s

After the good years in the 1980s, the US $ 100-billion-a-year world pharmaceutical industry is in a far more subdued scene the 1990s. Analysts say the 1990s will be marked by the constant need to contain costs, fewer prospects for blockbuster drugs, and far less innovation. The first ultra-profitable treatments for heart disease and ulcers emerged in the 1980s, each with sales of over US $ 1 billion a year, sales forces expanded internationally to create a global industry, and more money was ploughed into research. But all that will change in the 1990s. "It is a very different scenario. The odds are low that the companies can grow as fast or be as innovative in the new decade as the old decade", said Neil Sweig, a New York-based pharmaceutical industry analyst.

"The industry will bring to market a number of important new products in the 1990s, but it will compete in an environment with pressure on prices and the need to bring costs into line", said Henry Wendt, chairman of Smith Kline Beecham, the world's third largest drug company. The end of the 1980s saw the demise of a long standing tacit agreement that no drug firm would initiate a hostile takeover of another member of the club by industry. An unprecedented wave of mergers and acquisitions then swept through the world's once-fiercely independent drug companies, which became eager to find a friendly suitor rather than a hostile predator.

The early years of the 1990s may bring a second wave of mergers, further consolidating an industry facing everhigher costs to develop new drug, increasing regulatory pressures and fierce global competition. Some of the major companies that became prominent in the past 10 years are approaching a critical size that could make growth much more difficult.

Merck and Co. Inc, based in Rahway, New Jersey, recently acknowledged it simply cannot grow in the way it did between 1985 and 1989, when it reported an annual growth rate of 34 per cent. During that time, Merck increased its dividends by more than 200 per cent, and its share price jumped from about US $ 18 to US $ 75.75 over the past five years. Much of Merck's rapid growth was due to Vasotec, a heart drug introduced in 1986 that now commands over US $ 1 billion a year in sales, and an assortment of other medications for heart disease. Britain's Glaxo Holdings plo introduced its Zantac anti-ulcer medication, which now has cracked the US $ 12 billion a year sales mark, making it the single most financially successful drug in history.

Both Merck and Glaxo have drugs in the pipeline that analysts believe could be big winners in the 1990s. In Merck's case, analysts are particularly optimistic about the prospects for Proscar, a drug to treat an enlarged prostate, a condition affecting elderly men-a growing population group in the United States and other industrialised countries. And Glaxo is developing a treatment for migraine headaches that has a huge potential market.
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Publication:Economic Review
Date:Aug 1, 1990
Previous Article:Crisis of pharmaceutical industry.
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