Global Value Chains: Major Firms
::Location
::Top Companies (according to market share measured by sales)
::Changes in Market Share Over Time

 

Location The major firms that pioneered the industry back in the early 20th century were located in Switzerland, Germany, UK, and the US. Today, these countries are still the location of the major firms. Since the industry requires sophisticated manufacturing techniques and intensive, high-cost R&D, the most profitable firms are in predominantly advanced, developed economies. Even with a growth in the industry, and changing trends in international trade, the early pioneers are still in the lead.

 

Top Companies (according to market share measured by sales) The pharmaceutical industry is a multi-billion dollar industry with about 200 major companies making it up. One company does not control an overwhelming portion of the market share, though the most profitablecompanies control a share in the mid-to-high single digits.

 

Pfizer Inc. - With global revenues of $51.3 billion for 2005, Pfizer is the leading global pharmaceutical firm, even though this was a decline of 2.3% from 2004. It has the largest pharmaceutical R&D organization in the industry called Pfizer Global Research and Development. It has had amazing success with Lipitor, the best selling drug in the world. This cholesterol pill has been at the top for over five years, with annual sales at about $12.9 billion in 2005-- more than twice as much as its closest competitors. Other key drugs include Viagra and Zoloft.

 

GlaxoSmithKline - Though its primary R&D is headquartered in the UK, GlaxoSmithKline is located in 116 countries and markets its products in over 125. The US is its largest market (49%), followed by Europe (30%). Up 8% from 2004, the major global pharmaceutical firm reached revenues of $39.5 billion in 2005. Unlike Pfizer, GlaxoSmithKline's net profit increased from 2004 to 2005 by over 19%.

 

Sanofi-Aventis - This global pharmaceutical company operates in 100 countries around the world, but is headquartered in Paris, France. Its revenues totaled $33,946.5 million in 2005-- an 8.4% increase since 2004. Their net income also increased by 15.7% on the year.

 

Novartis - Based in Switzerland, Novartis was created in 1996 after a big merger between Ciba-Geigy and Sandoz Laboratories-- the largest corporate merger in history at that time. Its products include the dietary fiber supplement Benefiber and the antifungal Lamisil.

 

Changes in Market Share Over Time With the high attrition levels of the drug pipeline, if major companies do not come out with a successful, billion-dollar drug one year, they may see a major impact on their revenue numbers at the end of the fiscal term. In 2006, Pfizer, Johnson & Johnson, and Eli Lilly did not get approval from the FDA to market their drugs, and their share prices collapsed.

Table 1: Top 10 Pharmaceutical Companies by Revenue in 2004
Source: Med Ad News, 2004

Bristol-Myers Squibb, the number two pharmaceutical company by sales in 2004, fell from the top five after several disappointments (compare Table 1 and Table 4 above). It has become representative of the challenges facing an industry that was once highly dependable for growth and profitability. After 2005, its CEO was replaced (like at Pfizer and Merck & Co., who may also see shifts in their market share as a result). Before that, the company was showing very slow growth.

As is becoming a trend for the major pharmaceutical companies, Bristol-Myers Squibb lost its patent protection on two of its key manufactures: Platinol and Taxol (oncology medications). After that happened at the turn of the century, the company has suffered from many disappointing drug pipelines that have not received market approval from the FDA. One drug, Murglitazar (designed for Type 2 diabetes) was dropped by the company for such reasons. Now a company that was once a powerhouse in oncology and diabetes is struggling to compete with rising generics and intensifying competition in the industry.

Source: IBM Business Consulting Services

Source: Standard & Poor's

As one can see in the above tables, most of the major blockbuster drugs are set for expiry by the year 2008. From 2006-2010, at least 70 branded drugs will expire, 19 of which are blockbusters with annual sales greater than $1 billion. Patents are critical for pharmaceutical sales because they allow the companies to charge high margins for the product. When the patents expire, however, generics from competing manufacturers are able to enter the market, driving the price down dramatically.

Shifts in market share over the past few years and in the years to come will occur mostly if companies are unable to come up with new medicines that are successful enough to fill the holes left behind by branded drugs whose patents expire, as in the case of Bristol-Myers Squibb. After expiry, generics are able to come in and take some of the market share for that particular drug. Therefore, the discovery and development of important new drug therapies is what will ensure that the major pharmaceutical companies remain competitive.