Meantime, Merck is planning to knock on FDA's door with two controversial compounds: Phase III cholesterol-buster anacetrapib, a CETP inhibitor whose first-in-class contender, Pfizer's torcetrapib, famously crashed and burned this time last year; and taranabant, a so-called cannabinoid-1 receptor inverse agonist—an Acomplia competitor whose NDA is due this year. If Merck wins, though, it will have scored a trifecta: launching first-in-class drugs in cholesterol, obesity, and, with Januvia, diabetes, even though the compounds were number two coming into the home stretch.

Not-So-Emerging Markets

Another first: The top-seven emerging markets (the old BRIC group—Brazil, Russia, India, China—plus Turkey, Mexico, and South Korea) will make up one-quarter of global sales growth.

However promising these markets look, though, "there's a general sense that 'we'll wait a few years until there's a bigger middle class able to buy brand lifestyle drugs,'" says IMS's Aitken. Companies will continue to make inroads, forming local partnerships as the industry steps up outsourcing for manufacturing, IT, clinical trials, and even discovery.

Chronic threats to patents further darken the picture. Says Clark flatly: "Pharma must recognize that its global international property rights are under greater threat now than at any time since the advent of the WHO system. Actions by Thailand and Brazil have been met largely with silence from the Bush administration—a signal to the world that the US government will no longer fight on behalf of pharma."

One solution is for drugmakers to price their own drugs at generic prices worldwide once they go off patent, says St. Joseph's University's Bill Trombetta: "There's money to be made off the 4 billion people living on two bucks a day. But pursuing this market requires a totally new orientation along with stripping out costs."

Small Changes

Analysts may be impressed with the new outspokenness of pharma CEOs, but they are underwhelmed by their actions. "Progress is incremental," says Bain & Co.'s Farkas. "There are modest improvements being made to the existing model—rather than throwing it in the trash."

Many analysts say that pharma has sacrificed innovation at the altar of size and sales. "It's not by chance that the pipelines have dried up," says Bruckner Group's Michael Russo. "Advertisers and marketers have taken over from the innovators—researchers and businesspeople—who do the real work of developing drugs."

David Windley of investment bank Jefferies & Co. agrees. "Companies are still going after blockbusters and even megablockbusters," he says. "They're just beginning to accept that they're likely to be smaller in the future."

One exception is Novartis' Dan Vasella. At his end-of-year briefing, Vasella specified exactly how much smaller—or "more nimble and agile," in pharmaspeak—the drug giant would get: In 2008, every Novartis division will max out at six levels. "When things get tighter, and you get more pressure, then it's much easier to say, Look, it's just not going to continue this way," Vasella told the Financial Times.