The second trend is the impact of the recession in Europe, where we see a zero growth situation rather than an outright contraction.
The lagging performance of the pharmaceutical industry in the five major EU countries is due more to austerity and government
fiscal issues rather than inherent company dynamics. In these countries, patent expiration does not have as striking an effect
on company sales after loss of exclusivity (LOE) because the branded product's retention of sales is much higher compared
to the United States. Many companies retain significant sales from off-patent products in the EU five as government reimbursement
treats off-patent brands and generics similarly. Nonetheless, policy changes in the last five years have changed this pattern
substantially and there is significant reduction in sales for off-patent brands as well as steeper erosion of new patent expiries.
In the European countries, industry performance is thus a bit better than in the United States, with sales relatively flat
and zero growth. Once again, a handful of countries are driving stagnant growth of the industry overall. In this case, by
splitting the performance of the companies that had over $5 billion in patent exposure in the European Union alone—Novartis,
Pfizer, Sanofi, Merck, GSK, AZ, and Takeda—we see that as a group these seven contracted by about almost 6 percent in 2012
(Figure 2). The remaining companies in the top 50 actually had an uptick in growth compared to 2011 with almost 3.5 percent
growth in 2012, which is also stronger than the growth experienced by all the other companies with sales in Europe outside
of the top 50. These remaining companies constitute about 1,600 small companies spread through all of the EU five markets.
Figure 2: Performance of EU pharma market by company type.
Third, in the other lead mature market, Japan, we see more positive growth for the industry, albeit at low single digits.
The every-other-year mandatory price cuts on pharmaceutical products imposed by the government, defines the zig-zag nature
of Figure 3. We can see, though, that by separating the performance of those five companies that had patent expiry revenue
exposure close to $5 billion—Pfizer, Merck, Sanofi, Dainippon Sumitomo, and Eisai—performance of the other members of the
top 50 was slightly higher than the group as a whole. Once again, performance of companies outside of the top 50 was even
higher given the small base for growth.
Figure 3: Performance of Japan’s pharma market by company type.
The relatively higher growth in Japan for these five against their global norm was attributable in part to better performance
of new launches and to the lower price cuts applied to protected brands under Japan's current NHS price control system. The
Japanese government imposes a 5 to 6 percent price cut every other year, in April. In 2010, a revised policy provided lower
price cuts for protected branded products, and steeper cuts for off-patent products and generics, amplifying the impact of
more recent patent expiries and providing a boost to innovative companies, many of whom are responding by launching products
in Japan earlier in their global launch sequence than they had in the past. Vaccines are another bright spot, aided by more
government support for immunization and access.