First Research US Industry Profile

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Pharmaceutical Manufacturing
SIC Codes: 283
NAICS Codes: 3254
Last Quarterly Update: 4/29/2019
Companies in this industry manufacture and process pharmaceutical products. Major companies include Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck & Co, and Pfizer (all based in the US), as well as AstraZeneca (UK), Bayer (Germany), GlaxoSmithKline (UK), Novartis (Switzerland), Roche Holding (Switzerland), and Sanofi (France).
Annual worldwide revenue from pharmaceutical manufacturing is more than $1.1 trillion and is expected to reach $1.4 trillion by 2022, according to a 2018 forecast from market intelligence firm IQVIA. Worldwide spending on medicines is increasing due to economic growth in developing nations and the rising cost of specialty drugs. The US and the EU remain the largest importers of pharmaceuticals, but manufacturers are targeting emerging economies for growth.
The US pharmaceutical manufacturing industry includes about 2,400 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $225 billion.
Competitive Landscape
Pharmaceutical manufacturers compete to discover and commercialize ever-more effective medicines. Companies focus on the most profitable markets, where demand for treatment is high. Key areas of development include cardiovascular, cancer, and diabetes medications, as increases in the number of elderly and obese patients fuel disease growth in these categories. Companies may also focus on rare disease categories, where available treatments are limited or nonexistent and opportunities exist for expedited approvals and profitable pricing.
The traditional drug manufacturing industry increasingly overlaps with the biotechnology industry, which is a source of many new medical treatments. Biopharmaceutical research is increasingly focused on specialized and personalized treatments. Pharmaceutical manufacturers also face competition from medical device manufacturers, over-the-counter product makers, and others offering alternative medical treatments.
Operating costs create high barriers to entry, and large companies tend to dominate due to economies of scale in research, manufacturing, and marketing. Small companies can compete effectively by specializing in drugs that target one or two specific ailments and by partnering with larger drug makers. The US industry is highly concentrated: the 50 largest companies account for about 80% of revenue.
The US is the largest global market for pharmaceuticals. Exports total about 25% of US production. Major export markets for US pharmaceuticals include Canada, Germany, the Netherlands, Japan, and Belgium. Imports of drugs to the US, partly from foreign manufacturing plants of US companies, and partly from foreign drug companies, account for about 40% of the US market. Imports of pharmaceuticals to the US come primarily from Ireland, Germany, Switzerland, India, and Italy.
Drug prices in many countries are controlled by the government and are typically much lower than prices in the US. Consequently, some US buyers travel to Canada or buy from foreign internet pharmacies. Although these practices are illegal, they have been encouraged by some state and local authorities, and restrictions are not always strictly enforced.
Competitive Advantages
Effective Pricing Strategies - Pressure to control medical costs from government and commercial payers is squeezing companies' ability to charge high prices for medications. Companies recoup high R&D expenses through pricing, but they must be able to justify prices to avoid regulatory scrutiny and public backlash, especially for breakthrough medicines. Most companies provide access-to-care programs such as rebates for patients struggling to afford medications.
Strong Development Pipeline - Pharmaceutical companies must have a strong pipeline of drug candidates to ward against the greatest financial risk: patent expiration. The loss of market exclusivity for a key product can cause a significant dip in revenues as generics erode market share, leaving manufacturers dependent on newer offerings. Defending patent rights against legal challenges is a major expense.
Broad Geographic Presence - Although developed markets account for the bulk of global pharmaceutical revenue, emerging markets are major sources of sales growth. The ability to offer new products in established markets and expand existing brands or low-cost generic offerings into developing countries provides a diversified revenue base.
Companies to Watch
Pfizer has fought tenaciously to hang on to the No. 1 pharmaceutical manufacturing spot, mainly through aggressive acquisitions and licensing deals. In addition to traditional prescriptions, it has vaccine, biotech, generic, and over-the-counter drug operations. Half of revenues come from non-US markets. Top sellers include breast cancer drug Ibrance, pain medication Lyrica, and blood thinner Eliquis.
Merck has global operations and a diversified product portfolio. Like most major drug firms, Merck has struggled to maintain growth. However, the company is investing heavily in R&D and is optimistic about its pipeline and broad offerings. The company is experiencing growth in sales of top sellers including HPV vaccine Gardasil and cancer drug Keytruda.
GlaxoSmithKline offers respiratory, cardiovascular, and central nervous system medications, along with vaccines, HIV drugs, antivirals, and OTC medicines. The UK firm's primary markets are the US and Europe, each of which accounts for more than 25% of revenues.
Products, Operations & Technology
Traditional chemical pharmaceuticals (branded and generic) account for about 75% of industry revenue; biological (cell-based) drugs account for about 15%. ... plus:
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Quarterly Industry Update
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Industry Indicators
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Business Challenges
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Trends and Opportunities
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Call Preparation Questions
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Financial Information
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Industry Forecast
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Industry Websites
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Glossary of Acronyms

Historical Profiles (PDF format)

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06/28/2010
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