The Pharmaceutical Industry Still Booming after All These Years

Article excerpt

The pharmaceutical industry is one of the most dynamic and largest sectors in the U.S. economy. Its growth is being fueled by burgeoning scientific discovery, an aging population that is becoming more reliant on pills, and the healthcare system's shift from surgery to more simple treatments outside the hospital with drug therapy being chief among them.

In the last decade especially, pharmaceutical companies have become heavyweight contenders. But it's a paradoxical development. Analysts had been predicting a taming of the go-go 1980s growth, because of the rise of managed care, a more aggressive Commissioner at the Food and Drug Administration, and a President who wasn't so industry-friendly.

Instead, the pharmaceutical business profited from those seemingly negative factors. At the start of the 1990s, the big brand name drug companies were portrayed as enemies of the people by incoming President Clinton, who called them price-gougers. The government demanded and got price concessions for big federal purchasers like the Defense Department and the Medicaid program for the impoverished. Seeing an opportunity, managed healthcare plans (HMOs being the best-known), said they would start seeking the same kinds of discounts, and restricting their enrollees' access to higher-priced brand name pharmaceuticals.

From 1992 through 1994, drug companies' stock prices "were in a swoon, brought about by fears of HMOs and 'Clinton care'," the Administration's failed sweeping health insurance proposal, says Ira Loss, a pharmaceutical stock analyst with Washington Analysis. And sales were way off. According to the drug industry trade group, the Pharmaceutical Research and Manufacturers of America (PhRMA), in 1993, U.S. sales grew a paltry 1 percent, compared to 15.1 percent in 1991, the year before President Clinton took office.

Now, "stocks have more than recovered," he says. "It was determined that rather than a harm, HMOs were a huge benefit. With the emphasis on preventive medicine, the unit growth of pharmaceutical sales went through the roof," Loss says. There has been a growing recognition by health plans that, for instance, paying for asthma medications is more cost-effective in the long run than treating people who can't breathe on an emergency basis.

More people with chronic conditions like diabetes, high blood pressure, allergies, and high cholesterol are being given prescription medicines to help control those diseases, so they don't get sicker and end up needing surgery. Sales are also being driven by the introduction of so-called "lifestyle" drugs like Viagra to treat impotence and Propecia to alleviate baldness. These products and pills to treat obesity have drawn millions more consumers to their doctors' offices and pharmacy counters.

And of course, with the edge of the Baby Boom starting to roll "over the hill," pharmaceuticals will gain even more use for everything from cancer to Alzheimer's disease, which affects at least four million Americans. "As time goes on you're going to have a great population of people who expect more out of health care, are living longer, and have more discretionary money to take care of themselves," says James Walton, vice president of worldwide marketing for Abbott Laboratories' Diagnostics division.

Rising sales volumes have not completely taken the pressure off pharmaceutical companies. With most of the large manufacturers facing a loss of patent protection for their billion-dollar-blockbusters, which means cheaper generic versions will be allowed on the market, they are under the gun to find unique therapies, or new ways to make old therapies more convenient to take, according to Ira Loss. The big drug makers are trolling for smaller companies, especially biotechnology start-ups, to broaden their product portfolio, and to ensure they have a piece of future technologies, such as protein design and gene therapy.

The pharmaceutical business will often be tripped up by economic downturns when there's less money to buy drugs or by poor strategic moves. …