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P A Francis
Wednesday, May 17, 2017, 08:00 Hrs  [IST]

Profitability of global pharmaceutical giants is on the decline despite continued upward trend in the worldwide sales of various pharmaceuticals and allied products. A study of financial performances of the 15 top global giants during 2016, carried out by the Pharmabiz, shows that their net profit declined by 7.3 per cent to US$ 95 billion from $102 billion in the previous year and net profit after tax and adjustments declined even by 16.5 per cent to $95 billion from $114 billion. GSK reported the sharpest decline of 78.7 per cent in the operating profit at $3,285 million in 2016 from $15,455 million in the previous year. Gilead Sciences and Teva Pharma also reported steep decline in their operating profits during 2016.The sales of these companies including pharmaceuticals and products like animal health, diagnostics, medical devices, etc. increased only marginally by 1.6 per cent to $545 billion from $536 billion in the previous year. Out of these sales, pharmaceuticals & vaccine sales of these 15 companies accounted for $443 billion in 2016 as against $433 billion in the previous year, a growth of 2.4 per cent. Among the 15 companies, Pfizer climbed to number one position with sales of $49,417 million, overtaking Novartis which posted pharma sales of only $48,518 billion. Roche, Sanofi and Merck & Co have maintained their ranking at third, fourth and fifth places with pharma sales of $38,369 million, $35,633 million and $35,151 million respectively. Johnson & Johnson moved to sixth position with pharma sales of $ 33,464 million as against seventh rank in the previous year. Although overall sales growth of 15 companies during 2016 is marginal, their sales in the US show a good increase of 5.1 per cent at $224 billion from $213 billion in the previous year. Whereas the total sales of 15 companies in Europe declined marginally to $97 billion from $98 billion. And Pfizer reported a 21.4 per cent increase in sales in the US at $26,369 million from $21,704 million during 2016. At the same time, Pfizer's European pharma sales were marginally down at $9,306 million from $ 9,714 million.

A significant reason for the fall in profit and only a marginal growth in sales of these 15 companies during 2016 is the poor performance of top brands of these companies. The sales of first 100 brands of these companies registered only a 3 per cent growth in 2016. Of the 100 brands, 92 brands are blockbuster products with annual sales of over one billion dollar. The aggregate sales of 100 brands stood at $248 billion in 2016 as compared to $241 billion in the previous year. This should be construed as a warning to global giants in the context of growing push towards use of generics and continuing patients campaign against high value branded drugs in the developed countries. Drought of new molecules for combating new infectious and life style diseases from the research labs of these companies is a major factor that affected the sales growth. This is despite increased spending on research and development during the year. The R&D expenditure of the 15 companies increased by 4 per cent to $91,059 million during 2016 from $88,522 million. This works out to almost 16 per cent of net sales. This trend indicates the continuing problem of declining R&D productivity amongst global pharmaceutical companies.


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