BEHIND THE NUMBERS

April 2, 2001

Drug company mergers were a prime mover of pharmaceutical sales last year, Scott-Levin survey finds

 

COVER STORY
ANNUAL Rx SURVEY

BEHIND THE NUMBERS

Drug company mergers were a prime mover of pharmaceutical sales last year, Scott-Levin survey finds

For many industries, 2000 was a year best remembered for what didn't happen. The millennium bug didn't bite. The technology market didn't continue to surge.

But the year 2000 made a big splash in the prescription drug area. Not for new blockbuster product introductions, which paled next to the 1999 launch of Vioxx (rofecoxib, Merck) and Celebrex (celecoxib, Pharmacia/ Pfizer). Rather, 2000 was the year industry consolidation skewed sales trends, causing some major shifts in company rankings among the top 10.

Pfizer, for instance, shot from No. 5 by number of Rxs in 1999 to No. 1 in 2000. Physicians wrote 238,385,000 scripts for Pfizer products last year, an apparent gain of 10.9%. But the numbers are misleading. "It was the merger with Warner-Lambert," said Sean-Patrick Kelly, marketing research analyst for Scott-Levin Associates. (The Newtown, Pa., market research firm provided all the data in this survey unless noted otherwise.) "Lipitor [atorvastatin calcium] and a whole list of other big sellers moved into the Pfizer column in one fell swoop."

Take a look behind the numbers. In 1999, Scott-Levin reported that Pfizer controlled 6.5% of the retail U.S. drug market. After the merger, the new Pfizer owned 11.1% of the market. That was the first time in history that a single entity had captured more than 10% of U.S. Rx sales.

It's the same story with the other fast-moving companies in 2000. GlaxoSmithKline soared from No. 8 in 1999 to the No. 2 position in 2000, with 171,778,000 million Rxs, a gain of 8.7%. Watson Pharmaceuticals went just as far, from No. 9 in 1999 to No. 3 last year, at 165,992,000 scripts written. That's a 5% jump. For both companies, Kelly said, the growth was because of the mergers, not booming sales for individual products or even categories of products.

Mergers were such a powerful force in 2000 that they swept competition from product sales off the field and off the charts. Outside the top three—Pfizer, GlaxoSmithKline, and Pharmacia—the top 10 firms all fell in ranking. It wasn't a pretty sight, especially for those who expect good performance to be rewarded with good rankings. Merck & Co., for example, was the top percentage gainer—growing 21.2%, to 114,169,000 scripts for the year—and it still fell from No. 8 in 1999 to No. 10 in 2000.

The situation was even more severe for others in the top 10. American Home Products' Rx volume fell 2.3%, to 148,579,000, knocking it from the top position in 1999 to No. 7 for 2000. Schering-Plough lost 0.5%, dropping to 128,397,000 scripts, which caused it to fall from No. 6 in 1999 to No. 9 last year.

Even bringing a major product to market is no guarantee of success in these days of mergers. Bristol-Myers Squibb had a big winner with Glucophage (metformin HCl), which racked up a 40.7% jump in sales, to reach $1.6 billion. That's the second best in the industry after Celebrex, which grew 57.6% to $2 billion in sales. But big isn't enough. Glucophage still came in at No. 10 on the dollar volume ranking for sales in 2000.

"Mergers in the early '90s seemed to be about growth," said David Johnson, director of audits at Scott-Levin. "Mergers in 2000 were more a matter of survival. I remember when Novartis was formed in the mid-1990s; it was going to be the biggest pharmaceutical company ever. Today, Novartis is looking for a merger partner again."

That's not to suggest that 2000 was a bad year for the pharmaceutical industry. Far from it. The average retail pharmacy filled 52,000 Rxs in 2000, up from 48,000 in 1999. That's an 8.4% increase in average volume, which far overshadowed an increase in total pharmacy outlets of 1.8%. The total number of Rxs was up 7.5% last year, to 2.9 billion. That breaks down to an 8.9% jump in renewals (to 1.3 billion) and a 6.3% increase in new scripts (to 1.6 billion).

The average Rx cost was up 10.4%, to $45.31. That's a slight drop from the 11.6% growth in average Rx cost for 1999. Total retail acquisition costs climbed 18.7% in 2000, to $132 billion—not bad, but a definite cooling trend after a blistering record for 1999, when drug sales were up 21.1%.

The fastest-growing products were Ditropan XL (oxybutynin chloride, Alza Corp.), up 143.9% in Rxs (to 2.1 million) and 188.1% in dollar volume (to $170 million); Zanaflex (tizanidine HCl, Elan Corp.), up 141.7% in scripts (1.1 million) and 129.3% in dollars ($73.3 million); and Topamax (topiramate, McNeil Pharmaceutical), up 132.9% in Rxs (1.3 million) and 118.4% in dollars ($217.6 million).

But high-growth numbers can be misleading. Seven of the top 10 fastest-growing products didn't come from any of the top 10 drugmakers. "The high growers are there because they started from a lower point," Kelly said. The higher the volume last year, the less likely a product is to stay on the top 10 list this year. None of the fastest-growing branded products for 1999 made the same list for 2000. The reality, Kelly said, is that sales volume counts more than growth, even though growth makes for more impressive numbers.

The real winners from the top 10 list in terms of Rx activity were: No. 8, Celexa (citalopram hydrobromide, Forest Pharmaceuticals), up 94.8% in Rx volume (to 10.7 million) and 104.9% in dollar value (to $724.4 million), and No. 4, Baycol (cerivastatin sodium, Bayer), up 125.5% in Rxs (4.3 million) and 140.4% in dollars (to $212.4 million).

Where do the numbers come from? Scott-Levin bases its figures on regular surveys of 36,000 pharmacies in chain and independent drugstores, mass-merchandisers, deep-discounters, and food stores. The sample results are projected across all 57,000 retail pharmacy outlets in the country. Mail order, Internet sales, importation for personal use, and other distribution channels that don't involve a patient standing across the counter from a pharmacist are not included. So far, Johnson said, excluding those indirect retail sales doesn't seem to distort the total picture. Industry reports suggest that sales volume across the various nontraditional distribution channels is relatively flat. And it's likely to stay that way for some time. "There's still a chance with the aging population that sales will move out of traditional retail channels," he cautioned. "The question is whether it is going to come at the expense of retail pharmacy or at the expense of mail-order pharmacy?"

Dollar amounts reported by Scott-Levin are based on drugstore acquisition costs, not on retail sales prices. Using retail pricing would reflect the uneven impact of drug benefit plans and third-party payers on consumer spending. That's probably just as well. In a year of minimal inflation, drug prices were up almost 19%. Specific groups of consumers—the poor, the elderly, and the uninsured, many of whom tend to pay cash for pharmaceuticals—are already screaming for price controls and access to cheaper drugs from Canada and Mexico.

Most consumers, however, don't seem to understand what all the fuss over drug price increases is about. The simple explanation: Managed care and health insurance programs are shielding them from price hikes. For the first half of 2000, 70.4% of all retail scripts were covered by some sort of third-party organization. That's a 10% increase over the comparable period in 1999. At the same time, cash payment dropped slightly, from 20.9% for the first half of 1999 to 19% for the first half of 2000. Medicare payment held steady at 10.6%.

So what do the prescription volume and dollar numbers mean? Two things, Kelly said: Managed care organizations and their pharmacy benefit managers are getting better at convincing patients to refill their scripts. And the cost of newly introduced products is still climbing. "The story hasn't changed too much from 1999," he explained. "New drugs come out at a higher price because they're being promoted as being safer. Vioxx, for example, got an indication as being safer on the GI system than older agents. You're seeing the difference between new wonder drugs and older drugs, which are cheaper but arguably less efficacious."

You're also seeing the growing impact of marketing and advertising expenditures. Direct-to-consumer (DTC) advertising soared 17%, to $2.1 billion, for the first 10 months of 2000. Total DTC spending for 2000 was projected to total around $2.3 billion. The figures came from IMS Health and Competitive Media Reporting.

Spending on physician-related sales programs was even higher. The retail value of sampling was up 8.4% for the first half of 2000, to $3.9 billion. Face-to-face selling (detailing) and advertising directed at physicians was up 12% for the first half of 2000, to $2.7 billion.

Not surprisingly, the biggest drugmakers—Pfizer and GlaxoSmithKline—are also the biggest spenders. No. 2 drugmaker GlaxoSmithKline was the No. 1 DTC advertiser, dropping $175 million on consumer ads during the first quarter of 2000 alone. That represented 18.5% of all DTC advertising for the quarter, according to Scott-Levin. Top dog Pfizer spent $86 million during the same period, 9.1% of the DTC total. The positions were reversed for detailing and physician event spending. Pfizer sales reps made 13.6% of all sales calls during the first quarter of 2000, 4.2 million physician office visits. That compares with 3.1 million visits by GlaxoSmithKline reps, or 10.1% of the total.

Spending on meetings and events also soared for the period. Pfizer spent $135 million, 14.1% of the industry total, on physician meetings and events. GlaxoSmithKline accounted for 9.1% of total event/meeting spending, $87 million. "As DTC advertising goes up, other forms of promotion go up as well," Kelly said. "DTC works best as part of an overall promotional program, not as a strategy by itself."

Did the spending pay off? In some cases, Yes. The top five Rx products sampled during the first half of the year were Claritin (loratadine, Schering-Plough), Allegra (fexofenadine HCl, Aventis), Zyrtec (cetirizine HCl, Pfizer), Vioxx, and Celebrex. Four of the five were also among the most heavily promoted to consumers, said IMS. Promotion of Vioxx and Celebrex helped rocket COX-2 inhibitors to the top of Scott-Levin's list of biggest gainers by therapeutic class. Drugmakers saw a 105.4% increase in Rx numbers, to 41.2 million, and a 119.2% increase in retail sales, to $3.5 billion.

But only two products, Claritin and Celebrex, made Scott-Levin's top 10 by dollar volume. Only Claritin made it into the top 10 by Rx numbers. "Different companies use DTC for different purposes," Kelly explained. "It' not always just to sell the drug. Sometimes it's to build awareness of the condition and get people to the physician's office."

Some product marketing is just that—marketing to boost a specific product in a crowded market. Claritin, Kelly noted, is being promoted very much like an over-the-counter consumer product, with heavy emphasis on brand-name identity. It remains the category leader, but overall advertising of antihistamines, including Zyrtec, declined substantially in 2000.

Generics on the move

Four of the top 10 sellers by Rx volume in 2000 were generics: No. 1, hydrocodone/APAP; No. 5, atenolol; No. 6, furosemide oral; and No. 9, albuterol aerosol. All four held the same rankings in 1999. Taken together, the generic quartet accounted for 164.5 million Rxs, 43.7% of the top 10 total of 376.7 million retail Rxs. That's a significant drop from the 59% share of the top 10 that generics took in 1999 and the 58% share for 1998.

That may look like a major shift, but it doesn't have any significant impact on overall spending, Kelly said. The dollars spent on generics have stabilized at around 20% of total drug expenditures for several years. Large numbers of products are going off patent, including 12 of the top 20 drugs by the end of 2005. Those 12 products represent 9% of retail prescriptions and 18% of dollar value, according to Scott-Levin figures, but don't look for any major dollar shifts in or out of generics. Products going off patent are being counterbalanced by a steady stream of new, more expensive products coming onto the retail market.

That leaves price increases as a broad trend that crosses every product category. The only real difference is how much prices increased. Take the antiarthritic market. Prescription volume climbed 16.2%, but total acquisition dollars jumped 36.4%, a 20.4% gap. What happened? Vioxx and Celebrex exploded. Vioxx Rx volume soared 331.2%, but acquisition costs soared even higher, 361.4%. Celebrex, which had a head start from an earlier introduction, increased a relatively modest 42.4% on Rx volume but still increased 57.6% by cost.

The two products are neck and neck in terms of total volume, Kelly said, and they were more than enough to offset losses by almost every other product in the category. In fact, they're the reason almost every other antiarthritic showed a decline in both Rx volume and sales. Category leader ibuprofen managed to eke out a 0.1% gain in Rx volume but had to give up 1.1% in dollar volume. By this time next year, Kelly said, the big story could well be that even Rx-strength ibuprofen is disappearing under the COX-2 steamroller.

Cardiovascular drugs are at the other end of the price increase scale. Total Rxs rose 9.7%, but the total acquisition cost was up 11.1%, a scant 1.4% gap. The difference? No new breakthrough, price-buster products. Nearly all the high-growth products—Altace (ramipril, Monarch), up 40.9%; Cardizem SR (diltiazem HCl, Aventis), up 53.8%; and Inderal LA (propranolol HCl, Wyeth-Ayerst), up 108.3%—held the price line. There was not much choice, Kelly said. Former high flyers like Vasotec (enalapril maleate, Merck), Procardia XL (nifedipine, Pfizer), and Cardizem CD all lost patent protection, but not efficacy. The newer products are largely reformulations that extend patent protection but just don't offer enough of a therapeutic edge to push prices higher.

New indications are one strategy drugmakers used to extend product life. Increased advertising is another tactic. AstraZeneca pulled out all the stops in 2000 to push the "purple pill," Prilosec (omeprazole). During the first eight months of 2000, Prilosec was second in the industry in DTC spending, with $92.5 million. The purple pill ads ranked No. 1 in recall by consumers and No. 3 among physicians.

Combination products also emerged as another tactic to extend product life. A prime example, Kelly said, was Bristol- Myers Squibb's Glucophage, which is being turned into Glucovance by combining glyburide with the original metformin.

Fred Gebhart

Table 1
Top 10 pharmaceutical firms in 2000

Rank 2000Rank 1999Pharmaceutical firmsTotal Rxs (add 000)% change from 1999

15Pfizer Inc.238,38510.9%
28GlaxoSmithKline171,7788.7
39Watson Pharmaceuticals165,9925.0
43Mylan162,86914.7
54TEVA Pharmaceuticals161,5666.7
62Bristol-Myers Squibb Corp.149,4561.9
71American Home Products148,579-2.3
87Novartis143,13911.9
96Schering-Plough Corp.128,397-0.5
108Merck & Co.114,16921.2
Rank 2000Rank 1999Pharmaceutical firmsTotal Rxs (add 000)% change from 1999
11Pfizer Inc.$13,979,57312.9%
2NAGlaxoSmithKline12,013,45321.7
32Merck & Co.8,451,71629.5
43Bristol-Myers Squibb Corp.7,276,93418.2
54AstraZeneca7,079,61917.2
65Schering-Plough Corp.6,209,9015.1
7NAPharmacia Corp.5,857,89517.5
810Novartis5,791,33815.5
98American Home Products5,774,78913.8
109Eli Lilly5,609,89210.7

 

Table 2
Rx market overview 2000

% change from 1999
$132,084,589,000+18.7%
$45.31+10.4%
2,915,412,000+7.5%
1,337,643,000+8.9%
1,577,769,000+6.3%
Total: 52,061
New: 28,174
Refill: 23,886

 

Table 3
Fastest-growing branded products by Rx activity, 2000

ProductCompanyTotal Rxs (add 000)% change from 1999

Ditropan XLAlza Corp.2,117153.9%
ZanaflexElan Corp.1,082141.7
TopamaxMcNeil Pharmaceutical1,313132.9
BaycolBayer4,292125.5
Inderal LAWyeth-Ayerst1,785108.3
AtacandAstraZeneca2,012103.6
Diovan HCTNovartis3,21195.8
CelexaForest10,68094.8
DenavirNovartis1,32591.3
TricorAbbott2,37687.2

 

Table 4
Top 10 retail drugs, 2000

Rank 2000Rank 1999Brand nameManufacturerTotal Rxs (add 000)% change from 1999

11Hydrocodone/APAPMultiple (Generics)68,94315.7%
24LipitorPfizer44,71432.3
32Premarin TabsWyeth-Ayerst41,8760.3
43SynthroidBoots-Flint39,8787.8
55AtenololMultiple (Generics)36,53015.7
66Furosemide OralMultiple (Generics)31,0107.4
77PrilosecAstraZeneca29,6035.6
8NAClaritin/Claritin ReditabsSchering-Plough28,3218.7
99Albuterol AerosolMultiple (Generics)27,9834.3
10NANorvascPfizer27,82215.5
Rank 2000Rank 1999Brand nameManufacturerTotal dollars* (add 000)% change from 1999

11PrilosecAstraZeneca$4,166,27811.8%
22LipitorPfizer3,679,21138.2
34PrevacidTAP Pharmaceuticals2,843,12236.9
43ProzacEli Lilly2,609,2424.1
55ZocorMerck2,238,75121.3
6NACelebrexPharmacia Corp.1,978,72857.6
76Claritin/Claritin ReditabsSchering-Plough1,948,05914.3
87ZoloftPfizer1,875,96013.4
98PaxilGlaxoSmithKline1,790,99823.7
10NAGlucophageBristol-Myers Squibb1,580,80640.7

 

Table 5
Biggest gainers by therapeutic class, 2000

Therapeutic classTotal Rxs (add 000)% change from 1999

COX-2 inhibitors41,839105.4%
Insulin sensitizers10,01075.8
Ang II rec blckr combo9,20755.0
Bone density reg oth5,54251.3
Leukotriene agents11,02747.9
ACE inhb w/oth antihyp6,02641.5
Other ethical lax2,83839.5
Benign prostat disease6,10536.4
Antichol bronch combo4,80433.8
Antiplatelet9,06029.5

 



Fred Gebhart. BEHIND THE NUMBERS.

Drug Topics

2001;7:48.