Developing global pharmaceutical demand means industry must restructure - Analysts from Euler Hermes, the leading credit-insurance firm, note in a study on the global pharmaceutical industry that the “profitability” of laboratories is currently affected by a change in global pharmaceutical demand, which affects the price of medicines. They also expect 2008 to be the year when the generic market takes off. In developed countries, health spending increases faster than the creation of wealth (measured by GDP). Sales of medicines accounted for 14% of health spending in 2006 (13% in Europe; 14% in the United States and 17% in Japan), a tendency that will become accentuated as the world population aged 80 and over is due to increase four times over the next 40 years, which will have a dynamic effect on the sale of medicines. Currently, four people out of five aged 75 and over consume at least one prescription medicine, and one person out of three consumes at least four. As a large geographic zone, the study shows that North America consumed 59 times more medicines in 2006 than the rest of the world, with $888 in annual spending on medicines per inhabitant, as opposed to $525 in Japan, 480 in the European Union and an average of $15 for the rest of the world. Overall, North America recorded $302 billion in pharmaceutical spending in 2006, the European Union $192 billion, Japan $63 billion and the rest of the world $85 billion. The “BRIC” (Brazil, Russia, India and China) countries with strong growth account for about half of the “rest of the world” results. Although their commercial potential seems immense, their purchasing power is minimal compared to that of developed countries and will not lead to a growth in the large laboratories immediately but rather during the next decade, Euler Hermes states. When it comes to profits, the 10 leading laboratories worldwide (in decreasing order: J&J, Pfizer, GSK, Novartis, Sanofi-Aventis, Roche, AstraZeneca, Merck, Abbott and BMS) make up about 55% of the world's turnover in the pharmaceutical sector. The deflationary pressure of the price of medicines penalises the evolution of both operational and net profit margins. In 2008, the erosion of their profits should continue if only because several blockbuster patents are to reach expiry during the 2008-2010 period. In addition, deflationary pressure on global pharmaceutical demand causes a rise in generic medicines, whose advantage lies in the fact that they are 30-70% less expensive. The production cost of a new medicine has tripled in the past ten years, and the global pharmaceutical R&D budget should thus be three times greater than in 1995 if the same number of innovative molecules are to be launched. As a result, the number of launchings has decreased. In addition, laboratories must now contend with new competition - those who make generic medicines - and attempt to reorganise their clientele by conducting costly external growth policies. Erosion of their profits also compels them to conduct vast internal streamlining operations leading to a reduction in the numbers employed.