Posted 7/7/2008

DRUG PRICES: GOOD NEWS?

Visiting the drugstore's pharmacy counter during the next five years is going to be very pleasurable. The prices of many of your drugs are going down. Way down.

But the investor who visits his drug portfolio is going to be very, very unhappy. Because drug company stock prices are down, and going down even further. Way down.

We are in an inflation. Everything you buy is going up. From toothpaste to heating oil to college costs to health care. Everything is getting more and more expensive.

So how can drug prices buck the trend and decrease?

It seems that the major pharmaceutical firms have found themselves sliding down a very slippery slope. They haven't been able to develop new, successful patentable drugs. And the big profitable ones they have now are running out of patent protection.

And when a drug brand goes beyond its patent period, everybody in the world jumps into the market with cheaper generics. This results in the price of popular brand name drugs falling between 65% and 85%. That's a huge price drop. Poor people on Social Security may not have to choose between food and drugs in the future.

The big drug companies are really going to suffer.

Pfizer will find 36% of its drug sales exposed to generics in the next five years – including its cholesterol blockbuster, Lipitor.

Merck will have a whopping 54% of its drug volume fighting generics - including Singulair, the very successful asthma treatment.

Bristol Myers will see 37% of its drug dollars in price wars with generics - including Plavix, the huge heart and stroke preventer.

Eli Lily will have 34% of its drug sales competing with generics. Wyeth, about 25%.

The foreign drug companies are in the same boat. Poor new product results compounded by rapidly expiring patents.

Altogether, you may find the prices of a third of the drugs you take declining between 65% and 85%.

As a consumer, you will be very pleasantly surprised.

As a drug investor, you are already very, very distraught.

As a drug company CEO, you will see your bonus disappearing.

As a sales manager, you will be firing as lot of salespeople.

As a travel agent, you won't be booking many drug-buying excursions to Canada anymore.

As an advertising executive, you will see those big ad budgets disappearing.

Lots of changes, affecting lots of people.

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