International pharmaceutical companies' are passing through difficult phase and are facing challenging operating environment with loss of patent exclusivity and limited R&D success. The pharmaceutical sales, including generics, eye care and vaccines, of 15 leading companies declined by 1.4 per cent to $433 billion during 2012 from $439 billion in the previous year. Novartis has overtaken Pfizer in pharmaceutical sales during 2012 and jumped to first rank from its second place in the previous year. Pfizer's pharmaceutical sales declined with loss of patent exclusivity for five products namely Lipitor, Xalatan, Aromasin, Geodan and Detrol during last couple of years in US, Europe and other markets.

Despite cost cutting measures undertaken by several companies, the profit before tax of 15 companies declined by 3.5 per cent to $115 billion from $120 billion in the previous year on account of major setback for AstraZeneca, Bristol and Teva Pharma. The profit before tax of Pfizer, Bayer and GSK also declined during 2012. Profit of Bristol declined sharply by 66.5 per cent to $2,340 million from $6,981 million in the previous year and that of AstraZeneca by 37.6 per cent to $7,718 million from $12,367 million. Teva also received major setback and its profit before tax declined by 38.5 per cent to $1,819 million. Merck, Abbott and Amgen posted strong growth in profit before tax of above 20 per cent.

The financial performance of 15 companies was under tremendous pressure during 2012 on account of loss of patent exclusivity, economic uncertainties, austerity measures, below par outcome from research & development, stiff competition from generics, legal costs, provision for US healthcare legislation and adverse exchange rates. The impact of negative pricing increased in the year and adversely impacted top line as well as bottom line growth across the board.

To overcome challenging situation, most companies have implemented restructuring programme. which may help to change the shape of their business in long term. Mergers & acquisition, divestment of unrelated business or products, tie-ups and focus on new markets may give some relief in coming years. The alliance revenue, third party manufacturing sales and focus on emerging markets may also assist well to push profitability.

The total revenues of 15 leading international companies from Pharmabiz study of segments like Pharmaceuticals & Vaccines, Animal Health, Consumer Health, Medical Devices and Diagnostic remained flat at $581 billion during 2012 as compared to $580 million in the 2011. The overall revenues of Pfizer, Novartis, Merck & Co (Merck), AstraZeneca, Eli Lilly & Co (Eli Lilly) and Bristol-Myers Squibb Co (Bristol) declined in 2012 and that of Sanofi, Johnson & Johnson (J&J), GlaxoSmithKline (GSK), Abbott Laboratories (Abbott), Amgen and Baxter International (Baxter) improved only by single digit. However, Roche, Teva Pharma and Bayer managed to generate double digit growth in revenues during 2012.

Novartis' pharmaceutical & vaccines sales declined to $52,938 million as against $53,935 million in the previous year. Pfizers' pharma sales declined by 11.3 per cent to $51,214 billion from $57,747 billion. Sanofi climbed to third position with pharma sales of $43,302 million, after Pfizer, from its fourth place in the last year as Merck & Co reported lower sales of $40,601 million and went down to fourth place. Roche, GlaxoSmithKline, AstraZeneca and Johnson & Johnson maintained there ranking at fifth, sixth, seventh and eighth place with pharma sales of $38,550 million, $34,331 million, $27,973 million and 25,351 million respectively.

The cost of materials of 15 companies declined by 1.7 per cent to $179 billion from $183 billion and there selling & administration cost remained almost same at $170 billion. The research and development expenditure moved up by 3.5 per cent to $86,475 million from $83,533 million in the previous year which worked out to 14.9 per cent of aggregate revenue as compared to 14.4 per cent in the previous year.

These companies have developed strong presence in R&D with several products in phase III. The R&D expenditure of Abbott, AstraZeneca, Eli Lilly, Merck and Pfizer declined during 2012. However, R&D expenditure of J&J, Teva Pharma, Roche and Baxter International went up by over 15 per cent. Further, Amgen, Bayer, Bristol, GSK, Novartis and Sonfi recorded single digit growth in R&D expenditure.

The total tax provision of 15 companies declined to $22 billion during 2012 from $23 billion in the previous year. The net profit before adjustment declined by 3.2 per cent to $93,078 million from $96,123 million in the previous year.

The total adjustment of 15 companies amounted to $4,114 million as against adjusted expenditure of $530 million. The higher adjusted income of $4114 million was mainly on account of sale of Pfizer's Nutrition business to Nestle, sale of Capsugel and sale of animal health business. Pfizer has shown total adjusted income of $5,052 million as compared to $1,614 million in the previous year which pushed its net profit by almost 46 per cent in 2012. Sanofi's adjusted income from associates and joint ventures worked out to $519 million as against $1,385 million in the previous year. J&J shown adjusted income of $339 million as against nil in the preceding year.

Bayer reported adjusted expenditure to the tune of $941 million in 2012 which include charges related to legal claims concerning the oral contraceptives Yasmin/YAZ. Similarly, Bristol incurred adjusted expenditure of $541 million as compared to $1,551 million attributable to non-controlling interest. With these adjustment, the net profit of 15 companies increased slightly by 1.7 per cent to $97,194 million from $95,593 million in the previous year.

The investment in R&D is likely to assist well to overcome difficult financial situation. Novartis has a leading new product pipeline with more than 138 project in clinical development in the pharmaceuticals division. GSK has six key new products under regulatory review and expect phase III data on 14 assets in 2013 & 14. It has potential to launch around 15 new products globally. AstraZeneca's pipeline includes 84 projects, of which 71 are in the clinical phase of development and 13 are either approved, launched or filed. There are 11 new molecular entity (NME) projects currently in late sage development.

Roche pipeline continued to deliver with 11 positive results out of 14 late-stage trials and it launches three new cancer drugs viz., Perjeta, Erivedge and Zelboraf. Sanofi's pipeline contained 64 NME projects and vaccine candidates in clinical development of which 17 are in phase III. Teva Pharmaceutical Industries has launched 23 generic products in the US during 2012 and anticipate a similar number of launches in current year.

Though, continued government interventions in price, loss of exclusivity, adverse foreign exchange rates and stiff competition from generics, the aging population, the growing demand of healthcare products in the emerging markets and cost cutting measures may help these companies to look forward in the current year.

Pharmaceutical sales of 15 Cos