Prescription Drug Sales Soaring

If you thought that drug companies' declining profits and sales staff layoffs were due to declining drug usage, think again. The latest survey from industry consulting group IMS Health shows that drug sales surged 8.3 percent to $274 billion last year, and is expected to grow from 6 to 9 percent a year at least until 2010. Sales growth was significantly faster than the growth in prescriptions, which rose just 4.6 percent.

Even though sales of generics grew by 22 percent last year based on a 13 increase in prescriptions, the unbranded sector accounted for just 10 percent of industry sales. Overall, generics are now an estimated half of all prescriptions.

The number one reason offered for the increase by IMS? The onset of the Medicare prescription drug benefit, which accounted for 17 percent of all sales in 2006, the survey said.

But my quick analysis of the numbers in the press release says that industry is pushing rapid price increases through for its branded drugs, especially the new ones coming on the market. How else to explain the total sales increase while cheaper generics are seizing overall market share? Yes, generics are costing more, too. But their total share of the revenue pie is so small that only higher prices on brand name drugs explains the size of the overall increase.

The implications are obvious: The Bush administration's refusal to grant Medicare the right to negotiate prices with manufacturers has opened the door for both brand name and generic manufacturers to ram through sharp price increases.