Executive Summary

The pharmaceuticals industry is one of the largest in the world. In the UK, it has been a rare example of continued expansion and success for more than 30 years. This has happened in spite of the fact that the UK market for pharmaceuticals, although in excess of £5.5bn, represents only around 4% of the world market.

The industry has grown on the back of a high level of research and development which is constantly leading to new products for an ever growing world population. Consequently, exports are vital to the industry. In 1994, exports accounted for around two-thirds of total UK output with great potential for increasing this further.

The over-the-counter (OTC) sector is much smaller at £1.3bn in the UK, but is expanding faster, at a rate of 6.5% in 1994. Research is important here also, but the industry is based on long-standing branded products with low levels of research and generally small profit margins.

The prescribed sector remains probably the most regulated industry of all. In spite of an increase in private healthcare, the National Health Service purchases the vast majority of the UK output. Through the Pharmaceutical Price Regulation Scheme (PPRS) the price paid by the NHS is restricted and has been actually reduced in recent years, by some 2.5%.

The fact that the Government has been trying to cut down on the number of medicines available in specific therapies via the Limited List, suggests severe increases. However, the patent life of an ethical pharmaceutical has been effectively increased to 15 years for most products. The Association of British Pharmaceutical Industries (the ABPI), the industry's trade association, has conducted an educational propaganda campaign and there is now a more cordial relationship between the trade and the Government, not necessarily found in other countries.

Following the purchase of Wellcome by Glaxo, the UK now has the largest prescribed pharmaceutical company in the world. This, together with the siting of the European Medicines Evaluation Agency in London, has given the industry a high profile in the UK. It should help to keep the British industry to the forefront of world production.

The industry has proved itself to be recession proof. For this reason company failures have been minimal. Even so, there can be difficulties if a company's research department is not delivering new products and this can happen if a research unit is limited in size. This has led The Boots Company PLC to sell its research operation and for Fison's research to be the centre of some speculation regarding its viability.

Since presumably the easiest medical discoveries have already been made, it suggests that research will prove more expensive in the future. To combat this the industry is looking to greater co-operation between companies while still retaining independence, but cutting costs.

To help profits, many ethical pharmaceutical manufacturers are moving into the OTC market. This has given the healthcare sector a higher profile and extended its membership and range of products. With an OTC version of Zantac, Glaxo's blockbusting anti-ulcer drug, added to Tagamet 100 and Pepcid medicines which themselves were added to the OTC range in 1994, healthcare has also heightened its profile.

The acceleration in the rate of delisting has been reflected in a big increase in advertising expenditure with indigestion remedies consequently being the main target area. The OTC market is now focusing on main media advertising, in particular television.

Growth in both sectors is safely predicted. By the end of the century the UK combined market should be valued in excess of £7bn. The success of the industry will, however, be measured by its export performance. By the year 2000, the UK's trade surplus in prescribed pharmaceuticals should have reached £2bn.

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