LONDON (CNNfn) - The world's biggest drug firms are set for tough financial times and many could be forced to merge now that all the easy cures have been found, according to a new report from accounting firm PriceWaterhouseCoopers.
Massive research spending by the top 20 pharmaceutical companies has not been justified financially by recent sales, according to PWC's analysis of the companies' annual reports.
Firms will have to cut back on investment and lengthen product life cycles if they want to survive, report author Steve Arlington warned.
The top 20 companies have more than doubled their research and development spending over the last seven years but will only see returns of around 7 percent annually over the next seven.
To combat this the big drug firms will each need to generate $28.9 billion in sales between now and 2005. Achieving that is likely to require them each to launch about 30 new drugs.
On average, a drug costs between $350 million and $500 million to develop and has annual sales of $265 million. At that rate of investment between now and 2005 total shareholder returns will drop from the current level of nearly 30 percent a year to about 10 percent, Arlington said.
This could herald an expansion in the number of "lifestyle" drugs produced for problems like obesity, acne and impotence. It is one of the small growth areas for the industry.
But this can only be a sideline as companies face the problem of finding elusive cures for complicated diseases.
In this climate, mergers are inevitable. "We believe that by the year 2005 there could be as few as 13 industry giants," Arlington said. "The winners will be those which reinvent their R&D processes to make the drugs the public really wants at prices it can afford."