Although the pharmaceutical industry was expecting continued growth up to 2010, Pfizer and Merck had to deal with the ongoing growth of generic manufacturers. The volume of generic prescription drugs sold in the US increased from 20% in 1984 to 56% in 2005. Generic prescriptions were proving to be a legitimate threat as a substitute to the name brand manufacturers.
Looking beyond the US, in countries with state managed health care such as Japan and many European countries, newer higher priced patented drugs were passed over in favor for cheaper alternatives which benefits generic manufacturers while hurting the positions of the major firms such as Pfizer and Merck.
Differential pricing also proved to be a threat to the competitive positions of Pfizer and Merck. The differential pricing approach was taken in order to make prescription drugs more affordable in countries with a lesser ability to pay. The approach resulted in internet pharmacies selling prescription drugs to US customers at 50% savings.
One of the biggest challenges to the competitive positions of both Merck and Pfizer was the expiration of highly valuable patents. The expiration of these patents meant the loss of blockbuster drugs. A diminishing number of blockbuster drugs would lead to a decrease in overall profitability. For the generic manufacturers, on the other hand, the expiration of these patents would be beneficial.