Sales of branded drugs declined 0.7% to $229 billion last year, according to IMS Health, and that’s having an impact on promotional spend.

For brand drug companies, the numbers paint a picture of a shrinking segment. IMS said oral formulations and small molecules also each declined or grew more slowly than the total market, while spending on generics, injectables and biologics increased at a higher rate.

Some of the same downward pressures at work in 2009 surfaced last year—namely the shortage of new products and the unprecedented level of patent expiries. The difference was that, even before some dominant products lost exclusivity, their sales began eroding as patients, providers and insurers weighed options more carefully and chose low-cost options when available.

“Expiries weren’t any worse in 2010 than in 2009—a little bit but not a whole lot,” said Michael Kleinrock, director, research development, IMS Health Institute for Healthcare Informatics. “What we’re actually seeing is a base case US market growth in the 3-5% range. So in 2010, a relatively unprecedented group of ‘pre-expiry’ impacts on protected brands…created a slowdown in the market from that base case.”

How big was the slowdown?  The decline in the volume of protected branded products reduced spending in 2010 by $8.3 billion compared to 2009, IMS said.

The products with the largest volume declines, each over $500 million, were due to a combination of upcoming patent expiries and patients transitioning to newer therapies: Lipitor, losing patent protection later in 2011; Seroquel, facing expiry in 2012; and Provigil, set to see genericization in 2015 but eroding since a next generation sleep disorder product, Nuvigil, was approved in 2009.

Overall medicine sales rose 2.3% last year to $307.4 billion, less than half the 2009 growth rate of 5.1%. When adjusted for economic and population growth, spend grew by less than 1%, the data firm said.

As revenue barely keeps pace, or even shrinks in the case of brands, the impact has had implications for promotion. A 4.1% dip in promotional spend was led by the biggest players—Pfizer, Merck and GlaxoSmithKline—who supported their brands with almost $740 million less than in 2009, observed Melissa Leonhauser, strategic marketing director at SDI.

Those same three companies each dialed back spend on detailing and meetings but increased outlays for advertising in medical journals, SDI found. Pfizer and Merck each reined in DTC advertising spend, while GSK increased its DTC budget. Pfizer was the only one of the three to expand its e-promotion allocation.

For the generics industry, the facts were downright rosy: spending on unbranded generics increased 21.7% and branded generics by 4.5%. Emblematic of this shift in fortunes was the performance of Teva Pharmaceuticals. The largest generics firm by US sales, the Israeli firm moved up three spots on the list of the top drug companies to number seven, on the back of 2010 sales totaling $13.7 billion, up from $12.1 billion the year prior. Pfizer, Merck, Roche and GSK—known primarily for their branded drugs—each posted annual sales declines.

There were only three brands in IMS Health’s list of top drugs by dispensed prescriptions—Pfizer’s Lipitor, BMS/Sanofi-Aventis’ Plavix and Merck’s Singulair—and all are set to lose US patent protection in the next 12-18 months. The rest were generics.

A spate of patent expiries is due this year and next on blockbuster drugs worth $25.4 billion and $26.1 billion, respectively. Most of pharma gets a reprieve in 2013 (except for Purdue’s Oxycontin) before being deluged again in 2014 and 2015 when, combined, another $36 billion in branded drugs falls prey to generics.

Newer brands can’t keep pace. “We don’t forecast a lot of new drugs coming on to offset revenue loss,” said Les Funtleyder, healthcare strategist and portfolio manager at Miller Tabak + Co. “Because there’s so much going generic, it would require a lot to offset that completely.”