Even though the stock market has seen major runs over the last four months, the pharmaceutical industry has not been a major recipient of the recent market success.

The problem, according to industry expert and a former vice president of Bristol Myers Squibb, Dr. Zola Horovitz, is the government.

The pharmaceutical industry faces a changing environment, Horovitz notes in an interview with Moneynews.com's Dan Mangru.

“The government is putting terrific pressure on prices, making it harder for the industry to recover their costs of research and development,” he says.

Other countries can set prices themselves. As a result, “they set it very low, giving their population the benefits of the research that mostly goes on in the U.S.,” Horovitz explains.

Generic competition also is a big issue. “The next decade will see … billion dollar drugs facing generic competition,” he says. Drugs such as Lipitor and Viagra “will see their sales and profits decrease well over 50 percent.”

The research and development arms of big drug companies “just haven’t been productive enough to make up that shortfall,” Horovitz says.

So they’re combining together in mergers instead. “You’re seeing a lot of consolidation of the big pharmaceutical companies, examples being Pfizer and Wyeth combining and then Merck and Schering Plough.”

In addition, large companies are gobbling up smaller ones for their new products, Horovitz says. For example, “Bristol-Myers Squibb (just) bought a small biotech company called Medarex because they have products in clinical trial.”

Another trend for big pharmaceutical companies is that they “are going to look more and more toward the over-the-counter products,” Horovitz says.

“Some companies, like Johnson & Johnson and Novartis, have done a very good job in bringing OTC products out that give them a hedge against problems with the ethical pharmaceutical Rx business.”

He said that private companies that have viable over-the-counter products, such as smoking cessation product Zerosmoke, are the most likely targets for major pharmaceutical companies.

Horovitz, a board member to many pharmaceutical companies, also objects to the 159 percent increase in tobacco taxes enacted earlier this year.

“History has shown that when they do raise the cigarette tax, the lower income people get hurt, because they continue to smoke as much as they did before,” he told Moneynews.

“There have to be other ways of attacking the problem of smoking. Obviously smoking is one of the worst things anyone can do.” It drains the health care system because of the lung disease, cancer and heart disease that smokers suffer, he says.

“Until we can find some way to control that craving and slow down the usage, we aren’t going to save the potential that is there for the healthcare system.”

Horovitz stresses the need for healthcare reform, but declines to say whether he agrees with the Obama administration’s plan.

“There’s no doubt it (the healthcare system) needs revamping, and we have to slow down the growth in the healthcare system,” he says.

“There are a number of good ideas out there on how to do that. We’ll see what Congress comes up with.”