Lower levels of spending growth in the United States, the continuing impact of patent expirations in developed markets, strong growth in emerging markets, and policy-driven changes in certain countries relating to drug reimbursement are key factors that will influence pharmaceutical industry growth during the next five years.
The global pharmaceutical market is expected to reach $1 trillion by 2014 and nearly $1.1 trillion by 2015, according to the IMS Institute for Healthcare Informatics. The market will increase at a compound annual growth rate (CAGR) of 3–6% during the next five years, slowing from the 6.2% annual growth rate that occurred during the past five years. Absolute global-spending growth is expected to be $210–240 billion between 2011 and 2015 compared with $251 billion between 2006 and 2010. Removing the effect of exchange-rate fluctuations, absolute global-spending growth will be $230–250 billion on a constant dollar basis compared with $228 billion in the previous five years. For purposes of this analysis, the pharmaceutical market includes all types of biopharmaceuticals, including biologics, over-the-counter drugs, and traditional medicines distributed and administered through regulated delivery systems, such as pharmacies, hospitals, clinics, physician offices, and mail order. Spending figures are reported at ex-manufacturer estimates that do not reflect off-invoice discounts and rebates.
“The future level of spending on medicines has striking implications for healthcare systems and policy makers across the developed and emerging economies,” said Murrary Aitken, executive director of the IMS Institute for Healthcare Informatics, in a May 18, 2011, IMS press release. “Past patterns of spending offer few clues about the level of expected growth through 2015. There are unprecedented dynamics at play, which are driving rapid shifts in the mix of spending by patients and payers and between branded products and generics and across both developed and pharmerging markets.”
Declining growth in developed markets
The US share of global pharmaceutical spending will decline from 41% in 2005 to 31% in 2015 while the share of spending from the top five European national markets (i.e., Germany, France, Italy, Spain, and the United Kingdom) will decline from 20% to 13% during the same period. Meanwhile, 17 high-growth emerging markets, led by China, will contribute 28% of total spending by 2015, up from only 12% in 2005, according to IMS. The next five years also will see an accelerating shift in spending toward generic drugs, whose share of of pharmaceutical spending will rise to 39% in 2015, up from 20% in 2005.
On a geographic basis, the pharmaceutical market for developed nations was valued at $587.1 billion in 2010. The US was the single largest national market at $310.6 billion. The pharmaceutical market in the top five European countries (i.e., Germany, France, Italy, Spain, and the United Kingdom) was $147.4 billion in 2010 and $96.5 billion in Japan in 2010, according to IMS. Slowing pharmaceutical market growth is forecasted for the US, Europe, and Japan. In the US pharmaceutical market, CAGR (in $US at constant exchange rates) was 4.5% between 2006–2010, and growth is projected to slow to a CAGR of only 0–3% between 2011 and 2015, according to IMS. In the top five European countries (i.e., Germany, France, Italy, Spain, and the United Kingdom), CAGR (in $US at constant exchange rates) was 4.1% between 2006–2010, and growth is expected to slow to a CAGR of 1–4% between 2011 and 2015. In Japan, CAGR (in $US at constant exchange rates)) was 2.6% between 2006–2010, and CAGR of 2–5% is projected between 2011 and 2015, according to IMS.
Factors influencing global pharmaceutical demand
Generic-drug incursion. The level of patient expiries will continue to have a strong effect on the global pharmaceutical market. Spending for branded products in developed markets will remain at the same level in 2015 as it was in 2010, according to IMS. Globally, market share for branded medicines, which fell from 70% in 2005 to 64% in 2010, is expected to decline further through 2015, to 53%. While growth for branded products in the emerging markets will be robust, 80 cents of every dollar spent on medicines in emerging markets in 2015 will be for generic drugs, according to IMS. Global generic-drug spending was estimated at $234 billion in 2010, up from $124 billion in 2005. Generic-drug spending in 2015 is expected to be between $400–430 billion, 70% of which will be outside developed markets.
Overall, expiring patents for branded products will yield $98 billion in net savings to payers in developed countries through 2015, compared with $54 billion in savings realized in the five years to 2010, according to IMS. Patent expiries will save payers $120 billion by 2015, offset by $22 billion of expected generic-drug spending for these medicines. Among developed markets, the US will have the largest expansion of generic-drug spending. Japan will continue to have the lowest share despite significant policy incentives to increase generic-drug prescribing and dispensing.
Emerging-market growth. During the next five years, growth in emerging markets, defined by IMS as the “pharmerging markets” are expected to nearly double their spending on medicines to between $285 billion and $315 billion, compared with spending of $151 billion in 2010, according to IMS. Pharmerging countries are defined as those countries with absolute pharmaceutical pending growth of greater than $1 billion during 2011–2015 and that have gross domestic product per capita of less than $25,000 on a purchase-price parity basis. Using that criteria, these countries include: China (classified as Tier 1); Brazil, Russia, and India (classified as Tier II); and Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam (classified as Tier III).
Gains in pharmaceutical spending in the pharmerging markets will be driven by overall strong economic growth and governments’ commitment to expand healthcare access. IMS projects that by 2015, the pharmerging countries will become the second largest geographic segment globally in spending on medicines, surpassing Germany, France, Italy, Spain, and the United Kingdom combined and approaching US levels. Pharmerging countries are expected to nearly double their pharmaceutical spending by $150 billion by 2015. Of the total increase in spending, approximately 20% will come from branded products.
Breaking down growth in emerging markets, China’s pharmaceutical market was valued at $41.1 billion in 2010. The pharmaceutical market in Tier-II emerging markets (Russia, India, and Brazil) was $48.4 billion (i.e., Brazil at $22.9 billion, India at $12.3 billion, and Russia at $13.6 billion), and the pharmaceutical market in Tier-III emerging markets (Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam) was $60.6 billion in 2010, according to IMS. In China’s pharmaceutical market, CAGR (in $US at constant exchange rates) was 23.9% between 2006–2010, and a CAGR of 19–22% is projected between 2011 and 2015, according to IMS. In the Tier-II emerging markets, CAGR (in $US at constant exchange rates) was 15.9% between 2006–201 (Brazil at 14.1%, India at 15.7%, and Russia at 20.0%). Growth is expected to continue to be roubust with a collective CAGR for Tier-II countries of 11–14% between 2011 and 2015. In Tier-III emerging markets, CAGR (in $US at constant exchange rates) was 11.8% between 2006–2010, and growth is expected to increase at a CAGR of 10–13% between 2011 and 2015, according to IMS.
Healthcare spending. Several policy moves will affect healthcare spending during the next five years. In the US, healthcare reform as made through the passage of the Affordable Care Act is expected to expand health insurance coverage to 25–30 million people in America. Price controls in China are designed to achieve universal health coverage. Japan will implement its first price cut under its new protected innovative products policy. In Europe, price reductions for generic drugs are expected in Spain and Italy, and mandatory cost-benefit evaluations for new products are slated for Germany. Additionally, rebates and discounts, which are not reflected in IMS’s market data, are being applied more extensively by both public and private payers, particularly in the US, France, and Germany. IMS estimates the amount of these off-invoice discounts in 2010 at between $60 billion and $65 billion and expects the value of these discounts to increase to between $65 billion and $75 billion by 2015.
Biosimilars. Biosimilars are a small, but growing, part of the pharmaceutical market. By 2015, IMS expects spending on biosimilars to reach $2 billion annually, or approximately 1% of total global spending on biologics. New biosimilars are expected to enter the US and European markets by 2014, according to IMS, which will increase spending on biosimilars by $311 million compared with 2010 levels.
On a therapeutic-class basis, oncology is expected to remain the leading therapeutic class, but with slowing growth of 5–8% between 2011 and 2015 as existing targeted therapies already have been widely adapted. Spending on diabetes treatments between 2011 and 2015 is projected to increase 4 to 7%, driven by the increase in the incidence of diabetes and the introduction of newer oral antidiabetic drugs. Growth for respiratory drugs, specifically for asthma and chronic obstructive pulmonary disease treatments, is expected to slow to 2 to 5% between 2011 and 2015, and spending on lipid regulators will decline from $37 billion in 2010 to $31 billion in 2015, according to IMS.