A Pharma Industry Mid-Year Review and Outlook

Emerging markets remain strong as established markets fare less well.
Jun 04, 2013

The global pharmaceutical market shows a mixed bag. Although established markets in the United States, Western Europe, and Japan are certainly important players, growth is slowing as the pharmaceutical markets in emerging economies increases. An in-depth review of healthcare spending on pharmaceuticals in the US shows increased generic-drug incursion, lower per-capita spending on pharmaceuticals, and a concentration of patients using pharmaceuticals

Changing fundamentals for US pharmaceuticals

Total spending on US medicines fell 3.5% on a real per-capita basis in 2012 and the use of healthcare services overall declined for the second consecutive year, according to a new study released by the IMS Institute for Healthcare Informatics. The report finds that total dollars spent on medications in the U. reached $325.8 billion in 2012, or real per-capita spending of $898, down $33 from 2011. Underlying drivers for the overall decline in healthcare service use included fewer patient visits to office-based physicians, fewer nonemergency admissions to hospitals and outpatient facilities, and a less severe flu season in the early part of 2012. Patent expiries in 2012 contributed $28.9 billion to the reduction in medicine spending, making it the largest-ever impact from generic drugs as millions of patients accessed lower-cost generic versions of medicines, according to IMS.

“The cost curve for medicines was clearly bent in 2012, for better or for worse,” said Murray Aitken, executive director, IMS Institute for Healthcare Informatics, in a May 9, 2013 press release. “To some extent, this is a harbinger of more efficient use of our healthcare resources, but it also reflects a decline in utilization that may be the result of undertreatment and an imbalance between prevention and care. On the eve of the most transformative period in US healthcare, understanding the drivers of this cost-curve reduction is critical to effectively addressing the long-term implications.”

The report showed that the number of patient visits to doctors’ offices fell 0.9% 2012, a lower level of decline compared with the prior two years. Outpatient treatment and nonemergency room admissions also were down slightly. Only emergency room admissions increased, by 5.8% in 2012. Use of medicines per person declined slightly by 0.1% partly due to a milder cough, cold, and flu season in the initial months of 2012.

At the same time, the total cost of medicines declined by 3.5% on a real per-capita basis to $325.8 billion. In addition to lower utilization of branded drugs, the primary drivers, according to the IMS report, were: the increased availability of lower-cost generics, which now account for 84% of all prescriptions; the moderating impact of price increases; and lower spending on recently launched medicines. Healthcare costs remain heavily concentrated among relatively few patients suffering from multiple chronic conditions, cancer, or other specialty diseases. In the case of the commercially insured, under-the-age-of-65 population, 5% of the members incurred 51% of total healthcare costs by using more than $15,684 of healthcare services per person in 2012.

Patients with insurance are paying higher deductibles and higher copays or co-insurance, with nearly 20% of the insured now in a consumer-driven health plan. Average out-of-pocket costs for commercially insured under-the-age-of-65 patients reached $1,146 in 2012, a 30% jump from 2011 and entirely the result of higher deductibles. The average pharmacy benefit copay declined by $2 to $121 in 2012; patients filled 72% of all retail prescriptions with a copay of $10 or less.

A macro view of emerging markets
Following several years of slowing growth, the global market for medicines is expected to rebound from a recent low of 3–4% growth in 2012 to 5–7% growth in 2016, according to a 2012 analysis by the IMS Institute for Healthcare Informatics. Growth will primarily be from emerging markets as growth in established markets in the United States, Western Europe, and Japan remains weak comparative to historical levels. Overall, annual global spending on medicines will rise from $956 billion in 2011 to $1 trillion by 2013, to nearly $1.2 trillion in 2016, representing a compound annual growth rate (CAGR) of 3–6%. For purposes of the IMS analysis, spending is reported as ex-manufacturer prices and does not reflect off-invoice discounts and rebates and is converted from local currencies to US dollars. Absolute growth in global pharmaceutical spending between 2012–2016 will be between $220 billion and $250 billion, compared with $298 billion in the prior five years.

Additionally, patent expiries, which peaked in 2012, as well as increased cost-containment actions by payers, will constrain branded-medicine spending growth through 2016, at 0–3%. Developed markets experienced their lowest annual growth in 2012 at less than 1% or $3 billion, but will rebound to $18–20 billion in annual growth in the 2014–2016 period. Spending on medicines in developed nations will increase by a total of $60–70 billion from 2011 to 2016, following an increase of $104 billion between 2006 and 2011, according to IMS

Growth in annual global spending is forecast to more than double by 2016 to as much as $70 billion, up from a $30-billion pace in 2012, driven by volume increases in what IMS terms the “pharmerging” markets and some uptick in spending in developed nations. The “pharmerging” markets are defined by IMS as counties with greater than $1 billion absolute spending growth of more than 2012–2016 and which have gross domestic product per capita of less than $25,000 at purchasing power parity. Using that criteria, China is classified as a Tier-1 country, and Brazil, Russia, and India as Tier-2 countries. Tier 3-countries are Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam. Health systems in pharmerging markets will nearly double their medicine spending in five years, according to IMS. Annual spending on medicines in the pharmerging markets will increase from $194 billion in 2011 to between $345 billion and $375 billion by 2016, or $91 in drug spending per capita, according to IMS. The increase will be driven by rising incomes, continued low cost for drugs, and government-sponsored programs designed to increase access to treatments. Generic drugs and other products, including over-the-counter medicines, diagnostics, and nontherapeutics, will account for approximately 83% of the increase. China’s pharmaceutical market is expected to reach $161 billion by 2016, Brazil’s $47 billion, India’s $29 billion, and Russia’s $27 billion. The Tier-3 pharmerging countries are expected to collectively reach $95 billion in pharmaceutical spending by 2016, according to IMS.