The tough road for US pharma

Jan 01, 2009
Volume 21, Issue 1

Faiz Kermani
The US remains the dominant market for pharmaceutical manufacturers as it represents more than 40% of the global market.1,2 A major attraction for pharmaceutical companies is the reluctance of the US government to directly intervene in the market. Although other forces have the effect of regulating prices, pharmaceutical companies can charge higher prices in the US than other key markets, such as Europe and Japan. The US pharmaceutical industry remains fiercely opposed to governmental intervention and has made its views public on a number of occasions, particularly at political level.

During the past 10 years, the US market grew at an average of 15% per year.1 In comparison, Europe has grown at an average of 5% and the Japanese market has only grown by 1.6% annually. The biggest surge in growth for the US pharmaceutical market occurred between 2001 and 2004. Recently, US market growth has slowed considerably; for example, while growth exceeded 8% in 2006, it dropped to 3.8% in 2007. Furthermore, total dispensed prescription volume, which grew at 4.6% in 2006, declined to 2.8% in 2007. This trend appears to be continuing as IMS Health predicts a growth rate of 4–5% during 2008 for the US pharmaceutical market.

The slowdown in the US market has been linked to a number of blockbuster drugs coming off patent, pressure from payers to curb costs, a more cautious attitude from regulators in approving new drugs and the impact of the introduction of Medicare Part D.1 Furthermore, the industry is casting its eyes further afield and looking for new global markets for its products. Socalled emerging markets, such as India, China and Mexico, represent a new growth area for pharmaceutical companies and are growing in prominence.2

While the US market may represent a tougher environment in which to operate in the future, it has not lost any of its allure for pharmaceutical companies. The industry has shown its willingness to fight to maintain its strong position. How it reacts during the coming months will depend much on the new US President, Barack Obama's healthcare policies.

The complexities of US healthcare

The US healthcare system is the most fragmented, complex and most rapidly changing in the industrialized world. It continues to grow tremendously in size and was valued at close to $2 trillion (€1.6 trillion) in 2007.3 Unlike Europe, there is no government sanctioned scheme for providing universal access to healthcare. Instead, insurance and provision are undertaken by both public and private bodies on a limited basis and for limited populations. Employers meet the majority of the massive cost of healthcare in the US. It is estimated that benefits, of which healthcare provision is the major part, account for more than one third of employers' payroll costs.2

Table 1
Employers either carry the risk for covering employee's sickness benefits themselves, or use an insurer or managed care plan. Where employers carry their own risks, they often use the services of an insurer or managed carer to administer inhouse schemes. Managed care plans are very well accepted among large employers, few of whom now use traditional indemnity insurers, but there is less penetration among small employers, among selffunding individuals or in the two public schemes. The two major public schemes, Medicaid and Medicare, act as safety nets for those who are unable to fund their healthcare through any other means.

In most cases, people are eligible for Medicare if they or their spouse have worked for at least 10 years in Medicare covered employment, are 65 years or older and a citizen or permanent resident of the US. People are eligible for Medicare when they turn 65 even if they are not eligible for social security retirement benefits. Medicare is divided into four parts, each relating to different aspects of healthcare services (Table 1).

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