OR WAIT null SECS
Patricia Van Arnum was executive editor of Pharmaceutical Technology.
Emerging markets are an engine for growth in the custom-manufacturing and pharma markets.
As the bio/pharmaceutical industry enters a new year, what is the outlook? Emerging markets will continue to play an important role in the broader pharmaceutical and custom-synthesis market.
Crunching the numbers
A recent analysis of the Chemical Pharmaceutical Generic Association (CPA), which represents Italian generic API manufacturers, points to strong growth for the pharmaceutical contract research and manufacturing services (PCRAMS) industry. The overall world PCRAMS industry, which includes revenues from contract research organizations (CROs) and contract manufacturing organizations (CMOs), was valued at $72 billion in 2012, up from $21 billion in 2000. Contract manufacturing accounted for two-thirds of the 2012 market, or $47 billion, and contract research the remaining $25 billion, according to the CPA report, The World PCRAMS Industry (1).
Of the global contract manufacturing business, contract manufacturing of APIs and intermediates accounted for the largest sector for contract manufacturing at 64% or $30 billion. Contract manufacturing of finished dosage forms accounted for 9.6% or $4.5 billion, according to the CPA analysis. Development of finished dosage forms accounts for approximately 15% of the contract manufacturing market, or $7 billion, and packaging/labeling and other services represent the remainder or $5.5 billion.
Of the market for contract manufacturing of APIs and intermediates, custom synthesis (mainly focused on new, branded APIs) accounts for 40% or $12 billion, and toll manufacturing for the remaining 60% or $18 billion. For purposes of the analysis, “custom synthesis” denotes when a company outsources the manufacturing of an intermediate or API without indicating the operational modalities. “Toll manufacturing” denotes when the production of the intermediate or API is carried out by the external supplier according to operational modalities established by the sponsor company.
Overall, the global PCRAMS market is forecast to grow at an average of 13.6% yearly over the next five years to reach $136 billion by 2017 from $72 billion in 2012, according to the CPA analysis. The global CRO business is expected to increase from $25 billion to $43 billion in 2017, representing average yearly growth of 11.4%, according to CPA. The global CMO business is projected to increase from $47 billion in 2012 to $93 billion in 2017, an average of 14.6% in yearly growth, according to CPA estimates. Asia Pacific will show the strongest growth in the global PCRAMS market, with particularly strong growth for India and China. The share held by India in the world PCRAMS market will nearly triple in the next five years, and by 2017, India will be the second largest market for PCRAMS, accounting for 21.3% of the global market compared to only 8.3% in 2012. India will only be surpassed by the United States, which is expected to hold 24.9% of the global PCRAMS market in 2017 compared to a share of 33.7% in 2012. Just as the US market’s share in the global PCRAMS market will decline so will the share of Western Europe from 25.0% in 2012 to 17.1% in 2017. China’s share of the global PCRAMS market will increase from 12.2% in 2012 to 19.2% by 2017, according to CPA.
Pharmaceutical market outlook
The growth patterns in the custom-manufacturing market parallel the pharmaceutical market as a whole, which reflects increased growth in emerging markets. Global spending on medicines is expected to meet the $1 trillion threshold in 2014 and reach $1.17 trillion by 2017, according to the IMS Institute for Healthcare Informatics’ report, The Global Use of Medicines: Outlook through 2017, which shows growth in global spending on medicines increased 2.6% to $965 billion in 2012 and is forecast to grow at a 3-6% compound annual growth rate (CAGR) by 2017 (2). IMS projects a gradual increase in global annual medicine spending growth, which is expected to rise from 2-3% in 2013 to 5-7% in 2017, the highest pace of growth since 2009. The absolute global spend for pharmaceuticals will increase by $230-260 billion on a constant dollar basis compared to the $217 billion in the past-five year period. The single largest impact on growth levels is the continuing effect of many blockbuster drugs coming off patent and an increase in lower-cost generic alternatives. In addition, the gradual return of global growth in gross domestic product (GDP) to more than 4% by 2017 will contribute to an upward trend in drug spending. “As we pass the fifth anniversary of the global economic slowdown and with many countries moving toward universal health coverage, we expect to see continued divergence in growth rates between the pharmerging and developed markets,” said Murray Aitken, executive director of the IMS Institute for Healthcare Informatics, in an IMS press release. “Austerity measures aimed at medicine budgets, along with the growing availability of lower-cost generics, will lead to annual spending growth of 1-4% among the markets of North America, Europe, and Japan. In contrast, pharmerging nations will experience 10-13% spending growth.”
In 2012, the developed markets in aggregate reduced their medicine spending for the first time due to patent expiries and austerity measures, along with policy changes to increase generic-drug penetration, notes IMS. Growth in developed markets will rebound from negative $3 billion in 2012 to $20 billion to $25 billion by 2017. The US will resume increased spending levels in 2014 after two years of reduction due to expansion of healthcare access and lower patent-expiry levels. Growth in the “pharmerging” markets, as defined by IMS, will increase from $26 billion in 2012 to between $30 billion and $50 billion in 2017, primarily due to increased access to medicines as infrastructure and health systems evolve. The pharmerging countries include China, Tier 2 countries (Brazil, Russia, and India) and Tier 3 countries (Mexico, Turkey, Venezuela, Poland, Argentina, Saudi Arabia, Indonesia, Colombia, Thailand, Ukraine, South Africa, Egypt, Romania, Algeria, Vietnam, Pakistan, and Nigeria) (2).
The developed markets of North America, Europe, and Japan will see modest single-digit spending growth during the next five years due to a combination of economic and healthcare austerity measures and savings realized from growing lower-cost generic versions.
In the US, the next five years will see the greatest impact from the implementation of the Affordable Care Act. IMS notes that the uncertainty ranges from the level of enrollment of the currently insured to the speed with which the payment system changes from one based on fee-for-service to one based on performance and patient outcomes. The change in the service-delivery model, including the corporatization of medical care and the relative negotiating power between payers and providers, will impact medicine spending, though the direction and magnitude of that impact is uncertain. For the US pharmaceutical market, IMS estimates a CAGR of 1 to 4% from 2013-2017. The US pharma market will reach between $350 billion and $380 billion by 2017. Patent expiries and the impact of low-cost generics will impact spending growth throughout the forecast period, which had their strongest impact in 2012 and 2013. Less impact from expiries contributes to approximately half of the higher market growth in 2014 relative to 2013.
Pharmaceutical spending growth in the EU 5 (Germany, France, Italy, United Kingdom, and Spain) is expected to be between zero and 3% for the period of 2013 to 2017 compared to 2.4% for 2008-2012. Pharmaceutical spending in the EU 5 is projected to reach between $140 billion and $170 billion in 2017, according to IMS. Europe has seen a greater adoption of generics and more restrictive policies that have made patients in almost all European countries less likely to gain access to innovative medicines, notes the IMS report. The performance of the European pharmaceutical industry during the next five years will depend on the extent of the economic recovery in Europe. Higher growth is anticipated in Germany and the United Kingdom compared to Spain, Italy, and France as these markets already have generically efficient markets. All five major European countries have seen a lower uptake of new medicines in the most recent five-year period. Germany and the UK had strong uptake controls prior to the financial crisis and see the least deterioration. In Japan, forecast spending growth of a 2-5% CAGR is projected from 2013 to 2017, notes IMS. In Japan, the key issue is the establishment of a generic-drug market, driven by the Japanese Ministry of Health, Labor and Wealth’s (MHLW) goal of increasing generic volume as a percentage of generic and listed drugs to 60% in 2018. If the MHLW is successful, it would mean that 2018 generic levels in Japan would be at a level similar to that of France and Spain.
For the “pharmerging” markets, IMS projects a CAGR of 10-13% with the market reaching between $370 billion and $400 billion by 2017. For China, the largest pharmerging market, IMS projects a CAGR of 14-17% with the market reaching between $160 billion and $190 billion by 2017. Despite the healthy projections, pharmaceutical industry growth in China was revised downward due to a slowdown in GDP growth, a loss in business confidence, and lower investment. Volume-based growth will be driven by government efforts to improve healthcare and medical services, including expansion of insurance coverage to critical illness and increased use of private hospitals. Efforts to expand the essential drug list and the National Development and Reform Commission’s recent investigation into drug prices and cost could result in a cheaper, off-patent original brand market. Also, a new revision of the National Reimbursement Drug List could result in a more comprehensive list of innovative products receiving reimbursement.
Growth in Tier 2 countries (Brazil, Russia, and India) will show a CAGR of 10-13% in 2013-2017 and reach between $90 billion and $110 billion by 2017. Growth in India’s pharmaceutical market, the second largest emerging market behind China and the largest pharmaceutical market among the Tier 2 countries, will show a CAGR of 5-8% between 2013 and 2017 with the market reaching between $100 billion and $130 billion by 2017. Growth in Tier 3 pharmerging markets will be between 5% and 8% through 2017 with the market expected to reach between $100 billion and $130 billion by 2017 (2).
1. Chemical Pharmaceutical Association, The World Pharmaceutical Contract Research and Manufacturing Services Industry (Milan, September 2013).
2. IMS, The Global Use of Medicines: Outlook through 2017 (November 2013).