A Tale of Two Markets for Global Pharmaceutical Sales

The global pharmaceutical market can be best described as a market of shifting growth between developed and emerging markets. Although growth in the global pharmaceutical market will rebound over the next five years, the strong spot will continue to be emerging markets as developed markets in the United States, Western Europe, and Japan see relatively weak growth. Growth in generic-drug spending, globally and particularly in emerging markets, will continue to be robust through 2016.

Overview of the global market

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 recent 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 will peak in 2012, as well as increased cost-containment actions by payers, will constrain branded-medicine spending growth through 2016, at 0–3%. Developed markets are expected to experience their lowest annual growth this year, at less than 1% or $3 billion, and then rebound to $18–20 billion in annual growth in the 2014–2016 period.

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.

Growth in developed nations

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. The share of pharmaceutical spending in developed markets, which include the US, Europe, and Japan, will decline to 57% of global pharmaceutical spending by 2016 (down from 73% in 2006) as the share of pharmerging markets reach 30% of total global spending by 2016.

Despite the highest number of patent expiries in history, spending in the US will grow between $35 billion and $45 billion during the next five years, representing an average annual growth rate of 1-4% although this growth still represents historically low levels. The US share of global pharmaceutical spending will decline from 41% in 2006 to 31% by 2016 due to patent expiries and slower brand growth, according to IMS. In the US, $103 billion, or 44% of 2011 brand spending will shift to generic-drugs through 2016.

In Europe, growth will range from negative 1% to 2% through 2016 due to significant austerity programs and healthcare cost-containment initiatives. This weak growth compares to 3.8% for the period of 2007–2011. The share of global spending by the five major EU markets (Germany, France, United Kingdom, Italy, and Spain) will decline to 13% by 2016 due to slow economic growth and more aggressive cost-containment measures.

The Japanese market is forecast to grow 1–4% annually through 2016, slightly lower than the rate during the prior five years and reflecting biennial price cuts scheduled for 2012, 2014, and 2016. Japan’s share of global pharmaceutical spending is expected to remain at roughly 10% through 2016.

Overall, patent expiries in developed markets will yield a five-year “patent dividend” of $106 billion, reflecting reduced brand spending of $127 billion offset by $21 billion in higher generic-drug spending, according to IMS. Pharma manufacturers will see minimal growth in their branded products through 2016. The market for branded medicines will experience flat to 3% annual growth through 2016 to between $615 billion and $645 billion, up from $596 billion in 2011. In the major developed markets, branded medicine growth will be “severely constrained,” according to IMS, at only $10 billion during the five-year period due to patent expiries, increased cost-containment actions by payers, and modest spending on newly launched products. The pharmerging markets are expected to contribute $25 billion to $30 billion in branded-product growth over the same period. Off-invoice discounts and rebates will offset about $5 billion of global branded medicine growth, according to IMS.

Growth in emerging markets

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.

Generic-drug strength

Manufacturers of small-molecule generic drugs will experience accelerating growth. Global generic-drug spending is expected to increase from $242 billion in 2011 to between $400 billion and $430 billion by 2016, fueled by volume growth in pharmerging markets and the ongoing transition to generic drugs in developed nations, according to IMS. Between $224 billion and $244 billion of the increase in global generic-drug spending will be in pharmerging markets, according to IMS.

Rising importance of biologics

Biologics are expected to account for about 17% of total global spending on medicines by 2016 and reach an overall market value of $200 billion to $210 billion in 2016, up from $157 billion in 2011, according to IMS. Seven of the top ten global medicines by spending will be a biologic within five years, according to IMS. Adoption of biosimilars as low-cost alternatives to the original biologic medicines will remain limited, according to IMS, as biologics remain protected by patents or market exclusivity in many countries. The global market for biosimilars is expected to be between $4 billion and $6 billion in 2016, representing 2% of biologics spending. In 2011, the global biosimilars market was estimated at $693 million, or only 0.4% of the global biologics market, according to IMS