The global pharmaceutical market will surpass $1.5 trillion by 2023, according to a new report from Iqvia Institute for Human Data Science. That works out to a compounded annual growth rate of 3 percent to 6 percent over the next five years, which is, unfortunately, a slowdown from the 6.3 percent growth the industry has experienced over the past five years.
Spending in the U.S. is expected to drive the growth, up 4 percent to 7 percent annually on an invoice basis, but growth of net manufacturer revenue will be slower at 3 percent to 6 percent as brand prices in the U.S. increase 4 percent to 7 percent, but are only flat to up 3 percent on a net revenue basis.
Much of the slower growth in pricing comes from self-inflicted moves to avoid regulation. "In the past two years, a range of companies made commitments to reduce list price increases for branded medicines, which are now below 6 percent per year on average, and are expected to remain in the 4–7 percent range within the next five years," the report notes.
Growth will also be spurred by what Iqvia classifies as pharmerging markets where revenue is expected to grow 5 percent to 8 percent, led by Turkey, Egypt and Pakistan, which are all expected to increase by more than 10 percent annually over the next five years.
"Pharmerging market growth continues to derive primarily from increasing per capita use, but some markets are seeing wider uptake of newer medicines as patients' ability to afford their share of costs improves with economic growth," the report concludes.
Nevertheless, the overall growth rate for the pharmerging markets will be lower than in years past where there were huge gains in access to health care, resulting in a historical growth rate of 9.3 percent.
China is a prime example, where the 10-year growth was in the double digits until 2014, but slowed to 4.5 percent last year and is expected to be in the 3 percent to 6 percent range over the next five years as the country begins to focus on cost optimization and address corruption.
"In order to manage affordability for government programs and the population generally, the Chinese government has focused on managing drug pricing through the use of an Essential Drug List and a National Reimbursement Drug List (NRDL). Both require manufacturers to offer substantial discounts, while listing on the NRDL offers wider access to the population in return," the report explains.
On the downside, the top five European markets are expected to grow by 1 percent to 4 percent annually over the next five years, down from the 4.7 percent growth rate over the previous five years.
Japan is also expected to drag down global spending with flat to down 3 percent spending over the next five years. While some of that is due to the effect of exchange rates, the continued uptake of generics will have a major effect on overall spending in the country.
"The uptake of newer brands will remain strong and price cuts will impact brands less than other products due to a shift in priorities of the biennial price cut system. Generic usage in the unprotected market is expected to exceed the health ministry (MHLW) target of 80 percent a year early in 2020," the report predicted about spending in Japan.
Out with the old, in with the new
Loss of exclusivity is expected to lower branded drug spending by $121 billion over the next five years cumulatively, up from $105 billion over the previous five years, with nearly 80 percent of future loss of exclusivity coming from U.S. sales.
Of course the loss is all relative. "Despite a larger absolute amount of impact on brand spending as a result of market growth, the impact of [loss of exclusivity] on a percentage basis will be about the same in the U.S. over the next five years as it was between 2014 and 2018: 4.1 percent of the branded market," the report points out.
In dollar terms, the loss of exclusivity on small-molecule drugs will still lead the way, increasing 6.8 percent from $97.4 billion cumulatively in 2014 through 2018 to a predicted $104.1 billion over the next five years. But the loss of exclusivity on biologics will grow at a much steeper rate, more than doubling from $6.9 billion to $17 billion over the same timeframes.
The adoption and introduction of biosimilars has been faster in Europe than in the U.S., but that should change going forward. "By 2023, U.S. policies are expected to encourage more biosimilar applicants to file and to reshape reimbursement dynamics that have hampered early uptake of some molecules," the report predicts, noting that the market will be three times larger than it is today, resulting in increased competition among biosimilar drugs, pushing down prices.
Much of the increased loss of exclusivity will come from the best selling drugs. "By the end of 2023, only two of the current top 20 original brands, nivolumab (Opdivo) and pembrolizumab (Keytruda), will not be facing generic or biosimilar competition," the report notes.
On the innovation side, new drug launches are expected to increase from an average of 46 in the past five years to 54 per year through 2023.
Based on historic rates for in-progress research and breakthrough designations, Iqvia predicts 45 percent of new active substances over the next five years could be for orphan drugs. Two-thirds of the new launches will be specialty drugs. And the 748 oncology drugs in late-stage development should produce 70 to 90 new cancer treatments, or 30 percent of all new drug launches.
While a smaller number, approvals of drugs for neglected tropical diseases are expected to add to the overall new drug approvals as international organizations and philanthropic organizations fund development of the treatments.
Spending on new brands in developed markets increased substantially over the last five years, from an average of $15.3 billion from 2009 to 2013 to a whopping $43.4 billion annually from 2014 to 2018. Over the next five years, spending is only expected to uptick slightly to $45.8 billion due to increased competition as has been seen in the hepatitis C and PCSK9 spaces, pushes for cost-effective pricing by bodies such as the Institute for Clinical and Economic Review and a slowdown in new breakthrough drug classes.
Iqvia predicts an increase in effectiveness of research and development as companies increase the use of artificial intelligence, machine learning and deep learning programs. That's good news for small companies with less than $500 million in revenue or with less than $200 million in R&D spending, which are expected to bring to market more than a third of drugs that are launched over the next five years.