A newly released report from the IMS Institute for Healthcare Informatics predicts that the total spending on medicines next year will reach the $1 trillion milestone. That is a huge number but represents just single-digit growth from the $965 billion spent in 2012.

The modest global spending on new medicines comes against the backdrop of an extremely uncertain and complex health care environment, where the approval of innovative medicines continues to increase and payers wrestle with budgets that can make them available to patients.

The research forecasts that the growth rate, at a 3 percent to 6 percent compound annual clip, in global spending on medicines will be maintained for the next five years and reach $1.2 trillion by 2017 – an increase of $235 billion, which equals the $234 billion by which spending increased in the previous five-year period. Factors such as rapidly expanding middle class worldwide, stronger economic prospects in developed nations and aging populations are the main drivers for the predicted increase.

Specifically, the U.S., EU5 (the aggregate of Germany, France, Italy, U.K. and Spain), Japan and China will account for 67 percent of global spending on medicines in 2017, contributing 59 percent of the global growth in the five-year period to 2017.

Uneven Trend

The overall trend will be uneven and IMS predicts that during the next five years, there will be an increasing dichotomy between spending on medicines in the developed markets of North America, Europe and Japan, and the “pharmerging” markets such as China, India and Brazil.

“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.

The developed markets, IMS predicts, will see very modest single-digit spending growth, due to “a combination of economic and health care austerity measures and the savings realized from the growing availability of lower-cost generic versions of brands following their patent expiry.”

The steps being taken to rein in spending on innovative medicines together with the availability of lower-cost generics will keep annual spending growth to 1 percent to 4 percent among those markets, particularly in the U.S. where growth will remain at historically low levels, and the country will have a smaller share of the global market through 2017, but a constant share of developed markets.

In contrast, pharmerging nations will collectively experience 10 percent to 13 percent spending growth overall – the result of economic expansion, changes in epidemiology and demographics and greater government and private insurance funding for health care, the report noted.

China’s pharmaceutical market is expected to grow between 14 percent and 17 percent in the next five years and will represent 34 percent of total growth in global medicine spending.

The report also cites that in Japan, where an aging population is driving a rapid increase in demand for medicines, the government has mandated that 60 percent of all prescribed off-patent drugs are to be dispensed as generics by 2018 – an action that would double current levels and “is unprecedented in any country.”

Difficult to Predict

Drug expenditure in the U.S. will be difficult to predict with any certainty for the next five years, IMS said, due to the implementation of the Affordable Care Act. That could result in a number of potential scenarios, ranging from disparate enrollment levels of uninsured and underinsured populations; the extent to which there is a shift in focus on preventive medicines vs. acute care; changes from fee-for-service to performance/outcomes-based payment models; and the degree of cost shifting to patients via higher deductibles and/or co-pays.

Specialty medicines – typically biologics that are used for conditions requiring complex treatment – will be the single largest contributor to branded drug spending growth through 2017. Most access to those drugs occurs in developed markets, where spending is expected to increase by 30 percent over the next five years, to $190 billion to $200 billion. In the emerging markets, the use of specialty medicines will be limited, but spending is expected to rise by nearly 90 percent through 2017, to $40 billion to 50 billion annually.

The IMS data emphasizes just how important those markets are to big pharma companies. Although, according to the third quarter 2013 financial report from Merck & Co. Inc., sales from emerging markets decreased by 4 percent, its emerging market sales accounted for approximately 20 percent of pharmaceutical sales with strong growth in Brazil, Korea, Russia and Turkey, offset by declines in China and Mexico.

In the same period, Pfizer reported that revenues grew 5 percent in emerging markets, primarily due to volume growth in China. The company provided guidance for the full year with 2013 operational revenue growth in emerging markets expected to be a mid-single-digit percentage.