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Outlook for global medicines through 2021

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Growth in spending on medicines in major pharmerging markets has slowed from 2–10 percentage points over the past five years and is expected to slow further, according to a report by QuintilesIMS Institute. Excerpts from the report

The total volume of medicines consumed globally will increase by about 3 per cent annually through 2021, only modestly faster than population and demographic shifts, but driven by very different factors around the world. Spending on medicines will grow by 4–7 per cent, primarily driven by newer medicines in developed markets and increased volume in pharmerging markets. Developed markets will offset increased costs from new medicines with the use of generics, and a greater focus on pricing and access measures, while pharmerging markets will struggle to live up to promised access expansions made when their economic outlooks were stronger.

By the numbers

Global medicine spending will reach nearly $1.5 trillion by 2021 on an invoice price basis, up nearly $370 billion from the 2016 estimated spending level. Importantly for the outlook is that spending growth is slowing in 2016, declining from nearly 9 per cent growth in 2014 and 2015 to just 4–7 per cent CAGR over the next five years. The short-term rise in growth in 2014 and 2015 was driven by new medicines in hepatitis and cancer that contributed strongly to growth but will have a reduced impact through 2021. Most global spending growth, particularly in developed markets, will be driven by oncology, auto-immune and diabetes treatments where significant innovations are expected. The US will continue as the world’s largest pharmaceutical market and pharmerging markets will make up nine of the top 20 markets. China will continue as the #2 market, a rank it has held since 2012.

Developed market spending growth will be driven by original brands, while pharmerging markets will continue to be fueled by non-original products that make up an average 91 per cent of pharmerging market volume and 78 per cent of spending. New medicines increasingly are specialty in nature, and their share of global spending will continue to rise from less than 20 per cent ten years ago to 30 per cent in 2016 and to 35 per cent by 2021, approaching half of total spending in US and European markets. This rise primarily will be driven by the adoption of new breakthrough medicines, but also will be a key focus of payers and constrained by cost and access controls as well as a greater focus on assessments of value. Off-invoice discounts and rebates, particularly in the US market, will reduce invoice-price growth by about one per cent, resulting in a total global market of $1 trillion in 2021.

Transformations in disease treatment

The number of new medicines reaching patients will be historically large with 2,240 drugs in the late-stage pipeline and an expected 45 new active substances (NAS) forecast to be launched on average per year through 2021. The new medicines will address significant unmet needs in cancer, autoimmune diseases, diseases of the metabolism, nervous system and others. In addition to the continued research of mechanisms in use in existing drugs, there will be an ongoing flow of new mechanisms to target cell processes and diseases across the spectrum. Developments that go beyond specific ‘drugs’ are emerging in research that will challenge traditional regulatory approval and commercialisation approaches. These include completely new platforms that will see their first human uses in areas such as gene-editing technology CRISPR, which could transform personalised cancer treatments while creating a plethora of ethical dilemmas. Advances are expected to treat a range of diseases by harnessing the microbiome (a person’s own gut bacteria), as well as regenerative cell technologies that include stem cells harvested from one part of the body to use against a disease in another.

Global Medicine Volume Growth 2006–2021, Standard Units Bn

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Source: QuintilesIMS Institute, Oct 2016

Cancer is by far the largest general category of research, including immunology, cell-therapy and dozens of molecularly targeted agents. Treatment choices will be made based on the tumour diagnosis as much as by a patient’s family history, genetic marker or by biomarkers the tumour expresses. The sheer number of cancer treatments, their potential combinations in treatment regimens, and the variety of companies involved in development will bring significant change to the landscape of cancer treatment over the next five years. Dramatic improvements in survival and tolerability are expected and will be accompanied by substantially greater levels of clinical trial and real-world information to support treatment decisions. Payers and providers are developing tools to better assess value and will demand, or create on their own, the evidence to support spending, especially where new treatments would add to already expensive cancer treatment costs.

Trends in US Medicines

The US market growth will slow by half in 2016 to 6–7 per cent from 12 per cent in 2015, and is forecast to average 6–9 per cent through 2021. This decline is a key driver of the overall global slowdown and has similar causes—the end of Hepatitis C-driven growth and the greater impact of patent expiries after a period with fewer brand losses of exclusivity. The US growth also was lifted in 2014 and 2015 by historically high price increases for both brands and generics on an invoice-price basis before the impact of off-invoice discounts and rebates. After adjusting for those price concessions by manufacturers, spending growth is estimated to be more than 4 percentage points lower in 2016 and 2 percentage points lower through 2021, growing at a 4–7 per cent CAGR. Pricing, and particularly the difference between invoice and net prices, will be a key political issue for the incoming administration but is unlikely to affect the forecast net growth rates.

Medicine costs will be driven by the use of transformative specialty brands and invoice price increases, offset by rebates and the use of lower-cost generics. Brand prices will increase at 8–11 per cent—more slowly than the 12–15 per cent in the past three years, and with fewer outlier major price increases as these have become unsustainable in light of high-profile media and political attention. Net prices for protected brands are expected to increase, albeit at a slower 2–5 per cent rate, and including some declines for products facing greater competition and price transparency. Patient out-of-pocket costs are forecast to decline despite rising brand prescription costs as patients shift to newly available generics and receive copay assistance for brands. More than one-third of prescriptions will have no out-of-pocket costs. Free prescriptions are a growing trend as some patients receive preventive services under the Affordable Care Act, under expanded eligibility for Medicaid, and through some insurance plans.

The reduction in overall spending as branded medicines lose exclusivity is expected to total $143.5 billion in the next five years—more than 1.5 times the impact as in the past five years. This includes the estimated impact of biosimilars, which will contribute between $27–58 billion, uncertainty based on multiple issues in litigation with originators, as well as regulatory, pricing and competitive dynamics.

Regardless of the uncertainty, biosimilars are expected to affect spending over the next five years, with 25–35 products in development across biologic molecules with the highest sales levels.

Pricing and growth in Europe

Low pre-rebate and discount growth of 1–4 per cent in the EU5 countries through 2021 is partly driven by policymaker responses to unexpectedly high new drug spending growth in 2014 and 2015, and efforts to control future growth. The Hepatitis C drugs were surprising to stakeholders in their effectiveness, the extent to which patients and providers were willing to use them, and the budget impact that few were able to accurately predict. Looking forward, these budgeting weaknesses are prompting European payers to redouble their efforts to bring predictability to their budgeting processes for drugs—especially given the wave of promising agents to treat a variety of diseases.

Mechanisms that control access based on clinical quality alone may not be sufficient in the face of the variety and number of breakthroughs expected.

Pharmerging Countries Medicines Spend per Capita in 2021 Constant US$

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Source: IMS Market Prognosis, Sept 2016; QuintilesIMS Institute, Oct 2016 Note: Spending per capita, per capita growth and overall spending growth in Constant US$

Perhaps the most pressing question for European governments on issues outside pharma centre around BREXIT. The more than half-century of progressively greater integration of Europe including medicines-related institutions and practices will make disentangling the UK from Europe extremely complicated, not least because the UK government has yet to officially trigger the process. While uncertainties remain, the impact on the UK pharma market is expected to be modest with a 1.5 per cent slower growth rate in the downside scenario, than the basecase outlook for 4–7 per cent growth to 2021, still the highest medicine spending growth in the EU5 in either case.

Relatively weak economic growth in the region, combined with budget concerns arising from adopting and paying for recent innovations, will encourage European payers to be more cautious in adopting newer medicines in the future. Mechanisms to control price and/or access to innovative drugs continue to be the main tools used by European governments to manage spending on medicines, and will limit spending growth through the forecast period. As a result, fewer new launches in Europe are achieving price premiums, as few medicines are considered breakthroughs while the remainder are subject to more stringent levels of price limitations at launch.

Medicine use in pharmerging markets

Since 2011, the global expansion in the volume of medicines used essentially has been driven by pharmerging markets, where volume grew 37.5 per cent over five years, or 7 per cent annually, compared with 2 per cent in total over five years in all other markets.

In most developed markets, where access already was high and usage driven by demographic shifts to aging populations, volume grew an average of 0.4 per cent—less than half the rate of population growth in most markets. In pharmerging markets a decade ago, many lacked basic healthcare infrastructure and patients often paid for medicines out-of-pocket without insurance coverage. As access expanded through government support of expanded infrastructure and either government or private insurance coverage, medicine usage expanded broadly.

More recently, as economic growth has slowed, medicine volume growth also has slowed, showing a direct correlation between medicine usage and affordability. Compared to ten years ago with the start of their growth boom, leading pharmerging markets have seen real GDP growth slow from 1 to 4 percentage points, and their currencies’ value to the US dollar weaken by 15–35 per cent. Medicine spending growth has slowed from 2–10 per centage points over the past five years in major pharmerging markets and is expected to slow further. Volume growth averaged 7 per cent for pharmerging markets over the past five years but is expected to slow to 4 per cent through 2021, as China declines from 17 per cent average annual volume growth in the past five years to 4 per cent CAGR in the five years through 2021. Broad economic issues have led to a range of derailed commitments and delayed, revamped or cancelled expansion programmes—initiatives that may be hard to restart even if economic conditions recover.

Overall, volume growth continues to be driven by non-original products that account for 91 per cent of volume in pharmerging markets, and the outlook for spending growth across these markets is expected to be slower in the next five years and beyond.

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