- Global pharma growth and trends
- How are generic drugs driving the growth in pharma globally?
- Key contributors to the ongoing expansion of generic pharma
Global pharmaceutical spending is expected to reach USD 1.5 trillion by 2021 with CAGR of 4 to 7% in the next 5 years according to the report released by QuintilesIMS Institute-Outlook for Global Medicines through 2021. Increase in the lifestyle-related diseases and chronic ailments, an ageing population, a launch of innovative and speciality drugs, greater consumer information and empowerment, improved accessibility to healthcare and medical infrastructure, expansion of emerging market, demographic trends and increasing per capita income are the major drivers for this global demand. There is an estimated increase in pharma spending of USD 367 billion from 2016 to 2021 with a CAGR of 4-7%, as stated above. The introduction of new innovative products, especially in oncology, autoimmune and diabetes treatments in the developed markets and enhanced use of branded generics in pharmerging* markets will be the two major contributors for the incremental growth of the pharma sector apart from the use of low-priced alternatives (after a loss of exclusivity), improved access of modern medicines and increased healthcare awareness.
*Pharmerging market includes countries with >USD 1 billion absolute spending growth over 2014-2018 and the GDP per capita <USD 30 thousand at purchasing power parity. This includes China, Brazil, Russia, India, Algeria, Argentina, Bangladesh, Chile, Colombia, Egypt, Indonesia, Kazakhstan, Mexico, Nigeria, Pakistan, Philippines, Poland, S. Africa, Saudi Arabia, Turkey and Vietnam
Although original branded medicines have the largest share in the pharmaceutical industry and are projected to have a 56% share in the global spending (2021). The generic’s share, which includes both the branded and non-branded generic medicines is also growing at a much faster pace. Its share in the global medicine spending is anticipated to rise from 27% (2013) to 34% (2021) with a CAGR of 8.3% as compared to the total spending, which is likely to grow at a CAGR of 5.2%. According to the QuintilesIMS, the global spending on generic medicines will probably reach USD 495-505 billion by 2021.
Generic pharma driving the global pharma growth
The US Food and Drug Administration (FDA) has defined generic medicine as a drug product that is comparable to a brand/reference listed drug product in quality, performance, intended use, the form of dosage, strength and route of administration. Hence, a generic medicine work in a similar way, provides identical clinical benefits of a branded version and has same risks of an original branded medicine.
A new drug is typically protected by patents that provide a certain period of exclusivity in the market. Hence, during this phase pharmaceutical companies do not face a competition from generic drugs. These generic drugs can only enter the market after an expiration of the branded drug’s patent, which usually lasts for 20 years. There are two types of generic drugs; pure generic which is ‘equivalent’ to the original brand in every aspect and branded generic, that is ‘bioequivalent’ to the original brand product, but this is presently marketed under another company’s brand name. The branded generic products are either novel dosage form of off-patent product or copied version of an off-patent product with a trade name.
According to the QuintilesIMS, a growing use of cheap alternative generic in pharmerging markets is a leading contributor to the rise of the market for generic drugs. This is both in terms of the growth and the share. Moreover, branded generics in emerging markets are also likely to contribute as a key driver to growth for the overall generic market.
Generic drugs, which are estimated to have 34% share in the global pharma spending and 26% share in the developed market, will probably have more than half of the share in the pharmerging markets by 2021. Growing at a CAGR of 9-12% (2017-21), generic pharma market has its own drivers contributing to its growth:
- Patent cliff: a key driver for boosting generic drug growth. The loss of patent protection by branded drugs is known as patent cliff. This opens the door for generic’s entry into the market. According to QuintilesIMS, a patent expiration will impact USD ~170 billion (one-third greater than the past 5 years) pharma market in the developed countries (2016-21).
- Lower pricing: according to an estimate after the first 6 months of a patent’s expiry, the average price of a generic drug is normally 60-70% lower than the original brand drug. This further reduces to 80-90% following 24 months of availability of generic medicine. Unlike the original drug producer, which invests a huge sum of money in the research and development (as per the CSDD [Tufts Center for the Study of Drug Development] average USD ~2.6 billion for a new drug, which gained market approval) over 10 years plus, the generic drug producers in contrast are able to offer copies of the original drug at a far cheaper rate as the drug has already been formulated and approved. The first generic drug mover also gets a short market exclusivity (180 days), the original brand name drug loses ~90% or more of its market share in a shorter span of time due to a deluge of generic drug offering in the market.
- Increasing medicine volume: global medicine volumes have increased to ~4 trillion doses (2016) from ~2.5 trillion doses (2006), with nearly 75% growth from the pharmerging market. In the US, generic drugs account for ~90% of the prescription, this is anticipated to rise ~92% by 2021. Similarly, in the contemporary pharmerging markets, on an average 90% of prescriptions account for generic medicines.
- Supportive government policies: in order to expand the healthcare provisions and enhance its reach. Growth in economies of emerging markets due to rising per capita income empowered these for advancing healthcare by increasing healthcare awareness and medical penetration. The demand for generic medicines is quite apparent as governments, as well as consumers, pursue avenues to reduce their healthcare costs.
Furthermore, according to the USFDA (U.S. Food and Drug Administration), a record 763 generic drugs were approved in 2017 and 174 tentative approvals were given in the same year. The total fillings of ANDA (Abbreviated New Drug Application) for generic drugs also surged to 1,292 applications in 2017 from 852 applications in 2016.
In the US, which is a leader in the global pharma market, the legislative enactments encouraged more generics. There was a passage of two milestone acts; Obama Care Act (PPACA) in 2010 and Generic Drugs User Fee Amendments (GDUFA) in 2012. These invigorated generic drug use while strengthening the USFDA to expedite approvals without a compromise on quality. PPACA made a mandatory program to bring ~50 million citizens under various government health insurance schemes and maximised use of generics in order to avail optimum benefits under these schemes. GDUFA strengthened resources of USFDA by charging generic aspirants for ANDA/DMF (Drug Master File) and plant approval over and above a normal fee. Thus, USFDA was able to expedite approvals, inspection processes and reduced backlogs on filings with greater availability of resources. In addition, Hatch-Waxman Act expedited and streamlined generic drug approvals and patent related litigations.
The branded drugs lost USD 91.1 billion (2012-16) due to patent expiry in the US pharma space. A loss of exclusivity is expected to have 58% greater impact in the next 5 years as compared to the foregone 5 years according to the QuintilesIMS, this will have a bearing of roughly USD 143.5 billion (2017-21). These developments have created an immense opportunity for generic players. According to the IMS Health Institute, generic drugs saved the US healthcare system of USD 1.67 trillion (2007-16).
Moreover, China, which is the second largest pharma market globally and is also a leader in the pharmerging market is projected to have a spending of USD 150-180 billion by 2021 on medicines. The nation has delayed its issuance of updated National Reimbursement Drug list since 2009, which provides reimbursed access to medicines and thus, limiting patient access to new medicines as these are not widely available in China. However, transforming government priorities and policies have already affected spending on drug growth during 2015-16, this was followed by a series of price cuts in China. Thus, all this slowed down the estimated growth in pharma spending to 5-8% CAGR (2021) from 12.5% CAGR (2011-16).
Similarly, the Japanese government has been advocating the use of low-cost generics in order to control the overall pharmaceutical spending. This was done through the implementation of regulations and a series of reforms to encourage generic use in the past few years and target 80% of the generic market by 2020. The volume share for generics in Japanese pharma space has increased to 65.1% (2017) from ~40% ( Source: Statista).
Therefore, it can be stated that with the ageing population, an increasing demand for affordable healthcare and governmental focus on cost-cutting, there exist thriving opportunities for generics all across the globe. Each region has its specific requirements, thus distinct opportunities reflect a region-centric demography. While North America leads in the pharma market space, pharmerging countries will have the highest volume of consumption and penetration of affordable generic drugs. The generic market is continually consolidating through several M&A activities such as Teva’s acquisition of Allergan, besides venturing into super generic opportunities in order to overcome low margins. The availability of inexpensive, safe and effective alternatives for medicines in form of generic balance on cost will provide improved healthcare at a reasonable price.