Evaluating the Global Generics Market

By Patricia Van Arnum - DCAT Editorial Director

May 6, 2015

The global generic-drug market is undergoing change as consolidation looms among the top players and gains from recent patent expiries lessen. So what is in store for the global generic-drug market? DCAT Value Chain Insights takes an inside look.

In the always highly competitive global generic-drug market, change looms large as consolidation and an increased emphasis on portfolio diversification in specialty pharmaceuticals continue to shape the market. On a product basis, the industry is experiencing slowing growth from the recent wave of patent expiries as growth in emerging markets continues to be strong. DCAT Value Chain Insights examines the implications.

Crunching the numbers
The position and growth of the global generics market have to be considered in the context of the overall performance of the global pharmaceutical market. IMS projects that global spending on medicines will increase at a compound annual growth rate (CAGR) of 4-7% (on a constant currency basis) to 2018, when global spending on medicines is expected to reach nearly $1.3 trillion, based on its November 2014 report by the IMS Institute for Healthcare Informatics, Global Outlook for Medicines Through 2018. This growth rate will be slightly higher than the 5.2% recorded during the previous five-year period (2009-2013). The uptick is due to the introduction of new specialty medicines, increased accessibility for patients, and reduced impact from patient expiries in developed markets.

On an absolute spending basis, absolute growth in global medicine spending will increase 30% by 2018. The increase in annual spending will spike in 2014 when absolute growth will be about $70 billion, up from $44 billion in 2013 and $26 billion in 2012, according to IMS. During the five-year forecast period of 2014-2018, global spending on medicines is expected to increase on an absolute basis between $290 billion and $320 billion (based on actual and forecast exchange rates) and between $305 billion and $335 billion using constant exchange rates. In contrast, absolute global spend for pharmaceuticals increased $194 billion during the period of 2009-2013, based on using actual and forecast exchange rates. Using constant exchange rates, absolute spending growth for the period of 2009-2013 was $219 billion. The IMS projections for global spending are based on best available pricing information and measured at the ex-manufacturer level; they do not factor in a range of rebates, discounts, taxes, and other adjustments that affect the net amount received by manufacturers. These discounts are expected to increase over time and reduce the level of overall global growth, which IMS estimates would reduce growth by $60 billion to $80 billion or approximately 25% of total growth over the five-year forecast period (2014-2018) and reduce the net price growth rate by approximately one-half percentage point.

In the US, nominal spending on medicines reached $373.9 billion in 2014, up 13.1% year over year, the highest growth level since 2001 when growth was 17.0%, according to an April 2015 analysis by the IMS Institute for Healthcare Informatics, Medicines Use and Spending Shifts: A Review of the Use of Medicines in the US in 2014. Overall spending on medicines in the US increased $43.4 billion to $373.9 billion in 2014, according to the IMS analysis. Overall, spending on protected brands in the US increased $25.6 billion in 2014 following an increase of $18.3 billion in 2013.

The impact of patent expiries in the US, which had slowed spending in the past five years, reached a recent low in 2014, of only $11.9 billion, almost one-third of the level in 2012 when patent expiry peaked and reached $29.3 billion. Some key patient expiries included Eli Lilly's Cymbalta (duloxetine), a serotonin and norepinephrine reuptake inhibitor indicated for major depressive disorder, generalized anxiety disorder, anxiety, and certain pain indications, in 2013, and in 2014, Pfizer's Celebrex (celecoxib), a nonsteroidal anti-inflammatory drug for treating arthritis among other indications A period of fewer patent expiries since the middle of 2013 drove most of the reduced impact, according to the IMS analysis, but off-patent brands that did not face generic competition reduced the impact in 2014 by an estimated $4 billion to $5 billion. Generic drug spending increased $9.5 billion in the US in 2014, driven by increased spending on generic mental health, pain, and cancer medicines. Despite the lower level of expiry impact in the US in 2014, the share of prescription medicines dispensed in the US as generics increased by 2% to 88% in 2014, according to the IMS analysis.

In looking at overall pharmaceutical industry growth outside the US, across the major markets in Europe, economic austerity has led to efforts to constrain growth in healthcare spending, and especially medicines, which in turn, is projected to result in spending declines or very low growth, which will continue through 2018. Japan is forecast to see growth in the 1-4% range benefitting from increased demand as its population over the age of 65 exceeds 27%, 5% higher than other developed countries, but also facing price constraints, according to the November 2014 IMS analysis.

The 21 pharmerging countries (China, Brazil, India, Russia, Mexico, Turkey, Venezuela, Poland, Argentina, Saudi Arabia, Indonesia, Colombia, Thailand, Ukraine, South Africa, Egypt, Romania, Algeria, Vietnam, Pakistan and Nigeria) that currently account for approximately 25% of global spending on medicines will continue to broaden as their economies expand and governments advance efforts to provide universal health coverage. Spending on medicines in pharmerging markets is projected to rise more than 50% through 2018 in pharmerging markets according to the November 2014 report by the IMS Institute for Healthcare Informatics, Global Outlook for Medicines Through 2018. Pharmerging growth will still be strong, but slower than historical levels with an overall CAGR to 2018 of 8-11%, compared to a CAGR of 13.6% from 2009 to 2013. For the forecast period of 2014-2018, the pharmaceutical markets of China, Brazil, and India are expected to increase at a CAGR of 9-12% and of 7-10% in Russia. CAGR in Tier 3 Pharmerging markets (defined by IMS to include Mexico, Turkey, Venezuela, Poland, Argentina, Saudi Arabia, Indonesia, Colombia, Thailand, Ukraine, South Africa, Egypt, Romania, Algeria, Vietnam, Pakistan and Nigeria) will be 5-8% to 2018.

More than 80% of the forecasted growth in drug spending in pharmerging markets will be for non-branded medicines, including greater use of biologic therapies. China, already the world's second largest pharmaceutical market, will reach spending levels of $155 billion to $185 billion in 2018, according to the IMS analysis. Implementation of healthcare reforms is increasing demand for medicines while pricing regulations are being used more frequently to manage overall growth levels. Per capita spending on medicines in China is anticipated to grow by more than 70% in the next five years. China is the second largest pharmaceutical market in the world behind the US, but its per-capita spending on pharmaceuticals is expected to be just 9% per capita of that in the US. Overall, China is projected to have 75% total growth through 2018, driven by both brands (70% growth) and non-brands (75% growth). In China, spending level increases are tied to recently expanded access, with 95% of the population now covered by public health insurance plans. Improvements to the healthcare infrastructure and community health services are expected under the current Five-Year Plan (2011-2015) and will further grow the market through 2018. Reform of the hospital sector will continue to impact prescribing as cost-containment measures limit drug budgets to a fixed percentage of total budgets and reduce profits obtained by hospitals for dispensing medicines. Policy changes in 2014 will bring more drugs under the remit of the National Development and Reform Commission, including those to treat serious diseases, exposing them to price ceilings and in-market price cuts that will continue to exert downward pressure on prices, according to the IMS analysis.

While some pharmerging markets have robust domestic generic industries, other typically smaller countries rely more on the import of medicines and tend to have higher branded medicine spending as a share of their total spend. As a percentage of total growth in pharmerging markets through 2018, brand growth remains steady at 30% growth while non-brand growth sharply increases at 61%. Brand growth comprises 23% of total growth of Tier 3 pharmerging markets primarily due to significant importation of medicines and pricing policies that promote competition. Tier 3 pharmerging markets are: Algeria, Argentina, Colombia, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Poland, Romania, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, Venezuela, and Vietnam.

Inside the global generic-drug market
Although the impact of patent expiries in developed markets will be less comparative to recent levels, the importance of generic drugs to overall pharmaceutical industry growth is underscored by the share that generics occupy in absolute pharmaceutical spending growth through 2018. The value of small-molecule products facing loss of patent expiry in developed markets from 2014 to 2018 is estimated at $121 billion compared to $154 billion from 2009 to 2013, based on June 2014 data, as reported in the IMS Institute for Healthcare Informatics' report, Global Outlook for Medicines through 2018. The patent cliff peaked in 2011/2012 when several key drugs faced generic competition in the US for the first time, including Lipitor (atorvastatin), Plavix (clopidogrel) , Singulair (montelukast), and Seroquel (quetiapine). For the five-period of 2014 to 2018, key patent expiries include: Nexium (esomeprazole), Celebrex (celecoxib), Symbicort (budesonide/formoterol fumarate dihydrate), Abilfy (aripiprazole), Gleevec (imatinib), Crestor (rosuvastatin), Zytiga (abiraterone), and Cialis (tadalafi). For biologics, approximately $48 billion of products will lose patent protection through 2018, but the impact will be less given the evolution of biosimilar regulation and competition, according to the IMS analysis.

Generics, however, are the largest contributor to overall pharmaceutical industry growth globally and the largest contributor to growth in the major regions except North America. On a global basis, generics are forecast to account for 52% of the projected increase in total absolute medicines spending of $305 billion to $335 billion (based on constant exchange rates) for the period of 2014 to 2018, according to September 2014 data as reported in IMS Institute for Healthcare Informatics' report, Global Outlook for Medicines through 2018. In North America, generics will account for 44% of the forecast absolute pharmaceutical growth of $115 billion to $145 billion through 2018 and for 46% of the $25 billion to $35 billion absolute spending growth in Europe. Innovative launches and price increases in North America keep generic growth more tempered than in other regions by offsetting genericization.

For Asia, which for purposes of the analysis includes China, India, Russia, CIS state, Southeast Asia, Oceania, and Japan, generics will account for 59% of the absolute medicines spending growth of $100 billion to $130 billion through 2018. Increases in low-cost generics will continue to be seen in Asia, including India and Pakistan, as efforts to broaden access to basic health insurance is pursued. Demand for generics has outpaced overall market growth rates in both Australia and New Zealand while the sector has also benefited from a succession of major patent expiries. Generics will be the largest contributor to growth in Latin America, which they will account for 61% of the $25 billion to $35 billion of total absolute medicines spending growth through 2018. Locally manufactured generics will be the main beneficiaries of rising demand in Latin America, with local manufacturers increasing their share of the market. And in Africa and the Middle East, generics will account for 50% of the overall absolute medicines spending growth. Locally manufactured generics are a key source of affordable drugs in African markets, where domestic manufacturers often enjoy preferential treatment to encourage domestic production.

Market positioning
Teva Pharmaceutical Industries' $43 billion bid to acquire Mylan, a deal which Mylan has thus far rejected as it seeks to acquire the specialty, generic, and over-the-counter drug company, Perrigo, is the latest in a series of mergers and acquisitions impacting the generic and specialty pharmaceutical industry. Pfizer's proposed $17 billion acquisition of Hospira, which includes Hospira's generic injectables business and biosimilar portfolio is another deal, which is expected to close in 2015. Actavis' acquisition of Allergan, an approximate $70 billion deal completed in 2015, and Actavis' $28 billion acquisition of Forest Laboratories, further diversified Actavis in specialty medicines although generics still constitute an important part of its portfolio. Another key deal completed in 2015 was Sun Pharma's acquisition of Ranbaxy Laboratories. Despite these proposed and completed deals, however, the global generics market remains highly fragmented, with only approximately 25% of the market share occupied by the top 10 leading players, according to data from IMS. Leading generic players include Teva, Sandoz (the generics arm of Novartis), Mylan, Actavis, Sun Pharma, Aspen, Hospira, Fresenius, Lupin, Dr. Reddy's Laboratories, Cipla, STADA, Abbott (which divested its non-US developed specialty and generics businesses to Mylan in 2015), based on a company and industry estimates.