European Generic-Drug Outlook

Consolidation and tightening healthcare budgets in the European Union are key factors influencing growth in the European generic-drug market. So what may be in store?

Projections for overall growth in the European pharmaceutical market are modest, but are generics faring better than innovator drugs? DCAT Value Chain Insights takes an inside look..

Market context; global performance
To put the European generics market into market context, it is important to consider performance in the global pharmaceutical market as a whole. A recent analysis by QuintilesIMS projects that the global pharmaceutical industry will grow at a compound annual rate of 4% to 7% during the next five years, down from the nearly 9% growth level seen in 2014 and 2015. Total spending on medicines is forecast to reach $1.5 trillion by 2021, up 33% from 2016 levels, but down from recent high growth rates in 2014 and 2015, according to the recent analysis by QuintilesIMS, Outlook for Global Medicines Through 2021: Balancing Cost and Value. Medicine spending will grow at a 4% to 7% compound annual growth rate (CAGR) during the next five years, down from the nearly 9% growth level seen in 2014 and 2015, according to the report. 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. On a volume basis, the total volume of medicines consumed globally will increase by about 3% annually through 2021, only modestly faster than population and demographic shifts. Issues of pricing, market-access pressures, lower volume growth in emerging markets, and further generic-drug incursion will contribute to the lower rate of growth, according to the analysis.;

The total global spend for pharmaceuticals through 2021 will increase by $367 billion on a constant-dollar basis, according to QuintilesIMS. Spending is measured at the ex-manufacturer level before adjusting for rebates, discounts, taxes and other adjustments that affect net sales received by manufacturers. The impact of these factors is estimated to reduce growth by $127 billion, or approximately 35% of the growth forecast through 2021.

The US will continue as the world’s largest pharmaceutical market and pharmerging markets (the term used by QuintilesIMS to describe pharmaceutical emerging markets) will make up nine of the top 20 markets. The US will account for 53% of forecasted growth over the next five years while China will continue as the second largest market, a position it has held since 2012, contributing 12% of the growth. 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% of pharmerging market volume and 78% of spending. Specialty medicines are projected to increase their share in globally, particularly in developed markets. Specialty medicines’ share of global spending has risen to less than 20% ten years ago to 30% in 2016 and to 35% by 2021, approaching half of total spending in US and European markets, according to the study.

The US market growth rate will decline by half, from 12% in 2015 to 6% to 7% in 2016 with a 6% to 9% growth forecast through 2021 on an invoice-price basis. The decline reflects the end of hepatitis C treatment-driven growth and greater impact of patent expiries—including the introduction of biosimilars—following a period in which fewer brands faced new generic competition, according to the QuintilesIM study. US growth in 2014 and 2015 also was driven by historically high price increases for both brand drugs and generics on an invoice-price basis before the impact of off-invoice discounts and rebates. After adjusting for price concessions by manufacturers, spending growth is estimated to be more than 2 percentage points lower through 2021 and 4 percentage points lower in 2016—a 4% to 7% CAGR on a net-price basis.

Leading pharmerging markets have seen real growth in gross domestic product slow from 1-4 percentage points over the past decade, according to the study. This has triggered a corresponding reduction in medicine volume growth, from an average of 7% annually over the past five years to 4% forecast through 2021. China, in particular, will see a decline in annual volume growth from 17% to 4% over the same period. Overall, volume growth continues to be driven by non-original products that account for 91% of the volume in pharmerging markets. The outlook for spending growth across these markets is expected to moderate from 10% CAGR over the past five years to 6% to 9% through 2021.

European payers are expected to maintain tight constraints on drug budgets. Forecasted low pre-rebate and discount growth of 1% to 4% in the EU5 countries (France, Germany, Italy, Spain, United Kingdom) through 2021 reflects policymaker responses to unexpectedly high new drug spending in 2014 and 2015 and relatively weak economic growth in the region, according to the study. Looking forward, these budgeting weaknesses are expected to prompt European payers to redouble their efforts to bring predictability to their budgeting processes for drugs, according to the study. The impact of BREXIT on the UK pharmaceutical market is expected to be modest, driving at most a 1.5% slower growth rate.

Inside the European generics market
As Europe confronts these issues in the global pharmaceutical market, the generic medicines industry is expected to continue to be the main provider of medicines in the European Union (EU) on a volume basis, accounting for 56% of dispensed medicines at only 22% of pharmaceutical expenditure, according to data from Medicines for Europe, the industry association representing generic drug manufacturers in Europe. By 2020, generic medicines are expected to make up 70-80% of the medicines used in Europe.

Due to the financial and economic crisis, many European member states have introduced several austerity measures to balance national budgets, with some particularly focusing on healthcare spending. Data from the Organization for Economic Co-operation and Development (OECD) show that since 2009, average annual growth rates of health spending per capita in the different fields of healthcare (inpatient care, outpatient care, long-term care, pharmaceuticals, prevention and administration) have dropped. In particular, expenditure for pharmaceuticals in the EU has been cut annually by 1.1% after recording positive annual increases of 1.4% between 2005 and 2009, according to data cited by in a recent report by Medicines for Europe. The report explains that In order to better control the pharmaceutical budgets across Europe many governments have implemented short-term cost-containment measures, such as clawback, payback, rebates, external reference pricing, and public procurement/tendering.

“These policies have especially hit the generic and biosimilar medicines industries, which already supply medicines at competitive prices,” according to a recent analysis by Medicines for Europe. “Due to these unsustainable policies, the prices of generic and biosimilar medicines have dropped so deeply that manufacturers struggle to have these medicines available in the national markets, leading often to withdrawals of medicines which ultimately affects patients’ health.”

As noted by the European Commission’s European Semester Country Specific Recommendations, healthcare systems need to improve to ensure equity of access to healthcare, which is challenged by the limited financial capacity of governments to cover growing demand for healthcare services. Adrian van den Hoven, Director General at Medicines for Europe commented that “the OECD, the European Commission] and the European Council[ have highlighted the importance of the timely availability of generic and biosimilar medicines for healthcare systems. In this light, Medicines for Europe has developed a set of Country Recommendations for France, Italy, The Netherlands, Spain, Portugal, Bulgaria and Ireland to help the EU and member states develop effective policies that support access to medicines for patients.”

To fully realize the potential of generic and biosimilar medicines, Medicines for Europe is advocating for several measure by European governments to encourage competition from generic and biosimilar medicines based on four overarching recommendations as well as specific measures for each country: (1) ensure a predictable market environment for a stable supply of medicines; (2) implement clear incentives to stimulate the use of generic and biosimilar medicines; (3) increase regulatory efficiency to promote high standards while reducing red tape; and (4) support a Supplementary Protection Certificate (SPC) manufacturing waiver to promote a strong manufacturing base in Europe.

Of these, the SPC waiver is most impactful for manufacturers, Under current legislation, generic and biosimilar medicines producers are not allowed to manufacture for commercial purposes during the patent period as it infringes the patent right, as outlined in the report by Medicines for Europe. In addition to patent protection, SPC regulation in Europe allows holders of patents to authorize medicinal products to partially extend their product exclusivity by up to five years. The purpose of the legislation was to recompense product-developing companies for the time taken to obtain regulatory approval of their medicines and give them longer market exclusivity in the form of an SPC. However, currently the SPC regulation has the unintended effect of putting the European generic and biosimilar medicines industries at competitive disadvantage vis-à-vis manufacturers producing in non-EU countries where no similar patent/SPC protection exists. “The latter are able to take advantage of export markets years earlier than European producers and to enter the EU market immediately as soon as SPCs expire in Europe,” concludes the Medicines for Europe report.“ Therefore, European manufacturers are currently required to outsource production outside Europe to supply countries without SPCs or where SPCs expire earlier than in Europe, and to provide competition as soon as SPCs expire in Europe.

According to the Medicines for Europe report, a SPC manufacturing waiver would allow European pharmaceutical producers to start manufacturing generic and biosimilar medicines during the SPC period in order to export to countries where intellectual property (IP) protection is no longer in place. It would also resolve the competitive disadvantage of European producers vis-à-vis producers in other regions with less rigid IP systems and avoid forcing European producers to invest abroad in order to seize business opportunities in unprotected markets (especially in biosimilars and complex products). The Medicines for Europe report also concludes that the SPC waiver would have no impact on originator industry IP protection, provide an opportunity to maintain and create high tech jobs in Europe, including manufacturing and R&D, make it easier for regulators to deal with local manufacturing, and create security of supply.

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