On the Horizon: What to Watch for in 2015

As the pharmaceutical industry begins a new year, what may be the key issues, trends, and events shaping the industry in 2015? DCAT Value Chain Insights (VCI) examines 10 top trends impacting the pharmaceutical manufacturing value chain. 

A new year brings both optimism and change, and 2015 will have both. From an overall industry perspective, one of the key developments is overall improved economic growth along with a more optimistic outlook for the global pharmaceutical market, particularly for the US market. DCAT Value Chain Insights (VCI) examines key trends influencing the pharmaceutical market in 2015 and the next several years. 

Pharma outlook in 2015 and beyond
1. Global pharmaceutical industry growth improves. A recent analysis by the IMS Institute for Healthcare Informatics projects that total global spending on medicines will reach $1.3 trillion in 2018, an increase of $290 billion to $320 billion from 2013, driven by population growth, an aging population, and improved access in pharmerging markets, a term IMS uses to denote emerging markets. Global spending growth on medicines is expected to increase between 4% and 7% through 2018. Global spending growth will peak in 2014-2015 and moderate through 2018 due to fewer patent expiries, launches of more innovative medicines, and prices increases, according to IMS.

2. Growth in developed markets varies. In 2014, developed markets saw stronger growth due to fewer patent expiries, the launch of innovative medicines, and price increases, according to the IMS analysis. The greater contribution to growth from developed countries through 2018 is being led by the US and Japan, with France, Germany, Spain, the UK, and Italy maintaining relatively low growth levels. While these markets will moderate as cost-containment measures further limit price levels, rising volumes will continue to contribute to overall market growth, according to IMS.

3. US pharmaceutical market rebounds. Among the major markets, the United States remains the largest, representing one-third of the global pharmaceutical market. IMS projects a compound annual growth rate (CAGR) in the US pharmaceutical market of 5–8% through 2018, significantly higher than the 3.6% growth seen in the last forecast period of 2009-2013. US pharmaceutical market growth is expected to have peaked in 2014 with growth of 11.7% and then will moderate beginning in 2015 to a CAGR of 5-8% thereafter through 2018. This increase in growth is in part due to the reduced impact of generic-drug incursion and the launch of new products, producing what IMS calls a shift in the balance of the “innovation cycle” or the differential in the value of the amount of new medicines being launched and used compared to the value of branded medicines facing new generic competition.

4. Western Europe sees slow to flat growth. Across the major markets in Europe, economic austerity is leading efforts to constrain healthcare spending overall and specifically in medicines, according to the IMS analysis. In the five major European Union (EU) pharmaceutical markets (France, Germany, Italy, Spain, and the United Kingdom), spending on medicines through 2018 will be flat following recovery from the recession and will be influenced greatly by changes to discounts and prices cuts in certain countries, according to IMS. Overall, IMS projects a CAGR of 1-4% in the top five EU markets in the forecast period of 2014-2018. The highest growth will be in Germany and the UK boosted by a reduction in mandatory discounts in Germany and National Health Service budget easing in the UK. France and Spain are expected to see flat to declining growth due to price cuts, increased generic utilization in France, and changes to the pricing system in Spain, according to IMS.

5. Growth moderates in Japan. Japan, the third largest pharmaceutical market behind the US and China, is expected to have a CAGR of 1-4% in the forecast period of 2014-2018 according to IMS. Growth is expected to peak early in this forecast period and then moderate, led initially by growth in new medicines but then moderated by price reductions from competition in post-expiry branded drugs.

6. Emerging markets show continued strengthSpending on medicines in pharmerging markets will rise more than 50% through 2018, according to IMS. The 21 pharmerging countries that now account for 25% of global spending on medicines will continue to broaden access to treatments as their economies expand and governments advance efforts to provide universal health coverage. For purposes of the analysis, pharmerging countries include China, Brazil, Russia, India: Algeria, Argentina, Colombia, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Poland, Romania, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, Venezuela, and Vietnam. More than 80% of the forecasted growth in drug spending will be for non-branded medicines, including greater use of biologic therapies. Overall, IMS projects a CAGR of 8-11% in 2014-2018 in pharmerging countries. Growth in pharmerging markets is 83% comprised of non-brand medicine growth, driven mostly by generics.

7. China’s growth will still be robust but slower. China will reach spending levels of $155 billion and $185 billion for medicines in 2018, continuing its position as the second largest national pharmaceutical market behind the US. Although China is expected to have double-digit growth in its pharmaceutical market in the forecast period of 2014-2018 with a CAGR of 10-13%, this growth is down from the CAGR of 19% seen during 2009-2013, according to IMS.

8. Growth in specialty medicines continues. Specialty medicines will contribute a projected 40% of total global spending growth through 2018, according to IMS. Much of this growth is from medicines bringing new treatment options to patients, including breakthrough therapies or even cures that often reduce complications or hospitalizations while improving outcomes. Among specific therapeutic areas, the surge in cancer drug innovation in recent years will continue and contribute to global spending on all oncology drugs—reaching about $100 billion in 2018, up from $65 billion in 2013, according to IMS. Globally, oncology makes up 31% of the total pipeline and 25% of the late-stage pipeline (Phase II through pre-registration), according to IMS. The introduction and uptake of potent new medicines for treating hepatitis C are expected to result in about $100 billion in total spending over the period of 2014-2018.

9. Generics will remain a force. Generics are the largest driver of growth globally and are the largest contributor to growth in Latin America and the smallest contributor to growth in North America. In the period of 2009-2014, the value of small-molecule products facing loss of exclusivity in developed markets totaled $154 billion, according to IMS. The patent cliff peaked in 2011-2012 when Lipitor, Plavix, Singulair, and Seroquel faced generic competition in the US for the first time. Global brands, such as Nexium, Celebrex, Symbicort, Abilify, Gleevec, Crestor, Zytiga, and Cialis face patent expiry through 2018. While a further $48 billion of spending for biologic medicines will lose exclusivity through 2018, gradual evolution of biosimilar regulations and competition will result in less impact on brands than is typically seen with small molecules, according to the IMS analysis. The value of small molecules expected to lose patent exclusivity in developed markets in the forecast period of 2014-2018 is $121 billion, according to IMS, which includes 27 small molecules in 2015, 19 in 2016, 24 in 2017, and 27 in 2018. In comparison, the peak period of 2011 and 2012 saw 36 small molecules lose patent protection in developed markets in 2011 and 48 small molecules lose patent protection in developed markets in 2012, according to IMS.

10. Several key deals are expected to close. Several major deals, announced in 2014, are expected to close in 2015. Actavis’ $66-billion bid for the specialty pharmaceutical company Allergan was the second major acquisition for Actavis in 2014 following its $28-billion acquisition of Forest Laboratories, which was completed in July 2014. The transaction, subject to shareholder approval and customary closing conditions, has been unanimously approved by the boards of directors of Actavis and Allergan and is supported by the management teams of both companies. If the deal proceeds as planned, a combined company of Actavis and Allergan would have 2015 pro forma revenues in excess of $23 billion, making it one of the top 10 global pharmaceutical companies. The transaction is anticipated to close in the second quarter of 2015. The combined company will be led by Brent Saunders, CEO and president of Actavis, and Paul Bisaro, who will remain as executive chairman of the board of Actavis. Actavis acquired Allergan following an unsuccessful effort by Valeant Pharmaceuticals to acquire Allergan. Also, in November 2014, Actavis completed its $675 million acquisition of the specialty pharmaceutical company, Durata Therapeutics.

Another key deal from 2014 was the proposed three-part transaction between Novartis and GlaxoSmithKline (GSK), which is expected to close in the first half of 2015. Under the proposed deal that was announced in April 2014, Novartis and GSK will combine their consumer heatlhcare businesses into a joint venture, GSK will divest its oncology products to Novartis, and GSK will acquire Novartis’ vaccine business (excluding flu). In a related separate transaction, the sale of Novartis’ animal health business to Eli Lilly, was completed earlier this month. 

Among suppliers, Merck KGaA’s announced $17-billion acquisition of Sigma-Aldrich in September 2014 signaled the company’s strategic emphasis in life science products and services. Already positioned in that sector through EMD Millipore, the pending acquisition of Sigma-Aldrich would provide Merck KGaA with combined revenues of its life science products and service businesses of approximately $6.1 billion. Closing is expected in mid-year 2015, subject to regulatory approvals and other customary closing conditions.

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