IMS Institute: Global drug spending is up on substantial boost from U.S.

IMS Institute for Healthcare Informatics is out with its latest prediction for sales of medicines through 2018, when global spending is expected to reach between $1.28 trillion and $1.31 trillion, an increase of $290 million to $320 million over 2013 levels.

The increase equates to a compounded annual growth rate for global sales of 4 percent to 7 percent, potentially higher than the 5.2 percent seen over the past five years.

The top five Euorpean markets aren't helping drive sales any, with an expected compounded annual growth rate of 1 percent to 4 percent through 2018, as health care budgets are still reeling from austerity measures. Drug sales in France and Spain might actually decline over the next five years as we see prices drop in both countries and an increase in the utilization of generics in France.

The growth rate in the emerging markets has slowed over the last few years as spending has increased, resulting in a larger base from which to grow. But we'll still see solid growth from the emerging markets as population growth due to falling infant mortality rates combined with improved access to health care drives growth further.

Most of the growth is coming from generics and nonbranded drugs, which are expected to grow 61 percent over the next five years in the emerging markets, compared to just 30 percent growth for branded drugs.

IMS predicts that emerging markets will expand at a compound annual growth rate of 8 percent to 11 percent through 2018. That's a slower pace than the 13.6 percent annual growth rate over the past five years, but Michael Kleinrock, research director at IMS Institute for Healthcare Informatics, pointed out, "we're still talking double-digit growth."

And there's still plenty of growth potential left. Despite being the second largest market in the world, "China's spend is expected to be just 9 percent per capita of that in the U.S.," according to the report.

U.S. SURGE

Sales in the U.S. will be a major contributor to the increased spending over the next five years, with sales expected to post an annual compounded growth rate between 5 percent and 8 percent, significantly higher than the 3.6 percent we've seen over the last five years.

With 2014 almost in the books, IMS can be fairly confident with its prediction of 11.7 percent growth this year. That growth, which is expected to wane in coming years, is a result of a perfect storm, with multiple factors contributing to the higher-than-previously-expected increase.

Generic drug launches this year were delayed, either because patents were upheld or generic drug companies were unable to launch. Price increases have continued faster than IMS predicted. And successful new drug launches have helped boost year-over-year comparisons.

Much of the success in this year's class of new medications can be attributed to the instant multibillion-dollar hepatitis C drug, Sovaldi (sofosbuvir, Gilead Sciences Inc.).

"By any measure, it's the most financially successful drug to reach the market at this point in its life," Kleinrock told BioWorld Insight.

But, while Sovaldi was widely successful, it's not the only drug that's done well. "Even if you don't include Sovaldi, this is the best launch year in the last decade," Kleinrock said, citing multiple sclerosis drug Tecfidera (dimethyl fumarate, Biogen Idec Inc.) as one of the drugs that's been successful out of the gate.

GENERIC COMPETITION

Only $121 billion in sales of small-molecule drugs are at risk of losing exclusivity over the next five years, compared to $154 billion in the previous five years. There's another $48 billion in sales of biologics that could make up the difference, but only a fraction of those sales will be driven down by biosimilars.

"Biosimilars are still in their infancy," Kleinrock said. "Over the next five years, it's not a major driver. Maybe after that, but it'll be awhile."

It's still unclear to what degree and how quickly U.S. physicians will adopt biosimilars and whether insurers will see a large enough economic benefit to justify encouraging their use.

The limited players, especially in the beginning, may keep the cost of the biosimilars close to branded cost, limiting the benefit to insurers. Kleinrock said he sees an analogy with small-molecule specialty products where there are often a limited number of generics that are priced close to the branded product.

PRICING

Like buying a car, the list price is only a starting point for many drugs. IMS estimates that approximately 25 percent of the expected growth over the next five years will be reduced by off-invoice rebates and discounts.

Part of the driver of discounts comes from an increasing number of older adults moving into Medicare, which automatically gets the lowest price possible.

Payers have also made it clear they'd like to see price wars and have been able to gain concessions in some areas like respiratory disease drugs and insulin by excluding products from the formulary when companies aren't willing to concede on price. But those are isolated incidents that don't have much effect on the totality of pricing, according to Kleinrock.

What could have a large effect is the pricing for hepatitis C drugs, not only because sales are expected to be extremely high, but because of the precedence it could set.

"We've seen price concessions when competing products were largely undifferentiated from each other. It's unprecedented to see it when there's innovation," Kleinrock said.

"I'd be surprised if there's a caving into the insurers" by hepatitis C drug companies, Kleinrock said. "It would have broad-reaching repercussions."

Source