Pharmaceutical & Biotechnology industry in USA growing in excess of 6% annually

The Pharmaceutical and the biotech industry is a complex and crucially important one as it provides value which is of greater significance to the well-being of the living beings through medicines, treatments, bio products

Definition / Scope

The industry game is well defined and successfully played in the USA sector which is proved by the USA player Johnson & Johnson continuing to top in the charts with $ 74.3 Bn (2015) by revenue in global markets and this is possible only by vigorous amount spent in R& D ($ 51.2 Bn in 2014), suitable economic situations and the ability by the companies to adopt and evolve the restructuring of the industry by the US Government.

Market Overview

The USA sector accounts for 16 % share of global market growth (EU5, China, Japan, and developing markets) from 2014 to 2017 which is at low level but a constant global market share among the developed markets .

The year 2014 was at high peak because of the new patent protected brand entry spending ($ 20.2 Bn), chronic disease treatment entry which enrolled 161,000 patients and that peaked up four times the previous year in market value and growth because of R&D performance, less risks in patent expiry and low cost generics, new branded drug entry into the Market.

The ACA act increased $ 4.3 Bn additional spending but only 2 % of 4.3 Bn growths will be observed in the next five years.

Demand for medicines is booming according to the demographic conditions, spread of chronic diseases in the USA sector and Pharmerging where the growth in the market prove to be modest.

The Industry supports job opportunities of 3.4 million in US Economy, job vendors from other countries as well as the job created by the industry workforce.

Market Risks

The last decade encountered so many violations in False Claims Act (FCA) by pharmaceutical companies especially during the year 2000-2010 it accounted about 25% of all FCA settlements and that will be $1.3 Bn which directly affected the reputation of Big companies.

Figure 3: “Frequent Settlements made and total penalties paid by the USA Pharmaceutical and biotechnology firms.” (PWC, 2012)

Though the ACA brings in large number of medicines insured ,it creates huge volume of (100 million new entries) coverage but very less growth 3.5% of total market(insignificant use of medicines or spending) moreover the industry players are subjected to off-invoice discounts or rebates on branded prescription drugs through Medicaid thereby reducing margins on medicines.
The branded drugs which are patent protected are expected to slide down the volume growth ( 41% in 2006 and 31% by 2016) since the key patent drug expires in the next five years. The Risk of patent expires will lead to 40Bn worth of expected generic drugs into the market which will cause $73 Bn patent dividend in the USA Markets.
Though the speciality pharmaceutical drugs targeted on chronic diseases are on high on manufacturing but the gaps in these areas are still prevailing.

Top Market Opportunities

The CAGR for biotechnology industry (6-9) % which is higher than the USA spending growth on Pharmaceuticals with CAGR (1-4) % compared to the global growth CAGR (3-6)% which throws light on M&A by Big Pharma offering exit opportunities to biotechnology industry .
The global Pharmaceutical and biotechnology growth is expected to be $1.2 trillion by 2017 and the overall economic situations and FDA reforms will allow the USA market to grow during the initial period.

Figure 2: “Growth rate of the USA Market 2013-2017”, (IMS institute for healthcare informatics 2014)

The USA market favors the increase on spending from the year 2013 to 2014 due to the government ACT (ACA) passed in 2014 as well as the low risk in patent expiry of branded drugs
The aging > 65 population will increase 73% of the overall population 349 Billion between 2005-2025 which paves the way to concentrate on spending in diabetes, oncology that are high in numbers . The increase in chronic diseases problem have also encouraged the drugs on specialty therapeutic areas.
Social websites encourages the industry for comparison within companies, the trends based on the reach, usage of medicines.It helps to identify the trends and insights.

Market Trends

Spending On Medicines:

According to Holland “Pharmaceuticals R&D is a very high-stakes game”, true to that the R& D/ innovation game looked bitter during the period 2002-2010 where the spending on drugs increased $47.6 billion (2005) to $67.4 billion (2010) and the NME decreased due to the declining in drug approval which is a huge setback for R& D /Innovation but the current picture transforms the outlook since the spending on drugs increased substantially to 13.1% in 2014 and the spending growth tops 17 %.

This rise was possible due to several factors such as concentrating on spending on special drug , rise in pricing of the Patent protected brands, less risk in patent expires and government acts (PPACA) .

The evident below is as follows:

The IMS released data on the new entrants spending increased by $20.2 Bn in 2014, special medicines accounts to $124.1 Bn which Is a 1/3 rd of the total spending, widely adopted drugs/primary drugs $12.3 Bn, nominal spending on medicines is $ 373.9 Bn. Clearly, the amount on spending for new molecules expanded from $420 Bn to $460 Bn suggests that it’s a glooming period for the new entrants.

Figure 1:“spending on special medicines”, (IMS institute for healthcare informatics 2014)

The Biotechnology industry has been improving from the global financial crisis from 2008 by receiving funds of $4.5 Bn which contributes 15.4% (2013) of the total market growth on spending.

Pricing Of Drugs:

The economic sluggish growth during the period 2008,2009 and the negative impact of unemployment( 10.1% downfall) which indirectly influenced 4.2% decline in patient visits and initiation of the new therapeutic drugs reduced by 3.4 million and there was a high shift in using the uninsured medicines but however the strong recovery of the USA economics in 2014 and the ACA act presents a favorable condition for the usage of medicines and 16% uplift in Medicaid which leads to 70% growth in retail market, 25.4 % increase in expanded markets ,2.8% increase in unexpanded markets .

Restructuring/Re-framing the Industry:

It all began in 1962, when the US Food and Drug Administration (FDA) demanded the adverse events of drug, proof of efficacy to facilitate the introduction of drugs in to the market in a more regulated way. The FDA idea mainly concerns on public health and speed the process of R&D.

In 2014 the ACA act was a significant step in gaining access to the patients through Medicaid and health exchange program which brings $ 43 Bn additional spending on medicines but however only 1 Bn comes directly from ACA. The total market looks modest since 60 million new prescriptions insured in 2014 compared to the year 2013 consisting of 2% of 4.3 Bn on low generic s prescriptions and 1-1.5% newly enrolled drug prescriptions of $374 Bn total market.

Patent rights:

One of the major drivers in pharmaceutical and biotechnology industry is the patent approval and expiry, where there is a complete transformation from branded drugs to generic drugs thereby directly exposing the spending on medicines as well as price tags.

According to the IMS Institute for healthcare informatics, 2/3 rd of the global sales ($ 123 Billion) will transform from branded drugs to generic in the next 5 years in USA markets alone and $83 Bn or 34% 2012 branded drugs goes to the generics at low prices.

FDA approved 51 % special drugs, 31% orphan drugs only through biotechnology industry in the previous year.

Market Outlook

Though the previous year was a rewarding year since it throws a positive light on the PPACA act which acted as a catalyst effect in the market in improving the volume, Economic situations, spending on drugs, NME, generics but when we take a closer look though the conditions that looks better from bitter starting from 2008 -2015, the market growth however will remain slower but steadier because there were less risk encountered from patent brands from expiring in 2014, when the risk peaked in between 2012-2013; leading to the half of the market growth but it looks gloomy as we proceed the year 2015 since there will be a slow in advance in the volume growth of the patent protected drugs and the rate of the branded drugs will increase above inflation but at the same time goes beyond the scale by off –invoice and rebates.