Healthy Skepticism Library item: 9339

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Publication type: news

Changing market dynamics in 2007
IMS Health Incorporated 2006 Dec 5
http://www.imshealth.com/web/end/0,3150,64576068_63872702_79602113,00.html

Full text:

The economic, structural, political and health dynamics that impact growth are rebalancing the worldwide pharmaceutical market, driving global growth of 5–6% for 2007, according to IMS Health. This compares to 6-7% in 2006 and will see global pharmaceutical sales reach $665–685 billion in 2007.

Says Murray Aitken, Senior VP, Corporate Strategy at IMS, “In 2007, the market will still be absorbing changes that have defined a new economic reality, one in which growth is shifting from mature markets to emerging ones; new product adoption is not keeping pace with the loss of patent protection by established products; specialty and niche products are playing a larger role; and regulators, payers and consumers are more carefully weighing the risk/benefit factors of pharmaceuticals.”

Revised world map

The geographic balance of the pharmaceutical market continues to shift away from the US toward the world’s emerging markets – countries with a per-capita Gross National Income of less than $20,000 – where the availability of healthcare is expanding and there is an increasing need for treatments associated with chronic diseases more typically found in developed countries. Emerging markets currently represent 17% of the global market, but will contribute 30% of growth next year. The US will account for about 36% of the total growth in 2007, significantly less than the 54% it contributed five years earlier.

Reduced contribution of new products

The number of new product launches in 2007 is expected to be in the range of 25 to 35, comparable to the anticipated 30 launches in 2006. However, increasing emphasis on the development of products that serve niche markets and treatments that are initiated by specialists means that new products are contributing less to overall market expansion than they have in the past.

Moreover, market expansion from new products is not keeping pace with the loss of patent protection by older products. Generic erosion is more aggressive than ever before. Following a busy year for patent expirations in 2006, a number of important therapeutic classes will also be affected in 2007, including antipsychotics, calcium antagonists and beta-blockers. In 2007, marketed products with a value of more than $16 billion are likely to lose patent protection, which comes on top of $23 billion of products that lost protection in 2006. Consequently, branded products are making up a smaller percentage of the world market volume – a phenomenon that is dragging down overall market value.

Notwithstanding this, the cumulative number of blockbuster products on the market continues to grow and is expected to reach 112 in 2007, up from 94 in 2005. Potential blockbuster products in 2007 will be paliperidone for schizophrenia, desvenlafaxine for depression and vildagliptin for diabetes.

Further cost containment initiatives

The need for public and private payers to limit their expenditure on drugs is the most powerful force tempering growth worldwide. Unfortunately, most payers are managing their drug expenses in a silo, without full consideration of a therapy’s impact on total healthcare costs. In Europe, their tactics include price freezes, across-the-board cost cuts, incentives for using generics and scrutiny of comparative effectiveness between drugs.

Says Aitken, “Payer influence is offsetting much of the growth that stems from rising demand and innovation. Manufacturers increasingly must strengthen the evidence that their therapies deliver ‘value for the money’ based on direct health outcomes.”

Pockets of robust growth

Selected pockets of the market will experience high levels of demand and rapid expansion in 2007. Key amongst these will be biotechnology products, with estimated growth of 13-14%, generics with 13–14% growth, and specialist-initiated products with 10–11% growth. Generics growth will stem from opportunity in several key therapeutic areas and from increased volume as cost control efforts intensify.

Regional forecasts

In the US, 2007 market growth is forecast to slow to 4-5%, compared with the 6–7% expected in 2006. The Medicare Part D prescription drug benefit has expanded the overall US market by nearly 1% in 2006, with a further uplift of 1–2% expected through 2007 while formularies remain relatively unrestricted.

However, the loss of patent protection for several key brands valued at $10 billion will significantly impact the US market next year, following the patent expiry of $19 billion in branded products in 2006. Growth from new products will not be sufficient to offset the volume of branded drugs that shift to generics.

In Europe, the top five markets (France, Germany, the UK,Italy and Spain) combined are forecast to grow 3–4%, down from the 4–5% expected in 2006. While these countries are seeing increased demand from an ageing population, growth is being affected by cost-containment measures, incentives for using generics and increased scrutiny of the cost/benefit of drugs. Observes Graham Lewis, VP of Global Strategy for IMS, “Governments will continue to emphasize cost-effectiveness in 2007 and with cost benefit assessors now established in all key European markets, success for pharma will increasingly depend on the provision of clear and targeted evidence to support the value propositions of their innovations”.

The Japan market is forecast to grow 5–6% in 2007, up from an estimated 1–2% in 2006 resulting from the government’s biennial price cuts imposed on April 1, 2006.

Emerging markets, including China and India, are growing by more than 10% in 2006 and will do so again in 2007, largely due to their expanding economies and broader access to medications. Growth in China will be 15–16% and the market size will reach $15-16 billion in 2007. Generally, locally manufactured generics dominate these markets.

Therapeutic classes

An ageing population and improved diagnostics have increased demand for oncology treatment – a challenge that the industry has met with a strong flow of innovation. Science has changed the face of the disease; survival rates are improving and some cancers are now considered chronic illnesses or even preventable conditions.

Products used in the treatment of oncology are expected to reach $40-45 billion in value in 2007, contributing nearly 20% of total market growth. “Through 2007, this class will expand rapidly as more patients gain access to treatment from a growing range of therapies,” notes Aitken. “But oncology products will eventually be subject to tighter pricing and usage parameters as payers deal with their mounting costs.”

Among other major therapy classes, the lipid-lowering class (including statins as well as Zetia and Vytorin) will grow to $30-33 billion, reflecting an estimated 1–2% growth in 2007, down from 7-8% this year. While the 2006 patent losses for Zocor and Pravachol will continue to affect growth, increased public awareness of the efficacy of lipid-lowering agents, broader patient screening and new combination therapies will continue to drive demand.

Getting ahead

“Pharmaceutical companies have started to reinvent themselves in response to market challenges, and they look very different than they did just five years ago,” commented Aitken. “But it is no longer enough just to be responsive. To succeed, companies need to get ahead of the dynamics that are rebalancing the market. This requires a greater reliance on scenario-based planning, a sharper focus on realizing productivity gains from sales and marketing expenditures, and proving the value of medications as never before.”

About the Forecast
The 2007 forecast for market and therapy performance is based on extensive analyses by IMS consulting and forecasting experts. It uses IMS Market Prognosis, a strategic market forecasting publication, and IMS Therapy Forecaster, a unique forecasting system based on detailed quantitative and qualitative methodologies. Combined, these two tools deliver the most accurate and statistically robust insight into pharmaceutical and healthcare trends in the world’s largest and most important emerging markets.

The forecasts take full account of key issues impacting the pharmaceutical and healthcare industries. Additional factors that may affect overall growth include major safety events resulting in product withdrawal or prescribing restrictions; shifts in regulatory approval standards from their current levels; the application of sudden cuts to drug spending levels; and public health crises such as the avian flu. Growth is measured in constant dollars to avoid the influence of currency exchange rates; sales are calculated at the ex-manufacturer level.