7 Stunning Findings Regarding Global Medicine Use by 2020

What does the future hold for global drug spending? According to the latest report from the IMS Institute for Healthcare Informatics, there are a number of surprising findings.

Image source: U.S. Food and Drug Administration.

Ask around, and you'll probably get little argument from consumers, physicians, or insurers that medical drug use around the globe, as well as drug costs, are on the rise. But what might the next five years hold for consumers and the pharmaceutical industry in terms of global medicine use? That's a question the IMS Institute for Healthcare Informatics sought to answer with the release of its latest report, Global Medicines Use in 2020: Outlook and Implications.

Some of the expectations I had prior to reading the report rang true, but more than a handful of stunning findings emerged from IMS Institute for Healthcare Informatics' report. Here are seven of the most glaring points that stand out (in no particular order).

1. "Pharmerging" drug demand is about to soar
One of the more surprising findings of the report is that emerging-market countries with still-developing healthcare infrastructure, known as "pharmerging markets" within the report, are likely to be the driving force behind global drug-demand increases between 2016 and 2020.

Image source: IMS Institute for Healthcare Informatics.

By 2020, global patients will receive 4.5 trillion doses of medicine each year, a 24% increase from 2015. Additionally, more than half of the world's population will live in a country that consumes an average of at least one dose per person per day, up from 31% in 2005. The report cites China, India, Brazil, and Indonesia as the primary pharmerging market-growth drivers in the coming years.

What this data suggests is that the gap between developed markets and pharmerging markets is closing a bit. But as you'll see in the following point, while great news for consumers, this isn't necessarily great news for global drugmakers.

2. Developed markets are still where the profits are for drugmakers
Despite pharmerging markets playing a far-bigger role in the global medicine-use picture, it's developed markets that continue to hold most of the allure for drugmakers.

The report notes that pharmerging market growth will predominantly come from the use of generics and non-original branded products. Costs for these medicines are often just a fraction of what the brand-name drug would sell for in a developed country. But these lower costs are usually far-less attractive for drugmakers because of the adverse impact on margins.

Image source: IMS Institute for Healthcare Informatics.

As a whole, developed markets by 2020 will account for 63% of global-drug spending, with 52% of that spending tied to original brand, or innovator, drugs. China, Brazil, Russia, India, and other pharmerging markets comprise another quarter of total spending by 2020.

High-margin specialty therapies are particular beneficiaries in the developed markets, with autoimmune, immunosuppressant, and oncology therapies expected to deliver the fastest compound annual growth rate between 2016 and 2020.

3. Global drug spending growth of nearly $350 billion by 2020
After crossing $1 trillion in global drug sales in 2014 for the first time in history, IMS Institute for Healthcare Informatics anticipates that global drug spending will jump from nearly $1.07 trillion in 2015 to between $1.4 trillion and $1.43 trillion by 2020. This works out to a compound annual growth rate of between 4% and 7% per year, which is more or less in line with the 6.2% compound annual growth in spending we witnessed between 2011 and 2015.

Image source: IMS Institute for Healthcare Informatics.

What's expected to push the world to $1.4 trillion in drug sales by 2020? The primary driver will be the introduction of new therapies, especially in oncology, where high price points are driving sales.

Price increases in U.S. markets for innovator drugs will also be key. Growth from pharmerging markets, and to some degree generic drugs, are also expected to play a role. Counteracting the increase in sales will be the loss of patent exclusivity on drugs, which is primarily an issue in developed markets such as the U.S. and Europe.

Image source: Centers for Disease Control and Prevention.

4. Generics are about to take on a gigantic role in the United States
The fact that generic drugs are expected to play a larger role in the U.S. by the end of the decade probably isn't a huge surprise.

What might come as a shock is the projection that, by 2020, some 91% to 92% of all dispensed prescriptions will be for a generic drug in the U.S., up from 88% in 2015. This is a staggeringly high number that reminds consumers and investors that patent time frames are finite, and that plenty of innovator drugs could be set to lose their exclusivity in the coming five-year period.

On the flip side, increasing generic usage bodes well for companies capable of churning out new therapies, as well as augmenting their product portfolio with generic drugs. Israeli-based Teva Pharmaceutical nets around a 50-50 revenue balance between its innovator and generic drug sales, and should be thrilled to see generic use projections moving higher. Between multiple sclerosis blockbuster Copaxone and its 1,000-plus deep portfolio of molecules, Teva could clean up for investors in the coming years.

5. The patent cliff isn't over just yet
Another shocker is that the patent cliff, which Big Pharma has been touting as now safely in the rearview mirror, may have a second coming between 2016 and 2020.

According to the report, small-molecule patent expirations in the upcoming five-year period will be worse than in the 2011 to 2015 period, helping push the loss of exclusivity of innovator brands to $190 billion between 2016 and 2020 from $157 billion between 2011 and 2015. Small-molecule patent expirations usually result in the rapid loss of sales to generic competition.

Image source: AbbVie.

The upcoming five-year period will witness quite a few blockbuster drugs coming off patent. These will include AbbVie's Humira, currently the best-selling drug in the world, and Pfizer's Lyrica, which generates around $5 billion in revenue annually.

Lyrica is expected to lose its exclusivity in 2018 (and it currently accounts for slightly more than 10% of Pfizer's total sales), whereas Humira is expected to lose its exclusivity in late 2016. In 2015, Humira could net AbbVie $13 billion in global sales, and it may account for roughly 60% of its total revenue.

6. More new active substances will find their way to pharmacy shelves than ever before
Who says Big Pharma and biotech companies aren't innovating? By the 2016-2020 period, there are expected to be 943 global new active substances on pharmacy shelves that were approved since 1996.

What's truly noteworthy is that forecasts call for 225 new active substances to be approved by regulatory agencies in the next five-year period. This implies a 22% increase from the 184 new active substances brought to market between 2011 and 2015, and would slightly top the 223 brought to market between 1996 and 2000.

Image source: IMS Institute for Healthcare Informatics.

We've certainly witnessed our fair share of innovation from America's largest drugmakers. Johnson & Johnson earlier this year announced plans to file for the approval of 10 potential blockbuster therapies (i.e., drugs with $1 billion-plus in peak annual sales potential) by 2020. Just this week, Johnson & Johnson announced the approval of multiple myeloma drug Darzalex more than three months ahead of its scheduled PDUFA decision date, potentially putting it on track to be the first of many successful new therapies for J&J.

7. Hepatitis C will be a $36 billion market by 2020
Lastly, how about this for an individual number: global hepatitis C is expected to become a $36 billion market by 2020.

Yet here's the really interesting statistic concerning HCV: despite treating an estimated 36 million people by 2020, pharmerging markets will have treated less than a fifth of their infected patient population. Conversely, before 2020 hits, developed countries are expected to move from treating the most severely affected HCV patients to less severely affected patients.

In total, around 3 million people will be treated with an HCV drug by 2020 in developed countries, accounting for $30 billion in HCV drug spending compared to just $6 billion in pharmerging markets.

Image source: IMS Institute for Healthcare Informatics.

The emergence of new hepatitis C therapies, such as Gilead Sciences' Sovaldi and Harvoni, have paved the way for cure rates that are usually in excess of 90%. Unfortunately for the consumer in developed countries, this "cure" comes with a hefty price tag.

Gilead's wholesale costs of $84,000 for a standard 12-week treatment of Sovaldi, and $94,500 for a corresponding treatment length using Harvoni, are staggering for consumers and insurers. Even with substantial rebating and discounting, the healthcare system in the U.S. and insurers could be strained in the coming years as new therapies enter the market, and the number of patients capable of being treated rises.

An expected jump in drug spending spells one thing for you, the consumer: higher medical costs, and the expectation that insurers are going to look for ways to pass along these costs wherever possible to their members in the coming years.