Industry Forecast - Pharmaceutical Market Forecast

Key View: The US pharmaceutical market is a refuge for the leading drugmakers. Despite the recent drug price discourse, it is unlikely that punitive price controls, as witnessed across Europe, will be introduced on patented pharmaceuticals. The market is also underpinned by political stability, unlike many emerging markets, and a resilient economy. Healthcare reform places downward pressure on margins and patent expiration will compress headline growth. Unique attributes include a highly liberalized advertising environment and a culture of over-medication.

Structural Trends

In similarity to the total market size, per capita pharmaceutical spending is unrivaled in the US., reflecting both the high levels of medicine consumption by patients and a strong preference for innovative, branded products. Pharmaceutical spending in the US is forecast to grow by 1.5% in 2020, reaching a value of USD374.0bn in 2019. Annual per capita spending will rise to USD 1,132. Patented drugs account for the majority of the market (76%), and this will increase marginally over the 10-year forecast period, despite the uptake of generic drugs increasing as a cost-containment mechanism. Pharmaceutical spending as a percentage of GDP is 1.8%, which is above the global average of 1.5%. Through to 2029, this percentage in the US is expected to fall to 1.7%, in line with downward price pressures and patent expiration. We forecast that pharmaceutical spending will reach USD424.8bn in 2024, reflecting a compound annual growth rate (CAGR) of 2.9%

Pharmaceutical companies have been raising price, sometimes surreptitiously, in the US to offset greater rebates and industry fees and slower sales growth - which is partially due to unemployed or uninsured people not filling their prescriptions due to costs. Combined with other downward pressured on US prescription drug sales, such as patent expiration, increased regulatory scrutiny, and healthcare reform, this situation highlights the need for firms to expand into emerging markets.

Despite the increased accessibility to healthcare provision in the US, which will occur s a result of the nation's healthcare reform, we believe the rising financial burden on healthcare insurance providers, the slow growth rates for consumer spending and the limited scope for market expansion (due to maturity) will keep pharmaceutical sales growth rates in low single-digit figures over the medium term at least. In the long-term, due to greater government involvement in state healthcare, we believe pricing restrictions are likely to accelerate, possibly eroding profit margins and favoring the generic drug industry.

While the approval of new high-cost products will continue to add to the pharmaceutical market's value, the patent expires for many of the US's best-selling products will put major pressure on prescription spending. Nevertheless, the implementation of an effective universal health insurance system will enable drugmakers to gain better access to a patient population of as many as 42mn people without health insurance. A return to economic growth has helped the OTC sector regain momentum.

Despite already-high per capita spending and what could be considered saturation, the increasing use of treatments to manage the country's growing disease burden, along with the use of high-value treatments such as personalized medicines, should continue to boost market values.

SOURCE: smarty.ly