The global pharmaceutical industry is showing signs of recovery, with several

positive factors
projected for the next five years. Global spending on medicines is expected to
reach US$ 1.4
trillion by 2020, an increase of US$ 349 billion from 2015.

Spending will be concentrated in developed markets

and focused on non-communicable diseases. Specialty
therapies will continue to be more significant in developed
markets than in pharmerging markets#.
Global demand for pharmaceuticals will be driven by:
Demographic trends
Rise in diagnosis and treatment of chronic conditions
Ageing and growing global population
Improved access to healthcare
Increasing per capita income

The key contributors of the US$ 349 billion in growth over

the next five years will be:
1. Improving access to modern medicines in pharmerging
countries;
2. Enhanced use of more expensive branded medicines in
developed markets; and
3. Use of cheaper alternatives when loss of exclusivity
happens

Spending and Growth to 2020

The developed markets will contribute 63% of the spending, driven
by the US. Original brands will represent 52% of spending and 85%
of global spending will be for medicines to treat non-communicable
diseases. These distributions of costs belie the very different
perspective on a volume basis where lower-cost/higher-volume
medicines dominate the overall use of medicines.

Specialty and traditional medicines

A rising proportion of medicines are specialty medicines.
In 2020, 28% of global spending will be for specialty
medicines, up from 26% in 2015. Spending will be more
focused on specialty medicines in developed markets,
accounting for 36% of spending in 2020, compared to only
12% in pharmerging markets.

The use of traditional medicines (non specialty) account

for the majority of medicine spending globally, but there
are very different patterns of usage and spending in
developed markets compared to pharmerging markets. In
developed markets, some of the major classes of medicines
will experience reduced spending due to patent expiries,
whereas differences in disease morbidity and the adoption
of innovation drive the remainder of differences.

GLOBAL GENERICS
The patent cliff has passed its steepest point, and a steady
flow of patent expiries continues to offer opportunities for
generics, as cost-conscious governments and other
healthcare payers increasingly endorse generic drugs. The
global generics market was valued at US$ 168 billion in
2013; and is expected to reach US$ 283 billion by 2018,
registering an 11% CAGR.
Generic drugs account for around 70% of the US drug
market by volume. In Europe they account for around 50%,
although the proportion differs significantly by country. To
a large extent, the magnitude of savings from generics that
each country achieves depends on the utilisation levels
and price differentials between the generic and branded
versions. In the US, generics use is almost 90% within
the off-patent (unprotected) market. However, in some
European countries, potential savings are not fully exploited
due to lower utilisation of generics in key therapy areas.
Japan, Italy, Spain, Poland and France have adopted progeneric
policies that encourage doctors or pharmacists to
substitute generics for branded products. The transition to
generics in these markets is gradually increasing.

Key Demand Drivers

Ageing population and life expectancy3
Populations across large parts of the world (Western Europe,
Japan, China, Argentina, Thailand, among others) are ageing.
This scenario is expected to bolster healthcare spending; and
the demand for pharmaceutical products in 2016 and beyond.
Ageing population and growing life expectancy � up from
an estimated 72.3 years in 2014 to 73.3 years in 2019 � will
bring the 65-plus age category to over 604 million, or 10.8%
of the total global population. This number is anticipated
to be even higher in Western Europe (nearly 21%) and
Japan (28%). Among the factors contributing to increased
life expectancy are, declining infant mortality, enhanced
living conditions, improved sanitation, better prevention of
communicable diseases and growing access to medicine.
Rising income2
Population expansion and rising wealth should be
strong drivers of health spending in developing markets,
particularly in Asia and the Middle East. By 2019, the
number of high-income households (those earning over
US$ 25,000 a year) will likely rise to over 540 million globally;
Asia is projected to generate more than half of that growth.
Accessibility and affordability2
The trend towards the adoption of universal healthcare
continues, with more countries expanding public or private
health care system coverage or deepening it to reduce outof-
pocket spending. In perhaps the most visible example
of expanding health care coverage, the US federal and
state governments continue to implement health insurance
exchanges under the Patient Protection and Affordable
Care Act of 2010 (ACA).
Growing chronic diseases2,6
The proliferation of chronic diseases � in part, a
consequence of enhanced life expectancy and other
factors � is having serious repercussions in both developed
and emerging countries. Obesity, cardiovascular diseases,
hypertension, and diabetes are now persistent, widespread
health problems and will challenge public health systems to
meet increasing demand for drugs and treatments.
There are around 387 million diabetes patients globally;
and the number is expected to touch 592 million by 2035.
China and India have the largest number of diabetes
sufferers in the world, at more than 96 million and 66 million,
respectively.

Outlook
The global pharmaceutical spending growth will be driven
by brands in developed markets and enhanced usage in
pharmerging markets, while being partly offset by patent
expiries. Brand spending in developed markets is likely to
increase by US$ 298 billion in the next five years, driven by
new products and price escalation primarily in the US.
In 2020, the US, EU5 and Japan will have important
differences in spending and growth dynamics, compared
to what it is today. Pharmerging markets spending will grow
primarily from increased use of medicines, while China, the
leading pharmerging country, will reach US$ 160-190 billion
in spending with sluggish growth to 2020.
Developed markets
Pharmaceutical spending in developed markets stood at
around US$ 684 billion in 2015. It is estimated to grow at
a compound annual growth rate (CAGR) of 3-6% during
2016-20 to reach US$ 870-900 billion by 2020. Developed
markets will continue to account for the majority of medicine
spending due to both higher prices per unit; and the mix of
newer medicines that bring meaningful clinical benefits to
patients facing a wide range of diseases.

Pharmerging markets: Pharmaceutical spending in

pharmerging markets stood at around US$ 249.2 billion
in 2015. It is estimated to grow at CAGR of 7-10% during
2016-20 to reach US$ 345-375 billion by 2020.
Growth in spending on medicines in pharmerging markets
is driven primarily by wider use of medicines. The per
capita escalation in volume and spending reflect the
strong commitment to wider access to healthcare from
governments; and expanded private insurance markets that
many pharmerging countries are experiencing.
The difference in per capita spending growth and overall
spending growth over the next five years reflects population
growth. The overall high level of per capita pharmaceutical
spending growth reflects both access expansions and
the rising mix of higher cost medicines being used in
pharmerging markets.

Global Consumer Healthcare Industry7

The global consumer healthcare market grew by 6% CAGR
between 2008 and 2014 vis-�-vis pharmaceutical industry
CAGR of 4% in the same period.
USA and China represent the biggest markets with 40%
market share of the US$ 119 billion industry. BRIS (Brazil,
Russia, India and South Africa) have 9% share, growing at
8% annually.
The market comprises two sets of competition: global
bellwethers having extensive resources, strong brands and
economies of scale; and local leaders possessing deep
understanding of consumers� needs and close relationships
with suppliers, distributors, retailers and regulators.
From category perspective, Vitamins and Mineral
Supplements (30%) followed by Cough, Cold & Allergy
(20%) are two biggest categories. Dermatology (14%),
Analgesics (13%) and Gastrointestinals (12%) are the other
important categories.
Active Pharmaceutical Ingredients (API)4
The Global Active Pharmaceutical Ingredients (API) market
accounted for US$ 121.4 billion in 2014; it is expected to
grow at 6.4% CAGR to reach US$ 198.8 billion by 2022.
Patent expiration of prominent drugs, government initiatives,
regional penetration and ageing global population are some
of the factors that are driving market growth. Strict validation
and safety guidelines stated by WHO and fragmented market
are the factors that are hampering the API market growth.