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Understanding the Global Pharmaceutical Market
Energy Business Reports, May 2008
Although the origins of the modern pharmaceutical industry can be traced back to the late nineteenth century, the real development started only in 1960s due to some significant new discoveries with permanent patent protection. Next couple of decades saw tightening of regulatory control in the sector all across the world. It was during this period that drugs got laws for patent protection, leading to the appearance of generic drugs.
The introduction of generics was very beneficial for society as the valuable medicines became extremely cheap. 1980s and 1990s saw the introduction of venture capital in the pharma and biotech industries. Due to worldwide reforms in the healthcare sector, several regulations were passed to control the pricing of the drugs and deliverance of genuine product innovation. By the turn of the century, all the leading drug companies were spending reasonable amount of their revenue in research and development (R&D).
Today, the global pharmaceutical industry is more than $550 billion and has grown at CAGR of more than 6% in last 5 years. Geographically, North America is the biggest pharmaceutical market with a share of almost 48%, followed by Europe (30%) and Japan(9%). Around 20% of all retail prescriptions filled today are related to Medicare Part D, of those, only 31% are for branded drugs; rest are filled by generics. Oncology is the fastest-growing sector in pharmaceuticals, driven by the enormous amount of innovation coming into the market and the enormous unmet need by patients. The number of drugs available, both to improve and maintain life, has steadily risen over the last century. At the present time there are over 1,000 drugs under development, with companies diverting increasingly large proportions of their revenue streams into R&D, the primary driver of competitiveness in the industry.
Having traditionally enjoyed strong growth rates, the industry's operating environment is becomingly increasingly complex. Volume growth is, currently, negligible, the primary driver of industry value being rising per-unit values, whilst the rise of generics is eroding sales growth. Under these circumstances, the global pharmaceutical market is expected to show slightly slower growth incoming years and is predicted to be in the range of $735 billion to $745 billion by the end of 2008.
In recent years, pharmaceutical companies in Asia, particularly in China, South Korea and India, have been a success due to their ability to retain their cost advantage while matching the quality standards of the west. Despite an impressive growth, foreign drug makers are particularly concerned with issues on corruption, governmental bureaucracy and intellectual property (IP) protection in these countries. These issues are important particularly when growing drug counterfeiting activities pose a major global public health risk as well as a financial and reputation threat to pharmaceutical manufacturers.
Further, there are healthcare concerns especially in Asia, that has the largest growing number of diabetes patients and WHO’s studies show that the number of diabetes affected people may grow by more than 90% over the next 20 years. Drug pricing pressures are challenging the pharmaceutical industry like never before, with governments resorting to drug price controls and other measures to manage spiralling pharmaceutical costs.
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