Let’s take a look at what will shape the U.S. drug market in the next five years.
Drug manufacturing in the U.S. currently commands a $160 billion market with slightly more than $30 billion in profit. Industry experts estimate that revenue growth in the past five years has seen a 1.2% increase and this rate is expected to hold steady in the ensuing five years. One of the primary reasons that these profit margins are established so high is that firms need to balance out the astronomical costs required for R&D of both pipeline drugs that make it to market and those that do not.
Industry Drivers and Outside Forces
The Patent Cliff – It’s no secret that the industry has seen a significant number of blockbuster drugs experiencing patent expirations since 2010. It obviously came as no surprise but some companies are still experiencing volatility requiring drastic changes to business strategy.
Industry Mergers and Acquisitions – One of the most drastic changes influencing the industry landscape is the now seemingly commonplace activity of M&A. In order to balance out rising R&D expenditures, more and more pharmaceuticals are attempting to lower COGS by joining with other companies or shortening the drug discovery period by absorbing smaller firms (usually startups and occasionally biotechs) that have already done a majority of the prior research.
Shift in Pipeline Targeting – Many pharmaceuticals are migrating their focus towards biosimilars and large molecule biologics due to lower project expenditures and quicker returns. Other firms are concentrating on orphan drugs, which have a slightly easier time obtaining FDA approvals and longer patent lives.
Affordable Care Act (ACA) of 2010 – On the upside, the U.S. demand for drugs is on the rise. Federal regulations are enabling the Centers for Medicare and Medicaid Services to allow higher affordability for patient drug coverage. Demand is also elevated thanks to the rise of median age in the United States and the associated increase of incidence rate for age-related ailments. However, benefits to pharmaceutical revenue are taking a hit with ACA calls for higher taxes tied to patient discounts and rebates. Many drug companies are forced to take a reactionary approach and increase their pricing.
Five Year Forecast
Despite an onslaught of industry challenges in recent years, the U.S. drug manufacturing market is anticipated to experience upwards of $170 billion in revenue by the year 2020. Much of this growth is expected to come from shift in focus to biosimilars, biologics, and orphan drugs. Growth of activity in the biosimilars market, however, has already seen a massive surge in the past few years so it may not be a sustainable strategy in the future due to oversaturation and competition.
In the end, drivers within the healthcare triad of big pharma, payer/provider, and patient pose a significant hindrance in development of therapies for the most common ailments such as cardiovascular disease and various cancers. Demands for lower pricing from the patient, higher reimbursements from the provider, and increasing federal regulations are causing pharmaceuticals to react by adjusting their business strategy to maintain profit margins.
This strategy, however, is resulting in slower drug discovery rates or therapeutic targeting for ailments that have lower penetration – and everyone is to blame.