The United States pharmaceutical market is currently the largest in the world, projected to be worth almost $350bn by 2015 according to IMS Health. A largely uncontrolled pricing market, government support for research and a rapid approval process are attractive market traits for pharma.
Despite these factors there is a lack of manufacturing, with only a quarter of international companies who sell in the market having a facility in the US. However, as consumer concerns regarding regulatory issues arise, generics production may return to the US. Additionally, the restructuring of the healthcare system will have long-term implications on the market. How companies respond to these changes will determine the future of the US pharma market.
Recognising the extensive changes and their implications, CPhI and InformEx conducted extensive research of the US pharma market. In total, we interviewed 110 people from across the entire US supply chain. Of those, 36 worked for domestic companies from the US and 74 worked for international companies working in the US.
Domestic perspectives:
Overall, domestic companies within the pharma sector are reporting a positive outlook as changes in the pharma industry are seen as providing more opportunities than threats to the US market. This positive market outlook is reflected in companies’ intent to increase headcount and spending, with just under 50% of those surveyed expecting to invest 10% or more than in the previous year. Also noteworthy is that while two-thirds of domestic pharma company sales are within the US, 25% are planning international acquisitions in the next one to three years. In that same period, only 12.5% are planning domestic acquisitions.
Working with the FDA has provided a clear competitive advantage for domestic manufacturers
Given the recent regulatory infringements by overseas producers, 70% of domestic manufacturers believe generics production will increasingly move back to the US. However, slightly less than 20% of domestic manufacturers plan to invest in generics. In light of the projected loss of billions in revenue due to branded drugs coming off patent, this finding is even more surprising. Instead, more than 75% of domestic manufacturers indicated they plan to invest in APIs, which may be an effort by domestic pharma companies to better regulate the ingredients supply chain.
The study also revealed that most (83%) domestic manufacturers believe that changes in FDA regulations provide opportunities and are ‘good for business’. Working with the FDA has provided a clear competitive advantage for domestic manufacturers as they create a culture of ‘continuous improvement’. This, however, is met with concerns that the FDA approval times hinder business, highlighting the need for greater cooperation between the industry and FDA to develop satisfactory solutions for all parties. Luciano Calenti, president at contract manufacturing organisation ACIC noted, “the FDA is suffocating the industry with regulations – changing them but not improving the rate of approval.”
International perspectives:
International companies operating in the US also see opportunities emerging from the changing environment, resulting in an overall positive outlook. While 30% of those surveyed expecting to invest 10% or more than the previous year in the US, the focus in investment differs from domestic companies. Three quarters of international companies do not have manufacturing facilities in the US, they instead choose to focus on “product development and promotion in the US market.” Given this focus, 25-40% of international companies plan to invest in formulation fevelopment, APIs, and finished dosages.
Top Companies in the US
Ranked by prescription medicine sales
| Company | 2013 ($bn) | Growth (%) | |
| 1 | Pfizer | 18.6 | -6 |
| 2 | Roche | 16.1 | 2 |
| 3 | Merck & Co. | 14.9 | -13 |
| 4 | Amgen | 14.0 | 10 |
| 5 | Johnson & Johnson | 13.9 | 12 |
| 6 | Novartis | 12.7 | 0 |
| 7 | GlaxoSmithKline | 12.3 | 3 |
| 8 | Lilly | 11.7 | 5 |
| 9 | Sanofi | 11.4 | -2 |
| 10 | AbbVie | 10.2 | 0 |
| 11 | AstraZeneca | 9.7 | -9 |
| 12 | Bristol-Myers Squibb | 8.3 | -20 |
| 13 | Novo Nordisk | 6.7 | 14 |
| 14 | Gilead Sciences | 6.5 | 20 |
| 15 | Otsuka | 5.1 | 4 |
Source: PMLiVE Top Pharma List, data by GlobalData
Only 30% of the international companies plan a US acquisition in the next one to three years, while 30% also indicated they would invest in generics in the next year. This high percentage of planned acquisitions is most likely a reflection of the increasing awareness of the importance of operating in a diverse group of geographical markets, including the US.
Unlike their domestic counterparts, just under 50% of international companies reported that less than 10% of their turnover is from sales in the US, with only 9% reporting greater than 50% of turnover from the US. These findings can be attributed to a number of factors including relative size, historical ties, or the belief that the FDA drug approval process is not improving. Regardless, US and International companies agree that primary competition in the market is international.
Considering the American regulatory environment, international pharma companies operating in the US are split in their opinion of whether the FDA’s regulations are more of an opportunity or threat. When asked if the FDA hinders innovation, 60% indicated that it does, supporting domestic companies’ perspectives. With less experience in working with the FDA, international companies may find it more difficult to adapt to the stringent and changing regulations. One complaint echoed by many of the international companies is that new regulations are providing “opportunities for generally big pharma industry but more threats and burdens for smaller players with less capability for GMP compliances”.
Pricing pressures
A combination of price controls and international pricing pressures are driving innovation for both domestic and international pharma industry companies doing business in the US. Operations in the US are “forced to spend more time and money on compliance-related issues than its international competitors”, resulting in less profit for companies operating in the US. To stay cost-competitive, US operations have addressed their technology infrastructure, improving overall outcomes and shortening production times. Combined with notable regulatory failings at offshore sites the US is well placed to see increased profitability in spite of the additional quality assurance and regulatory costs.
Generics represent a strong area of growth in the US market
Aside from the pricing pressures stemming from the international market fluctuations in quality standards and regulatory costs, government price controls have also fuelled innovation in increasing process efficiencies. Over 70% of the domestic industry agrees that pricing controls have driven the desire for increased efficiency, with more than 60% agreeing that this desire is actually driving efficiency. International pharma industry companies are slightly more neutral in their feelings, with 10% fewer companies agreeing with each statement. US companies have approached improvements through the adoption of new technologies and investment in efficient equipment, while international counterparts focus on a “better approach to process and analytical validations.”
Outlook
Despite increasing regulations and pricing controls, IMS predicts up to 4% growth annually through 2017. Domestic and international companies plan to invest heavily in the US with each on average planning to invest 9.59% and 7.92% respectively more than they did in the previous year. International companies have the opportunity to grow in the US with their investment, diversifying their portfolio in the global market. Domestic companies, however, will look to strengthen their supply chain control through API investment to reduce their overall costs as a method for remaining competitive through international investments.
Generics represent a strong area of growth as the Patient Protection and Affordable Care Act drives accessibility to healthcare and medication. With this increased access, the trend for generics in developed pharma economies as a method for reducing costs will be strengthened. What’s more, with rising concerns regarding overseas drugs, especially generics, demand for US-based generics will drive a shift of manufacturing back to the US.
Overall, regulation from the FDA, pricing controls and increased international competition will continue to drive process improvement, ensuring the market maintains a competitive edge. Combined with technology adoption, modern facilities, a skilled labour pool, and stable IP environment, the US will remain a desirable and safe environment for investment and sales.