JANUARY 2019 The Global Use of Medicine in 2019 and Outlook to 2023 Forecasts and Areas to WatchIntroduction Medicines represent an unparalleled contribution to global health, but their value is keenly negotiated by stakeholders across the developed and developing world. The global outlook for medicine use and spending is a much-watched barometer for the results of these negotiations and provides insights into the prospects of life sciences companies, insurers, and the health of populations around the world. This report includes the latest predictions for the global pharmaceutical market, including areas of growth from a geographic, therapy area and channel perspective. The impact of new drug launches and biosimilars are assessed, as well as growth in the use of specialty medicines and its drivers. In addition to market forecasts, the report highlights ten areas to watch over the next several years for their impact on the use of and cost of medicines. These areas include the use of digital health tools, artificial intelligence and machine learning, Next-Generation Biotherapeutics and incorporation of real-world evidence in clinical development. The study was produced independently by the IQVIA Institute for Human Data Science as a public service, without industry or government funding. The contributions to this report of Brian Clancy, Bernie Gardocki, Gwenola Lerebours, Arth Mathur, Urvashi Porwal, Alan Thomas, Vismay Raje, John Rigg, Durgesh Soni, Takayuki Sugimoto, Terri Wallace, Pamela Weagraff, Yilian Yuan and dozens of others at IQVIA are gratefully acknowledged. Find Out More If you wish to receive future reports from the IQVIA Institute for Human Data Science or join our mailing list, visit IQVIAinstitute MURRAY AITKEN Executive Director IQVIA Institute for Human Data Science ©2019 IQVIA and its affiliates. All reproduction rights, quotations, broadcasting, publications reserved. No part of this publication may be translated, reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without express written consent of IQVIA and the IQVIA Institute.Table of contents Executive summary 2 Global predictions 4 Global market 6 U.S. market 8 U.S. pricing trends 10 China market 13 Japan market 14 New products 16 Losses of exclusivity 18 Biosimilars 20 Specialty products 22 What to watch 2019 to 2023 24 Next-Generation Biotherapeutics: expanding use and new approvals 25 Prescription digital therapeutics gain FDA clearance with clinical evidence 26 Global health: new approaches to addressing neglected tropical disease 28 Machine learning and artificial intelligence: applications expand 30 Real-World Evidence: expanding use and new trial designs 31 Patient engagement: pharma companies hiring patient advocacy leaders 32 Pricing environment: U.S. pricing policy reforms enacted 34 Emerging biopharma companies: growing influence in late-stage pipeline and launches 36 Large pharma margins: doubling down on innovation and technology-driven efficiencies 37 Opioid epidemic: declining role of prescription opioids 38 Updates on past predictions 40 Notes on sources 43 Appendix 44 Appendix exhibits 47 References 51 About the authors 54 About the IQVIA Institute 56 12 Executive summary The global pharmaceutical market will exceed $1.5 trillion by 2023 growing at a 36% compound annual growth rates over the next five years a notable slowdown from the 6.3% seen over the past five years. The key drivers of growth will continue to be the United States and pharmerging markets with 47% and 58% compound annual growth, respectively. In the developed markets, the top-five European markets will slow to 14%, compared to 3.8% in the past five years, while Japans topline growth of -3 to 0% is partly due to forecast exchange rate dynamics and masks a more favorable dynamic for branded products. China is the largest pharmerging market, reaching $140170 billion by 2023, but its growth is expected to slow to 36%. All pharmerging markets will see slower growth in the next five years than in the past five as the economic growth and healthcare access expansions of the past contribute less to growth. In the United States, while invoice spending is expected to increase at a 47% compound annual growth rate over the next five years, net manufacturer revenue growth is expected to be slower at 36%. Overall spending growth is driven by a range of factors including new product uptake and brand pricing, while it is offset by patent expiries and generics. Brand prices are expected to increase at a historically low 47% on an invoice basis for protected branded products over the next five years, but 03% on a net manufacturer revenue basis. Pharmaceutical spending in China reached $137 billion in 2018 driven in part by central government reforms to expand insurance access to both rural and urban residents, as well as expansions and modernizations of the hospital system and primary care services. Spending growth has slowed over the past ten years from double-digit growth rates in 2014 and earlier, to 4.5% in 2018 and is further expected at 3-6% over the next five years. Medicine spending in Japan totaled $86 billion in 2018, however spending on medicines is expected to decline by -3 to 0% through 2023, largely due to the effect of exchange rates and the continued uptake of generics. The uptake of newer brands will remain strong and price cuts will impact brands less than other products due to a shift in priorities of the biennial price cut system. Generic usage in the unprotected market is expected to exceed the health ministry (MHLW) target of 80% a year early in 2020. New products and losses of exclusivity will continue to drive similar dynamics across developed markets, while product mix will continue to shift to specialty and orphan products. Research and development pipelines are growing while success rates are continuing at historic levels, resulting in more new products launching in the next five years. An average of 54 new active substance (NAS) launches per year are expected over the next five years up from 46 in the past five years. New products will also contribute a larger average annual spending on an absolute dollar basis but will account for a lower percentage of brand spending, as the market for brands will grow overall. Nearly two-thirds of launches over the next five years will be specialty products, up from 61% in the past five years, lifting specialty share of spending to near 50% by 2023 in most developed markets. The largest individual therapy area by spending and number of launches will continue to be oncology. The impact of losses of exclusivity in developed markets is expected to be $121 billion between 2019 and 2023, with 80% of this impact, or $95 billion, in the United States. By 2023, 18 of the current top-20 branded drugs will be facing generic or biosimilar competition. By 2023, biosimilar competition in the biologics market will be nearly three-times larger than it is today. This will result in approximately $160 billion in lower spending over the next five years than it would have if biosimilars 3 did not enter the market. European markets, where biosimilar markets are more mature, will see earlier and greater biosimilar impact, but remain smaller opportunities for biosimilar companies as spending on biologics is lower on an absolute basis than in the United States. The later introduction of a regulatory framework and differences in intellectual property protection and patent litigation have resulted in slower biosimilar introduction in the United States, but this will begin to be addressed, particularly later in the forecast period. The biggest single event in the biosimilars market in the next five years will be the introduction of adalimumab (Humira) biosimilars in the United States in 2023. In addition to these market forecasts, there are several areas to watch where the impact of changes are less certain. While a limited number of Next-Generation Biotherapeutics are expected to launch, costs per patient for these therapies are challenging current payment models. Specialty, niche and orphan drugs, in increasing numbers, are reshaping the pricing environment as some have significant costs. Cost-sharing with patients is another factor influencing policy shifts in the United States and the administration has continued to roll out policy proposals associated with its American Patients First roadmap. The proposals will impact drug pricing for all stakeholders. While some aspects were expected in the commercially-insured markets for several years, the new policy proposals are expected to have effects across public and privately insured markets, with potential unintended consequences. The uncertainties around market access and pricing are driving manufacturers to optimize their operating models and drive continuous improvement in margins. Technology investments, such as cloud-computing, artificial intelligence and machine-learning, are among the tools being explored to improve productivity. New technologies are enabling providers and health systems to innovate around care, and manufacturers to refine approaches to customer and stakeholder engagement through multi-channel marketing. Finally, technological innovation in the digital space is leading to the emergence of mobile apps to treat illness, in the form of FDA-approved prescription digital therapeutics (DTx). This new treatment modality offers to help treat a range of conditions, many of which are tied to cognition or behavior, including post-traumatic stress disorder (PTSD), attention deficit disorder (ADHD) and various forms of mental illness, and additionally offer new partnering and marketing opportunities to pharma companies. Technology is also a democratizing force, enabling emerging biopharma companies to market their developments themselves without a partner, avoiding the sale of their assets to more established companies. Companies are increasingly including patient-centric approaches in their go-to-market strategies, particularly to differentiate from each other, and a growing number are creating C-suite patient officer positions to drive organizational changes and build ties to patient advocacy organizations. The rising volumes and quality of data and analytics are driving the adoption of real-world data to speed drug approvals and grant new indications, as the FDA has accommodated new approaches in the approval process. 1The FDA is also expected to make greater use of fast-track and breakthrough designations as well. 2Perhaps the most impactful area to watch, as measured by the number of patients affected globally, will be whether the past decade of expanded philanthropy will continue to deliver new drugs for neglected diseases of the developing world. By contrast, efforts to address the opioid epidemic in the United States are more focused on the optimal use of resources to address complex social, economic, pain and addiction-related issues in a complex multi- stakeholder environment. Usage of prescription opioids will continue to decline across the country but the rate of decline and the outcomes remain highly uncertain.4 Global predictions Global spending on medicines reached $1.2 trillion in 2018 and is set to exceed $1.5 trillion by 2023. Invoice spending in the United States is expected to grow at 4 7% to $625655 billion across all channels, but net manufacturer revenue is expected to be 35% below invoice and have growth of 3-6% as price growth slows on both an invoice and net basis. Net drug prices in the United States increased at an estimated 1.5% in 2018 and are expected to rise at 03% over the next five years. China reached $137 billion in medicine spending in 2018, but will see growth slow to 3-6% in the next five years as central government reforms to expand insurance access to both rural and urban residents, as well as expansions and modernizations of the hospital system and primary care services have been largely achieved and efforts shift to cost optimization and addressing corruption. Medicine spending in Japan totaled $86 billion in 2018, however spending on medicines is expected to decline from -3 to 0% through 2023, due to the effect of exchange rates and continued uptake of generics and offset by the uptake of new products. The number of new products launched is expected to increase from an average of 46 in the past five years to 54 through 2023, and the average spending in developed markets on new brands is expected to rise slightly to $45.8 billion in the next five years, but represent a smaller share of brand spending. The impact of losses of exclusivity globally is expected to be $121 billion between 2019 and 2023, with the United States accounting for just under 80% at $95 billion. By 2023, biosimilar competition in the biologics market will be nearly three times larger than it is today, but the key events are underway from earlier patent expiries, except the expected 2023 entrance of biosimilars to adalimumab (Humira) in the United States. Specialty share of total medicine spending will reach 50% by 2023 in most developed markets as the majority of new medicines have been and will continue to be in specialty classes. Note on pricing levels This analysis of medicine spending is based on prices reported in IQVIA audits of pharmaceutical spending that are in general reported at the invoice prices wholesalers charge to their customers including pharmacies and hospitals. In some countries, these prices are exclusive of discounts and rebates paid to governments, private insurers or the specific purchasers. In other countries, off-invoice discounts are illegal and do not occur. The mix of true prices and opaque pre-discounted prices means the invoice-level analyses in this report do not reflect the net revenues of pharmaceutical manufacturers. As a part of this report, the IQVIA Institute has compared audited spending data to reported sales, net of discounts, reported by publicly traded companies and made estimates of future off-invoice discounts and rebates, and net manufacturer revenue.