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Five Important Trends for the Generic Drug Industry

March 11, 2013 | About:

For almost 30 years, the generic pharmaceutical industry has provided FDA approved generic versions of brand medicines at a cost savings to consumers between 30% and 80% less than the original drug. Millions of consumers worldwide use generic medications to treat a variety of medical conditions, including infections, heart disease and cancer. A generic drug is rigorously tested and must prove that it is identical or bioequivalent to a brand-name drug in dosage form, safety, strength, quality, performance characteristics and intended use.

Trend No. 1: Expiration of Patents

In 2012, more than 40 brand name drugs, valued at $35 billion in annual sales, lost their patent protection. As of 2011, generic pharmaceuticals filled 80% of prescriptions dispensed in the U.S. but consumed just 27% of total drug spending.1 The trends for increased market share growth bodes well for generic pharmaceutical companies as patents for more than $150 billion of major branded drugs will have expired between 2010 and 2017.

Trend No. 2: Shift From Developed to Emerging Markets

Based on data from IMS Health, the global generic drug market was estimated at about $242 billion in 2011, accounting for some 25% of the global market and is expected to grow to 35% or approximately $430 billion by 2016. The top eight global markets — U.S., Germany, France, United Kingdom, Canada, Italy, Spain and Japan — account for 80% of the total generics market. Even though emerging markets such as Brazil, Russia, India and China have relatively low generic penetration at the present time, regulations favoring the use of generics will enhance their potential growth by 15% to 20% annually.2

Trend No. 3: An Aging Population Worldwide

There are more than 7 billion human beings living on earth with a median age of 28 years and an average life expectancy of approximately 67 years.3 Considering that Brazil, Russia, India and China account for nearly 3 billion or approximately 40% of the world’s population, an increasing number of the world’s population will utilize generic pharmaceuticals to enhance the quality and length of their lives.

Trend No. 4: Increases in Treatment of Chronic Diseases with Biologic Drugs

Biologic drugs are derived from living materials — human, animal or micro-organism — and are difficult to manufacture and replicate. They include vaccines, gene therapy and blood components that are used to treat cancer, HIV/AIDS, Alzheimer’s disease, arthritis and other life threatening diseases. Biosimilar drugs, which are the generic form of a biologic drug, are currently growing at an annual rate of 40% and will represent approximately $60 billion in annual spending by 2016.4 Recently the FDA has set guidelines for biosimilar product development and approval in response to this trend.

Trend No. 5: Cost Containment by Governments and Health Care Providers

Calling responsible medicine use an “urgent imperative” for the global health system, the IMS Health Institute recently recommended the increased use of low-cost and safe generic drugs where available to address the intensifying efforts to contain costs by governments and health care service providers worldwide.5 As a result of this increasing awareness, cost effective and quality drug therapy via generic medications will continue to grow for the benefit of consumers worldwide.

1. IMS Health, National Prescription Audit, Dec. 2011

2. Frost & Sullivan, Generic Pharmaceuticals Market- A Global Analysis. Dec 2011.

3. Index Mundi, World Demographics Profile 2012.

4. Grant Thornton, Insights Into the Biosimilars Market: An Overall Perspective, Feb. 2013.

5. IMS Institute, Advancing the Responsible Use of Medicines: Applying Levers for Change, Oct. 2012

About the author:

Arthur Q. Johnson, CFA is founder and President of Mundoval Capital Management, Inc., a registered investment advisory firm that manages the Mundoval Fund, (www.mundoval.com) a no-load, global value equity mutual fund, as well as individual portfolios for high net worth and institutional clients. He is a Chartered Financial Analyst, a member of the CFA Institute and San Diego Society of Financial Analysts with more than twenty five years of investment experience.

Visit AQJ's Website

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