One certainty: Drug spending will hit $1 trillion in 2014

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The headline number in the latest drug-spending report from IMS Institute for Health Informatics is this: $1 trillion. Next year, the world market for prescription drugs will pass that lofty threshold. By 2017, the market will swell further to $1.2 trillion. That's an increase of up to $260 billion over the next 5 years.

The dollar-shaped puzzle pieces that together form that trillion-dollar market are each growing or shrinking, and they're shifting from the brand side of the ledger to the generic, particularly in Japan. They're moving from primary care to specialty pharma. They're moving into China, which will officially be the world's second-largest drug market by 2017.

But underlying all of this is the other key theme of IMS Health's analysis: uncertainty. The forces shaping the global drug market are like fault lines. Any one of them could engage and shake the entire thing. Sure, that could be said of any time period. But in unveiling the spending forecast, IMS Health Director of Research Development Michael Kleinrock said, "The most surprising aspect of this report is the magnitude of uncertainty for healthcare systems around the world."

The world economy is iffy. Developing markets are dramatically changing their approaches to healthcare. In the U.S., healthcare reform is shifting into higher gear (if more slowly than anticipated, thanks to technological snafus). Europe's economy is still limping. Japan's own reforms could make or break its attempts to save money on healthcare--and its ability to afford higher-cost branded drugs. In China, the government's healthcare overhaul continues to drive the market, making spending subject to political and budgetary winds. And these markets account for more than two-thirds of global drug spending.

Take a look at China. It's still projected to be the world's fastest-growing drug market, with 14% to 17% expansion through 2017. But that's lower than the growth forecasts of previous years. China's economic growth has slowed. The government is increasingly focused on drug prices, with some foreign brands falling under price limits for the first time ever. Under IMS Health's worst-case scenario, the country's private insurance fails to attract enough buyers to fund new products; efforts to boost uptake of branded drugs falter and more price cuts follow; incentives for foreign-built private hospitals don't bear fruit; the list of drugs subject to price caps expands. Result? The drug market grows as little as $144 billion over the next 5 years.

But best case? China's unprecedented expansion of healthcare chugs ahead. The country's private insurance industry takes off, supporting quick uptake of new, expensive drugs. A burgeoning network of private hospitals opens up more access to innovative medicines--and much more quickly than public hospitals would. In time, the government chooses to cover even more foreign products, and institutes price cuts of less than 15%. Generic drug pricing doesn't rule the day, and manufacturing standards tighten up, boosting quality of locally made drugs. Growth? Up to $187 billion.

"So long as economic trends continue in China and the middle class continues to grow, that will continue to drive much of the growth," Kleinrock noted. "If the economy falters, this reform may go off the rails, and that will lower the outlook for China."

Still, the outlook is a lot more positive than it was a couple of years ago. In 2012, drug spending in developed markets dropped for the first time ever. In the U.S., spending declined in both 2012 and 2013, thanks to patent expirations and the increased use of generics that followed. But now, the worst of the patent cliff is past. A raft of new medications are readying for launch. By the end of next year, the world market will have begun its rebound and U.S. spending will be growing again. "The rumors of demise in the industry are a little overblown," Kleinrock said.

- get the report from IMS Health

Special Report: Top 10 Drugmakers in Emerging Markets | The 15 best-selling drugs of 2012

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