4.1 GLOBAL PHARMACEUTICAL CONSUMPTION

The preceding chapter has shown that international trade in pharmaceuticals means that many medicines are not consumed in the country where they are produced. In order to estimate the amount of medicines a particular country consumes, two approaches are used in this chapter: estimates of consumption and analysis of sales data.

Consumption (see Annex tables) is estimated by using the production and trade data presented previously. A country’s consumption is measured as the value of its production plus the value of its imports and minus the value of its exports. For the sake of simplicity, zero stock and stock fluctuation are assumed. Table 4.1 shows world pharmaceutical consumption from available data according to countries’ level of income for the years 1985, 1990 and 1999.

TABLE 4.1 Global pharmaceutical consumption by countries’ level of income, in US$ billion,* 1985-1999

 

*Differences due to rounding

Data for high-income countries is again much more complete than for low-income countries. Although the global picture is incomplete, it is clear that high-income countries dominate, consuming over 90% of the world’s medicines in 1999. The data suggest that this dominance has even increased since 1985, with low- and middle-income countries’ consumption accounting for a slightly smaller share of the total in 1999 than in 1985. When population is added to the picture, the pattern of consumption becomes even more skewed. Figure 4.1 shows the distribution of population by countries’ level of income in the same three years.

FIGURE 4.1 Share of low-, middle- and high-income countries in world population

Source: WHO estimates based on statistics of the UNDP Human Development Report (2001)

In 1985, the 18% of the world population living in the high-income countries consumed 89% of the world’s pharmaceuticals: by 1999, the population share of these countries had fallen to 15% but their pharmaceutical consumption had grown to 91% of the total.

4.2 WORLD SALES OF MEDICINES

Information on sales provides an additional measure of the consumption of pharmaceuticals. Production measures the output of all manufacturers. We have defined consumption to be domestic production plus imports and minus exports. Globally, production and consumption totals should be similar, with only inventories accounting for differences.

The sales data reported here are provided by IMS Health, and are based on manufacturers’ sales to wholesalers and hospitals as well as retail sales of prescription medicines.

TABLE 4.2 Global sales of prescription medicines by countries’ level of income, in current US$ billion, 1990 and 2000

Source: IMS Health, IMS MIDAS Customized Insights (October 2001)
The information contained in this study is a guide to sales and not a guide to consumption.

Non-prescription medicines, of which the great majority are over-the-counter sales for self-medication, accounted for an additional US$ 33.9 billion of sales in 2000. Adding together the prescription and non-prescription sales gives a global medicines total of just over US$ 316 billion in 2000, which compares reasonably with the calculated 1999 consumption total of US$ 317.6 billion in Table 4.1.

Available data on global medicine sales show a similar pattern of skewness towards high-income countries as do production and consumption data. In 1999, 15% of the world’s population lived in high-income countries, 49% in middle-income and 36% in low-income countries. Once again, the disparity between sales and population is dramatic: at the top end, approximately 15% of the world’s population bought almost 90% of the world’s medicines; at the bottom end, over one-third of the world’s population bought less than 1% of the world’s pharmaceuticals. For the half of the world’s population who live in middle-income countries, their share in total sales accounted for a little over 10% in 2000. Table 4.3 shows a remarkable concentrating trend in the global shares of both individual countries, such as the USA and Japan, and of the top 10 markets as a group, which accounted for 62.4% of global sales in 1976 and 98.7% in 2000. Table 4.3 also shows strong concentration even within the high-income countries. In 2000, over 95% of global sales were concentrated in the top 10 pharmaceutical markets: USA, Japan, France, Germany, UK, Italy, Spain, Canada, Brazil and Mexico. In India, which was in the top 10 in 1985 but not in 2000, sales were estimated to be US$ 3.4 billion in 2000.

TABLE 4.3. Top 10 pharmaceutical markets in the world, in current US$ billion

 

Source: World Drug Situation 1988 and IMS Health, IMS MIDAS Customized Insights (October 2001) The information contained in this study is a guide to sales and not a guide to consumption.

4.3 THE SHARE OF ORIGINAL BRANDS, OTHER BRANDS AND UNBRANDED GENERICS IN TOTAL SALES

The pharmaceutical market consists of several distinct sub-markets, characterized by very different degrees of competitiveness. Figure 4.2 indicates schematically some of the major components of the pharmaceutical market.

FIGURE 4.2 Major components of the medicines market

Innovative pharmaceutical products with patent protection (hereafter referred to as “original brands”) are protected from competition in the jurisdiction of the patent for the life of the patent. Legal competition in this sub-market is limited to competition by “therapeutic equivalent” medicines with either a different composition or manufacturing process from the original brand. At the other end of the spectrum are some generic pharmaceuticals known as “commodity generics”. Generics in general are pharmaceutical products usually intended to be interchangeable with the originator product, marketed after the expiry of patent or other exclusivity rights and usually manufactured without a licence from the innovator company. This large category includes pharmaceuticals that were formerly patent protected, but whose patent has expired. It also includes pharmaceuticals that have never been patented, as well as copies of patented pharmaceuticals in countries without such a patent. Whether such copies are legal or illegal depends on the patent jurisdiction in which such pharmaceuticals are manufactured.

A valuable sub-sector of the generics market is generic medicines with their own brand names, each manufactured by a single company and hereafter referred to as “other brands”. Yet other generic medicines (commodity generics) are sold under the generic name and may be manufactured and marketed by many companies. This is a highly price-competitive sub-market, as buyers can choose among several sources of supply of chemically identical medicines. Many developing countries also have important markets in counterfeit medicines. A counterfeit medicine is defined as “one which is deliberately and fraudulently mislabelled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct ingredients, wrong ingredients, without active ingredients, with incorrect quantity of active ingredient or with fake packaging.”¹ Though no precise figures exist on the scale of the counterfeit problem, it affects countries at all income levels and appears to be most widespread where the manufacture, importation, distribution, supply and sale of medicines are less effectively regulated and where enforcement is weak.

On the manufacturing side, the distinction between “research-based” (i.e. originator) companies and generic manufacturers is frequently blurred. Novartis and Merck, for example, both major innovator companies, have generics subsidiaries which account for important shares of the world’s generics.

Recent changes in international trade law to strengthen the protection of intellectual property (patent) rights² have coincided with national policy changes in many countries to promote opportunities for competitive pricing of generic medicines. By 2005, patent rights on new medicines must be respected in all World Trade Organization member countries except those classified as “least developed”, which have the possibility to negotiate extensions.

The complexity of the definition of generic medicines has led to considerable understatement of their importance in the global market. A recent study puts the size of the global generics market at about US$ 20 billion. However, like several other studies, it restricts the definition of generic to unbranded (commodity) medicines (SCRIP Global Generic Pharmaceuticals 2002). Using IMS’s definition of “other brands” (branded generics and other copy drugs, both legal and “pirated”) in addition to unbranded generics considerably expands this market to some US$ 87 billion in 2000, about 30% by value of total world sales. Figure 4.3 shows generic market shares for 52 high-, middle- and low-income markets for which comparable data are available for 1990 and 2000.

Comparing sales data for 2000 across country income groups clearly shows a larger share of originator/licensed medicines in the total sales of high-income countries - about two-thirds in the latter compared with less than one-third in low-income countries and around 40% in the middle-income group. Comparing 1990 with 2000 sales, the data also show that the share of “other brand” generic medicines in total sales grew in low-income markets but fell in middle- and high-income markets. Over the same period, the share of commodity generics in high-income markets grew slightly.

FIGURE 4.3 Originator and generic (unbranded plus other brands) shares in total sales, high-, middle- and low-income markets, 1990 and 2000

Source: IMS Health, IMS MIDAS Customized Insights (October 2001)
The information contained in this study is a guide to sales and not a guide to consumption.

In countries at all income levels, the period saw a growth in clarity regarding the legal status of medicines, probably a reflection of the strengthening of intellectual property rights referred to above. The share of the market for which patent status information was not available fell from 18% to 13% in low-income markets, from 14% to 10% in middle-income countries, and from 10% to 6% in high-income markets.

Comprehensive and reliable data for the decade from 1990 are unfortunately not available for some major markets, such as Russia, China and India. The rate of growth of “originator and licensed” medicines in some of the countries in transition to mixed economies has been far greater than the averages in Figure 4.3. In the Czech Republic, for example, “originator brand and licensed” medicines grew from 15.5% of the total market to nearly 45% from 1990 to 2000. Hungary, the Slovak Republic and the Republic of Korea also experienced faster than average growth in this category of medicines. In contrast, Pakistan’s market showed the largest recorded shift away from originator and licensed medicines, and towards “other brands” over the decade.

Table 4.4 indicates that in 1997 the leading seven generic markets (unbranded plus branded) were all in high-income countries. The biggest of these, in absolute value, are the USA, Japan and Germany. Yet these major generics markets are in countries with very different health financing arrangements. In the USA, the incentive to keep medicine costs to patients at a low level derives from two pressures: a large population (64.5 million people, almost a quarter of the total population) who lack any insurance cover for medicine costs³, plus increasingly cost-conscious insurers and providers for the insured majority. In Germany and Japan, by contrast, where most people have been covered by social insurance for a long time, pressure for cost-containment has come from insurers and government.

TABLE 4.4 Leading generics markets by sales value, 2000

 

Sources:
¹IMS customized study (value and generic share in total value)
²de Joncheere et al, Drugs and money. Amsterdam, IOS Press, 2003
³Scott-Levin. Source prescription audit (SPA), December 1999
⁴Reuters Business Insights
⁵SCRIP complete guide to the world generic drugs market, 1999

TABLE 4.5 Top six generics markets by share of total sales, 2000

 

Source: IMS customized study

For unbranded generics, the USA and the UK represent the major markets where generics are traded at very low prices as commodity items. In this relatively underdeveloped market, sales efforts are generally focused on pharmacists. In the branded generics markets, by contrast, marketing is oriented towards doctors to promote branded generics such as branded products, even if the emphasis is still on lower prices. IMS data for the USA gave the average price of an (unbranded) generic prescription medicine as US$ 14.70 in 2002, in contrast to the price of brand name drugs (both patent and branded generics) of US$ 77.02.⁴

Growth in the generics market is encouraged by the needs of governments and insurers to contain spending, and also by the time-limited nature of intellectual property protection. Public policy to encourage such prescribing and dispensing in the UK, for example, led to the level of generic prescriptions written increasing from 43% in 1992 to about 50% in 1996.

The expiry of patents also creates opportunities for more competition in the manufacture of commercially successful medicines. Table 4.6 shows expected patent expiry dates for 16 products, together worth US$ 27 billion in sales (1999) and due to become off-patent before 2005.

TABLE 4.6 Pharmaceutical products due to lose patent protection by 2005

 

Source: Global Generic Pharmaceuticals, SCRIP Report BS1140, 2002

Considerable countervailing pressure is maintained by the manufacturers to promote sales of medicines with patent protection, as these typically command prices well above manufacturing cost. These include actions to prolong patent life, particularly in the most lucrative markets, as well as intensive marketing of patented medicines to prescribers and directly to patients, where this is allowed. The rapid fall in generic medicine shares in countries such as Hungary and the Czech Republic over the past decade (see above) is a partial indication of how powerful these pressures can be in markets with rising incomes and liberalizing policies.

4.4 THE WORLD’S LEADING PHARMACEUTICAL COMPANIES

The profile of the world’s leading pharmaceutical companies changes rapidly. Mergers among major companies averaged almost three per year during the 1990s. As a result, some companies which were previously in the top league, such as Hoechst and Sandoz, had lost their separate identity by 2001.

Table 4.7 shows, however, that over 20 years, eight companies (six of them American) have consistently been among the 15 leading pharmaceutical companies in the world: Merck, Bayer, Pfizer, Bristol-Myers Squibb, Eli Lilly, Roche, American Home Products and Warner-Lambert. In 1998, nine out of the 15 leading world companies were American, compared with two Swiss, one German, one French-German, one Swedish-British, one Japanese, and one British-American.

TABLE 4.7 The world’s top 16 pharmaceutical companies by value of sales, 1977-2001

 

Source: World Drug Situation 1988, SCRIP 2000, Company reports

Table 4.8 shows that in 1997 the Swiss company Novartis had captured the largest share of the world’s generic drugs market, by value of sales. A year later, Novartis was ranked the seventh leading pharmaceutical company in the world on the basis of the total value of the company’s sales of both branded and generic medicines. Table 4.8 also reveals that American companies largely predominate among the world’s leading generic medicines producers. In 1997, almost half of the top 15 generic medicine manufacturers were from the USA, the biggest generic market.

TABLE 4.8 World’s leading generic companies, 1997

 

Note: * year ending 31 March 1998; **estimated; *** year ending 30 June 1998 Source: Hay and Atkinson: SCRIP’s complete guide to the world generic drugs market, volume 2, 1999

Table 4.9 identifies the world’s major biotechnology companies in 2001, a league table which has changed even more rapidly than that of pharmaceutical manufacturers.

TABLE 4.9 World’s leading biotechnology companies, 2001

 

Source: Company reports

REFERENCES

1 Counterfeit drugs: report of a joint WHO/IFPMA workshop. Geneva, World Health Organization, 1992 (unpublished document WHO/DMP/CFD/92).

2 Globalization, TRIPS and access to pharmaceuticals. WHO Policy Perspectives on Medicines No. 3. Geneva, World Health Organization, 2001.

3 Kreling DH et al. Prescription drug trends: a chartbook. Menlo Park, Calif., Kaiser Family Foundation, 2002.

4 As drug patents end, costs for generic drugs surge. New York Times, 27 December 2002.