Report Shows Pandemic’s Impact on Global Medicine Spending; IRA, Other Trends Are Impacting U.S. Market

As the world enters the fourth year of the COVID-19 pandemic, a recent report from the IQVIA Institute for Human Data Science found — not surprisingly — that a significant shift has occurred in the outlook for global medicine spending. The report, titled The Global Use of Medicines 2023: Outlook to 2027, revealed that global spending on pharmaceuticals, including COVID vaccines and therapeutics, from 2020 to 2027 is anticipated to surpass the Institute’s pre-pandemic estimations by $497 billion.

“Here we are at the beginning of 2023, with perhaps more uncertainties still ahead of us than we might have hoped for a year ago,” observed Murray Aitken, executive director of the IQVIA Institute for Human Data Science, during a recent webinar presented by his company. “Despite the progress on the pandemic front, it’s still out there; it’s still shaping our lives to a greater or lesser extent, depending on where in the world we are. It’s also still shaping our health care systems.

“And if you overlay on that the heightened macroeconomic uncertainties, the geopolitical stresses, the climate change effects we’re seeing and experiencing, it can be quite a challenge to foresee how the next five years will play out,” he continued. “But one thing that is clear is that the role of medicines, including vaccines, has been well established over the past three years, and, indeed, the value of those medicines and vaccines has really been highlighted. And we also know that advances in understanding the science of wellness and disease and human biology, and the translation of that science to therapeutics and cures, have continued through the pandemic and indeed, in many respects, have accelerated.”

According to the report, global spending will match projected rates from before the pandemic by 2024, although that may vary by geographic location and potential market fluctuations. Taking into account an increased spending from COVID vaccines and decreased spending on other medicines due to pandemic disruptions, the compound annual growth rate (CAGR) to 2027 is expected to be 4.6%, up slightly from the 4.5% estimate had the pandemic not occurred.

The “excess $497 billion of spend…is about 4% to 5% of spending. So it’s not a dramatic change in the overall amount of money needing to be spent on these medicines,” explained Michael Kleinrock, director of research at the IQVIA Institute for Human Data Science and lead researcher for the report, during the webinar. “However, generally most countries that are looking at sustainability would have an interesting challenge finding an extra percent or two of health care spend or medicines spend. So that’s certainly a challenge.”

While the expected rates of initial COVID vaccinations have been exceeded around the world, the use of boosters has been lower than projected, potentially putting stress on health care systems. By the end of 2023, more than 6 billion people globally are projected to have received at least one vaccine.

The use of medicines, based on defined daily doses, plateaued in 2022 but is expected to grow in 2023 and 2024 before plateauing again in 2025, 2026 and 2027. Researchers expect Latin America, Asia and Africa to undergo the highest volume spending growth compared with North America, Japan and Europe, which will see low growth.

Through 2027, the worldwide medicine market is expected to grow at 3% to 6% CAGR, hitting about $1.9 trillion. “This is the sort of consistent trend we’ve been seeing for a while,” said Kleinrock.

Biotech Agents Will Be Key Contributor to Global Spending

“One of the key segments” contributing to that $1.9 trillion is the biotech market, he noted. “And biotech is continuing to grow dramatically, and that is only partly offset by the evolving and maturing biosimilar space, which is going to deliver some significant impact from biosimilars from the brand losses but also expand access for many people as the costs for those medicines go down.”

Spending on biotech medicines globally will grow to more than $660 billion by 2027, which represents about 35% of that global spend. Much of that growth will be spurred by cell and gene therapies, which now represent about $4 billion and are expected to increase to between $14 billion and $17 billion.

The overall spending growth, however, will slow over the next five years due to the impact of biosimilars, which will result in brand losses of about $65 billion. Global incremental savings from biosimilars of $383 billion are expected from 2023 to 2027. “If we didn’t have a biosimilar space, as it were, there would be even higher spending than we’re currently seeing,” observed Kleinrock. “So that’s certainly encouraging for wider access, and it generates, to a degree, a significant amount of opportunity for other innovators to continue to come along.”

In 2026 and 2027, annual global savings from biosimilars could top $100 billion, “as some of the largest spending biologic molecules will have well-developed biosimilar competition for several years by this time,” states the report. “This level of savings will also likely mean the opening of access to relevant biologic medicines to more people globally, as costs of treating patients for cancer or autoimmune disorders are reduced to affordable levels for patients or governments across all countries.”

Particularly in higher-income countries, specialty drugs have been increasing as a share of medicine spending and now account for 49% of total spending across 10 developed nations, “a significant amount of our overall spending,” said Kleinrock. “Notably, they still represent only about 1% to 2% of volume.” By 2027, that percent is expected to rise to 56% in those countries and 43% globally.

Oncology is the therapeutic area that is anticipated to have the highest spending in 2027, at 13% to 16% CAGR, reaching $377 billion. Kleinrock noted that estimate was “a big revision” from the previous growth outlook of 9% to 12% CAGR. That total spending far outpaces the next two classes with the highest spending in 2027: immunology, at $177 billion, and diabetes, at $168 billion, both with 3% to 6% expected CAGR.

And while spending on treatments for obesity is expected to be only $17 billion, that class has a five-year CAGR of 10% to 13%. “There’s a significant potential that the recently launched and widely used obesity drugs could expand significantly,” he said. “This is within a range of scenarios that could be much higher, so we put some uncertainty around that one.”

Various Dynamics Will Impact U.S. Market

In the U.S., medicines spending reached $629 billion last year, rising to an estimated $763 billion in 2027. That, said Hannah Law, vice president of thought leadership and marketing in the U.S. for IQVIA, “represents a notable slowing in growth.”

While the U.S. market has had 4% CAGR for the last five years, the market is expected to grow at -1% to 2% CAGR through 2027, “as rising off-invoice discounts and rebates are expected to be amplified by the provisions of the Inflation Reduction Act (IRA),” according to the report. “In total, off-invoice discounts and rebates result in spending that is estimated at 36% lower than invoice level in 2022 and projected to be 45% lower than invoice level in 2027. Projections prior to the passage of the IRA showed this gross to net difference reaching 39% in 2026, with growth averaging 0–3% on a net basis, 1% higher than the revised outlook.”

According to Law, “the total growth of $134 billion is coming from both new and existing brands but is really heavily impacted by the loss of exclusivity” (LOE). New brands represent $110 billion, existing brands will contribute $154 billion, and generics will add another $12 billion.

“The new brand spending of $110 billion is also up from the past five years and reflects approximately 250 new active substances that are set to reach the market in that time,” she explained during the webinar. “It is worth noting that antidiabetics in particular have dominated the U.S. brand prescription market over the past five years and currently represent five out of the 15 top brands by sales dollars. If and how that shifts and changes in the next few years will be interesting, especially in the context of the legislation and imminent losses of exclusivity.”

The report projects that LOE from 2023 to 2027 will represent a $141 billion decrease, up from a $49 billion decrease between 2017 and 2022. (A decrease of $1 billion in the next five years is attributed to “Others.”) “This is a historically high impact of LOE in the coming years, both in small molecules and significantly in biologics,” contended Law. “That impact through 2027 is almost three times that of the past five years, largely because we’re seeing biosimilars come to market for larger patient populations and chronic conditions.”

The U.S. biosimilars market is expected to have its largest-to-date impact starting this year, as at least eight biosimilars of AbbVie Inc.’s Humira (adalimumab) are expected to launch. Amgen Inc.’s Amjevita (adalimumab-atto) led the way with its Jan. 31 launch, and more competitors are expected throughout the year.

“What we’re going to be watching here with biosimilars is the unknown of this class in the specialty pharmacy space and whether or not we can expect a similar uptake from biologics treating chronic diseases as we’re seeing in oncology,” she said. “The other factor to watch here will be interchangeability and how manufacturers pivot patient education and support efforts to offset concerns and encourage engagement.”

Law noted that other “major dynamics [are] at play in the U.S.” One is a “lower-than-expected level of patient engagement and utilization of health care” based on the volume of prescriptions, office visits and elective procedures. That expected level came from a few factors.

“First, after the initial COVID lockdown period, we did see the beginnings of rebound in the United States, especially towards the end of the first and second calendar years of the pandemic,” she said. “It’s also worth noting that we have three years of experience and general level of population immunity or at least resilience to COVID, whether from prior infection or from vaccination, under our belt, so that acute disruption from the virus has thankfully dissipated.

“And finally, unemployment in the U.S. has declined to close to 2019 levels, which means a larger workforce with potentially the ability and interest to engage with health care,” she continued. “But there are some other macroeconomic factors at play here. Inflation spiked at 9% in June of 2022, which creates pressure on patients’ willingness to spend, especially on elective procedures.

“Overall, I would say that we believe 2021 has set the new baseline for engagement. And that more time, more experience, more resilience to COVID is not, in fact, bringing new people back into the system.”

The second dynamic in the market is the IRA, she maintained. The law is focused on Medicare reform, and currently 64 million people at least 65 years old or with certain conditions are covered by the program. However, “our largest generation, the baby boomers, will all be on Medicare by 2030, which could increase participation to over 78 million people.”

In addition to the size of this population, these beneficiaries are the “dominant recipients” of costly specialty drugs, said Law. “This means that CMS…is responsible for the most expensive drugs for the largest patient population.”

The IRA requires drug negotiations for high-expenditure Medicare drugs, starting with 10 in Part D in 2026. While details around this process are still under discussion, “the impact of negotiation will be a cascade effect,” she asserted. “While there are only 10 drugs in the spotlight at first, those 10 will likely set a new maximum fair price for all other drugs in the therapeutic class.”

The legislation also mandates a change to Medicare Part D benefit design, meaning that “manufacturers and payers now are on the hook for the most expensive phase of coverage” — catastrophic.

Currently, in the initial coverage phase, beneficiaries pay 25% of the cost, while plans pay 75%. The catastrophic coverage phase starts at almost $8,000, with beneficiaries paying about $3,000 of that total, and beyond that, beneficiaries pay 5%, Part D plans pay 15%, and Medicare pays 80%.

But under the IRA, starting in 2024, beneficiaries have no out-of-pocket responsibilities once they hit the catastrophic coverage phase. And the out-of-pocket limit before that phase is $3,250 in 2024, with Medicare picking up 80% of costs and Part D plans 20% that year once a member enters the catastrophic coverage phase. Then in 2025, beneficiaries’ out-of-pocket spending will be capped at $2,000 going forward, and once the catastrophic coverage phase is hit, 60% of costs will be paid by the plan, and the remaining 40% will be split equally between manufacturers and Medicare. This year and next, manufacturers are responsible for 70% of costs within the coverage gap, a percentage that drops to 10% in 2025.

“Manufacturers also have an additional dynamic to contend with: Low-income subsidies that were traditionally paid by CMS to help some patients cover premiums and deductibles will now be paid by manufacturers.,” stated Law. “This is very positive for patients who have been traditionally underserved and suffer from low adherence, but it does multiply the pressure considerably for manufacturers. So how those two groups offset the new liabilities remains to be seen. We’re already seeing some tightening in formularies and reconsiderations of portfolio strategy.”

One “wild card event” that could play out “is how payers and manufacturers respond to [these] cost pressures.…There really is no analog. And so we are going to be seeing formulary restrictions; we’ll see commercial brand strategy changes. How they deal with that is really up for grabs.”

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