Global Drug Spending Will Reach $1.4 Trillion by 2020

November 18, 2015, 6:05 PM UTC
Variety of medicine on graph paper to illustrate increase in medical drug use
Photograph by Rafe Swan — Getty Images/Cultura RF

Global spending on medicines is expected to grow as much as 32% over the next five years to hit $1.4 trillion in 2020, according to research released Wednesday by the IMS Institute for Healthcare Informatics.

Total global spending growth breaks down to an annual compounded rate of between 4% and 7%, which IMS attributes to the expanding reach of medicines into emerging markets and greater use of pricier branded drugs in developed markets like the U.S.

By 2020, more than half of the world’s population will live in countries where medicine use will exceed one dose per person per day. That’s a 31% increase from 2005, marking a significant narrowing of the so-called medicine-use gap between developed and what the IMS Institute calls “pharmerging” markets, which includes nations like China, India, Brazil, and Indonesia. IMS forecasts people will annually receive 4.5 trillion doses by 2020, up 24% from 2015.

Even as medicine use expands, the growth in drug spending will actually be more tempered over the next five years compared to the recent past. Growth will slow down slightly from a 35% increase over the prior five-year period, according to IMS, partly due to the greater use of generic drugs in both emerging and developed markets. Global spending will continue to be driven primarily by the U.S. and original branded drugs with higher price tags.

Medicine Spending in 2020 US$ by Geography, Product Type, and Disease AreaCourtesy of IMS Institute
Courtesy of IMS Institute

“Health systems around the world are looking to get more value for their money from that expenditure,” Murray Aitken, executive director of the IMS Institute, told Fortune. “There’s a growing use of inexpensive generic medicines worldwide on top of the surge of innovation that’s becoming available, driving payers to only pay for high quality differentiated drugs.”

More than 91% of U.S. medicines dispensed in 2020 will be generics, up from about 88% today, according to IMS. Spending on these off-patent medicines will reach as much as $590 billion in the U.S., helping to constrain prices for legacy brands. At the same time, the IMS Institute estimates that more than 225 new medicines will be introduced over the next five years.

U.S. Spending Growth, 2010-2020Courtesy of IMS Institute
Courtesy of IMS Institute

The flood of new drugs will cluster around innovations in cancer, hepatitis C, autoimmune disorders, heart disease, and various rare diseases. The move to more generics combined with powerful new drugs, means that payers can direct medicine dollars toward the best options for the best outcome at an optimal price, balancing between pricey specialized treatments and more affordable generics. This trend will be helped along even more by provisions in the Affordable Care Act that require better coordinated care and connect payments to overall outcomes.

In short, by 2020 “health systems will be getting more bang for their medicine buck,” said Aitken.

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