United States Pharmaceuticals and Healthcare Report Q3 2009

BMI expects the US pharmaceutical market to contract with a compound annual growth rate (CAGR) of
-0.35% during 2008 and 2013 to reach a valuation of US$302bn. Generic drugs will experience an increase in sales as the government tackles both the healthcare reform and its drug procurement policy with a more positive stance on off-patent pharmaceuticals. We attribute this contraction to the onset of the patent cliff in 2011 and the wide scale introduction of comparatively cheaper generic drugs. The contraction is small as we believe that the healthcare reform will allow wider access to medical services due to mandatory insurance cover.

The US FDA looks set to receive a financial boost from late 2009, following a proposal from President Barack Obama for a 19% increase in the regulator's budget for FY10, which begins October 1 2009. If approved the annual budget would rise to US$3.2bn. As part of the proposal, generic drugmakers would also be charged user fees. BMI would welcome congressional approval of the hike, which would result in a probable increase in efficiencies and a reduction in approval delays for drug manufacturers.

Drugmakers in the US decreased their direct-to-consumer (DTC) pharmaceutical advertising budgets from US$4.8bn in 2007 to US$4.4bn in 2008, equating to a 9% decline in expenditure. This is line with one of BMI's core views for the pharmaceutical and healthcare industry: branding will become more important, but spending on advertising will decrease.

BMI believes that the savings realised from generic competition highlight that the current generics system is working efficiently in lowering costs, rather than needing significant reform. However, we note that creating an approval mechanism for biosimilars in the US - the focus of BMI's recently published special report, Biosimilars:Obama Unfolds New Opportunities - is a key challenge for the administration and, if successful, could lead to significant opportunities for both research-based and generic drugmakers.

Over-the-counter (OTC) analgesics will be required to carry additional safety warnings after the US FDA's Office for Nonprescription Drugs in the Center for Drug Evaluation and Research highlighted the importance of consumers being fully aware of potential side-effects. The ruling will mean that by April 2010 manufacturers must ensure active ingredients are conspicuous on packaging and that labelling warns about the risks of stomach bleeding - for non-steroidal anti-inflammatory drugs (NSAIDs) - and of severe liver damage for acetaminophen.