Global Pharmaceutical Sector Heading Toward $1.5 Trillion

KPMG Turkey prepared a 'Sectoral Overview 2020 – Pharmaceuticals Report' in which we evaluated the sector's 2019 performance and expectations for 2020. Highlighting the key points from the report; the global pharmaceutical sector continues to grow with ever-increasing demand. The sector, which grew 4% compared to 2018 last year, reached a size of USD 1.3 trillion. Between 2020-2023, it is expected to exceed USD 1.5 trillion with 4.5% growth. Turkey's pharmaceutical sector achieved approximately 30% growth in 2019, the fastest growth rate in the past four years. The pharmaceutical sector, supported by increasing life expectancy, grew without facing sustainability issues through the increasingly widespread concept of the social state worldwide. Rapidly advancing technological developments help the sector move beyond its own boundaries while creating entirely new areas of expansion. The sector, with high R&D spending, is deploying big data processing and blockchain usage to increase productivity and achieve optimal customer reach. The sector is recording growth not only in therapeutic drugs but also in consumer products aimed at improving quality of life. The growth expected to exceed USD 1.5 trillion by 2023 will be driven by developed economies. Brazil, China and India markets will contribute to growth. Globally, prescription drug sales are expected to reach USD 1.1 trillion in 2024 with approximately 7% annual growth. The fastest increase will be seen in the high-value-added 'orphan drugs' category. Growth in generic drug sales will remain relatively limited. The share of generic drugs in total prescription drug sales, at 9.4% in 2019, is estimated to decline to 7.4% in 2024; while the share of orphan drugs at 16.0% is expected to rise to 20.2%. Some highlights from the KPMG Turkey Sectoral Overview 2020 – Pharmaceuticals Report can be summarized as follows:

Cancer Drugs Receive the Most Spending

 

• By primary therapeutic areas, the highest share in drug sales belongs to oncology diseases by a large margin. This segment, which had a 14.3% market share as of end-2018, is estimated to have a 19.4% market share in 2024. This estimate indicates that by 2024, 1 TL out of every 5 TL spent on drugs will be directed toward cancer disease treatment.
• The next largest figure after cancer is in anti-diabetes drugs. This shows that drug sales in this category will reach more than four times higher.
• Two segments predicted to surpass oncology drugs in terms of compound average growth rate (CAGR) in 2018-2024 estimates are immunosuppressants and dermatology drugs.
• The sector, which has twice the R&D/Sales ratio of technology companies, will continue to increase R&D spending although somewhat more limited compared to previous years. The R&D spending ratio, which was 21.6% of prescription sales in 2018, is expected to decline to 18% in 2024. In numerical terms, while total R&D spending in 2019 was USD 182 billion, the 2024 estimate is USD 213 billion.

Turkey Has Global Competitive Capacity

 

• Turkey's pharmaceutical sector stands out with its great potential and high-tech manufacturing capability. With its geographic location and relatively reasonable cost structure, it has the capacity to compete globally. Turkey's pharmaceutical market reached TRY 29.5 billion in the first three quarters of 2019 with a total increase of 30.2% through hospital and pharmacy channels. In terms of units, TRY 1.74 billion in sales was achieved with 1.3% growth. The main source of growth in the sector is price increases resulting from exchange rate-driven price updates; this is followed by increased demand for existing products, increasing preference for higher-priced products and new products entering the market.
• In 2019, 327 new prescription products entered the market. Among these drugs, antibiotics had the largest share by number, while the share of new drugs in total sales volume was TRY 400 million. The number of equivalent drugs newly entering the market was recorded as 272.

Impact of Price Increases

 

• Turkey's sector market size reached TRY 29.5 billion as of September 2019, while volume in units reached 1.7 billion. This means 30% growth in market value and 1% growth in units respectively. The significant growth difference between value volume and unit volume can be explained by the fact that average prices of reference drugs increased by 30% in 2019, while average prices of equivalent drugs increased by 32%.

Domestic Production Sales Volume Grew

• In the first nine months of 2019, sales volume of imported drugs increased by 25% on an annual basis while contracting by 9% in unit terms. In contrast, domestic production sales volume increased by an important rate of 37% on an annual basis while unit volume saw 3% growth.
• In this divergence, in addition to imported products' prices increasing faster, the preference for domestic production appears to be effective. As of September 2019, imported drug prices increased by an average of 37% on an annual basis. Price increases for drugs manufactured in Turkey were realized at 33%.

Highest Growth Since 2015

 

• Despite the slowdown in domestic economic activity in the second half of 2018 and first half of 2019, the pharmaceutical sector maintained relatively strong growth trend. Turkey's pharmaceutical sector attracted attention with approximately 30% growth last year. This rate, showing the fastest growth experienced since 2015, also raised the 2014-2019 average growth to a striking level of 11.7%. The sector is expected to maintain its growth trend with the momentum it derives from motivation to increase domestic production and with increasing demand. Moreover, the relatively weakening position of the Turkish Lira creates a basis that will support export volume and sustain this trend.

Biotechnology Drugs in Demand

 

• Biotechnology is one of the sector's most sought-after investment areas. As in the rest of the world, interest and investments in this field are on an upward trend in Turkey. When it is considered that biotechnology products constitute 46% of Turkey's pharmaceutical imports, the importance of the matter becomes even more apparent. In the sector, expectations include the emergence of a new model in licensing for this field.
• In 2019, a total of 15 drugs entered the market in the biotechnology drug category, comprising 11 reference drugs and 4 biosimilars. The total value of sales in the first 9 months of last year exceeded TRY 10 billion.