OVERVIEW: The United States is the largest market for pharmaceuticals (including biopharmaceuticals), accounting for around 35 percent of the global market, and is the world leader in biopharmaceutical research and development (R&D).
According to the Pharmaceutical Research and Manufacturers Association (PhRMA), U.S. firms conduct the majority of the world’s research and development in pharmaceuticals and hold the intellectual property rights on most new medicines.
The biopharmaceutical pipeline also has over 7,000 new medicines currently in development around the world with approximately 3,500 compounds currently being studied in the United States – more than any other region around the world.
The National Science Foundation reports that the U.S. biopharmaceutical sector accounts for the largest single share of all U.S. business research and development (R&D) investment, representing 23.4 percent of all domestic R&D funded by U.S. business in 2013.
More than 854,000 people work in the biopharmaceutical industry in the United States across a broad range of occupations, such as scientific research, technical support and manufacturing. Directly and indirectly, the industry supports a total of 4.4 million jobs across the United States and added an estimated $1.2 trillion in economic output in 2014, representing 3.8 percent of total U.S. output.
The biopharmaceutical industry provides average salaries well above the average for all U.S. workers, and requires a highly-skilled and educated workforce from the administrative level up to and including Ph.D. scientists.
Fast growing segments of the pharmaceutical market include biologics, generics and over-the-counter (OTC) drugs. Biologics now account for over a third of all new drugs in clinical trials or awaiting FDA approval. U.S. generic drug sales reached an estimated $70 billion in 2015, representing a quarter of the global market, due to a large number of drugs going off-patent and healthcare reforms favoring generics.
OTC market growth will be driven by a growing aging population, consumer trends towards self-medication, and the conversion of drugs from prescription to non-prescription or OTC status.
The United States has one of the world’s most supportive domestic environments for the development and commercialization of pharmaceuticals with minimal market barriers. Its strengths include an intellectual property system that rewards innovation through patent and data protection, a science-based regulatory system that is considered the most rigorous in the world, the world’s largest scientific research base fostered by academic institutions and decades of government research funding, and robust capital markets.
The United States attracts the majority of global venture capital investments in start-up biopharmaceutical enterprises.
In addition, the United States is the world’s largest free-pricing market for pharmaceuticals and has high per capita incomes, a large elderly population, and high rates of chronic diseases and drug consumption. All of these factors ensure that the United States will remain the world’s most important pharmaceutical market for the foreseeable future with healthy growth expected across all product sectors.
The pharmaceutical industry is comprised of companies engaged in researching, developing, manufacturing and distributing drugs for human or veterinary use. A long string of M&As over the last few years has led to a more concentrated global industry with both innovative and generics companies engaging in acquisitions of all sizes.
Large firms often purchase smaller, more focused innovator companies for new drugs to accelerate the R&D process. The lines between innovator and generic companies or between pharmaceutical and biotechnology companies have become increasingly blurred, and most major multinationals now incorporate both biologics and generics subsidiaries in their portfolios.
As the prevalence of biosimilars grows, the high manufacturing and regulatory costs involved in developing these drugs further clouds traditional distinctions between innovative and generic business models and investment cycles.
Innovative (originator) chemically-derived drugs are developed from extensive R&D and clinical trials in both human beings and animals. The innovator relies on patents, regulatory data protection and other forms of intellectual property rights (IPR) to justify the investment required to bring a product to market.
The U.S. patent term is 20 years, and drugs are eligible for at least five years of market exclusivity depending on the time between patent validity and U.S. Food and Drug Administration (FDA) approval.
The pharmaceutical industry is heavily dependent on the development of new molecules to replace the revenue stream of older drugs that have come to the expiration of their patent terms. Pricing of innovative pharmaceuticals are designed to cover past and future R&D expenditures.
Generic drugs are copies of innovative pharmaceuticals that contain the same active ingredient and are identical in strength, dosage form, and route of administration. In the United States, upon patent expiration or a successful challenge of relevant patents, a manufacturer can produce a generic drug as long as it meets FDA approval and bioequivalence standards.
Generic companies typically focus on high volumes to earn profits, requiring efficient production methods and distribution chains. Generics that are sold under the chemical name are known as “commodity generics.” Commodity generics are often manufactured by more than one company and compete mainly on price.
“Branded generics” are marketed by a drug company under its own label and typically command higher prices than non-brand generics.
Biologics (biotech drugs, biological drugs, biopharmaceuticals) include a wide range of products such as vaccines, therapeutic proteins, blood and blood components, tissues, etc.
In contrast to chemically synthesized drugs, which have a well-defined structure and can be thoroughly verified, biologics are derived from living material (human, animal, microorganism or plant) and are vastly larger and more complex in structure. Biologic medicines are revolutionizing the treatment of cancer and autoimmune disorders and are critical to the future of the industry.
Biosimilars (follow-on biologics) are versions of biologic products that reference the originator product in applications submitted for marketing approval to a regulatory body. Gaining regulatory approval in developed markets is far more complex for biosimilars than for chemical generics and may involve costly clinical trials.
Those that succeed will also have to compete with the originator companies who are unlikely to exit the market. The biosimilars market is expected to increase significantly with an approval pathway now available in the United States. Prices of biosimilars may not be drastically cheaper than their patented counterparts.
Over-the-counter (OTC) drugs are distinguished from innovative and generic drugs in that consumers do not need prescriptions to purchase them. OTC drugs are considered by regulators to be safe for self-diagnosis and self-medication.
In the United States, there are an estimated 100,000 OTC drug products marketed and sold in a variety of outlets, such as pharmacies and convenience stores.
Sometimes drugs become OTC as a result of extensive market use that enables regulators to determine that the product is safe to dispense without a prescription. The innovator may also move to apply for OTC status upon patent expiration.