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Slow growth expected in costs for medicines

Developing markets are catching up

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Spending on medicine will grow at historically low levels in the U.S. during the next two years while developing countries will see such spending double and match the U.S. market by 2016, a report released Thursday shows.

The U.S. will see increases of less than 1 percent in both 2012 and 2013 for medicinal product revenue, according to IMS Health, a New Jersey-based company that collects data on pharmaceutical sales in more than 100 countries.

The sluggish forecast for U.S. drug sales - which now generate $325 billion in annual revenue - results from a wave of low-cost generic drug options, which are set to enter the market as more drug patents expire in the next two years than ever before.

"In the late 1990s and early 2000s, there were just a tremendous number of high-quality products released. It was a high-water mark for innovation," said Michael Kleinrock, the director of research at the IMS Institute for Healthcare Informatics who authored the report. "When they all go off patent at once, you see a drop in revenue."

Mr. Kleinrock said drug sales will increase dramatically in 2014 when President Obama's health care law takes full effect, as an estimated 30 million uninsured Americans will have greater access to the products. The report forecasts revenue to increase by $6 billion that year, with additional gains projected over time.

"While the growth rate is really low, it's recovering through the period," Mr. Kleinrock said. "The U.S. is still the largest market. It's still where companies get most of their money."

The U.S. share of the market is decreasing, though, as rising income levels in at least 16 emerging markets is forecasted to spur spending on medicine, doubling it from $194 billion to as much as $375 billion by 2016.

The report predicts 494 million additional people in those countries will attain a yearly income of $5,000, allowing them to purchase needed generic drugs for the first time. Those countries - which include Russia, China, Brazil, Mexico and India - are expected to rise to equal the U.S. global market share, which is expected to drop to a low of 30 percent.

While Mr. Kleinrock said the development would be a milestone that could mean pharmaceutical companies soon sell more brand-name products in those countries, he insisted that fewer drug sales in developed countries will not be a long-term trend. The report shows that in 2016, spending per person in the emerging markets will average only $91; in the U.S., that number is almost $900.

"Multinationals are still heavily tilted to the developed world," Mr. Kleinrock said. "There isn't necessarily as much money or as much innovation there now [but] it's possible we'll see another renaissance in drug development in the next few years."

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