Price Pressure Ahead for America’s $73 Billion Drug Import Industry — Panjiva
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Price Pressure Ahead for America’s $73 Billion Drug Import Industry

China 1758 Health Care 108 India 283 U.S. 3297

The U.S. government’s focus on healthcare costs has risen back to the top of the political agenda ahead of the midterm elections. President Donald Trump has proposed that overseas pharmaceuticals costs be used as a baseline for U.S. drug prices, S&P Global Market Intelligence reports. The growing demand for healthcare services in the U.S. combined with the availability of lower cost, generic drugs has resulted in an import industry for pharmaceuticals worth $73.4 billion in the 12 months to Aug. 31, Panjiva data shows.

RECORD HIGH FOR DRUG IMPORTS

Chart shows U.S. imports of pharmaceuticals in packaged form on a monthly (dotted) and annual average (solid) basis.   Source: Panjiva

That represented an increase of 7.5% vs. a year earlier. Notably though that included a 33.6% increase in the volume of imports and a 19.8% deflation in the average import value per gram (AIVG). While U.S. drug prices are not necessarily cost-based that is a sign that reductions in prices – or at least in industry profit margins – may be possible.

LOTS MORE, AT A LOWER COST

Chart compares change in value of U.S. pharmaceutical imports by driver (upper panel) to change in volumes. Lower panel shows average import value per gram (AIVG, lower panel).   Source: Panjiva

Unlike many other manufacturing industries the level of innovation in pharmaceuticals does not have an impact on pricing, until a drug’s patent ends and generic competitors become available. Among the major drug classes oncology has a high level of innovation and increasing demand, perhaps explaining the 16.6% rise in volumes and 17.8% surge in AIVG for the class as a whole.

Meanwhile other drug classes are seeing significant price deflation where innovation may be lower including gastrointestinal treatments where prices fell by 7.0%, though volumes have continued to boom with a 22.8% growth. Notably there does not need to be a significant drop in prices for volumes – reflecting expectations of prescriptions – to increase. Anticonvulsants (ACs) seeing a 25.0% jump in volumes with only slightly lower AIVG (down 2.0%).

DRUG DEMAND NOT ALWAYS A FUNCTION OF COSTS

Chart segments U.S. pharmaceutical imports by drug class. Data compares change in value per gram vs. change in volumes for the 12 months to Aug.31, denominated in US$. Bubble size indicates value of imports in the past 12 months.   Source: Panjiva

The anticonvulsant class also has a significant group of generic drug importers, indicating price deflation may have reached a pausing point. The largest importers, which typically move such drugs by sea, include Aurobindo (24.9% of the total in the 12 months to Sept. 30), Alkem (13.4%) and Amneal (8.9%) which all ship predominantly from India.

Generic pharmaceuticals may be an area where Chinese manufacturers struggle to break in, though there is one major importer of ACs, Zhejiang Huahai Pharmaceutical (5.9%). There may be room for further expansion for Chinese manufacturers as pharmaceuticals have not yet been targeted for duties of 10% to 25% as part of the growing trade spat between the two countries, as outlined in Panjiva research of Sept. 18.

LEADING SUPPLIERS OF ANTICONVULSANTS BASED IN INDIA

Chart segments U.S. seaborne imports of anticonvulsant pharmaceuticals by shipper and origin for the 12 months to Sept. 30, denominated in TEUs.    Source: Panjiva

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