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12/19/2018 IBISWorld US - Industry, Company and Business Research Reports and Information
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IBISWorld iExpert Risk Summary 32541b August 2018
Generic Pharmaceutical Manufacturing in the US
Market Share Teva Pharmaceutical Industries Ltd. 7.5%
Mylan Inc. 7.2%
Sandoz Ltd. 6.6%
Key External Drivers Federal funding for Medicare and Medicaid
Number of people with private health insurance
Research and development expenditure
Median age of population
Tradeweighted index
Industry Structure Life Cycle Stage Growth Regulation Level Heavy Revenue Volatility Medium Technology Change High Capital Intensity Medium Barriers to Entry High Industry Assistance Medium Industry Globalization High Concentration Level Low Competition Level High Back to top
Major Markets
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12/19/2018 IBISWorld US - Industry, Company and Business Research Reports and Information
http://clients1.ibisworld.com.hult.idm.oclc.org/reports/us/iexpertrisk/default.aspx?entid=488 2/5
This chart shows the size of the markets that buy the industry’s products or use its services. It is based on the proportion of revenue each buying segment contributes to total industry revenue.
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Cost Structure
This chart represents the latest cost structure of the industry. It shows the proportion of revenue each cost item absorbs, with the remainder representing profit. The comparison to all other industries in the sector provides a benchmark that shows how the industry differs from its peers.
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Performance Summary The Generic Pharmaceutical Manufacturing industry is expanding at a steady pace, with revenue expected to increase at an annualized rate of 1.1% to $60.5 billion over the five years to 2018. Increasing access to health insurance, rising total health expenditure and efforts to control prescription medication costs benefited generic manufacturers. Increasing use of generic and biosimilar products (drugs developed from living things such as antibodies), has already resulted in trillions of dollars in savings for employers, health plans, patients and the government, according to the Association for Accessible Medicines. Increasing price scrutiny of branded prescriptions has enabled generic manufacturers to take advantage of pricing pressures and improve patient access to medicine. While generic operators typically have slimmer profit margins as compared with the Brand Name Pharmaceutical Manufacturers industry (IBISWorld report 32541a), average profit margins for the industry are relatively high and have remained stable over the five years to 2018. High profitability and increased opportunities for new product development enticed new entrants to the industry over the past five years. Some of this growth represents brand name pharmaceutical companies entering the generics industry in an attempt to stay profitable and competitive as their key blockbuster products lose patent protection.
Over the next five years, generic manufacturers are expected to lobby for policies that encourage cost savings and access to affordable medicines. Furthermore, as a growing number of patents are set to expire over the coming years, generic manufacturers are expected to have robust product pipelines. As of 2013, there were more than 900 biologics targeting an estimated 100 diseases under development in the United States, according to
12/19/2018 IBISWorld US - Industry, Company and Business Research Reports and Information
http://clients1.ibisworld.com.hult.idm.oclc.org/reports/us/iexpertrisk/default.aspx?entid=488 3/5
the Biosimilar Council. IBISWorld expects these trends to continue over the next five years, with revenue slated to grow an annualized 2.7% to reach $69.3 billion over the five years to 2023. During the outlook period, generic operators are expected to explore new product lines, including biosimilars, and expanding into new and emerging markets, where consumers can only afford generics. Domestically, the increasingly insured population will further benefit the industry through expanded insurance coverage for prescription drugs, an improved generic drug approval process and an established approval pathway for biosimilars.
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Industry Issues THREAT
The tradeweighted index (TWI) measures the strength of the US dollar against the currencies of major trading partners. An increase in the TWI indicates that the dollar is appreciating relative to those currencies, making industry exports relatively more expensive in foreign markets, causing international demand for USmade products to decline. The TWI is expected to decrease in 2018, but is historically volatile, posing a potential threat to the industry.
OPPORTUNITY
When Medicare and Medicaid receive more funding from the US government, more consumers gain prescription drug coverage, making them better able to afford the industry's products and increasing industry demand. Federal funding for Medicare and Medicaid is expected to increase in 2018, representing a potential opportunity for the industry.
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Call Preparation Questions ROLE SPECIFIC QUESTIONS
Role: Sales & Marketing How is your company affected by rising imports?
Generic products manufactured in Europe and other countries are a source of intense competition for domestic manufacturers.
How much does your company allocate to marketing expenses? On average, depending on the size of the company, an average company allocates 1.05.0% of total revenue on advertising and promotion.
Role: Strategy & Operations Has your company been exposed to volatile input prices over the past few years?
The price of plastic and resin products, which are a main component of industry product packaging, can increase purchase costs, thereby constraining profitability.
Is your company investing heavily in R&D in upcoming products with expiring patents to meet changing consumer preferences for generics?
Getting ahead by investing in branded products with patents set to expire in the coming years can increase a company's competitiveness.
Role: Technology Do you use SAP software systems to optimize all aspects of your company’s manufacturing, sales, inventory and distribution channels?
SAP software systems allows for a company to streamline and monitor all aspects of the manufacturing process.
Have you been able to reduce wage costs through automation over the past five years? Increasing automation, thanks to developing technology, can help to reduce wage costs and operational inefficiencies.
Role: Compliance Do you work with trade associations or other interest groups to advance your company’s interests?
The Consumer Healthcare Products Association (CHPA) is the largest industry association, and is membership based.
How has increasing regulation hurt or helped your company in recent years? Favorable legislation for biosimilars and generic products has benefited generic manufacturers.
Role: Finance How do your company’s profit margins compare to your main competitors’?
The average profit margin for a company is around 10.0%.
How do your company’s depreciation expenses compare to your main competitors’? Typically, depreciation consumes about 2.03.0% of revenue.
EXTERNAL IMPACTS QUESTIONS
Issue: Tradeweighted index How do fluctuations in the tradeweighted index affect international demand for your products? What percentage of your revenue comes from exports?
The tradeweighted index (TWI) measures the strength of the US dollar against the currencies of major trading partners.
Issue: Median age of population How does your customer base break down by age demographics? Do you manufacture products specifically for older people?
12/19/2018 IBISWorld US - Industry, Company and Business Research Reports and Information
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According to the Agency for Healthcare Research and Quality, more than 90.0% of seniors and 58.0% of nonelderly adults rely on regular prescription medication.
Issue: Federal funding for Medicare and Medicaid What proportion of your customers service consumers covered by Medicare or Medicaid? How will projected changes in legislation affect your company?
When Medicare and Medicaid receive more funding from the US government, more consumers gain prescription drug coverage, making them better able to afford the industry's products and increasing industry demand.
INTERNAL ISSUES QUESTIONS
Issue: Degree of globalization Have you been able to effectively spread your capital costs over servicing many markets? Do you have global or crossborder operations?
As the pharmaceutical industry becomes increasingly global, it is essential for industry players to have access to foreign markets and manufacturing facilities to control costs and boost sales.
Issue: Undertaking generic pharmaceutical and medicine research and development How much time is invested in research and development? Is innovation one of your company's selling points?
Improving generic R&D capabilities and production capacity, with a focus on capturing highvalue, firsttomarket opportunities in key markets, can enhance a company's market position.
Issue: Maintenance of a good reputation Do you have a strong reputation among customers? Have you had any product recalls in the past?
Market perceptions of the safety and quality of products are important. If a company receives negative publicity, or if any of a company's products are harmful to consumers, a company's reputation could be harmed.
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Industry Risk Summary Risk Rating Barometer
Industry: Generic Pharmaceutical Manufacturing in the US
Sector:
Overall Risk Rating Analysis
Overall risk in the Generic Pharmaceutical Manufacturing industry is forecast to be MEDIUMLOW over 2019. The primary positive factors affecting this industry are a mature life cycle stage and tradeweighted index. Overall risk will be slightly lower than the previous year, a result of favorable movements in federal funding for medicare and medicaid as well as number of people with private health insurance. Additionally, growth risk is projected to fall.
Risk component Weight Score Structural risk 25% 5.15 Growth risk 25% 4.50 Sensitivity risk 50% 4.13 Overall risk 4.48
Structural Risk Analysis
Structural risk will be MEDIUM over the outlook period. This industry struggles with high competition. Businesses competing for market share must incur expenses to differentiate offerings or keep prices low to entice demand. This results in greater likelihood of declining revenue and lower profits. Operators are exposed to moderate revenue volatility requiring prudent cash flow management and planning in times of uncertain demand. Businesses failing to account for these challenges risk sudden losses or diminished margins. This industry is currently in the mature phase of its life cycle which exhibits limited growth in demand opportunities and forces operators to compete for the remaining sales in order to survive.
Structure component Level Trend Weight Score Barriers to Entry high decreasing 13% 4 Competition high 20% 9 Industry Exports high steady 7% 5 Industry Imports high increasing 7% 9 Level of Assistance medium steady 13% 5 Life Cycle Stage growth 20% 1 Volatility of Industry medium 20% 5 Overall Structural Risk Score 5.15
Growth Risk Analysis
12/19/2018 IBISWorld US - Industry, Company and Business Research Reports and Information
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Growth risk is expected to be MEDIUMLOW over the outlook period. IBISWorld forecasts that annual industry revenue will grow 3.2% to $62.6 billion. In comparison, revenue expanded 1.8% per year between 2016 and 2018.
Growth component Revenue Weight Score 20162018 Annualized growth 1.8% 25% 5.17 20182019 Forecast growth 3.2% 75% 4.28 Overall Growth Risk Score 4.50
Sensitivity Risk IBISWorld has identified and weighted the most significant external factors affecting industry performance. These factors are scored separately, then weighted and combined to derive the sensitivity risk score.
Sensitivity component Weight Score Tradeweighted index 15% 2.47 Federal funding for Medicare and Medicaid 25% 5.02 Median age of population 15% 5.31 Number of people with private health insurance 25% 4.01 Research and development expenditure 20% 3.52 Overall Sensitivity Risk Score 4.13
Risk Score Context
In 2019, the average risk score for all US industries is expected to be in the MEDIUMLOW band. Furthermore, the risk score for the Manufacturing sector, which includes this industry, is also at a MEDIUMLOW level. Therefore, the level of risk in the Generic Pharmaceutical Manufacturing industry will be similar to that of the US economy and similar to the Manufacturing sector.
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