Economics rnational February 26, 2003 Frankfurt Voice e Int national t Demography Special Pharmaceutical market: Run on lifestyle Special edition f eaders of drugs boosted by demographic trend Frankfur
International pharmaceutical companies have been pushing the lucrativelifestyle drugs segment since the late 1990s. Both younger and older customersare prepared to dig deep into their pockets for these products. Lifestyle drugsdo not cure any life-threatening illnesses, but are “primarily“ intended to boostthe well-being and appearance of consumers.
This opens up a billion euro business for manufacturers and thus also anopportunity to offset the more stringent cost restrictions in the healthcaresystems of many industrial countries.
At present the purely quantitative significance of the lifestyle drug sectorwithin the pharma industry is still relatively small. These drugs currentlyconstitute 5% of the global pharma market. According to our projections,however, sales of lifestyle drugs should rise up to 10% each year until 2010 toover USD 40 billion compared with EUR 20 billion in 2001.
This means the sector will grow much faster than the rest of the pharmaindustry, where we estimate global sales will increase by an average of 5%until the end of the decade, to USD 590 billion. The pharma market as a wholeshould expand by 6% p.a. to USD 630 billion.
The individual lifestyle segments of anti-wrinkle treatments, weight-loss drugsand impotence treatments should post growth of between 10% and nearly30% p.a. until 2010, whereas for anti-depressives, hair-loss treatments andcontraceptives we forecast increases of between 5% and 10%.
In the medium term the pharma industry will open up new areas for lifestyle
products (e.g. dental products). A vision for the future is a drug tailored to
each individual patient, as efficacy and tolerability of a drug differ from person
to person due to genetic differences.
Uwe Perlitz, +49 69 910-31875 ([email protected])
Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: [email protected] Fax: +49 69 910-31877 Managing Director Norbert Walter Demography Special Pharmaceutical market Run on lifestyle drugs boosted by demographic trend
The international pharma market is in transition, triggered by the trendtowards cost-cutting in the healthcare system. An increasingly elderly
population and ever more expensive medical equipment and treatment
methods are causing sharp rises in expenditure for health insuranceinstitutions in many countries. Although drugs account for only a small
proportion of healthcare expenditure by health insurance schemes,they have already been the focus of cost-saving measures in the past.
This is due to the fact that pharmaceuticals constitute a distinct and
easy to monitor cost item. The current discussion about a reform ofthe healthcare system in Germany shows that the financing problems
are still far from solved and that the growth tendencies of the drugs
market will also be limited in the future due to cost-cutting measures.
The pharma industry reacted to the tougher market conditions with arange of differing strategies including diversification into non-
prescription or OTC (over-the-counter) products and generics. For anumber of years pharma companies have been aggressively targeting
the lucrative lifestyle drug segment, since both younger and older
consumers are prepared to dig deep into their pockets for theseproducts. Lifestyle products do not cure life-threatening illnesses, but
are solely intended to improve the well-being and appearance of
consumers. For the international pharma companies this opens up a
billion euro business and thus also an opportunity to offset the morestringent cost restrictions in the healthcare systems of many industrialcountries.
In the US “wellness“ already became the motto of a movement some25 years ago signifying a different type of health consciousness focusingon physical and psychological well-being. It represents a strategy ofchanging one’s habits to improving one’s own health. The pharmaindustry soon sought and found alternatives to the activity-focusedconcept of fitness. Market for lifestyle drugs
The market for lifestyle drugs is determined by factors both endogenous
and exogenous to the market. Demographic changes, changes in
national healthcare systems and disposable household incomes have
a major influence on the structure and growth of the international
pharma market. These basic conditions, which are largely given and
cannot be influenced by the pharma industry, have in turn a negative
impact on internal market factors such as demand and supply forpharmaceuticals. 1. Factors influencing demand for lifestyle drugs
Population trends and structure are important external factors. The typeof state-run healthcare system also plays a part. Only in certaincountries (such as Britain, Norway and Greece) are the costs of lifestyledrugs reimbursed by the statutory health systems. Demographic trends are a driver
According to United Nations projections, the global population willincrease by around 3 billion to 9.3 billion by 2050. The sharpest increaseshould come in the newly industrialising countries (NIC) and developingcountries of Africa and Asia, whereas in eastern European states, forexample, the population should decline. In 2050 the total population ofthe NIC and developing countries should come to about 8.4 billion,compared with 5.2 billion in 2000 (+61%). There is no general trend in
Economics Demography Special
the industrialised world; the rising US population contrasts with the
Global population trend
sharply falling populations of Japan and EU. The largest declines during
the forecast period within the EU can probably be expected in Italy
(-25%), Spain (-22%), Austria (-20%), Greece (-15%) and Germany(-14%). The population in industrialised countries is forecast to rise by
only 75 million (+9%) between 2000 and 2050. Age structure is particularly important
Even more important than the absolute increase in the population isthe changing age structure. By 2050 the share of the population over
60 is expected to grow from 8% to nearly 20% in the NIC and developing
countries and from nearly 20% to over 30% in industrialised nations.
The highest proportions of over-60s in 2050 are expected in Spain (44%),
Japan and Italy (42% each) and Austria (41%); in Germany the over-60s
are projected to represent 38% of the population (compared with 27%in the US). For the pharma market this means that in future there will
be increased demand for products to tackle age-related illnesses – e.g. products to treat cardiovascular disease, metabolic disorders and
rheumatism, as well as a range of lifestyle drugs such as anti-wrinkle
treatments. In addition, technical advances will enable more and moreillnesses to be treated in the medium term. The resulting positive impact
on life expectancy will further boost drug consumption.
By 2050 average life expectancy is forecast to have climbed from thepresent level of 79 years to 84 years in industrialised countries, andfrom nearly 66 years to 75 years in the developing countries and NIC. The way that age is dealt with is also changing, not least because ofthe increase in life expectancy. The signs of ageing that elderly peopleused to regard as “normal“ are no longer simply accepted as inevitable– especially in industrialised countries. This opens up a huge market for“lifestyle drugs“ to combat age-related physical “inconveniences“. InGermany, for example, a 70-year-old spends five times as much on
Global population by age group Restrictions in EU member states
In European countries drug expenditure is usually determined by the
volume of contributions to healthcare schemes and/or the efficiency of
the state-operated or heavily state-regulated healthcare systems. Theyare organised either as state systems financed from tax receipts or ascompulsory insurance schemes subject to state intervention. Thereare also major differences between the level of care, which rangesfrom a state-administered basic level that can be topped up with a
supplementary private insurance policy to a comprehensive level of
In a number of European countries the use of lifestyle drugs is leadingto reimbursement problems for the statutory health insurance schemes.
On the one hand, the drugs can cure illnesses, but on the other
“wellness“ is not necessarily the job of a state healthcare system basedon the principle of solidarity. This is illustrated by the difference betweenreimbursement regimes: for example, the costs of Xenical, the obesitytreatment, are reimbursed in the UK but not in France, Norway orSweden. Greater individual initiative in the US
The US, by contrast, has a healthcare system in which most of the
population has private insurance. State-financed healthcare is onlyavailable to the elderly (Medicare) and the poor (Medicaid). The stateregulation of drug prices practised in European countries has never
Economics Demography Special
been tried in the US. Given the higher price of drugs in the US it is notsurprising that Europe’s major pharma groups are focusing more of
their activities on the US. The US market is the biggest in the world
and last year’s sales growth of 20% was around twice as much as in
Western Europe. The US also offers a more favourable research
environment – for example with close ties between industry andscience. According to the German Association of Researching Drug
Manufacturers (VFA), of the world’s 130 research facilities operated by
the 30 leading pharma companies 52 are located in the US, 21 in Japan,
16 in the UK and just 10 each in France and Germany. Around two-
thirds of all new drugs are developed in the US compared with onlyone-fifth in Europe.
On top of this, the US market is subject to far fewer legal constraintsthan is the case in Europe. In Germany alone there are some 60 laws,
ordinances and guidelines that form the legal basis for the
manufacturing and handling of drugs. Drugs are also subject to the fullVAT rate of 16%. This high level of taxation is only exceeded within the
EU by Denmark (25%) and Ireland (20%). In other countries (e.g. the
UK, Sweden, Austria, France and Italy) the sales tax is either much
lower or not even levied, at least on drugs whose costs are reimbursed.
The maker of a drug receives an average of 55% of the chemist’sselling price in Germany. The wholesaler‘s cut is currently 4%; thepharmacy retains 27% of the selling price and the state receives 14%. Total pharma sales worldwide
Healthcare expenditure in Germany is equivalent to nearly 11% of gross
domestic product, compared with around 13% in the US.
The EU is still a long way from having a single pharmaceuticals market.
On the one hand, the drug licensing procedures, which have been inforce since 1995, have made it easier to introduce drugs in individualmember states. On the other hand, however, there are differing rules
regarding pricing and reimbursement of drugs by the health insuranceschemes. In order to bolster the Europeans’ competitiveness relative
to the US, every opportunity for deregulation in the EU needs to beexploited. Otherwise, there is reason to fear that the European pharmaindustry will fall behind. This would be fatal because the business
affected would be a growth sector that has expanded much faster
than industry over the last ten years. Disposable income is a key determinant
The development of disposable income and drug consumption is closely
Global pharma markets*)
linked – especially in industrialised countries. On the one hand, risingprosperity creates the conditions for higher healthcare expenditure,
and on the other rising prosperity increases the risk of illness resulting
from higher consumption of semi-luxury goods and tobacco andunhealthy nutrition. The development of disposable income directly
impacts the sale of over-the counter drugs, but only has a limited impact
on the Statutory Health Insurance (SHI) market – via the copayments
2. Lifestyle drugs make the breakthrough
Although competition on the supply side of the international pharma
market is largely unfettered, on the demand side there is a highly
regulated health system. The market comprises both patented
pharmaceuticals as well as generics, which will also play an increasingly
important role in the lifestyle segment in the medium term. Economics Demography Special Increased supply of lifestyle drugs
The research intensity of the pharma sector is virtually unparalleled
Trend in market for lifestyle
and is a high-risk activity. As a rule pharma groups invest about one-
fifth of sales in research and development. According to the VFA, the
research and development of a new drug costs an average of USD
800m. More than half of this amount is spent on statutory clinical trials.
This is particularly relevant given that in drug research only around one
out of 5,000 substances makes it onto the market.
The desire for “wellness – right away“ has in the meantime permeated
the healthcare sector. The pharma companies‘ portfolios now contain
antidepressives, contraceptives and impotence treatments, weight-lossdrugs, anti-hair loss, smoking cessation products, and anti-wrinkle
treatments. In Germany nearly all of these are prescription drugsbecause this is automatically the case for such new treatments or
because their use is predicated on consultation with a doctor and thus
can only be supplied long term on prescription.
As with any other drug the “new pharmaceuticals“ can also causemajor side-effects if they are administered improperly – in the case ofthe impotence treatment Viagra these are headache and visualimpairments. However, this seems to bother only a few people. Totalsales of lifestyle drugs climbed from around USD 15 bn in 1998 tosome USD 20 bn in 2001. Tablet design is very important
Suppliers are paying more attention to the design of their pills in orderto achieve the ideal positioning of a drug in the battle for customers. Breakdown of lifestyle drug
Colour, shape and logo play an important role in this respect. In the US
in particular the “in“ lifestyle drugs are, for example, two-tone capsules,
sweet-like drops and asymmetric shapes. Where colour is concerned
psychology is a factor. That is why antidepressives are given pastel
shades and contraceptives are lavender or pink. As with other consumer
goods, product styling boosts recall potential, helps to build the brandand thus increases sales. Galenists perform the harmonising of form
and function. They are responsible for the physicochemical properties
of active ingredients, fillers, glazings and industrial manufacturing. Market development of special products
In the vanguard of this new generation of drugs came the impotence
treatment Viagra – which not only paid off for the US pharma giant
Pfizer. The drug had barely been launched in the US before American
physicians were writing out 40,000 prescriptions per day. So it is not
surprising that the company‘s share price more than doubled in the
first twelve months after launch. In Germany, too, pharmacies reported
a plethora of pre-orders before the drug was licensed in October 1998
– a lucrative business at prices of EUR 10 per pill. The drug is now
licensed in some 100 countries and has been prescribed over 45 million
times. In 2001 Pfizer booked Viagra sales of nearly USD 2 bn. (1998:
about USD 1 bn); in 2005 sales are forecast to be around 40% higher.
The drug is now as well known as Coca-Cola or McDonalds. The drug is
thus a blockbuster, i.e. Viagra has sales potential of over USD 1 billion
Sources: R euters, forecast: DB R esearch
The weight-loss drug Xenical from Roche also demonstrates howadditional growth can be generated. The development of this drug mayhave cost the company a lot of money, but the investment is likely topay off, for around 25% of the US population and 20% of Europeansare overweight. The advantage for the manufacturer is that the drughas to be taken permanently, because the patient‘s body fat starts to
Economics Demography Special
increase again as soon as consumption of the drug is stopped. In2001 the company booked sales of nearly USD 600 m with this drug;by 2005 sales are projected to rise to USD 1,400 m.
The most lucrative area of the entire lifestyle sector to date has beenthe booming antidepressives segment. The number of personssuffering from depression in Western industrialised countries reached
nearly 80 million in the year 2000 (1990: around 60 million) and is set
to continue rising in the coming years. Global sales in this segmentcurrently top USD 13 bn. By 2005 sales could rise to nearly USD 19 bn
(an increase of roughly 50%). Eli Lilly of the US generated sales ofover USD 2 bn with its drug Prozac in 2001. The drug is now off-patent
and competitors are rushing into the market with cheaper generics. They include – following years of litigation involving the maker of the
original drug – the US pharma company Barr, which sells its productsone-third cheaper than Eli Lilly. This substantially boosts demand forantidepressives – especially among consumers who were hitherto
unable to afford the expensive original product. Competition looks setto be equally intense in the coming years for other lifestyle drugmakers.
As soon as medicines go off-patent and find themselves competing
with keenly priced generics, sales of the original drug fall sharply and
the companies have to replace them by launching new products. Inthe Western European drug market Germany currently has the highestgenerics market share of 20%. In the US it is roughly twice as high. Managed Care – the catalyst
The marketing of the anti-wrinkle treatment Botox by the US pharmamanufacturer Allergan at ‘Tupperware parties‘ is a typical example ofthe deployment of Managed Care (total patient care and the formation
Trends in the lifestyle drugs
of “networks“ by service providers). At these parties where canapés
and champagne are served, participants can also have a Botox
treatment administered. Given that the drug has to be injected into
the problem skin zone the treatment is suprisingly popular. The averageprice charged by doctors for one treatment of USD 400 is very high.
Those who wish to be largely “wrinkle-free“ for a whole year face a
bill of USD 1,200, as the effect of a single treatment lasts for only
around four months. The company estimates that only 1% of the target
group of nearly 6 million people use the drug in the US as of yet.
Given the bright outlook for Managed Care, the international hotel
business is also investing heavily, because wellness, combined with
medical offerings, is attracting great interest in industrialised countries.
Lifestyle management is also becoming increasingly important. It was
conceived in the US and has established itself in Europe’s big cities. The “manager“ supervises an individual treatment programme using
a variety of specialists and lifestyle pharmaceuticals. This system isanother tool for providing improved marketing of special
Programmed for high growth
With their origins in the fitness trend the wellness- and health-relatedsectors are increasingly market-oriented and are thus generating a
plethora of new products and services. The high R&D spending andthe attention that many companies are paying to the lifestyle segmentshow that it has considerable growth potential. The purely quantitativesignificance of the lifestyle drug sector within the pharma industry isstill small. Lifestyle drugs currently account for just 5% of the globalpharma market. Nevertheless we forecast that by 2010 sales will haverisen up to 10% p.a. to over USD 40 bn, compared with USD 20 bn in
Economics Demography Special
2001. Their share of the global market should already have risen to 7%
by then. This means that the segment would be growing much faster
than the rest of pharma industry, for which we forecast an annual
increase of 5% to USD 590 bn. The pharma market as a whole should
grow by 6% p.a. to about USD 630 bn. The growth rate is slightly
lower than the average for the 1990s because of the dearth of
The individual lifestyle segments of anti-wrinkle treatments, weight-
loss products, impotence treatments and smoking cessation products
are likely to grow by between 10% and nearly 30% p.a. until 2010. We
forecast single-digit annual growth of between nearly 5% and less
than 10% for the antidepressives, anti-hair loss treatments and
Sources: R euters, forecast: DB R esearch
The pharmaceutical industry should remain one of the growth sectorsof the 21st century – in light of the unfolding demographic trend. Thepotential is huge as only 10,000 of the 30,000 known diseases can betreated adequately today. The increase in cost-saving measures in manyof the healthcare systems of industrialised nations cannot reversethis trend. These measures do, however, restrict the room for
The global pharma market*)
manoeuvre of all those involved in the drugs market.
In the coming years several strong-selling lifestyle drugs will go off-
patent so a large number of generics are likely to come onto the market
in this segment. They will cost far less than the original treatments –
as is the case with traditional medicines. This should help to generate
additional demand. In the medium term the pharma industry will open
up new areas for lifestyle drugs. For example, research is being carried
out on active ingredients for the dental sector, because the companies
know that specialising early in lucrative segments is the only way to
realise first mover advantages. The objective of US and European
pharma companies is to create a broader base and a larger share for
the lifestyle drug segment, which offers the tantalising prospect of
growth rates and earnings expectations above the average for the
overall pharma industry, because even in times of weak consumer
spending money is easily found to purchase lifestyle products. A visionfor the future is a drug that is tailored to the individual patient, as the
efficacy and tolerability of a drug differs from patient to patient due to
Sources: R euters, forecast: DB R esearch
Uwe Perlitz, +49 69 910-31875 ([email protected])
Economics Topic: pension provision
Old-age security systems in Europe are facing major challenges. One in particular results from demo-
graphic trends: the task of ensuring that the claims of growing numbers of pensioners on GDP can
be met. The large EU states on the Continent are inadequately prepared for the job. Germany, especially,must fundamentally reform its state pension system and substantially bolster occupational and perso-nal provision schemes by improving the regulatory framework.
Company pensions already make a sizeable contribution to retirement income in the Netherlands,
Switzerland and the United Kingdom. This speaks for the widespread use in those countries of
pension funds for old-age provision. However, the quite varied labour, supervisory and taxation practicesin the individual EU member states mean that a single market for pension funds is still a long way away. Japan’s silver generation: an example for Europe? A single market for occupational pensions Demographics and pension reforms in large Central and Eastern European countries The demographic challenge
Special edition for the readers of Frankfurt Voice
“Riester Rente“ off to a slow start - further reforms urgently needed Asset allocation for pension provision
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2003. Publisher: Deutsche Bank AG, DB Research, D-60272 Frankfurt am Main, Federal Republic of Germany, editor and publisher, all rights reserved. Whenquoting please cite “Deutsche Bank Research“. The information contained in this publication is derived from carefully selected public sources we believe are reasonable. We do not guarantee its accuracy orcompleteness, and nothing in this report shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgement of theauthor, and do not necessarily reflect the opinion of Deutsche Bank AG or any of its subsidiaries and affiliates. The opinions presented are subject to change withoutnotice. Neither Deutsche Bank AG nor its subsidiaries/affiliates accept any responsibility for liabilities arising from use of this document or its contents. DeutscheBanc Alex Brown Inc. has accepted responsibility for the distribution of this report in the United States under applicable requirements. Deutsche Bank AG Londonbeing regulated by the Securities and Futures Authority for the content of its investment banking business in the United Kingdom, and being a member of the LondonStock Exchange, has, as designated, accepted responsibility for the distribution of this report in the United Kingdom under applicable requirements. Deutsche BankAG, Sydney branch, has accepted responsibility for the distribution of this report in Australia under applicable requirements. Printed by: HST Offsetdruck Schadt & Tetzlaff GbR, Dieburg. ISSN Print: 1438-9185 / ISSN Internet: 1438-9193
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