Blockbuster drugs and new technologies such as cell therapy will increase pharma revenues and expand the sector’s profit pool by 35% to $170 billion by 2024. With an overall 26% operating margin, pharma continues to be one of the most profitable healthcare sectors. Through 2024, margins are expected to stay flat for branded drugs (34%) and over-the-counter products (19%). Lower prices and competition will shrink the profit pool for generic drugs. Pharma services are likely to see margins rise to 17%, up from 14%. Several key trends affecting pharma profits:
- Specialty medicines will power revenue growth, with R&D focused on three high-value areas: oncology, rare diseases and neurology.
- The market for gene and cell therapies could double to $2 billion by 2024, but as these therapies cure patients, profit pools may start to shrink.
- Expiring patents will erode branded drug sales. By 2023, 18 of the current top 20 branded drugs will be facing generic or biosimilar competition.
- Generics continue to take market share from branded drugs, but the rate of substitution is likely to plateau in the US, as 90% of US prescriptions already are generic.
Jason Evers and George Eliades are partners in Bain’s Healthcare practice. Jason is based in the firm’s Chicago office and George is located in the San Francisco office.