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Source: StockMonkeys.com via Flickr.

Everyone get your wallets out, because you're about to be paying more for your prescription medicines!

The idea of rising prescription drug costs isn't a new concept for consumers, especially Americans which have been paying well above the global average per year for their prescription drugs relative to other countries. Based on OECD and World Health Organization statistics, Americans pay 156% more for prescription medicines per year than the 34-nation OECD average.

In 2012 U.S. consumers got a bit of a reprieve, according to a report from IMS Health, with prescription drug spending falling for the first time in decades thanks to the patent cliff and the introduction of quite of a few generic medicines. Of course, the dip was short-lived with prices rising again in 2013, but it demonstrated just how critical a role generic medicines and choice play in controlling prescription drug prices.  

However, a new report issued this past week by IMS Health and prepared by the IMS Institute for Healthcare Informatics paints a brutally honest picture of where global prescription spending is headed over the next four years: up, up, and up some more! 

Prescription drug spending is about to hit a dubious mark
After global pharmaceutical spending hit $989 billion in 2013, a 24% increase from 2008, global pharmaceutical spending is expected to surge higher by $290 billion to $320 billion to roughly $1.3 trillion by 2018. That's right, global drug spending will dubiously be topping the $1 trillion mark!

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Source: Flickr user Scott Waldron.

According to the report the majority of this expected drug growth will be coming from developed markets like the United States, as well as what it refers to as "pharmerging" markets which are comprised of rapidly growing emerging markets, such as China, Russia, and Brazil. In fact, per capita spending in China is forecast to grow by 70% between 2013 and 2018. But to be clear, even with pharmerging markets expected to grow at 8%-11% per year, it's the U.S. pharmaceutical market that's the likeliest to drive global drug spending toward $1.3 billion by 2018. This is because 80% of pharmerging market growth will likely be attributed to non-branded medicines which typically have lower costs compared to innovative medicines.

Within the United States per capita prescription medicine spending is forecast to rise to nearly $1,400, which is more than double that of Germany and France, and more than 10 times higher than per capita spending in China. Overall, compounded prescription spending growth of 5%-8% will be slightly above the 4%-7% average predicted by the report, and will be markedly higher than what we've witnessed over the past five years.

Why is drug spending is expected to surge?
Why the surge in global pharmaceutical spending?

First, it has to do with the lessening of the patent cliff in the United States. Between 2009 and 2013 there were 155 small molecule products that lost patent protection in the U.S. that equated to $154 billion in total sales at risk. Over the next five years just 122 small molecules will lose their exclusivity with only $121 billion in total sales at risk of generic competition. Although some of these drugs are currently blockbusters, including Pfizer's (NYSE:PFE) anti-inflammatory drug Celebrex which is just weeks from losing its sales exclusivity, a reduction in the number of generic drugs being introduced is going to push prices higher.

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Source: Flickr user Ajay Suresh.

Secondly, IMS Health's report cites an expected strengthening in the global economy. As global growth improves pharmaceutical companies have more justification for raising their prices, especially in the U.S., given the assumption that improved economic activity should lead to more disposable income in consumers' pockets.

Third, and perhaps the most important ingredient to increased drug spending, drug development companies are focusing more than ever on specialized diseases and smaller patient populations which ultimately lend to higher drug pricing. Examples provided by IMS Health's report include cancer drugs, which are expected to hit $100 billion in sales by 2018, and hepatitis C therapies which are estimated to cumulatively bring in more than $100 billion in global sales between 2014 and 2018. IMS data from October showed that there are currently 182 experimental drugs in the pre-registration phase with the Food and Drug Administration, 462 experimental drugs in phase 3 studies, and a whopping 1,423 in phase 2 studies, including 374 oncology hopefuls.

Specialty medicines are especially important in developed countries like the U.S. and Japan where the standard of living is higher and consumers are expected to pay higher prices for their prescription medicines. In turn, pharmaceutical companies use their juicy margins in developed countries to help offset the highly subsidized drug prices offered in lesser-developed nations or countries which have prescription price caps, such as India.

What this data means
Ultimately this data means you're likely going to be paying more for your prescription medicines at the pharmacy counter or through higher rates with your insurer. It's a somewhat unwelcome revelation with the U.S. economy finally clicking on all cylinders.

However, this data also implies that investors could profit in a big way from this expected surge in pharmaceutical spending. As the study notes, cancer and hepatitis C therapies are projected to be among the fastest growing specialty drugs. This could present an opportunity for consumers to potentially recoup some or all of these higher costs through investing.

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Source; Gilead Sciences.

Think about a company like Gilead Sciences (NASDAQ:GILD) which may benefit for a long time to come from hepatitis C treatments Sovaldi and Harvoni (Harvoni is a cocktail drug combining Sovaldi and ledipasvir). These newly approved hepatitis C medicines are giving patients with genotypes 1 through 3 the opportunity to take a pill to rid themselves of detectable levels of HCV within eight to 24 weeks (depending on genotype and previous treatment history) without the need for interferon or in some cases a ribavirin. This eliminates a number of the unpleasant side effects associated with the previous standard of care.

Through the first three quarters of Gilead's fiscal year Sovaldi has brought in $8.55 billion in sales, and whatever reduction Sovaldi sees in sales going forward is probably going to go to Harvoni. With some 180 million people around the globe infected with HCV, Gilead could serve a dual purpose of being the curer of a chronic disease, and bringer of great profits to investors.

Cancer drug developers may offer an even wider moat of choices. Two examples that quickly come to mind are Pharmacyclics (NASDAQ:PCYC) and Johnson & Johnson's (NYSE:JNJ) Imbruvica and Merck's (NYSE:MRK) recently approved anti-PD1 inhibitor Keytruda.

Imbruvica, which was developed by Pharmacyclics and is licensed by J&J, delivered absolutely remarkable response rates in clinical studies for various types of blood cancers that has led to improved patient quality of life. Furthermore, Imbruvica may have even more potential as a combination therapy. Peak annual sales estimates for the drug have reached as high as $9 billion on Wall Street.

Keytruda

Source: Merck & Co.

Merck's Keytruda is another recently approved drug. What's unique about Keytruda is it's one of the first cancer immunotherapies approved in the U.S. Immunotherapies work by retraining the body's immune system to recognize cancer cells that would otherwise go undetected. Although Wall Street's excited about its potential to help advanced-stage melanoma patients, I'm curious to eventually see trial data on Keytruda as a treatment for non-small cell lung cancer.

Long story short, IMS Health's report implies there will be plenty of ways for healthcare investors to profit going forward, but that we'll also need to have our wallets handy when heading to the pharmacy.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.