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PHARMACEUTICALS

Pandemic-driven revenue growth has faded, but robust pipeline of new medicines will assure growth in the mid-term

L

LOW RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

What to watch ? 

  •  Aging population: The life expectancy at birth has been rising progressively and today it is at 73.2 years on average (75.6y for women and 70.8y for men). At the beginning of the century, the average was 67.1 years.
  • Growing population: The global population is currently at 8bn and this figure is projected to reach 8.5bn in 2030. The more people there are, the greater the number and frequency of new infections and diseases on the planet. This represents a persistent challenge for companies focused on doing research and development on new drugs and vaccines. To ensure sanitary stability, a lot of capital and human resources have to be invested.
  • Faster approval processes: The number of annual FDA approvals of new products has increased markedly, thanks to its initiatives to speed up the processes and make it more efficient. In the past four years (2018-2021), the average number of annual approvals was 53 products, while between 2014-2017 the average was 39 and between 2010-2013 it was 29.
  • Pandemic boost to sales eroding in 2023: Although 2022 was a good year for the sector (revenues grew by +7.7% y/y on average for the 15 largest pharmaceutical companies), a sales decline is expected in 2023 (-3.8% y/y), followed by a recovery in 2024 (+5.0% y/y).
  • Rivalry with generic drug-makers will intensify in 2023 as the number of expiring patents will be higher (vs the figures of 2021-2022). It is estimated that once a generic drug is available in the market, it can cut the revenue of the branded drug by around 70%-80%.
  • Competition will also grow from specialty drugs or biopharmaceutics, i.e. drugs manufactured from biological sources (living organisms such as microbial cells or plant cell cultures), implying higher production costs and therefore higher prices. Despite being more expensive, biopharmaceutical products are becoming popular, given their proved capacity to treat previously untreatable illnesses. In parallel, in the same way that branded drugs face competition from generics, biopharmaceutical products also face competition from biosimilars, which are an imitation (almost an identical copy) of original biopharmaceutics.
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Having proved its prowess to the world during the challenging times of the Covid-19 pandemic, the pharmaceutical sector experienced a boom in 2021 that continued in 2022, with revenues growing by +17% and +8% y/y, respectively, explained by the record speed at which laboratories managed to create new vaccines. With the health crisis behind us, 2023 revenues are expected to fall by -4%, with earnings also expected to be weak in the coming quarters. Yet, we believe the outlook for pharmaceutical companies is rather stable.

The main pillar for the industry to remain on its feet is innovation. There are still hundreds of diseases that cannot be fully prevented or cured, which means there is a lot room for science exploration and growth potential. Despite the revenue erosion expected for 2023, we expect the sector to continue investing in R&D to continue enlarging the product pipeline and assure growth in the medium and long term. Oncology will be the top focus as it is the number one source of income for pharmaceutical companies today. Immunology and diseases related to the metabolism such as diabetes are the two other segments that will see a lot of growth.

Because patents are constantly expiring (they last 20 years on average), it is crucial to continue innovating to obtain new ones that will allow manufacturers of branded drugs to remain relatively protected against makers of generic drugs. Generic drugs are increasing their share of some markets, especially in low-income economies.

Market growth expectations are not homogeneous by geography: In developed regions such as North America and Europe, market growth of +4% is expected between now and 2025, while Latin America and India are likely to see growth of around +11% and Africa +5.5%. This is explained by the increasing population in developing regions and by a growing middle class with greater access to healthcare.

In terms of consumption, the world’s biggest importers of pharmaceutical drugs are the US, Germany, Switzerland, Belgium and China. In terms of production, the US and Europe are by far the industry leaders. For instance, large American pharma companies generate around USD360,000mn of revenues per year, which is 1.1x higher than that of European peers and 4.3x higher than that of Asian peers.
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Drugs manufacturers:
a.    Active Pharmaceutical Ingredients (API): API is the part of any medication that produces the intended health effects. They are produced from raw materials with a specified strength and chemical concentration. Examples of APIs include: ibuprofen, loratadine, omeprazole and acetaminophen. All drugs are made up of two core components (APIs and excipients). The excipients are chemically inactive substances, such as lactose or mineral oil in the pill, which are used to help the medication remain stable and to control its absorption.
b.    Patented drugs (also known as branded or original drugs): Original drugs refers to drugs that have been approved for marketing after many tests and rigorous clinical trials (there are four phases before the post-market monitoring). This takes about 15 years of R&D and millions of dollars of investments. Only large multinational pharmaceutical firms are able to develop original drugs, which benefit from a patent period of 20 years. But once the patent expires, other manufacturers can start to produce generic versions of the drug.
c.    Generic drugs: Drugs that are not branded but that are very similar to a branded drug in terms of dosage, administration, safety and performance. Generic drugs tend to be cheaper and therefore more accessibl, since their manufacturers did not have to invest in discovering/creating a new formula but only replicate an existing one.
d.    Biotechnology: This is the merging of biology and technology, refering to the branch of applied science that uses living organisms and molecular biology to produce healthcare-related products. Today, approximately 17% of total drug revenue is derived from biopharmaceuticals, which are mostly used in oncology, metabolic disorders and infectious diseases. The term biopharma describes companies that use both biotechnology and chemicals in their R&D.

Contract Research and Manufacturing Services (CRAMS): The field encompasses those services in the pharmaceutical and biotechnology industries that require extensive R&D and large-scale manufacturing facilities. It is a clinical term used for referring to outsourcing and it is one of the fastest-growing segments in the sector today.

Drug marketing: This refers to the marketing of drugs and medical devices by private and public organizations to doctors, clinicians and consumers as drugs/treatments need to adopt particular marketing strategies to be sold effectively.

Contacts

 
Allianz Trade Economic Research
research@allianz-trade.com
Maria Latorre
Sector Advisor
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