PHARMACEUTICALS

The pharmaceutical sector has been getting through the Covid-19 pandemic rather well. The drug industry benefits from the strong support from states around the world for keeping their populations healthy. State support has materialized in the form of significant spending to contain the outbreak. This has helped hospitals buy more medicines and additional medical equipment, making it possible for drug makers to strongly focus their research and development efforts on discovering either a new drug or vaccine to cure the disease. Global drug sales are forecast to hit USD928bn in 2020 compared to USD880bn last year. Due to increased public support in healthcare policies, they are expected to rise by +6% to USD985bn in 2021, twice as much as the average growth rate of the market over the last decade.      

There are four main segments of medicines to be considered in the industry: Prescription drugs, which require a doctor’s prescription; generics, which benefit from off-patent medicines but still request a physician’s prescription; over-the-counter medicines that do not need any prescriptions and orphan drugs intended for the treatment of rare diseases, out of which more than half are biological and usually used in hospitals as a result. Prescription drugs account for 70% of global pharmaceutical sales, while orphan ones account for 15%. In terms of sales growth, the former is expected to go up a little less than 6% while the latter is expected to rise by around 11% between 2020 and 2021, fueled by its (much) higher price on average.

All drug makers do have to cope with governments’ tightening cost controls over drug price-fixing. This is especially the case for Big Pharma as these companies struggle relentlessly to overcome political hurdles related to drug price-gouging. They might not feel comfortable anymore with spending high amounts on R&D or with buying out too expensive biotech firms, had their pricing power been addressed by legal regulatory frameworks rather than themselves. Besides, they will have to face the risk of the re-localization of some producing activities in medicines considered as strategic by governments. This new risk is related to repatriating active pharmaceutical ingredients of prescription and generic drugs usually produced in low-cost countries. However, this can be seen also as an opportunity for drug makers to gain some scope for bargaining drug price levels in exchange for complying with the requirements of mature countries’ governments.