Revenues for brand-name drugmakers will rise just 2%-3% in 2014, forecasts
ratings agency Fitch, but it adds that global pharmaceuticals is still one of
its highest-rated industries, and that the sector outlook remains
“stable.”
Moderate pressure from patent expiries, cost-containment policies in the
European Union (EU) and weak employment in the US will be only partly offset by
uptake of new products and strong growth in emerging markets, it says in a new
report, which expects no significant divergence in the trend in profitability
between US and EU-based drugmakers next year.
Fitch also believes that industry will find patent expiry levels in
2014 to be “manageable.”
Patents on roughly $34 billion-worth of branded drug
sales are set to expire during the year - accounting for approximately 3.6% of
global market sales - compared to $28 billion this year and $55 billion in
2012.
Numbers of new product approvals have been weak this year; as of
November 30, the US Food and Drug Administration (FDA) had approved just 24
products, compared to 39 for the whole of 2012. Nevertheless, Fitch believes
that 2012-13’s new launches should help support immediate- to long-term growth
in the sector.
But it also expects cost-cutting in the sector to continue, aimed at
mitigating the effects which soft market dynamics are having on profitability.
While selling, general and administrative (SG&A) expenses are the primary
targets, R&D spending is also likely to be prioritised at firms including
Bristol-Myers Squibb, Pfizer, Merck & Co, AstraZeneca, GlaxoSmithKline and
Sanofi, possibly through late-stage development projects, collaborating with
other market participants or the prioritisation of pipeline candidates.
And while Eli Lilly & Co has said it will spend heavily on
R&D, “it could join its peers should pipeline successes fall short,” it suggests.
Companies are likely to continue divesting businesses that lack a
strong strategic fit or offer lower margins and growth rates. GSK has sold its
non-core brands and Pfizer has divested its nutritional and animal health
businesses, while others are pruning their business portfolios, with Novartis
intending to sell its blood transfusion diagnostics business to Grifols, and
Johnson & Johnson reportedly seeking a buyer for its clinical diagnostics
business, the study points out.
While these divestitures generally improve growth and margin
prospects, they also leave firms more narrowly focused, says Fitch, which
expects divestments in the sector to remain opportunistic and not to result in
any major portfolio reshuffles or extraordinary distributions to shareholders.