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.