Little benefit to pharma from G20 initiatives
pharmafile | April 22, 2009 | News story | Research and Development, Sales and Marketing |Â Â Datamonitor, strategyÂ
Any positive effect on the pharmaceutical industry derived from the G20 summit and European Union summit will be indirect and much of the direct healthcare spending increases will cover the cost of cheaper generics accessed through publically funded programmes.
Furthermore, emerging markets – previously targeted to drive revenue growth – face potentially crippling consequences from the downturn, say analysts Datamonitor.
On April 2, 2009, leaders from 19 of the world 's largest national economies, plus the European Union, met in London to discuss how to resolve the global economic downturn.
The delegation pledged to:
* Repair the financial system to restore lending
* Strengthen financial regulation to rebuild trust
* Fund and reform international financial institutions to overcome this crisis and prevent future ones
* Promote global trade and investment while rejecting protectionism, to underpin prosperity
* Build an inclusive, green and sustainable recovery
Although these initiatives will have a positive effect on the pharmaceutical industry, it will take time.
Government stimulus packages
While the G20 meeting offered little direct encouragement for pharmaceutical and biotechnology players, in February 2009, President Obama set out his US economic stimulus package, which contained a number of provisions designed to boost the healthcare system. These include an allocation of $40.8 billion towards health insurance for the growing unemployed population and an extra $89.7bn as a temporary increase in federal medical assistance. The reforms also include an expansion of the State Children 's Health Insurance Program and the more ambitious goal of achieving universal health coverage, which will have a net positive effect on the nation 's healthcare.
Similarly, part of the $100bn Japanese economic stimulus package, laid out by finance minister Kaoru Yosano in April 2009, included support for nursing and medical services. As a result of the European Union leaders meeting in March 2009, Bulgaria stated that it has increased its capital expenditure by $4bn for 2009, part of which will be directed towards healthcare-related projects.
Despite a much needed injection of healthcare funding, the overall picture still looks far from rosy for the pharmaceutical industry. Prior to the economic downturn, the industry 's projected revenues for 2007-13 were already forecast to grow by only 2.0% annually, compared to 8.2% between 2001 to 2007. This deceleration was attributed to the 2011 patent cliff, as well as missed launch opportunities. The industry now faces additional economic pressures, both directly and indirectly, as a result of the global economic downturn.
Future growth in the emerging markets impacted
The global economic downturn has not only affected rich nations, but is also crippling the economies of emerging markets. In 2008, China, India, Brazil, Mexico, South Korea, Turkey and Russia were set to grow by 14-15% from 2008 according to figures from IMS, compared with total pharmaceutical market growth through this period of only 4.5-5.5%.
This was the potential silver lining for the industry, which was to offset the approaching 'patent cliff ' of 2011. However, now even this growth opportunity is no longer a certainty, at least in the short term, with healthcare funds unlikely to support the buoyant double-digit growth previously predicted. Consequently, Datamonitor now expects the average annual sales growth of the top 20 pharmaceutical companies to fall below 2% over the next five years.
Enduring the recession
The pharmaceutical industry has already implemented a swathe of cost-cutting strategies, while as a result of the biotech funding crisis, many smaller companies face potential bankruptcy as traditional sources of funding (debt markets, public offerings, private placements and convertible bonds) are still largely closed for cash-burning firms. The industry will also struggle to justify the cost of expensive prescription drugs over the next few years, with greater pressure from payers to produce more robust pharmacoeconomic data.
Furthermore, due to the worsening economic conditions in the US, uninsured patients are now even less able to cover the costs of their healthcare. With the growing size of the uninsured population, patients are increasingly switching from branded to generic drugs where available, in addition to making other personal cost-cutting healthcare choices. All of these trends ultimately impact on pharmaceutical sales.
However, if the initiatives set out in the G20 summit reduce the severity and length of the recession, unemployment rates should be reduced. Particularly in the US, individuals will potentially regain their private health insurance status, eventually restoring pharmaceutical sales growth in the US to a level prior to the recession. Additionally, restoring the flow of working capital among financial institutions will have a significant impact on biotech and smaller pharmaceutical companies, which are currently facing a funding crisis. In fact, while this part of the industry will benefit from greater amounts of cheaper debt, it will reduce big pharma 's window of opportunity with which to acquire these struggling companies at potential bargain prices.
On balance, Datamonitor believes that the G20 leaders ' healthcare stimulus packages will have little direct positive effect for big pharma, as much of the spending will filter through healthcare systems, ultimately boosting generic drug volumes at the expense of branded players.
Related research
Future Pharmaceutical Industry Trends: Long-term opportunities tempered by short-term challenges priced $5,700, DMHC2497
Trends in Pharmaceutical Portfolio Management: Strategies to maintain profitability despite adversity priced $3,800, DMHC2449
Generic Benchmarking: Brand Erosion at Patent Expiry priced $7,600, DMHC2496
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