Keeping ahead in an increasingly competitive global market

PHARMACEUTICALS:As fears of the patent cliff subside, the industry can look forward to growth but challenges remain

Global pharma companies won’t fall off the cliff, Standard Poor’s opined recently. It wasn’t the fiscal cliff on the edge of which many believe America still teeters to which the ratings agency was referring but the patent cliff.

Big pharma has been living in dread of the expiry of patents on a generation of blockbuster drugs which have delivered a large portion of profits for the sector in recent years. However, in an industry report card on the sector, SP said most pharmaceutical firms would survive unscathed.

According to the agency, the major US pharmaceutical groups – almost all of which have business in Ireland – were expected to have lost a total of about $21 billion in revenues last year as a result of drugs such as Pfizer’s market-leading Lipitor coming off patent. Their European peers were on course to lose $10 billion.

“However, their third-quarter financial results confirmed that most companies are on track to achieve low single-digit sales growth this year on a comparable basis,” authors Olaf Toelke and Michael Berrian said.

SP expects the industry to deliver growth of between 3 and 5 per cent over the next five years on a compound annual growth rate basis. In the context of the dread over prospective catastrophic losses due to the patent cliff and a wave of consolidation in a sector desperately seeking a more promising pipeline of new drugs, that would seem to be a very promising outlook for the sector.

But challenges remain.

Not least of those is the uneven nature of likely growth in the sector. While North America is pencilled in to report annual growth of between 2 and 4 per cent, the forecast for Europe is much more gloomy, with estimates ranging from stagnation in sales to just 2 per cent. Notably, there is little prospect of drug price increases in the European market as health providers, mostly state-owned, come under increasing pressure and demographics drive healthcare costs ever higher.

So where is the bulk of the growth coming from? Emerging markets, where growth of between 12 and 15 per cent per annum over the next five years is expected. That raises very specific challenges for a country like Ireland with a focus very much on the developed world.

That, in large part, explains the drive by the state development agencies and local pharmaceutical plants to drive Ireland’s pharma cluster up the value chain.

Matt Moran, director of PharmaChemical Ireland, the Ibec-based industry lobby group, explains. “The Bric countries will be asking, almost forcing, companies to set up sites there. That’s how they operate. If you want to sell in Brazil, you need to have a plant in Brazil and that’s a real threat for Ireland. All you can try to do is hold the supply chain. It’s really a question of trying to get the Irish site centre stage so that it doesn’t matter if business goes to China, we can somehow hold the value and hold enough activity.”

While employment in the sector is not likely to increase exponentially, Moran believes we can hold on to much of what we already have by making ourselves “sticky” – less easy to let go. Critical to this, he sees, is identifying key niche areas and working more closely with our primary healthcare sector.

PharmaChemical Ireland has recently published a new strategy document – Ireland: Strategy In Action – which it believes points the way forward.