Global economic downturn has been looming since the end of COVID-19 however, the Pharmaceutical market is one of the few sectors that has flourished recently. This article will discuss whether this is still the case and how sudden changes in global markets will affect the industry moving into 2023?
In 2022 alone, inflation rates across the USA, EU and the UK ranged from 5.5% (UK) to 7.5% (USA). Correspondingly, central banks started to alter interest rates as a response to slow spending, attempting to influence consumers into a mode of encouraged saving. For Pharmaceutical organisations this could lead to either:
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Increasing prices of products at a slower rate
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Lowering prices to force stimulated demand
Has the current economic slowdown and fiscal policies impacted the Pharmaceutical and Life Science space?
The impact of an impending economic crisis on the Pharmaceutical and Life Science space can be seen in these areas:
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There has been a subsequent increase in several integral price points in production
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Higher costs of raw materials has led to an overall decline in profit margins in the latter half of 2022
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Prices are regulated amongst both prescription and generic products in the Pharmaceutical market, but as prices for trial at Preclinical and Clinical level increase at every stage, there is a domino effect on prices and the top margin level of profit
Reports by GlobalData have found that many countries including Germany, Australia, Spain, France and Japan have seen branded drug names fall in pricing at a range of 2% – 9%, with the USA being the only exception to have seemingly avoided this global trend. With pricing pressures building this is a significant issue which can have a knock-on effect for consumers, specifically regarding availability for medication which can lead to a cost on consumer health and wellbeing.
How has inflation impacted Pharmaceutical Manufacturing?
With inflation being <7% across many European regions, we have seen a significant impact on the pricing of manufacturing of all Pharmaceutical products:
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30% – 65% increase in energy prices
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500% increase in logistics and transportation of products
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50% – 150% increase in raw materials
With the increase in inflation, some of the largest names including Viatris, Johnson & Johnson, Bayer and GlaxoSmithKline are being challenged to find a solution to lower inflation. Calls have been made to EU commissioners by some of the largest Pharmaceutical names globally to help alleviate the price issues, requesting a more sustainable approach through different policies to help aid the impacts of rising costs and reformation of EU drug pricing models.
The companies mentioned above – Viatris, Johnson & Johnson, Bayer, GlaxoSmithKline and others – are also tackling higher prices faced by their businesses. The effect of higher costs due to inflation had a major role in Viatris’s lower-than-expected profits for 2022. Similarly, in Bayer’s fourth-quarter conference in March 2022, CEO Werner Baumann said that the company is noticing “increasing inflationary pressure and volatility of global supply chains across industries.”
In recent years, the global economic climate has fluctuated and been unpredictable, and the Pharmaceutical and Life Space has undoubtedly witnessed an increase in prices, inflation, and material and production costs. As 2022 is drawing to a close, companies within this space will be working towards s 2023 strategy to handle these rising costs while keeping the consumer need at the forefront.
Mantell Associates is a Pharmaceutical and Life Science headhunting firm. If you are looking for the right partner to enhance your firm’s Board or Finance team, get in touch with Fernand at +44 (0)20 3854 7700 or fernand.desjarlais@mantellassociates.com.