The outlook for the global pharmaceutical industry will remain stable over the next 12 to 18 months with the expectation that the sector will return to earnings growth in 2013, according to Moody’s Investor Service.
In its report, “Global Pharmaceutical Industry: Return to Earnings Growth in 2013 Keep Outlook Stable,” the rating agency said it has had a stable view for the global pharmaceutical sector since September 2012. A year ago, however, the outlook was negative as potential revenue was seen as likely to be offset by losses from expirations of major patents, known as the patent cliff.
Marie Fischer-Sabatie, a vice president and senior credit officer in Moody's Corporate Finance Group and author of the report said in a press release about the report that because fewer top-earning drugs will lose patent protection this year, the global pharmaceutical industry is expected to experience a return to earnings. The projected growth of earnings before interest, taxes, depreciation and amortization (EBITDA) for rated pharmaceutical companies will be about 1 percent in 2013 on average, she said in the release and also noted that an acceleration in earnings growth is expected in 2014 as the negative effects of the patent cliff recede.
The quality of late-stage drug pipelines is improving overall, Moody’s noted. A number of promising and innovative drugs could drive new sales growth in 2013-14, including oral treatments for hepatitis C, easier-to-administer drugs for multiple sclerosis and drugs that are more effective in treating certain types of cancer.
Merger and acquisition (M&A) activity is also likely to pick up in 2013. Some companies, such as Roche Holding AG, Pfizer and Novartis, have reduced enough debt following large transactions and could resume shopping for acquisitions as they have built up large cash balances. However, such acquisitions are expected generally to be small to mid-sized rather than transformational, the report said.
Industry winners in 2013 will continue to be companies that concentrate on generics and benefit from patent expirations but not to the extent as the past two years, when a slew of blockbuster drugs came off patent. Generic drug use is rising globally, but falling prices and higher costs associated with producing more complex drugs are likely to cut into their profits.
U.S. efforts to reduce budget deficits and persistent pricing pressures from healthcare reforms, in Europe in particular, will continue to pressure revenues of pharmaceutical companies, Moody’s said.
The Food and Drug Administration’s pathway for biosimilars will likely become clearer in the U.S., opening the door to regulatory filings this year, the report said. Biosimilars are defined as “interchangeable” with an FDA-licensed biological product. Biological products are generally made from human and/or animal materials, while prescription drugs are made through chemical processes.
In Europe, the creation of a pathway for copies of complex biotech drugs could lead to at least one biosimilar being ready for launch when the patent on Remicade expires in Europe in August 2014, Moody’s said. Merck & Co., Inc. markets Remicade in Europe, while Johnson & Johnson markets the product in the larger U.S. market.