Credit, collections & insolvency news
Global demand for pharmaceuticals remains strong, but the UK will need to reassess impending risks, according to leading credit insurer, Atradius.
Throughout 2020, the UK’s pharmaceutical industry surged its value-added output by 13.6% – leading to a 13% boost above the 2019 pre-pandemic level. And although year-on-year growth in this sector levelled off in 2021, the healthcare industry grew a further 17.9%. Both industries are set to continue this increase by a combined 3.5% in 2022.
With a large share of the global population still unvaccinated, production of the COVID-19 vaccine is likely to remain high in the coming years. Both the ongoing pressure in favour of the booster rollout, and demand for pandemic-related drugs, are expected to provide high-profit margins for producers and to a lesser extent for wholesalers and pharmacies.
The large backlog of non-COVID-related hospital treatments over the past three years will also feed into demand, reports Atradius. Government efforts to cut back long waiting lists through a major catch-up programme should help sustain pharmaceutical output in the short term. Ageing populations, particularly in developed countries, will also add to demand in the mid and long-term, particularly for producers of chronic disease medicines.
Globally, Asia-Pacific has the highest growth rates compared to other regions. Last year countries in this region saw a staggering 19.9% growth and Atradius forecasts they are likely to maintain this lead with a strong 7% year-on-year growth forecast in 2024. The report suggests this dominance by Asia-Pacific regions is likely not only a result of their many developed markets, but also the potential of their emerging markets. Improvements in healthcare systems and an increase in disposable household income could see pharmaceutical demand in emerging markets growing at an exponential rate.
Despite a global increase in demand, risks still remain. Patents for some of the most recognisable drugs in the industry are set to expire over the coming decade. Producers of brand-name drugs are expected to increase their research and development (R&D) spending to seek out future blockbuster opportunities. Though this is promising for some, Atradius warns that profits could decline for brands that aren’t able to reduce costs or introduce alternative products in time.
Governments could also play an instrumental role in shaping the future of the pharmaceutical industry. Budget constraints could result in cuts to public healthcare which would, in turn, put pressure on sale prices and impact investments, given the high costs of developing new drugs. One other significant outcome of cost pressures includes the rising imports of cheaper pharmaceutical products. In particular, the report indicates this as a possible constraint for UK businesses that are already struggling with restricted border checks and regulatory burdens as a result of Brexit.
Other risk factors include rising pressure from environmental activists, increasing healthcare regulatory requirements and longer payment terms imposed by the public health boards.
Emyr Jones, sector expert in Pharmaceuticals at Atradius UK & Ireland, said: “Unlike many other industries throughout the pandemic, the pharmaceutical sector has performed incredibly well. Subsectors including producers, distributors, and drugstores have all benefitted and due to the low credit risk and robust demand over the past three years, our cover remains open across all segments. The success of the UK’s COVID-19 vaccination rollout has heavily contributed to an increase in the industry’s value-added output and profit margins.”
“However, non-payments and insolvencies over the next 12 months are expected to rise. Government support schemes are continuing to end and pressures on the NHS remain due to a large backlog of medical treatments. Although this is likely to sustain industry growth, risks do remain, and businesses should be looking to futureproof themselves against the unexpected. If there’s one thing we’ve learned since the start of the pandemic, it’s that nothing is certain.”
