The COVID-19 pandemic had a mixed impact on the pharmaceutical sector, with a surge in demand before lockdowns and a decline during lockdowns. Global pharmaceutical sales rose by 1.2% in 2020, but sales soared by 10.2% in 2021 due to the development and rollout of COVID-19 vaccinations. Over the 2022-2026 forecast period, pharmaceutical sales are expected to grow at a compound annual growth rate of 4.9%. One driver for pharmaceutical spending will be the continued need to purchase vaccines to combat COVID-19. Other drivers include demand for oncology, neurology and immunology products, as well as diabetes treatments.
The pharmaceutical sector experienced a mixed impact from the COVID-19 pandemic. In 2020, the demand for over-the-counter and in-hospital medicines decreased due to lockdowns and the postponement of non-COVID care. However, the sector experienced a surge in demand before lockdowns as patients, pharmacists, clinics, and hospitals stocked up on medicines. Overall, global pharmaceutical sales rose by just 1.2% in 2020, according to EIU calculations. In 2021, the industry developed and rolled out COVID-19 vaccinations in record time, buoyed by global demand for shots, as well as the partial lifting of lockdowns. As a result, global sales of pharmaceuticals soared by an estimated 10.2%.
For the 2022-2026 forecast period, it is expected that pharmaceutical sales will grow at a compound annual growth rate (CAGR) of 4.9%. This is slower than the anticipated growth in overall healthcare spending, reflecting the pricing pressures that will come from tight government budgets and the after-effects of the global recession in 2020. The forecast is based on the trends seen in the wake of the global economic crisis of 2008-09 when pharmaceuticals bore the brunt of cost-cutting in healthcare as countries took advantage of the wave of patent expiries.
One of the drivers for pharmaceutical spending will be the continued need to purchase vaccines to combat COVID-19. The UN estimates that 12.3 billion doses will be available in 2023, up from 11.6 billion in 2021. However, monthly deliveries have fallen sharply throughout 2022 as vaccine hesitancy and a drop in public concern about the virus have slowed vaccination programs. In June 2022, the World Trade Organisation (WTO) announced a partial waiver of intellectual property rights (IPR) for COVID-19 vaccines, including mRNA technology. Although this will have no immediate impact on production, it will encourage some major players in the market to scale back their involvement gradually.
Other drivers of pharmaceutical spending will include demand for oncology, neurology and immunology products, as well as diabetes treatments. Demand for orphan drugs will remain strong, particularly for blood cancer treatments such as Johnson & Johnson’s Imbruvica and Darzalex. In 2021, over half of the new drug approvals in the US were for orphan or rare diseases. Some of these medicines are likely to move from being niche products to become blockbusters.
In 2022-26, pharmaceutical spending will rise in US dollar terms in all the 60 markets monitored. The US will remain the largest pharmaceutical market in the world, accounting for 35% of sales, but market growth there is likely to be below the global average, at 4.6% in 2022-26. The fastest growth in US dollar terms is likely to be in China, Ireland, and Venezuela. In regional terms, the fastest-growing markets will be Asia (averaging 5.6% per year) and central and eastern Europe (6%). The slowest will be Europe, with growth averaging 4.5% per year. However, Europe will maintain its share of total sales at about 22% in 2026, compared with 29% for Asia and 38% for North America.
Globally, pharmaceuticals will account for nearly 15% of total healthcare spending. This share will be just 12.5% in North America and 13.7% in western Europe. However, in central and eastern Europe, pharmaceuticals will make up about 36% of total healthcare spending, reflecting this region’s reliance on medicines by healthcare practitioners and patients, as well as pricing practices by pharmaceutical companies. It also reflects the prevalence of parallel trade, whereby drugs are bought locally for export to higher-cost markets. Reducing the level of pharmaceutical spending in this region has become a policy priority, but is proving difficult.
The US pharmaceutical industry faces modest sales growth due to pricing pressures, with both Trump and Biden administrations trying to address the issue. Other countries, like Canada, the UK, Germany, and China, are also implementing measures to curb pharmaceutical pricing. However, rising costs caused by supply-chain issues and the pandemic remain challenges. Patent expiries from 2022 to 2026 may provide opportunities for generics and biosimilars, but supply-chain problems have stalled growth in the generics industry.
The global pharmaceutical industry has been relatively unaffected by the pandemic, with some companies benefiting from Covid-19 treatments and vaccines. However, a slowdown in spending and a decrease in M&A activity signal a potential end to the boom period. International trade in pharmaceuticals faces challenges due to geopolitical trends, rising trade barriers, and increasing localization of production and supply chains.
Despite setbacks caused by the pandemic, R&D remains a focus for innovative pharma companies. The US FDA and European Medicines Agency continue to approve new drugs, with cell and gene therapy providing significant opportunities for pharmaceutical companies.
The pharmaceutical industry in the US is facing modest sales growth due to increasing pricing pressures. While both the Trump and Biden administrations have attempted to address pharmaceutical pricing, the industry has successfully blocked many of their efforts. Biden plans to cut drug prices and may have more success with his plan to allow Medicare to negotiate directly with drugmakers.
Other countries are also trying to bring down pharmaceutical pricing. Canada has announced plans to set up a new Canadian Drugs Agency to assess the effectiveness of new medications and co-ordinate drug purchases for provinces. The UK has implemented a five-year deal that caps growth in total pharmaceutical spending at 2% a year, with rebates given for overspending. Germany has extended its price freeze on reimbursable medicines, while China has aggressively cut prices and expanded its reimbursement lists.
Despite these efforts, pricing remains difficult to contain due to supply-chain problems and rising costs caused by the pandemic and geopolitical issues. Pharmaceutical producers will be forced to pass these costs onto consumers and payers. Countries are encouraging the reshoring of pharmaceutical production, but this may reduce savings from international trade. However, patent expiries from 2022 to 2026 may provide opportunities for payers to save more from the launch of generics and biosimilars.
Evaluate Pharma calculates that US$198bn in drug revenue is at risk from patent expiry in 2019-25, with 2023 marking the next peak. In 2022 key patents expire for Celgene’s chemo‐therapy drug, Revlimid (lenalidomide) and Eli Lilly’s Alimta (pemetrexed) lung cancer treatment. In 2023 Abbvie’s Humira (adalimumab), an anti-inammatory that is the world’s best- selling drug with US$20.7bn in annual sales, will face competition from nine biosimilars. Merck’s diabetes drug, Januvia (sitagliptin), will also lose market exclusivity in the US. However, the next big patent cli will not arrive until 2028, when key US expiries will include those for two PD-1-targeting cancer therapies: Merck’s Keytruda (pembrolizumab) and Bristol- Myers Squibb’s Opdivo (nivolumab).
This trend will also aect fortunes in the generics industry, where growth stalled during the pandemic owing largely to supply-chain problems. Teva (Israel), the world’s largest generics company, has struggled more than most. It had already been hit hard by the expiry of several US patents for its best-selling multiple sclerosis drug, Copaxone (glatiramer acetate injection), as well as its costly acquisition of Allergan’s generics business. In 2021 Teva’s revenue edged down again, as it did at Novartis’s generics unit, Sandoz (the second-biggest generics producer). Other generics producers fared better, but hopes for stronger recovery have been dampened by the sharp rise in input costs.
The main hope for generic manufacturers comes from biosimilars (copies of biotech drugs), which fetch higher prices than conventional generics, albeit in return for higher development costs. Developing countries are also rapidly expanding their use and production of biosimilars; according to McKinsey, a global management consulting rm, about 70 are now marketed in India and more than 40 in China. One danger, however, is the slowing rate of approvals. In 2019 the US Food and Drug Administration (FDA) approved ten biosimilars—down from 15 in 2018. In 2020 the number dropped to just three amid the pandemic, rising to just four in 2021.
The global pharmaceutical industry has been among those least aected by the pandemic. Amid the early lockdowns, some companies beneted from stockpiling, while sales of others were hit by the decline in non-covid care after access to clinics, hospitals and pharmacies became limited. However, in recent months an increasing number of pharmaceutical companies have beneted from the work that they have put into developing treatments and vaccines for covid-19, as well as other new therapies. Pzer, for example, saw net prots more than double in 2021, as did AbbVie (US).
There are several signs that this boom period is drawing to a close. We are forecasting that pharmaceutical spending will slow sharply in 2022, and pharma companies’ forecasts are also becoming less bullish. Although the industry continues to consolidate, the number of mergers and acquisitions (M&A) has slowed sharply during the pandemic. According to Fierce Pharma, the pharma industry’s daily monitor, the top ten biopharma M&A deals in 2021 were together worth US$53bn, down from US$97bn in 2020 and far short of the US$207bn spent in 2019. Deals appear to be falling further in 2022—down by 30% in the rst half of the year, according to PwC, an accounting rm. Activity is increasingly focused on health technology and digitalisation, rather than targeting new drug pipelines. Venture capital investment is also drying up, prompting many smaller pharmaceutical and biotech companies to start cutting sta.
International trade
In 2021 (latest data) international trade in pharmaceutical products totalled nearly US$750bn, according to UN Comtrade, the UN’s international trade statistics database. This compares well with US$690bn in 2020 and US$640bn in 2019, with exports of covid-19 vaccines playing a major role in the increase. However, it was down from US$830bn in 2018, as a result of rising trade barriers and investment in local production, particularly in fast-growing China. Over the forecast period growth in pharmaceuticals trade will continue to be held back by geopolitical trends, including the localisation of production and supply chains, in some cases backed by government incentives.
This trend pre-dates the pandemic. Tax reforms in the US, approved in December 2017, encouraged investment in US production and research by cutting the tax rate for repatriated prots and introducing a tax credit for R&D. In Russia the government had already set a goal back in 2011 to raise the share of domestically produced drugs in the local market from about 20% by value to 50% by 2021. At the time 90% of Russia’s drugs were imported. The pandemic and the war in Ukraine have given these policies new impetus. In June 2020 the French government unveiled a reshoring action plan, starting with project to increase local production of paracetamol. The US is also looking at new ways to promote domestic investment in healthcare manufacturing. Countries in Asia are making similar moves; Indonesia, for example, wants to attract investment in medtech and pharmaceuticals.
At the same time trade barriers are rising, albeit inconsistently. The US-China trade war has become less vitriolic under Mr Biden, but has not disappeared. The pandemic has created opportunities for vaccine diplomacy, with China (among others) keen to oer its vaccines to key allies across Asia, Latin America and Africa. However, it also heightened concerns about shortages of certain medicines and medical equipment, prompting some countries to try to restrict exports. The EU, for example, imposed export barriers early in the pandemic for personal protective equipment, and then moved to do the same for vaccines in early 2021. Other countries, including India, have made similar moves. Globally, there will be closer scrutiny of product standards for importers and of investment decisions by local companies over the forecast period. Europe implemented its Falsied Medicines Directive in 2019, tightening up its controls. The US has barred imports from several Indian producers over the past few years, as well as rescinding India’s status under the Generalised System of Preferences programme.
For many innovative pharma companies, R&D will remain the focus over the forecast period. Drug development programmes were pushed back by the pandemic, with several companies forced to postpone clinical trials to comply with social distancing rules. Many companies were forced to nd new remote ways to enrol and manage trial participants, some of which will outlive the pandemic. New drug approvals have continued to move along, however. The US FDA approved 55 novel drugs in 2021 (as well as ten new Biologics Licence Applications). This compares with 53 in 2020 and 54 in 2019 but is below the 62 novel drugs greenlit in 2018. The European Medicines Agency has also been busy, issuing a positive opinion on 96 drugs in 2020—the highest total in four years. Although approvals fell slightly in 2021, to 90, approval rates should continue to be robust. The line-up of cancer drugs in late-stage development is extensive, and the US continues to speed up new-drug approval and boost the presence of biosimilars and generics.
Opportunities in cell and gene therapy will mature over the forecast period. Cell and gene therapies have continued to gain importance for Novartis and Roche, among others. Most of the companies in the top 20 have a strong portfolio in oncology, immunology, rare diseases and vaccines—all target areas beneted by cell and gene therapy. In the next four years new launches will be important focus points for companies such as Pzer, which has seen large patent losses and a reorganisation. Meanwhile, deals in cell and gene therapy accelerated in 2020-21, including Bayer’s US$4bn deal to acquire Asklepios BioPharmaceutical, and Roche’s US$1.8bn licensing deal with Dyno Therapeutics.
