January 2024

Industry trends
Pharmaceuticals
Ageing populations,emerging markets
and new products
drive growth

Global overview
Output and sales growth pick up in 2024
Global pharmaceuticals output growthslowed to just 0.5% in 2023 - after awhopping 17.3% increase in 2021 and 6.8%
in 2022. This spike was driven by themassive production of Covid vaccinations.
In 2024, we expect global output and sales
to increase by 4.6% and 5.1% respectively,
mainly driven by the Asia Pacific region.
Vaccine production will continue to support
growth, although at a lower level than inprevious years.

Producers of speciality products, medicines
for chronic conditions and genericdrugs will find opportunities for growthamong ageing populations. Producersof medication for weight-loss are facing
growth predictions of more than USD
75 billion by 2030. Improving access tohealthcare within emerging markets will
also support pharmaceuticals’ output andsales.

to reduce fiscal deficits and government
debt levels is also likely to affect publichealthcare spending. Some markets
including the EU, US and UK are imposing
new or revised drug pricing regulations ina bid to lower state healthcare costs. This ismeeting some resistance from the industry,
which argues regulated pricing could
impact their ability to invest in R&D.

Potential constraints aheadHigh inflation and interest rates have been
impacting household spending power,
leading to lower demand for products suchas over-the counter medicines. The needThat said, in general the industry has
robust equity, solvency and liquidity. Most
pharmaceuticals and biotech businesses
are able to enjoy good access to externalfinancing to help sustain high R&Dexpenditures.

Asia and Oceania

AmericasIndustry performance forecastEurope

1

Austria

Netherlands

Australia

New ZealandBrazilBelgium

PolandChina

Phillippines

CanadaCzech Republic

PortugalHong Kong

Singapore

MexicoDenmark

Slovakia

India

South Korea

USA

FranceSpain

Indonesia

TaiwanGermany

SwedenJapan

ThailandHungary

Switzerland

Malaysia

VietnamIrelandTurkeyItaly

UK

Excellent
The credit risk situationin the sector is strong /business performance in thesector is strong compared toits long-term trend.
GoodThe credit risk situationin the sector is benign /business performance in thesector is above its long-term trend.
FairThe credit risk situationin the sector is average /business performance in the
sector is stable.
PoorThe credit risk in the
sector is relatively high /business performance in the
sector is below its long-term trend.
Bleak
The credit risk in the
sector is poor / businessperformance in the sector is weakcompared to its long-term trend.

January 2024

Industry trends
Pharmaceuticals
Pharmaceuticals
key figures

2022

Production
Gross output (sales)(real, USD)

6.8

6.9

2023*

0.5

-0.2

2024*

2025*

4.64.55.1

4.8

Pharmaceuticals
output per region

2022

Americas0.8

Asia Pacific

-2.0

2023*

6.4

2024*

2025*

1.3

1.8

9.1

8.0

3.3

3.3

1.6

2.9

-2.7

17.5
Investment(real, USD)

-1.8

Gross operating
surplus (profits)

-4.4

0.6
5.5

Year-on-year, % change / *forecast

5.0

2.7

4.6

8.1

Source: Oxford Economics

EuropeMiddle East& Africa

0.1

-7.4

5.0

Year-on-year, % change /*forecast

Source: Oxford Economics

Strengths and growth drivers

Constraints and downside risks

Structural resilience. Pharma products are essential and areusually less affected by economic downturns than other morecyclical sectors.

Upcoming patent cliff. The top 15 blockbuster patents will expire
over the next decade. Producers of brand-name drugs are likely
to increase their R&D spending as they seek to develop newpatents. Profits could decline if they are not able to reduce costs or
introduce alternative products to increase gross margins.

Ageing demographics. Older populations in developed markets
and China are driving demand for over-the-counter (OTC)
medicines, generics and medicines for treating chronic diseases.
Emerging markets. Improvements in healthcare systems andgrowing disposable household incomes are driving demand.
Generics and OTC drug producers will be the first to benefit.
Digital technology. AI and big data analytics are improving
efficiency in drug development, clinical trials and patient care.
Banks and investors. The pharma industry can sustain high R&D
costs through continued access to external financing.

2

Public health spending. Many governments are trying to containor cut public healthcare costs (including via price controls). This
price pressure could impact investments, given the high costs ofdeveloping new drugs.
Environmental concerns. Some pharma businesses could facerising pressure from environmental activists highlighting issues
such as pharmaceutical residues that are contaminating water andsoil.

January 2024

Pharmaceuticals outlook
Americas
Pharmaceuticals output

2022

2023

2024*

2025*

Brazil

-1.5

2.7

3.6

3.0

Canada

6.5

1.7

-0.7

3.1

Mexico

11.0

14.9

-3.8

1.3

CanadaUnited States

0.5

7.0

1.4

1.7

MexicoYear-on-year, % change /*forecast – Source: Oxford EconomicsLabour shortages and government pressures
to reduce drug costs for consumers areaffecting the sector. The Inflation Reduction
Act authorises Medicare to engage in pricenegotiations with pharma producers andten medicines have been selected for pricecuts. A further 50 will be chosen over the
next four years. Some of the industry have
objected to the price regulation of medicines,
arguing that it could impact investment
and reduce innovation. Some pharmas
have filed lawsuits to challenge the newregulations. A further issue facing some partsof the industry is product liability risk. Thiscan affect manufacturers, distributors andretailers, and has especially been seen inareas such as the recent opioid settlements.

BrazilUSAExcellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.

USA
A slowdown in sales, drug pricing regulationand liability litigation impact industry
US pharmaceuticals output and sales
increased 7% and 7.7% respectively in 2023.
This year a slowdown to 1.4% is forecast
as the economy weakens. Consumerspending on discretionary drugs such as
over-the-counter-medicines will slow dueto the squeeze on household incomes, aweaker labour market and tighter lending
conditions.

Industry performance forecast

Strong liquidity, an ageing population andnew products present opportunities
Despite the challenges, the sector
performance outlook remains good. Margins
for branded pharmaceuticals are robust,
leading to strong cash flow and credit
profiles. Many pharmaceutical companies
appear to have financial strength or haveample liquidity sources in the financial
markets.
Ongoing demand will be driven by the ageing
population that will continue to fuel sector
growth in the future. Baby Boomers (nowaged 59-77) will become more dependenton pharmaceuticals as they get older. The
surge in demand for weight-loss drugs will
also benefit some major US pharmaceuticals
producers.

GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
BleakThe credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

Intellectual property concerns favour
retaining production of value-added
products in the US, rather than using lowcost centres abroad. The Biden government
wants to strengthen supply chains, reshore
production and reduce reliance on importsof active pharmaceutical ingredients(API). While this could trigger additional
sector growth, reshoring pharmaceuticalproduction is not simple. Regulatory issues
and the ongoing cost-advantages of retaining
large-scale API factories overseas aredampening appetites for change.

Pharmaceuticals sector
expertise for the Americas:
Patrick Scardina,
Atradius Manager, Regional
Underwriting in Irvine,
California, USA.

3January 2024

Pharmaceuticals outlook
Asia PacificPharmaceuticals output

2022

2023*

2024*

2025*

China

-3.5

-4.8

11.5

8.8

India

-11.1

12.5

3.2

9.8

Japan

12.7

1.7

2.5

4.3

Singapore

-10.1

-16.4

11.8

10.7

Year-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Australia
China
Hong Kong
India
Indonesia

China
Government support drives growth
After a 4.8% contraction in 2023 we expect
pharmaceuticals output to rebound by 11.5%
in 2024 and by 8.8% in 2025. China accounts
for about 40% of global active pharmaceuticalingredients (API) output. While someWestern countries have announced thedesire to reshore API production, it is likelythat China´s cost advantages will support
continued demand in the coming years.
China´s share of global pharmaceutical
output is expected to grow from 21% in
2023 to 27% in 2030. Growth drivers
are government initiatives to increase
accessibility to healthcare, medical services
and to support innovation. The government
supports the shift away from producing
generics towards high quality drugs.
Additionally, demand will be boosted by a
growing middle class that can afford highvalue-added medicines and by the demandsof an ageing population.

India
Strong expansion of manufacturing baseexpected
After a 12.5% increase in 2023 we expect
pharmaceuticals output to grow by 3.2% in2024 and by 9.8% in 2025. Most businesses
have strong balance sheets and good accessto bank financing. The government hasJapanannounced a large incentive scheme to boost
local API production in order to compete withChina. Additionally, some pharmaceuticalproducers in the US and Europe plan to use
Indian contractors in order to lower theirreliance on China. Together with a growing
population and rising middle class, thiscould bolster India’s path to becoming oneof the world’s largest pharmaceuticals
manufacturers over the next decade.
However, quality standard issues andincidents of alleged drug contamination
remain downside risks.

JapanAgeing population will drive domestic sales
After a 1.7% increase in 2023 we forecast
pharmaceuticals output to grow by 2.5%
in 2024 and by 4.3% in 2025. Japanesepharmaceutical businesses are financiallystrong. We expect robust domestic demand
for medicines related to chronic illnesses in
the coming years, as Japan has one of thelargest elderly populations in the world (by2030 the share of the population over 65
is expected to increase to 32%). However,the set-up of pricing schemes reduces theattractiveness of substantial domestic
R&D investments. Increasing imports ofgenerics from low-cost centres help to reduce
healthcare costs but could dampen domestic
production.

Malaysia
New ZealandPhillippines
Singapore
South Korea
TaiwanThailand
Vietnam
Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in the
sector is average / businessperformance in the sector
is stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
BleakThe credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

Pharmaceuticals sector
expertise for Asia Pacific:
Judy Ji, Atradius Senior
Underwriter in Shanghai,
China

4

January 2024

Pharmaceuticals outlook
EuropePharmaceuticals output

2022

2023

2024*

2025*

Germany

4.9

-1.3

1.2

1.4

Ireland

-4.6

-2.5

-1.9

3.5

Switzerland

-8.4

-7.4

2.5

8.1

Belgium

United Kingdom

3.1

-1.4

-8.2

-5.1

Czech RepublicYear-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Austria

Denmark
FranceEurozone and UK
Growth picks up again, but regulatory issues
remainAfter a modest 0.1% increase in 2023 we
expect pharmaceuticals output in Europe
to grow by 3.3.% in both 2024 and 2025.
As inflation continues to ease, householdincomes should rebound in the coming
months, supporting demand for over-thecounter drugs. However, ongoing highenergy prices affect the industry directly
through the cost of fuels, and indirectly
through increased production costs for active
pharmaceutical ingredient (API) feedstocks.
Most of the individual markets in Europe
are highly regulated and many feature
constraints that could impact profits ofpharmaceutical businesses. For example,
there is permanent pressure from national
health authorities to lower prices of drugs
and medicines. In order to increase accessto medicine across all member states, theEuropean Commission has proposed toreduce the minimum period of market
exclusivity from ten to eight years. Some
pharmaceutical companies argue that this
could deter investment in research anddevelopment (R&D).

Germany
The European Medicines Agency (EMA)
has published a list of 260 treatmentsthat need to be stockpiled or made in theEU to avoid further shortages. Proposals
aimed at boosting self-sufficiency include
incentives to invest in new manufacturing
facilities in the bloc. Additionally, theEuropean Commission has announced plans
to increase supply chain resilience and toreshore APIs, but concrete measures have
not yet been agreed.

Hungary
Ireland
Italy
Netherlands
PolandPortugal

Strong financials, but SMEs could facetrouble
For the most part, financial indicators in theindustry are strong, but some SMEs could
face financing challenges. This is due tohigh R&D costs, competition from India andChina, and difficulty accessing financing atcompetitive interest rates.

Slovakia

The outlook for the sector in Europe inboth the mid and long-term is solid. Thisis because pharmaceuticals are essential
goods, the region has well-establishedmanufacturing facilities, secure supply
chains and high production standards.
Pharmaceutical producers and wholesalers
will benefit from the region’s ageing
population, which is demand for products totreat chronic illnesses and other conditions
associated with ageing.

UKSpain
SwedenSwitzerland
TurkeyExcellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sectoris below its long-term trend.
BleakThe credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

Pharmaceuticals sector
expertise for Europe:Rubén del Río Hernández,
Team Leader Large Buyer
Unit at Atradius CyC,Madrid, Spain

5

January 2024

Atradius
David Ricardostraat 1 · 1066 JS Amsterdam
P.O. box 8982 · 1006 JD Amsterdam
The Netherlands
Phone: +31 (0)20 - 553 91 11
info@atradius.com
www.atradius.com

Copyright © Atradius N.V. 2024
Disclaimer: This publication is provided for information purposes only and is not intended
as investment advice, legal advice or as a recommendation as to particular transactions,investments or strategies to any reader. Readers must make their own independent decisions,commercial or otherwise, regarding the information provided. While we have made every attempt
to ensure that the information contained in this publication has been obtained from reliable
sources, Atradius is not responsible for any errors or omissions, or for the results obtained fromthe use of this information. All information in this publication is provided ’as is’, with no guaranteeof completeness, accuracy, timeliness or of the results obtained from its use, and without
warranty of any kind, express or implied. In no event will Atradius, its related partnerships
or corporations, or the partners, agents or employees thereof, be liable to you or anyone else
for any decision made or action taken in reliance on the information in this publication or for any
loss of opportunity, loss of profit, loss of production, loss of business or indirect losses, special
or similar damages of any kind, even if advised of the possibility of such losses or damages.
6

Connect with
Atradius on social media
youtube.com/user/atradiusgrouplinkedin.com/company/atradius
twitter.com/atradius