pharmaceutical industry recession

Posted

In every prior recession of recent history, the early 1990s, the early 2000s and 2007-2009, the pharmaceutical industry has outperformed the market. In each of those time periods the U.S. national healthcare expenditure rose as a share of GDP with medical spending remaining stable even as belts were tightened elsewhere. Will a pharmaceutical industry recession be an oxymoron in 2022, too?

Inelastic Demand

The inelastic demand for drugs, people will give up a night on the town but not their pills, protects the pharmaceutical industry from the ups-and-downs of the economy. This stable and predictable pattern of demand enables the pharmaceutical industry to outperform even during an economic downturn. “While there may be a general recession, the demand for life-saving medications is not going to change,” said Patti Seymour of consulting firm BDO. This allows well-positioned pharma firms and biotechs to post strong sales growth even in recession conditions.

Aging Population

Apart from the various diseases arising from poor lifestyle choices, the rapidly aging population is also expected to increase the demand for medicines and offer another cushion against a pharmaceutical industry recession. According to World Population Prospects in 2019 one in eleven individuals were over 65. By 2050 the proportion will go to one in six individuals over 65. This is contributing to the global spend on medicines growing at a CAGR of between 3% and 6% and reaching about $1.8 trillion, yes trillion, market by 2026.

Boost for Generics

A longer recession could be a significant boost for generic and biosimilar medicines after several years of declining profits. Price-fixing scandals also battered their financials and reputations. “When patients lose their jobs or medical coverage, doctors and patients may be more likely to use generic alternatives to more expensive branded drugs,” noted Moody’s Vice President Morris Borenstein.

Pandemic Limelight

The pharmaceutical industry’s role in the COVID-19 pandemic highlighted the importance of vaccines and treatment development and the companies that do this work. The record time in which the vaccines were developed showed the growing capabilities of pharma companies and how critical they are to the nation’s health. The pharmaceutical sector scored very low on public trust polls for years, driven by high prices, patent shenanigans and the opiod crisis, but the pharmaceutical industry’s central role in tackling a major global emergency definitely burnished the industry’s public reputation.

The Inflation Reduction Act

The passage of this act recently is viewed as a potential revenue hit for the industry as it addresses drug pricing. But as pundits dig into the details it looks like the bill allows for Medicare negotiation on a small list of drugs which will be a problem for those companies more reliant on a single product like Regeneron Pharmaceuticals. They could suffer as much as a 15% revenue hit from caps on its macular degeneration drug Eylea. The broader industry will take a hit, but it should be manageable, with analysts predicting a few percentage points shaved off industry sales.

Interested in more discussion on the possibility of a pharmaceutical industry recession? Contact Smith Hanley Associates’ Pharmaceutical Commercial Analytics Executive Recruiter, Eda Zullo at ezullo@smithhanley.com.


Leave a Reply

Your email address will not be published.