Moody's: Global pharmaceutical growth will remain steady despite cost containment efforts

The global pharmaceutical industry will see annual earnings growth of 3%-4% over the next 12-18 months as solid underlying fundamentals mitigate the effect of the strong US dollar and increasing scrutiny of drug prices, said Moody's Investors Service. As a result, the rating agency maintains its stable outlook on the sector.

Among the diverse group of pharmaceutical companies rated by Moody's, those focusing on cancer and other complex diseases will see higher earnings growth. Meanwhile, earnings growth will be more limited for companies with greater exposure to the strong US dollar and those with upcoming patent expirations of blockbuster drugs.

 

Rising prices for most branded drugs in the US will benefit the industry, even amid efforts to curb rising drug costs that have negative implications for the sector.

"Absent a systemic change such as legislation to lower drug prices, we do not expect the US pricing environment to substantially erode," said Michael Levesque, a Moody's Senior Vice President. "Some categories including respiratory and diabetes face pricing pressure, but most other categories, including those involving specialty diseases, will sustain US price increases."

Moody's expects a steady flow of new innovative drug launches from companies' pipelines. In addition, growth will remain strong for recently launched drugs such as Bristol-Myers Squibb Company's (A2 stable) Opdivo and Merck & Co., Inc.'s (A1 stable) Keytruda.

Patent expirations will be manageable for most pharmaceutical companies through 2017. Biosimilars will become a growing threat to branded pharmaceutical companies, but the revenue cliff for biotech products is relatively low. "Compared with traditional drugs, there are fewer competitors for biosimilars, there is less of a pricing differential and there isn't yet a regulatory framework encouraging automatic substitution of biosimilars," said Levesque.

Over time, however, biosimilars will have credit negative implications for the largest players offering biotech products, such as Amgen, Inc. (Baa1 stable), Roche Holding AG (A1 stable) and AbbVie, Inc. (Baa1 negative).

Moody's believes that industry consolidation will continue as large branded pharmaceutical companies acquire companies with attractive pipeline products or newly launched drugs, and as generic companies seek greater scale.

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