Moody’s Is Bullish on Pharma Industry for Next 18 Months

The pharmaceutical industry should continue to enjoy strong financial results in the next 12 to 18 months, according to a new report from Moody’s Investors Service. The credit ratings firm projects 4% to 6% growth in annual earnings before interest, taxes, depreciation and amortization over that period.

The authors predict that growth will be driven by increased uptake of oncology, immunology and diabetes drugs; COVID-19 vaccines and boosters; and a low number of patents set to expire. However, the report does project some headwinds for pharmaceutical firms, namely potential drug pricing legislation and increased biosimilar development. The report also predicted that “pharmaceutical spending will continue to rise globally, across almost all regions.”

All Segments of Industry Should Prosper

That should be true across all segments of the industry, the Moody’s analysts wrote.

“Our forecast spans the rated pharmaceutical universe, a diverse group of companies operating in numerous geographic regions and offering products ranging from complicated and expensive biotech drugs to commodity-like generics.…As the coronavirus pandemic ebbs in many regions, constraints in non-pandemic related healthcare utilization will steadily reverse. In addition, underlying demand for prescription drugs will remain strong, reflecting rising utilization of prescription drugs, expansion in emerging markets and new product launches.”

In highlighting oncology, immunology and diabetes drugs, the report dovetails with the larger trend of rebounding utilization across health care. Screenings for chronic diseases dropped off in 2020, particularly in the second quarter, as patients were discouraged from seeking non-acute care.

Michael Levesque, a Moody’s senior vice president and coauthor of the report, tells AIS Health, a division of MMIT, that while the rebound is under way, it is not yet complete.

“A number of major oncology drugs had slower year-over-year growth in 1Q21 than they typically would, such as Merck’s Keytruda (up 16% globally…), Bristol’s Revlimid (up 1%), and Pfizer’s Ibrance (down 1%). We believe 1Q21 therefore did not reflect a full return to normal,” Levesque says via email.

Meanwhile, although the report identifies COVID-19 vaccines and treatments as a growth segment, it emphasized that firms should remember that perceived profiteering on COVID-19 products is a significant reputational risk.

“Vaccine developers face some downside reputational considerations related to pricing and global access, particularly in less developed regions. In light of access challenges, negotiations are underway at the World Trade Organization to remove intellectual property rights on the vaccines as a means to enhance competition, a position recently supported by the Biden administration,” the report said.

The report also emphasized that vaccines are unlikely to be a major profit driver in the near term, particularly since several firms have announced they will not charge for their inoculations at a profitable margin.

Levesque says vaccine-related earnings will also be affected by “the purchasing patterns of governments and the vaccine willingness of patients” for the rest of the year.

“Beyond 2021, the evolution of variants, the need for boosters, purchasing of boosters by governments, and the willingness of patients to receive boosters — all of these factors have uncertainties. In addition, the potential for other vaccines to be approved may change market shares,” Levesque added.

The pharma industry’s outlook for intellectual property is also mixed. While the report notes that few blockbuster drugs’ patents will expire in the next decade, it observes that — in good news for patients and plans — biosimilar development has accelerated.

“We expect that growth in the global biosimilars market will lead to steadily falling sales of many large biotech products that have faced biosimilar competitors in recent years but that still generate sizable revenues. Such products include Amgen’s Neulasta, Roche’s Rituxan and Herceptin and AbbVie’s Humira, which is exposed to biosimilar competition in Europe. Biosimilar versions of Humira will enter the U.S. market in early 2023,” the report said.

Most of all, the report flags potential drug pricing legislation in the U.S. as the biggest risk to pharmaceutical industry profits. It also highlights efforts in Europe, Japan and China to curb costs.

“The extent to which any changes save the government and/or consumers money is the degree to which the change would be credit negative to pharmaceutical companies, but the actual impact would depend highly on the specific details of any new regulations,” the report explains.

Would Legislation Prompt R&D Cuts?

Pharma industry lobbyists and allies have suggested that such legislation would oblige firms to cut their research and development (R&D) budgets. Levesque is not sure whether that would actually happen.

“We envision mixed effects. Uncertainty about price points in the future is likely driving higher R&D spending for some because of investment in innovative areas that may be less subject to price uncertainty. At the same time, if legislation passes and prices are reduced, some companies may streamline expenses to reduce the impact on earnings,” he says.

Contact Levesque via Stephanie Leavitt at Stephanie.Leavitt@moodys.com.

This story was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

Peter Johnson

Peter has been a reporter for nearly a decade. Before joining AIS Health, Peter covered a wide variety of topics in his hometown of Seattle, where he continues to live. Peter’s work has appeared in publications including The Atlantic and The Stranger. Peter attended Colby College.

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