French pharma hurt by global decreases in drug prices

The French pharmaceutical industry has been particularly affected by the worldwide drop in medicines prices and its profitability is declining, according to a study published by the French subsidiary of credit insurance group Euler Hermes.

The study says the volume of medicines consumption continues to increase worldwide, with growth estimated at 4.5% for 2007-8 (+3.6% in Europe).

'In terms of value, the growth in demand for pharmaceutical products is still positive, but it is becoming exclusively linked to volume,' said Euler Hermes advisor Marc Livinec.

This pressure to reduce prices erodes pharma companies' operating margins, which for the ten biggest pharma groups are likely to be reduced from 28% in 2002 to less than 24% in 2006-7.

In France, Euler Hermes carried out a study on a sample of 262 pharmaceutical companies, and expects their growth rate in terms of value to be 2.3% in 2006 and 2.2% in 2007, with negative price effects of -4.8% and -3.7% respectively.

In 2003, the French pharmaceutical industry had had a growth rate of 10.4% in value with a +1% price effect.

Since then, profitability has been on the decline, with the operating profit down from 11.3% in 2003 to 8.5% in 2006 and 8% in 2007. Net profit has decreased from 7% in 2003 to 4% expected in 2006 and 3.8% for 2007.

Independent companies, which includes third-party manufacturers, are doing well, with a 7.9% increase to 10.3 billion euros in sales in 2005, and 5.4% net profit.

Euler Hermes says that although the French generics industry is not yet profitable, its market share in terms of value is constantly increasing - from 3% in 2000 to a projected 10.6% for 2006 and 13.2% in 2007. In terms of volume, market share rose from 5% in 2000 to an expected 19.8% in 2006 and 25% in 2007.

Generics manufacturers are undergoing recurring net losses and are also affected by price reductions, but 'their operating profit has recovered,' from -2.5% in 2002 to +0.5% in 2005, the credit insurance group says.

Consequently, Euler Hermes is expecting 'a reorganisation of the pharmaceuticals sector' with 'a development of r&d partnerships, a concentration of medium-sized players, the reduction of sales forces and administrative costs, outsourcing of certain factories and relocation of production towards new markets.'

The credit insurance group says that 'in the pharmaceuticals sector, the economic risk is mainly situated upstream (biotech) and downstream (manufacture)'.