Encouraging growth in the pharmaceutical industry through smart finance

10-May-2017

The drug manufacturing industry plays a significant role in the UK economy; the production of pharmaceuticals has contributed almost 10% of the UK’s GDP, doubling since 1995

The pharmaceutical industry has consistently produced a trade surplus, totalling £3 billion in 2014, and is responsible for 25% of the total expenditure on research and development by UK businesses.1,2

In addition to benefiting the UK economy, the pharmaceutical industry also delivers improved health outcomes for patients. But, tackling contemporary challenges such as an ageing population, which fundamentally impacts the healthcare landscape, will require further research efforts.

Companies involved in all aspects of the development and manufacture of pharmaceutical products can invest in technologies to increase productivity and efficiency. For instance, in the manufacturing process, improved technologies can help to reduce waste and increase speed of production.3

Harnessing technological innovations can help to produce costs savings while ensuring high-quality outputs and waste reduction. Nevertheless, keeping pace with technological advancements requires considerable capital expenditure. Moreover, access to bank credit has become more restricted following the financial crisis.4 For smaller-sized pharmaceutical companies, wherein funds can be scarcer and restrictions tighter, investing in new technology can be challenging. With downward pressure on drug prices across the world and, specifically, changes to the 2014 Pharmaceutical Price Regulation Scheme, smaller businesses are likely to feel the squeeze further.

This explains why asset finance techniques are gaining popularity. Such financing solutions spread the cost of the equipment throughout an agreed financing period, with regular finance payments arranged to align with the expected benefit of its use. This removes the need for a large initial outlay, thereby increasing the funds available for operating expenditure. Asset finance allows pharmaceutical companies to access to the latest technologies without having to commit scarce capital. Fixed finance payments also eliminate the volatility of interest rates, inflation and credit conditions while assisting with long-term budgeting. In addition, financing arrangements can incorporate other costs and introduce the possibility of technology upgrades in line with technology developments.

Such tailored, all-encompassing financing packages tend to be offered by specialist financiers who have an in-depth understanding of sector technology. They are therefore more able to create customised financing packages that fit the specific requirements of a business. This contrasts with the standard financing terms usually available from generalist financiers.

If companies in the UK’s pharmaceutical industry want to remain competitive and keep pace with industry growth, acquiring the latest sector technology is a crucial step. Investment, however, should be undertaken under the premise of sustainable financing. Instead of tying up precious capital in equipment acquisition, pharmaceutical companies can utilise flexible asset financing techniques.

References

  1. H. Roberts and V. Salvatore, “What Would BREXIT Mean for Pharma?” Pharmafile: www.pharmafile.com/news/502948/what-would-brexit-mean-pharma (16 February 2016).
  2. ONS, Business Enterprise Research and Development, 2012: http://ow.ly/X24H309vrql (November 2013).
  3. Siemens Financial Services, International Clinical Laboratory Science Specialist Acquires State-of-the-Art Immunoassay System (http://ow.ly/QvpS309vrv1).
  4. Siemens Financial Services, Taking the Pulse: http://ow.ly/5NLr309vrNt (February 2016).
    1. Companies