Drug companies target overseas growth
But although the country's listed pharmaceutical wholesalers, API and Sigma, had a great 2012 - up 81 per cent and 36 per cent respectively - hundreds of job losses were confirmed in the final months of the year from drug companies Pfizer Australia, GlaxoSmithKline, Eli Lilly and MSD Australia.
The cuts came as the federal government sought to reduce soaring health costs and global blockbuster drugs, such as cholesterol treatments, came off patent to face tougher competition from generic manufacturers.
Brendan Shaw, chief executive of industry body Medicines Australia, recently noted that the Pharmaceutical Benefits Scheme, which subsidises Australians' cost of medicines, had soared from a $173 million annual cost to the government to $9 billion.
But since its inception in 1972, patient contributions to the PBS had remained at about 0.1 per cent of gross domestic product, he said in a speech last year.
Beyond the local market, the industry is pinning its hopes on the growth of neighbours.
The Bureau of Statistics says medicinal and pharmaceutical products accounted for more than $4 billion in exports in the year to June 2012, up from $3.74 billion in the 2011 fiscal year.
Forecasting firm IMS Health had predicted global spending on medicines would reach $1 trillion this year, driven by emerging markets including China, India and Thailand, Dr Shaw said.
"Economies like China are growing rapidly, their middle classes are growing rapidly and those middle classes will be demanding healthcare products and services like medicines to keep them healthy," he said.
"In the Australian prescription medicines industry we've seen the knock-on effect of these changes already, such as AstraZeneca's decision to keep its Sydney manufacturing plant open, and actually expand it, to meet the rising demand for asthma and [chronic obstructive pulmonary disease] medicines in China."
The most recent financial accounts show Eli Lilly reported a $12.78 million profit in 2011, down from $16.37 million the previous year, due to "zero sales growth" and increasing operating costs.
Profit at Pfizer Australia Holdings and its controlled entities fell to $61.15 million for the year to November 30, 2011, from $72.6 million.
Frequently Asked Questions about this Article…
The article says job cuts at firms such as Pfizer Australia, GlaxoSmithKline, Eli Lilly and MSD Australia came as the federal government moved to reduce soaring health costs and as global blockbuster drugs (for example some cholesterol treatments) came off patent and faced tougher competition from generic manufacturers.
According to Medicines Australia chief Brendan Shaw, the PBS — which subsidises Australians' medicine costs — saw government costs rise from about $173 million annually to roughly $9 billion. Shaw also noted patient contributions to the PBS have remained around 0.1% of GDP since 1972, highlighting pressure on government budgets and the sector.
Yes — the article reports listed wholesalers API and Sigma had strong 2012 results, with API up 81% and Sigma up 36% for the year, despite broader industry job cuts and cost pressures.
The article explains that when blockbuster drugs lose patent protection (for example some cholesterol drugs), they face tougher competition from generic manufacturers. That increased competition has been a factor behind cost pressures and job cuts in major companies.
Very important — the piece says industry players are looking to growth in neighbouring and emerging markets. ABS data showed medicinal and pharmaceutical exports exceeded $4 billion in the year to June 2012 (up from $3.74 billion the previous year), and forecasting firm IMS Health predicted rising global medicine spending driven by markets such as China, India and Thailand.
Eli Lilly reported a $12.78 million profit in 2011, down from $16.37 million the prior year, which the company attributed to "zero sales growth" and higher operating costs. Profit at Pfizer Australia Holdings fell to $61.15 million for the year to 30 November 2011, down from $72.6 million.
The article notes AstraZeneca decided to keep its Sydney manufacturing plant open and expand it to meet rising demand for asthma and chronic obstructive pulmonary disease (COPD) medicines in China, illustrating a shift toward supporting export growth.
Based on the article, investors should be aware of domestic risks like government cost-containment measures, rising PBS costs and increased generic competition when patents expire. At the same time, opportunities exist from stronger performances by wholesalers (API and Sigma), rising pharmaceutical exports and growing demand in emerging markets such as China, India and Thailand.
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