Dagong Global Credit Rating Group Co., Ltd (hereinafter referred to as “Dagong”) released Dagong's 2018 Credit Outlook for the Global Primary Drug Industry On February 12th, forecasting the trend of credit risks in 2018 global Primary Drug industry through analyzing the changes of the market demand and the industry risk factors.
In recent year, affected by the successive expiration of patents, and the slow progress in new drug R&D, the profitability and cash flow in primary drug industry will face pressure in 2018. However, under the favorable environment of the strong market demand and bright prospect of the pharmaceutical industry, the credit quality of primary drug industry is still strong and the credit risk stands at a low level. First, the European and American pharmaceutical companies have plenty of pipelines in the future; also, they have the leading technical strength and a stable leading position in the market. For these primary drug companies in Europe and America, through optimizing the business structure and strengthen the technical advantages, the risk of poor capital structure and low cash flow will be gradually resolved in the medium term. The primary drug industry in Japan is subject to the competition in the local market and the competition pressure from European and American pharmaceutical companies. They are facing uncertainties in the future development, but the steady debt repayment sources and liabilities structure make its credit risk relatively stay at a low level and remain stable.
The main trends of the credit risk in primary drug industry in 2018 are as follows:
I. The aging population in the world, the increasing amount of per capita medical expenditure, the breakthroughs of medical technology in developed countries and the improvement of medical treatment in developing countries will together provide the industry with the scale of continuous expansion of demand.
With the development of the world economy, population growth and the aging of the society, the demand for drugs has been on the rise for a long time. First, increasing aging population and human health awareness will further expand the development space of pharmaceutical market in the future. Second, improvement of health care in developing countries will provide a lasting impetus to the industry development. Third, breakthroughs in medical technology in developed countries provide new impetus to the development of the pharmaceutical industry.
II. High-tech threshold will enable the global primary drug industry competition pattern overall to stay stable; European and American pharmaceutical companies continue to dominate the industry.
Before entering the market, original drugs need to pass through a long research cycle, consume large amount of capital and technical investment, and face strict regulation and the risk of failure. Thus the overall barriers to enter the industry is very high and the competition pattern dominated by the pharmaceutical companies in Europe, America and Japan will remain stable in the long term. Among them, the United States will still occupy the world's largest pharmaceutical R&D region and sale market position, which benefits from its accurate grasping of new drug research, mature drug development and high effective drug supervision.
III. Due to the expiration of patents and the drop in the efficiency of R&D for new drugs, the revenue of the primary drug industry have been under downward pressure.
In recent years, the "blockbuster" drug patents have gradually expired, and the rate of return on drug R&D has dropped. The industry has failed to launch new drugs and replace the existing ones to resist the impact of patents expiration. The primary drug companies are facing fierce competition from the generic drug market; revenue decline is expected to continue in 2018. In addition, Japanese pharmaceutical companies are also facing the saturation of the domestic market as well as competitive pressure from European and American companies, the downward pressure on revenue will be even more significant.
IV. Strong profitability is expected to ease the unfavorable factors such as revenue downturn. The credit risk of global primary drug industry is generally stable.
In order to speed up the launch of new drugs to resist the patent expiration, the pharmaceutical companies in Europe and America have focused on their core businesses, increased the R&D investment in the field of dominant treatment, and expanding drug pipelines through merger and acquisition. After these adjustments, the companies were facing cash flow pressure, expanding scale of debt and decline in the health of its capital structure. However, their outstanding technical advantages and enhanced profitability is expected to relieve pressure on the high short-term debt and to stabilize its credit quality. Meanwhile, the profitability of Japanese pharmaceutical companies still lags far behind their European and American counterparts, but the overall credit risk is still low due to the good capital structure and low debt burden. Overall, credit risks facing the global primary drug industry will remain stable in 2018.