The Outlook for Pharmaceuticals in Western Europe Market Research Report

Report Summary
Market growth in the mature markets of Western Europe is assured over the coming years by the health needs of ageing populations, and will be driven by investment in innovative medicines, particularly in the hospital market. Growth, however, will be tempered somewhat by the effects of the global economic recession in the short term. The leading markets are projected to average a CAGR of 2.5% in US dollar terms up to 2016, to represent a combined pharmaceutical market value of over US$220 billion.

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What factors are affecting pharmaceutical market growth?
Demand for pharmaceutical products is set to increase over the coming years, in order to fulfil the health needs of the ageing population. Meanwhile, the trend towards generics is set to continue, with several major patent expiries coming up, and with more governments introducing or expanding generic substitution as a cost-containment measure.

Recent austerity measures, introduced to deal with the impact of the economic recession, have included drug price cuts or discounts in markets such as France, Germany, Greece, Italy and Spain. These price cuts will have an impact across Western Europe, as many other countries use a reference pricing system. These price cuts could limit market growth and there are also fears that lower prices could lead to higher levels of parallel exports.
The hospital market is expected to be the main driver of growth in Western European pharmaceutical markets, with increasing investment in expensive, innovative products to treat chronic diseases, such as cancer. The investment from hospitals into new drugs will offset the falling prices of mature drugs which are soon to go off patent. There are opportunities to further explore biotechnology advances and reformulations, which will drive the market forward in the long term.

Highlights from the region

FRANCE
Overall pharmaceutical market growth has been comparatively low in recent years and is expected to average a moderate CAGR in the medium term, with government cost-containment programmes exerting downward pressure on reimbursable products. The hospital market has been much more dynamic with growth rates twice this figure in recent years, although growth rates are now falling due to greater regulatory controls in this sector and fewer innovative drugs coming to market. The underdeveloped generic market is undergoing rapid expansion boosted by government incentives and the loss of patent protection for several high-volume products. The stagnating OTC market has also started to expand as a result of government moves to end reimbursement for a wide range of products assigned a low medical value rating.

GERMANY
Germany's economy depends heavily on exports and was therefore hit hard by the global downturn. However, GDP is expected to strengthen over the next five years. The German pharmaceutical market is the largest in Europe. Growth in recent years has tended to be uneven, as government reforms take effect on pricing and/or reimbursement. A new law passed in November 2010, designed to bring down the average price of drugs, is expected to dampen growth slightly over the next few years. The pharmaceutical market is projected to increase at a low CAGR between 2011 and 2016. The law reduces the power that pharmaceutical companies have in deciding what to charge for new prescription drugs. New, innovative drugs have been targeted as they were entirely responsible for the increase in drug spending in 2009.

ITALY
The size of the population and the provision of universal healthcare under the national health service ensures that the Italian pharmaceutical market remains the fourth largest in Europe despite the market having the lowest growth rate of all the developed economies. The Italian population is ageing and the percentage over 65 years has already exceeded 20% and is set to rise still further with a corresponding increase in chronic and long term medical conditions. This will inevitably increase demand for pharmaceutical products, placing additional financial strain on the working population to support those of pensionable age. However, cost containment measures are restricting growth in the pharmaceutical market, particularly in the retail pharmacy market. While growth in the pharmacy market in Italy is slow, demand for pharmaceuticals in hospitals increased by a double-digit CAGR between 2006 and 2009, to account for nearly a quarter of the total pharmaceutical market.

SPAIN
The Spanish pharmaceutical market ranks fifth in Western Europe; in per capita terms, it ranks much lower. FARMAINDUSTRIA believes that new pharmaceutical medicines will be entering the market in the coming years, together with biologic medicines. The pharmaceutical industry is expected to overcome the economic crisis in 2011, considering the current economic outlook. Espicom projects a low CAGR in both euro and US dollar terms between 2011 and 2016; the CAGR in US dollar terms is lower than previously projected due to a weaker projected exchange of the euro against the US dollar. The pharmacy sector is expected to increase at a lower rate than the hospital sector, but cost-containment policies will affect both sectors. Almirall and Esteve are the best positioned local companies. The new reference price system in Spain was enforced in March 2011, which will affect the pharmaceutical industry negatively.

UNITED KINGDOM
The pharmaceutical market is set to experience moderate growth over the coming years, tempered slightly by the effects of the economic recession. Public spending cuts are underway, as public debt continues to increase, and health expenditure is set to suffer as a result. The Health and Social Care Bill, which outlines a set of plans to reform the NHS, was amended in June 2011. Most notably for the pharmaceutical industry, there are plans to introduce value-based pricing in place of the PPRS when it expires in 2013, in order to promote innovation and ensure better access for patients to effective drugs. The Cancer Drugs Fund came into force in April 2011, providing £600.0 million (US$938.9 million) over three years to increase patient access to new cancer drugs. The fund is designed to give patients access to cancer drugs which are recommended to them by their doctors, regardless of whether they have been approved for NHS use by NICE.

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