R&D Investment Returns Decline
BMI View: In the face of slower global pharmaceutical market growth, pharmaceutical companies will continue to invest in research and development (R&D) to maintain competitive advantages in generating sales from the lucrative innovative drug market. However, their R&D spending is less productive in terms of launching next generation blockbuster drugs. From an investment perspective, the industry is offering a stable dividend yield and some of the companies seem to be undervalued in comparison with its peak time in 1990s.
BMI's pharmaceutical expenditure model reveals that the global pharmaceutical market is to increase from US$1.08trn in 2012 to US$1.11trn in 2013 - a rise of 2.7%. In our five-year-market forecast, growth will continue at a 3.5% compound annual growth rate (CAGR), with sales reaching US$12.9trn by 2017. It is slightly slower than the previous five-year CAGR (4.6%). We believe that the global trend of increasing non-communicable disease burdens and ageing populations spending more years living with injury and illness will provide revenue-generating opportunities for the pharmaceutical industry. However, multinational pharmaceutical companies are facing increasing challenges from the patent cliff, healthcare cost containment by governments in developed states and higher regulatory barriers.
It is therefore crucial that multinational drugmakers invest in R&D to maintain a competitive advantage in generating sales from the lucrative innovative drug market. According to R&D spending data from Bloomberg (based on the most recent full-year figures published in financial reports from the top 100 publicly-traded companies worldwide), eight out of the top 20 R&D spenders in 2011 were pharmaceutical companies. In terms of R&D spending as percentage of sales, Roche, Merck & Co, Novartis and AstraZeneca ranked the top four R&D spenders in 2011.
|Deceleration In The Next Five Years|
|World Pharmaceutical Market Outlook (US$bn)|