Structural Challenges in Global Pharmaceuticals to Persist through 2023 and Possibly Beyond

This commentary discusses challenges companies in the global pharmaceutical sector are facing. Key observations include the following:

-- Supply chain disruptions and drug shortages continue to pose operational challenges for the pharmaceutical sector globally.
-- While larger drug companies have greater bargaining power and a more robust network of suppliers, small to mid-size drug companies could face difficulties securing essential raw materials at reasonable prices.
-- This, combined with surging demand, has resulted in considerable shortages of certain drugs. As a result, potential near-term revenue losses for the drug manufactures and possibly a long-term business impact could occur, particularly if alternative medicines permanently replace established drugs in healthcare systems.
-- These effects, could have a meaningful negative impact on drug companies' profitability and cash flow profiles, as well as key credit metrics, therefore resulting in weakening of overall credit risk profile on a case-by-case basis.

According to Vikas Munjal, Vice President, Retail, Consumer Products, and Communication: “DBRS Morningstar believes that these challenges from supply chain disruptions and a stubborn inflationary environment, exemplified by higher labour and energy costs, are likely to persist in the near to medium term and could dampen operating margins and credit risk profiles, more so for small to mid-size drug manufacturers. While the underlying long-term demand drivers continue to be supported by demand from growing and aging populations and a renewed focus on health services in the wake of the Coronavirus Disease (COVID-19) pandemic, clearly, notable headwinds exist in the global pharmaceuticals sector as we head into 2023, and this article primarily focuses on these challenges.”