Pharmaceutical industry facing challenges and opportunities in 2024

Novo Nordisk achieved a major success with the active ingredient Semaglutide: the drug catapulted the Danish pharmaceutical company to the top of the most valuable listed companies in Europe virtually overnight in 2023. And Novo Nordisk has the growth market for weight loss injections almost to itself so far: only the American competitor Eli Lilly has offered an alternative preparation to date. The shareholders' expectations are no coincidence: analysts at the investment bank Goldman Sachs estimate that sales of weight loss injections will grow from the current 6 billion US dollars to 100 billion dollars by 2030. This is another reason why Lilly wants to build a new plant in Alzey in the Palatinate, Germany, and invest 2.5 billion dollars.

The hype surrounding the new slimming products highlights current developments in the pharmaceutical industry. After the boom in the coronavirus years, the industry has recently landed hard. In 2022, the industry in Germany still achieved moderate production growth of three percent; in 2023, production in the successful industry shrank by 1.4 percent, according to the industry association vfa, and in 2024, the association only expects growth of 2.0 percent.

In Germany and Europe in particular, the increased energy prices are causing problems for the industry: In contrast to the chemical industry, the energy intensity of pharmaceutical production is below average, but manufacturers are dependent on inputs from energy-intensive industries. Added to this are inflation, high interest rates, new tax laws and growing political risks.

Pricing power leads to loss of confidence

In the USA, the most important market for pharmaceuticals, additional trouble is looming: in response to rising prices, the Biden administration has decided, as part of the Inflation Reduction Act, that the prices of some of the most commonly used drugs should be negotiable for the first time in future. After the hype surrounding the performance of drug manufacturers in the fight against the Covid pandemic, the crash was abrupt: not least the discussion surrounding the Inflation Reduction Act put the high-price policy of some originator drug manufacturers in the spotlight. The loss of confidence means that future decisions by companies – be it pricing decisions, mergers and acquisitions, investments in artificial intelligence or staff cuts – will be scrutinized closely.

However, it is not just rising costs and the more critical public eye that are putting pressure on the environment for pharmaceutical manufacturers. The impression created by the success stories surrounding weight loss injections is deceptive: competition in the pharmaceutical market is becoming increasingly fierce – and not just for blockbuster topics such as the treatment of diabetes and obesity. More and more manufacturers are therefore researching preparations for rare diseases or individualized therapeutic approaches - and are prepared to take higher risks to do so. In particular, drug manufacturers are hoping for exciting new opportunities from the use of transformative technologies such as artificial intelligence and digital health in biopharmaceutical research. The ability to embrace these technological advances is becoming an increasingly important competitive factor.

Using artificial intelligence throughout the pharmaceutical value chain

This is by no means just about the use of AI in drug development. There is potential in the entire pharmaceutical value chain – from identifying promising active ingredients, planning clinical trials and writing documents to marketing and customer acquisition. The market research company PwC estimates that generative artificial intelligence can make a significant value contribution in more than 200 areas of pharmaceutical production.

However, there is also a need for action in other areas: While sales growth is still important, especially with a view to the "stock market story", in order to collect necessary capital, cost management is also coming to the fore. The Bayer Group provides a prominent current example: the pharmaceutical and agrochemical manufacturer wants to cut thousands of jobs by the end of 2025 – especially in management. Group CEO Bill Anderson is focusing on a cultural change in which managers act more as coaches for their employees, while employees are given more decision-making powers. However, other companies in the pharmaceutical industry have also recently announced cost-cutting measures. This is because cost pressure is increasing: High wage settlements as a result of inflation are a burden, as are more expensive energy and rising prices for primary products. And the latter are increasingly no longer available from traditional suppliers as a result of plant closures in the chemical industry, which is currently being hit even harder. In addition, the patent protection of many of the pharmaceutical manufacturers' cash cows is expiring. According to estimates by the market research company Evaluate Pharma, drugs with an annual turnover of USD 57 billion will lose their patent protection in 2023 alone. And even the manufacturers of biopharmaceutical drugs, who are accustomed to success, have had to tighten their belts since 2022: The heroes of the Covid pandemic have lost significant stock market value and increased interest rates are also weighing on the willingness to invest venture capital.

Conclusion:

2024 is likely to be an exciting year for the global pharmaceutical industry, with both opportunities and challenges. Manufacturers will need to understand their competitive environment like never before and drive innovation while keeping an eye on costs. AI and other new technologies are becoming increasingly important, while strategic mergers and acquisitions are also tried and tested means in the battle for a sustainable position. Because there are also lucrative fields beyond weight loss injections – for example in the fight against cancer and Alzheimer's – in which pharmaceutical manufacturers can make a contribution.