With Europe's economic troubles causing domestic profitability concerns, established pharmaceutical companies may look to
emerging markets for outsourcing partners. Each developing economy has unique economic, political, and cultural issues that
help define its pharmaceutical market. To succeed, multinational pharmaceutical companies will have to adapt differently depending
on the distinctive needs of each country.
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Global macroeconomic trends will continue to affect the pharmaceutical and biotechnology outsourcing sector for the foreseeable
future. Beginning in the second half of 2009, uncertainty developed among investors concerning the rising government debt
levels across the globe followed by a series of downgraded government bonds of certain European states. During the past three
years, affected governments have proposed austerity measures (e.g., higher taxes and lower expenses). Consequently, many investors
moved their portfolios to safer markets such as Germany and Switzerland. By the end of 2011, Germany was estimated to have
made more than €9 billion (approximately US $13.8 billion) out of the crisis while Switzerland also benefited from a substantial
influx of foreign capital. In October 2011, the 17 member countries of the Eurozone agreed on intergovernmental measures aimed
at preventing the collapse of member economies.
Austerity pricing
Constrained by compressed government budgets and sovereign debt issues, many European countries have imposed reductions in
pharmaceutical pricing. Most of the pricing cuts have been in the 4–5% range, with deeper reductions generally seen in countries
with sovereign debt issues or serious budgetary problems. France announced plans to reduce its 2011 pharmaceutical budget
by close to $700 million, while simultaneously curtailing tax incentives for orphan-designated drugs. Another noteworthy announcement
is a program in Greece designed to save more than $2.5 billion by reducing drug prices by at least 20%. Italy aims to achieve
close to $2 billion in savings through price reductions and tightened consumption. As a result, the aggregate growth has been
weak for the top five European pharmaceutical markets, rising approximately 2–3% in 2011.
Price cuts
At the micro level, deficit-led pricing pressures have had a considerable effect on financial performance for many companies
that rely heavily on revenues from European pharmaceutical markets. The collective impact involves a complex matrix of price-erosion
mechanisms, ranging from price reductions across the market, to pricing restrictions in certain countries. The effects of
these mechanisms on company revenues, earnings and valuations have not yet fully manifested. Regardless of the massive slowdown,
developed markets continue to provide core revenue streams for major pharmaceutical companies. The key to maintaining revenues
involves strengthening late-stage pipelines through innovation.
