Inflation, drug pricing and reimbursement constraints will challenge the pharmaceutical sector

The swift development of COVID-19 vaccines was an unprecedented scientific and collaborative achievement by government, regulators, research institutions, and the pharmaceutical industry. While COVID-19 vaccines enabled economies to reopen, new challenges such as rising inflation and the Ukraine-Russia conflict injected a degree of instability into this economic recovery. Coupled with a tight labor market, ongoing supply chain issues, and currency fluctuations, the difficult economic environment is expected to weigh heavily on businesses, including pharma.

The outlook for global growth continues to deteriorate as inflation continues to significantly exceed the target of 2% in most developed markets. According to GlobalData’s survey on “The State of the Biopharmaceutical Industry – 2023”, fielded from October 26, 2022, to November 23, 2022, approximately 40% of surveyed industry professionals believed that among regulatory and macroeconomic trends, inflation will have the most negative impact on the pharmaceutical sector in 2023 (Figure 1).

The survey results also indicated that drug pricing and reimbursement constraints will be the second biggest concern, hampering the industry’s growth, as indicated by 30% of the surveyed respondents. Throughout the years, legislators and policymakers in various markets introduced new frameworks and laws facilitating negotiations and the regulation of drug prices. For example, while the recently introduced US Inflation Reduction Act is expected to bring drug costs down, it may discourage the pharmaceutical industry from further investments in innovative drugs.

The pharmaceutical industry has long been labelled as a recession-proof—stable demand for medicines and new treatment options acts as a protective barrier. Nevertheless, while pharma is often less harmed by economic downturns, the industry still faces constant challenges such as rising operational costs, industry rivalry, patent expirations, increasing demands to become more sustainable, and huge drug pricing pressures from cost-conscious regulators. This means that the industry will have to navigate a complex balance between financial and strategic risks, as the emerging regulatory and macroeconomic trends will influence a substantial drop in net drug prices.

To adapt is the only way to thrive. The pharmaceutical sector will need to find new ways to offset regulatory and inflationary pressures. Innovating by modernizing R&D models; addressing environmental, social, and corporate governance (ESG) issues; leveraging emerging technologies; and encouraging cross-functional or cross-company collaborations may be the way to go.