Structural challenges in global pharmaceutical supply chains is set to persist through 2023 and probably beyond, according to the latest industry survey. There are several challenges companies in the global pharmaceutical sector are facing. The survey comes from DBRS Morningstar.
A number of factors have hit industries and these, plus others, have struck the pharmaceutical sector particularly hard. These include macroeconomic, geopolitical, and other events like energy costs, common to many economic sectors, plus persistent pandemic flare-ups in certain regions and a problematic drug and flu season, together with the uncertainty regarding the pace of rolling back the zero-COVID-19 policy in China, which have affected the pharmaceutical sector in particular. These add to the standard challenges of logistics coordination to maintaining regulatory compliance.
For example, supply chain disruptions and drug shortages continue to pose operational challenges for the pharmaceutical sector globally. A significant concern for many firms, captured within the report, is with dampen operating margins and credit risk profiles.
Within this state of disruption there are variances based on the size of the company although each organisation is impacted to a certain degree. 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.
The report states: “Even for those firms undaunted by the high cost of capital caused by elevated global interest rates, significant leveraged capital investments to build supply chain infrastructure that fail to generate expected returns could result in material increases in financial leverage and therefore weaker financial profiles.”
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.
Vikas Munjal, Vice President, Retail, Consumer Products, and Communication at DBRS Morningstar tells Digital Journal he “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.”
Munjal continues: “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 in 2023.”
