Demand

Population growth, increasing life expectancy and rising wealth will increase demand for healthcare.

The world’s population is projected to grow from 7.7 billion in 2019 to 8.5 billion in 2030 (10% increase), and further to 9.7 billion in 2050 (26% increase) and to 10.9 billion in 2100 (42% increase). The UK population is 65 million people and will to increase to up to 80 million people in 2050. This growth will increase demand for healthcare services and hence pharmaceuticals.

People are now living far longer. By 2025 the over 65s will number some 840 million, 11% of the global population (25% in the UK). For the first time in 2018, older persons outnumbered children under the age of five, and by 2050, older persons will outnumber adolescents and youth (ages 15 to 24). However, the extra years of life are not always spent in good health. In the UK life expectancy has reached 81.3 years, but on average only 61.2 years are healthy.  This segment of the population are more likely to live with multiple long-term conditions, or live into old age with frailty or dementia, so needing ‘substantial’ healthcare.  

Over 18 million people suffer from a chronic condition and use healthcare more than twice as much as those without. Medical adherence is a problem, were 50% of medicines are not taken as directed.

As economies grow and age, healthcare (and hence pharmaceuticals) is likely to become a bigger share of household and government spending.

Resilience

Pharmaceutical supply chains have become global and complex. The pandemic shone a harsh spotlight on supply chain weaknesses.

This has created new urgency to reduce dependence on sourcing key ingredients and chemicals from India and China. Manufacturers in Europe and the United States are building new in-country manufacturing capabilities. In addition to reshoring and regionalizing the supply of critical materials, companies are moving to digitise supply chain operations and implementing continuous manufacturing to mitigate supply chain risks.

Increasing global trade friction, on top of the global pandemic, have, in places, led to disruption in tariffs, regulatory changes, diminished access to suppliers/vendors, limitations on cargo capacity, and shortages of products. Today’s headwinds, and the uncertainty that is expected to continue, will require life sciences companies to have agile manufacturing processes and resilient supply chains. 

Profitability

Lifesciences companies spend around 15% of their revenues on R&D, but there has been a decline on return on on pharmaceutical innovation since 2010 as costs per approval have risen 7%. In 2021, the average cost to develop a new treatment was approximately $2 billion, with it taking 7 years for the treatment to get regulatory approval. Improving both the speed of innovation and the return is crucial to profitability. Today, the pressure is even greater to change the trajectory of R&D speed and success. 

The situation is further complicated by significant pricing pressures. The global healthcare ecosystem is under significant cost pressures at both the system and patient levels. In the US, healthcare spend is now more than 17% of GDP (up from 9% in 1990) and makes up almost a quarter of government spending. In emerging markets, patients are heavily exposed to pharmaceutical costs.  The affordability gap is predicted to reach an estimated $300B by 20284, suggesting that pharmaceutical sales forecasts dramatically overestimate the capacity of global health systems to afford the treatments currently under development. The upshot is that whilst healthcare budgets are expected to increase by 10% by 2030, the spending per head is expected to fall by as much as 28%.

These factors lead to a pressure on the price Lifesciences companies can charge and hence get a return on their innovation. Some researchers forecast that that the current average net operating margins of 25% could come under serious pressure by 2030. In one scenario, such margins could fall to 17%,