Revenues for brand-name drugmakers will rise just 2%-3% in 2014, forecasts ratings agency Fitch, but it adds that global pharmaceuticals is still one of its highest-rated industries, and that the sector outlook remains “stable.” 

Moderate pressure from patent expiries, cost-containment policies in the European Union (EU) and weak employment in the US will be only partly offset by uptake of new products and strong growth in emerging markets, it says in a new report, which expects no significant divergence in the trend in profitability between US and EU-based drugmakers next year.

Fitch also believes that industry will find patent expiry levels in 2014 to be “manageable.” Patents on roughly $34 billion-worth of branded drug sales are set to expire during the year - accounting for approximately 3.6% of global market sales - compared to $28 billion this year and $55 billion in 2012.

Numbers of new product approvals have been weak this year; as of November 30, the US Food and Drug Administration (FDA) had approved just 24 products, compared to 39 for the whole of 2012. Nevertheless, Fitch believes that 2012-13’s new launches should help support immediate- to long-term growth in the sector. 

But it also expects cost-cutting in the sector to continue, aimed at mitigating the effects which soft market dynamics are having on profitability. While selling, general and administrative (SG&A) expenses are the primary targets, R&D spending is also likely to be prioritised at firms including Bristol-Myers Squibb, Pfizer, Merck & Co, AstraZeneca, GlaxoSmithKline and Sanofi, possibly through late-stage development projects, collaborating with other market participants or the prioritisation of pipeline candidates.

And while Eli Lilly & Co has said it will spend heavily on R&D, “it could join its peers should pipeline successes fall short,” it suggests.

Companies are likely to continue divesting businesses that lack a strong strategic fit or offer lower margins and growth rates. GSK has sold its non-core brands and Pfizer has divested its nutritional and animal health businesses, while others are pruning their business portfolios, with Novartis intending to sell its blood transfusion diagnostics business to Grifols, and Johnson & Johnson reportedly seeking a buyer for its clinical diagnostics business, the study points out.

While these divestitures generally improve growth and margin prospects, they also leave firms more narrowly focused, says Fitch, which expects divestments in the sector to remain opportunistic and not to result in any major portfolio reshuffles or extraordinary distributions to shareholders.