The French Pharmaceutical Industry Case Study

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Table of contents

Introduction 3 Country macroeconomic outlook 3 Industry recent evolution 4 Competition on the domestic market 7 Domestic and international sales 9 Perspectives in the short term 13 References 19

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Introduction

The French pharmaceutical industry is in great expansion and represents big economical stakes. Indeed, France is the fifth leading market and the second largest in Europe. The pharmaceutical industry is non negligible in France as, according to Focus Economics, its revenues exceed 53€ billion and generates huge exports. Moreover, France is a leader in the vaccines market thank to its world renowned institutions such as the Pasteur Institut. We will thus, throughout this study, try to understand how the pharmaceutical industry functions and how does France manage to be one of the leaders of this market.

It is necessary to first understand the macroeconomic situation of France in order to better understand the stakes of the pharmaceutical industry in this particular country. We will then focus on the pharmaceutical industry more precisely and will try to better grasp the different aspects around this market.

Country macroeconomic outlook

● France overview

France represents the 5th leading worldwide economy and is part of the dominating european economies. France’s largest revenues come from the service industry, this sector represent approximately 70% of the country’s GDP. Concerning manufacturing, France also has a competitive advantage in different leading sectors such as aerospace, luxury and automotive. Regarding its workforce, the country is also very well off as its possesses the highest number of science graduates, moreover it's entire workforce is in average highly educated.

France’s external sector is made of important exports and imports. Indeed, France is a large consumer of imported goods, in particular of aerospace, machinery and crude oil, which makes the country particularly price sensitive. The majority of these imports are from Europe, representing almost 70% of total imports. Exports also constitutes an important part of the country’s economy as France’s export to GDP ratio is of 29%. Exports are focused mainly on machinery, transportation and aerospace equipment, plastics and pharmaceutical products. France also possesses a high cultural heritage which is also reflected in its exports. Indeed, the country has high exports regarding wine and agricultural products. France is 2nd in terms of european exports. The country is ranked right behind Germany which is its closest and first trading partner. Like for imports, France’s main export partners are composed of the European Union, with only a third of exports going outside the continent. Furthermore, France highly benefits from its very high rates of tourists, which is also a dominant part of the french macroeconomy.

When considering the 2007 economic crisis, France is in a good position in comparison to its peers. Indeed, the country’s GDP has only been impacted as of 2009. Even if the country has less suffered from the crisis as other countries, the recovery is in slow motion.

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Unemployment rates have been quite high, the government's tax revenue has decreased, consumer buying power has reduced and a stagnation of growth and GDP has been noticed.

Lastly, France’s monetary policy are managed by The Banque de France which is linked to the European Central Bank. Both these institutions are committed in implementing interest rates policies, keeping inflation rates below 2%. Indeed, following the crisis, the inflation rate has decreased to 1%, making the institutions take important monetary policy actions such as adopting a negative deposit rate.

● Forecasts

The forecasts anticipate an economic growth around 1,5% in the 2 following years. Investments will increase thanks to the upcoming advantageous financing conditions and business tax cuts, even though the external demand is rather decreasing these days. The high unemployment rate will be fought through lower labor taxes and a more flexible labor market, which will overall help increase household consumption. Even though a future tax credit reform is planned for 2019, the country’s fiscal deficit will slowly start to decrease once the situation is stabilized.

Industry recent evolution

● Workforce

In 2017, the pharmaceutical industry was employing 98,786 person. The number of employments in the pharmaceutical industry is slowly declining. The four main departments are: Administration, Commercial, Research & Development, Production; There is an increase of 2.3% of the workforce in production against a decline of 4% in the commercial functions. This is mostly due to evolution of commercial strategy in laboratories. Laboratory promotes nowadays products with an important value added and with small volume: target specific consumer. Furthermore, the industry is prepared to employ more young or senior people.

Source: Leem

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● Production

Production department in the department with the most employees in the pharmaceuticals industry (45% in 2015).
In Europe, in 2014, France was ranked fourth country producing medicines in Europe.
The total revenue of these activities is equal to 54,5 billion euro. Half of its revenue is generated by the exports.

Source: Leem

● Complex Industry

If we compare the number of companies biased in the pharmaceutical industry between 1940 and 2016 we noticed that this number has strongly decreased. There were 422 companies in the medical industry in 1970 against 247 in 2016.

Source: Statista 2018

This might be explain by the complexity of the sector: the pharmaceutical industry is specific and has specific cost. The industry is moreover in a hectic environment with a lot of merger and acquisition.

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● Profit Margin

Basically, in this industry the producer settled the price of the medicine, in this way with the Valeant case in 2014 we noticed that the revenue is not a good indicator of the production, the demand. In france there are regulations to limit the price of medicine.
For french pharmaceuticals companies the profit margin is really high (going from 45% to 92% of the revenue according to Statista). These high rates make a lot of debate in France.