BMI View: Improving economic conditions in Europe will ensure the continued strong growth of Denmark ' s economy. This will help offset the negative impact of drug patent expiration and price reductions in the medium-term. The country ' s aging population and relatively high per-capita spending will drive the demand for high-value pharmaceuticals over the longer-term. However, our outlook is dampened by the likelihood of further government cost-containment measures in the future in order to deal with spiralling healthcare costs.
Headline Expenditure Projections
Pharmaceuticals: DKK20.87bn (USD3.75bn) in 2014 to DKK21.30bn (USD3.14bn) in 2015; +2.1% in local currency terms and -16.2% in US dollar terms. Forecast revised upwards from last quarter.
Healthcare: DKK198.41bn (USD35.66bn) in 2014 to DKK202.04bn (USD29.83bn) in 2015; +1.8% in local currency terms and -16.4% in US dollar terms . Forecast revised downwards from last quarter.
Denmark scored 68.1 out of a total 100 in our index for Q3 2015 and was positioned 8th in our Western Europe matrix, just below Finland (68.8). The country's score is boosted by a strong regulatory environment, although a major factor affecting the business environment for drugmakers is its small overall market size.
Key Trends And Developments
Zealand Pharma and Eli Lilly have cancelled their diabetes and obesity-focused research and development collaboration, marking the end of research into the hormone-based approach to use novel peptides to lower blood glucose and body weight. The move also ends the possibility of expanding the collaboration to cover other drug targets and diseases, as suggested during the initial signing of co-development pact in 2013. Zealand still has active collaborations with Sanofi and Boehringer Ingelheim. Furthermore, Zealand has given Lilly a pipeline of partnered and in-house clinical-phase candidates, several of which have milestones coming up over the next 12 months.
Brain disease specialist Lundbeck has reported that in Q115 (January 1 to March 31 2015) core revenue remained stable compared to last year as the expected genericisation of both Cipralex (escitalopram) and Ebixa (memantine) sales were offset by appreciation of key currencies and growth in other products. Core EBIT margin reached 6% in spite of significant launch costs. Core revenue reached DKK3,563mn (USD533mn) compared to DKK3,587mn (USD536mn) the year before; a decline of 10% in local currency and 1% US dollar terms.
Novo Nordisk's first quarter results were above investor expectations, with revenues growing by 24% year-on-year (y-o-y) in Danish kroner terms to DKK25.2bn (USD3.81bn). Net profit grew by 53% y-o-y to DKK9.87bn (USD1.49bn), although this was largely due to a disposal of Novo Nordisk's IT business. Revenue growth was driven by sales growth in the company's diabetes care portfolio, with price increases and currency tailwinds from North America driving outperformance.
BMI Economic View
Economic growth in Denmark will remain strong as economic conditions in the eurozone improve and domestic demand benefits from ultra-loose monetary policy. Historically low interest rates have seen a record number of mortgages having been refinanced so far this year, locking in lower interest rates for consumers, which will bolster disposable income for households.
BMI Political View
Anti-immigration sentiment will dominate Denmark's political landscape long after the September general election. Given an already fragmented political system in which consensus building is key to pass legislation, and improving economic conditions that will reduce the urgency for welfare reforms, we believe that structural reforms to boost economic competitiveness remain a long way off.