The Spanish pharmaceutical sector faces future challenges as inflation and regulated pricing affect profitability. Industry employers reported a global rise in costs of about 1,500 million euros over 2021 and 2022 due to higher energy, sea transport, and raw material prices. Because drug prices for the health system are regulated, the sector has limited ability to pass cost increases to patients. This has intensified calls for the government to allow gradual price increases for medicines financed by public health programs. Farmaindustria estimates that cost overruns reached 1,000 million euros in 2022, equal to about 5 percent of the industry’s global turnover. A study by the International Financial Analysts notes that rising production costs over the past two years have strained much of Spain’s pharmaceutical landscape, impacting manufacturing capacity and future investment. The study highlights the effect on firms within the sector.
Pharmacy pricing operates within a regulated framework, so producers could not reflect higher costs in price adjustments. While energy costs have recently eased, industry stakeholders warn that the effect on income statements could persist and grow in the coming months. This has contributed to tighter stock levels in pharmacies as production remains concentrated on markets with higher prices. In some cases, the same drug can command much higher prices in other European markets, such as Germany, where it may fetch several times more. AFI projects that inflation will continue to affect the sector through 2023 and will be compounded by wage adjustments required by the earliest 2024 labor agreement.
The report by the industry employers in collaboration with the International Financial Analysts confirms the inflation impact despite measures taken by the Spanish government and European authorities to cap gas prices. The estimated extra cost of 1,500 million euros surpasses all research and development spending in 2020, which stood at 1,267 million euros, and exceeds the annual labor costs for Spain’s roughly 25,000 pharmaceutical workers. AFI’s analysis, drawing on Trade Registry data, indicates that small and medium-sized firms will be most affected, representing 47 percent of production value and employing 35 percent of sector workers in the country.
The main driver of these effects is the surge in electricity, gas, and oil prices, leading to an energy bill increase of about 820 million euros over the 2021–2022 period. The majority of the extra cost occurred in 2022, when energy bills were five times higher than in 2020. Energy expenses accounted for 4.9 percent of total costs in 2021 and 7.7 percent in 2022, more than double the share seen in other years.
Rising shipping costs in 2021 and 2022 added roughly 83 million euros to the sector, largely driven by freight price increases on routes linking Spain with Southeast Asia. The impact of supply chain frictions is uneven across the two years, but it accounted for about 55 percent of last year’s total cost. The study also notes that many firms in various industries are passing higher energy costs to prices, which in turn raises the cost of the raw materials used in pharmaceutical production. Overall, the added cost from raw material price increases is projected at about 200 million euros for 2021 and 400 million euros for 2022.
Foreign trade
AFI research warns that inflation could affect Spain’s pharmaceutical external competitiveness if production costs shift the pricing of drugs. Spanish pharmaceutical exports remain a strength for the sector, representing more than 70 percent of the industry’s activity. Drugs are among the top exporting products in Spain, and the sector’s trade balance shows exports significantly outpacing imports. In 2022, exports and imports of pharmaceutical products far exceeded levels seen in 1995 by several multiples. Spain’s overall trade picture has expanded substantially in the same period.
The ongoing rise in conversion and procurement costs, coupled with fixed sales prices, is squeezing the industry’s business margins. Many companies face tighter room to absorb these extra expenses without compromising investment in growth and competitiveness.
Wage adjustments are expected to be around 12 percent, as specified by the chemical industry’s collective agreement. This anticipated adjustment could translate into an average impact of about 2.3 percent of industry turnover in 2024, not counting broader SSI premium changes. If implemented across the sector, this added cost would especially affect firms that generate higher value and sustain more employment in the country.