Pharmaceutical industry though being a valuable industry at current times of coronavirus health crisis, is facing tough challenges to conduct its business activity. Ongoing and planned clinical trials for other diseases are getting postponed which will delay the development of new medicines. Major events and conferences organized for health care professionals are getting postponed or are already cancelled. Import of raw materials is restricted, which will affect the manufacturing activity and in turn will lead to lower sales....
(M.Pharm, MBA), India
COVID-19 Impact on the Pharmaceutical Industry
Major Challenges and the Way Forward
The human race is witnessing an unprecedented health crisis brought by corona virus across the globe. The market is falling, the production units are standing still, and millions of people are suffering the wreck of unemployment. Analysts believe that the economic impact of the corona virus crisis will be worse than the financial crisis of 2007-08. Every business activity is seeing a downturn in their fortune be it billion Dollars Company or a small retail shop. Even the pharmaceutical industry is not an exception.
Pharmaceutical industry though being a valuable industry at current times of health crisis, is facing tough challenges to conduct its business activity. Ongoing and planned clinical trials for other diseases are getting postponed which will delay the development of new medicines. Major events and conferences organized for health care professionals are getting postponed or are already cancelled. Import of raw materials is restricted, which will affect the manufacturing activity and in turn will lead to lower sales. Insufficient ancillary supplies such as bottles, caps and packaging material for medicine will affect the output, the impact of which is expected to be felt over a period of next 3 to 4 quarters. This supply shortage may also lead to pricing volatility in future. Companies will try to maintain inventories for longer duration, buffer capacity will be increased which may affect the inventory cycles.
Planned mergers and acquisitions, new projects and ventures have been put on hold for a while (for example: Pfizer and Mylan have delayed their generic megamerger). But every crisis brings with it an opportunity and this time the opportunity may knock the doors of small pharmaceutical companies. It is very possible that for cost cutting measures, major drug makers may outsource the projects of secondary importance to smaller pharmaceutical companies. Especially, the domestic players can benefit from grabbing new projects and, if accompanied by favorable government policies, can boost the pharmaceutical business of resource limited as well as developed countries.
China is one of the largest Active Pharmaceutical Ingredients-API producer in the world. Disruption in supply chains may occur as India is the largest supplier of generic drugs worldwide and nearly 70% of its API requirements are fulfilled by imports from China. It will be important to observe what can be a substitute for cost effective imports from China and how the market moves further. Rosemary Gibson has explained the challenges coming up with this dependency very well in her book named China Rx: Exposing the risks of America’s dependence on China for Medicine and we can see the effects in this crisis.
International Pharma Trade Association (IFPMA), WTO and trade authorities of each country are trying to minimize the scarcity of essential medicines in COVID-19 affected areas, raised due to multiple export bans and simultaneous demand of some medical devices and essential medicines. Many countries have started injecting reserves in foreign exchange markets, to face the challenges posed by COVID-19. Russia has introduced more favorable treatment for FX loans issued to pharmaceutical and medical supplies companies. The Reserve Bank of India has extended the realization period for export proceeds so that companies can retain their buyer contracts in future. This will help in case of Europe and US exports as they are major importers from India and worst affected regions due to COVID-19 outbreak. Nigeria has introduced import duty waivers for pharmaceutical firms. Central Bank of Iran has allocated 0.06 percentage of GDP for import of medicines.
This crisis may also force few companies to think about new business models. Online pharmacy business may show higher growth, especially in the emerging economies, similar to emergence of Alibaba in China post SARS pandemic. We may expect increase in the use of digital channels to interact with healthcare professionals. Companies may focus on backward integration for APIs and intermediates. The thing worth looking for in the future is whether the pre-pandemic scenario in trade will be restored or new countries will emerge as export leaders in next few years as governments will try to become self-sufficient in medical supplies.
As per the World Trade Organization, the trade scenario will largely depend on the duration of the outbreak and the effectiveness of the policy responses. Spending on healthcare by governments will increase. Dependency in terms of imports of APIs of essential drugs like Azithromycin and Cephalosporin should be reduced. Even if we treat this pandemic a one-time shock, we need to build our capability to tackle any such emergencies in future. For now, let’s hope for a quicker recovery from this pandemic and follow social distancing norms as a responsible citizen.
- Policy Responses to COVID-19; International Monetary Fund; https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19
- WTO 2020 Press Release – Trade set to plunge as COVID-19 pandemic upends global economy; 08/04/2020; https://www.wto.org/english/news_e/pres20_e/pr855_e.htm
- Editorial, The Hindu Business Line – India’s dependence on China for Pharma bulk drugs must be addressed, 04/02/2020, https://www.thehindubusinessline.com/opinion/editorial/indias-dependency-on-china-for-pharma-bulk-drugs-must-be-addressed/article30736188.ece
- Kyle Blankenship, Fierce Pharma; Pfizer, Mylan say COVID-19 delays will postpone their Viatris merger; 26/03/2020; https://www.fiercepharma.com/pharma/pfizer-mylan-postpone-generics-merger-review-due-to-covid-19-delays
- Silvia Garcia, www.efpia.eu; Managing ongoing clinical trials in the current Covid-19 pandemic situation; 08/04/2020; https://www.efpia.eu/news-events/the-efpia-view/blog-articles/managing-ongoing-clinical-trials-in-the-current-covid-19-pandemic-situation/