As the global workforce takes its first tentative steps out of lockdown amid gradually easing restrictions, a troubled world awaits them. The novel coronavirus is far from finished as a public health crisis, of course, with promising Covid-19 treatments only starting to emerge and concerns raised over potential new waves of infection as the world takes its collective foot off the quarantine pedal.
While the long-term health impacts of Covid-19 – as well as the vaccines, therapies and diagnostics that will steer us through it – remains shrouded in mystery, the global economic outlook has a grim certainty to it. A recession is looming; in June the International Monetary Fund (IMF) lowered its projection for global growth in 2020 to -4.9%, with a slower-than-expected recovery partly caused by economic ‘scarring’ – permanently shuttered businesses that will limit economies’ ability to capitalise on rising demand in years to come.
“These projections imply a cumulative loss to the global economy over two years (2020-21) of over $12tn from this crisis,” wrote IMF chief economist Gita Gopinath.
Lockdown is taking its toll on the global economy, but the damage is being dealt unevenly. While some sectors, from hospitality to construction, are bearing the brunt of Covid-19’s impact, others are finding opportunities alongside the challenges. The pharma and biotech sectors have traditionally been seen as highly resistant to economic shocks and recessions, and while Covid-19 has presented some daunting obstacles for drug developers – particularly in the continuity of clinical research – that resilience looks set to broadly continue through the current crisis.
Pharma: A recession-resistant industry
The key to pharmaceuticals’ insulation against recession is obvious: a bad economy doesn’t make patients stop taking their medicine. In previous recessions, such as those in the early 90s, early 2000s and the global crash of 2007-09, US national healthcare expenditure rose as a share of GDP, with medical spending remaining stable even as belts are tightened elsewhere.
“While there may be a general recession, the demand for life-saving medications is not going to change,” said Patti Seymour of consulting firm BDO in a February interview with Pharma Manufacturing. This has allowed well-positioned pharma firms and biotechs to post strong sales growth even in recession conditions.
The demand for life-saving medications is not going to change.
Of course, economic downturns do take their toll on the industry – R&D spending and early-stage funding can be cut or re-focused, which translates to research programmes eliminated at pharma giants and innovative biotechs going under without the cash reserves to weather the financial turbulence.
Prevailing economic headwinds can also drive the performance of different parts of the industry. With a deep and potentially prolonged recession incoming, industry analysts are already forecasting a significant boost for generic and biosimilar medicines, after several years of declining profits and price-fixing scandals battering the financial performance (and reputations) of several of the biggest generic players.
“When patients lose their jobs or medical coverage, doctors and patient may be more likely to use generic alternatives to more expensive branded drugs,” noted Moody’s vice-president and senior analyst Morris Borenstein last year. “Additionally, makers of generic drugs have low exposure to patients who pay for pharmaceutical drugs without medical insurance.”
Covid-19: The race for the prize
Clearly, one thing that makes the coming recession distinct from all those that have come in recent decades is that the cause of the chaos is directly connected to the pharma business, and the industry (along with academia) holds the promise of life-saving treatments and vaccines.
This link has offered both obstacles and opportunities for the life sciences sector. On one hand, the physical distancing required to reduce the pandemic’s spread has been a threat to the clinical research that is the industry’s lifeblood. GlobalData analysis in June noted there were nearly a thousand organisations reporting disrupted trials, more than 80% of which were delayed due to suspended or slow enrolment amid the lockdowns.
The growing number of resumed trials in the last month suggest that research programmes may be regaining their footing as studies adapt to distancing requirements with virtual consultations, remote monitoring and digital data management – all areas that are ripe for future growth as trial sponsors and CROs adjust to a potential new normal.
We have had a very active deal flow during the pandemic and we have not seen any slowdown.
On the other hand, the threat of Covid-19 to public health is generating a great deal of funding for promising treatments – novel or repurposed – and the companies that are responding quickest to the unmet needs are seeing rapid share-price increases.
Moderna’s astonishingly fast progress with its vaccine candidate, mRNA-1273, saw the company’s value jump nearly 40% in mid-May when it announced positive Phase I data, with a Phase II now underway and a Phase III set to begin in July. The promise of Gilead’s repurposed antiviral remdesivir, meanwhile, has driven 17% growth in the company’s share price this year.
And despite the disruption to research, there is still a solid bedrock of pharma and biotech fundraising, financing and M&A happening outside of Covid-19 in 2020 so far, from Exscientia’s $269m technology partnership with Bayer in January to Novo Nordisk’s recent $725m acquisition of cardio-renal specialist Corvidia as it expands into the CV space. Biopharma venture funding totalled $5.5bn in the US alone in the first quarter of 2020.
“All things considered, we have had a very active deal flow during the pandemic and we have not seen any slowdown,” Novo Ventures partner Nanna Lüneborg told Pharmaceutical Technology in June.
Accelerating the drug price debate?
The looming global recession is likely to have implications for a long-standing issue in pharma around drug pricing and access. This would be true in any recession, as tightened healthcare budgets begin to feel the strain, but especially so in the case of this particular pandemic-driven downturn. With billions in public funding being channelled into the industry’s Covid-19 efforts, there is more scrutiny than ever around the cost of the drug development process, and any hint of price-gouging around novel treatments and vaccines will not go unnoticed.
“Folks will get a big, highly visible dose of how pharma does business and it will fuel calls for reform,” argued Patients for Affordable Drugs president and founder David Mitchell in an interview with Bloomberg Law.
“It’s imperative that this outpouring of public investment comes with strict conditionalities of universal and equitable access for all,” wrote Save the Children access to medicines advisor Karrar Karrar in April. “This should include conditions of full transparency around clinical trials data, cost of R&D and price. Any resultant vaccine should be subject to flexible intellectual property rights through waivers and the use of non-exclusive licensing.”
Compulsory licensing, or voluntary schemes such as patent pools and cross-licensing, are already hot topics of discussion among global governments, and while private drug developers will be looking for a return on their investments against the pandemic, but they will have to be extremely careful on pricing to avoid a potential disaster of public perception.
Folks will get a big, highly visible dose of how pharma does business and it will fuel calls for reform.
Gilead, for example, is looking very closely at the price for its promising Covid-19 treatment remdesivir, which has reduced hospital stays by just under a third versus placebo in clinical trials. The firm will be considering the updated price recommendation calculated by the Institute for Clinical and Economic Review for remdesivir, which recommended a price of up to $5,080 per course based on cost-effectiveness models, although it proposed a lower price of up to $2,800 per course if low-cost dexamethasone becomes part of the Covid-19 standard of care, which looks likely after positive results in the UK’s RECOVERY trial.
At the end of June, Gilead chairman and CEO Daniel O’Day revealed that the company will sell remdesivir to governments of developed countries for $390 per vial, or $2,340 for a five-day treatment course, with generic manufacturer agreements in developing countries to reduce this price further in those settings.
While Covid-19 will put the price tags of pharmaceutical products under renewed pressure, especially in the US, there is some cause for optimism over the industry’s public reputation. The sector has scored very low on public trust polls for years, driven by high prices, patent shenanigans and its role in the opioid crisis, but pharma’s central role in tackling this major global emergency could start to shift that.
Ultimately, the coming recession will pose challenges to the pharma and biotech sectors in terms of financing research, especially for those smaller players without sizeable cash reserves to dip into, or those working in therapeutic areas that may be shoved aside in favour of 2020’s more immediate opportunities. But life sciences’ reputation as sturdy in the face of recession will likely hold up to the strain, and the evolving global picture, both clinically and economically, will continue to offer avenues for growth.