What will our industry and economy look like in the post-COVID-19 era?
First of all, we would never recommend paying too much attention to anyone who knows precisely what the answer to this question is.
It’s simply too early and too soon to predict anything.
But, as the current crisis subsides, and as testing, therapeutics, and vaccines reach the market, the state of our industry will likely be different…reshaped, if you prefer.
But how will things be different? We came up with a number of ideas, but there will clearly be more as we come out of this pandemic.
Supply Chain Domestication – The prevailing wisdom is that 80% of all drugs dispensed in the US come from India or China. Some estimate that up to 97% of all antibiotics dispensed in the US originate in China.
There is no way to confirm this. In fact, we cannot say if “drugs” means API, finished product, or (more likely), some combination thereof. But the recent battle over the importation of hydroxychloroquine from India into the US highlights part of the problem.
The suggestion is that countries that depend on China and India for low-cost pharmaceuticals simply need to re-start local production of important medications, like antibiotics, antibacterials, and vaccines. Presumably, this would be done via government contracts awarded to domestic producers, which right away suggests that a $10 vial of antibiotic tablets made in China will cost 10x for “Made in USA” stock.
One option is to re-start pharmaceutical manufacturing in Puerto Rico. The islands already have a lengthy history of manufacturing generics, complex formulations, and parenterals. Most of that was economically feasible via tax incentives. While this is something that can be restarted relatively easily, concerns over the current health of the power supply remain valid.
Conferences – If you are reading this article, chances are very good that you regularly attend partnering and scientific conferences. Several large conferences in 2020 have either been cancelled outright, or are migrating onto online platforms.
Social distancing appears to be effective in containing the spread of COVID-19. Hence, it is likely that cancellations and digital conferences will continue through the remainder of 2020. But what about after that? Will companies once again send 10-25 or more people to BIO? Or will the lower costs associated with virtual events be too attractive to give up?
We are conducting a survey asking for opinions on virtual conferences. One theme that is emerging consistently is that impromptu face to face meetings with friends and colleagues are invaluable.
The quick introduction and card exchange with the person behind you in the line for food or a drink can lead to a significant interaction later. They are unpredictable, and yet highly valued by most attendees.
Partnering conferences are not just for first-time meeting with prospective partners or investors. Major conferences are often used as an opportunity to conduct post-transactional, alliance management meetings, bringing licensor company executives and their licensee counterparts together in one city for a few hours or even an entire day of meetings. .
So, what will happen? We think that conferences of the future could be hybrid events, especially the larger ones. In other words, two people meet at a booth at a scheduled time, but the host opens up a laptop (or phone) and “dials in” their colleague (who is also registered for the event at a reduced rate) via video chat embedded in the browser-based partnering system.
Registration for the video chat would be required for preferential Wi-Fi access and access to the video embedded in the partnering system. Whether some of the conference locations can handle all of this internet traffic is obviously an open question.
The Future of Work – Well, it’s basically here now. COVID-19 has shifted nearly all office workers around the world from traditional offices to work-at-home (WAH) situations. Suddenly, multiple video conferences from makeshift home offices have become the norm.
We have written about this trend already, and will not repeat what was already said. As long as we need laboratories and manufacturing facilities, pharma will never follow a fully distributed work/business model like Automattic with its 1100+ employees all working from home.
But it is quite easy to envision a day when attitudes shift from command and control (“You must be in the office.”) to distributed workflows. Security is always a concern with distributed work models. But other companies manage to deal with it.
Can pharma? And, will employees even want to return to the office? Will pharma turn their current offices into “hot desks” for employees to come and go as needed?
Macroeconomic Environment – Business school professors of the future will publish truckloads of books and case studies discussing macroeconomics in a post-pandemic world. And, as we are not macroeconomists, we will not contribute to the truckload.
However, we cannot ignore the fact that for the first time in history, most governments around the world have asked their citizens to stop working and stay home, bringing economies to a standstill.
How will countries respond? Will we witness a post-World War I-like situation, where countries retreated economically and fueled isolationist tendencies? Or, will it be more like the post-World War II era, where international cooperation (cf., Europe) was the path towards perpetual economic growth and peace?
Based on our readings (of both articles and tea leaves), we believe we are heading towards an era of isolationism (cf., supply chain domestication discussed earlier).
We are already seeing this in Europe, where individual countries are defying European rules by closing borders and fending for themselves (more on Europe later). We were already seeing these tendencies with the “MAGA” and similar populist movements in the US and elsewhere. Will COVID-19 fuel and accelerate isolationism? And, for our industry, how will this impact drug prices? Cross-border research?
Deals and Deal Flow – Let us assume for a moment that “Big Pharma” will continue to demand and access external innovation to survive. There will be a continued demand for licensing opportunities in the usual areas post-pandemic, like oncology and rare diseases. Hence, the scouting side will still be active (although pricing pressures may change this; more later).
What we find slightly worrying is the continued decline in new biotech company formation. As discussed in a recent blog post, this trend existed long before the current pandemic. Meantime, round sizes are increasing, suggesting more capital is being poured into fewer companies.
But as gains in public markets evaporate, will future limited partnerships shift their allocations away from life science venture capital into other sectors? Will this make it even more difficult for new company formation?
Will clinical trial disruptions scare investors away? Will this drive up valuations for licensing partners in the years to come? What will this mean for employment in our sector.
Shifts in R&D – In a 2016 article, Greg Glassman, the CEO of CrossFit, defined the five categories, or buckets, of mortality:
Kinetic – physical trauma, falls, car crashes, and the like
Genetic – Disorders such as cystic fibrosis and certain cancers; we would also include autoimmune conditions in this bucket.
Toxic – Lead and other poisonings which can lead directly to death or death via cancer
Microbic – Bacterial, viral, and fungal infections
Chronic – obesity, diabetes, and the like.
Before the pandemic, approximately 70% of deaths in the US were attributable to chronic (and largely preventable) diseases. Many of the drugs used in this bucket are genericized, and pharma has largely stepped away from these markets due to poor pricing. Segments which enable the development and commercialization of expensive therapies like antibodies for gastrointestinal inflammation and psoriasis are an exception.
Will this change post-pandemic?
Some have argued that the pandemic will cause the industry to wake up and restart efforts to discover and develop novel anti-viral, novel anti-biotics, and new vaccines. We have our doubts, as the market fundamentals are not changing, unless governments take extraordinary steps like issuing “immunity passports” and the like. More broadly, there may be a resurgence in medications which reduce ICU time, or prevent admission into the ICU.
The End of Europe – European countries reacted to the pandemic by closing their borders and making major adjustments to their financials, all without Brussels. Aren’t major crises like this supposed to unite Europe?
The pro-Brexit contingency must be sitting in their private garden pubs with collective “See, I told you so” looks. The European Union will survive this crisis, but what about the next one? Will some countries on shaky fiscal ground decide to break free in order to get themselves back on track?
How will future investors in euro-denominated opportunities react to the post-pandemic EU? This one is really difficult to predict. But if Brexit is any indication, we suspect other countries in the Union (Spain? Italy?) will take a close, hard look at their future within and outside the Union. What this will mean for our industry is anyone’s guess.
Increased Healthcare Spending – The pandemic exposed a number of major flaws in the healthcare systems of many countries, most notably the US. While it is easy to point fingers in hindsight, the reality is that no country was fully prepared for a global pandemic.
What we can say, however, is that we will experience another pandemic. Maybe COVID-19 will spike later this year. Maybe another virus will make its way around the World…one that is more contagious and more lethal than this one. Will countries like the US take proactive measures? If so, what might they be?
Universal healthcare? Too expensive and unwieldy for a country of 350 million people.
Mandatory vaccinations? Hopefully this pandemic is the final nail in the coffin of the anti-vax movement.
Construction of regional vaccine and drug manufacturing facilities that ramp up in the event of emergencies? Bill Gates has the right idea here. Stockpiles of PPE and ventilators? Yes, of course.
How about greater spending on preventive care? Considering the co-morbidity data, and the problem we have with chronic (preventable) diseases, it seems like an obvious place to go.
But we are not simply talking about developing more drugs. We’re talking about prevention…and that requires more people making sensible dietary choices and taking physical fitness far more seriously. As a society, we have done a good job reducing the prevalence of smoking (vaping issues aside).
Legislation and spending to encourage healthier living will result in fewer chronic diseases, thereby freeing healthcare system capacity to deal with diseases in the other Glassman buckets. But if government spends more on healthcare, this spending comes at the expense of what? Education? Infrastructure? Military?
Now is the time for private payers to offer insurance discounts for members with demonstrated attendance and participation in exercise programs. Now is also the time for employers to recognize that healthier employees are good for business.
Ironically, this can have a negative impact on the pharmaceutical industry. If a society became healthier, the prevalence of chronic diseases would decline, and result in the decline of prescription drug usage in several therapeutic categories (cardiovascular, metabolics, and some CNS, to name a few). Generic companies (like those Chinese and Indian companies) could be hit especially hard.
Unemployment – We cannot ignore the fact that unemployment will remain relatively high in a post-pandemic world. It will take years for some sectors in the economy, like restaurants and sports, to recover. Increased unemployment means less tax revenue and fewer people covered via health insurance.
And, with retirement funds losing value, those who are employed may have to delay retirement for a bit longer for fear of running out of money during retirement.
Paranoia – According to the CDC, less that 50% of adults between the ages of 50 and 64 years receive a flu vaccine. Assuming a safe, effective coronavirus vaccine is developed and launched quickly, and is widely available and of minimal cost to patients, will we see widespread compliance? Let us assume that coronavirus vaccination rates are less than 75%. Will governments shut down economies once somebody coughs or sneezes?
Is this a switch that will be flipped on and off when disease returns? Are draconian measures required, i.e., no vaccine, no entry into school or work? What happens when people realize that protection against this virus will not confer protection against the next one? What if the vaccine is very expensive?
This is actually a perfect opportunity for established vaccine manufacturers (Sanofi, Novartis, etc.) to expand on existing development and manufacturing capabilities. If seasonal influenza is a guide, we would need to roughly double vaccine distribution in the US alone.
China – Pre-pandemic, China was regularly in the news. Post-pandemic, China became even more prominent in the news. Coronavirus has opened our collective eyes to our dependence on a single country for our supplies not only of cheap consumer goods like phones and toys, but also drugs, ventilators, other medical equipment, and so forth.
But if not China, where? Can any other country produce at the volumes and cost as they can in China? Probably not. So again, we may evolve into an economy that depends on a network of suppliers across multiple countries. This will obviously cost more, but it will serve as a hedge against having governors sharing equipment from one state to another.
This also points to the need for medical strategic reserves. We already have oil reserves Why not have reserves of PPE and anti-virals? Again, building and maintaining drug reserves could be a small opportunity for domestic pharma companies.
Conclusion – We believe it is entirely too early to come to any sort of conclusions about what a post-COVID-19 pharma industry will look like.
What we can say is that we are entering a 2-5-year period of time where we will experience a great deal of industry change…in how we work, in how we collaborate, in the markets that will open (and close)…all against a backdrop of higher unemployment, slow macroeconomic recovery, and accelerated shifts from West to East.