How COVID-19 is Affecting Life Sciences and Medical Devices Industries
Even those of us living under rocks couldn’t have slept through the global health crisis that is taking over our lives.
A mere four months ago, it was nothing more than a handful of people in China having somehow contracted pneumonia after visiting a seafood market in Wuhan. But testing showed similarities to SARS-CoV and MERS-CoV.
A new CoV virus was on the scene –coronavirus-2019 (COVID-19).
Today, Coronavirus has become a global health emergency calling for united worldwide action. We’ve seen heavy restrictions on travel, constraints on trade, an almost complete shutdown of the hospitality industry, companies frantically scaling their work-from-home policies to the entire workforce, schools closing their doors, and draconian limitations to people’s free movement.
You don’t need to be an economist to recognize that these measures are likely to have a huge impact on the supply chains of many industries. Especially those in the line of fire.
1. The Pharma Supply Chain During Coronavirus
China and India are key links in the pharmaceutical supply chain, especially for generic drugs, which account for 90% of prescriptions in the US.
Many Chinese drug ingredient makers started reopening last month, but transport bottlenecks, logistical hurdles, lack of raw materials, and labor shortages due to the outbreak are causing delays in the manufacturing and shipment of drug ingredients, fueling concerns about shortages globally.
Only 13% of all US active pharmaceutical ingredients (API) are supplied by China, but those include widely used medicines like antibiotics, ibuprofen, acetaminophen (paracetamol), and heparin. China accounts for 95% of US imports of ibuprofen, 91% of hydrocortisone, and 70% acetaminophen.
The limited disclosure and heavy regulations of the industry, as well as the fact some drugs consist of 10 or more ingredients, mean getting things up and running again is a mammoth task – especially with so many workers and drivers quarantined. (Some factories are only operating at 50% capacity.)
So far, the epidemic does not seem to be contributing to widespread shortages, however, fears were fanned when India announced restrictions on the export of 26 drug ingredients, possibly in an attempt to tackle domestic shortage as they rely on China for almost 70% of their APIs. The list includes Paracetamol which is one of the most commonly used pain-relieving medicines in the world.
Meanwhile, according to the Financial Times, Europe is already facing real issues acquiring crucial hospital drugs – not just those required to fight the virus, but narcotic pain relievers, muscle relaxant ingredients, and some older anesthetics, due to shrinking global air freight capacity.
While Brussels encourages countries to set up “green lanes” to ease the road movement of medical supplies around the EU, companies struggle to obtain slots on high-demand and expensive cargo-only flights.
It is too early to evaluate the effects of Coronavirus on drug pricing itself because, thanks to current inventory levels, most manufacturers have not yet experienced the feared API shortages.
2. COVID-19: Healthcare Products and Medical Devices
The World Health Organization (WHO) has warned of a global shortage of protective equipment needed to fight the fast-spreading virus.
Despite them asking companies and governments to increase production by 40%, hospitals around the world are experiencing a shortage of basic protective equipment (gloves, gowns, goggles, masks). It estimates healthcare workers need “89 million masks, 76 million gloves and 1.6 million pairs of goggles” in a month.
And to compound the issue, consumer demand for these items, as well as coveted hand sanitizer, (mostly sourced from China) has shot up.
Since the outbreak, “prices of surgical masks have increased six–fold, N95 respirators have tripled in cost, and protective gowns cost twice as much,” they say.
The prices of personal medical devices have become the latest affected by online price gouging On Amazon, a 10-pack of 3M N95 respirator masks sold for roughly $18.20 in January, now $119.99.
Websites are actively trying to monitor these types of price spikes and take necessary action, however, since demand continues to increase, and as supply and manufacturing speed stays the same, prices are bound to hike.
3. Impact of COVID-19: Life Sciences vs. Other Industries
Though the Life Sciences are in the direct line of fire of this pandemic, virtually every other industry is taking a hit.
The FTSE, Dow Jones Industrial Average, and Nikkei have all plummeted since the outbreak began (the first two seeing their biggest one-day decline since 1987) and investors fear the virus will destroy economic growth. Companies around the world are already counting costs.
The travel industry is one of the hardest hit, with flights, holidays, and business trips being cancelled thanks to the strict travel restrictions governments in more than 100 countries have implemented. Airlines are offering very lenient cancellation and rescheduling policies in response to the lack of desire and need to travel and this is directly impacting the prices of flights. A round trip from O’hare, Chicago, to La Guardia, New York, is just $43 today… a 63% price drop from yesterday!
The impact on the Hospitality industry is devastating. Much of it has been forced to close for many weeks, perhaps months. It could take years to recover and many companies will not survive.
In China (where a third of all global manufacturing takes place), industrial production sales and investment have slowed the first two months of the year.
The automobile industry supply chains have been affected by restrictions and dealerships have reported a sharp fall in demand, some moving to online sales.
Retail is a mixed bag. Some governments have forced the closure of all but “essential” physical stores to help stop the spread of the virus. So, while fashion is taking a hit, supermarkets are busy, but struggling to meet the seemingly insatiable demand of customers stockpiling necessities like toilet paper and bread, and are running their delivery and click-and-collect services at full capacity. UK supermarket Morrisons is even creating 3,500 jobs to help deal with current demand.
Meanwhile, customers, tasked with staying home and avoiding public spaces, are turning more to online shopping and some e-commerce retailers will see an upsurge in traffic but may suffer issues around stock and supply if they don’t invest in order to meet demand.
Oil prices, already affected by the row between Russia and Opec are at their lowest in 17 years. Even the price of gold has felt the impact, tumbling as investors fear a global recession.
An Uncertain Future for Life Sciences and the Economy
The Organisation for Economic Cooperation and Development (OECD) has warned that global economy growth could halve, growing at its slowest rate since 2009, if the outbreak intensifies.
The novel Coronavirus is clearly impacting the way businesses are producing, distributing, and operating. This, paired with changing business and consumer buying behaviors, will have both long– and short-term effects on prices.
Only time will tell exactly what those effects are.