COVID-19 and its effect on current and future pharmaceutical industry trends

As well as the ongoing efforts to find a treatment and a vaccine, COVID-19 will also drive the pharmaceutical industry to shorten its global supply chains through increased inventories and local manufacturing, says Michael Danzi, CEO, Legacy Pharmaceuticals

Mike Danzi

The headline grabbing reaction to the pandemic will, of course, be the focus on a treatment and a vaccine. We will continue to see large investments in antiviral drugs and vaccines, funded by both industry and governments.

To rush the critical vaccines to market may require streamlined regulatory approvals and, perhaps, risk-adjusted safety requirements, which would require some of the potential liability being transferred to governments.

These activities will remain top-of-mind for an anxious world for the next 12–18 months. Yet, the COVID-19 virus will also affect the wider pharmaceutical industry, beyond vaccines, including manufacturers and marketers of the generic and branded drugs our customers and patients need.

The measures employed worldwide to isolate and socially distance have impacted manufacturers’ ability to staff their facilities and make drug products. At Legacy, a supplier of sterile liquids and powders, as well as semisolid topicals and other drug forms, 25% of our workforce was sick or had been exposed at any given time; various lines were closed as we shifted staff around to retain some level of output.

Fear of the virus has also impeded the transportation of products, as experienced by many other pharmaceutical manufacturing establishments. We can expect this to impact the end-user market in the coming months. Dangerously low inventories and drug shortages will become even more common in the US and in Europe.

As a direct result of this shock, global industries, including the pharmaceutical supply chain, will move away from just-in-time delivery and include more inventory in the pipeline. In the near-term, this will strain the capacity of our factories as demand jumps to refill the pipeline and increase the amount of inventory in the system.

Because of lessons learned from the pandemic, it seems unavoidable that supply chains will shift to more local sourcing, such as Europe in Europe and US in the US. The very real medical supply shortages caused by COVID-19 will push governments to insist that vital products are produced within their boundaries, pharmaceuticals included.

Rather than being viewed as protectionist or nationalistic, this will be necessary as a way for countries and regions to better withstand the next systemic shock … and may well be mandated by law or encouraged by tax and regulatory policy.

All of the above add up to more demand for pharmaceutical manufacturing of all types in areas that have seen a net outflow of capacity (EU and US) and away from those that have grown in the past decades (India and China). This will strain existing capacities for a few years while new lines and plant are built and staffed within various political borders.

Public and government attitude toward the pharmaceutical industry may become more positive.

There seems to be a rising awareness of the regulatory and financial challenges that pharmaceutical companies face when making safe and effective drugs at a fair cost. Bringing manufacturing back to the US or Europe will require a social and government commitment to pay the marginal additional cost that’s implicit in local production.

In summary, in the near-term, antivirals and COVID-19 vaccines will dominate the news, and investment will focus on a treatment and a cure. Also, the existing pharmaceutical manufacturing space will be pressured to fill a depleted drug product pipeline with larger inventory levels than were carried in the past.

In the longer-term, expect to see a shift of production back to regions that have previously experienced a cost-driven outflow of manufacturing capacity.