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  • High profitability of pharmaceutical and biopharmaceutical companies, particularly acute in the context of the COVID-19 health crisis
  • Strong ability to innovate, in response to demand from authorities as well as patients and their families
  • Development of health insurance systems in emerging countries to deal with diseases related to physical inactivity and a richer diet
  • Government support via funding, notably after the onset of the pandemic
  • High overall barriers to entry, favouring players in the sector


  • Increasing competition among generics producers
  • Greater biosimilars (generics of biological products) access to market
  • Pressure from payers to lower drug prices
  • Regulators paying closer attention to the health impact of new therapies through value based medicine
  • Rising debt due to the need to enhance supply through acquisitions

Risk Analysis

Risk Assessment

Overall, the pharmaceuticals (pharma) sector remains one of the most resilient sectors (among those for which Coface publishes risk assessments) facing this health crisis, despite challenges remaining, which mainly already existed. The knock-on effects of the COVID-19 shock affected drug sales in many developed countries. Furthermore, clinical trials were delayed or abruptly put to an end due to lockdowns in the second quarter (Q2) of 2020. Moreover, the pharma supply chain was strongly distorted, notably when China closed its borders in Q1 2020. Therefore, governments around the world pledged to support medical research and relocation in order to gain some independence from China. Furthermore, the pandemic led the global economy into the toughest recession since World War II, which has deteriorated public and corporate finances, while pushing unemployment higher. Various challenges that Coface analysed prior to the COVID-19 crisis persist. The latter include official pressure to lower drug prices, criticisms of governments on the perceived lack of transparency in price setting, distributor’s segments difficulties and legal risk.


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Reader's note: "Payer" - in the pharmaceutical sector, the payers assess, negotiate and pay for medicines, on behalf of the patients.

Sector Economic Insights
COVID 19: a global shock that affects the pharma sector, which remains resilient overall

The pandemic is affecting every sector for which Coface produces sector risk assessments at different degrees. However, the pharma sector has suffered less from the pandemic than others have. Indeed, it is one of the sectors that Coface considers as most resilient due to various factors. The latter include the fact that pharma products are essential and are highly priced for serious illnesses. Finally, high barriers to entry stemming from significant Research and Development (R&D) deter new entrants.

However, major pharmaceutical markets saw their value temporarily shrink, due to lockdown related measures, particularly in Q2 2020. Drug sales experienced a drop in the main markets (European Union (EU), U.S. and China) during this period, notably that of hospitals, as demand decreased due to the admission of fewer patients, many shying away from going to hospital with fears of being infected. The fall in clinical trials in the first half of 2020 does not bode well for drug productivity. The lockdowns forced clinical trials to slow and medical regulators to lower the pace of their approvals. According to a study from Aaron van Dorn, published in the medical research journal Lancet in August 2020, the pandemic mostly disrupted trials when patients were not enrolled. As such, around 80% of all non-COVID-19 related trials were interrupted in the U.S., according to the National Institute of Health’s Director.

Willingness to change the supply chain likely to be challenging

The above-mentioned disruptions to the pharmaceuticals global value chain reached a peak when half of humanity was under lockdown in Q2 2020. The COVID-19 crisis exposed the world’s over-reliance on China’s manufacturing ability, which is the backbone of pharmaceutical manufacturing. Thus, a sizeable number of governments worldwide, including leading economies such as the EU and the U.S., are considering a reorganisation of the pharmaceuticals global supply chain in particular.  In order to do so, they are contemplating relocating certain key parts of production. For instance, France’s President Emmanuel Macron has promised to repatriate production of high-value drugs, but the country’s pharma plants are mainly subcontractors producing older molecules. This pledge amounts to USD 200 million when additional efforts in R&D are included. This example is a good illustration of how difficult it could be for countries to embark on such a reorganisation.

The pre-COVID-19 pricing challenge remains a key issue for payers in a context of promising but expensive innovations

New therapies coming onto the market for the treatment of what are often potentially lethal or chronical diseases are primarily contributing to the rise in drug prices at the global level. For instance, AstraZeneca and Daiichi Sankyo’s Enhertu, which combats cholesterol, will cost USD 13,000 per month. In the United States alone in 2020, 800 drugs saw their prices increase, entailing a 3.3% rise in drugs price according to GoodRx, which tracks drug prices paid at pharmacies. These increases, and the perceived lack of transparency in pricing by pharmaceutical companies, have led political representatives, be they in the Trump administration or Congress, to take up the issue to ensure that U.S. prices are more in line with international standards.

In September 2020, President Donald Trump enacted an executive order that allows federal programmes to ask drug companies to lower prices in order to force them to be in line with prices applied in other advanced economies. Nevertheless, such a measure could face legal challenge given that the U.S. Department of Health and Human Services (HHS) is forbidden to negotiate drug prices, and requires the approval of Congress to ask for drug manufacturers to lower their prices.

In China, the latest 2020 tendering round offered the National Healthcare Security Administration (NHSA) a 53% cut to the price of the winning drugs, allowing them to be sold in public hospitals nationwide. The Chinese State is more aggressive towards drug pricing, as the development of a national health insurance scheme is financially costly, notably following the onset of COVID-19. This situation is likely to  impose pressure on the healthcare budget. In Europe, the higher debt brought about by support measures enacted during the lockdowns could lead to cuts in the reimbursement prices of certain drugs. Simultaneously, other strategies currently being considered could emerge in the medium-term, although they seem difficult to implement at present. Such is the case with the strategy being considered by the French government. The latter would offer pharma actors less government pressure on price reductions in exchange for an effort on their part to engage on substantially improving the return of production units for selected active substances and drugs to Europe.

Pharma, notably ‘Big pharma’ actors are facing criticism and scepticism from governments and public opinion over the lack of transparency in pricing. Calls for greater transparency from pharmaceutical industry players are coming not only from the United States, but also from around the world. In May 2019, the World Health Organisation (WHO) requested that drug companies disclose their methodology for setting the prices charged to payers. Payers have certain tools at their disposal to limit the budget impact of expensive drugs. One of those is the fact that, in addition to having policyholders sharing payments, payers, particularly in Western Europe, have set up ‘cost-benefit’ assessment systems for each therapy. For example, in the UK, this value-based approach allows the country’s National Institute for Clinical Excellence (NICE), to refuse to reimburse a drug if it does not significantly improve the survival or quality of life (measured in monetary terms) of patients treated by the National Health Service (NHS) in England. These methodologies are increasingly being implemented in emerging countries, particularly with regard to certain pilot programmes of private health insurers, who see this as an opportunity to reduce, with generics, the costs of public health systems.

In the U.S., the Institute for Clinical and Economic Review (ICER) is attempting to implement evidence based assessment for industry actors, such as CVS Caremark, a Pharmacy Benefit Manager (PBM), which seeks, among other things, to lower drug prices on behalf of health insurers. Nevertheless, PBM are scrutinised due to the opacity surrounding their operations. They mainly deal with flows of prescriptions and attempt to lower drug prices on behalf of their clients. However, as intermediaries, they are caught in the crossfire, since they do not generate sufficient rebates and are accused of mismanagement, notably by politicians.

Similarly to the pre-COVID-19 period, drug distributors are still the sector’s most at-risk segment

The most at-risk segment in the pharmaceuticals sector comprises distributors, including wholesalers, as well as pharmacy chains. These are bearing the full brunt of the price reductions demanded by public and private payers, while their fixed costs are high due to their fairly dense and specialised distribution networks, which have to cope, for instance, with the fact that some drugs must be delivered quickly, regardless of their destination, while adhering to strict packaging standards. Added to that is increased competition, notably the entry of new actors such as Amazon in the United States. According to Coface estimates, their net margin was 1.65% at the end of Q2 2020 compared to 1% a year ago, and which is much lower than that of pharmaceutical and biotech companies. Meanwhile this sub-sector has the highest net debt-to-asset ratio, which reached 15.7% during the same period. European and Chinese wholesalers have a higher risk profile. In addition to the drastic price reduction policies underway in the region, European wholesalers must also meet tougher standards and regulations. Complying with these rules generates higher costs and affects profitability. In China, the central government is seeking to clean up the segment, which has been hit hard by non-transparent practices and the presence of intermediaries that have pushed up prices. The "double-invoicing" policy makes it easier to monitor transactions: the producer issues an invoice to the distributor, which then invoices its client (hospital or pharmacy).

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Last update : December 2020

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