Coronavirus May Test Global Pharma's Economic Model

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Thursday, May 07, 2020 / 12:28 AM / By Fitch Ratings / Header Image Credit: The New Arab


The coronavirus pandemic could test the economic model of the pharmaceutical sector if it leads to weaker patent protection, Fitch Ratings says. In our view, a balanced response, such as tiered pricing and greater collaboration between pharma companies, will be required to develop a sustainable commercial model for COVID-19 medicines.

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The innovative pharma sector's approach to the pandemic is based on developing three pillars of response: testing, treatment and vaccines. Testing kits developed by various companies were urgently needed during the first stage of the outbreak to monitor the virus's spread and attempt to contain it. Testing is now becoming the key tool in transitioning into the post-lockdown phase where antibody testing, alongside contact-tracing, could help to reopen economies while containing the virus until readily accessible treatments or vaccines are available.


COVID-19 treatments and the associated approach to pricing could bring changes to the economic model of the sector. We expect scarcity of any drugs relative to vast global demand for such treatments will add a new dimension to the three traditional components of drug pricing - clinical value, system value and return on research and development (R&D).

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Pharma companies are firmly focused on investigating whether existing drugs could treat COVID-19. The safety profiles of existing drugs are known, meaning that if they demonstrate efficacy, they could be quickly made available. Gilead's remdesivir is the first such treatment that has passed clinical trials and demonstrated a 31% faster recovery compared to placebo.


The sector needs to develop a sustainable commercial model that balances scarcity and affordability for remdesivir or any other COVID-19 treatment. Drug pricing will be in focus again, but this time on a very large scale. There is demand from healthcare systems around the world, but their affordability criteria are very different, highlighting the importance of production volumes, costs and access to COVID-19 drugs. So far Gilead had made all its stock of remdesivir available for experimental treatments and trials.


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Value to healthcare systems and affordability will be the main factors for COVID-19 treatments. Quicker patient recoveries save costs for healthcare systems, which indicate a significant pricing potential, but could reduce affordability. There is also a danger that richer healthcare systems could outbid each other to gain access to a drug, restricting access for developing economies. This could tempt regulators to weaken patent protection to allow wider production and faster and cheaper access to a drug. Such action could be detrimental to the industry by weakening its economic model, which incentivises R&D by offering protected returns during the term of patents.


We believe that a balanced response would include tiered pricing to reflect varying affordability and increased partnerships and alliances to boost the scale of production and lower unit costs of medication. Indeed, the search for vaccines against the coronavirus is accelerating the trend for research partnerships and alliances already observed in other specialist treatment areas such as oncology. These alliances pool knowledge to work towards a faster solution, often supported by governments and non-commercial organisations.


Developed countries are researching biotech vaccine solutions, which often have better safety profiles, but where production is expensive and difficult to scale up. Some form of public funding could help finance development and de-risk investments either by supporting the upfront costs or underwriting the output, due to the strategic importance of tackling the pandemic for governments.


Emerging markets, particularly China, are exploring older antibody types of vaccines. These are cheaper to produce as existing manufacturing capacity could be quickly repurposed. But the safety profile of these vaccines could be less favourable than the biotech solutions.


We expect a choice of vaccines with different economic models and safety profiles to become available within 12-18 months, which could alleviate production and pricing concerns.


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