The effects of COVID-19 on the pharmaceutical industry3 min read
Pharmaceutical companies are heavily involved in the race to find a reliable vaccine to combat covid-19. For many, it has been an eye-opener about the complexities involved in finding and validating safe and effective medicines. The research and development of drugs are notoriously difficult and time-consuming, as well as highly labour-intensive. While it is difficult to isolate the overall impact of covid-related R&D activities, we can see how funding and its disbursement may affect how the crisis is tackled.
The complex issue of funding R&D
To begin with, pharmaceutical companies are generally conservative in their approach to antibiotic and antiviral R&D. The reasons for this are quite simple: these areas often don’t bring a guaranteed return on investment. So, although pharmaceutical giants could be criticised for not being proactive about Covid-19, the current situation is merely illustrative of broader issues with the pharma industry’s market-based R&D model.
Traditionally, the pharmaceutical industry has relied on big-name products, so-called ‘cash cows’, to generate steady revenue streams to fund R&D budgets. In 2019, for example, big pharma continued the trend of ploughing back a significant part of its sales revenues into R&D. To name three big players, Roche’s R&D investment of around $12 billion represented 19% of overall revenue. AstraZeneca’s R&D spend was 24.8%, while Merck spent 21% of its turnover.
The funding process: stage by stage
Funding is further complicated by the staged process that underpins every R&D undertaking. Even under ‘normal’ (pre-Covid) circumstances, the main investors involved in R&D differ depending on the stage of development. While basic discovery research is funded primarily by governments and non-profits, later-stage development is financed largely by pharmaceutical companies or private investors, like venture capitalists. It is in these later stages that funding often hinges on the commercial viability of a developed treatment.
Overall, it’s the time between discovery and proof of concept that is typically difficult to fund. That’s a result of the financial risk involved due to the uncertainty of a product reaching market.
Where is the money coming from for Covid-19 R&D?
As of April 23, 2020, there are roughly 924 ongoing trials in the world for the treatment of COVID-19. That will have both short and long-term implications for the pharma industry. Currently, this is reflected in R&D activity and how it is being funded.
Firstly, pharma companies are ploughing R&D reserves into funding accelerated research and development for a Covid vaccine, which inevitably means much research into other clinical areas has been put on temporary hold.
However, there are also various examples of collaboration between governments and the private sector. For instance, GlaxoSmithKline and Sanofi (its French counterpart) have come to an arrangement with the UK government to supply up to 60 million doses of the COVID-19 vaccine. This ‘advance purchase agreement’ with the state helps to underpin the considerable cost of scaling up development and production before knowing for certain whether it will work or not. Incidentally, the European Commission has reached a similar agreement with the companies for 300 million doses for all EU countries.
As mentioned previously, it’s challenging to isolate R&D activity in terms of the overall industry impact. The knock-on effect of the pandemic has meant financial resources have had to be diverted to deal with issues like supply chain disruption for active ingredients or a ramping up of production of certain drugs related to respiratory disorders. What is clear, based on research by McKinsey, is that pharma R&D labs are currently operating at below 50 per cent of their capacity. That’s primarily due to a drop in productivity caused by the switch to remote working.
To summarize, Covid-19 R&D is being funded by a mixture of government, joint ventures, and existing R&D budgets. Ultimately, it will be the pharma and biotech industries that will provide the medicines to protect us from Covid-19.
Looking to the future, however, industry members are beginning to consider the effect of funding and how this could shape a future pandemic response. It’s becoming apparent that a different framework, one not as reliant on private sector investment, could further expedite the R&D process. That would also improve global accessibility, particularly for more underdeveloped parts of the world.