To meet growth goals, life sciences executives are preparing now for M&A, even as the pandemic puts complex deals on hold.
The life sciences industry, like the rest of the global business community, is dealing with the global pandemic. COVID-19 has lowered the demand for in-person care, reduced health care provider bandwidth, disrupted global supply chains and internal business operations, and affected employee wellness.
But not every life sciences company has been affected the same way. Companies developing COVID-19 treatments, vaccines or tests have weathered the recent market volatility relatively unscathed. And as patients stockpiled medicines ahead of shelter-in-place orders, revenues for some biopharmas actually exceeded forecasts. (Biopharmas with portfolios comprising physician-administered drugs have not been as fortunate.) That said, the uncertainty of what could happen over the coming months means few companies have been willing to provide full-year guidance.
By contrast, the medical device sector has been severely affected. Elective surgeries were either canceled as part of pandemic lockdowns or, where surgeries continued, patients were leery of going to the hospital. As the number of COVID-19 cases begins to stabilize in many countries, and governments begin to ease lockdown restrictions, elective procedures are resuming. When patients will become confident enough to undergo procedures will depend on numerous factors, including local infection rates and the complexity and necessity of the actual procedures. Thus, there will be some return to normal for medical device companies, but the recovery period is likely to be uneven and drawn out.
Overall, according to the results of the latest EY Global Capital Confidence Barometer (pdf), there is broad agreement from executives that the pandemic will reshape global economies, with 66% saying they expect COVID-19 to have a severe impact. However, they are less aligned about local implications, where 61% anticipate only a minor impact.
Although few life sciences executives expect a recession, many may find that recovery takes longer than anticipated
Despite the current situation, the market state does not appear as bad as one might have expected. While the S&P 500 is still around 10% lower than pre-crisis high (mid-February), the US Pharmaceutical Index and US Medtech Index are more or less identical to their pre-crisis highs, and the US Biotech Index is up considerably.
Although 52% of life sciences executives are bracing for a longer period of slower global economic activity extending into 2021, only 19% expect a sector recession in the near term.
Historically, life sciences companies have proved immune to recession as people still need health care, as well as drugs and devices, regardless of the economic situation. However, in the last century, we’ve never seen a public health pandemic spark a global recession.
Aside from medical devices and supplies used in elective procedures, the products most affected by the current pandemic are physician-administered drugs, or those that launched recently and don’t have strong penetration in the market. Companies have had to accelerate their digital sales capabilities since it’s not possible to educate physicians in face-to-face meetings. Also, given the massive delays or suspension of clinical trials due to the virus, we expect that the recovery phase could be more prolonged for life sciences companies than they may anticipate.
That said, life sciences executives are taking early steps to reevaluate operating models. A vast majority (92%) of those surveyed believe their global supply chains are no longer fit for purpose; 56% say they are taking steps to change their global supply chains. Meanwhile, 41% say they are looking to change the way they manage their workforce, and 37% indicate they are accelerating automation initiatives.