COVID-19 Impact on Pharma: A Q1 Earnings Narrative

Aditya Kelkar

The COVID-19 outbreak generated widespread concern over how pharmaceutical, biotechnology, and medtech companies would cope with stringent national and regional lockdowns. Financial results from Q1 provide the first indicator of how this public health crisis will impact this industry and what the future may hold. 

By early May, earnings for most of the significant players in the pharma industry had been announced, and several key themes emerged. Following these themes throughout 2020 will assist in assessing the overall impact of COVID-19 on the pharmaceutical sector. 

What Q1 Earnings Told Us

A few companies chose to adopt a “wait and watch” approach and did not provide new guidance on the financial impact of the pandemic, whereas some decreased their annual guidance for 2020. 
    • Merck cut down its annual revenue guidance from $48.8B – $50.3B to $46.1 – $48.1B, roughly a $2B impact (~7% of annual revenues).  
    • Johnson & Johnson cut its revenue guidance from $85.8B – $86.6B to $79.2B – $82.2B, roughly a $5.5B impact (~6.8 % of annual revenues).  
Many companies had a significant increase in their Q1 earnings due to COVID-19. This increase was largely driven by abnormally high purchases in Q1 in order to prepare for the pandemic. 
    • Sanofi attributed $315M in additional revenues (50% of its Q1 revenues) to COVID-19 related purchases from its chronic medicines portfolio. 
    • GSK attributed $354M in additional revenues to COVID-19, with $129M from the Pharma business (50% of Q1 growth attributed to COVID-19) and $225M from its Consumer business (66% of Q1 growth attributed to COVID-19). The Pharma business was driven by Respiratory and HIV products, whereas the Consumer business was driven by Vitamins, Minerals and Supplements.  
    • Lilly attributed $250M in additional revenues to COVID-19 with $200M from the US (6% of US Q1 revenues) primarily from its diabetes portfolio. 
    • Novartis attributed $400M (3% of their Q1 revenue) in additional revenues to COVID-19 related purchases from its orals and self-injectables portfolio. 
Prescriptions for new patient starts were significantly impacted (20% – 40% decline) due to reduced patient – physician interactions. 
    • AbbVie guided to a 30% – 40% decline for new patient starts on Humira and Skyrizi.  
    • Pfizer guided to a 20% decline in new patient starts based on its patient hub enrollments. 
    • Merck guided to a 10% – 20% decline for new patient starts for its Oncology portfolio. 
    • BMS guided to a 20% – 25% decline across the oral anticoagulant class of drugs in CV. 
Many pharma and biotech companies (irrespective of size) seemed to have existing capabilities in remote detailing or e-detailing and were quickly able to switch to virtual customer engagements very effectively. 
    • BMS was successfully able to change its original launch plans for luspatercept from a “traditional launch” in MDS to a completely virtual launch due to existing relationships with hematologists and hematology experts.  
    • Biohaven Pharma not only launched its migraine drug during the pandemic but also accelerated its DTC campaign by initiating TV ads within one month of launch in order to get a wider reach. The company also coupled the DTC campaign with a telemedicine approach so that patients visiting its website had the ability to schedule an evaluation and, if deemed appropriate for the drug, receive a prescription. 
    • Novartis is planning to launch its recently approved drug Tabrecta for lung cancer through an omnichannel digital launch in May.
    • GSK is planning a virtual launch for its newly approved indication in ovarian cancer for Zejula despite COVID-19 restrictions. 
Despite initial concerns, most major pharma and biotech companies faced minimal impact to their manufacturing and supply-chain capabilities due to the pandemic. 
    • Pfizer increased production, shifted demand to their most critical products, and authorized overtime at multiple sites. The company also implemented a thorough and a comprehensive plan to control its site operations through a Digital Operations Center. 
    • BMS proactively secured alternate means for moving raw materials and products to markets and clinical sites to maintain its supply chain. 
    • Lilly does not source any APIs from China, and its manufacturing sites in the US and Europe remained operational with increased precautions. The company does not expect major disruptions in its supply chain. 

What We Can Foresee for the Next Three Quarters

Q2 2020 is likely to bear the brunt of the pandemic.  
    • Due to the advance buyout in Q1, companies have guided to destocking of inventories over the next few quarters starting in Q2, indicating lower revenues and lower revenue growth for Q2. 
    • Sales in Q2 2020 are likely to be further affected due to lock-down events across April and May, resulting in reduced patient – physician interactions and thereby impacting drug prescriptions. 
Companies with portfolios that are skewed in favor of infused drugs are more likely to be affected by the pandemic than companies with portfolios of oral and self-administered drugs. 
    • Merck reported that patient physician interactions in Q1 2020 were down to 70% compared to pre-COVID-19 outbreak, and therefore, likely to impact its revenues as two-thirds of its portfolio is composed of drugs that are physician administered.  
    • BMS guided to a 10% – 20% decline in patient visits to infusion centers and expects the number to revert to normal only by Q3 – Q4 2020. 
With most non-essential elective surgeries postponed or cancelled due to COVID-19, revenues of related drugs and medical devices will be significantly impacted.
    • Merck indicated a decline of >70% in the number of elective surgeries in Q1 and anticipates the number to improve over Q2 and Q3.  
    • In major markets, Johnson & Johnson guided to a 65% – 85% decline in elective surgeries in Q2 2020 and a decline of 20% – 60% in Q3 2020 with stabilization expected to occur in Q4 2020. In the Asia Pacific region, it has guided to a 20% – 60% decline in number of elective procedures. 
    • The CovidSurg Collaborative, a 120-country research initiative formed to analyze the impact of COVID-19 on surgeries, has projected that, based on a 12-week period of peak disruption to hospital services around 28.4 million elective surgeries worldwide will be cancelled or postponed in 2020.  
Revenues from vaccines, especially travel vaccines, will be negatively impacted.  
    • GSK guided to an 80% – 90% decline in vaccination rates in the US over Q1 and anticipates a significant decline in revenues for Shingrix (Shingles vaccine) in Q2 with recovery expected over Q3 and Q4. 
    • Sanofi’s travel vaccines revenues were down 18% in Q1, and the company expects further decline in Q2 and Q3 due to travel restrictions. 
    • Merck also alluded to a decline in their vaccine portfolio revenues, especially pediatric vaccines (Gardasil and Pneumovax) and guided to recovery over Q3 and Q4 in pediatric vaccines first, followed by adult vaccines (flu, pneumococcal). 
As COVID-19 evolves, pharma companies are likely to face access challenges for their drugs due to higher unemployment rates and other financial ramifications, requiring them to devise innovative access programs to support patients.  
    • For its diabetes portfolio, Lilly is advising patients that are financially affected to call its Lilly Diabetes Solution Center to access treatment options, including free insulin.  
    • BMS has expanded its patient access program to cover eligible unemployed patients in the US that have lost health insurance. The program provides patients with a voucher to assist with continuity of care for several self-administered BMS medicines. 
    • Novartis is implementing a flexible therapeutic access and support initiative for some of its widely used medicines. Access can provide free temporary supplies of medications to avoid treatment gaps, expanded in-home boarding and administration support, and free drug refills where available. 

While many unanswered questions remain, the pharma sector will have to craft creative solutions to counter some of the challenges posed by the pandemic. Successful virtual launches and the ability to remotely engage customers in the pandemic have created the possibility of a new engagement model, where the focus will shift to virtual engagement of physicians and customers and create efficiencies in operations through digitalization.

Each company will have to deal with this in its own unique way based on its portfolio of products, geographic focus, and commercial and R&D expertise.

Looking to learn more about how your competitors are dealing with this pandemic?

Reach out to Sedulo Group’s team of highly-qualified competitive intelligence professionals, who have direct access to a network of >20,000 industry sources across the globe with knowledge of:  

  • Launch impacts (virtual launch strategies, timing, best practices) 
  • Commercial tactics (engagement, innovation programs, digital marketing) 
  • Development timelines (clinical trial delays, protocol modifications, new site initiations)  

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Aditya Kelkar
Strategic Business Insights Leader