Continued Need for Pharmaceutical Economic Analysis of COVID-19 Induced Effects on Drug Demand
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    Continued Need for Pharmaceutical Economic Analysis of COVID-19 Induced Effects on Drug Demand

    6 mins read

    Axtria Blogs have continued to follow the uncertain course of the US economic recovery, like an “accordion” or repeating “W-shape” induced by the COVID-19 pandemic [1-2]. Newly released data and economist predictions now suggest that recovery of the US economy will take years (until 2022), not months, in returning to a pre-coronavirus economic level [3]. Federal Reserve Chair Jerome Powell has likewise cautioned that the US economy needs continued stimulus from Congress to maintain the recovery, something that appears unlikely before the presidential election, given the political stalemate between Democrats and Republicans [4].

    foreign-linkLearn More - More Evidence of a COVID-19 Induced Accordion Recession Cycle Effect – Why Pharma Companies Should Be Concerned

    There are numerous challenges that may place a drag on continued economic growth, thus preventing a sustained US recovery, with a concomitant effect on drug demand, either through market access or affordability effects:

    1. The economic effects from earlier US stimulus programs, such as unemployment relief to workers, are waning as these efforts expire without joint Trump administration and Congressional approval.
    2. While the unemployment situation has improved from the worst months of the recession, unemployment claims are still at an historically high level (around 900,000 per month). Furthermore, estimates suggest that around 2 million Americans have permanently lost their jobs. This number is expected to increase [4].
    3. There are pockets of uncertainty around the world about the state of COVID-19, and the possible need for both developed and developing countries to reimpose restrictions that will hurt the global economic recovery. The countries that face issues of reimposing restrictions comprise about 15% of global GDP [3]. US GDP as a percent of global GDP is about 15% on a purchasing power parity basis (as of 2018, and will decline to less than 14% by 2024). Reductions in growth ex-US will have substantial effects on the US economic recovery, thereby affecting unemployment and disposable income metrics, resulting in market access and affordability drug demand impacts.
    4. State and local governments in the US will either need to increase dramatically taxes or reduce public sector employment (evidence suggests the latter effect is not happening) to make up for budget deficits. These increases in state and local taxes will depress future economic growth, as previously noted by this author.
    5. The annual US federal government budget deficit has substantially increased in excess of $3 trillion. These accumulations to the national debt were necessary to implement emergency programs to counter the recessionary effects of public policies to control COVID-19. The current costs to service this higher debt is low, given the structure of interest rates driven by Federal Reserve policies. However, when the structure of interest rates rises in the future, so will the debt servicing cost, which will add to federal spending, and thus the need to raise taxes or decrease spending elsewhere in the budget to pay for these higher costs.
    6. There is a looming office commercial real estate crisis in city areas as rents fall due to the shift in employees working from home. Many of these temporary changes in where work takes place, in response to controlling the spread of COVID-19, will likely become permanent, adding to the long-term economic disruption of central urban areas.
    7. Similarly, there will be a rise in service industry bankruptcies (such as restaurants, the broader food service sector, and all related employment), especially in the upcoming winter months. The continued imposition of indoor dining capacity restrictions will make it economically infeasible for many restaurants to operate without additional government stimulus and no outdoor seating [5].
    8. Like the Great Recession, the bursting of asset bubbles in financial and real estate markets could add to declines in economic activity or the length of time for recovery. Reductions in financial and real estate asset market valuations could spark a “wealth effect,” dramatically reducing drug demand through mainly affordability effects. Decreases in financial market valuations would disproportionately affect older patients, who rely on such assets for their retirement spending, and whose patient population segment comprise a larger proportion of dispensed prescriptions than other age groups.

    All of the preceding economic events and trends will mean continued market access and affordability effects that will place a drag on future drug demand. These drag effects will be caused by people losing their employment-related health insurance and suffering from significant reductions in disposable personal income. Pharma companies will need to employ economic analysis to take these effects into account when engaged in business planning exercises.

    Greater certainty about a US economic recovery will only occur if there exists mass-testing with a rapid, accurate response, followed up by low-cost, effective treatments that would reduce the time and severity of recovery from COVID-19, and ultimately the development and wide-distribution of effective vaccines. However, even the introduction of a vaccine later this year or in early 2021 will likely mean only a targeted introduction to the most at-risk patient populations and healthcare workers, and not a broad-base application as is seen for the rollout of other vaccines [6]. This means the introduction of a vaccine will have only a limited economic benefit in the early stages of distribution.

    Therefore, pharma companies must plan through, measure, and forecast the accordion effect noted earlier [2]. Sub-national economic activity will indefinitely continue to waver up and down over time, and exhibit significant inter-regional variations, as changes occur in the number of COVID-19 cases around the country. These sub-national accordion effects make for more difficult business and resource planning, requiring pharma companies to develop and institute multiple changes [7]. The accordion effect will therefore continue impacting brand Rx volume, gross and net sales, with the oscillation cycle only ending when effective treatments and vaccines are found and widely distributed.

    foreign-linkLearn More - Effects Of A Resurgence In COVID-19 Cases On Future Pharmaceutical Business Planning

    This pandemic is already adversely affecting drug utilization in several ways [2]:

    • Market access and affordability effects caused by the spike in unemployment and worsening economic conditions.
    • Physical access effects caused by patients unable or unwilling to see their healthcare providers.
    • Promotional effects caused by the inability of multiple commercial roles (e.g., sales representatives, account managers, etc.) to interact personally with their provider/payer stakeholders.
    • Patient health-specific effects caused by an unwillingness to stay on or start a therapy that may be immunocompromising.

    Most pharmaceutical forecasting processes today are geared toward providing national-level forecasts. These processes may be incapable of accounting for the wide variances in business performance at the local level over time.

    Axtria’s think tank has created an innovative solution to help clients set up new local forecasting processes in the next few months, so that they may make better decisions over the subsequent year or two as we battle and recover from the pandemic. The solution has been designed by industry-leading experts like David Wood, PhD (Advanced Analytics), George Chressanthis, PhD (Pharmaceutical/Healthcare Economics), Uday Shah, MBA (Market Access), and Razek Karnoub, PhD (Forecasting).

    Furthermore, the continued COVID-19 induced effects illustrate the need for advanced economic analysis to measure and mitigate its effects on brand utilization, patient health, and economic outcomes. Tech companies like Amazon, Google, and Microsoft have been hiring dozens of PhD economists to solve an array of business problems, issues that are very similar to those faced by the pharma industry [8]. Axtria has pharma industry-experienced PhD economists to help clients with their business problems using advanced economic analysis.

    If you are worried about accurately measuring and forecasting brand performance at the subnational level and how advanced economic analysis can help address numerous business problems now facing pharma executives caused by the continued economic uncertainty, please contact us (directly below). Axtria would be delighted to help and ensure that your measurement estimates of effects, forecasts required for accurate future decision-making, and resource plans are properly optimized. This will allow us to ensure that potentially life-saving medications continue to get to the appropriate patients and help mitigate the negative societal health outcomes triggered by this pandemic-induced continued economic uncertainty.

    Given the dynamic nature of this pandemic, please read articles on the Axtria Research Hub and Axtria Blogs for updates.

    foreign-linkLearn More - Choosing Between Food And Medicine: Long-Term Health Consequences Of The Covid-19 Induced Recession

     

    References

    1. Chressanthis G and Naphade K. More evidence of a COVID-19 induced accordion recession cycle effect – why pharma companies should be concerned. Axtria Blogs, published online 21 August 2020, available at https://insights.axtria.com/blog/more-evidence-of-a-covid-19-induced-accordion-recession-cycle-effect-why-pharma-companies-should-be-concerned.
    2. Naphade K. How will the accordion effect impact your brand performance in Q4-2020 and Q1-2021. Axtria Blogs, published online 1 July 2020, available at https://insights.axtria.com/blog/how-will-the-accordion-effect-impact-your-brand-performance-in-q4-2020-and-q1-2021.
    3. Hannon P and Douglas J. Global recovery moderates. The Wall Street Journal 2020; 12-13 September: A8.
    4. Timiraos N. Seeing trouble, Fed prods Congress. The Wall Street Journal 2020; 14 September: A2.
    5. Manfredi L and Genovese D. 40% of restaurants to close within 6 months without more coronavirus aid. Fox Business, published online 14 September 2020, available at https://www.foxbusiness.com/economy/restaurant-closures-more-coronavirus-aid.
    6. McNamara A. Gottlieb says likelihood “extremely low” for COVID-19 vaccine available for use in 2020. CBS News, published online 6 September 2020, available at https://www.cbsnews.com/news/gottlieb-says-likelihood-extremely-low-for-covid-19-vaccine-available-for-use-in-2020/.
    7. Chressanthis G. Effects of a resurgence in COVID-19 cases on future pharmaceutical business planning. Axtria Research Hub, published online July 2020, available at https://insights.axtria.com/whitepaper-effects-of-a-resurgence-in-covid-19-cases-on-future-pharmaceutical-business-planning.
    8. Athey S and Luca M. Why tech companies hire so many economists. Harvard Business Review, published online 12 February 2019, available at https://hbr.org/2019/02/why-tech-companies-hire-so-many-economists.

     

     

    George-A.-Chressanthis
    Written By:
    George A. Chressanthis
    Dr. George A. Chressanthis is currently Principal Scientist at Axtria, a big data and analytics company, in a newly-defined position held since his arrival in July 2016. He brings a unique combination of professional experiences into the analysis of strategic and operational issues affecting the biopharmaceutical industry. He is a former executive in the pharmaceutical industry with achievements in academia holding senior professorships in healthcare management, marketing, economics, clinical sciences, and political science.

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