After 'initial shock,' generics supply chain likely to weather COVID-19 blows: analyst

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With demand high and supply steady, generics makers could turn a nice profit in the COVID-19 crisis. (Pixabay)

The specter of global drug shortages looms large amid the coronavirus pandemic. But so far, the supply chain is holding steady and prices are going up—in the generic drug business, at least. One analyst, in fact, figures COVID-19 could turn out to be a profitable time for the generics industry.

After some "initial shocks" from COVID-19, the global generic drug supply chain is likely to rebound and deliver strong growth numbers despite some potential "spot shortages," including a med President Donald J. Trump touted as a possible treatment, Bernstein analyst Ronny Gal said in a note to investors Wednesday. 

A potent mixture of patient and channel stockpiling and manufacturer "allocation" measures will drive generics pricing upward in the short term, Gal argued, and could have a "lasting positive impact" on the industry in future quarters.

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A turnaround in profits would be a big win for a generics industry that has faced pricing pressure stateside and a pinch in profits in recent years. Big players like Novartis' Sandoz unit and Pfizer's Upjohn business posted 1% growth and 16% decline on the year in 2019, respectively. 

Upjohn's continued decline was part of the reason Pfizer agreed to a spinoff and merger with Mylan, dubbed Viatris, this is currently under review. The deal would create the single largest generics maker in the world, by Pfizer's count. 

That deal will be delayed into the second half of this year, the companies said Thursday. But now, even with more and more companies instituting "social distancing" and governments––particularly China and India––locking down, Gal predicted that generics supply will remain strong in the coming quarters despite the potential for small-scale shortages of particular drugs. 

"The way we hear it, the more severe interruptions are in large part the impact of the initial shock," Gal wrote. "Even if social distancing is the new normal, the supply chain will function well enough to supply the market, we may see few spot shortages...but nothing too bad."

RELATED: Did chloroquine really fail a COVID-19 study—or was the trial design to blame?

One drug where that rule might not hold true? Hydroxychloroquine, the COVID-19 hopeful that Trump touted in combination with azithromycin as potentially "one of the biggest game-changers in the history of medicine" in a tweet. With demand rising for access to hydroxychloroquine, a malaria med that has long been generic, Gal estimated that the global supply would be around 10% of what is needed if the drug is found effective to treat COVID-19.

Gal estimated that it would take between six and 12 months for the industry to ramp up its hydroxychloroquine production to the point it would meet demand, meaning "there may not be enough to go around during this first wave of disease." Complicating the issue is India's recent decision to ban exports of the drug to the U.S.

Even with demand high and supply low, Gal wrote that drugmakers' commitment to donate hydroxychloroquine and launch clinical trials that will likely never return on investment has shown a rosier side of an industry looking to solve COVID-19 rather than make a profit.

But first, the malaria med has to show it can effectively treat COVID-19, and so far the results have been mixed.

A small-scale study in China found that adding hydroxychloroquine on top of conventional therapy didn’t shorten the time to SARS-CoV-2 clearance in a 30-patient trial. No significant differences were observed across the two arms in terms of the time it took to bring body temperature to normal or the number of patients with disease progression as shown in CT scans.

However, most patients in the study's control group were actually treated with other antiviral therapies at the same time, including AbbVie’s HIV combo med Kaletra and flu drug Arbidol, complicating the study's conclusions on hydroxychloroquine's effects. 

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