A 'perfect storm' of world calamities may bring down drug prices, Takeda CEO says

When you combine global warming with a worldwide pandemic, an economic recession, political instability, supply chain disruptions and the war in Ukraine, what do you have?

It all could lead to lower drug prices, Takeda CEO Christophe Weber warned in a letter to shareholders.

“The perfect storm scenario will have an impact on investment in innovation and could accelerate downward pressure on drug pricing,” Weber wrote (PDF) to shareholders.

Over the last year, Weber said, health care financing has deteriorated as budgets have been strained by the response to the COVID-19 pandemic, economic support for Ukraine, investments related to climate change and growing government deficits.

“Energy and food costs, together with supply chain constraints, have led to significantly higher inflation and economists are pointing to a heightened risk of looming recession, particularly as the forces driving inflation show no signs of abating,” Weber continued.

Biopharma has typically been insulated from the effects of a recession. During the crash of 2008, for example, the industry got through it with less damage than most sectors of the economy.

“Pharma is clearly less exposed to the macro environment,” a top investment analyst told Evaluate Vantage in 2008. “Go back three recessions and downward revisions in earnings for pharma are half of what you see for the rest of the market.”

Because of pricing and regulatory reforms triggered by the recession of 2008, drug prices did fall in Europe, the Financial Times pointed out, citing stats from the World Health Organization.

As for Takeda individually, the debt it took on with its much-questioned $62 billion acquisition of Shire in 2019 could leave the company more vulnerable to a recession, though it has deleveraged (PDF) rapidly, with a net debt/adjusted EBITDA ratio of 2.8x, down from 3.8x in March 2020.

Either way, Weber believes a recession, combined with other destabilizing factors, could again exert downward pressure on prices.

“The increasing tensions between China and a collective of countries that includes, among others, the United States, Japan and European nations, represents another source of potential risk for many companies,” Weber wrote. “One does not know if there will be an economic decoupling impacting healthcare and, if there is one, how extensive and rapid it will be. As a global company, we believe that it is important to manage these risks and we are scenario planning to ensure that we can pivot according to any situation.”