COVID-19 and the life sciences industry

As this is a fast moving topic, please note that this article is current as at 13/03/20. For further information, please contact Barnaby Winckler, Elaine Barker and Madelaine Landini.

With more than 125,000 reported cases of COVID-19 in 118 countries, the global impact of the COVID-19 pandemic is evolving as the virus spreads. We consider the impact of the COVID-19 pandemic on the life sciences industry.

Supply chain disruption

On 9 March 2020 the FTSE experienced the fourth greatest one-day share crash in history as Italy entered lockdown and concerns about the economic impact of the disease grew. In particular, COVID-19 has highlighted the vulnerability of the supply chains, including for medicines available in Europe.

Manufacturing supply chains today are complex and may not be understood by all the different entities who participate in them. Technology has enhanced logistics and the management of stockpiling to a very high level of efficiency, which together with globalised competition in manufacturing has greatly driven down costs in many sectors. However, this globalisation and integration has for many items increased vulnerabilities inherent in geographical concentrations of production and logistics. Such vulnerabilities, not only have the potential to harm production and output generally but also to exacerbate a global health crisis by creating shortages of medicines and equipment.

China’s central role in the pharmaceutical supply chain is believed to be having knock on effects. The country produces 90% of active pharmaceutical ingredients (“APIs”) used in common drugs (i.e. those drugs which are patent-free). This has prompted fears of global shortages of some common medications. In the first week of March 2020 India limited the export of 26 APIs and medicines, including antibiotics and paracetamol. We are yet to see how this upstream disruption will eventually impact patients and healthcare providers.

Supply chain impacts in an epidemic include:

  • Shortages of materials or finished goods coming from or routed through logistical hubs in impacted areas.
  • Potential labour shortages through illness or mobility restrictions.
  • Potential blockages and capacity issues along transport networks and at logistics hubs.

Companies and governments need to understand the complexity of their supply chains and the potential impact of disruptive events. In the meantime, the prospect of disputes and insurance claims as a result of current shortages and disruption are very real.

Research and development

As COVID-19 is a new virus, research and development in the short and long term will be crucial in managing the pandemic. The life sciences industry is already in a phase of rapid research and development in response to COVID-19. Research is phase 3 of the UK Government’s Coronavirus Action Plan which sets out the UK Government’s four-phase response to COVID–19. These are firstly to contain COVID-19, secondly to delay the onset of an epidemic if it becomes inevitable, thirdly to support and coordinate research and finally to mitigate the impacts of the COVID-19 pandemic.  

To date the UK Government has pledged £20 million to the Coalition for Epidemic Preparedness Innovations (CEPI) and is actively considering further investment. The UK Government has additionally announced £20 million for COVID-19 research via a joint rapid research call between UK Research and Innovation (UKRI) and the National Institute for Health Research (NIHR). This calls for proposals for projects to develop vaccines, therapeutics and diagnostics, or to address the epidemiology, spread or underpinning knowledge of COVID-19.

As it is currently unclear whether COVID-19 could occur in multiple waves (for example a seasonal pattern, like flu) the research and development phase, although already moving rapidly, will likely continue for an extended period.

The development of testing kits and a vaccine are the immediate focus of research development.

Fast track development of testing kits

When a new disease begins to spread through the population, the development of fast and reliable methods to test for it becomes vital. During the 2002-2003 SARS pandemic, the first test for the virus took almost 6 months to create. During the COVID-19 pandemic, tests have rapidly emerged, mainly based on polymerase chain reaction (PCR). However, expedited development has created challenges, including testing reagents being distributed without the usual data on their accuracy being known. Further, manufacturers require good communication pathways to convey and disseminate information and updated usage instructions to users in the field.

Some of the COVID-19 tests have already been granted emergency approval by regulatory authorities. However many have been distributed without any third party approval which may create legal issues if they are found to be ineffective. There is also the risk that during an outbreak or pandemic, where rapid testing is required, tests may be performed incorrectly leading to false negatives. This could impair attempts to contain the virus as falsely reassured patients are released from isolation.

Fast track development of a vaccine

Scientists and pharmaceutical companies are racing to develop a vaccine. Many in the life sciences industry are hopeful that a vaccine may be ready for Phase I clinical trials within months. Researchers in the US are now recruiting healthy volunteers to participate in a clinical trial for an experimental COVID-19 vaccine, with the Phase 1 clinical trial anticipated to start by the end of April. If this can be achieved, such developments will herald a new era in vaccine development where the public will stand to benefit from solutions to worldwide health threats in much shorter timescales.

If a potential vaccine does successfully reach an early stage clinical trial within the next few months, it will still need to undergo extensive testing to ensure its efficacy and safety and then obtain regulatory approval – a sentiment aligned with recent reports from the WHO. Even in the best case scenario, a vaccine could still take at least one year to be brought to market.

Whilst it is possible in some countries to fast track a vaccine through regulatory channels, this would only occur in exceptional circumstances.

Caution should however be exercised in ‘fast-tracking’ any vaccine (or indeed any other medicinal products) to market as the medium-to-long term effects of such vaccines will not have been extensively studied, even if limited clinical trials have taken place. As such, there is potential for future liabilities to occur. For example, where vaccine recipients suffer known or potential side effects which are inadequately warned about by manufacturers. The challenge for manufacturers (and regulators) will therefore be to balance such risks against the benefits that the rapid release of vaccines convey where the circumstances urgently warrant it.

Underwriting vaccines and other products brought to market and approved on a fast track

Life sciences companies in the process of developing tests and commencing clinical trials for vaccines will have appropriate tailor-made cover, from a captive insurer or other insurer active in the life sciences market. Whether an existing life science policy insures any vaccine now under development, fast-tracked or not, will depend on terms and conditions of cover. As above, companies should check the policy’s terms and conditions carefully before speaking to their broker who can explain the extent of cover and its implications for the business.

Comment

The COVID-19 pandemic, particularly the resulting supply chain disruption, will impact the life sciences industry. However, the pandemic also presents the industry with an opportunity to capitalise on rapid research and product development. As always, caution and due consideration of risks must be exercised during the fast track development of vaccines and testing kits.

Related item: Coronavirus - impact on insurers

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