COVID-19 and Recession: Identifying Long-Term Growth Opportunities

Well before the COVID-19 pandemic, there were warning signs of an imminent US recession. The ongoing pandemic, and trade conflicts between the US. and China, and the US and Europe have just accelerated the fall of the global economy. In fact, as per the United Nations, the world economy is expected to go into recession this year with a predicted loss of trillions of dollars of global income. This is expected to create immense problems across developing countries with the likely exception of India and China.

Is the Pharmaceutical Industry Recession-Proof?

In absolute terms, no industry was fully recession-proof during the Great Recession. However, some of the pharma companies fared relatively well. Especially big Pharma players, such as Amgen, Pfizer, and BMS demonstrated high single-digit growth in sales during the recession. Although, the high sales performance must not take the focus away from some of the strict strategies adopted by the big pharma companies. For example, 15 big pharma companies together laid off a total of over 71,000 employees during the great recession.

In this article, we will be discussing the novel strategies that pharma players can adopt to walk away unscathed from the ongoing crisis.

Recession Readiness Preparedness Framework

In order to help the pharma companies to check their preparedness for the recession, Roots Analysis has put together a 2X2 framework. This framework evaluates the companies on financial leadership vs strategic leadership matrix.

There are different strategies that companies can adopt depending on their position on the above-mentioned framework. We have identified different strategies for different types of companies:

Transformers:

• Invest heavily to enhance market leadership
• Aggressively acquire companies and look for new opportunities

Leaders:

• Focus on core strengths.
• Cost transformation to ensure long term leadership in core strength areas
• Cost-cutting in low strength areas

Drivers:

• Redefine/develop a long-term core for the company
• Invest heavily to enhance market leadership
• Aggressively acquire companies and look for new opportunities

Strugglers:

• Consider selling off low-strength assets
• Cut cost aggressively
• Focus on areas with the short-term win potential

In addition to the aforementioned strategies, there are several additional strategies that companies can adopt.

Immediate Steps:

• Carry out supply chain visibility studies and identify gaps in the supply chain
• Implement immediate strategies to minimize the impact on supply chain
• Model the P&L for 2019–2022 including, cash flow and balance sheet through conservative scenarios
• Carry out changes in the geographic sourcing strategy as the COVID-19 impact evolves

Short / Long-Term Steps:

• Identify the company’s financial and strategic position to get realistic estimates on the post-pandemic USP of the company
• Implement robust supply chain management tools and digital twins to proactively assess disruption scenarios
• Consider sourcing from multiple sources to minimize the impact due to shut-downs in specific regions

Winning Strategy for Post-Recession Phase

With several recent developments, the overall biopharmaceutical industry is already undergoing a revamp. While the pharma companies are heavily engaged in the development of novel therapies for COVID-19 they must now identify novel areas/opportunities to mitigate short-term risks and ensure long-term wins. Roots Analysis has identified several recent initiatives and research areas that pharma players can invest in. These initiatives have been classified across four categories with a total potential market opportunity of more than USD 200 billion by 2030.

As the industry gradually prepares to deal with the ongoing crisis, it is important that the pharma companies identify these areas and invest in these long-term initiatives.