The pharma industry has been pivotal during the pandemic and this focus looks set to continue into 2022

The coronavirus pandemic has not only boosted many pharmaceutical companies’ revenues, it has also bolstered their reputations.

The value of pharma innovation is undoubted, after COVID-19 vaccines were developed at record speed. Pharma manufacturing and supply chains have so far delivered 7.5bn vaccine doses, and also kept supplies of most other medicines on track. And despite outcry from emerging markets over the uneven distribution of vaccines, the patent system seems to have survived intact. The industry is entering 2022 in good shape, less vilified, more central to government policy, and with less budget pressure than in recent years. Even so, there will be challenges ahead.

Market growth will not be one of them. Overall, we expect pharmaceutical sales in the 60 biggest markets worldwide to increase by 4.6% in US-dollar terms to about US$1.5trn. That is about half the growth rate seen in 2021, but still faster than that seen in most of the previous decade. Little wonder that many pharma companies, having upgraded their 2021 earnings forecasts, are issuing bullish (if tentative) forecasts for 2022. COVID will continue to be a major driver for several companies. Pfizer expects earnings from its Comirnaty vaccine to be around U$29bn in 2022, only slightly down from the expected earnings of US$36bn. Add in revenues from its new COVID treatment, and prospects are good. Even AstraZeneca will finally start charging commercial rates for its COVID vaccine in 2022.

Vaccine supply problems should also ease in 2022. Unicef, which is monitoring COVID vaccine supply deals as part of its COVAX programme, reckons that global production capacity will jump from 8.5bn doses this year to over 40bn doses next. Some of that extra capacity will come from India, where the export ban for vaccines has finally been lifted despite the lingering caseload. India already has deals in place to produce 2.8bn doses. More groundbreaking, though, will be expansion of vaccine production in Africa.

From late 2022 the Pasteur institute of Dakar in Senegal will start producing 25m doses of coronavirus vaccines a month, with international backing. Vaccine capacity will also rise in Egypt, South Africa and Morocco as existing plants expand.
Other medicines will see some supply-chain problems – albeit not as extreme as in other markets. The disruption suffered in 2020 - when many countries were scrambling for medtech supplies - has died down, but the pharmaceuticals industry is still suffering from the rapid rise in shipping and delivery costs, particularly in Asian shipping routes. Coronavirus cases and power cuts are also causing occasional production stoppages in China, affecting supplies of active pharmaceutical ingredients as well as inputs such as magnesium (used to make aluminium foil packaging). The effect is likely to last into 2022, and will push the EU and US, among others, to move ahead with the reshoring initiatives they started last year, when supply-chain disruption underlined their reliance on China.

New regulations will also hold risks. The EU, for example, plans a full overhaul of its regulatory framework for pharmaceuticals, encompassing everything from incentivising innovation to securing supplies and ensuring equal access. A 12-week consultation process began in September 2021, with the aim of delivering the final revisions of the regulation by the end of 2022. The pharmaceutical industry is likely to be most concerned about the European Commission’s efforts to boost market competition, with the aim of promoting generics and bringing down prices. A promise to overhaul the R&D incentives on offer, such as extended marketing exclusivity, will also ring alarm bells, although the results are unlikely to involve drastic cutbacks. As always, the Commission will need to tread carefully between innovation and affordability.

Other countries are also pursuing new regulations. In 2022 Japan will implement the final stage of its rules requiring barcodes on pharma packaging – the kind of small-sounding reform that can be surprisingly difficult to implement. Taiwan is also introducing rules to improve traceability, though these will not come into effect until January 2023. In China, meanwhile, drugmakers are still feeling their way forward as the National Health Commission tries to centralise and streamline drug procurement processes, including instructions designed to ensure “more rational drug use”. Given that the Chinese government is also moving to extend insurance coverage under its public health schemes, we expect much stricter scrutiny of how money is spent. Digital health apps, such as Tencent’s WeDoctor, will feel the brunt of this as China looks to integrate telehealth into its systems, but pharmaceutical procurement will not be spared. More positively, however, China is progressively improving the environment for innovation, with firmer patenting rules, the emergence of bioclusters, and faster approval processes. Chinese biotech companies are growing rapidly, aided by both public and private funding.

Tax changes will prompt strategic reviews. Although the outlook for innovation is generally good, companies will need to be planning ahead for tax changes. Most immediately, in the US more elements of the 2017 tax reforms will come into effect, changing the extent to which companies can offset their R&D expenses. Some of the changes will promote innovation, by extending new credits, but others will be detrimental, particularly when it comes to orphan drugs. Less immediately, the pharmaceutical industry will need to prepare for the possible implementation of a global minimum tax for multinationals, following the recent deal by 136 countries. The aim of the legislation, due to come into effect in 2023 if approved by national legislatures, is to stamp out the kind of tax avoidance that several pharma companies have tried, most obviously by moving their tax base to low-tax Ireland.

None of this will prevent more innovation. Not only is global R&D spending in good shape, but the pandemic has accelerated several pathways to innovation. One is the access to and use of digital data to drive research. Pharma companies may not want to repeat the cooperative data sharing that helped them to develop COVID vaccines, but the data analytics tools are still there and being used. The sudden move from site-based clinical trials to virtual trials during lockdowns, though painful at the time, has opened up new ways of getting such trials done quickly. The same has happened for diagnostics, with the rapid roll-out of home testing kits. Liquid biopsies, an innovation that predated the pandemic, are now helping clinicians to catch up with missed non-COVID investigations. And mRNA and lipid nanoparticles, the innovation behind some of the vaccines, may have new uses for other treatments. The pandemic was an ill wind for the world, but it has blown the pharma industry some good.