Policy Research Institute page Response to the COVID-19 pandemic in the pharmaceutical industry and its future

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In the absence of a vaccine or treatment that has been clearly proven effective, new coronavirus infections, which continue to spread worldwide, have affected the lives of the public, social activities, and business activities in a wide variety of industries, resulting in tremendous social and economic losses. In addition, it appears to be forcing not a few changes in future social and corporate activities, etc., and the need for reforms to cope with these changes. In this report, we will summarize the impact of the spread of this infectious disease on the pharmaceutical industry, and discuss trends in the development of vaccines and therapeutics desired around the world, as well as measures needed to prepare for new infectious disease outbreaks that may occur in the future.

Introduction

The pandemic of infectious disease (COVID-19)*1 caused by the new coronavirus (SARS-CoV-2) has caused enormous health damage and is still not expected to be contained in the absence of effective means to control the spread of infection, such as vaccines and antiviral drugs. The most effective means of preventing infection is to avoid contact with others as much as possible, but the cost of continued efforts to prevent infection has resulted in social and economic losses around the world that are greater than those incurred after the Lehman Shock. The search for a proper balance between infection control and the revitalization of social and economic activities has become a difficult problem with no correct answer for people around the world, regardless of whether in industry, academia, or the private sector. 2 This paper discusses the impact of COVID-19 on the industry, trends in research and development of prophylactic and therapeutic agents against COVID-19, and future efforts in anticipation of a possible second or third emerging infectious disease pandemic in the future.

1. impact on industrial activities

(1) Impact on business performance

The domestic pharmaceutical market in FY2020 will be impacted by the NHI price revision accompanying the biennial revision of reimbursement for medical services, which has resulted in a compression of -4.38% (0.99% on a medical cost basis), as well as the impact of the reduction in patient consultations following the declaration of a state of emergency against COVID-19, etc.*3 In this context, we will discuss the impact of the reduction of patient consultations on the market for COVID-19 and the impact of the reduction in patient consultations on the market for COVID-19. 3 While there have been cases where sales have decreased due to shrinking demand for some items as a result of the reduction in patient consultations, the consolidated financial reports for the January-March, April-June, and July-September periods of 2020 (compiled by 26 listed member companies of the Pharmaceutical Manufacturers Association of Japan, whose members are R&D-oriented pharmaceutical companies) (Figure 1) show that sales and operating income in the pharmaceutical industry were generally firm compared to other industries. The figures (Figure 1) show that sales and operating income of the pharmaceutical industry have been generally firm compared to other industries. In particular, operating income in the April-June period varied from company to company in accordance with each company's management strategy, but as a whole, the suppression of SG&A expenses due to voluntary restraint in external operations such as provision of pharmaceutical information and limitation of R&D activities are thought to have contributed to the overall increase.

Figure 1: Quarterly sales and operating profit margin trends of Japanese pharmaceutical companies
Target: 26 companies listed on the First Section of the Tokyo Stock Exchange that are members of the Pharmaceutical Manufacturers Association and for which quarterly sales and operating profit data are available throughout the period under review.
Source: Prepared by Policy Research Institute based on SPEEDA (Userbase Co., Ltd.)

It goes without saying that the environment surrounding the market is uncertain, such as whether or not the trend of medical examinations will turn to a recovery trend, but as far as the April-September period is concerned, the pandemic does not appear to have had a serious impact on the industry as a whole in terms of business performance that would seriously affect the continuation of business. Furthermore, a review of domestic and international sales data (16 of the 26 companies with pharmaceutical sales exceeding 50% of total sales and for which overseas sales data were available during the survey period) showed no clear negative impact of the COVID-19 pandemic on domestic sales (Fig. 2). ( Figure 2 ).

Figure 2: Quarterly Domestic and International Sales Trends of Japanese Pharmaceutical Companies
Target: 16 companies listed on the First Section of the Tokyo Stock Exchange that are members of the Pharmaceutical Manufacturers Association of Japan (accounting for more than 50% of total pharmaceutical sales) for which overseas sales data were available throughout the period covered by the survey.
Source: Prepared by NRI based on SPEEDA (Userbase Inc.), each company's financial statements, and supplementary materials.

(2) Impact on supply chain

As COVID-19 spread, shortages of medical supplies such as masks and protective clothing were a major problem in Japan. There were also concerns about the supply of certain pharmaceuticals, as shipments were restricted. Among the pharmaceuticals, there were 14 ethical drugs that could have been in short supply from the end of May to the end of July 2020 due to the delay in their manufacture and exportation overseas, where the bulk pharmaceuticals needed for their production were procured. As shown in Figure 3, the monthly trend of domestic production value of pharmaceuticals and import value of pharmaceuticals showed no significant change compared to the same month of 2019 even after February 2020, when the global outbreak had progressed, and no significant change was observed between May and June 2020. A steady recovery of domestic production products using imported APIs and imported finished product production was evident, and fortunately no negative impact of the COVID-19 pandemic was observed in terms of the supply of ethical drugs.

Figure 3 Monthly Trend of Pharmaceutical Production Value (Survey of Current Pharmaceutical Production Statistics)
Source: Compiled by NRI based on the Ministry of Health, Labour and Welfare's Survey on Current Survey of Pharmaceutical Production.

One of the reasons for avoiding concerns over the supply of pharmaceuticals was that pharmaceutical companies had secured inventories of products and preformulated APIs, mainly brand-name drugs, for approximately six months*5. In 2008, in preparation for a new influenza pandemic, the Pharmaceutical Manufacturers Association of Japan (PMAJ) issued "Guidance for Pharmaceutical Companies on Measures against New Strains of Influenza for Business Continuity "*6 and based on this guidance, each company has been securing stocks of important drugs at its own discretion. 6 Based on this guidance, each company has made its own decision to secure stocks of important drugs, which is believed to have contributed to securing a stable supply of drugs.

(3) Impact on clinical trials

The COVID-19 outbreak has increased the burden on healthcare workers and increased the risk of infection among test subjects, which has also affected clinical development. The Japan Medical Association has conducted a survey of clinical trial sites in Japan regarding the impact of COVID-19, and found that some sites have taken actions such as suspending acceptance of new clinical trials, suspending ongoing clinical trials, and suspending new patient enrollment*7 This trend is similar worldwide. According to a survey conducted by the New York Cancer Institute and IQVIA between March and April 2020, 80% of sites in the US, 86% in Europe, and 40% in Asia*8 have delayed or suspended oncology clinical trials compared to pre-pandemic levels. Such delays in clinical trials may lead to delays in the launch of new drugs that were expected before the COVID-19 pandemic, which may affect our business plan and medium- to long-term business performance.

2. trends in research and development of new drugs for the prevention and treatment of COVID-19

In response to the COVID-19 pandemic, development of COVID-19-related drugs is progressing at a rapid pace, especially among pharmaceutical companies around the world. According to BioCentury, which collects information on pharmaceutical R&D, as of August 3, 2020, 243 therapeutic compounds and 35 vaccines were either approved or in phase I or later clinical trials worldwide*9. 9 Globally, U.S. companies lead in terms of development speed and number, but in Japan, many pharmaceutical companies*10 as well as bio-ventures and academia are developing COVID-19 drugs and vaccines. The greatest mission of the pharmaceutical industry is to verify the efficacy and safety of COVID-19 in humans as soon as possible and to make it widely available for prevention and treatment around the world.

(1) Therapeutic drugs

Currently, there are two drugs approved in Japan for the indication of COVID-19: Lemdecivir (brand name: Beclury) and dexamethasone (as of December 2020). Remdecivir was originally developed by Gilead in the U.S. for the treatment of Ebola hemorrhagic fever, but was granted special approval in Japan on May 7, 2020, based on its use in the U.S. under an emergency use permit, as it was suggested to have therapeutic effects against COVID-19. Dexamethasone, a steroid drug that has been used for a long time and is indicated for the treatment of severe infections, is listed as a "drug approved in Japan" in the Ministry of Health, Labour and Welfare's "Guide for the Treatment of New-type Coronavirus Infections.

Drug repositioning, in which drugs such as Lemdesivir and Dexamethasone, which have already been used in humans, are diverted to the treatment of diseases other than those for which they were originally intended, is being utilized. The most recent example is the case of favipiravir (brand name: Avigan), which is approved as an anti-influenza agent and was being tested in clinical trials for its potential antiviral effect against SARS-CoV-2, and an application for approval was filed after statistically significant improvement in symptoms was observed*11 The case of SARS-CoV-2 is a good example of this. Table 1 shows major examples of drug repositioning in Japan, each of which has a wide range of approved indications and pharmacological actions, indicating the diversity of clinical presentations of COVID-19 and the difficulty of its treatment. In addition, RIKEN and Kyoto University jointly used the world's most powerful supercomputer "Fugaku" to select dozens of drugs from 2128 existing drugs (12 of which have already been approved) that are expected to show efficacy against SARS-CoV-2. It has been reported*12 that the company has succeeded in selecting dozens of drugs from 2128 existing drugs (12 of which are already in clinical studies and clinical trials for COVID-19), and further progress in their evaluation is expected.

Table 1 Major drug repositioning applications (Japan)
Source: MHLW "Guideline for the Treatment of New-type Coronavirus Infections COVID-19 Version 2.2", PMDA "Information on Ethical Drugs", and publicly available information from each company and university.

In addition to utilizing existing drugs, Japanese pharmaceutical companies are also developing new drugs for the main purpose of COVID-19 treatment. Takeda is developing an advanced immunoglobulin preparation (H-Ig) from the serum of COVID-19 recovered patients, and Chugai is developing an antibody drug against COVID-19. Although these new drugs are expected to be highly effective, they will require a longer period of time for commercialization than drug repositioning, especially because of the need for safety studies.

(2) Vaccines

There is a high need for vaccines that are as effective as, if not more effective than, therapeutic drugs in preventing infection and severe disease, and many candidate products are being researched and developed around the world with strong support from governments and other organizations. Table 2 summarizes the products that are considered to be in Phase III based on information from the World Health Organization (WHO), which counted 48 vaccines in the clinical evaluation stage in any country in the world as of November 12, 2020*13. Among these vaccines, BNT162b2 and mRNA-1273, both of which had been in development for some time, showed no serious side effects in the interim evaluation of Phase III trials*14*15 and data suggesting good efficacy in preventing infection were disclosed. 14*15 and the final results of the evaluation are awaited*16.

Table 2 Major COVID-19 vaccine candidates in phase III trials
*Nationality of the head office of Johnson & Johnson, the parent company
Source: WHO Draft landscape of COVID-19 candidate vaccines (2020 Sep. 30th), ClinicalTrials.gov, and public information by companies and institutions.

In the area of vaccine development by Japanese companies, not only major pharmaceutical companies such as Daiichi Sankyo (RNA vaccine; DS-5670), Mitsubishi Tanabe Pharma Corporation (vaccine using plant-derived virus-like particles; MT-2766), and Shionogi Pharmaceuticals (genetically modified vaccine), but also bio-venture company AnGes Corp. Various players, including companies with vaccine R&D and technological know-how and academia, are cooperating in the research and development of vaccines against SARS-CoV-2, such as AnGes, a bio-venture company, which is conducting clinical trials (Phase I/II) of a DNA vaccine it has created in-house.

Overseas, mainly in Europe and the United States, there have been attempts to deregulate and lift restrictions in a very forward-looking manner in order to resume full-scale social and economic activities, but some of the more aggressively promoted countries have fallen into a situation where the number of infected people has begun to increase again, and expectations for the start of vaccination have risen very high. Because vaccines are administered to healthy individuals, the risks and benefits of administration need to be evaluated more rigorously and objectively than with therapeutic agents, which are administered to patients. Amid great expectations and pressure for early development success, it is worth mentioning that nine European and U.S. pharmaceutical companies have shown their pride in the pharmaceutical industry as a life-related industry by issuing a joint statement for the ongoing vaccine development, stating that safety is the top priority and that they will not seek approval from the authorities until efficacy has been confirmed.

3. future preparedness

In the U.S., real GDP (gross domestic product, seasonally adjusted, preliminary figures) for the April-June period of 2020 fell 32.9% on an annualized basis from the same period of the previous year, reportedly a historic decline exceeding that of the Great Depression in 1932, and a similar 27.8% decline (annualized, price change adjusted, preliminary figures) was reported in Japan. As reported in Japan as well, a 27.8% decline (annualized, adjusted for price changes, preliminary figures) confirms that the economic downturn associated with the COVID-19 pandemic was significant. Subsequently, although Japan, the U.S., and Europe recorded significant GDP recoveries in the July-September period, the economy entered a period of re-expansion of the infection in October, and the future of the economic recovery is no longer in sight.

The impact of the economic downturn has been felt in both major and emerging economies, and across a wide range of industries, from the manufacturing sector, including the automotive and electrical/electronic equipment industries, to the service sector, including tourism-related industries and the food and beverage industry. In the pharmaceutical industry, the negative impact on its business in both the January-March and April-September 2020 periods was minor compared to other industries. In addition, as a result of the stagnation of international logistics and the functions of overseas production bases due to the spread of COVID-19 infection, there were temporary concerns about shortages and stoppages in the supply of prescription drugs in Japan due to reduced imports of product groups procured overseas, but fortunately these concerns were not serious. This was the result of efforts by pharmaceutical companies to secure sufficient inventories of active pharmaceutical ingredients (APIs) and finished products to ensure the production and supply of the assumed required volumes, mainly for ethical drugs for which there are no alternatives or limited supply, which was recognized as a necessary measure when there were concerns that a new influenza pandemic might spread to Japan in the past. This is the result of the efforts of pharmaceutical companies to secure sufficient inventories of active pharmaceutical ingredients (APIs) and finished products to ensure the production and supply of their anticipated requirements, especially for ethical drugs, which are in limited supply.

(1) Stable supply of medicines: More important to improve software than hardware

The "Conference on Measures to Ensure Stable Supply of Ethical Drugs," established in response to the unpredictable re-expansion of COVID-19 infection and a new pandemic of infectious diseases, has recommended that pharmaceutical companies, particularly those with a high dependence on overseas procurement, take measures to secure sufficient inventory and maintain domestic production capacity as risk management measures against supply shortages or stoppages due to stagnation of international logistics. In September 2020, the Council discussed measures to "prevent supply disruptions," "promptly detect signs of supply disruptions and promptly respond to them," and "respond to supply disruptions when they occur," for pharmaceuticals*17 with a high dependence on overseas procurement. The key point is how long international logistics and overseas production functions will remain stagnant in the future, but this experience has demonstrated that securing approximately six months' worth of product and API inventory is sufficient to maintain the supply of pharmaceuticals until the supply of internationally procured products recovers for a few months. The need to return to the domestic market does not appear to be very high, at least in terms of production. In addition, a cost-benefit comparison should be made between the cost of maintaining inventories and the cost of building and maintaining a new domestic production base, but considering the cost and time involved, a policy of returning to domestic production focusing only on drugs for which there are no alternatives or limited supply is not necessarily the highest priority option. However, the cost and time required to do so must be taken into account.

In order to operate already established measures such as inventory control more effectively and flexibly in the event of a new infectious disease pandemic, it is more important to strengthen software measures to enable the collection and rapid and open sharing of information on difficult-to-control infectious diseases around the world to related organizations and industries, rather than to strengthen hardware measures. We believe that it is more important to strengthen soft measures to enable the collection and sharing of information on difficult-to-control infectious diseases around the world more quickly and openly with related organizations and industries. To this end, it is desirable to establish a specialized organization to serve as a command post, as proposed by the Pharmaceutical Manufacturers Association of Japan (PMAJ), Japan Business Federation (Keidanren), Tokyo Metropolitan Government, and others. The Centers for Disease Control and Prevention (CDC) has a very broad range of roles and functions with a mission to improve health and quality of life through the prevention and control of disease, injury, and disability. It focuses specifically on the field of infectious diseases, including, for example, the National Center for Immunization and Respiratory Diseases (NCIRD), which is part of the CDC, and the National Institutes of Health (NIH), which is a separate entity from the CDC. The intent is to establish a combined research function, such as the National Center for Immunization and Respiratory Diseases (NCIRD) under the CDC or the National Institute of Allergy and Infectious Diseases (NIAID) under the National Institutes of Health (NIH), which is a separate entity from the CDC. Needless to say, the goal of the NIAID is to provide a framework for infection prevention and social services.

(2) R&D promotion: Infrastructure and incentives to combat emerging infectious diseases are important

Needless to say, the successful development of therapeutic drugs and vaccines is critical to both preventing infection and stimulating social and economic activity. As mentioned above, pharmaceutical companies in Japan have been focusing their efforts on the development of new drugs and vaccines. However, when comparing the current development stages, it is undeniable that they are falling behind European and U.S. companies. One reason for this may be the delay in initial response caused by the synergistic effects of slight differences in information and its volume and sensitivity in the early stages of the spread of infection, as well as in the research environment for handling unknown pathogenic infectious agents. When conducting research on unknown infectious agents, it is desirable for researchers to use high containment experimental facilities (Biosafety Level (BSL)-4 facilities),*18 which are equivalent to those for pathogens that have no effective treatment and a high mortality rate, at least until their pathogenicity is clarified, to reduce risk. In Japan, one facility is in operation and one is under construction, which is a large gap from the U.S., which has more than 10 facilities. In addition, the number of experimental facilities (BSL-3) required for research to verify the antiviral effects of drug candidate substances on SARS-CoV-2 is limited, and the establishment of a specialized command post organization and promotion of shared use are considered necessary for immediate action.

It is gradually becoming recognized by the general public that the research and development required to commercialize a new drug takes a long time and has a very low probability of success, and therefore, there is a high business risk in terms of return on investment. The public financial support is important to accelerate the commercialization of therapeutics and vaccines and to ensure sufficient supply, especially in the case of emerging epidemic infectious diseases such as COVID-19, where R&D risks are even higher and future marketability is uncertain. As has already been done in Japan and abroad as a countermeasure against COVID-19, it is also important to ensure that a mechanism is in place to flexibly trigger both so-called "push incentives," which provide financial support for commercialization, and "pull incentives," which guarantee the price and government purchase conditions in advance when the product is launched. This is also an effective way to prepare for future pandemics of emerging infectious diseases.

(3) Vaccine supply: Manufacturing capacity must be secured

According to recent news reports, the Japanese government has signed contracts with foreign pharmaceutical companies to supply vaccines in the event of successful development, in quantities ranging from tens of millions to 100 million doses. Some of the vaccines are being supplied under the approval of the pharmaceutical affairs bodies in Japan, and some of the final products are being manufactured in Japan, and the prospect of contract manufacturers has already been identified. However, with the total production of vaccines in Japan estimated to be equivalent to the total amount of vaccines produced in Japan in 2017*19 and countries working to secure vaccines, securing sufficient manufacturing bases in Japan will become an important issue from the perspective of preparing for future emerging infectious disease pandemics. Furthermore, when the new government of Yoshihide Kan aims to secure enough vaccines to cover all citizens, it will be important to secure the cold chain and develop the vaccination system, which will probably be necessary to ensure that vaccinations are administered nationwide without confusion. will be the key to the solution.

Conclusion

While the COVID-19 pandemic allowed the pharmaceutical industry to fulfill its social mission as an initial response, it also allowed us to reaffirm the challenges that need to be improved and resolved for the development, manufacture, and supply of effective therapeutics and vaccines to control the future spread of infection. Measures to address these issues will help prepare for future emerging infectious disease pandemics, but to ensure that they are achieved, collaboration among industry, academia, and government is necessary, and the establishment of a specialized command post institution will be particularly important as a strategy directly related to maintaining the health of the public.

Looking back at the past, humanity has been threatened by various lethal infectious disease pandemics, such as the plague, which was once known as the Black Death, smallpox, influenza, typhus, AIDS, and SARS, and overcame them with great sacrifice. In the past, in addition to the poor living conditions in terms of public health, the difficulty in identifying the cause of the disease led to great sacrifices; with COVID-19, the causative virus was identified and its genome sequenced in a short period of time (less than a month after the outbreak), and in less than a year, multiple vaccines were developed worldwide using genetic information. It is a pleasant surprise that several vaccines using genetic information are in late-stage development around the world. This is the result of advances in life science-related technologies and information sharing supported by digital technologies, and it suggests that we may be able to respond to possible future emerging infectious disease pandemics in the same way, and we may not have to be as fearful of unknown emerging infectious diseases as we should be. On the other hand, what lessons does the fact that the number of deaths from COVID-19 has unfortunately exceeded 1 million worldwide, mainly in countries with a well-developed public health infrastructure, suggest?

The vast amount of information that people around the world, deprived of the comfortable life they once took for granted due to the lockdown, etc., are receiving and hearing includes a lot of misinformation that they want to trust, which may lead them to take inappropriate actions, such as not taking measures to avoid the "three cloaks" for example. This may have led to cluster infections, more severe symptoms, and, in some cases, irreversible outcomes. In the absence of a vaccine with proven efficacy or an effective therapeutic agent, it is essential to provide correct information and proper understanding that will lead to optimal actions to control the spread of infectious diseases, considering that social and economic activities will have to be carried out while living with COVID-19 risk for some time to come, It is important that the government, public administration, and citizens all play a mutual role and continue their efforts to improve information literacy, which can be called the social infrastructure.

It is thus important to obtain correct information quickly, formulate appropriate countermeasures and necessary action guidelines, optimize them based on new information, and communicate them to the public in a timely manner, as well as to educate and enlighten the public so that they can acquire correct knowledge about infectious disease pandemics on a daily basis, For this purpose, it is important that industry, academia, and government collaborate and function together, centering on a specialized command post organization.

(This is a partially revised version based on the article "The Pharmaceutical Industry's Response to the COVID-19 Pandemic, and Toward the Future" contributed to the "Industrial Location" magazine, Vol. 59, No. 5, September 2020 (Japan Location Center Foundation).

( Naoto Murakami, Senior Researcher, Hideyuki Kagii, Tomoyuki Shibukuchi, and Ryuiku Masuda, Senior Researchers, Pharmaceutical and Industrial Policy Research Institute)

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