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Pharmas boosted by drug stockpiling, but warn of COVID-19 impact

Drug stockpiling by wholesalers, pharmacies and patients in the first weeks and months of the coronavirus pandemic is leading to revenue boosts among major pharmaceutical companies, even as they warn the impact to their businesses will become more severe in the second quarter.

Shifting buying and prescribing patterns as a result of COVID-19 resulted in a sales lift of nearly $1.2 billion across the 8 major drugmakers which have reported earnings from the first three months of 2020, when key markets in the U.S. and Europe were only just beginning to see significant increases in new cases of infection.

“Patients refilled existing prescriptions earlier than normal or bought a larger supply to ensure that they didn’t run out,” said Josh Smiley, chief financial officer at Eli Lilly, on an April 23 conference call. Lilly reported $250 million in additional revenue during the first quarter.

Wholesalers and retailers stocked more drugs to “ensure adequate supply,” Smiley added, while patients eschewed hospital visits in favor of medicines they could pick up at pharmacy counters.

The companies caution such boosts are likely to be fleeting and will reverse quickly. Much of the U.S. and Europe went into lockdown in April due to the coronavirus pandemic, meaning the negative impacts of strained healthcare systems and delayed treatments won’t show up in company financial statements until July, when companies report second quarter earnings.

But the stockpiling phenomena has helped to pad first quarter revenue numbers for pharma companies at a time when other sectors are experiencing immediate contractions in their business.

On an April 24 earnings call, Sanofi CEO Paul Hudson said “about half” of the company’s sales and profit growth were driven by patients stocking up on chronic medicines. “We do expect most of that to unwind during quarter two,” he added.

Novartis, which announced earnings Tuesday, appears to have benefited the most, disclosing $400 million of its first quarter sales were the result of forward buying linked to COVID-19. Excluding that sum, net sales would have grown by 9% rather than the 13% the Swiss drugmaker reported.

Most of the impact, according to Novartis’ Chief Financial Officer Harry Kirsch, came from longer prescriptions or patients filling prescriptions early, rather than wholesaler stockpiling. Although sizable, $400 million represents only about two days of product shipping for Novartis, Kirsch said.

Drugmakers see short-term boost from drug stocking, buying in response to COVID-19
Drugmaker Reported Q1 revenue boost from COVID-19 Revenue guidance for 2020
Johnson & Johnson 1% net positive impact to pharma business Cut by $6.8 billion
Biogen $100 million N/A
Roche Unspecified Confirmed
Eli Lilly $250 million Confirmed
Sanofi Half of 6.6% growth, or about $280 million Confirmed
Novartis $400 million Confirmed
Merck & Co. “Immaterial” Cut by $2.5 billion
Pfizer $150 million Confirmed

SOURCE: Company statements

While earnings numbers now being reported reflect the world of a month ago, drugmakers are now experiencing greater business disruption, particularly for medicines that aren’t life-prolonging or those administered exclusively in doctors’ offices.

Novartis, for example, warned investors its ophthalmology franchise, which features the eye drugs Lucentis, Xiidra and newly launched Beovu, is “severely affected” by COVID-19. Some clinics are shut down or only taking emergency appointments. New prescriptions, in particular, are significantly reduced.

Meanwhile, Merck & Co. on Tuesday cut its sales forecast for the year by $2.5 billion, measured at the midpoint of its guidance range. Roughly two-thirds of its business consists of doctor-administered products like its vaccines or its cancer immunotherapy Keytruda.

“The company anticipates reduced demand for its physician-administered products while pandemic-related access measures remain in place,” Merck said in a Tuesday statement.

So far, among the 8 major drugmakers that have reported earnings, only Merck and Johnson & Johnson have reduced their revenue estimates for the year.

While second quarter reports are likely to be less rosy, large pharmas don’t appear to be anticipating a sustained downward turn to their business.

Merck, for example, expects the virus to peak in the U.S. and Europe during the second quarter, with a “gradual return to normal operations” beginning late that same quarter and in the months from July to September.

Pfizer expects an economic recovery to begin in the second half of this year and predicts healthcare activity will “approach pre-COVID-19 levels later in 2020.”

Novartis appears even more bullish, calling for a return to “normal prescription and consumption dynamics during Q2 in our major markets.”