Vaccination fallout cost of EUR90bn looming in Europe; USD40bn pandemic windfall for biotech & big pharma; and our latest videos on trade

This week, we’re having our own kind of Super Bowl. Our Offense and Defense teams have trained hard to push the line of scrimmage with our reports: We’re in for a touchdown with our forecast of the economic implications of a vaccination delay by five weeks. We’re aiming at a two-point conversion with our pharma sector analysis and who will be the big winners, i.e. biotech and Big Pharma. And we have our latest videos on supply chain and trade after Covid-19 for you.

Vaccination delay to cost Europe EUR90bn in 2021

After finishing 2020 on a high note with a vaccine light at the end of the tunnel, Europe now faces a moment of truth - a five-week delay on the vaccination front that, if left uncorrected, could cost close to EUR90bn in 2021: It took a few months - thank you, ECB, for holding the fort in the meantime - but eventually Europe came together in 2020 and, most importantly, put forward a common fiscal response to the Covid-19 shock via the EUR750bn EU Recovery Fund. But the negative implications associated with a delayed vaccine rollout far exceed the immediate short-term economic costs of a double-dip recession at the start of 2021. After all, in vaccine economics, there is only black or white: Economies that finish the race first will be rewarded with strong positive multiplier effects supercharging consumption and investment activity in H2 2021, whereas vaccination laggards will remain stuck in crisis mode and face substantial costs - economic as well as political.

The EU Commission has recently communicated its goal of vaccinating 70% of the adult population by summer 2021. However, reaching this target would call for a vaccination pace that is roughly six times higher than currently observed. In fact, our calculations show that EU countries are already five weeks behind schedule. As every week of prolonged sanitary restrictions reduces quarterly nominal EU GDP growth by -0.4pp, the current delay represents the equivalent of -2.0pp or close to EUR90bn. With hurdles on the supply side (production & distribution bottlenecks) and a slow start, the EU is increasingly falling behind in the immunity race. Currently, population-adjusted average daily vaccination rates across major EU economies stand at only 0.12%. This is four-times (s)lower than in the UK and the US, where 14.4% and 9.4% of the population have already received at least one dose of vaccine, respectively, compared to a maximum 5% across key EU economies (e.g. Denmark).

The expected economic recovery detour, thanks to the delayed vaccination rollout, is on course to eclipse Europe’s Hamiltonian trial balloon moment: The cost of the vaccination delay to-date already exceeds the EUR50bn in grants we expect the EU recovery fund to disburse to EU countries in 2021. Moreover we are concerned about economic spillover effects fueling centrifugal political forces. After all, given insufficient progress on the vaccination front by mid-2021, the EU could be forced to maintain restrictions in place to avert a third wave and in turn a triple-dip. Political discontent is likely to skyrocket once countries including Israel, newly-departed EU member Britain and/or the US enter a consumption-led growth spurt in the second half of 2021. Should the EU face a delayed return to normalcy, confidence in the European project stands to suffer a substantial blow. In particular, we are concerned about the risk of a notable increase in political uncertainty and polarization – at the national as well as the European level.

You find the complete analysis here.

Covid-19 vaccines: A USD40bn revenue windfall for pharmaceuticals

The race to find a cure for Covid-19 saw an estimated USD25bn spent on pharmaceutical R&D in 2020 alone, with half coming from the U.S. “Operation Warp Speed”. After a record pace of development, the global vaccination campaign against Covid-19 is well underway, but some countries are moving faster than others. Israel, the UK and the U.S. are clearly leading in terms of doses administered per 100 people, with 48, 11 et 7, respectively, far ahead of Italy (2.5), Germany (2.3) or France (1.8). But as the spread of new Covid-19 variants continues, we expect global vaccination campaigns to ramp up as soon as next month now that both the U.S. and the EU have approved the Pfizer/BioNtech, Lonza/Moderna and Oxford/AstraZeneca vaccines.

Patented drugmakers, i.e. biotech companies and Big Pharma, are set to be the winners of the game at the expense of generic manufacturers that are unable to cash in on the vaccine windfall. ‘Generic vaccines’ would require too high a financial cost in additional clinical trials and manufacturing expenditures that cheaper prices could not make up for. That’s why generic drugmakers are expected to post only +2% revenue growth in FY 2021, compared to +8% for Big Pharma and +21% for biotech drugmakers. In terms of profitability, the operating margin of generic drugmakers is expected to remain below 10% on a global average in 2021, versus nearly 30% for Big Pharma and a lavish 45% for biotechnological companies. However, the latter two segments will still need to watch out for pressure to lower drug prices and (much) less profitable drug wholesalers also wanting their share of the pie.

In the long-run, the success of previously unknown biotechnological drugmakers, notably Moderna and BioNtech, could be a game-changer for pharmaceuticals as a whole. Barring any unexpected side effects in the long run, the Covid-19 vaccines created using mRNA technology could be the disruption needed in other therapeutic fields, including oncology, a five times bigger market than vaccines. In the future we might see (currently small) biotechnological companies swallowing the world’s largest drugmakers eventually, instead of the other way around. Unlike Big Pharma, however, biotech companies often lack knowledge in running drug manufacturing plants. Moreover, there is a huge difference in size: The world’s 13 largest drugmakers - i.e. Big Pharma - account for about USD500bn of total revenues compared to nearly USD100bn for the 15 largest biotech companies. Partnerships between the two are, therefore, the usual way biotech startups break into the pharmaceutical market, as seen in the collaboration between Pfizer and BioNtech.  

Please find to the full report here.

Fresh digital content for you with our short videos on supply chains and trade after Covid-19 featuring Ludovic Subran, Alexis Garatti and Georges Dib. Feedback and comments as always welcome!