healthHQ conducted an interview with Saikat Kumar, Founder and CEO of SKYCAP Investment Management Ltd. The company has extensive experience in dealing with government advisory, capital raising advisory, M&A advisory, business optimization and turn around strategies. Let’s read his insights on how COVID-19 is affecting the health industry worldwide.
healthHQ: How will COVID-19 affect the healthcare economy?
Saikat Kumar: COVID-19 has severely disrupted the economy, bringing alongside with it a health care crisis. While historically, health care has been relatively immune from recessions as people get sick during both good and bad times, this global pandemic is shaping up to be different. It has forced people to maintain social distancing, not going out in public gathering, people have stopped going to hospitals for routine check-ups unless and until it is very critical. Primary care practices are reporting reductions in use of health care services of 60 to 70 per cent. Without major cash reserves, the salaries of clinical staff are being frozen or reduced, and some staff are being laid off. In US, the unemployment insurance claims from healthcare business is increasing second only to restaurants and bars business.
healthHQ: How will this unprecedented disruption for the global health help transform global industrial developments?
Kumar: Every economy whether developed or emerging is facing the shortage of equipment and medical test/kits for protection against COVID-19 and thus will lead economies to re-examine their supply chains for critical health and livelihood related products. There will be a surge of nationalism as regards the need to produce pharmaceuticals, medical supplies, and equipment domestically. All the countries will increase their healthcare budget going forward and many more funding/capital deployment will be visible in healthcare research and development to create vaccines, therapeutics and non-medical methods of prevention. Additionally, tele medical services (online consultations and check-ups) demand will increase and the governments have to finalize the law and regulations with tele medical services to regulate them and to ensure quick medical services are offered to patients.
healthHQ: How is it affecting the free cash flows of the private healthcare sector?
Kumar: The private healthcare sector is facing a double whammy. First, investing in additional manpower, equipment, consumables and other resources to ensure 100 per cent preparedness for safety in the hospitals and eventual treatment of patients, if needed. Second, experiencing a sharp drop in Out Patients, elective surgeries and international patients. This translates to loss of business and this trend is expected to continue for the foreseeable future (at least three-six months), and the fact that the sector’s costs are predominantly (around 80 per cent) fixed, it is expected that there will be losses and severe impact on cash flows.
healthHQ: What is the impact of the COVID-19 on the global pharmaceuticals industry?
Kumar: Pharmaceuticals shares have done pretty well during the time of pandemic across all the global markets. However, the closing down of Active Pharmaceutical Ingredient (API) industries in China for a period of nearly two months and closing of borders during that time has impacted the supply of APIs to global pharmaceuticals companies for drugs development. China catered to a large demand of the Global Pharmaceuticals companies, which will impact drugs production in the near future. Pharmaceuticals industry is a vast industry and can be divided into four sub segments and COVID-19 impact are as follows:
- a) Pharma companies: There will be growing demand for drugs for coronavirus prevention and treatment and more attention will be given for vaccine development. On the flip side, sales have declined for chronic disease drugs in hospitals.
- b) Medical Institutions: There will be fast development of internet of medical things (tele medical services). There will be acceleration of hierarchical medical systems leveraging community medical institutions. On the flip side, patients seeking non-emergency or elective treatments decrease due to the coronavirus.
- c) Pharmaceuticals Distribution and Retail: Demand for online pharmacies will shoot up. User friendly apps to search or deliver drugs with significantly increasing users. On the contrary, traffic and lockdown interruption affects daily operations for pharma distribution and retail companies. Consumers in offline pharmacies decrease to avoid cross-infection.
- d) Health Insurance: There will be growing demand for commercial health insurance.
healthHQ: Is there an opportunity to pharma and governments to reassess the way they work together?
Kumar: There is high time that the governments have to develop public-private initiatives that encourage pharma players to invest in areas such as anti-microbial resistance (AMR) and neglected diseases. The ongoing crisis of COVID-19 should highlight the governments the need for change in regard to public health crises. With the pharma industry preferring profits over risky R&D efforts till now, it’s up to government to develop incentive schemes that de-risk R&D efforts and encourage pharma players to enter areas such as AMR, vaccine development, and rare diseases.
healthHQ: The pandemic may illuminate the need to consider new business models that are more flexible and resilient, what’s your insights?
Kumar: Yes, new business models will emerge. Tele Medical Services and Online pharmacies will be in high demand going forward. Rules and Regulations to regulate the Tele Medical Services and Online Pharmacies need to be jotted down to ensure smooth service. There will be fast development of internet of medical things and there will be acceleration of hierarchical medical systems leveraging community medical institutions. For API ingredients supply, Global Pharma companies will partially change their API base from China to India & Vietnam to reduce the dependency on Chinese Market.