Financial
Stability in Times of Epidemics is a series of online classes that EUI and the Florence School of Banking and Finance, will organise from tomorrow for us. The focus of this short paper is though the Pharmaceutical stability market in times of epidemics. So, let’s see what predicative scenarios have Europe, Brazil, Iran, India and Pakistan in drugs and pharmaceuticals.

In 2019, different economical schools and brilliant researchers made several presentations focused on the same thing, ‘The Unknown Unknown’, quoting former U.S. Secretary of
Defense, Donald Rumsfeld. This “unknown unknown” created one of the largest worldwide
financial crises we’ve seen since the Great Recession. Still today, in Covid-19 times, there are still researchers that look at the global stock markets trying to understand the future; there is a lot that we still don’t understand. A lot that we don’t know and more that we cannot know.

From February 2020, Covid-19 infected several millions of people, in China, Korea, Western Balkans,Italy, Iran, USA, Brazil, etc. This changed our lives. Many financial institutions and forums are talking about a severe recession and a damage to the financial activity. We have no vaccine yet, against this virus, so we are isolated, in our homes, from east to west, from north to south, casting a pall overall world in a manner not witnessed for decades.

The implications for economic activity – production and, on an increasing scale, consumption –
are severe. In addition, massive interruptive effects can be observed in the services industries, including travel, tourism, mass events, fairs, as well as at schools and universities. Furthermore, anxiety among consumers and workers will bear on individual consumption and, in turn, firm revenues.

Second Financial Times, with cashflows drastically reduced, companies struggle to pay their
suppliers, their employees, and ultimately their bankers, even though the underlying business model of affected firms may not be in doubt. Yet, the coronavirus-induced fall in production is a temporary, interruptive event, as opposed to a lasting, disruptive event. Once the virus disappears, either because a medication has been found, or because the epidemic dies out
naturally, earnings are likely to jump back to their pre-shock level.

Keeping in mind that , information spreads slowly and imperfectly, and access to funding may
well be denied. Firms facing a liquidity squeeze due to the interruption may quickly face a solvency problem, once their inventories and cash reserves are depleted. In many countries, particularly in Europe, the main creditors of firms typically are banks – which, in turn, have to build loan loss provisions, and will thus suffer deterioration in their capital adequacy positions. We are already witnessing this chain of events in Europe; in particular in Italy, where banks have started to grant moratoria on their outstanding loans, in an attempt to provide relief to their corporate clients, to avoid a looming default. In turn, the cashflow shortfall at the firm level translates into a cashflow loss at the level of the banks. The current challenge for Europe has two dimensions: first, to find instruments to measure, in a timely manner, the corona-induced cashflow shortfall at the level of firms; and second, to find a way to effectively channel funds to the affected individuals, firms, and banks.

What about pharmaceutical market in financial instability crises?

Brazil

is the world’s seventh richest country by gross domestic product (GDP) with $2.422 trillion,
according to International Monetary Fund statistics from October 2018. In that same year, the country’s GDP rate was the world’s third best at 2.3%, only lower than China and South Korea among 13 economies analyzed by Brazil’s Geography and Statistics Institute (IBGE).

The Brazilian pharmaceutical industry feared that the economic instability seen in emerging
markets could affect the sector as well; it was clear that industrial output
and investments were being impacted nationwide. With govern investments in general infrastructure, the pharmaceutical sector could breathe after all. Revenues for 2018 were reported to be in line with market expectations. Local pharma revenues grew 17% last year, reaching (Brazilian Real) R58 billion (US$136 billion). The country’s pharmaceutical market had
continued its double-digit growth pattern in 2018, according to IMS Health data.

The generic-drugs market segment reported the highest growth in terms of revenues and units sold, according to IMS Health. In units, the sector grew 16% to 788.6 million units sold, meaning generic drugs took as much as 27% of the industry’s market share in 2013. In terms of revenues, these drugs grew 22% at R13.7 billion (US$32 billion).

Future Expectations

In terms of macro economy, the World Bank considered Brazil a “solid” market, adding that the
country’s outlook risks would lie in its limited trade openness and high foreign reserves. While such issues are still unresolved, the World Bank states that its mission for Brazil, through the support of the local government and the private sector, includes improving services to the poor, strengthening public and private investment, as well as regional and territorial development.
One of the active projects includes The Family Health Program, which aims to increase access to primary care, raise patient satisfaction, and improve efficiency and effectiveness of health-service providers.

It is clear why emerging markets, even with their uncertainties and difficulties, are considered a new hope for the global pharmaceutical industry, as mature markets manage stagnation and seek new partnerships overseas. Brazil is one of these markets, but drug makers need to acknowledge the steep changes to be faced as the industry in this diverse country becomes increasingly competitive and, therefore, should also consider locally focused strategies to help avoid unexpected risks along this bumpy road.

Iranian Pharmaceutical Sector

Different Iranian economists and policymakers, refers that Iranian Food and Drug administration, which is a sub-branch of Iranian Ministry of Health (MOH), is responsible for the management and regulation of the Iranian pharmaceutical sector, including
biological and herbal products. The national regulatory system of Iran is composed of two main sectors; pharmaceutical affairs and the national control laboratory. The former is responsible
for supervision of manufacturing, distribution, and importation of medicines.
The latter checks the quality, origin, etc. of the medicines. Registration is
the main and the most important requirement for marketing of medicines in Iran.

Despite having better potential to become one of the leading sectors in the region, the
Iranian pharmaceutical sector has failed to achieve this goal for the past years. According to the results of the present study, having a super-concentrated planning system for both national and imported pharmaceutical products within the government, applying ineffective and
inflexible pricing system which reduces companies’ motivation to be innovative and presence of some very strong semi-public companies are the most challenging issues for this sector. On the other hand, not including R&D expenditures in pharmaceutical pricing, and not paying attention to intellectual property rights have motivated national companies to only think about making their products domestic or produce the generic forms of available foreign drugs.
However, national production is also heavily dependent on importing raw materials. The result of such dependency showed itself during the recent sanctions through a dramatic increase in pharmaceutical shortages as well as imposing a huge amount of costs on the public.

The results of the current study suggest that establishment of rules related to intellectual property rights can gradually encourage foreign investors to come to Iran, and this will provide a great opportunity for technology and knowledge transfer for the Iranian pharmaceutical sector

Pakistan

Trade Development Authority of Pakistan (TDAP) has called for identification of new
markets for the country’s pharmaceutical products as exports to traditional destinations are consistently declining. State-owned TDAP urged the industry to identify newer regions to do business and advised the government to set up exhibition stalls in potential markets. Consistent lack of exploring new markets by pharmaceutical exporters, over the
past few years, indicates the trend towards stagnation.Their (exports) inability to penetrate new markets needs to be addressed,” TDAP said in a report. “The top buyers are consistently Afghanistan, Sri Lanka, Philippines and Vietnam. The same buyers, year after year, are indicative of a concentration risk. New markets need to be explored.” Over the past three years, the top markets for Pakistan have not varied much. Afghanistan, Sri Lanka, Philippines, Vietnam, Lithuania and South Sudan have been the biggest markets for Pakistani pharmaceuticals. However, market share of Pakistani medicines in Afghanistan has been on the downward trend for the past three years, falling to $65 million in 2018 from $75 million in 2016 due to loss of market share to India. Similarly, market share in Vietnam declined to 0.4 percent in 2018 from 1.0 percent in 2016 due to increasing presence of Indian products. Pakistani medicine exports to Sri Lanka were $20 million, representing a five percent market share. The Philippines was the third largest customer of Pakistan with$18 million imports. However, the market share in the south East Asian economy was extremely small at 1.2 percent due to the large amount of medicine imports worth $1.3 billion. “Since the sale of pharmaceutical depends on ageing population and rising income levels, Pakistan should look to target countries where such circumstances are conducive to increase pharma exports,” TDAP said. The majority of pharmaceutical exports go to Africa, Central Asia and South Asian markets. Highly regulated markets such as USA, Europe, Japan and Australia have been less penetrated by Pakistani pharmaceutical firms due to a fact that they do not meet the stringent compliance requirements of Federal Drug Authority regulations. Herbal medicines of Pakistan have been able to penetrate these markets more effectively than allopathic drugs. Pakistan’s pharmaceutical export ranks 49th in terms of volume and 16th in value with a global share of 0.06 percent, according to a latest report by the International Trade Centre.

India

India is the World Bank’s largest single borrower, with cumulative loans over $44bn. India’s
diversity, “enormous” burden of disease, and chronic underfunding of health care have hindered progress. Despite Pakistan’s relatively high gross national product per capita, its health indicators compare poorly with those of its neighbours.Social action programmes, promoted by the bank, have been controversial. Although the bank has adopted differing approaches to the countries of South Asia, the substantial challenges posed by the region mean that progress will be slow. The drug market follows usually the financial market status.