In its first healthcare quarterly, Scope has provided an outlook for the healthcare sector overall as well as several sub-sector reviews: vaccines, generics, healthcare services, the diagnostic sector, medical equipment and OTC products.

Some trends have started to emerge for 2020. “Most European drug manufacturers have not lowered their full-year guidance, in contrast with some US rivals,” said Olaf Tölke, head of the corporate ratings team at Scope Ratings and co-author of the quarterly, out today. “And while we see no adverse sector-wide impacts from the pandemic, there are important differences within the industry.

“Companies with vaccines and diagnostics activities tend to be beneficiaries while postponements of elective surgency and non-urgent care has hit medical equipment companies hard. Companies with relatively heavy reliance on hospital business are more vulnerable to pandemic disruption,” Tölke added.

One of the lessons of the crisis for the healthcare sector is the risk of globalisation. The pandemic has revealed the dependence of some companies on single-country sourcing, usually pursued in the name of efficiency and maximising shareholder returns. European healthcare companies in general seem to be better placed regarding supply-chain risk than US counterparts. A good example is Sanofi’s recent decision to create a European-based active pharmaceutical ingredients manufacturing and marketing company, the world’s second largest by sales.

Leading global pharma companies turned in robust revenue growth in the first quarter of 2020. However, the picture is flattering for two reasons. “First, customers undertook significant forward purchasing in the expectation of potential product shortages as the spreading Covid-19 outbreak threatened supplies of raw materials from China and India, two countries on which the sector’s supply chains are heavily dependent,” said Tölke.

“Secondly, the crisis hit most companies’ performance only from mid-March, thus very late in the quarter. Consequently, most management teams warned of a significantly weaker quarter to come, as lockdowns and physical contact restrictions were introduced in most countries from April.”

The second quarter could turn out to be a critical test for the industry in face of the Covid-19 natural disaster despite companies’ contingency plans and some degree of flexibility in supply chains and clinical trial processes. Scope believes the healthcare sector will avoid rating downgrades if the duration of negative economic effects of the pandemic can be limited to 2020. “But if we think that companies can get back to normal business conditions in 2021, ratings will very likely remain unchanged. Alternatively, if companies end up requiring significant additional debt funding in 2020, some ratings may be put under review for possible downgrade,” said Tölke.

The quarterly can be downloaded here.