Endless Covid Fight Stalks Routine U.S. Health-Care Business

(Bloomberg) -- The health-care industry is grappling with a slow-paced recovery from the early days of the coronavirus pandemic, as many people continue to avoid doctors’ offices and a new surge in infections spreads across the U.S.

For drugmakers, the pandemic has squeezed demand for everything from childhood vaccines to smoking-cessation drugs and diabetes treatments. When the virus took root in the U.S. this spring, many doctors and patients put off routine and elective care, leading to fewer prescriptions for a range of medicines. Sales also slumped for drugs used to treat cancer or in surgeries.

Pfizer Inc. said Tuesday that its third-quarter sales were reduced by $500 million, or 4%, due to the effects of the virus. While the company said it wasn’t hit as hard as feared in the early days of the pandemic, the recovery has been slower than it expected.

Meanwhile, Eli Lilly & Co. posted earnings and revenue that fell short of forecasts. The company saw U.S. pricing headwinds to its top diabetes products as the pandemic caused millions of Americans who lost health-care coverage from employers to turn to Medicaid, the public health insurance program for those with low incomes.

The larger-than-expected Medicaid segment caused the sales brought in from the blockbuster drug Trulicity to cool, Lilly executives said. The company typically reaps more from commercial insurers and Medicare’s prescription drug benefit, known as Part D.

At the same time, Merck & Co. was hurt by lower sales of vaccines during the back-to-school season, though the company still beat analysts’ earnings and revenue expectations. Sales of the HPV vaccine Gardasil, one of Merck’s top-selling products, beat analyst forecasts, but were down 10% compared with a year earlier.

Merck took an estimated $475-million hit related to the pandemic in the quarter, “mostly in our vaccines portfolio,” Chief Financial Officer Rob Davis said on a call with analysts.

“We’re seeing a broad recovery of pharma sales, but not everywhere,” said Bernstein analyst Ronny Gal. Gardasil, for instance, is “probably one that recovers late” because its use is tied to the return of in-person schooling and can be easily delayed, he said.

How long pandemic-related slowdowns in pharmaceutical sales will last, meanwhile, “depends a lot on how we get out of it,” he said.

Hard to Predict

Drugmakers underlined that they expect business to improve as time goes on, but a surge in coronavirus infections and the advent of flu season could make the future harder to predict.

New cases have been rising across the U.S., raising fears that hospital capacity in many areas could be strained. If care providers are forced to turn away more non-virus patients, that could throw upbeat forecasts into doubt.

Pfizer shares were down 0.2% at 12:07 p.m. in New York trading on Tuesday, while Lilly fell 5.3%. Merck shares gained 0.7%.

Testing Boom

Some health-care companies have seen their profits climb as a result of the pandemic.

Lab-testing giant Laboratory Corp of America Holdings, a major processor of Covid-19 tests, posted better-than-expected earnings and revenue on Tuesday, and the company said it would return millions of dollars in federal CARES Act funding it had received, and reinstate share buybacks.

LabCorp’s non-Covid testing business also rebounded from the pandemic, though it was still down about 9% in the quarter.

Health insurers too have benefited, as they continue to collect premium revenue even as the amount paid out in medical claims declined. Centene Corp., which posted better-than-expected third-quarter revenue on Tuesday, said it’s seen some medical care rebound. The company paid about $2 billion in Covid-related claims through the end of September.

“The effect of the Covid-19 pandemic includes lower traditional medical utilization, partially offset by higher testing and treatment costs associated with Covid-19,” the company said in its earnings release. It also raised its 2020 earnings guidance, reflecting a tax benefit in the third quarter.

Centene said in a filing that it still expects the pandemic to slightly benefit results this year, though the company acknowledged the uncertainties surrounding Covid-19.

Economic Shock Waves

There are broader economic shock waves of the virus that may be beneficial for Centene over the long term as well. The insurer focuses on government-sponsored health plans including Medicaid and the Affordable Care Act marketplaces, which are expected to see increased enrollment from people losing job-based coverage.

Centene said it added 1.3 million members in those businesses between March 30 and Sept. 30.

Yet the fiscal pressures for state governments may also affect what they pay their Medicaid health-plan contractors, particularly if medical claims remain below the typical level. States have already applied retroactive rate adjustments and other policies that could lower payment to insurers.

Centene shares were down 3.9% in morning trading in New York.

Lingering Effects

Pharmaceutical companies expect that people will continue to steadily return to doctors’ offices in the months ahead.

Lilly said that it expects that expanded telehealth will help business get back to normal levels, while Merck, which sells many drugs that are administered by doctors, said access to health-care providers has improved since the spring.

In the meantime, companies will be faced with the lingering effects of the pandemic’s initial wave.

Pfizer wrote in its earnings release that Covid-19 had reduced wellness visits in the U.S. and also lowered demand for certain products in China.

Sales of Pfizer’s smoking-cessation drug Chantix, for instance, were down 19% in the U.S. while there was lower demand in China for certain anti-infective products because of fewer elective surgeries and improved infection control compared to last year.

Sales in the company’s Upjohn business, which sells many of its older blockbuster drugs like the cholesterol fighter Lipitor, were down 18% from a year earlier.

©2020 Bloomberg L.P.