IMPACT OF COVID-19 ON MEDICAL DEVICE INDUSTRY

 

IMPACT OF COVID-19 ON MEDICAL DEVICE INDUSTRY

 -By Tanya Agarwal

China reported its first case of COVID-19 on December 8, 2019, in the city of Wuhan subsequently first case outside of china was reported on January 13, 2020, in Thailand and from there was no stopping of the widespread of the novel coronavirus. On the 11^th of March, WHO announced COVID-19 as a global pandemic due to expeditious increase in the number of cases outside China. As of late April, over 26,65,000 confirmed cases have been recorded worldwide with 1,845,450 deaths.  It has affected almost 210 Countries and territories all over the world, triggering a nationwide lockdown. Economies and human lives around the world are impacted, some of the strongest economies like the USA, Italy, France, UK, Japan and many more are struggling to cope up with the situation in the wake of unrivalled negative demand shock and lockdown of all economic activities across the county to limit the spread of COVID-19.

The pandemic has caused disruptions in manufacturing supply chains as productions have stopped in many countries thereby causing difficulties in procuring necessary raw material. What was earlier called just a manufacturing only recession, has moved to the service sector as well.  It has led to the loss of billions in all counties pushing back their growth rates. According to S&P Global report, the world can witness a reduction of 2.4% in global GDP this year with a rebound growth of 5.9% in next.

The situation is no different in India, it has been too, hit hard.  The first case of Coronavirus was recorded on 30^th January 2020 in India and has been increasing ever since. As of 24^th of April, the country has recorded over 23000 confirmed cases of the people affected by the novel coronavirus.   Government of India declared its first nationwide full lockdown on 24^th of March, 2020 for 21 days halting all the economic activities except essential activities like of banks, ration shops, media, medical devices etc. as listed by the government. It announced its second lockdown for another 19 days from 14, to control the spread of the pandemic.

Impact on Indian Economy

India economy was already witnessing a slow growth rate from past few quarters, the country’s real GDP rate had declined to a six-year low of 4.7% in the third quarter of financial year 2019-20. There was a hope of a recovery in the last quarter after government took number of stimulus measures and policies but prevalence of COVID-19 made the recovery far from reaching and posted some new challenges.

COVID-19 has impacted major commercial sectors of the economy, of which Aviation, Tourism and Hospitality have hit the hardest. Cinemas, restaurants, retail stores and shopping malls all have shut down amid the spread of the pandemic impacting sales of essential as well as discretionary items. Government of India closed domestic as well as international flights from and with increasing cancelation for hotel reservations for both leisure as well business the aviation and hotel industry is expected to incur a loss of INR58 billion.

Consumptions, Investments and external trade- the major contributors to the GDP (GDP= C+I+G+(X-M)) are going to be affected the most due to loss of jobs, low level of incomes especially of daily wage workers, low level of imports and exports. Low level of income would cause a steep decline in consumption of discretionary items thereby accelerating negative demand shock. On the other hand India is heavily dependent on China for key raw materials for many factories. Indian manufacturers are finding it difficult to maintain a smooth supply chain cycle due to unavailability or slow procurement of goods as many factories are shut in China. Sectors like chemical, automobile, pharmaceuticals, electronics, machinery etc. are impacted the most due to their heavy dependence on china.

This article tries to take a bird eye view on how COVID-19 has impacted the medical device industry.

The Indian medical device industry is an import-dependent industry especially on the USA, Europe and Germany. Domestic and MNCs players are heavily dependent on china for raw materials and electronic components. All these countries are severely effected by covid-19 which has relentlessly disrupted the supply chain for raw materials as well as for imported consumables, disposables and capital equipment including orthopedic implants, gloves, syringes, bandages, computed tomography and magnetic resonance imaging devices. Medical device and pharma manufacturing companies has been exempted from the lockdown as it comes under essential services however due to regional lockdown there has been a production shutdown at many places due to non-availability of labor, affecting shipments from the factories.  The shortage of raw materials has started impacting the margins and profitability of Indian companies importing medical devices and small components to manufacture finished products.

There are many private and government hospitals which have temporarily shutdown in many places in India due to increasing cases of health workers and providers getting effected by Covid-19. Which has in return slowed down the use of medical devices in those areas and hospitals.

Hospitals are facing mounting pressure to stop performing elective and non-urgent procedures to make space for covid-19 cases. People have stopped making hospital visits and delayed their surgeries like knee replacement due to the fear of getting infected. These scenarios has reduced the revenue for medical device industries for short term.

The government has also restricted the export of diagnostic kits with immediate effect and ensured that the companies cannot increase the price of medical devices beyond what is permitted under any circumstances. This is done to ensure there is no price inflation, especially when the country is combating a pandemic.

The companies has asked to give a leverage on custom duties across the board for life-saving medical equipment and set up a credit window facility that can help them augment infrastructure during this period of great turmoil. They have also asked the government to withdraw the Health Cess Ad Valorem from Medical Devices so that the health cess will apply only to Basic customs Duty. In addition to this government should clear all outstanding bills and make timely payment for upcoming procurements from government Institutions.

There are Medtech companies which have benefited from Covid-19 due to excessive demand of devices like ventilators which is an essential and life-saving device required to combat the novel coronavirus. There are companies who are developing testing kits to test COVID-19 which yet gives an opportunity to these companies earn higher revenue.

However, there lies an opportunity for Indian domestic manufacturers to meet the healthcare demands by using home supplied raw material and finding alternative ways to carter the demand by getting less dependent upon the imported raw material. Since the tindustry is heavily dependent upon imports for high end medical devices, the domestic manufactures can take this as occasion to be self-dependent and increase their market share.