I. Sector Landscape and Current Trends
Healthcare is one of the most critical sectors in any economy. And in situations like the one, we are in currently; the sector comes under the spotlight. Amidst the COVID-19 pandemic, the preventive measures adopted by Governments include maintaining social distancing, avoiding large congregations, and having adequate protective gear.

Given the scenario, within the healthcare sector, there is an increased focus on biotechnology companies engaged in vaccine development, manufacturers and suppliers of medical devices & equipment, pharmaceutical wholesalers, hospitals and clinics, nursing homes and aged-care facilities, among others. Also, hand sanitisers, gloves & face masks, and PPE (personal protective equipment) manufacturers and suppliers have been witnessing massive demand with citizens prioritising prevention from the infectious disease. The need for these products has increased the importance of pharmacies that have been functional amid the lockdown.
 
Increasing role of Pharmaceutical Wholesalers
Pharmaceutical wholesalers play a critical role in the supply chain and act as middlemen between the drug manufacturers and the retail pharmacies. The wholesalers combine manufacturer orders, deliver medicinal products to retail pharmacies, and process returns.
 


The wholesalers play an integral part in the supply chain and offer the following benefits:

- Ensure quick access to medicinal products, usually within a day.

- Provide an option of delivering essential and emergency medicines through pharmacies rapidly.

- Offer competitive alternatives to pharmacists.

- Maintain quality, efficiency, and safety guidelines within the supply chain.

- Assure that the supply of drugs is affordable both to the patients and the Government.

With the understanding of the role of pharmaceutical wholesalers, let us look at some of the challenges plaguing these players. 

Challenges for the Pharmaceutical Wholesalers
In the current unprecedented situation, the Australian Government has taken several steps to ensure that its citizens are safe and have a minimal chance of getting infected by the coronavirus. Restrictions on movement and maintaining apt distance from each other has proved to be beneficial in containing the spread. However, it has had a significant impact on the economy and several businesses, including the wholesale and distribution industry.

In Australia, the manufacturing of pharmaceutical products is limited, and the country is heavily reliant on imports to meet its demand. According to a report by the Institute for Integrated Economics Research, Australia imports ~90 per cent of its medicines, and thus, any event that leads to a global crisis and affects the pharmaceutical supply chain hits the economy extremely hard.

The Australian pharmaceutical wholesale industry has faced the following challenges:

- An extraordinary surge in demand for prescription and OTC drugs has put pressure on the supply chain.

- With the unexpected demand, the wholesalers faced a shortage of certain medicines.

- The disruption in international freight also impacted the supply chain.

- Panic buying during March led to a demand-supply gap. Also, the stocking of essential medicines affected the equitable distribution.

- Closure of borders has had an impact on the standard delivery of products.

Now let us shift our focus towards the initiatives undertaken by the Government that have had a direct impact on the healthcare system in Australia. 

Initiatives by the Australian Government
The Australian Government has and continues to play a significant role in the economy dealing with the threatening pandemic that has tormented the global economy for over three months. The following essential measures have been adopted to support the pharmaceutical wholesale and distribution industry:

- The Home Medicine Service aid offers free monthly delivery of PBS (Pharmaceutical Benefits Scheme) medicines to eligible patients. The funding encourages the patients to order the required drugs without worrying about the additional costs leading to an increase in business for the wholesalers.

- Australian Prime Minister, Scott Morrison announced the formation of a national COVID-19 taskforce that will assist in providing medical equipment and support to healthcare workers.

- Based on an application from NPSA (National Pharmaceutical Services Association), the ACCC granted interim authorisation to pharmaceutical wholesalers. The approval would enable wholesalers to coordinate the distribution, supply, inventory management and import of required drugs, and thus ensure a stable supply chain.

Fig 3: Government Restrictions to Avert Drug Stockpiling

Source: Department of Health, Australian Government
 
A rise in demand for prescription and generics medicines coupled with the support from the Government and the industry body, NPSA is expected to benefit companies like Sigma Healthcare Limited (ASX: SIG), Australian Pharmaceutical Industries (ASX: API), NPD, and Symbion, a member of EBOS Group Limited (ASX: EBO).

However, the high dependence on imports makes the country vulnerable as the situation is not in its hands entirely. While the conditions are improving with most of the severely affected nations showing a decline in the number of new cases, the pharmaceutical industry, in coordination with the Government, needs to chalk out an appropriate plan in case things take an unexpected turn.

Relating healthcare equipment providers to the COVID thread:

Spike in Demand for Protection Equipment has been witnessed due to Rising Number of Coronavirus Cases, as there is an increased focus on COVID-19 testing 

With the number of confirmed coronavirus cases crossing 6,746, the Australian Government has been pushing for more rigorous testing. It is ramping up the number of tests conducted (The country has so far conducted more than 544k tests). As more and more tests are performed there is a greater need for protective gear for healthcare workers including examination and surgical gloves, face masks, sanitisers, goggles and protective clothing.

Fig 4: COVID-19 Australian Status as on 29 April 2020 

Source: Australian Government Department of Health
 
With a spurt in demand for the protective equipment, companies including Ansell Limited (ASX: ANN) are witnessing a sudden rise in demand for its protective solutions.

However, for protective equipment manufacturers, the situation poses several challenges, which is depicted by the following figure.

Fig 5: Protective Equipment Manufacturers’ Challenges

Source: Kalkine Secondary Research
 
COVID-19 Testing: Support measure from the Government

The Australian Government, to expedite the process of COVID-19 testing, has taken the following measures:

- The Government will allocate ~$170 million to create bulk-billed pathology test for both COVID-19 and flu tests.
- An investment worth $3.3 million to set up a COVID-19 remote POC testing program for Torres Strait Islander communities as well as Aboriginals.

- The Therapeutic Goods Administration (TGA) has implemented a new exemption to permit the swift supply of COVID-19 diagnostic tests for the accredited pathology laboratories across the country.

- TGA has also undertaken an expedited approval process to include COVID-19 tests on ARTG.

- The Government has also proactively raised a tender seeking support from Australian manufacturers to supply components for the COVID-19 test kit.

The Government’s intent to conduct as many COVID-19 tests as possible creates an opportunity for healthcare companies conducting such tests like Sonic Healthcare Limited (ASX: SHL) that is engaged in the designing of medical devices to conduct blood-based rapid testing.

The current blood-based tests for COVID-19 detection are multi-component test kits that are usually only for professional use. These kits need several accessories to conduct the test.

COVID-19 self-tests, when fully operational, is likely to aid community testing, and thus, creating an environment where a lesser number of people need to visit healthcare facilities if they feel the need to get tested. This, in turn, would lower the risk of infection in doctors and the supporting healthcare staff. 

As the Australian Government starts to look at the future, contemplating what measures to take to revive the economy, the citizens of the country should thank the Government and the healthcare system of the country. Because of the steps taken by the Government and the proactiveness of the healthcare industry, Australia has dealt with COVID-19 in a way far better than most of the other developed nations. A fatality rate of just 1.3%, as against 7.0% worldwide, and the number of deaths under 100, Australia and its healthcare system have performed admirably. However, there is still a long way to go and the authorities must remain vigilant in times where there is still a lot of uncertainty.
 
II. Investment Theme and Stocks under Discussion (API, SIG, EBO, SHL and ANN)
There is tremendous amount of focus on the healthcare sector and the various subsectors within, let us now look at five interesting stocks with business focused on either pharma wholesaling or protective gear manufacturing.