Healthcare research and development (R&D) is heavily concentrated geographically, with 90 per cent of the leading firms in the sector registered in just 10 countries.

As a result, protectionist measures like export controls can threaten access to innovative healthcare products. This highlights the importance of open trade and investment in the fight against COVID-19.

The US, China, Japan and the UK place among the top five countries for the pharmaceuticals, biotechnology, healthcare equipment and services sectors, in terms of numbers of leading R&D firms. India also places in the top five for pharmaceuticals and biotechnology, and Germany for healthcare equipment and services.

The scale of private sector R&D investment in these sectors in enormous. Globally, it amounted to USD195 billion in 2018-2019. Many firms are now making a huge effort to respond to the COVID-19 outbreak, capitalising on new channels of collaboration among domestic and international partners.

However, since the early days of the pandemic, there has been a significant increase in the imposition of trade-related impediments targeting a range of health-related products. As of 10 April 2020, the Global Trade Alert project team of the University of St. Gallen had identified 102 export curbs on COVID-19 medical supplies. They said 75 nations had imposed restrictions.

Such measures could prevent the world from mobilising the necessary capacity to respond to the crisis with what is needed from the relevant sectors and deliver it to where it is needed most.

Such measures could prevent the world from mobilising the necessary capacity to respond to the crisis

Keeping trade moving

Digital solutions may help importers and exporters face up to the challenges created by COVID-19.

The response to the COVID-19 pandemic has revealed far-reaching private sector innovation, which itself is evolving. Businesses are collaborating with entities in other parts of the economy ranging from government agencies to academic and non-profit institutions. New channels of collaboration are emerging. International platforms for sharing data and pre-publication of medical research and for virtual live exchanges of ideas are bridging divides and accelerating the innovation process.

If stakeholders can pool and recombine knowledge from various sources to deliver greater innovation in responding to COVID-19, then this may make all participants better off. The increased collaboration appears to be accelerating the innovation response to COVID-19: as of 30 March 2020, achievements included 41 diagnostic tests clearing regulatory authorisation processes, five vaccine candidates in human clinical trials, and 23 treatments in human clinical trials.

Even in turbulent times, it makes sense for businesses to make innovation a strategic priority as they strive to grow and develop in an agile and resilient manner during a post-COVID-19 recovery. HSBC research found that an increase in a firm’s R&D expenditure tends to have a significant, positive association with its net sales. Moreover, this is complemented at the firm level by investment in capital expenditure and, at the national level, by policies to ensure adequate protection of intellectual property rights.

Our analysis of the relationship of R&D to net sales is even more robust for the health-related sectors than for the economy as a whole. In addition, HSBC’s separate national-level assessment of export performance for the pharmaceuticals and medicines sector as a whole found that exports were clearly associated with policies to support intellectual property rights protection and market openness.

Overall, private sector health-related investment in R&D appears to yield tangible results in terms of net sales. With the appropriate policy support in place, the world can benefit from access to the resulting innovation as well.

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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Doug Lippoldt

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