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Could COVID-19 Bankrupt Life Science Companies with Difficulties in the Supply Chain?


Is there a chance that COVID-19 could lead to bankruptcies for life science companies due to supply chain issues? There are a few key points.
Editor: Jacob Maslow Last Updated: 24-Aug-2020

The COVID-19 pandemic has impacted everyone and as healthcare organizations and life sciences companies scramble to try to make a vaccine against this deadly virus, there is a growing concern that the COVID-19 pandemic is going to place an undue amount of stress on companies in this sector. Similar to other industries, these businesses have had to adapt their products and services to not only aid in the response to the COVID-19 pandemic but also to meet the growing demand for their services. As they try to maintain shareholder value and navigate numerous regulatory hurdles that are related to the COVID-19 pandemic, there is a growing concern that these companies could be facing bankruptcies due to issues related to their supply chains.

One of the major concerns that have come out of the COVID-19 pandemic related to supply chains in the healthcare sector relates to contracts. First, it is important to note that all businesses have contracts and this includes those in the healthcare sector. These life sciences companies rely on their supplies to be delivered on time so that they can deliver for their customers. Unfortunately, their supplies come from all over the world and every country is in a different spot as it relates to the pandemic.

As a result, some life sciences companies might not be able to fulfill the ends of their contracts for reasons that are not their fault. Regardless, this could mean that these businesses end up with an issue called a breach of contract related to their failure to deliver, even during the COVID-19 pandemic. While they might not have any control over these supply chain issues, a breach of contract case could still end up bankrupting them. This is bad for not only the company but also bad for a country that depends on the services of these companies to rise and meet the growing threat of the COVID-19 pandemic.

There is a potential way for these companies to stay in business even if they are facing a potential issue related to a breach of contract. That is through something known as a force majeure clause. This clause basically means that the business cannot be held responsible for the breach of contract because the circumstances leading to the breach of contract, such as the COVID-19 pandemic, could not be foreseen. This clause has to be present in the contract and businesses will have a much better chance of winning this argument if they operate in an area where the government forced them to close for a certain period of time. This is a major issue that companies may face, particularly in the healthcare industry, during the COVID-19 pandemic.

The reality is that businesses in the life sciences sector are dealing with the fallout from the COVID-19 pandemic just like other companies. Due to issues in the supply chain, it is possible that the COVID-19 pandemic could make it hard for businesses in the life sciences sector to not only do their jobs but also fulfill their ends of certain contracts. As a result, they might not only see their revenue dry up but also face the growing threat of a lawsuit from a breach of contract situation. This is why it is important for all businesses in this sector to read their contracts carefully and prepare now.