In a new white paper entitled, The Future of Life Sciences Industries: Aftermath of the global recession, Deloitte and their collaborators at the Economist posit that the recession of 2008-2009 will forever change the biopharm industry.
Interviews conducted with 281 leaders from pharmaceutical, medical device biotechnology, and CROs paint a changed future coming. Respondents (44%) felt that from 20-40% of existing biotechnology companies would disappear in the next 5 yrs. Senior execs (68%) from biotech were even more certain that the 20-40% figure was likley to occur. More than 65% of these stated the economy had already negatively affected their company. In 2009, 14% of biotech companies closed but this was far short of the 20-33% that had been predicted by some industry analysts.
Many of these companies have reacted as you might predict. More than 43% have reduced R&D expenses and staff - and 32% predicted this downward trend to continue in the future. This despite the fact that the same executives said "innovation" - yes the dreaded "i' word - was their most likely salvation. I still get the feeling there is some street peddler out there selling "innovation business plans" out on the street corner.
Despite the call for innovation, most of these companies have shifted toward R&D projects/products that offer an expectation of a near term payoff. To further support this line of thinking, a panel of venture capitalists, speaking at BIO last week, urged companies to be as efficient as possible with capital and learn to "fail fast". In other words, don't waste money on potentially innovative projects in phase II or III that don't show a clear avenue for success. No one can afford these failures any more.
Plus, it is not enough to get approved - you need to also show a differential advantage over competition and comparative effectiveness. This will be needed to get justify the value of these new products to 3rd party payers and to earn reimbursement. Reimbursement approval may be as or even more important than initial regulatory approval in the future.
Capital markets are less available to small biotechs. The VCs urge companies to look at non-traditional funding mechanisms - inlcuding non-dilutive financing and ones that pursue creative collaborations. More outsourcing is needed as well as risk sharing. Virtual models may become more attractive. More mergers are also expected as Big Pharma continues to cherry-pick the best clinical candidates.
Despite some of the negatives, biotech as an industry did earn a profit last year. In coming years, the industry will become more global. It is clear the growth opportunities lie in pharmerging markets - like the BRIC countries. Most MNCs are making significant moves into this space.
The emerging markets are also attractive to the growing generics industry. Even in the US, 76% of all prescriptions written in 2009 were for generics. This trend will continue with Healthcare Reform and with more than $60 B worth of drugs reaching their patent expiration within the next two years. Thus, you will see continued investment by significant portions of Big Pharma in generic companies.
The market will continue to evolve and companies will need to adjust their strategies and chart a new path in order to meet these challenging circumstances.
Posted by Bruce Lehr May 9th 2010