Curbing costs in response to the global economic downturn, as well as the continuing capital crunch, is likely to have a long-term impact on the life sciences industries, according to a new white paper released by Deloitte Touche Tohmatsu (Deloitte). Developed in collaboration with The Economist Intelligence Unit, the Deloitte white paper, entitled, “The Future of Life Sciences Industries: Aftermath of the global recession,” is based on an online survey of 281 senior industry executives during Fall 2009. The report sought to assess the short- and long-term impact of the global recession on the life sciences industries.
Nearly one-third of the executives surveyed see a reduction of R&D spend in the future, and nearly half believe that up to 40 percent of biotech companies will cease to exist in five years.
But while the recession has caused companies to downsize R&D–with 43 percent of respondents focusing on products that would provide a more immediate return and 32 percent reducing R&D spend–a full 30 percent say that developing a robust R&D pipeline and focusing on innovation are important to their longer-term success.
Existing challenges intensified “While the immediate hit of the recession has been largely absorbed, the life sciences industry may look back at this time as a turning point,” said Robert Go, Deloitte Touche Tohmatsu Global Life Sciences and Health Care Industry Leader. “Health plans driving out costs, expiring patents, evolving generics legislation–all of these trends were in play before the economic downturn, but the downturn is now accelerating their impact.” The report points to a variety of trends and challenges intensified by the downturn that may leave the life sciences industry permanently changed:
— As capital market pressure eases, consolidation will likely pick up, with cross-border transactions accelerating–and the largest companies will likely get bigger.
— With health plans’ increased focus on cost, the use of new tools like comparative effectiveness will most likely dramatically increase as companies are forced to justify the value of their products.
— The decline in R&D spending will likely have severe repercussions for the services sector. Nearly one-third of contract research organizations executives surveyed say that the recession has had a major impact.
— With health-care costs driving legislation that favors generic products, more companies are hedging their bets by acquiring generic product manufacturers.
— As growing, affluent markets in their own right, emerging markets are likely to become the life sciences battleground of the future, with 35 percent of survey respondents pointing to these regions as the most profitable geographic areas.
The end of biotech as we know it?
While the near-collapse of the global capital markets had immediate implications for even the largest competitors in the industry–with many moves to consolidate now on hold–the impact on biotech may be staggering.
Sixty-eight percent of biotech executives surveyed believe that between 20 and 40 percent of biotech companies won’t exist in five years as a result of the global economic downturn. In addition, nearly one-third of respondents predict an outflow of scientists from smaller to larger companies.
It also seems that the lines between biotech and pharmaceuticals will become further blurred as major pharmaceutical players use their stronger capital position to expand more aggressively into large molecule research. And even when capital markets recover, investors burned by the downturn may have a more guarded perception of risk and return.
“With the dearth of new entrepreneurial entries, the talent flight, and the encroachment of large pharma, the future for biotech looks grim,” said Reynold W. (Pete) Mooney, Deloitte Touche Tohmatsu Global Life Sciences and Health Care Consulting Leader. “And the big, longer-term impact may be a shifting of the industry’s ‘balance of innovation,’ with a shift that now favors the large, well-capitalized enterprises.”
Survey respondent demographics
Of the 281 executives responding to the 2009 survey, 33 percent are from Western Europe; 26 percent are from North America; 28 percent are from Asia-Pacific; and the remainder is from the Middle East, Africa, and Latin America. Forty-six percent of respondents work for companies with global annual revenue exceeding US$500 million. Respondents all hail from the life sciences industries, led by pharmaceuticals at 30 percent (R&D, manufacturing, or wholesale distribution), medical devices (16 percent), biotechnology (14 percent), and contract research organizations (6 percent). The remainder is from health care services, distribution, and health insurance. Of the respondents, 133 are board members or C-level executives.
To read the full report, visit www.deloitte.com/lifesciencessurvey.
