“The Future of Life Sciences Industries: Aftermath of the global recession,” based on a survey of 281 senior industry executives, found nearly one-third (31%) of respondents see a reduction of R&D spending in the future, and nearly half (44%) believe that up to 40 per cent of biotech companies will cease to exist in five years.
But while the recession has caused companies to downsize R&D, with 43 per cent of respondents focusing on products that would provide a more immediate return and 32 per cent reducing R&D spending, a full 30 per cent say that developing a robust R&D pipeline and focusing on innovation are important to their longer-term success.
Robert Go, Deloitte’s global life sciences and health care industry leader, says, “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. Health plans driving out costs, expiring patents, evolving generics legislation, were all trends 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 pick up, with cross-border transactions accelerating, and the largest companies will get bigger;
With an increased focus on cost by healthcare providers, the use of new tools like comparative effectiveness will increase as companies are forced to justify the value of their products;
The decline in R&D spending is likely to have severe repercussions for the services sector. Over half (53%) of contract research organisations executives surveyed say that the recession has had a negative impact;
With health-care costs driving legislation that favours 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 per cent 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, says the report. A full 68 per cent of biotech executives surveyed believe that between 20 and 40 per cent of biotech companies will not exist in five years as a result of the global economic downturn. In addition, nearly one-third (32%) of respondents predict an outflow of scientists from smaller to larger companies.
The lines between biotech and pharmaceuticals will become further blurred, as major pharmaceutical players use their stronger capital position to expand more aggressively into biopharmaceuticals. And even when capital markets recover, investors burned by the downturn may have a more guarded perception of risk and return.
Stuart Henderson, biotechnology lead partner in the life sciences and health care practice at Deloitte, comments: “With the dearth of new entrepreneurial entries, the talent flight, and the encroachment of large pharma, the future for biotech looks grim. The big, longer-term impact may be a shifting of the industry’s ‘balance of innovation’, with a shift that now favours the large, well-capitalised enterprises.”
Of the 281 executives responding to the 2009 survey, 33 per cent are from Western Europe; 26 per cent are from North America; 28 per cent are from Asia-Pacific; and the remainder is from the Middle East, Africa, and Latin America. 46 per cent 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 per cent (R&D, manufacturing, or wholesale distribution), medical devices (16%), biotechnology (14%), and contract research organizations (6%). 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 http://www.deloitte.com/lifesciencessurvey.
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