Cost Cutting, Capital Crunch Could Devastate Biotech
Cost cutting and the continuing capital crunch are likely to damage the life sciences industries, with a potentially devastating effect on the biotech sector, according to a new paper from Deloitte and the Economist Intelligence Unit.
The paper, 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.
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.
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