Global economic downturn will shrink life sciences
sector and R&D spend
10 May 2010
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.
Developed in collaboration with The Economist Intelligence Unit, The
Future of Life Sciences Industries: Aftermath of the global
recession, is based on an online survey of 281 senior industry
executives in autumn 2009. The report sought to assess the short-
and long-term impact of the global recession on the life sciences
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% of
biotech companies will cease to exist in five years.
But while the recession has caused companies to downsize R&D —
with 43% of respondents focusing on products that would provide a
more immediate return and 32% reducing R&D spend — a full 30% 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
organizations executives surveyed say that
the recession has had a major impact.
- With healthcare costs driving legislation that favours
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% 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% 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 favours the large,