2015 Global life sciences outlook
Adapting in an era of transformation
Overview and outlook
The extended nature of life sciences product development mandates that sector stakeholders adopt a long-term focus to strategic planning, portfolio management, and market expansion. However, organizations must also prepare for and react to near-term challenges and opportunities. Four major trends are expected to capture the sector’s attention in 2015: searching for innovation and growth; changing regulatory and risk environment; preserving and building shareholder value; and preparing for the “next wave.” The resulting challenges and opportunities can be both global and market-specific. Read on to learn more about these trends and suggested considerations for stakeholders.
Global life sciences sector trends in 2015
Searching for innovation & growth
As with venture capital funding, transactions have been skewing toward fewer, bigger deals. Also, for business reasons, companies operating on a global scale are looking to restructure in ways that allow for the efficient use of foreign capital. Partnerships and informal collaborations also will comprise an important part of the picture as companies continue to grapple with a rapidly shifting landscape, grow distribution networks, and leverage previous investments. New insurance and payment models, rapidly changing consumer demographics, and an explosion of technology-based treatment innovations are driving both horizontal and vertical M&A activity.
Acclimating to a changing regulatory & risk environment
Today’s global life sciences sector has been likened to the financial services industry of five to 10 years ago, with product safety issues, security & privacy breaches, intellectual property (IP) tangles, inappropriate marketing practices, and corruption incidents pushed to the forefront—each of which can result in government fines, product recalls, adverse media coverage, brand recognition damage and revenue/market share losses. In the past, regulatory fines have been relatively small; however, they are growing in size and significance; precisely what happened in the banking world, which today sees a very different story in the magnitude of fines, sanctions, and public condemnation.
Preserving & building shareholder value
Global life sciences companies deal daily with pricing pressures, generics competition, margin erosion, supply chain issues, and regulatory constraints, all of which can limit their ability to grow revenues. On the cost side, rising R&D expenses, marketing & sales outlays, and general operating cost increases can exert pressure on gross margins. Still, companies are expected to preserve and build shareholder value.
Fortunately, improving R&D productivity, recent increases in NME approvals, and expanding product pipelines—combined with ongoing cost containment—suggest that fundamentals are aligning to increase shareholder value. Operational transparency and addressing risks and improving processes within finance & accounting (F&A) operations—via treasury solutions and services such as controls testing, balance sheet integrity, gross-to-net (GtN) forecasting, cost management, and reporting optimization—can help to foster shareholder confidence. In addition, optimizing the mix of sales, marketing, and market-access expenditures at the local market level is essential to increasing shareholder value. However, a number of external and internal forces have the potential to move the needle up or down; among them, price controls & access, generics, and supply chain operations.
Preparing for the “next wave”
Government, provider, and payor efforts to control health care spending, reduce variations in care, and engage consumers in self-care are among the driving forces behind the health care industry’s transition from volume-based to value-based care (VBC). As part of this transition, comparative effectiveness research (CER) — which compares different interventions for a health condition based on real-world effectiveness rather than controlled efficacy — is becoming a major factor in a treatment’s market uptake. Products not proving to be comparatively effective may struggle to generate demand or attain reimbursement. Payors are using CER to manage formularies, providers are leveraging it to guide clinical decisions, and governments are supporting (and, in some cases, funding) CER.
The number and diversity of life sciences customer segments suggest that “one-size-fits-all” approaches to understanding and addressing their needs will be ineffective in an era of transformation. The importance of physicians as the sole influencer in prescription volume or product purchase is rapidly diminishing, as the industry explores new engagement models with an ever-evolving set of customers.
As growth in developed markets slows, life sciences companies are expected to continue expanding their presence in emerging markets through acquisitions and joint ventures. Key growth drivers include an increase in wealth and income levels, increasing government and consumer awareness about the benefits of a good health care system, and a trend towards healthier lifestyles.