Sarbanes-Oxley to Have A Greater Impact on Industry, Survey Finds

07/15/2004

In a recent survey of 10,000 CEOs and General Counsels in the life sciences industries, Foley & Lardner LLP (Chicago) has found that the life sciences business will be affected by a number of trends. One-third of life sciences companies surveyed feel that Sarbanes-Oxley disclosure and confidentiality requirements are impacting their business more this year (30.3%) than last (23.2%), due to a greater emphasis on corporate governance and an increased awareness of its impact.

• Increased regulatory involvement
  Nearly one fifth (17.8%) of all respondents feel that federal enforcement action on drug pricing or marketing will have a significant impact on their business in 2004. One fifth (19.6%) feel that Congressional follow up on 2003 Medicaid/Medicare reforms will be the most significant industry development in 2004.
  
• FDA will maintain strict requirements
  Despite the increase in medical device applications, more than half of the survey respondents feel the FDA will maintain the same strict level of approval in 2004 as in 2003 (55.3%). There is an inconsistency, however, since the FDA has indicated that it will become stricter in the approval process moving forward.
  
• The clinical trial process  to continue to complicate drug development
  56.3% of industry executives believe the clinical trial process will stunt pharma development if left unchanged. A majority of respondents say the clinical trial process continues to have a negative impact on pharma development. The biggest obstacles include conflicts of interest and unavailability of subjects.
  
• Venture capital to continue to be an important source of funding
  Respondents indicated that biotech companies can expect more VC funding in 2004 (51.7%), a sign that the economy is turning around.However, the investment expectations of life sciences companies have yet to be realized fully.
  
• Life sciences innovation will continue across the board.  Respondents expect the most significant 2004 industry developments to come from the following three areas:
  Nanotechnology applications in biomedicine (21.4%)
  Consolidation in the global pharmaceutical sector (19.6%)
  Congressional follow-up on 2003 Medicaid/Medicare reforms (19.6%)
  
• Other areas include accessibility of financing for early-stage biotech (16%), advances toward "personalized medicine" (12.5%) and regulatory policy on "biological generics" (10.7%). That the respondents were evenly split among these areas seems to signal both the dynamism and the uncertainty that characterizes the life sciences sectors.
  
• Biotech spending will increase to protect against terrorism
  According to 80.3% of survey respondents, biotech spending is on the rise in response to Homeland Security issues following the events of the past three years. Despite the fact that Congress has indicated its willingness to support the "Project BioShield" initiative, questions remain over where the federal dollars will come from and which companies will benefit.
  
• Patent infringements will remain a problem because R&D is not protected internationally
  Half of the executives surveyed in the study feel R&D is not safe from overseas patent infringement (50%). Unfortunately, there is little companies can do to correct this, aside from working with international trade representatives, and most companies cannot afford to have effective lobbying arms outside of their jurisdiction.
  
• And, Surprise, many believe the blockbuster  model still works
  Even with an outdated approach, more than half of the life sciences executives surveyed in Foley's study feel the model is still applicable in today's environment (55.3%). While the industry has spoken about the need to reevaluate drug development and marketing, these results are further proof that an economic reorganization of the pharmaceutical sector is lagging behind consolidation. For more information on this survey, visit www.foley.com.