A chorus of grim forecasts has been growing among economists in recent months. Late last year, a survey of more than 200 economists by the National Association for Business Economics found that 72 percent believed that America will be plunged into a new recession by the end of 2021.
In pharma, the predictions for a recession are not nearly as dire, but are still high. According to a recently released survey of about 100 mid-market life sciences CFOs, 43 percent also expect a recession by 2021 or sooner.
Created by BDO, a global accounting and consulting firm, the “Sustaining Life Sciences” survey aimed to take the pulse on how pharma firms are refining their business strategies among these recessions concerns.
In the wider economy, recession fears have been sparked by indicators such as the U.S. government’s deficit and trade tensions with China. To some extent, pharma is shielded from these issues.
“While there may be a general recession, the demand for life saving medications is not going to change,” explains Patti Seymour, managing director in BDO’s BioProcess Technology Group.
Yet, these wider economic jitters are now colliding with downward pricing pressures within the pharma industry, and prompting companies to retool many of their efforts in R&D and their pricing models.
Here are some of the key takeaways from BDO’s life sciences CFO survey.
R&D will become more cut throat
Among the companies surveyed, 78 percent said they are planning to increase R&D spending this year. Yet, they are being pickier about where they inject their dollars.
Nearly half of the companies surveyed (46 percent) said they had thrown out an R&D project in the past year because of concerns related to its potential ROI. Part of this willingness to kill projects comes from shareholder pressure to prove the value of R&D projects — a trend that Seymour says isn’t necessarily new in the industry.
What Seymour says BDO has seen more of from pharma companies is an effort to evaluate potential products based on their “manufacture-abilty.”
“Some of the more mature companies would do the manufacturing studies, because they had the capabilities to do it,” Seymour says. “But the good thing is that a lot of CMOs have picked up on this trend and have developed cost-effective platforms to run these studies…and can look at how good the asset will be from a manufacturing perspective.”
Although Seymour says that biology can sometimes trump as the most important criteria for pharma R&D, if there is more than one candidate for a therapeutic target, manufacturing capabilities will now often determine which asset a company goes with.
Ultimately, in this environment, Seymour says companies are being more cautious of where they place their bets.
“You shoot for the moon and don’t just orbit around the earth,” she says.
To achieve these efforts, companies are also leaning heavily on new technologies. According to the BDO survey, investing in technology or infrastructure was the most-cited business priority for 2020 at 24 percent, while “falling behind on tech innovation” was named as one of the top threats (18 percent).
Yet, most companies (79 percent) said they are still struggling to adopt one of the trendiest manufacturing innovations — continuous processing. BDO named continuous processing as a “business imperative” as the industry looks for more cost-effective manufacturing strategies. Without more continuous, BDO says “the industry may fail to meet demand for specialized treatments.”
Bringing down the price of prescription drugs is a major political priority for both Democrats and Republicans, and pharma is bracing for new regulations. Of the CFOs BDO surveyed, 46 percent said that drug pricing regulation would negatively impact their business.
Amidst these pricing pressures, many pharma companies are exploring different types of outcome-based pricing models, some of which could involve reimbursing patients who don’t receive therapeutic benefits from their treatment.
The industry is also keeping a close eye on the rise of potential market disrupters such as Amazon, that could begin distributing pharmaceuticals directly to consumers, potentially triggering a paradigm shift away from pharmacy benefit managers.
Where companies are investing
With the pressure on to bring down the price of drugs, life sciences companies are realizing the growing importance of tools that help correctly identify valuable R&D targets that will yield better patient outcomes. Thus, one of the major areas of investment has become diagnostic tools that measure key biomarkers to help predict how effective a treatment will be.
Here’s a breakdown of where CFOs said their companies are making “significant” investments:
- Diagnostics — 49 percent
- Consumables — 40 percent
- Immunotherapies — 40 percent
- Gene therapies — 36 percent
- Cell therapies — 32 percent
- Wearables — 32 percent
Despite the recession concerns, Seymour said that overall, the CFO outlook was upbeat.
“There was a very buoyant outlook for profitability and revenue in the next 12 months,” she says. “So while they may see a recession, it doesn’t necessarily mean bad news for the industry.”