The life science industry continues to move forward as it tries desperately to fill expected loss of revenue from drug blockbusters over the next several years.  Major M&A between mega pharmaceutical companies promises to restore profitability through increased operational efficiency, although this approach can only hope to maintain a somewhat proportionate rate of return at a lower combined revenue level.  Acquisitions of smaller biotechnology companies are a higher risk bet on the success of drugs in the pipeline, paid for at a premium that is likely to only get higher moving forward.  In all cases, the prolonged development and approval process guarantee that bets made today will not pay off for at least a few years at best and never, at worst.  Are we in desperate times in the industry or simply moving from one business model to the next?

Life science companies continue to test any and all options in pursuit of long term sustainability, including enhanced focus on the core business (e.g. Abbott’s attempt to divest its diagnostics business), diversification into generics (e.g. Pfizer’s move to acquire biogenerics efforts), and globalization (multiple players).  While all would proffer for the benefit of the investment community that their approach has a high likelihood of success, they are doing so with both fingers and toes crossed, recognizing the high potential for failure within the increasingly shrinking window of opportunity fixed by immovable patent expiration dates.  The option to buy off generic competitors to extend blockbuster revenues for even a short period is under attack and will vanish shortly, expanded DTC marketing and direct physician promotions are experiencing diminishing returns, and social media is an unexplored minefield.  Is the picture bleak looking forward?  It is from the perspective of pharma senior management seeking to maintain the status quo.  For everyone else, it is a time of uncertainty in an industry that is growing at a rapid pace due to an increasingly aging population base, supported by accelerated growth in medical knowledge, significant innovation in technology, and growing global markets in an increasingly shrinking, interconnected world.

For vendors supporting the industry, there are both near and long term opportunities to succeed moving forward.  Opportunities to contribute to improving operational effectiveness are in high demand today and innovations are likely to extend into long term relationships.  Companies providing technologies or platform solutions that directly reduce the risk of failure (i.e., increase the likelihood of regulatory approval) are also finding a receptive audience from desperate senior managers.  As longer term, lower cost bets for the future beyond current turmoil, early stage and discovery research efforts are seeing renewed interest and new funding opportunities as companies reassess internal core competencies.

For those lucky (or smarter than the rest…e.g. Lilly’s pipeline promise?), there may be near term sustainability as pipelines yield new blockbusters in the next few years.  That said, current emerging niche blockbusters are likely to enjoy only a short period of unbridled success as they encounter the growing concept of value and run into increasing resistance of healthcare payers to grant formulary access at unsustainable costs of $10,000 to $200,000+ per patient.  Overall, the pharmaceutical industry, in particular, may have to begin to acknowledge that its profitability and revenue models will need to change, overcome the knee jerk reaction from financial markets that will ensue, and rebuild as a more mainstream industry (as compared to highflying leader).  The biotechnology industry is likely to continue at the forefront (e.g. note Roche’s aspirations to become Genentech as compared to previous aspirations for the reverse), but as always will be a much more high risk-high reward. 

In these times of change, the only constant is change.  The next 5 years will be lots for fun (metaphorically speaking) for all.  As always, discussion and comments are welcome.