Deloitte: Global economic downturn likely to change face of life sciences industries for y...


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 business advisory firm Deloitte.

Developed in collaboration with The Economist Intelligence Unit, the paper, “The Future of Life Sciences Industries: Aftermath of the global recession,” is based on a survey of 281 senior industry executives. The report sought to assess the short and long-term impact of the global recession on the life sciences industries.

Nearly one-third (31 per cent) of the executives surveyed see a reduction of R&D spend in the future, and nearly half (44 per cent) believe that up to 40 per cent of biotech companies will cease to exist in five years.

But while the recession has caused companies to downsize R&D — with 43 per cent of respondents focusing on products that would provide a more immediate return and 32 per cent reducing R&D spend — a full 30 per cent say that developing a robust R&D pipeline and focusing on innovation are important to their longer-term success.

Stuart Henderson, life sciences partner at Deloitte in Cambridge, said: “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. 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 Deloitte report points to a variety of trends and challenges intensified by the downturn that may leave the life sciences industry permanently changed.

Firstly, 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 also 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. Over half (53 per cent) of contract research organisations executives surveyed say that the recession has had a negative impact.

And with health-care costs driving legislation that favours generic products, more companies are hedging their bets by acquiring generic product manufacturers.

Furthermore, emerging markets are likely to become the life sciences battleground of the future, with 35 per cent of survey respondents pointing to these regions as the most profitable geographic areas.

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 per cent of biotech executives surveyed believe that between 20 per cent and 40 per cent of biotech companies will not exist in five years as a result of the global economic downturn. In addition, nearly one-third (32 per cent) 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.

Mr Henderson said: “With the dearth of new entrepreneurial entries, the talent flight, and the encroachment of large pharma, the future for biotech looks grim. The big, longer-term impact may be a shifting of the industry’s ‘balance of innovation’, with a shift that now favours the large, well-capitalised enterprises.”



The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP