Industry Overview
Every indication is that the current tsunami of economic woe will continue to roll unleashed throughout 2009. As 2008 slipped out the door, there were still echoes of the thought that the pharmaceutical-biotech industry was possibly “recession proof”. Like many a 401K, that line of thinking has now soundly disappeared. It is truly anyone’s guess how it will all proceed at this point, and even the biggest boosters now grudgingly acknowledge that the industry will not escape unscathed. Harsh as it may sound, rocky economic times are somewhat of a boon for the industry as the added stressors spur escalating health issues, in turn necessitating a higher demand for more medications. Despite the sour economic climate, the industry as a whole enters 2009 planning to kick-off construction on over $20 billion in capital and MRO projects in North America. It is a paradoxical situation, but in regards to this industry – with life sciences being a more apt description – the fact is, even when it is really bad, it is still pretty good.
Business Trends
It is a given that mergers and acquisitions (M&A), licensing deals, and other strategic alliances will remain key growth drivers throughout 2009. Consolidation in the Pharmaceutical & Biotech Industry will continue as former competitors join as one. Virtually every major company, if it has not already done so, is in the process of setting up a purely biopharmaceutical division. The most expeditious way to get there is buying up promising-yet-cash-strapped biotechs and setting them up under the corporate umbrella. The generic sector continues to nip at profits, all the while finding itself in a price war as competition heats up as the cast of players grows.
Market & Economic Trends
The gloves are off as Pharma is fighting to stay competitive. Typically, it has been understood that Pharma operates outside of the same business cycles as other consumer-product suppliers and that the industry's tendency not to leverage protects it in a typical recession. Unfortunately, there is apparently nothing typical or conventional about what’s going on in the current economic climate. This philosophy is underscored by the fact that the most current outlook for U.S. market growth in 2009 is a paltry 1%-2%, a figure already revised down from previous forecasts calling for 3%-4%.
Corporate/Plant Trends
The majority of new construction for 2009 remains firmly in vaccine and biological production and development. This holds true for both proprietary manufacturing and CMO/CRO companies. The industry landscape for research and development has shifted in the direction of biological products, as well. Institutional investment (government and academic) while taking a hit from the economy is still strong, with dirt being turned as soon as the cash is available. In many cases, large projects are being broken into smaller phases that will eventually arrive at the desired objective.
Regulatory Trends
The Food and Drug Administration (FDA), which is charged with assuring the safety of the $1 trillion worth of drugs, medical devices, and food consumed by the American public each year, is in severe need of top-to-bottom reform. First up is finding a leader of the agency, which has been without one for half of the past dozen years. After having served just two years, the most recent commissioner, Dr. Andrew C. von Eschenbach, resigned shortly before President Obama was sworn in. The new administration had vowed to nominate a new leader immediately following the Senate confirmation of Tom Daschle as head of Health and Human Services. That course of action hit a brick wall after Daschle’s abrupt withdrawal from seeking the post because of personal tax problems, stalling a process where time is truly of the essence.
Technology Trends
Across the board, the refining of product development and manufacturing processes for the new generation of drugs has become more complicated, expensive and time consuming. Furthermore, once a compound has been successfully developed and makes it to market, the manufacturing process can be extremely variable, leading to product waste that can reach an estimated annual cost of $20 billion-$50 billion to U.S. manufacturers.
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