_________________________________________________________________________________ At a Glance
To be able to meet historical growth targets,
pharmaceutical companies require a massive product output from their research
and development, requiring increased spending. This is where life science, or
biotechnology companies, come into the game. Biotech companies have a part to
play in discovering an ever-increasing proportion of the new molecular entities
(NMEs) launched every year. Accenture believes a new business model is being
created in the industry where one company no longer controls the entire value
chain.
Shortcut to:
Enter Biotech
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Posted: September 11, 2003   The pharmaceutical industry has historically outperformed
most sectors on the capital markets, delivering regular, dependable returns to
investors. Even in today’s tough economy, these organisations still have
investors’ confidence and are expected to perform well into the future.
The healthcare industry has reached a crossroads.
"Maintaining the high growth and returns is going to be difficult," says Wayne
Borchardt, senior manager-Health and Life Sciences, Accenture. Borchardt cites
Accenture global research and says maintaining high growth and returns will be
difficult "because pharmaceutical companies are not delivering new products
fast enough."
“To be able to meet historical growth targets,
pharmaceutical companies require a massive product output from their research
and development (R&D),” adds Borchardt. "For example, to achieve a 15
percent annual growth rate, a company needs to discover eight or nine new
molecular entities (NMEs) each year; a 10 percent growth rate requires five or
six NMEs; while achieving 5 percent demands two or three NMEs.” The industry
average is currently 0.5 NMEs per year.
In order to up their discovery programmes, pharmaceutical
companies have spent more on R&D. In 1996, the pharmaceutical industry
already had a higher R&D spend than most other industries—about 17 percent
of revenue. This is currently running at around 20 percent (around $300 to $500
million per NME), yet the NME discoveries remain constant.
“To match investor expectations ‘Big Pharma’ needs to
double the number of NMEs entering clinical development, improve clinical
success rates from 10:1 to 10:3, and reduce the time from first dose in a human
to regulatory approval by 33 percent,” notes Borchardt. “It seems that the
industry is at a point of saturation where increasing the amount of money
thrown at a project is not increasing the returns in a commensurate fashion.”
Enter Biotech This is where life science, or biotechnology
companies, come into the game. These organisations approach drug discovery from
a different perspective, providing the ability to better understand the
physiological basis of disease and the effects of drugs and then applying this
knowledge in a rational drug design process. They can assist in bringing new
small-molecule drugs to market as well as classic biopharmaceutical drugs
(biologics). Currently 371 novel biologics (drugs usually protein in nature)
are in advanced clinical trials or registration.
Investors have recognised the innovative ability of modern
biotechnology companies, creating more than 4,000 companies in just 25 years.
In 2001 there were five biotechs capitalised at over $10 billion and 65 at over
$1billion. Most importantly, biotech companies have a part to play in
discovering an ever-increasing proportion of the NMEs launched every year. The
Point of View report from Apax Partners (a leading London-based venture capital
firm) notes: “Biotechnology companies will dominate the introduction of new
drugs over the coming decade.”
Does this mean the end for the big pharmaceutical
companies? “It can if they don’t adapt to the new order,” warns Borchardt.
Accenture believes a new business model is being created in the industry in
which the value chain is unfolding and specialists are staking claim to certain
aspects of the process. Already more than 50 percent of the NMEs that
pharmaceutical companies launch are sourced from external organisations,
shifting the balance of power in the industry away from the all-consuming giant
pharmaceutical organisations.
In other words, the commercial divisions in pharmaceutical
companies are doing what is necessary to find solutions and sell
products—regardless of whether the original R&D comes from their own labs
or not. Companies not adopting this approach will find their product pipelines
continually challenged and will eventually be squeezed out of the market.
Life sciences companies are unique. They play in the
discovery space and few have the marketing and sales abilities or the time to
build their own complete value chain. Their primary option is to license their
patents and leverage the pharmaceutical companies’ well-established sales
channel.
The changing dynamic of this market is that one company no
longer controls the entire value chain. This virtualisation opens the door for
specialisation, giving the smaller, adaptable companies a chance to focus and
profit from their intellectual capital. The larger, inflexible companies
benefit from a wide selection of new discoveries that they can take to market,
many licensed from these smaller entities.
The pharmaceutical market is changing fast and
organisations need to adapt and change with it if they are to survive. Becoming
a critical part of the value chain is the only solution for large
pharmaceuticals, unless breaking their companies apart is an acceptable
alternative. Biotechs need to learn from their larger cousins and not try to
operate across the entire value chain. Specialisation and alliances to become
part of the virtual value chain will deliver far greater returns for much less
cost.
Accenture’s health & life sciences practice works with
pharmaceutical and biotechnology companies at locations throughout the globe.
With pharmaceutical practices in more than 20 major centres around the world
(including Johannesburg), Accenture has provided advice and expertise to the
pharmaceutical companies responsible for 81 of the world’s top 100 selling
drugs.
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