2014 Global life sciences sector outlook
Resilience and reinvention in a changing marketplace
Despite increased regulation, pricing pressures, and the effects of health care reform in many countries, the global life sciences sector is exhibiting resilience and reinvention as it employs new research and development (R&D) and business models to cost-effectively deliver innovation, value, and improved patient outcomes.
The report outlines the top issues facing global life sciences stakeholders, provides a snapshot of activity in a number of geographic markets, and suggests considerations for companies as they seek to grow revenue and market share in 2014 and beyond.
John Rhodes, DTTL global life sciences sector leader, says: “In 2013, the life sciences sector–comprised of the pharmaceutical, biotechnology, and medical technology segments–was less impacted by the recent global economic uncertainty than other sectors. However, it is facing reimbursement pressure from escalating costs and overwhelmed health systems across the world. Still, an overview of recent sector performance shows that it is favorably positioned to achieve success in the next few years through increased innovation and value delivery.”
Oleg Berezin, CIS Health Care & Life Sciences Group Leader, comments: “The main issue facing the Russian pharmaceutical market is still the effects of the Russian government’s policy which is aimed at increasing the proportion of medicines produced in Russia. The proportion of imported medicines continues to decline, albeit slowly and share remains just under 80%. Foreign pharmaceutical companies are keen to maintain their presence and capitalise on a market which has seen double-digit growth and which has the potential for further rapid expansion. However, legislation covering the trade in medicines, corruption and high production costs are all playing a part in limiting foreign investment.
“Government proposals to limit procurement of imported medicines (a move wholly in line with Russia’s WTO obligations) will mean that foreign pharmaceutical companies will have to make a decision on whether or not to localize manufacturing. Unless they do so, they stand to lose their share in the government procurement market, which is currently accounts for 25% of the market by value. In its attempt to localise production, the government is attempting reign-in the costs of caring for the population of 142 million against a background of steadily increasing costs to the state.”
Russia and CIS
Sector issues in 2014
Among drivers for growth in the global life sciences sector are an aging population, rising incidence of chronic diseases, technological advancements and product innovation, and certain anticipated impacts from health care reform provisions including increases in government funding and insurance coverage. Yet companies also face four major issues in 2014: navigating health care reform; delivering innovation and value; complying with regulatory changes; and operating in a smaller and connected world. The challenges and opportunities emanating from each of these areas can be both global and market-specific.
Issue #1: Navigating global health care reform
Countries including the United States, China, Brazil, Germany, France, and the United Kingdom have recently passed substantial legislation that is accelerating the transformation of global health care from a volume- to value-based marketplace, and significantly impacting the life sciences sector. Companies know that changes emanating from health care reform are important, but some are struggling with how to respond. Those organizations that are able to understand and adapt to reform’s challenges and opportunities are likely to be the leaders in the coming years.
Issue #2: Delivering innovation and value
A major challenge for life sciences companies is how to productively turn innovation into commercial products. Many innovations require more than traditional small-molecule chemistry or large-molecule-based biology; they tend to require expertise in a number of scientific disciplines. Consequently, there is considerable multi-disciplinary activity occurring around today’s life sciences innovation, which requires collaboration and cooperation, both characteristics of new risk-sharing business models. Increasingly, companies large and small, domestic and international, are engaging in joint ventures, partnerships, and acquisitions to fulfill their R&D and product pipeline objectives.
Issue #3: Complying with regulatory changes
Regulatory compliance is a critical issue, particularly in emerging markets such as Southeast Asia, India, and Latin America. Noncompliance can be costly: It can expose an organization to revenue losses, reputational risks, and patient safety issues or, worse, criminal sanctions against individual employees that can jeopardize the future of an entire business unit or company. Compliance issues facing life sciences companies big and small include government policies and mandates, drug safety, counterfeiting, information security and privacy, intellectual property protection, corruption, and M&A/JV and other third-party risks.
Issue #4: Operating in a smaller and connected world
Global life sciences players increasingly operate in a smaller and connected world, which presents both opportunities and challenges. Among drivers for growth are an aging population, rising incidence of chronic diseases, technological advancements and product innovation, and certain anticipated impacts from health care reform provisions including increases in government funding and insurance coverage. Opportunities in emerging markets could continue to be a driver, although many companies are looking more cautiously at these markets due to slowing growth and other pressures.
Says DTTL’s John Rhodes. “Despite encouraging economic and demographic trends, life sciences companies’ growth prospects are being tempered by a number of challenging marketplace and enterprise issues. The sector will need to respond appropriately by incorporating global knowledge and resources with new technologies to offer innovative, differentiated products and services that assist clinicians and benefit consumers,”
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