2015 Global life sciences sector outlook

Aging populations, chronic/lifestyle diseases, emerging-market expansion, and treatment and technology advances are expected to spur life sciences sector growth in 2015. However, efforts by governments, health care providers, and health plans to reduce costs, improve outcomes, and demonstrate value are dramatically altering the health care demand and delivery landscape.

It is becoming increasingly evident that the global life sciences sector is operating in an era of significant transformation. A dynamically changing clinical, regulatory, and business landscape is requiring that pharmaceutical, biotechnology, and medical technology companies adapt traditional research and development (R&D), pricing, supply chain, and commercial models to:

Support value-based payments — Many countries’ public and private health care systems are moving from volume-based to value-based payment models.
Contain costs — Governments and other payors are instituting price controls and increasing their use of generics and biosimilars to contain drug and device costs.
Maintain regulatory compliance — A growing list of regulatory requirements and expectations are imposing new challenges on the sector.
Focus on emerging markets — Slowing revenue growth in developed countries is prompting entry and expansion in new, up-and-coming markets.

2015 Global life sciences outlook

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Acclimating to a changing regulatory & risk environment

Regulatory challenges in today’s global life sciences sector - product safety issues, security & privacy breaches, intellectual property (IP) tangles, inappropriate marketing practices, and corruption incidents pushed to the forefront - each of which can result in government fines (which are growing in size and significance), product recalls, adverse media coverage, brand recognition damage and revenue/market share losses. Adding to this complexity are the factors of rapid change, increased scrutiny, more sophisticated risk-monitoring techniques, and coordination across agencies and regions. As regulators and regulations continue to “grow teeth,” life sciences companies will need to demonstrate that they have active and comprehensive compliance programs across their business and clinical operations, including commercial, R&D, and supply chain.

Preserving & building stakeholder value

Global life sciences companies deal with pricing pressures, generics competition, margin erosion, supply chain issues, and regulatory constraints, all of which can limit their ability to grow revenues. At the same time, rising R&D expenses, marketing & sales outlays, and general operating cost increases can exert pressure on gross margins. Still, companies are expected to preserve and build shareholder value.

Fortunately, improving R&D productivity, recent increases in NME approvals, and expanding product pipelines—combined with ongoing cost containment—suggest that fundamentals are aligning to increase shareholder value. Operational transparency and addressing risks and improving processes within finance & accounting (F&A) operations can help to foster shareholder confidence. In addition, optimizing the mix of sales, marketing, and market-access expenditures at the local market level is essential to increasing shareholder value. However, a number of external and internal forces have the potential to move the needle up or down; among them, price controls & access, generics, and supply chain operations.

Preparing for the 'next wave'

Life sciences companies are also adapting their business models to take advantage of the ‘next wave’ of opportunities. Cost control efforts are leading to greater importance on value-based care (VBC). Also, comparative effectiveness research (CER) is becoming a major factor in a treatment’s market uptake. Life sciences companies will need to develop capabilities to provide real-world evidence of positive patient outcomes to avoid exclusions and sales losses.

The number and diversity of life sciences customer segments suggest that “one-size-fits-all” approaches to understanding and addressing their needs as the industry explores new engagement models with an ever-evolving set of customers. The changing roles and influence of stakeholders along the care continuum call for a more cross-functional, collaborative customer model that effectively targets all critical decision-makers

Adapting business models to account for innovations like personalized medicine, applying technology innovation to health care delivery, talent strategies, and continued expansion and presence in emerging markets will further present challenges and opportunities for companies as they adjust to and meet the needs of this increasingly changing sector.