The rise of life science strategic alliances – are you ready to maximise the opportunities? | Deloitte UK has been saved
Limited functionality available
This week the Center for Health Solutions is delighted to bring you a guest blog from one of our consultants in health care and life sciences:
The life science industry is facing significant challenges such as patent cliffs, pricing and market access restrictions as well as increasing regulatory pressure. These challenges fundamentally call into question traditional business models and, as a result, life science companies are increasingly looking to new and innovative ways to tackle these challenges
Historically, mergers and acquisitions (M&As) have been seen by the industry as a preferred solution for addressing some of the above challenges. Research conducted by Deloitte’s Swiss Consulting practice, shows that strategic alliances are a viable alternative to M&As. Strategic alliances allow businesses to maintain or improve their competitive advantage by sharing risk and reward by developing business relationships across pharmaceuticals, biotechnology, academia and charities amongst others. Internal drivers to forming strategic alliances include new product development, diversifying risk and reducing cost; external drivers tend to be improving market access, joint commercialisation and access to assets.
Using personal interviews with industry leaders across key Western European markets (Switzerland, Germany, UK, Belgium and France), substantiated using previous research and project experience, the Swiss team has identified common challenges faced by life science companies entering into strategic alliances and also, the alliance capabilities that drive success.
The research focusses on three types of strategic alliance: non-equity alliances (joint research and development, joint product development/marketing/manufacturing and long term sourcing agreements); equity alliances; and joint ventures. For half of the study participants (51 per cent), alliances are a viable solution to address the challenges of new product development, risk diversification, cost reduction and shorter product development time. The majority of participants (82 per cent) expect strategic alliances in the life science industry to increase in the future, with alliances most likely playing a major role in emerging markets such as China, India and Latin America. Equity alliances were cited as those most likely to increase in number.
One of the critical questions addressed by the research is whether life science organisations are ready to address alliance-specific challenges such as governance, people, funding and reward. The study identifies that most of the companies who participated in the research are not yet fully prepared for alliances;
The research was designed to provide a holistic view of the strategic alliance process and sought opinion on three key components along the alliance lifecycle: capabilities and preparation, building an alliance, and managing an alliance. Interestingly, while many companies appeared to have issues with alliance formation and execution, they appeared better prepared for the termination of the alliance, as many had exit strategies in place. One suggestion for improving alliance success would be redressing this balance; focusing more resource on alliance formation to set them up for success, rather than an over emphasis on ensuring exit plans are in place should they fail.
Deloitte found that culture and people fit are the make or break factors for many alliances. According to the research and in order of priority, the key drivers of strategic alliance success are: mutual trust, strategic fit, shared responsibilities and cultural fit. As outlined in the report, establishing an alliance is a complex process which requires particular skillsets and capabilities.
It seems evident to both the life science industry and its commentators that new approaches are needed to meet the challenges the industry is facing. The research reveals that industry leaders in Western Europe overwhelmingly agree that strategic alliances are a credible and underutilised mechanism for meeting some of these challenges. Those companies that can demonstrate a high degree of alliance readiness will most likely become the most sought after by potential partners. Professional alliance capabilities, currently in relatively short supply within the life science industry, will become a crucial determinant of future life science business failure or success.
Karen is the Research Director of the Centre for Health Solutions. She supports the Healthcare and Life Sciences practice by driving independent and objective business research and analysis into key industry challenges and associated solutions; generating evidence based insights and points of view on issues from pharmaceuticals and technology innovation to healthcare management and reform. Karen also produces a weekly blog on topical issues facing the healthcare and life science industries.