Biotechnology and Pharmaceuticals: Industry Evolves as Biotechnology and Pharmaceutical Firms Collaborate
BIOTECHNOLOGY AND PHARMACEUTICALS INDUSTRY ABSTRACT
June 2008
The U.S. biotechnology and pharmaceuticals industry is marked by fierce competition, drug patent expirations in coming years, rising R&D costs, pricing pressure and a high level of compliance costs. However, the increasing number of chronic conditions among the baby boomer population, and demand for improved lifestyles and personalized treatment, are contributing toward the growth of the industry.
Firms are implementing various options to counter challenges arising in the market. Consolidation activities are constantly on the rise, as major pharmaceutical players are actively acquiring smaller biotechnology firms to gain innovative products in order to maintain a source of revenue in the foresight of patent expiration and diversify their product offerings. Outsourcing activities have also soared significantly, with players looking to expand their businesses and take advantages of cost benefits. Increased spending on R&D by U.S. biotechnology and pharmaceutical firms is forcing the industry to outsource preclinical and early research-based activities, which in turn is abetting the rise of Contract Research Organizations (CRO). While R&D expenses of firms have significantly increased, productivity has declined, which can be deduced from the fact that fewer numbers of drugs have received FDA approvals in recent years as compared to historic figures. The high cost of research remains an entry barrier for new players, particularly in the biotechnology segment where the initial investment for product development is in billions. Apart from this, the new Patent Reform Act of 2007, which is still pending in the Senate, is expected to negatively impact the industry in the long-run. The industry believes that the Act will make patent infringement easier and smaller firms will suffer the most. Drug manufacturers are also losing revenue due to counterfeiting of drugs, which has increased manifold with the rise of the Internet.
The rising cost of R&D has also prompted pharmaceutical firms to collaborate with small pharmaceutical and biotechnology firms for research and development programs. While larger pharmaceutical firms practice in-licensing in order to increase revenues sources, small firms usually out-license compounds in their research pipeline to acquire funds, which play a major role in their R&D strategy.
The pharmaceutical segment of the industry is undergoing restructuring to save on the extra cost and balance decreasing profitability. As a result, all pharmaceutical firms are decreasing their workforce, not only in the U.S., but worldwide. Some industry leaders, such as Pfizer, Ely Lilly and Wyeth have either decreased their workforce by a significant proportion in the last one year or have plans to decrease their workforce over the next two to three years. The consolidation trend plays a major part of this restructuring.
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