Faiz Kermani
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The World Bank has predicted that the global economy will shrink by nearly 3% in 2009.1 Despite comparisons with the Great Depression, however, there is a belief that better policy mechanisms now exist to deal
with a downturn. Although governments have struggled to react to the pace of events brought about by the economic crisis,
this pressure has resulted in an unprecedented level of international cooperation. If the slowly improving performance of
the US stock market is anything to go by, these efforts are beginning to have an effect and the worst of the recession may
soon be over.2A variety of predictions are circulating the media about how the situation is affecting pharma and biotech companies. Some
observers believe the current conditions have had a negative effect on companies,3 while others believe the opposite.4 It is impossible to predict the course of action for every company, but even considering the inevitability of generalizations,
the background attitudes of companies are very relevant to anticipating company strategies in the future. In extreme conditions,
few companies would dare to completely change their strategic approach to business; most are likely to hold firmer to their
core strategies and move away from less mainstream projects.
The industry has always been characterized by large, pipeline-rich, companies with a conservative approach to drug development,
and smaller, risk-taking players with limited portfolios. For most small companies, the problem is how to survive until the
economy recovers; the Biotechnology Industry Organization has estimated that 180 listed biotech companies in the US have less
than a year of cash at their current spending rates.5 As the US biotech sector is considered the world leader, this scenario does not bode well for similar companies in other
countries.
For ambitious companies, on the other hand, the current conditions may offer opportunities to prosper. In particular, many
large pharmaceutical companies are expected to be on the look out for potential takeover targets that can be acquired cheaply.
Companies should stick to core strategy
The author says...
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Historically, the pharmaceutical industry has tended to be cautious in how it operates, but this has led to accusations that
it lacks the desire to remain innovative. Most large companies are extremely careful when investing in new technologies and
approaches, preferring to evaluate the outcome of select projects before venturing further in an innovative direction. For
example, despite the achievements of the Human Genome Project a decade ago, the large-scale impact of genomics on new drug
output has yet to be realized. Although there is a need for new thinking in the industry to boost drug development and output,
it is unlikely that many companies will alter their strategies in the current economic climate.
The situation has also created doubts for pharmaceutical managers about where to best invest resources. Although the prices
for new R&D technologies have dropped and many pharma companies are relatively cash-rich, there are never guarantees about
which technology will add value to ongoing R&D projects or how they can be best incorporated. Also, it is not yet known when
the global economy will recover or what impact recent events will have on healthcare policy and consumer attitudes in different
countries. It makes financial sense for ambitious large companies to hold out for a bit longer until the economic situation
has stabilized before embarking on any revolutionary approaches to drug development.
