As the financial pressures on global biotech's business model intensify, largely due to the scarcity of R&D funding for the vast majority of firms, traditional approaches in the pursuit of innovation are being rethought and reshaped in every corner of the industry. In its Beyond Borders: Global Biotechnology 2011 report, Ernst & Young identified two complementary approaches for biotech firms to sustain innovation in this increasingly challenging environment.
Prove it or lose it
With healthcare in the initial stages of what Ernst & Young describes as a "sweeping transformation" into an outcomes-driven ecosystem, pharma and biotech companies of every size are affected by the growing emphasis on demonstrating outcomes. The change is largely being driven by an increasing need to ensure sustainability in healthcare and the "coming of age" of new technologies, from digital health records to social media.
Such advances are increasingly equipping new solutions with the potential to make healthcare more sustainable, while sustainability's growing urgency in turn accelerates the rate of adoption. The Ernst & Young report states: "At its essence, this is about changing behaviours. As the need to make healthcare sustainable becomes more acute, payers will inevitably need to pay for the products, services and solutions that are most effective and stop reimbursing the ones that don't work as well — which will spur fundamental behavioural changes by actors across the healthcare ecosystem."
It is important to note, however, that the prove-it-or-lose-it model does not only apply to regulators and payers. The modern economic climate dictates that every imaginable organisation must do more with less. As a result, it is to be expected that all stakeholders in the healthcare ecosystem will be more careful with resources – and investors will demand more proof that something works before they consider parting with any cash.
It is important to note, however, that the prove-it-or-lose-it model does not only apply to regulators and payers. The modern economic climate dictates that every imaginable organisation must do more with less. As a result, it is to be expected that all stakeholders in the healthcare ecosystem will be more careful with resources – and investors will demand more proof that something works before they consider parting with any cash.
Do more with less
In the aftermath of the global financial crisis, raising capital has become inordinately more difficult. In response to the heightened challenge, many biotech firms have turned to strategic partnerships as an alternative source of funding. Companies looking to embrace such opportunities will need to calibrate their approaches to the needs of their potential partners. The fact that many drugmakers are restructuring their pipelines and moving away from entire disease classes no longer considered strategic is one ongoing shift that will need to be monitored closely.
The Ernst & Young analysis explains: "With a shrinking pool of potential partners, [biotech companies] will need to tell a different 'story' — one that reflects the changing needs of their partners and the growing pressures on the regulatory and reimbursement front. This extends to an understanding of where a particular technology fits into the potential partner's strategy and how it may measure up against the partner's programmes — whether sourced internally or externally."
The Ernst & Young analysis explains: "With a shrinking pool of potential partners, [biotech companies] will need to tell a different 'story' — one that reflects the changing needs of their partners and the growing pressures on the regulatory and reimbursement front. This extends to an understanding of where a particular technology fits into the potential partner's strategy and how it may measure up against the partner's programmes — whether sourced internally or externally."
As well as broadening and differentiating their approach, it is more important than ever that biotech firms are able to extract as much value as possible from their existing assets. Since intellectual property is arguably the most valuable asset that most emerging organisations will have at their disposal, this is where most optimisation of capital has been focused so far.
This could be achieved by retaining some commercialisation rights, while giving others away through strategic alliances. Alternatively, companies could reconsider their actual market offering. In the majority of firms, the bulk of value is captured and monetised through products. Through expansion of its portfolio into new areas, a biotech company may therefore be able to capture more value in this way. When considering the two approaches discussed above, one final point for biotech firms to note is that each one complements the another - to the extent that they are almost one and the same.
This could be achieved by retaining some commercialisation rights, while giving others away through strategic alliances. Alternatively, companies could reconsider their actual market offering. In the majority of firms, the bulk of value is captured and monetised through products. Through expansion of its portfolio into new areas, a biotech company may therefore be able to capture more value in this way. When considering the two approaches discussed above, one final point for biotech firms to note is that each one complements the another - to the extent that they are almost one and the same.
The Ernst & Young report concludes: "In an environment where value will increasingly accrue to differentiated products that can prove their worth, the most prudent use of scarce resources will be to invest in the approaches and market offerings that are best aligned with that trend. Over time, this is no longer an either/or. 'Proving it' is [essentially the same thing as] doing more with less. You mitigate one problem by focusing on the other."
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