Biopharma must diversify to survive global health spending shift

10 October 2019 Consultancy.uk

With digital technology disrupting organisations across the industrial spectrum, biopharmaceutical companies are faced with an uncertain future over the coming decade. Technology firms moving into the space are already driving change in the health sphere, while national spending on healthcare looks set to shift from medicinal treatments towards digitally infused preventative work.

Biopharmaceuticals are medical drugs produced using biotechnology. Proteins such as antibodies, or nucleic acids like DNA and RNA, can be used for therapeutic or in vivo diagnostic purposes, and are produced by means other than direct extraction from a non-engineered biological source. The sector boasts many exciting developments in treatment, including the manufacture of cloned antibody cells, the design of chemically defined cells, and genome-based technologies that can improve the vaccine manufacturing process and create new cancer treatments.

While biopharma developers look set to bring major advances to market in the coming years, however, companies in the sector will likely find it harder to grow their profits in the coming years. According to a new study from PwC’s strategy wing, Strategy&, healthcare spending is rapidly shifting away from treatments to prioritising preventative care. This marks a major strategic cross-roads for biopharma companies, who must now decide the best route forward to maintain their financial results.

How regional healthcare budgets will shift by 2030

According to the estimations of researchers from Strategy&, healthcare budgets in countries around the world are forecast to increase by an aggregate of 10% in the next 10 years. A survey of more than 120 executives at the world’s top biopharmaceutical companies revealed that despite this, spending per patient is expected to fall by as much as 28%, as proportionately more people gain access to healthcare, but healthcare focus shifts to less costly preventive measures.

This trend will be most keenly felt across the EU, where four key economies of France, Germany, Italy and Spain will all see their budgets for medication decrease by 2030. While the UK looks set to buck this trend, in line with the US, both nations will still be putting more money towards projects around digital health than medication. In the UK, this will be the largest area of the country’s healthcare budget, taking up $21 billion in funds, compared to the $16 billion medication is expected to receive.

As a result, Strategy& anticipates that this could pose a significant challenge for biopharma companies, and create a future marked by lower margins unless they change course quickly. Assuming that operating costs per patient remain at current levels, the analysts estimate that the current average net operating margins of 25% could come under serious pressure by 2030, to the extent that in certain scenarios these margins could be totally erased.

Holistic change

Far from being caught in the headlights, however, the biopharma segment looks determined to take a proactive stance on the matter. Of the leaders polled, 75% told Strategy& they perceive the future of healthcare as an opportunity for biopharma if the sector is willing to disrupt itself, and a further 85% claimed they already have some or all of the key elements of the future of healthcare on their corporate agenda. On the other hand, just a quarter said they were taking a holistic approach to this – something the researchers were keen to warn against.

Instead, Strategy& recommended biopharma looks to the world of technology for an example of how to proceed. While sticking with what they know, and looking to simply improve efficiency, while gaining market share, is no doubt attractive to biopharma firms, big tech companies are already driving change in the new world of healthcare. Failing to emulate them by unlocking new value pools within the broader healthcare landscape, such as digitally enabled preventive solutions, would therefore be a substantial risk. Providing a holistic combined approach of both stances could meanwhile prove to be biopharma’s trump-card.

Thomas Solbach, a Partner at Strategy& Germany, said, “Only those who act early and fast enough will be able to turn the changes in healthcare into opportunity. With technology companies pushing into the healthcare market, they bring multiple natural advantages regarding new areas of growth. Traditional biopharma companies will either have to become much more efficient in order to maintain their margins or they will have to selectively invest in the growth areas of diagnostics, prevention, and digital health solutions.”


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