Traditional approaches to growth in biopharma are no longer sustainable

by Stephen Riddle

Over the past 15 years, more than 60% of asset growth among the top 30 biopharma companies came from acquisitions. Such inorganic growth is no longer viable, argues Pervaise Khan, Accenture’s UK Life Sciences Lead.

The pace of innovation in biopharma has rocketed over the last two years, with vaccines, new antivirals, and therapies delivered at an unprecedented pace. This has been a tough but ground-breaking period, but with this rapid rise in innovation comes risks. The industry is still relying on traditional vertical therapy areas (TAs) to drive expansion – these are no longer sustainable.

Through our recent report, Scientific innovations for more sustainable growth, we analysed over 300 M&A deals made by the world’s top 30 biopharma companies between 2010–2021. This revealed three core issues holding biopharma back – which the industry will need to overcome in order to pursue new growth paths:

  1. Biotechs face rising M&A costs: Transaction premiums reached record highs in 2021, which remain high despite a recent market drop. And, for M&A deals valued at more than $500M, the average takeout premium in biopharma has grown from 51% in 2018, to roughly 71% in 2021.1 Despite the increasing amount of venture capital flowing to biotech companies, total investments in such businesses nearly doubling between 2019 and 2021. The challenge since then, however, is that their post IPO-performance has been worse. In Q1 2022, public markets slowed with biotech performance, dropping almost 20%, whilst the capital raised decreased by approximately 85%.2
  1. Biotech companies are seeing profitability pressures: Biopharma’s ability to pay for these acquisitions is at risk due to expected margin declines in almost every TA. This decline is expected to be over 6%, on average.3
  1. And, biotech companies are increasingly going to market alone: Smaller biotech companies are more able than ever before to bring their products to market themselves. For instance, these players were responsible for approximately 55% of all drugs brought to market between 2017 and 2021— nearly double that for the preceding five-year period (at 30%).4 This continued flow of venture capital to biotechs is further fuelling escalated deal premiums.

Taking together these three factors, it is clear to see that we need to approach growth differently.

We’re now seeing spending more focused on the early-stage assets, often with a biotechnology platform. This helps companies to expand their own pipelines. The other area of focus we would expect to see grow is around ecosystem capabilities, which provides faster ways to innovate and to reach customers in new ways – for example, through analytics, AI, and machine learning. It means that complex biological and unsolved drug-targeting issues are becoming computational in nature, so investing in these biotech platforms and capabilities will be fundamental to increasing the pace of innovation. This is no small task, but the responses from the companies we spoke to shows there are some actions that can help:

  1. Combining biotechnology platforms and capabilities: different bio-platforms can and should help each other evolve in new directions in order to create value, together. For example, during the COVID-19 pandemic, the combination of mRNA and lipid nanoparticle delivery bio-platforms made it possible for mRNA vaccines to be developed in record time, providing a game-changing means to limit the spread of the virus. Collaboration across the industry is needed now more than ever before across this complex ecosystem – not least because it’s becoming a competitive landscape. Once ecosystem pathways provide access to computational power, data, and advanced analytics, bio-platforms can be powered to develop treatments faster.
  1. Adjusting operating models: Leaders will need to rethink across the board – from organisational structures to workplace cultures. As bio-platforms and capabilities go across TAs, biopharma leaders will need to adjust their operating model, including their organization and culture, to realize the full value of their bio-platforms.
  1. Creating a science and tech incubator that reports to C-suites: Building a “cross-platform” strategy will lead to a proliferation of assets across TAs. It is not efficient to keep building new (TA) verticals here, and therefore biopharma will inevitably need to externally source on-demand experts, skill sets, capabilities, and relationships. Managing this will require dedicated teams of R&D experts – who provide the bridge between scientific and business skillsets – and have direct access to C-suite leaders. This team will need to be equipped to develop novel science and technologies, while also evaluating and managing collaborations that provide access to these assets.

M&A across the life sciences industry is transforming at a rapid pace – and technology, data and biotechnology platforms are at the heart of this. But, if we take the opportunity to adapt now, we can ensure that the next decade will have a lasting impact on the industry and re-enable sustainable growth. And of course, all of this will feed into future treatments and positive patient outcomes – the sole purpose of pharma.

About the Author

PK

PKPervaise leads Accenture’s UK life sciences strategy and consulting practice, advising pharmaceutical companies on technology strategies to drive change. He has worked on various pharmaceutical projects including technology strategy for vaccines and new growth models. He is a member of the Great Britain Royal Pharmaceutical Society and is a board member of the UKI Industrial Pharmacy Group. Prior to Accenture, Pervaise worked for GlaxoSmithKline as well as St Mary’s Hospital in London.

References

[1] Accenture Research, leveraging evaluate pharma data. March 2022.
[2] Accenture Research, leveraging evaluate pharma data. April 2022.
[3] Accenture Research, New Science: A new economic reality for innovation and growth. May 2021.
[4] Accenture Research, leveraging evaluate pharma data. March 2022.

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