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Apr 15, 2009 (Vol. 29, No. 8)

Budgets Shifting in Biopharma Manufacturing

Financial Priorities Are Impacting New Purchases

  • Summary

    Healthcare segments, including biotech, have generally enjoyed a certain degree of insulation from economic troubles—aging populations, long product cycles, and the need to treat diseases, help ensure the segment’s ability to weather downturn economies.

    Despite this, the current economic situation is having an impact. Caution among decision makers to commit to projects and purchases means that some vendors will see lost sales. Some of these companies are attempting to generate business by increasing sales efforts. At the same time, some are reducing prices. This has led to a spiraling effect where buyers begin to expect price declines and will delay making needed purchases (a classic formula for a deflationary economic situation).

    While purchasing agents may welcome the prospect of falling prices, wide-scale price declines will accelerate the economic downturn. Deflation worries led the U.S. Federal Reserve to cut interest rates to near-zero in January to avoid a deeper economic catastrophe. On the other hand, biotechs continue to secure capital. The private markets for biotech funding appear to be relatively healthy, and consistent with previous quarters.

    M&A activities have grown as the market for IPOs has shrunk over the past two years. It is likely that these will continue as larger companies find good science investments at later-stage companies. It’s also likely that earlier-stage companies are going to need compelling science if they are to attract necessary capital. Valuations, as a result, are going to be down. This, of course, is going to impact how budgets are spent at smaller companies even more significantly.

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