Masterson: For companies to survive the current recession they should take a tip from Charles Darwin who wrote in The Origin of Species: “It is not the strongest species that survive or the most intelligent, but the ones who are most responsive to change.” Adverse macroeconomic conditions reduce the survival chances of businesses in the same way that bad weather limits biodiversity. Darwin, who cleared a patch of soil to observe its colonization by native plants, wrote: “Periodic seasons of extreme cold or drought seem to be the most effective of all checks on the number of species.”
Biotech companies will be caught up in similar circumstances because many are in a weakened state to begin with. The weakest will succumb first. Many companies that have weak balance sheets, poor patent positions, and few products will be forced to close their doors and sell their assets at fire-sale prices. Government grant money may help some companies maintain their science-based endeavors at a crawl, and a reduced head-count will certainly be seen in many companies.
A conscious strategy will win the day as companies learn to adapt and provide innovations that give them dominance within their environment. In Darwin’s book, he writes of the relative profitability of adaptations while describing habitats as economies.
Darwin’s great insight was that species retain randomly occurring new features that improve their survival—hence, evolution.
The biotech community was birthed in the late 70s on the back of several very important breakthroughs in biological tools. Thirty years later, the tools needed to provide new evolutionary breakthroughs were most likely sitting in the minds of computer scientists who understand genetics. We need a quantum leap now to create products and services that don’t exist.
Traditional sales and marketing approaches will need to be modified to focus on the healthcare consumer. Personalized medicine is now embraced as significant by pharma, but it does not support the blockbuster model of the last 25 years. If the industry fails to change, it will become history and will be absorbed into the larger companies that have the staying power to withstand the worst markets in several decades. Innovation will be necessary to attract capital, partnerships, and create products.
Novartis (NVS) and Roche (ROG) exemplify the resilience of the European pharmaceutical sector in turbulent times. Pricing, product, and patents remain three very relevant issues, which will be watched carefully by analysts. Their appeal comes from their strong product pipelines, cost controls, and cuts that were necessary. Of course, Novartis has the Chiron pipeline and Roche will likely soon have the Genentech (DNA) cancer franchise—evolution again.