Conway: Industry pundits have long argued that the number of companies populating the biotechnology sector is unsustainable. The sector has too many companies with too little cash that are too light on management, and with too few products to remain viable independent entities. A sector shakeout, they proclaimed, was all but inevitable. Yet, to this point, consolidation and rationalization has never emerged as a dominant theme directing the industry's future.
That seems poised to change. Given the magnitude of the current global economic woes, the day of reckoning may be drawing near. We believe this will ultimately be a good thing for the industry, as resources will gravitate toward those companies with the best chances for success, accelerating their achievements.
Accordingly, we believe that 2009 will be dominated by M&A activity not necessarily out of want but out of need—if not sheer desperation. This process will lead to the rationalization needed to bolster industry efficiency and productivity.
Masterson: The use of generics will accelerate, and pharmaceutical companies will have to respond by increasing efficiencies in their workforce and production. Pharmaceutical companies that can bring technological innovation into the R&D process will realize competitive advantage. Big pharma will seek out ways to increase revenues by merging with smaller life science companies.
The area of childhood obesity and diabetes should see innovation and new products this year, because the patient population is growing rapidly.
Research will focus on how genetics can affect pharmaceuticals and enable personalized medicine. Regulations regarding genetics at a state and federal level will continue to develop. Financial distress can be an ideal climate for innovation, as organizations learn to do more with less.
Mehta: Two bright spots offer opportunities: Science over the longer term and valuations in the near term.
Science: As poor as the new product flow has been, the pot continues to churn in what must be appreciated as the journey of the century—where patience is a virtue and periodic product successes will create large values. Yes, investors must produce better returns sooner, and the bright spots may not yield superior share price performance quickly. But the new science should produce improving flow of innovative therapeutics that will become palpable over the next three to ten years.
Nearer term, is the usual bottom-fishing opportunity as investors once again have thrown the baby out with the bath water. There are some promising diamonds in the rough to be found in this valuation free fall.
Raynovich: Negative articles and hand- wringing abound regarding the biotech market, citing clinical trial failures, political concerns, a dearth of funding, and a breakdown of the business model. But, these critics miss the point that the universe of companies and universities in the biomedical sector are trading and investing in R&D programs that result in drugs, diagnostics, and services. Yes, R&D may be becoming less efficient with fewer drug approvals (only 18 in 2008) and cost may be increasing, but the market will always be there because of growing demand from consumers and the core engine—NIH and university research.
Healthcare spending grew at 6% in 2007 for a total of $2.2 trillion, and that is the available market for innovation with improved products and services. And, what always remains as the key driver is the food-chain effect, where licensing and acquisitions make the market.
Sullivan: Even in today’s tough economy, technologies for high-density genetic analysis remain in strong demand. Next-generation DNA sequencing technologies are still seen as offering useful incremental information to disease-state researchers. Technologies for cellular analysis are, likewise, of increasing interest to biomedical researchers.