Life science companies continue to face a number of challenges in today’s business climate. M&A activity, economic trends, and regulatory burdens, coupled with reputational concerns, impact the industry from top to bottom. The Sunshine Act’s implicit suggestion that industry-physician relationships are inherently conflicts of interest, and Open Payment’s added administrative hurdles, further complicate matters for the life science industry. Recent reports and stories provide more context and evidence on this topic.
Life Science Industry Concerns
Life science industry concerns span a wide number of areas, including M&A activity, economic trends, litigation, and reimbursement issues, according to the BDO Life Sciences RiskFactor Report.
Among the interesting information from the chart is in looking at perceived risk factors that have grown dramatically over the past few years. For example, 78% of companies reported Labor Concerns, such as post-retirement costs and managing a geographically dispersed workforce. Only 24% indicated this concern in 2013. Further, natural disasters, war, conflicts and terrorist attacks jumped from 47% to 76% in the same time frame.
Towards the top of the list, “Reimbursement from third party payers” is now listed by 96% of companies as a central worry, compared to 85% just last year.
The report notes a chief concern—the ability to commercialize and market products—and as generic drugs increase in popularity, companies with more expensive drugs may be impacted. All 100 companies in the study mention competition and pricing pressure as threats, and 62 percent cite risks related to patent cliffs and generics, up from 46 percent in 2014. Additionally, M&A transactions targeting biotech and pharmaceutical companies in 2015 have reached $59.3 billion, a 94 percent increase over the same period a year ago.
View the report and table of industry-reported risk factors here.
“Life sciences companies, particularly biotechs, are experiencing a profusion of investor attention due to their ability to drive innovation,” said Ryan Starkes, partner and Life Sciences practice leader at BDO USA, LLP. “Although the overall outlook remains positive, the challenge remains to demonstrate sustained value in a highly regulated and competitive environment, making it necessary for companies to continuously expand their product offerings through strategic acquisitions, despite high takeover prices.”
Additionally, regulatory burdens, always a major industry concern, are further complicated by recent government agency reorganizations and potentially increased scrutiny. This is especially true for domestic companies with an international footprint.
Reputations
As we have previously reported, pharmaceutical companies face reputational challenges, too. It was not that long ago that the pharmaceutical industry was considered among the most respected industries and Merck the most admired corporation in the United States (See Nature Biotechnology). This is in sharp contrast to consumer attitudes today, when the industry’s reputation is not much better than that of the financial sector or tobacco companies. The Sunshine Act has not helped, creating the illusion, ostensibly from the goals of transparency, of conflicts where none may exist.
However, according to a study, some companies do fare better than others with the American public. The Reputation Institute looked at consumer ratings to gauge the public’s perception of pharmaceutical companies, and ranked each company on a 100-point scale. One of the biggest drivers of reputation was how the company portrayed itself to the public, rather than the products and services it provided, Brad Hecht, the Reputation Institute’s vice president and chief research officer, told FiercePharma. That means some good PR–along with a strong dose of transparency–could actually gain more brownie points with the public, he added.
“It’s not only important to have good pharma products. It’s important for the company to be open, transparent and authentic in how they represent themselves,” Hecht said. “They have to be perceived as having a positive impact on society, more than just making money.”
Shire topped the ranking, with Sanofi and Bayer in second and third place, respectively. “Pharma companies have an ability to make an impact on society as a whole. Every opportunity they can take to focus on the benefit to society and be transparent and open in the process, will do nothing but increase their reputation,” Hecht said.
Reputational Concerns Impact Public Health
Life science industry concerns over their reputations are not just problems for the boardroom. Last year, we noted these negative views of pharmaceuticals puts pressure on the government to not appear supportive of the industry. This could have a direct impact on government-backed R&D and leads to potentially unfounded concerns over drug safety. Ultimately, the public for the most part remains unaware about pharmaceutical companies’ extensive role in funding important research. Industry must consciously articulate their work in getting treatments and cures to patients to reverse the tide of negative public perception.