Performing in the Downturn and Beyond

In some respects, the current economic climate has brought unexpected respite to the life sciences sector. After five years of trailing behind the Dow Jones Global Large Cap Index, the pharmaceutical index is now tracking it; certain pharmaceutical companies are once again on the M&A trail; rising demand for food and continued spending on core products mean continued growth for the agribusiness sector. Despite these signs of buoyancy, the crisis is also bringing new pressures. For example, pharmaceutical and agribusiness customers are less able to pay, while biotech companies are finding it difficult to obtain the funding for continued investment in R&D. These pressures mean that most life sciences companies are on the lookout for cost reduction opportunities.

However, the need to control cost is not new. The recession is just the latest of a series of influences necessitating better ongoing cost control. Life sciences will be fraught with profitability challenges for the foreseeable future because of deeper changes to the business environment: pharmaceutical companies, in particular, face patent expiries, limited late-stage pipelines, pricing pressures, tightening regulations and changing demand. Not all companies are identically situated in this regard: the agribusiness sector is still growing significantly, whereas the medical devices sector was hit harder and earlier than any other sector by cost pressures. Ultimately, however, all companies will face similar pressures.