Immunology focus renewed
Financially, the COVID-19 pandemic has affected some life sciences companies more negatively than others. Non-COVID-19-related treatments, non-emergent surgeries and diagnostic tests declined as patients and providers deferred certain types of care during the pandemic. This affected the revenues of medtechs and some biopharmas. At the same time, companies developing vaccines, drugs, devices and diagnostics to detect or prevent the virus, treat symptoms, or identify and monitor its spread saw revenue gains. And the inability of patients to visit providers in person also significantly boosted the use of digital technologies, such as telehealth.
Two-thirds (66%) of life sciences companies said that they plan to evaluate their portfolio because their strategic priorities have changed or an asset no longer fits its core business. Interestingly, oncology (32%), where developing new treatments can be expensive and scaling is important for success, is the most frequently named area where companies are likely to divest. This could also be prompted by the number of potential buyers looking to focus in the area.
Beyond oncology, gastrointestinal (30%) and dermatology (28%) are the most frequently mentioned divestment areas. For example, in recent years, Novartis divested its US dermatology business in order to help it focus on generics, value-added medicines and biosimilars; and achieve profitable growth.
So where are companies focusing? For some pharma companies, anti-infectives may be of greater interest, especially with the success of mRNA technology in developing the COVID-19 vaccine. While there is an urgent need for new anti-infectives, incentives for developing them have been lower; not only can pricing be a challenge, but guidelines designed to avoid microbial resistance restrict their broader use, resulting in lower market potential.
Immunology continues to be another top priority, as scientific advances create new opportunities to build on the success of existing antibody therapies and there are opportunities to reach blockbuster sales by winning approval in multiple indications. Companies lacking size or ability to focus in the immunology space should act while interest is high and the opportunity is there to maximize divestment value. This is a crucial aspect for companies in life sciences, as 82% say that value was more important than speed in their most recent divestment.
Pharma has opportunity to reinvest in digital
Digital growth potential bolsters the future outlook for each of the key life sciences subsectors. For pharma, digital tools are an important innovation to customize the patient experience and represent new treatment modalities that are faster to bring to market than traditional drugs, protracted research and development model — estimated by Roche to take 12 years and 7 million work hours. With its focus on software-based services and data not product manufacturing, digital health can also be more of an asset-light endeavor. But that doesn’t mean companies will see significant declines in their R&D spending; whether pharma companies buy, build or partner to access digital, significant investment will be required.
Behavior change apps, such as those approved by the FDA for smoking cessation and depression, are a key digital opportunity for pharma companies. Since this trend is still in its earliest stages, there is potential to achieve first-mover advantages to create platforms of care.
Divestments, particularly of cash-generative but slower growing businesses, are important in enabling this shift to digital. All companies in the study agree that technology-driven sector convergence and digitalization have a material effect on their divesting activity. Around two-thirds (61%, up from 49% in 2020) are divesting businesses that are not core to building a competitive advantage in an increasingly digitalized, patient-centric world. At the same time, data is also part of pharma’s digital growth story.