PharmExec Blog

Prove It! Top Line Thoughts on Trends That Will Shape the Industry in 2014

funtleyderTop Line Thoughts on 2014:  Prove It!
Ten days in and the New Year already seems old.  Yet members of our Pharm Exec Editorial Advisory Board are still eager to share their top of line predictions on trends that will shape the industry’s business and reputational assets – forward and backward – over the busy months ahead.   Here, one of our best external-facing experts weighs in:
According to Board member and investment analyst Les Funtleyder, three themes dominate.
The first is a big strategic question:  do you divest businesses and narrow the focus on R&D or stay the course on asset diversification, maintaining that big in-house development pipeline?  Clear lines of demarcation are emerging; this year will provide some proof points as to which strategy proves right.   Will BMS and Pfizer outperform Merck and Lilly by doubling down on core assets and divesting areas that pose too much front-end R&D risk?
The second is the prospect for more upside potential in biotech, where rising valuations over the past 18 months – and a 7 per cent surge already this year – have strengthened the segment’s hand in its traditionally dependent relationship with big Pharma.  Is the run-up akin to a bubble and, if so, is it prone to bursting?  That prospect is unlikely, given that much of the valuation gain is concentrated in mid-size “stealth pharma” leaders like Celgene and Gilead, whose market caps have soared, while smaller start-ups still face barriers to raising capital, including an indifferent climate for biotech IPOs.
What really matters is the politics of this valuation gap, as it adds to pressure on big Pharma CEOs to explain why their own performance isn’t meeting the mark set by biotech’s stars.   “How CEOs respond will be an interesting story in 2014,” says Funtleyder.  “I see three choices – to buy their way to higher valuations through targeted biotech acquisitions; placing more bets on process innovations, adding services beyond the pill; or playing the emerging markets card with more investments in the BRICS and high growth second-tier Asian countries.”
Funtleyder’s third theme is the scrutiny that comes from the impact of technology and social media – specifically, how the glare of transparency no longer allows companies to hide flaws that in earlier times could be safely papered over or ignored. “The proliferation of data, its accuracy, and the ability to access and interpret it at every level of the organization has altered basic norms of behavior in the marketplace,” says Funtleyder.
While transparency carries with it significant efficiency gains by improving the capacity of customers to choose wisely, there is a big downside:  less context, and an undue assumption of certainty which puts more onus on companies to explain and communicate both the benefits and the limits of this data.  Expect more actions like the FDA decision to restrict advocacy organizations like 23andMe from providing patients with details of their individual genetic profiles, on grounds that such data may be misinterpreted, with possibly damaging implications for individual health.  “It raises the issue of what you can or should do with this data – the pace of technology is beginning to exceed the capacity of governments to regulate it,” Funtleyder observes.
His one piece of cautionary advice for 2014 is to start preparing now for a surge in conflict-of-interest challenges, because every functional activity is going to get the once over from motivated, self-interested outside parties determined to tap big data’s expanding ability to identify, assess, test, uncover and anticipate.  “Prove It” is the mantra for pharma in 2014.

Ten days in and the New Year already seems old.  Yet members of our Pharm Exec Editorial Advisory Board are still eager to share their top of line predictions on trends that will shape the industry’s business and reputational assets – forward and backward – over the busy months ahead.   Here, one of our best external-facing experts weighs in.

According to Board member and investment analyst Les Funtleyder, three themes dominate.

The first is a big strategic question:  do you divest businesses and narrow the focus on R&D or stay the course on asset diversification, maintaining that big in-house development pipeline?  Clear lines of demarcation are emerging; this year will provide some proof points as to which strategy proves right.   Will BMS and Pfizer outperform Merck and Lilly by doubling down on core assets and divesting areas that pose too much front-end R&D risk?

The second is the prospect for more upside potential in biotech, where rising valuations over the past 18 months – and a 7 per cent surge already this year – have strengthened the segment’s hand in its traditionally dependent relationship with Big Pharma.  Is the run-up akin to a bubble and, if so, is it prone to bursting?  That prospect is unlikely, given that much of the valuation gain is concentrated in mid-size “stealth pharma” leaders like Celgene and Gilead, whose market caps have soared, while smaller start-ups still face barriers to raising capital, including an indifferent climate for biotech IPOs.

What really matters is the politics of this valuation gap, as it adds to pressure on Big Pharma CEOs to explain why their own performance isn’t meeting the mark set by biotech’s stars.   “How CEOs respond will be an interesting story in 2014,” says Funtleyder.  “I see three choices – to buy their way to higher valuations through targeted biotech acquisitions; placing more bets on process innovations, adding services beyond the pill; or playing the emerging markets card with more investments in the BRICS and high growth second-tier Asian countries.”

Funtleyder’s third theme is the scrutiny that comes from the impact of technology and social media – specifically, how the glare of transparency no longer allows companies to hide flaws that in earlier times could be safely papered over or ignored. “The proliferation of data, its accuracy, and the ability to access and interpret it at every level of the organization has altered basic norms of behavior in the marketplace,” says Funtleyder.

While transparency carries with it significant efficiency gains by improving the capacity of customers to choose wisely, there is a big downside:  less context, and an undue assumption of certainty which puts more onus on companies to explain and communicate both the benefits and the limits of this data.  Expect more actions like the FDA decision to restrict advocacy organizations like 23andMe from providing patients with details of their individual genetic profiles, on grounds that such data may be misinterpreted, with possibly damaging implications for individual health.  “It raises the issue of what you can or should do with this data – the pace of technology is beginning to exceed the capacity of governments to regulate it,” Funtleyder observes.

His one piece of cautionary advice for 2014 is to start preparing now for a surge in conflict-of-interest challenges, because every functional activity is going to get the once over from motivated, self-interested outside parties determined to tap big data’s expanding ability to identify, assess, test, uncover and anticipate.  “Prove It” is the mantra for pharma in 2014.

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