Accelerating Industry Consolidation Leaves Dwindling Choices for Patients & SME Firms

Merger & acquisition activity continues to be rife in life sciences, which is harming competition and reducing choice, both for patients and for more modest-sized pharma and biotech firms seeking help with growing pharmacovigilance and regulatory filing requirements. Alan White assesses the impact.

Alan White

Merger and acquisition activity in the global life sciences industry is increasing at an exponential rate. Major pharmaceutical brands^[1]are swallowing up smaller specialists and start-ups to fill gaps in their portfolio, or to accelerate access to adjacent markets/broader geographical territories. Elsewhere in the ecosystem, the contractor/service provider sector is experiencing its own consolidation, as the major consultancies and contract research organizations (CROs) look to expand their core activities by acquiring specialist regulatory and pharmacovigilance capabilities.^[2] The top 10 CROs, who together account for 60 per cent of the development outsourcing market,^[3] are continuously diversifying to cover more of manufacturers’ needs.

But what impact is this having on the market, as the choice of suppliers diminishes? 

From a patient perspective, having fewer drugs companies of swelling size could affect the supply, and price, of the medicines which their lives, or their quality of life, depend on. A large brand may review its newly enlarged portfolio of medicinal products following an acquisition spree and decide that some are too niche and no longer worth investing in, or that prices need to be hiked to compensate for lower volumes of sales. In 2015, there was international outrage when a drugs company (Turing Pharmaceuticals) multiplied the price of a 62-year-old medication used by Aids patients by a staggering 5,000 percentage points after acquiring the rights to it.^[4] There are concerns too that market consolidation will threaten innovation in drug discovery, if big players priorities profits/shareholder dividends over societal ambition.^[5]

Service provision consolidation

Down the supply chain, the implications of market consolidation are being felt too. The large contract service providers have identified new opportunities to expand into specialist regulatory reporting and pharmacovigilance (PV) services, as demand for support in both of these areas has increased substantially. At the same time, smaller focused regulatory affairs service experts have spotted an opening to diversify into PV solutions, and vice versa, speeding up the process by merging with complementary service providers. Other drivers of acquisitions include rapid absorption of new process, technology and data analytics capabilities, so that service providers can keep futureproofing their propositions and offering additional value to their clients.

And it is clear that clients’ needs are soaring. Market statistics point to continuing growth in R&D spending and outsourcing services in life sciences, indicating that the pharmaceutical and biotech industry currently needs more support than ever. Triggers include intensifying administrative and regulatory demands, and their own acquire-then-restructure plans which are creating new process, systems and data management complexity internally.

Reduced choice raises customer risk

For life sciences firms looking to spread their risk as their support needs grow, the dwindling choice of service providers brings with it some practical concerns. Do their procurement teams really want to place all of their eggs in one basket, for instance? And do size, scale and range of services automatically equate to quality, expertise and experience across all of the different disciplines? 

A large CRO may well have bought in complementary post-marketing regulatory and PV surveillance and reporting offerings, as part of its goal to become a multi-service, multi-country partner to its clients, but life sciences firms will need to vet their credentials to check their delivery capability is sufficient for their requirements. That’s because regulatory and PV services are not a core competency for a large multi-service CRO, and compared to a dedicated post-marketing surveillance and reporting service provider, may well have limited teams of people qualified in the ins and outs of European requirements, for instance.  

Other substantial service providers (those providing services except clinical research), meanwhile, which have also grown through multiple acquisitions present potential concerns too. It is worth considering to what extent, and how successfully, have they integrated their various systems, for instance.  Who is the point of contact now? If the acquired companies retain their original structure, who is in charge now? Have cultural synergies been achieved, or was this merely lip-service?  

So while a large service provider, of the right scale to match a client’s needs, might appear to be a promising option as firms’ needs for support become more sophisticated, all might not be as it seems beneath the surface. It is worth considering service providers’ strategic direction too. If their acquisition plan is geared chiefly to challenging/competing with research organizations then, once again, client firms would be justified in questioning where the long-term focus of their time and investment will be - as with CROs.

On/offshore delivery models are changing too. The economics of provisioning back-end services such as case - processing and medical writing are being steadily eroded, so the big multi-service agencies will increasingly have to look elsewhere for their process efficiencies.

Strategic application of technology will be important here. Yet, up to now, the major contract service providers have not typically used the most modern and dynamic approaches and tools for information management. They may talk theoretically about the potential for automation, but a ‘vision’ for artificial intelligence and other advanced technologies doesn’t necessarily equate to useful applications and visible benefits to the client in the here and now. And all too often the human involvement required for quality control undermines the promised ROI of advanced AI solutions.

Another important consideration is the need for compatible cultures - the ‘fit’ of people - when life sciences firms are choosing service partners. In a volatile market, there is justified concern that over the course of a multi-year contract, either party – the service provider and/or the client – could undergo transformation following a merger or company restructuring.

Looking beneath face value

These are all factors that firms must take into account when embarking on new contracts or service relationships: not just each party’s financial stability and business model; but also whether that organization is likely to still exist and operate in its current form in three or five years’ time. If it’s a small, specialist service provider, might it have been absorbed by a large CRO, with an impact on approach, culture, people, service delivery and price?  If the supplier is a CRO, considerations might include whether they continue innovating and investing in the given service area if other lucrative opportunities emerge in the intervening years which become a distraction.

The point is not to underestimate the impact of any shift in scenario, and to look for sufficient assurances about long-term strategy and delivery approach when calling on potential suppliers to defend their bids. This invaluable process, fairly unique to the life sciences industry, provides the only real chance for firms to get a feel for the people they’d be working with, what’s special about the way they work, the tools and techniques they employ, and so on. 

Requesting sight of service roadmaps

Asking prospective suppliers to set out their vision and roadmap for continuous improvement is equally important. An experienced, good-quality, independent service provider will be able to talk through planned service innovation, and willing to challenge the way things are done today to provide better results tomorrow. 

That might be by harnessing cloud-based software tools to simplify processes such as information gathering and client-partner collaboration, continuously adding new value and improving outcomes. Contrary to the hype at events and across the media, technology-enabled process innovation does not have to involve the latest bells and whistles. It could be something as simple as client portals and security-protected file management ‘boxes’/shared online folders - where project-focused parties dispersed across different locations can collectively build records in one place - without risk of duplicating or missing content because an individual didn’t receive or can’t locate a particular email.

Certainly, incremental innovation, in the interests of adding new value for customers, is something all organizations up and down the life sciences supply chain should be aiming for, in the name of progress and increased benefits for customers. 

Without supplier diversity and choice, these are among the qualities that are at risk and customers must look more closely in identifying and inspecting the value in the solutions they are being offered. The consolidation trend across the life sciences industry is showing no signs of being curtailed, so shopping around and making smart choices is incumbent on purchasers seeking to protect their own best interests.
 

Alan White is CEO of Arriello, a specialist global provider of innovative, high-impact market access, regulatory affairs & pharmacovigilance solutions and services for pharma and biotech firms primarily in Europe and North America.

[1]Big Pharma makes strongest start to M&A for a decade, FT.com, January 2018

[2]The Global Life Sciences Industry, 2018 to 2019: Analysis on Mergers & Acquisitions - Contract Service Organizations are Experiencing the Highest Rate of Consolidation, Frost & Sullivan, March 2019

[3]KPMG research, 2016 – as reported in CRO Sector: M&A drivers and market trends (Results Healthcare, March 2019)

[4]US pharmaceutical company defends 5,000% price increase, BBC News, September 2015

[5]Pharmaceutical mergers and megamergers stifle innovation, Stat, July 2019.