How a US Recession Could Affect Biopharma

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As the economic fallout from the COVID-19 pandemic continues, many experts are concerned the U.S. is on the brink of a recession. While every industry is watching for the potential fallout, those in the biopharma sphere may be particularly worried about the repercussions.

The short answer is this: a U.S. recession will inevitably make many companies change course. However, it could affect some biotechs for the better. 

Experts say biotechs will turn to technology to make up for budget shortcuts, which will result in greater efficiencies, faster results and a change in the way biotech scientists work.

However, biotechs feeling the pinch of budget cuts and revenue losses may feel the need to partner with larger pharma companies, or even agree to an acquisition.

Still other areas, such as research and development, are unlikely to see any changes due to a recession, at least not right away. Clinical trials, however, may feel the pinch unless biotechs adopt technologies which will make the process more economical.

BioSpace spoke with a few experts to get a better picture of what could be in store for biopharma if the U.S. enters a full-blown recession.  Overall, it’s not as gloomy as one might think.

Technology To The Rescue

If a recession becomes inevitable, biotechs may feel driven to adopt new technologies to save on costs. The silver lining is that these same technologies can also make processes faster and more efficient. Ultimately, they may change the way most biotechs operate for the better, while also saving on costs.

“By digitizing research and development and enabling these kind of capabilities, you're also able to achieve cost savings, and at the same time, time acceleration, so it's all it's a virtuous circle,” Guy Levy-Yurista, CEO of Synthace, told Biospace. “Before money is wasted, you get more time to market with new products and you get new products more quickly.”  

Tzvia Bader, CEO and co-founder of Trialjectory, also believes more biotechs will be driven to adopt cost-saving technologies. "With a recession looming, technology therefore must play a stronger role when it comes to efficiency and advancing the quality of care for patients without increasing costs as a result of new budget limitations,” she told BioSpace. “I think that we will continue to see technology and innovation advancing in the digital health space.”

While technology can be both a lifesaver and a game-changer in a recession, getting biotechs to introduce new digital processes may be a different story. Human beings in general are often reluctant to change they way they do things. Biotechs are no exception.

However, Bader thinks more can be done to encourage biotechs to introduce cost-saving technologies.

She noted that the COVID-19 pandemic drove some companies to use new tech, but, “It has kind of stopped, and a lot of companies went back to the old way because it was easier and more comfortable than to adapt to technology and to drive innovation, but I don't think we have a choice anymore.”  

Bader hopes to see governments step up to help spur these companies in the right direction.

“I think also that legislation needs to take a role and cover things like genetic testing. They can drive a lot of innovation, by intervening in terms of removing financial burdens and the limitation for best-of-care.”

If the U.S does indeed enter a full-blown recession, look for more biotechs to change the way they operate thanks to money-saving digital technology.

Research and Development Should Stay The Course

At the same time, Levy-Yurista said research and development should remain stable, unless a recession drags on for several years.

"In difficult economic times, R&D usually remains steady,” Levy-Yurista said. "Discoveries take a long time, and companies know their research timelines run much longer than the average market cycle. Yes, the temptation will be there for them to slash costs, but they run the risk of jeopardizing their results later. In good times or bad, the pressure to get to market faster than the competition remains the same.”

Still, proactive measures will need to be made in case the economy remains in a prolonged recession. Bader said she’s concerned of the fallout if biotechs feel pressured to cut funding for R&D.

"You may see some of the small pharmaceutical companies having a hard time raising capital. And that scares me because we need their innovation.”

Maintaining enough funding for R&D comes back to using cost-saving technology in other areas.

“This is why technology and change management is a digital transformation. Everyone's talking about transformation, and change management starts from the ground up. It is a mindset change that should happen before you embark on this digital transformation, “ Levy-Yurista said.

Negative Effect On Clinical Trials, Biopharma As A Whole

For biotechs that are just beginning clinical trials for potential treatments, though, a recession could leave a very negative impact. 

“If [biotechs] don't have the capital to start trials or run trials, then we're in a bigger problem,” Bader warns. “It will be hard to overcome. Even after the recession, we will create such delays in terms of cancer research and innovation. That scares me as well.”

Based on feedback, this is another scenario where technology can save any clinical trials that are just getting started. If biotechs are able to reduce costs elsewhere, they should still have the necessary funds to continue with any trials that are just getting off the ground.

Clinical trials aren’t the only concern, however. If a recession continues for too long, smaller biopharma companies may be tempted to partner with larger pharma companies, or even agree to an acquisition.

“Compounded by a slowdown in IPOs and venture capital funding, biotech companies are facing an uphill battle,” Robert Goebel, VP of Global Life Sciences Strategy at Definitive Healthcare, told BioSpace. "One possible avenue for survival is to seek partnerships or acquisitions by larger companies. We’re already seeing big biopharma companies expressing an interest in this area.”

While this isn’t necessarily a bad thing, the motives of larger pharma companies could impact the directions biotechs intended to go. 

“Big pharmaceuticals have their own trials, their own priorities and different types of challenges that can also slow down our industry, and the amount of innovation and advancement made in things like cancer treatments,” said Bader.  She again stressed the need to encourage biotechs to embrace new technologies in order to achieve their goals in a cost-effective way.

Levy-Yurista concurred on this. “The true power of a scientist should come to the forefront... and this is what we need to be bringing forward. To advance the use of technology, we need to put the human at the center of science and not just the lab”.

If the U.S economy does enter a full-blown recession,  it could indeed have a negative impact on biopharma. However, if small biotechs take proactive measures and learn to embrace cost-saving technology,  a recession could actually create long-term positive changes for biopharma.

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