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Julian Upton is Pharmaceutical Executive's Online and European Editor. He can be reached at email@example.com
BDO Managing Director Patti Seymour discusses the key findings from BDO’s recent life sciences CFO study-and how change and volatility from COVID-19 will reshape fundamental approaches to business sustainability.
In January this year, BDO’s Life Sciences practice released a study of 100 mid-market chief financial officers (CFOs) in the US. Sustaining Life Sciences reported that life sciences CFOs are turning increasingly to outcomes-based arrangements amid growing public pressure to curb product prices and declining return on investment (ROI) from R&D. The BDO report revealed that, amid growing pricing pressures, 43% of CFOs expected a recession by 2021 or sooner, and in response, are pursuing more outcomes-based contracts with
providers (53%) and payers (33%). CFOs also advocated a more focused-“and cutthroat”-approach to R&D, with 78% saying their organization is planning to increase R&D spending in 2020, but from a “more refined” perspective. Nearly half (46%) of respondents, for example, had pulled the plug on a research project in the past 12 months because of ROI concerns. The study went on to show that CFOs are looking to focus investment on preventative, more personalized treatments, with diagnostics, consumables, and immunotherapies ranking as the top three areas of research.
The study was based on a survey conducted in the fall of 2019, so there has been an inevitable shift of focus among industry CFOs in the intervening months. Looking at the study in the light of COVID-19, Pharm Exec spoke to BDO Managing Director Patti Seymour, MBA, CSCP, who offers further commentary on the relevant points in the face of recent events.
PE: What, initially, did you see as the key messages from the Sustaining Life Sciences report from the CFO perspective?
Seymour: There’s been a tremendous amount of pressure across the industry to curb drug prices and product prices overall. This isn’t new, of course; it’s something that the industry has been facing for many years. Many commentators have cited the statistic that 30% of Americans who take a prescription medicine have seen their out-of-pocket expenses increase significantly over the last 12 months. For a lot of life science organizations, part of the challenge is that drug pricing regulations negatively impact their business. While they understand there is an issue, they are concerned about the capping or controlling of prices.
As a result, many of the industry leaders are turning toward outcome-based arrangements as a potentially more
sustainable way to move forward. Life sciences companies are looking to advance with these outcomes-based arrangements directly with the provider or with a payer.
If we look at healthcare providers treating diabetic patients, for example, that would involve making sure that patients take their insulin, modify their diets, get their exercise, etc. In other areas, life sciences companies are really focusing their investments on preventative and early-detection measures to help with disease management.
We’re certainly seeing significant growth in diagnostics. Consumables and wearables are another growing area. And then there are other types of leading-edge innovative modalities-cell and gene therapy-that the industry is focusing on.
However, as we know, between the fall of 2019 and today, some unexpected things have risen to the top of these leaders’ concerns. Not least is supply chain disruption. COVID-19 started in China, which is the second-largest exporter of drugs and biologics to the US. We will certainly begin to feel the implications of those supply chain disruptions in the coming weeks and months.
Those operational challenges are really going to impact lean manufacturing. In theory, lean supply chains are very successful for manufacturers, but this set of circumstances will be very disruptive to that.
PE: How can the life sciences CFO work to promote sustainable industry models?
Seymour: One of the big areas we see are risk-mitigation, disaster-recovery approaches, especially regarding the supply chain. These approaches are fundamentally important in the face of natural disasters, equipment failure, pandemics of course, and other crises. What are the company’s plans to continue supplying, or obtain material from another supplier? CFOs play an enormous role in this sense, and this function typically falls under a CFO’s responsibility. They need to be very aware and proactive about their disaster-recovery programs and ensure they are reviewed periodically in the light of all the different things that could happen to their supply chain.
PE: The survey talks about CFO’s developing a more “cutthroat approach” to R&D? What is that?
Seymour: The fast-to-failure approach has been pretty common for the last couple of years. By that I mean companies develop a modality and get it into the clinic as quickly as possible to see if the modality and the indication will lead to competitive outcomes in the marketplace. Fast-to-failure approaches allow organizations
to begin and end research programs quickly, so they only keep the most promising products in their portfolio and can redeploy scarce resources to promising drugs in their pipeline.
One example of this is a company called Biofourmis, a startup that is using biosensors to gather information from patients while their artificial intelligence analytics identifies changes in their health. This process allows the providers and payers to have real outcomes-based data. Drugs and therapeutic modalities are being used in concert with devices and wearables to achieve these outcomes-based ends and allow companies to invest only in those medicines and therapeutics that are actually going to benefit the patient.
PE: We’re in an election year-what are CFOs going to be looking at as people go to the polls?
Seymour: As mentioned, outcomes-based frameworks and cell and gene therapy are important. The latter is an exploding area. While they still make up a small percentage of all the therapies being developed, they truly offer transformative possibilities. But they are enormously expensive, so, for our clients, we are following the conversations around how to reimburse them very closely. So, CFOs will obviously be homing in on that in the run-up to the election.
PE: The survey revealed that about 43% of CFOs expected a recession. Today, they might be certain of it. But there was some optimism. How are CFOs planning to weather the oncoming recession?
Seymour: Well, as you point out, this survey was completed prior to what’s going on right now. But I think what’s going on will force CFOs to be even more laser-focused on the most promising modalities, and to really look at the most innovative technologies and the ones with the best outcomes. CFOs are also looking to other enabling technologies, such as continuous manufacturing. We hope to see more adoption of that, although it is
challenging. A lack of equipment and some regulatory issues have hampered efforts in continuous manufacturing.
But the industry and the regulators have been working quite collaboratively to oversee and approve these types of processes, which present something of a paradigm shift in getting products manufactured quickly and cost effectively.
Perhaps the COVID-19 situation will further stimulate the adoption of continuous manufacturing because of the need to work quickly to produce diagnostics or therapeutics.
Julian Upton is Pharm Exec’s European and Online Editor. He can be reached at firstname.lastname@example.org