'Merger mania' could leave strategic CROs vulnerable in 2016, says PwC

By Melissa Fassbender contact

- Last updated on GMT

Image: iStock
Image: iStock

Related tags: Contract research organization, Pharmaceutical industry

Mergers among Big Pharma companies will continue into 2016 leaving strategic CRO partnerships at risk, according to a report from PwC.

Analysts predicted last year’s $160bn Pfizer-Allergan megamerger​ announcement could cause short-term loss of bookings for Pfizer’s three strategic contract research organisations (CROs) – Icon, parexel, and PPD – but outsourcing partners could be impacted further as 2016 gears up to be the year of “merger mania.”

According to the report by PwC’s Health Research Institute (HRI), pharma M&A activity will be the number one trend to pay attention to in the New Year, topping a list of the company’s annual ‘Top health industry issues.

Over the past couple years we’ve seen a tremendous amount of acquisitions​,” James Prutow, Advisory Partner, PwC, told Outsourcing-Pharma.com. Around $400bn in agreements were announced by mid-year 2015, breaking records set in 2014 well before the year ended.

One of the drivers of this trend is the continuing impact of the affordable care act, especially as it relates to providers. Additionally, “companies are looking to fill their pipe lines​,” said Prutow, as many “have had challenges with organic research and development groups delivering to the full capabilities that they might need​.”

For the CRO industry, mergers hold several ramifications, mainly the potential for a negative impact on preferred partnerships that aren’t kept as the two companies become one. However, even as some relationships may be lost, Prutow explains that there will be continued focus on outsourcing.

We’ve continued to see growth in outsourcing to CROs​,” he added; still, some capabilities will remain in-house, as there needs to be a “right type of balance​.”

This balance will be especially important to navitage as CROs begin to develop their capabilities in emerging markets. “That’s something the pharmaceutical companies need to be able to leverage​,” said Prutow.

Drug pricing

PwC’s list also includes drug prices and the ‘medical cost mystery’ – two topics which have already seen fierce debate, and according to Prutow drug companies will have to work to rebuild trust in the marketplace in 2016.

This will be achieved through transparency and “making the case​” for the value proposition to payers and patients, he explained.

Some drugs are cures​; if we can prevent someone needing a liver transplant that has huge ramifications around the cost factors​.”

In the New Year the industry will be better at defining that value overall, in addition to having model to share early with payers (in addition to the press and legislators) to make sure they understand costs.

To maintain prices, and avoid price hikes, Prutow says “I think it’s going to be through the ability to ensure good justifications​ … [and] the models for why this pricing is providing value​.”

New Health Economy

Essentially, it comes back to a value equation: a clear value proposition that can justify costs to the marketplace.

2016 will be marked by how well the sector balances greater demand with rising costs, and handles trends such as industry consolidation and the increase of consumer technology in healthcare​,” adds Kelly Barnes, PwC's US health industries leader.

After more than a decade of identifying the top health industry trends, we are finally starting to see the creation of a New Health Economy – a health system that is more connected, transparent and patient-centric​.”

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