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Failing to Demonstrate Value of Innovation is Top Risk Facing Life Sciences Sector, According to Ernst & Young

NEW YORK, April 23 /PRNewswire/ -- Government and private insurers are placing unprecedented pressures on Life Sciences companies to demonstrate value for the products they develop, according to The 2009 Ernst & Young business risk report, Life sciences. Insurers, governments and individuals are likely to increase demands to demonstrate value in the years ahead, as they confront mounting healthcare costs, a shrinking tax base, aging populations, and a mandate to provide care for a larger pool of citizens.

Meeting this challenge tops the list of the 10 most pressing risks facing the Life sciences industry in 2009, according to the report. Like most of the issues that comprise the list, the need to meet increasingly stringent demands for reimbursement has been exacerbated by the global economic downturn, which is challenging the high-risk/ high-reward model that companies have used to fund drug development efforts for several decades. The economy has prompted large and small companies to sharpen their focus on how they manage scarce capital, boost research and development productivity, and in some cases reinvent a long-held business model to build long-term shareholder value.

"This is a time of great upheaval in the pharma industry and it is intensified by the global financial crisis. Companies are looking with renewed vigor at how they manage the risks at the very core of their businesses," said Carolyn Buck Luce, Global Pharmaceutical Sector Leader at Ernst & Young. "But risk brings opportunity and the definition of crisis is 'the crucial stage or turning point.' This moment provides the industry with a chance to not only confront these immediate risks, but to take the actions that will strengthen their organizations in more fundamental ways as well."

In the biotech sector, the relative scarcity of capital to support drug development has placed new strains on the industry's traditional business model. Glen Giovannetti, Ernst & Young's Global Biotechnology Leader, said: "Raising capital has grown more difficult than ever before for emerging companies and there is a new focus on using existing capital most efficiently. Concern about funding future operations is forcing companies to make strategic choices that will have a lasting impact on their continued ability to innovate and create shareholder value for years to come."

The top 10 risks facing Life Sciences companies, and the steps that companies can take to address them, include:

1. Demonstrating value and pricing pressures: Beginning early in the development process, companies can begin to measure and articulate the product's value, and open a dialogue with payors. Pipeline prioritization decisions can be made with a stronger consideration for a reimbursement pathway, not just regulatory approval.

2. Capital access/capital allocation: Biotech companies are working to identify alternative sources of capital, while both the pharma and biotech industries are increasing emphasis on efficient capital allocation and managing the balance sheet.

3. Boosting R&D productivity: Pharma companies are beginning to emulate biotechs by breaking R&D into smaller, more innovative teams with greater autonomy. Companies of all sizes can outsource for speed and efficiency, focus on fewer disease segments, and more diligently address true market needs for high-value products.

4. Revolutionizing business models: Companies can adopt a portfolio approach, experimenting with different models to learn from other industries and explore new partnership models. Most important, they should take steps to ensure flawless execution.

5. Ensuring safe products: To manage an increasingly complex global supply chain, companies should adopt a comprehensive risk management approach, plan early for post-marketing surveillance, and build strong relationships with Customs authorities in order to improve efficiencies and protect against counterfeiting.

6. Protecting and capturing the value of intellectual property: The industry can increase advocacy on behalf of patent reform.

7. Sustaining a culture of innovation: Companies are exploring alternatives to the fully integrated R&D model that most pharma companies are built on. Opportunities exist to invest more selectively in defined therapeutic categories, and to reinvest in the people and talent pipeline.

8. Global supply chain integrity: Companies can improve due diligence of third party suppliers, increase vigilance about regulations and standards in emerging markets, and employ more robust supply chain management and internal controls.

9. Enabling access: With increased pressure to broaden access to therapies, companies can proactively define and execute a comprehensive approach in emerging markets, exploring creative pricing approaches and local strategic partnerships.

10. Loss of reputation: It is currently vital to take steps to ensure effective risk management, choosing partners carefully, and maintaining high standards for product safety and data transparency.

About the Global Pharmaceutical Center

The Global Pharmaceutical Center is the focal point of Ernst & Young's pharmaceutical practice. It serves as the central hub of a network of senior professionals providing quality assurance, tax, transaction, risk management and business advisory services to pharmaceutical companies and others in the pharmaceutical value chain worldwide. The Ernst & Young Global Pharmaceutical Center fosters a collaborative environment where our seasoned professionals work together to provide clients with tailored services, thought leadership, forums and education to address the complex issues facing the pharmaceutical industry.

About Ernst & Young's Global Biotechnology Center

Today's rapidly changing biotechnology industry is delivering new levels of health, prosperity and sustainability. But it is also facing unprecedented challenges. Ernst & Young's Global Biotechnology Center brings together a worldwide team of professionals to help you achieve your potential - a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

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