PharmaTelevision - Ernst & Young: The Best Practice for Firms In The Current Climate

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Video title: Ernst & Young: The Best Practice for Firms In The Current Climate

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In this episode of PharmaTelevision News Review, Paul Larsmon talks with Siegfried Bialojan, Head of Global Life Science Centre, Ernst & Young.

Filmed at BIO-Europe 2009, they discuss:

• trends identified over the last year
• the funding crisis balanced with creative deal-making
• how some small biotechs are finding it difficult to survive
• sustainable solutions to survival in the current market
• short-term vs. long-term strategies
• Siegfried's views on the future of healthcare business models

Trends identified over the last year.

Paul Larsmon:

Hello and welcome to BIO-Europe 2009 here in the Austrian capital of Vienna. With me today is Seigfried Bialojan from Ernst & Young, welcome.

Seigfried Bialojan:

Thank you.

Paul Larsmon:

You've created a number of reports on the healthcare sector of the year, so what sort of trends have you identified here in Vienna?

Seigfried Bialojan:

Well we do this in pharma and biotech particularly also in the medical device area. I think if we talk about trends I think it's an overall theme that we have this convergence, it's very much realized both in the pharma side and the biotech side that it's a good thing to work together, right both in the need for innovation on the pharma side on the one hand and on the other hand of course the need for selling this kind of information and innovation from the biotech side in order to get funding also. So both of these things play together, and I think that's a pretty fruitful collaboration and we will see more of that, I guess.

The funding crisis balanced with creative deal-making.

Paul Larsmon:

We've heard a lot about funding here at this conference, what are the trends there do you think?

Seigfried Bialojan:

Well if you look at our numbers and we do this is especially our analysis what is the financing situation especially for the biotech's, it's pretty bad to be honest. I mean it's really a catastrophe of what we see all over Europe at least. And it's of course part of the financial crisis, but it's also a crisis by itself you know that we have a not have the trust of the VC's you know anymore because at least in Europe that the industry is not as far a glance as probably we see it in the US. So I think we have this funding crisis, but then I think we also see that the more we have this collaboration ongoing which I just mentioning with the pharma companies but this is becoming much more relevant element of the financing, so if we talk about creative deal making that's, that's the buzz word almost, right? It's an all about not just collaborating but including some financial components into these kind of deals. And I think it's both the pharma side realizes that they cannot just let die this industry because they are so much depended on this innovation, right? So they are kind of forced in order to also go into creative deals to make this happen. And that's of course on the other hand good for the biotech industry so they can negotiate deals, right? The point is we have so many biotech companies, so many small biotech companies and although this seems to be a logical concept you know it's certainly not that all each and every company will be able to benefit from that, so that will leave a point how far will this consolidation really go.

How some small biotechs are finding it difficult to survive.

Paul Larsmon:

Another phrase I've heard here this year is being that survival of the fittest. I mean do you think there are too many biotech's out there and that's some of them will inevitably go?

Seigfried Bialojan:

More will go. Well I think, yes we do have very many. In some countries including Germany where I come from certainly a lot of companies have been founded in times, you know when everybody was on a hype [ph] you know to get this innovative train going on, right? And it's a natural thing that you have to find out which concepts are the best and which ones are the ones to survive and which ones are the ones to be really commercialized in the end. And so I think it's a quite natural process that we have this consolidation it should be an ongoing process anyway. The question is when you have phases where this has been overdone you know founding companies because money was easy to access, right? You will have another process especially in these times when the consolidation is probably little harder, but that's normal we should not really over stress this.

Sustainable solutions to survival in the current market

Paul Larsmon:

As far as big pharma is concerned, I mean there seem to be some very stark differences in the way they're going forward and we've got Pfizer making a big take over, we've got Eli Lilly saying oh no, no that's not the way forward that, that doesn't get any value at all for the shareholders, I mean somebody's got be wrong here and somebody's got to be right?

Seigfried Bialojan:

Well I think is not a wrong or right, there are many solutions to the problem. I think what we have analyzed and described in recent times is what we call a finance transformation especially in the pharma industry, which means if you look at pharma 10, 15-years back it was mostly top line growth that was relevant, now we are talking about cost containment in the health system about shrinking margins and things like that, which has turned them around into a more bottom line oriented course and that means saving money if you cannot really put on more revenues, right? So, well still some of them put -- try to put on more revenue by buying pipelines. We think this is probably a more short sighted you to do that, you know it's short-term fixes, short-term fixes to provide growth potential with a pipeline that is growing of course, right? I think in the long run it will need more sustainable solutions that's actually what we really just have analyzed a lot and part of that is sustainable solutions we do see also, right? It's in the organization, that's if you look at company like GSK , like Eli Lilly as well how they organize their R&D in order to catch up with innovation, right? There are some movements in these organization, so it's not only buying pipelines there is a lot going on in order to get over this point of, of reaching the R&D innovation gap and things like that. So and it's , as I said it's not true there is not a black and white, I think all these elements have to be kind of mixed to find out what can we for a individual company use as a best practice Which fits to our organization and it's not that each one of these concepts fits to any of these companies, and may be one point talking about longer sustainable solutions, longer-term sustainable solutions is instead of just buying pipelines we see a lot of activities going into platforms, so platforms have a more long-term perspective to provide product of the future and provide innovative product on an ongoing basis. So this is certainly a big trend that we see to get over this productivity crisis, and I think it's also the fact that many of these companies, pharma companies realize the collaboration with biotech's to be, become more relevant, more essential, Couple of other things.

Short-term vs. long-term strategies

Paul Larsmon:

Everybody has been looking for green sheets inevitably and people are trying to be optimistic and then we hear that Johnson & Johnson to get rid of 8% of their work force 1000's of people are going to lose their jobs, I mean that's, that's a pretty bad sign, isn't it?

Seigfried Bialojan:

Well it seems so, but again I think this is also part of what I would call the short-term fixes, because if you have to save money after being well saving money on the cost side what can you do, you release people that's the next best thing to do. And we have seen a lot of at least announcements of the big pharma companies to release people mostly on the sales and marketing side, but that is also to do of course with changing strategies how to do sales and marketing, right? So anyway, I think it's a logical thing to happen, because that's the easiest way to save money, but again I think it's also part of a short-term fix it's not going to solve the problem as such. So it will be inevitable on a one way, but it's, it's not the sustainable solution.

Seigfried Bialojan's views on the future of healthcare business models.

Paul Larsmon:

Next year's conference will be in your country Munich, how do you think the healthcare sector landscape is gonna look in 2010?

Seigfried Bialojan:

Good question, I would be a rich man if I would know that. Anyway I think just to speculate a little, we started to talking about this convergence, I think this will be the major theme to happen so we probably not gonna talk about a pharma industry or biotech industry or medtech industry, we talk about our healthcare industry because more and more of these sectors come together and are depended on each other, are collaborating I think it will be much more a combined sector. And there are many more issues to come in it's not only the industry sectors that we see these days with biotech, pharma or medtech maybe it's also really the healthcare providers with the hospitals and other institutions that will have a saying in that whole system, so that's that would be the major thing I would, I would expect to see, and then something that is starting today already to be seen is there is no just one model, you know and there will be many, many business models just in order to well take niches and exploit those leverage certain technologies and certain business models. So it will not be that uniform I think it will more, we will see more flexibility in various business models and well, so I mean this will tell us we are not talking about funding crisis of biotech, because it will be a totally well more combined system.

Paul Larsmon:

Seigfried, Thank you very much for joining us.

Seigfried Bialojan:

You're welcome.

Seigfried Bialojan

Head of Ernst & Young's Life Science Center in Germany

Dr. Bialojan studied biology and medicine at the University of Heidelberg. He obtained a PhD in Molecular Biology in 1985. He spent 2 years as a post-doc scientist at the German Cancer-Research-Institute Heidelberg. From 1987-1996, he worked in different positions within Biotechnology-Pharma at BASF AG. In 1996, he became director/genomics and member of the Global R&D Management Team at Knoll AG/BASF Pharma. Since 2000 he was heading the eADME-department at the Knoll AG/BASF Pharma with global responsibilities. In June 2001 he joined Ernst & Young as a Senior Industry Specialist Health Sciences. In October 2002, he took over the Industry Leader position in Health Sciences, coordinating EY's German activities in the Health Science Industry. He is heading the Ernst & Young Health Sciences Competence Center in Germany that employs scientists to provide industry expertise and scientific/technological support to all Ernst & Young service projects dealing with Health Science clients. Dr. Bialojan is closely linked to Ernst & Young 's international network as a member of Ernst & Young 's Global Health Science Steering Committee.

Ernst & Young

Ernst & Young ,is also one of the world's Big Four accounting firms (third in revenue behind PricewaterhouseCoopers and Deloitte Touche Tohmatsu, ahead of KPMG). It has some 700 offices providing auditing and accounting services in 140 countries. The firm also provides legal services and services relating to emerging growth companies, human resources issues, and corporate transactions (mergers and acquisitions, IPOs, and the like). Ernst & Young has one of the world's largest tax practices, serving multinational clients that have to comply with multiple local tax laws.