This week we thought it would be interesting to share insights on a topical issue from Deloitte's U.S. Center for Health Solutions. This "My Take" from the January 20th, 2015 Health Care Current written by Homi Kapadia, Vice Chairman, U.S Life Sciences Leader, Deloitte LLP, provides a view on the rise of "pure play" business strategies for life science companies.1
Steve Jobs was said to have built his career around the mantra of focus and simplicity. Both are important for companies in any industry. While the life sciences sector seems to be in a perpetual state of change and adaptation, one trend over the past year or so has caught my eye. And it pertains to exactly that: focus and simplicity versus breadth and portfolio diversity.
Amidst all the change and adaptation in the sector, "pure play" business strategies are rising in popularity and redefining the way many life sciences businesses compete in the broader health care market.
Over the last year, many of the major life sciences companies have begun realigning to develop specific and separate operating companies, ones that play to their market strengths. In essence, these companies are concentrating more than ever on what they do well, and more importantly, what their customers, alliance partners and investors think they do well. They are "doubling down" in select areas that they have primary "brand permission" and divesting other areas.
The move toward refining the business model and focusing on fewer, more specific therapeutic areas hasn't been driven primarily by changes in national health care policy and legislation or by regulatory pressures. It's also not strictly a result of new strategies forced by the global recession that started in 2008. There are other factors at work. For example, the cost of research and development (R&D) is increasing as companies strive to replace products that are approaching their patent cliff. This trend is fundamentally rooted in the basic and increasing need to show value; to become identified and known for a specific brand in a particular market. It can be hard to do this really well when a company has many competing priorities for several different types of businesses and they're not necessarily known as a market leader in all of them.
Some companies are spinning off new enterprises and businesses that are targeted to specific therapeutic areas or types of customers. Others are forming separate standing companies so that efficiencies and savings can...