December 13, 2019
Biopharma 2020: Five Key Trends Impacting Leadership and Culture
By
Spencer Stuart's Global Healthcare Practice
Our global Healthcare team recently attended the 2019 FT Global Pharmaceutical and Biotechnology Conference and the Jefferies 2019 London Healthcare Conference. Based on the rich discussions at both events, we observed five key themes that will have significant implications for leadership, talent and organizational culture in the biopharma industry in the year ahead.
1. Political volatility and pricing pressure
These represent the biggest concerns for the biopharma industry at the moment with the approaching UK and US elections. Many leaders at the conferences felt that these two factors combined pose a significant threat to innovation in 2020.
Leadership implications: In these volatile, uncertain, complex and ambiguous times, we see a growing need for leaders who demonstrate personal resilience as well as who possess the necessary experience and leadership acumen. Importantly, this leadership agility needs to translate across an executive committee to develop more robust team resilience and effectiveness. To do this, leaders need the clarity and energy to motivate teams with a compelling and shared sense of purpose and create an inclusive culture where those teams can thrive.
2. M&A opportunities
Despite heightened concern over the political situation and rising pricing pressure, there is optimism from companies and investors around potential M&A opportunities in 2020. Private equity firms seem far more bullish than others, which is likely indicative of dry powder available to deploy and an ability to potentially outbid strategic acquirers. There appears to be less confidence about the IPO market. However, we do see European companies exploring secondary US listings to access more capital.
Leadership implications: Given the shift away from the IPO market and focus on M&A, we see increased thirst for chief business officers and corporate development leaders in biotech, especially leaders with a strong scientific background and knowledge of the assets they aim to acquire (e.g., immuno-oncology, gene/cell therapy, etc.), with a view that without this specific knowledge, commercial due diligence becomes flawed. The talent pool for this combination of scientific acumen and deal track record is small in biotech. Therefore, it will be imperative to explore the pharma world for this talent — and retain and develop these leaders once hired.
Equally, we see biotechs strengthening their boards with directors who bring M&A or particular domain experience (e.g., IO or gene therapy) to complement and better support the executive management team, which may be collectively young and inexperienced. On the opposite end of the spectrum, we see a growing desire for pharma boards to hire board directors with in-depth pharma R&D, digital or CEO/commercial expertise, as well as a willingness to explore stretch candidates to improve diversity. There was a trend over the past few years for pharma to focus on directors from other sectors. However, as pharma companies specialise in driving more significant internal pipeline innovation, the need for board chairs who understand portfolio risk becomes even greater.
3. The rise of specialisation
Investors expect small- to mid-cap biotech to have the greatest upside potential. In stark contrast to the past emphasis on diversification of therapeutic focus in the sector, the trend today is toward continued specialisation, with pharma divesting non-core assets.
In the biopharma sector, it is expected that we will see continued focus on innovation in targeted therapies and gene therapy, although there is a view that trying new modalities on new and underserved therapeutic categories introduces too much risk. Therefore, we will likely see a continued and healthy focus on small molecule therapeutics, utilising new AI drug discovery approaches to elucidate new targets. Interestingly, neurology and cardiovascular (e.g., acute heart failure) therapeutic areas are making a comeback after years of reduced R&D focus and investment.
Leadership implications: We are seeing an even greater need for leadership in novel therapeutic modalities such as cell and gene therapy, not just in R&D but also in tech ops and regulatory affairs given the niche challenges around supply chain that come with these therapies. As more cell and gene therapies are developed and an increasing number of regulatory approvals are obtained, there will be a heightened need to operate at scale.
In our opinion, we will likely see the greatest moves in large pharma versus biotech because of the scale of investment required to move the needle on the truly ground-breaking innovation necessary to overcome regulatory and access hurdles. We anticipate more talent will move back from biotech into large pharma, where companies are experiencing cultural transformation through (or as a result of) the biotech acquisitions they have made.
4. Confidence in the US market
There is greater confidence in the US market today, although with an election in November 2020, this will be tested. The US market is perceived to have more investment opportunities compared to Europe, particularly in the biotech segment, where the growing sentiment is that the European stock markets may not be able to support innovative companies. Interestingly, we are also seeing increased access in Asia and developing markets, which are more receptive to biosimilars than the US market. Access will be the name of the game.
Leadership implications: We see an unstable biotech talent pool, especially in markets like the Bay Area and Boston, and the challenge is keeping leaders engaged when there is a culture of high turnover. In Europe and other markets like Asia, there is a relative scarcity of talent. Thus, there is a growing need to develop leaders and provide them with broad-based experiences to equip them to take on leadership roles in biopharma. Experience in Asia (especially China) is becoming highly prized given the growth in this market. Tracking expat leaders and attracting talent to the region will no doubt expand the leadership pool in these markets.
5. A higher bar for innovation
An interesting observation at the conferences was the “good science” emerging from large-cap pharma players, which is yielding good opportunities and valuations in both large and mid-cap pharma. Pharma appears to be learning from its more nimble counterparts and are becoming more ‘biotech-like’ when it comes to driving innovation. Indeed, the focus on ‘single point accountability’ and the need for efficient decision-making in pharma are consistent themes we hear across the board.
Over the last 10+ years, we have seen the shift away from ‘incremental innovation’ and the bar for innovation continues to rise, not least given the increased focus on biosimilars/biobetters. It is believed that changes in trial design toward adaptive designs, for example, will allow for more flexible, faster and efficient clinical trials, and will enable companies to zero in on patient populations for whom the drug is appropriate. Emerging applications of data and analytics in R&D will continue to reduce cycle times. This combined with more pragmatic regulation should result in more approvals, assuming regulators can hire qualified talent in areas likely to see an increased focus, such as neurology and psychiatry.
Leadership implications: The war for talent in R&D is set to continue. With the novel therapeutic modalities we see today e.g., oncology-related cell and gene therapy, and the shortage of CMO talent in this arena (particularly outside of the US), it is even more imperative that organisations invest in retaining and developing talent. Technology disruption in enterprise-wide R&D is requiring biopharma companies to attract talent from other industries in areas such as data and analytics. Whilst this is encouraging for the industry, it is throwing up interesting challenges for pharma around how to culturally assimilate these leaders, and how to effectively onboard, develop and, most importantly, retain them.
Conclusion
Given the confluence of factors we observe in the market today, the need for organisations to focus on clarity of message, alignment of people and cultural engagement has never been higher. This year, we have already observed that large-cap pharma companies are future-proofing their short- and long-term growth by adding to their pipelines through the acquisition of biotechs (e.g., Novartis’ acquisition of The Medicines Company, UCB’s acquisition of Ra Pharmaceuticals and GSK’s acquisition of TESARO). Organizational culture is a critical consideration in M&A situations where ‘tissue rejection’ of new leaders is a risk and processes and teams must be integrated. Companies will need resilient leaders and teams, as well as adaptable cultures, to drive innovation despite political and economic instability. Agility and innovation traditionally have been the domains of biotech. In 2020, we may find large pharma becoming more ‘biotech’ than biotech.