Dive Brief:
- Life sciences companies will consolidate in 2018 due to increased competition from tech companies and tax reform, according to a new report from EY.
- Pharmaceutical supply chains are partly to blame: as they streamline and implement new technology, they put pressure on suppliers and manufacturers, prompting industry consolidation.
- The report also notes that technology companies providing supply chain solutions will cut into supply chain profit margins, but that this will spur more innovation within the industry.
Dive Insight:
Embracing new technology and innovative plans to slim supply chains and increase efficiencies are usually considered the right move toward greater growth and wider profit margins, but EY's report reveals the dark underbelly of innovation.
Innovative supply chains cause disruption, and that's exactly what's happening within the pharmaceutical industry right now.
EY's report says the CVS-Aetna merger is just the tip of the iceberg, and that the industry should expect the return of the "mega-merger" in 2018.
"Traditional biopharma and medtech leaders may find mega-mergers more tempting as a means to protect profitability, maintain competitiveness in key therapeutic areas and build scale to confront new challenges in the supply chain," the report noted.
Furthermore, "Large-scale consolidation offers big pharma a means to simultaneously gain the muscle necessary for the fights ahead and remain focused on core innovation."
In order to continue the rate of innovation within their supply chains, companies may need to consolidate.
Not only that, but as biopharma supply chain market capitalization continues to fall and because there are so many generic drug manufacturers, diagnostic labs, distributors, PBMs and retail pharmacies, supply chain disruption and innovation may accelerate, peak and then trickle down to other operations.
"This expansion is unsustainable in a disruption-influenced supply chain scenario, as Amazon and its ilk shift the balance of negotiating power (just ask book publishers)," the report said. "Drug and device executives and boards would be wise to consider preemptive measures beyond ongoing portfolio rationalization and growth-driven alliances and M&A. Recent transactions creating various combinations of insurers, PBMs, physician practices and pharmacies provide compelling evidence that such thinking is already being implemented within the supply chain."
