Find episode transcript below.
GLENN HUNZINGER:
00:00:00:00 Welcome to PwC’s Next-in-Health podcast. I'm Glenn Hunzinger, PwC’s Health Industries Leader.
JENNY COLAPIETRO:
00:00:10:03 And I'm Jenny Colapietro, PwC’s Consulting Commercial Leader. And Glenn and I are here today with our returning guest, Greg Rotz, who leads PwC’s Pharma and Life Sciences team. Greg is here to provide some insights today from the latest Next in Pharma 2025 outlook. Welcome, Greg.
GREG ROTZ:
00:00:28:24 Thanks, Jenny. Hey, Glenn. Good to be back.
GLENN HUNZINGER:
00:00:31:08 Greg, you and I and Jenny have spoken about this at extreme length, right? We've researched it, but for this audience, let's just talk a little bit about some of the key challenges we're seeing around value. Right. We've had breakthrough in life, curing therapies, oncology, cell and gene therapy, Alzheimer's vaccines. Yet pharma continues to underperform in the market when we look at shareholder returns.
00:00:55:10 Let's talk a little bit about this. What do we need to do? What are your thoughts? Obviously, we've got deep thoughts on this topic. But for this audience it would be great, to just get some views here.
GREG ROTZ:
00:01: 05:14 Yeah. Thanks, Glenn. There are a few really, I think, well-covered drivers of the underperformance in the capital markets that get a lot of attention. One of them is the patent cliff that's coming up. Between now and 2033, the pharma industry will lose over $400 billion of revenue in drugs that are going off patent. So, obviously, that creates a big overhang on the industry.
00:01:29:09 For people who've been following this sector for a while, the last big patent cliff was back around 2010, 2011. And that patent cliff was about 250 billion. So, sitting here facing a $400 billion patent cliff is a never-before-seen challenge in the industry. And then the other topic that's well covered is the changing dynamics on drug pricing,
00:01:53:01 and in particular in the US with the Inflation Reduction Act now negotiating Part B drug directly and soon to be adding part B drugs in 2028. That just creates a new headwind on the economics of the industry. Those two things are pretty well covered and I think explain part of the story.
00:02:12:05 But what's been most interesting to us in our research is the dynamics that I think doesn't get as much coverage, which is, underneath the surface, almost every single therapeutic category is getting more intensely competitive and with more intense competition in every single category,
00:02:32:12 of course, there's going to be declining returns in those categories. The amount of time that the first market drug has to compete in that market without a head-to-head competitor has been cut basically in half. And it's not uncommon these days to have an innovative drug launch, and then next year have another drug with a similar mechanism already competing with it, and the third year, a third drug.
00:02:58:08 So, this changing dynamic of really intense competition, TA by TA, I think, is a less well-covered dynamic that is also a big contributor to the underperformance.
JENNY COLAPIETRO:
00:03:10:16 Now, Greg, that makes a lot of sense. Just the patent cliff pricing pressures and the hyper competitiveness within the TAs. But what I saw was pretty shocking was the stat that nearly half of pharma CEOs believe that their company won't be viable in the next ten years if they stay on their current path.
00:03:29:09 Can you share a little bit in terms of like, what's leading to this belief, and what are the biggest risks and opportunities that they're facing?
GREG ROTZ:
00:03:38:24 Yeah, Jenny, that statistic is from our annual research that surveys CEOs across sectors. And it's been true for a number of years that other sectors have had a concern about the viability of their business model. And if you go back to 2023, the pharma CEOs, only about a quarter of them expressed concern about their business model.
00:04:01:06 But as you point out, that number has gone up consecutively over the last couple of years. So, in 2024 it went up to 38%. And that's the most recent survey that came out, it's now 45% of pharma CEOs aren't sure that their company will make it for another decade.
00:04:20:08 And this gets to the broader trend across the economy on just the power of disruption and the intense competition that exists. And I think the biggest risk here is to misunderstand how disruption really happens.
00:04:36:23 Disruption often happens at the fringe, right, on the edge. Renting out your couch doesn't seem like an existential threat to any industry because it's happening on the fringe. But when renting out your couch becomes renting out your entire house as a vacation home, all of a sudden you have a disruptive new business model in the world.
00:04:59:06 And I think the risk here is that our pharmaceutical leaders need to recognize that if nearly half of the CEOs are concerned about the viability of their business model, there is going to be a lot of innovation. There is going to be a lot of case for change put out there, and we need to pay attention to where we start seeing this disruption happen.
GLENN HUNZINGER:
00:05:20:25 I think that's great, Greg. And there's no doubt innovation and great science is a fabric of this industry. I think it's why everyone passionately gets up every day to solve health problems and to save lives. And there's no doubt the themes that we've always seen around capital allocation for sort of M&A.
00:05:39:07 And I think the trend we're seeing around transforming companies technologically, AI and otherwise to get sort of better speed, quality and cost efficiency is here and staying here. But I think the broader question on, is great science enough?
00:05:55:06 Can you just talk a little bit about some of those choices, and maybe some of those strategic ways that we think companies should be thinking about their direction in their capital allocation?
GREG ROTZ:
00:06:04:14 Yeah, sure, Glenn. And I think I would just start with a premise, which is that the conversations we've been having, that at this moment in time as we look toward, here we are in 2025 and we're now facing the back half of the decade. Kind of the mantra is execution alone isn't enough. So, if we say execution alone isn't enough, then where do we start?
00:06:27:01 And I think where we start is by a little bit of self-reflection. And each one of our company is to say, ‘Do we have the right transformative bets on to make sure that the business model and the operating model of the enterprise can really deliver on the promise of this golden age of science that we're really in?’
00:06:45:07 And some of the transformative bets we see are really remaking the R&D engine and truly disrupting the legacy model of research and drug development, harnessing the full power of AI. And there are literally billions of dollars being raised, and start-ups and venture funds to explore this possibility.
00:07:07:02 Another transformative data could be thinking downstream with the patient and how to really reimagine patient engagement in this era of a much more empowered consumer that is armed with more information, more data about themselves, and more channels in which they can be displayed in the healthcare system.
00:07:26:09 So, let's revolutionize how pharma companies think about engaging with that consumer downstream to make them successful on their medicine. A different path, though, might be for some companies actually doing less, right. Do you think that average returns are under pressure? That means it's more important than ever to be really good in the areas we choose to focus on.
00:07:48:03 So, for some companies, the transformative data is going to be rethinking whether should I really be in every step in the value chain? Should I really be in every market and around the world, or is my advantage in a more selective set of markets, or a more selective set of TAs or more selective set of activities?
00:08:05:09 And I'm going to increase the viability of my business by actually narrowing down on those particular areas where I truly am great. And then, finally, I think, there's the classic question of, are there new revenue streams? And the pharmaceutical industry has great gaps in understanding biology, great gaps in understanding the journey that patients go through and navigating their disease.
00:08:31:06 And with all the technological innovation that's happening right now, I think there's an interesting question to say. Is now the time when you could create alternative revenue streams in therapeutic categories, where you really understand the patient and you really understand biology and bring more of a solution to market than just, say, traditional prescription medicines?
00:08:52:03 So, those are a few examples of the different types of transformative bats that I think companies can think about to change this equation, where we deliver great science and do great things for patients, but it's not translating into top-tier returns.
JENNY COLAPIETRO:
00:09:08:22 Yeah. Greg, what I'm hearing you saying is this, really critically important for companies to do the self-reflection and pick one of those strategic bets as a center of gravity to really build scale and assets, which is good. But beyond that, you also mentioned that today's model no longer works.
00:09:27:08 So, regardless of the strategic that that you choose to focus on, it sounds like there's just reinvention required regardless and new capabilities. Are there some common must-have capabilities for pharma leaders to develop to stay ahead?
GREG ROTZ:
00:09:43:17 Yeah, I think capabilities, Jenny, are the lifeblood of how you actually turn strategies and execution right there. The how the company works. What are we capable of doing and how do we actually deliver outcomes in our business? Portfolio management is one that comes to mind right away, right?
00:10:03:06 With the cost of capital being higher than it's been, with the commercial realities being tougher than they've been, and with the speed of the competition chasing us faster and faster, we really have to have almost venture- capital like disciplines inside of our portfolio management capabilities and deciding which assets were progressing and which were not, and how we're going to do that.
00:10:25:25 I think ecosystem orchestration and deal making will continue to be an important capability. Given the patent cliffs that I mentioned, for sure, we believe that there will be further M&A activity in this market as companies look at where they can be really good and where they can't.
00:10:43:06 There may be further divestitures and then I think there's a whole non-traditional set of deal making and ecosystem plays where you think about the tech companies and the data players that are trying to make a difference in life sciences and in disease. So, I think there's a whole doubling down on this capability of kind of deal making.
00:11:02:03 Deploying AI is for sure an essential capability, and figuring out how to deploy it at scale will be critically important. And then finally, I would just mention risk management and in particular taking an integrated view in this highly volatile world that we're facing, where policy is changing,
00:11:21:04 where the threat environment continues to go up, really kind of having an integrated view of what these risks are and how to monitor and manage those. And this kind of dynamic threat environment that we're in is going to be really important. Because for sure, we know surprises are going to happen,
00:11:39:04 but how we can scenario plan and then act in the face of those surprises, I think will be as important as ever in the second half of this decade.
GLENN HUNZINGER:
00:11:49:00 Greg, we hear from our CEOs and the execs and their clients all the time about the excitement around innovation in the science. And you look at GLP ones that are out there, and certainly that's building a lot of excitement around what is the next great breakthrough?
00:12:04:08 But obviously, the industry just has a ton of challenges, whether it's healthcare reform, geo political and the impact of China and other areas financial from inflation and interest rates, and that just makes it difficult to operate.
00:12:20:05 So, there's no doubt we got this just changing landscape underneath us but yet exciting innovation. What are you hearing, what are you seeing and what do you think about as far as the biggest disruptors and what execs have their eye on?
GREG ROTZ:
00:12:32:20 Yeah, I think, right now, the tariff environment is certainly one of those wild cards for 2025 that is generating a lot of well-deserved attention, I would say. This is an area where pharmaceuticals, medical devices, life science companies are global in nature and have taken advantage of global supply chains and global markets to commercialize products.
00:12:56:02 And with the increased discussion of tariffs and reciprocal tariffs and the back and forth on this, it has the potential to fundamentally change the economics of that global model as it's been working for the last period of time.
00:13:11:28 So, there's a lot of energy going into understanding the scenarios around these tariffs in engaging in the right dialogs with policymakers so that the consequences of these potential tariff choices are well-understood by the people who are making these decisions and then thinking through the action steps. What does it mean for how we need to think about the flow of goods around the world?
00:13:35:25 What does it mean for how we need to think about future investment and where those investments happen? Because after all, life science industry is an industry that can make significant capital investment into plants and into operating sites that we need to kind of plan carefully.
00:13:51:06 So, I think that that whole environment around tariffs is a hot one, right now, and one that will be a big story in 2025, no matter how it turns out. You mentioned China and I would just mention that here as well. I mean, there's obviously a lot of questions about the operating environment in China and the geopolitical risk with China
00:14:11:01 and other countries like the United States, particularly in pharmaceuticals. The rise of innovation in China, and the amount and the interesting discovery science that's been going on, there has been an accelerating change and I think one of the other stories for 2025 might be around the amount of work that goes
00:14:30:04 in for global pharmaceutical companies looking at the innovation that's coming out of China, both as an opportunity for global deals and licensing and also as a threat that needs to be watched. Ten years ago, we wouldn't have necessarily thought of China as a discovery science engine, but that seems to be where we are now.
JENNY COLAPIETRO:
00:14:49:14 So, Greg, you've outlined the options for what the mandatory items for the how and some key 2025 disruptors that are out there. What advice do you have for leaders trying to move from vision to action, and what do you think are the biggest cultural and organizational shifts required for successful reinvention in pharma?
GREG ROTZ:
00:15:10:14 Yeah, Jenny, I've thought a lot about this and I think it is kind of the leadership challenge of this moment. And I can't help but think about when it comes to like the core work of our biopharma companies, you often hear folks say, ‘Well, let us look at the data’ right when they're talking about their science, when they're talking about their clinical trials.
00:15:31:26 ‘Let's look at the data. Let's see what the data tells us.’ I think we need to take the same approach to the business model. And let's look at the data. And the data right now is telling us that we need to make a change. And I think when we look at that data, we need to step back and ask, are we changing the allocation of our investments?
00:15:52:07 So, are we changing how we allocate capital that the investors had given to us, in a way that is sufficiently bold and moving at a sufficiently fast pace that we are going to change this equation. And that means that executive leadership teams need to create the head space to examine what is kind of a fundamental strategic question, right?
00:16:13:24 If half the CEOs are worried about the viability of their business model over a decade, this should be a top agenda item in the boardrooms and the executive suite across the industry. And as much as I totally understand the pressure to deliver this quarter and the need to deliver the P&L in the immediate term,
00:16:33:03 we're at a moment now where I think leadership teams need to step back, create the space on their strategic agenda to really think differently about these strategic bets and whether the core capabilities that drive the company are sharp enough to deliver value, and a more challenging economic environment that our industry faces.
00:16:54:18 So, those would be some of my thoughts. And if folks need a motivation to consider this, I think the stick side of the motivation would be that activist investors are out there and our sector is not immune to activists. But I think the more carrot side is there's just too much great science happening to not have this sector be a real magnet for capital and a magnet for investment.
00:17:20:13 So, I think in order to fulfill the promise of the great work that's happening to conquer disease, the opportunity we have here now is to rethink some of the business model, sharpen some of these capabilities so that we're sure to attract all the capital we need to truly prevail over the important diseases that are being worked on.
GLENN HUNZINGER:
00:17:41:00 Greg, I think to your point, on the day-to-day struggles are real, I think pivoting to something that's a little bit more exciting is as we look at the future, we think about, what is it going to look like in five and ten years? What excites you? What do you think is going to be the thing that ultimately starts to drive the excitement?
00:17:58:11 Both not only from a patient side, which we're seeing, but just excitement overall from a capital markets and across the value chain?
GREG ROTZ:
00:18:05:25 Yeah, Glenn, I've been doing this for 28 years now and have had the great privilege of working with a lot of the leading companies in our space. And as I look back over that time, there were moments when we wondered whether we would really bend the curve on cancer or that in the US, obesity was just going to be an intractable problem we had to live with.
00:18:29:11 And when I think about some of those moments in the past couple of decades and think about where we are now, what gets me most excited is that it seems like there's never been a better time to actually improve health, create innovative treatments to tackle the intractable diseases and health conditions that have just seemed too hard.
00:18:51:25 And it's very exciting to see advances in Alzheimer's and neuroscience, to see the promise of what could happen if we're able to bend the curve. And obesity, and in so many other areas. So, when I think about the investments that are going into the science,
00:19:07:04 into innovating the R&D model, into thinking differently about how to accelerate and get access to those important medicines, I think there's a lot to be excited about, and I think five years will go by very quickly.
00:19:21:18 And with the pace of innovation and the pace of business these days, we can have a lot of great things to celebrate by the time we get out to 2030.
GLENN HUNZINGER:
00:19:30:05 I think that's exactly right. When we think about the health ecosystem and the overall cost of health, overall access, affordability and quality are the three things we hear time and time again. And there's no doubt, volumes are going to go up and costs need to come down. And these breakthrough sciences will no doubt help bend this cost curve.
00:19:49:19 Right. Think about not having patients that have to go to the hospitals, acute settings and otherwise. And I look forward to that development and the progress of making healthcare more affordable with better access for all. And certainly, we see that quality raising up time and time again. So, I appreciate your perspective here, Greg, as always, very thoughtful.
00:20:11:10 And I look forward to the next ten years together here.
JENNY COLAPIETRO:
00:20:14:08 Yes. Agreed. Thanks, Greg. This has been great. And I think what resonated for me the most is that today's model no longer works. So, it's critical to have leaders focused on accelerating action and thinking differently about the strategic bets. So, now is certainly the time. Greg, thank you so much for joining us today.
GREG ROTZ:
00:20:33:17 Yeah, it's great to be with you both. And thanks for having me.
JENNY COLAPIETRO:
00:20:36:27 We invite listeners to read the 2025 Next in Pharma report linked in the show notes and follow us on social media. For more on these topics and other health industry insights driven by policy, innovation and care delivery changes, please subscribe to our podcast at pwc.com/US/nextinhealthpodcast. Until next time, this has been Next-in-health.
FEMALE VOICEOVER:
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