Contact: Karen Frankola
Deloitte Touche Tohmatsu
Global Public Relations
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New York, May 24, 2005 — The distinction between biotech and pharmaceutical firms will erode over the next decade, according to a white paper released today by the Life Sciences and Health Care practices of Deloitte Touche Tohmatsu (DTT), comprised of industry experts from certain Deloitte Touche Tohmatsu member firms. The report, which was developed in collaboration with the Economist Intelligence Unit, predicts biotech and medical device firms will grow more quickly than pharmaceuticals, with the fastest growth in Asian markets.

The white paper, "The Future of the Life Sciences Industries," combines three research initiatives: an online survey completed by 206 senior industry executives from around the world; in-depth interviews with executives; and an executive forum that brought leaders together to discuss survey and interview results.  The research asked senior executives to define strategic priorities over the next decade, identify the main challenges, and share how they intend to seize opportunities.

Widespread pressure to lower prices, along with increased competition, will speed up consolidation and convergence. "Convergence is inevitable; the industry must evolve into a new business model that further leverages external relationships to spur innovation and growth," says Robert Go, DTT Industry Leader, Life Sciences and Health Care. "Firms can no longer rely on internal resources to achieve their objectives. They must establish a new ecosystem through acquisitions, mergers, alliances, and exploratory relationships in emerging markets."

Most survey respondents expect biotech revenue to grow in excess of 15 percent annually over the next ten years, compared to less than 10 percent growth for pharmaceuticals.  A major factor is innovation.  Industry executives expect more innovation from biotech, with small, young companies leading the way.

Go says, "Companies positioned to sustain strong revenue growth and exceed shareholder expectations in the coming years will be those that harness both the innovative culture typical to biotech companies, and the operating capabilities and management processes more characteristic of pharmaceutical firms."

Major findings drawn from the survey, interviews and executive forum include:

• Growing business pressure will speed up consolidation and pharma-biotech convergence.

Pressure from consumers and governments to slow the growth of health care costs, along with new competitors, will drive structural changes in the industry. More than 70 percent of survey respondents said stricter regulation of drug pricing and reimbursement will have the biggest negative impact on the industry in the next decade.  Established firms will face strong competition from emerging markets, as companies in these markets evolve from outsourcers and generic drug producers to become formidable competitors.

• Asian life sciences markets will expand faster than American and European markets.

Roughly half of survey respondents believe revenue in China and India will exceed 15 percent annually over the next decade, outpacing growth rates in the United States, Japan, and Western Europe, which are projected to increase at 10 percent or less annually. Executives believe revenue in the developed countries will grow more slowly because prices of medical products will rise less rapidly than in previous years.

• The recent decline in the industries’ reputation is a matter of great concern.

One third of survey participants believe erosion of corporate reputation will affect long-term revenue growth. Some industry leaders are worried this problem will result in more government regulation, but they are hopeful since the damage was self-inflicted, it can be remedied.

The study is available online at http://www.deloitte.com/lifesciencessurvey. Learn more about Deloitte’s member firms’ Life Sciences and Health Care practices.

About the research
Between December 2004 and January 2005, the Economist Intelligence Unit, in cooperation with the Deloitte Life Sciences and Health Care practices, comprised of industry experts from Deloitte Touche Tohmatsu member firms, conducted a research programme on the future of the life sciences industries (pharmaceutical firms, biotech companies and makers of medical devices). The research consisted of an opinion survey and a series of interviews with senior executives that fed into a briefing paper, the findings of which were presented on 1st February at an executive forum in London, which was attended by senior executive leaders from the life sciences industries.

The online survey asked 21 questions about the prospects of the life sciences industries in the next decade and was completed by 206 life sciences executives from around the world. The life sciences industries in this report refer to pharmaceutical firms, biotech companies and makers of medical devices.

About the Economist Intelligence Unit
The Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist, is the world’s leading provider of country intelligence, with over 500,000 customers in corporations, banks, universities, and government institutions. Our mission is to help companies do better business by providing timely, reliable, and impartial analysis on market trends and business strategies.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organisation of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital of 120,000 people worldwide, Deloitte delivers services in four professional areas-audit, tax, consulting, and financial advisory services-and serves more than one-half of the world's largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu" or other related names.