The Changing Biopharma Risk Equation

Multinational survey of pharma execs offers insight on pharmaceutical companies’ growth strategies and risk management in the challenging biologics landscape

By Andrew Bulpin, vice president, Process Solutions, Merck KGaA

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As pharma companies expand, they are looking more and more to biologics for their next potential blockbusters. However, this class of product — ranging from well-established large molecule drugs to truly novel therapies — poses major challenges because of its scientific complexity and sophisticated development requirements.
Furthermore, expanding the drug pipeline isn’t the only growth strategy most companies are pursuing. They are also planning to expand geographically and expect to face various risks doing so, including unfamiliar regulatory environments, shifts in pricing and changes in customers’ ability to pay.

All this means that risk management is rising in pharma executives’ agendas. To manage risks, companies are developing strategies that involve both building internal capabilities and reliance on external expertise.

PRODUCT GROWTH
A March 2016 multinational survey from the Economist Intelligence Unit (sponsored by MilliporeSigma) titled, “The Changing Biopharma Risk Equation” of 254 pharma executives found that companies are pursuing different classes of new biopharmaceuticals as part of their expansion.

These drugs fall into two distinct categories. First, large-molecule biologics, such as monoclonal antibodies used to treat chronic diseases including, diabetes, cancers and rheumatoid arthritis. Although these complex therapies have been in use for more than 30 years and are already well established, the category continues to experience significant growth based on scientific and technical innovation. Second, novel therapies that are truly cutting edge, such as gene and cell therapies. The therapies in this category are still largely in experimental phases and not readily available to the market. However, expectations of widespread adoption are at the core of many visions of personalized medicine.

“Strides are being made in rare diseases and orphan drugs, as well as autoimmune disease,” says Andrew Baum, managing director of equity research, Citi. “And with Immuno-Oncology, you have a growing number of drugs with known efficacy in multiple indications.”

These developments are quickly translating into profits. Sales of biologic products — which employ sophisticated bioprocessing technologies in their manufacture and are used to treat a host of chronic diseases including cancers, diabetes and arthritis — are rising sharply and expected to grow from a $162B market in 2014 to $278B by 2020.1

Many of the new therapies help to address conditions that previously had no significantly effective treatments; the demand for such biopharmaceuticals has been so insistent that these new drug therapies have received significantly more U.S. FDA approvals in the 2015 calendar year than the average number approved annually over the last decade. It is not surprising, then, that biologics are a rising priority for most pharmaceutical companies surveyed.2

Indeed, the survey shows that stem-cell-derived therapies and gene therapies top the list of drug categories deemed likely to disrupt short- and long-term corporate strategies. However, nearly half (48 percent) of survey respondents indicated that they themselves are considering or are already in the process of developing novel therapies. These newer therapies are taking a greater share of production focus than more traditional drug products such as vaccines (38 percent) and blood-derived products (32 percent).

PRODUCT DEVELOPMENT RISKS
Risks of developing entirely new types of drugs are not new to the pharma industry. Since survey respondents highlight cell therapies as the category most likely to disrupt corporate strategy, it follows that the majority (94 percent) of respondents see the development of new and different drug products as increasing the importance of risk management. Those risks include new science and scarce funds for development and revenue.

After regulatory uncertainty (32 percent), a lack of funding for growth emerged as the second biggest concern (25 percent) for survey respondents overall. The inherent complexity of manufacturing diverse types of biologics requires relatively more funding than traditional therapies.

Complicating the funding equation for new drugs and novel therapies are the headline debates over drug pricing in general, which are at their most intense in the U.S., where double-digit drug price rises have been the focus of congressional hearings. “Pricing is the major concern,” says Baum in the EIU report, “because that increases systemic risk and creates a lot of bad will — and creating bad will in a heavily regulated industry is not a good thing.”

GEOGRAPHIC GROWTH

The survey finds that pharma companies are looking to expand their regional footprint over the next five years across the globe, with higher shares focused on adding capacity or market share in emerging markets.

This focus is notable given emerging markets’ somewhat rocky overall economic performance. Asia came up as a particularly attractive region for the pharmaceutical sector in the next five years, with higher shares saying that they expect to be operating in many countries five years from now than say that they have current operations there: Indonesia (34 percent currently operating vs. 40 percent anticipate operating), South Korea (34 percent vs. 44 percent) and Taiwan (30 percent vs. 42 percent).

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