Biopharma Faces the Future

Executives at nearly 450 global drug manufacturers weigh in on what’s troubling them now, and what challenges face them ahead.

By Eric S. Langer, President, BioPlan Associates, Inc.

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Most of us in the biotechnology industry recognize that it is very investment-dependent. Yet even with this knowledge, many of us have been shocked at how rapidly the environment has changed with the current financial crisis. Biotherapeutic manufacturers and industrial biotechnology companies, of course, are affected by the capital markets. But now, vendors and service suppliers are feeling the pinch. Though the healthcare industry has historically been able to weather economic downshifts, the segment’s short-term path in 2009 is likely to be shaped more by events on Wall Street than by prospects for new technologies or product approvals.

Biotech trade groups and analysts describe the impact of the global financing crisis in no uncertain terms: initial public offerings (IPOs) have fallen to virtually zero this year, and a recent Biotechnology Industry Organization (BIO) report showed that 30% of publicly traded biopharmaceutical companies have less than six months cash on hand. Though private funding levels remain fairly consistent with previous years, analysts are predicting a tough go in 2009 for both public and private companies. More than 6,000 biopharma employees have been laid off from over 100 companies since the crisis began. Mergers and acquisitions may accelerate these shifts: for example, Merck and Schering-Plough plan to cut 16,000 pharma jobs, post-merger.

Despite all this, some of these shifts will open opportunities. For example, outsourcing activities are increasing as companies deal with internal costs. This is an ongoing trend in manufacturing, R&D, clinical trials, and now, even sales outsourcing is on the rise. Pfizer, the largest pharmaceutical company, reportedly plans to lay off up to a third of its reps and go with contractor sales. While such actions may improve short-term results, they are often done at the expense of investor equity in the long term. 

In my company’s annual industry report, the 6th Annual Report and Survey of Biopharmaceutical Manufacturing [1], we evaluate trends and the extent to which global manufacturers and vendors are being squeezed. Budget projections are an early indicator and our study attempts to quantify how these fears may translate into budget contractions. The results provide a global view from executives at 446 biopharmaceutical manufacturers and contract manufacturing organizations.

Global Biotechnology Trends

The obvious financial upheavals are taking attention from some of the important trends we’re seeing in the industry. Some of these will become opportunities as we pass through the current financial crisis:

  • Product approval trends
  • Regulatory shifts and biosimilars
  • Trends and opportunities in emerging markets — China, India, Middle East
  • Scientific trends: expression systems, biofuels, stem cells
  • Manufacturing trends: disposables, downstream, outsourcing trends

Product Approvals on the Way Up

Between 1996 and 2005 there was an average of 16.6 approvals per year, compared to only 10 new product approvals in 2008.
(Click to enlarge image) Figure 1: FDA Approvals of New Biopharmaceutical Products, 1982-2008

Primary Approval Trends: There has been a general downward trend in biopharma product approvals since 2005 (see Box at end of article), especially for recombinant proteins and monoclonal antibodies. However, we believe this is likely to change over the next five years [2]. Between 1996 and 2005 there was an average of 16.6 approvals per year, compared to only 10 new product approvals in 2008 (Figure 1). Trend-wise, these 10 new products involved a greater percentage of recombinant proteins, with higher peak sales levels. Further, few monoclonal antibodies and cancer therapeutics have been approved in recent years, despite many reports about large numbers in late development. On the bright side, there were a large number (more than 25) of filings currently pending, and an equally large number are expected to be filed in 2009. So there should be an increase in approvals in 2009 and the next few years.

Biosimilars: The advancements in biosimilars are a long-term trend that will continue to be fueled by improved manufacturing technologies, cost constraints, and political and healthcare policy issues. The European Union has formally adopted regulations for their approval and has approved multiple biosimilars, including versions of erythropoietin (EPO). Several bills that will enable FDA approval of biosimilars have already been reintroduced in Congress in 2009. This will formally enable FDA to grant generic drug-like approvals for most biopharmaceuticals.

Merger and Acquisition Trends

The consensus of opinion from analysts in the industry is that both large and small biotechs are likely to be scarred by this economic period. Some will find the only way out is to be acquired. Others will restructure or sell off valuable assets. In this cash-tight environment, those without deep pockets are likely to find it a very difficult year. In particular, smaller public companies are at risk for dramatic and rapid reversals. IPOs have virtually disappeared, and venture-backed life sciences companies are finding it next to impossible to expand, or develop their technologies, as access to capital dries up. The ripples from this upheaval are likely to continue for some time. Although private sources of funding continue to be available (current funding of private sources is more or less on par with previous years), how private deals will be structured for small biopharmas surviving the financial pinch will likely create a lasting effect on the industry. This trend will continue as larger pharmaceutical companies begin to acquire rights to market more products from smaller, struggling companies. Here, we are likely to see more deals cut for bargain-priced, top-quality technologies.

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