The biotech sector is one that knows extremes: We’re seeing a biotech bubble at the same time we’re seeing companies squeezed out by rising costs and fees necessary to just stay in business. Pressures, including regulatory and dwindling competition, are driving price increases among generics while at the same time there are drug shortages. We’ve got increased regulatory scrutiny of U.S. facilities while FDA inspections are being blocked in China.
To help our customers navigate through the extremes that the future will bring, the executive team at my CRO/CMO and I have identified themes and trends we think will affect the biotech sector over the next 12 to 18 months:
1. Drug development, including generics, costs more and takes longer. It can take 10 years and more than $2.5 billion to get a drug to market, and more than five years to get a generic drug approved. That’s due both to new regulatory hurdles as well as to targeting increasingly complex diseases that require equally complex APIs.Generics have a 50 percent chance of getting approved; and even if approved, several other competing generics could hit the market simultaneously. Expect prices to continue to rise to offset greater risk.
2. GDUFA (the Generic Drug User Fee Amendments) still won’t speed approvals. The backlog is so severe — the Abbreviated New Drug Application (ANDA) backlog alone exceeds 2,800 applications — that the goal of the FDA’s Office of Generic Drugs (OGD) is to act on them by 2017. Meanwhile, GDUFA seems better at raising fees for applications and Drug Master Files (DMFs), which continue to squeeze smaller companies, increase risk, stifle innovation and increase prices for generics.
3. Increased inspections of international facilities still must make inroads into China. There was an increase this year in the number of inspections of Indian drug and API manufacturers, and PCI expects that to continue in 2015. However, the FDA still won’t be able to conduct an adequate number of foreign inspections. China continues to be a problem because the Chinese government essentially continues to block FDA inspections.
4. The barriers to entry favor Big Pharma over small biotechs. Facility fees that can reach $220,000 annually represent a big barrier for small firms, which typically lack enough products to amortize the necessary investments. The result: More manufacturers will follow the lead of Ben Venue Laboratories and Hospira and will get out the business while major players look to product or corporate acquisitions as patent-cliff protection. With approvals so backed up, biotechs need to build a business case that the additional wait until after 2017 is worth the investment.
5. Recruiting continues to be an issue as required skill sets evolve. To meet the demands of a rapidly shifting industry, companies need employees whose education and skills equip them to be productive in today’s environment. Companies need to encourage employees to continue to take coursework that keeps their skills current.
6. Demand for U.S. manufacturing will increase. Wage inflation in India and China that continues to jump, increased facility costs to meet FDA inspections, and different cultural expectations that led to bribery investigations are all helping biotechs to consider bringing back work to the U.S. CMOs. Perhaps reflecting this trend, Boston-area real estate available for lab space has tightened, with vacancy rates below 10 percent, according to Transwestern RBJ report.
As part of our forecasting initiative, PCI responds in many ways. We see a lot of risk that needs to be managed. We make sure that our clients are aware of the drug development timeline — this is particularly true as the pursuit of complex molecules requires ever-increasingly complex science. To address that, we have been investing in new technology and we’ve been enhancing the training of our employees. We also track the latest regulatory changes so that we can advise our clients, especially virtual biotechs that may not have an employee or consultant with deep regulatory experience.
