10 top trends driving the biopharma industry today
Earlier this month, the U.S. biopharma industry hit yet another recent major milestone with the market launch of Novartis/Sandoz's Zarxio—the first-ever biosimilar drug to get a regulatory green light in this country.
This launch is just one part of what's already shaping out to be tranformative year for the biotech and pharmaceutical sectors. From a record pace of drug approvals, to a frenzied M&A environment, to leadership changes in the FDA and regulatory overhauls of the American drug approval scheme, and deep controversies over the pricing of medications, the currents of change are shifting the trajectory of U.S. healthcare at large and the biopharma industry in particular.
Here are 10 of the top trends influencing biopharma today, and what they mean for the future of the life sciences.
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1. A record-setting pace of industry consolidation
The explosion of healthcare mergers and acquisitions over the past few years has not been limited to the biopharma industry. Insurance giants Aetna and Humana, and Anthem and Cigna, are in the midst of defending massive takeover deals to both Congress and stakeholders such as the American Medical Association.
But there's no denying that biotech and pharma firms have been seeing an extraordinary level of consolidation in recent quarters—and judging by the pace of these deals (on Thursday morning, for instance, Teva announced that it would acquire Mexican drug maker Rimsa for about $2.3 billion), the trend may not level off soon.
To list some of the most recent developments and data: M&A activity in the life sciences sector for Q1 2015 exceeded the entire total value of 2014 deals, according to the most recent biopharma and life sciences deals insight report from PwC. The trend appreciated in the second quarter of the year, fueled by the closing of deals such as the $8.4 billion Alexion Pharma-Synageva BioPharma acquisition; the $13.1 billion Valeant-Salix deal; and the $20.8 billion AbbVie-Pharmacyclics deal.
In addition, there were big-name announcements of new proposed deals such as Allergan's acquisition of Kythera Biopharma and its double-chin injection; Bayer's sale of its diabetes care business to Panasonic; and the $8 billion Endo-Par Pharma deal. That's not even taking other M&A proposals such as Teva-Mylan (since nixed after Teva's deal for Allegan's generics unit) into account.
"Q2 2015 saw a continued trend of deal activity with closed deal value of $72.2 billion from 46 transactions," wrote the report authors. "Announced deals exceeded the prior quarter by 41% in value and 17% in volume."
"According to the PwC MoneyTree Report, the biotechnology industry captured the third largest total for dollars invested in Q2 but was second in terms of number of deals with $2.3 billion going into 126 deals, a 32% increase in dollars invested but flat in number of deals compared to the prior quarter," added the authors.
"This amount is the largest quarterly investment total going into biotechnology companies since the inception of the MoneyTree Report in Q1 1995. Overall, investments in Q2 in the Life Sciences sector (biotechnology and medical devices combined) accounted for $3.1 billion going into 201 deals, a 41% increase in dollars and flat in deals when compared to Q1 2015."
The industrywide consolidation trend is driven by several factors, including many companies' interests in diversifying their drug pipelines via acquisition; a cheap interest rate environment that makes M&As attractive; and changes in the U.S. regulatory environment. And as the PwC report states, "M&A activity in the [pharmaceutical and life sciences] industry is expected to continue to be robust for the remainder of the year."
It's important to note that there are plenty of worries surrounding this behavior, too. Increasing industry consolidation in both the biopharma and insurance sectors is likely to exacerbate the already-contentious fight over drug prices. And some observers point out that some companies are being acquired despite having few proven assets. At the moment, however, M&As seem to be the name of the game.
2. Expensive new drugs and widespread price hikes are giving the industry a black eye
Last December, Express Scripts upended the industry status quo by striking a deal for AbbVie's hep C combo Viekira Pak over Gilead superstars Sovaldi and Harvoni, in exchange for a significant discount. With a single move, a round of biopharma pricing wars had begun.
It's been a nonstop slog ever since, leading up to this month's bombshell New York Times report that Turing Pharma and its CEO, controversial life sciences gadfly Martin Shkreli, had hiked a 62-year-old taxoplasmosis drug's price by 5,000% (from $13.50 per pill to $750 per pill) after acquiring it from Impax Labs. Shkreli has since reversed course on the price raise, but has yet to specify Daraprim's new price.
Turing and Shkreli have already elicited massive backlash—not just from payers, physicians, patient advocates and some politicians, but also industry experts and analysts who think Shkreli is giving the sector a bad name.
As BioPharma Dive reported last week in a feature focusing on Shkreli and his antics as an accidental whistleblower on pricing, the industry often defends its prices and price hikes by citing the need to provide shareholders with value and raising revenue that will be used to fund major R&D initiatives. The thinking goes that, with excited investors and more robust funds for R&D, new and better drugs will hit the market over time that will be of immense benefit.
"Patient groups don’t care how much companies spend on R&D," said Dr. Alex Wyke, CEO of PatientView, in an interview with BioPharma Dive last month. "They only want results. So the argument of high redundancy in R&D as a driver of price increases falls on deaf ears among consumers and patients. I suspect their view is, Why should failure be rewarded?"
Consumers and the media are starting to catch on to the industry's practice of snapping up older generic drugs from competitors and hiking their prices, as well as raising the prices of older branded medications. As the Wall Street Journal pointed out earlier this year, companies like Valeant, Mallinckrodt, and Horizon Pharma have bought up CVD and pain medications and hiked their prices anywhere from 200% to 1,000%.
Furthermore, according to Bloomberg News, 27 branded drugs showed "price gains of at least 20 percent in typical dosages since the first quarter of 2014," and over the past five years, "prices of dozens of drugs doubled or more while the Consumer Price Index rose only 9 percent."
But a third source of pricing frustration—and one that biopharma will be particularly reluctant to change, thus ensuring continued scuffles with payers—is the exorbitant costs associated with new specialty immuno-oncology drugs and new, potentially groundbreaking therapies in other categories.
For example, prices for major new therapeutic classes such as cholesterol-lowering PCSK9 medications and exciting immuno-oncology drugs give critics fodder against the industry. Many observers, including critics such as pharmacy benefits manager Prime Therapeutics and CVS Health, had expected that new PCSK9 meds from Amgen and Sanofi/Regeneron would be pricey (anywhere from $7,000 to $12,000 per year). But few expected the price range to fall between $14,000 and $15,000 per year before discounts.
Again, the companies involved in developing these drugs assert that they were incredibly expensive to study and manufacture, and that they are ultimately a good bargain given the fact that the combined costs of treating CVD events exceeds $400 billion in the U.S. alone. But for payers and patients, the question often boils down to: If I (or my planholders) can't afford this medication, irrespective of how amazing it is, then how does its existence even matter?
Perhaps particularly worrisome for the industry is that doctors have also begun questioning drug prices at a time when pharma's access to physicians has plunged and the power of payers has grown. Cancer drug prices in particular have caught doctors' attention and elicited major pushback.
Just last month, a piece published in JAMA Oncology questioned the cost-benefit equation for an investigational Eli Lilly drug (necitumumab) that's expected to be extremely pricey while increasing patients' life expectancy by less than two months.
And at the American Society of Clinical Oncologists (ASCO) meeting this past summer, ASCO Chief Medical Officer Richard Schilsk (among other bigwigs at the organization) openly questioned the way oncology drugs are priced in the U.S. ASCO has even published a cancer drug scorecard that aims to link medications' therapeutic value to their cost. Outside the U.S., government entities such as the U.K.'s Cancer Drugs Fund have not hesitated to slash pricey oncology drugs from their formularies (in moves that have been called "stupid" and "shortsighted" by pharma CEOs such as Roche's Severin Schwan).
Benefits managers like Express Scripts and CVS Health promised that they wouldn't accept biopharma's list prices for new and hotly anticipated drugs for therapeutic categories ranging the gamut from choleterol-lowering meds to cancer drugs. As it turns out, they weren't joking—and private insurance companies like Aetna and United Healthcare have already drawn lines limiting the market reach of PCSK9 drugs.
With a slate of other major new drugs expected to reach the market within the next several years—including new hep C combos, Alzheimer's medications, and even more checkpoint-inhibiting cancer candidates, and not to mention the advent of an increasing number of biosimilar drugs coming to the U.S. market—biopharma will have to seriously bolster its economic case for high prices.
3. Pols, lawmakers are putting the industry in their crosshairs ahead of the 2016 election
This trend is directly related to the numerous pricing controversies listed above. And in recent days and weeks, the extent to which the industry will be used as a political football on this issue has come into clearer focus.
In the wake of the Shkreli-Daraprim pricing debacle, Democratic presidential contender Hillary Clinton released her plan for reigning in pharmaceutical prices after calling Shkreli's actions "price-gouging." The plan includes direct Medicare negotiations over drug costs; a mandated portion of pharma revenue to be allocated towards R&D; support for reimportation of drugs from abroad; rolling back exclusivity for biologics; and more.
Clinton's main opponent in the Democratic primary, Vermont Sen. Bernie Sanders, earlier released his own plan to tackle drug prices. It includes many of the same tenets as Clinton's plan and calls for a permanent end to pay-for-delay arrangements between branded and generic pharmaceutical companies. But the senator also advocates for a single-payer, Medicare-for-all system that would, in theory, vastly expand the government's negotiating powers on drugs.
And Sanders had already made the biopharma industry one of his targets even before his presidential candidacy, teaming up with House Oversight Committee ranking member Rep. Elijah Cummings (D-MD) to investigate why generic drug prices have been seeing such steep hikes. The U.S. Justice Department has also issued subpoenas on the matter.
Policy proposals are just that—proposals. And given the reality that the next president, Republican or Democrat, will likely be dealing with a politically divided Congress, it seems unlikely that a full-on assault on pharma's pricing practices will be successful. But the industry can expect to remain in the political (and potentially legal) spotlight as the 2016 presidential cycle proceeds. That increased scrutiny could also possibly jeapordize the prospects for the 21st Century Cures Act, the industry-backed FDA reform bill aimed at expediting drug approvals (among other big regulatory changes) and is currently winding its way through Congress.
It's not just presidential candidates taking aim at biopharma, either. As BioPharma Dive has previously reported, a coalition of states has pushed legislation that would force drug companies to become more transparent about development costs and drug prices. And Sen. Elizabeth Warren (D-MA) proposed a so-called "pharma swear jar" at the beginning of the year that would impose fines on big pharma companies that sell at least one blockbuster drug that are forced to settle claims for breaking laws (under the False Claims Act, for instance). The thinking goes that fines on these bad actors would be used to enhance funding for the NIH.
Again, these policies won't necessarily be passed nationwide or, in some instances, even come to a vote. But they are on the minds of major legislators and politicians—and with drug prices in the spotlight, the industry had best be prepared to continue dealing with similar proposals.
4. Record IPOs are stoking fears of overspeculation and a biotech bubble
A biotech bubble is never far from investors' and industry observers' minds. Those anxieties have accelerated in recent weeks after the onset of the Shkreli-Turing-Daraprim disaster and politicians' and the media's subsequent criticisms of the industry, which sent biotech indices tumbling on some trading days.
But concern over a potential bubble has been brewing for a while now. And that's not a huge surprise given some companies' willingness to place unprecedented premiums on early-stage companies and sky-high IPOs for firms that are years away from having any products reach the market.
"The development stage of emerging companies making the leap onto the public stage has changed in recent years," according to a Biotechnology Innovation Organization (BIO) report on investment and deal trends from June.
"Between 2008 and 2011, there was not a single Preclinical/Phase I IPO in the US, but in the following three years 22 made it onto public exchanges. The average amount raised for a R&D-stage company since the start of 2012 is $72 million, significantly higher than the $50 million average in the earlier three year window of 2005 to 2007. In total, $7.0 billion was raised by R&D-stage emerging therapeutics companies between 2012 and 2014, vs just $2.1 billion between 2005 and 2007. The percent change in dollars over these periods is far greater for IPOs than that seen with venture capital."
Two of the most obvious recent examples of IPOs that have spooked some industry observers are Axovant and NantKwest. The latter is the brainchild of the billionaire Los Angeles physician Patrick Soon-Shiong, and it had a blockbuster, record-setting (for a new biotech) IPO that valued the company at $2.6 billion despite the fact that its CAR-T technologies are nowhere close to the market (or even later-stage testing).
It's possible that these companies will eventually produce medications that save lives, reduce pressure on the healthcare system, and also make investors boat loads of cash. But there's a thin line between optimism and speculation, especially when it comes to the life sciences.
Of course, not everyone is worried about a 1999-style crash for biotech. At the JPMorgan Healthcare Conference in January, Abingworth partner Kurt von Emster, Merck EVP Iain Dukes, and Canaan Partners' Stephen Bloch all said that while the sectors appear over-valued, biotech still remain a safe investment thanks to a glut of knowledge and a far smarter, more efficient approach to R&D in recent years. Only time will tell who is right.
For a more complete analysis of how venture capital funding and IPOs in biotech has shifted, and some of the ensuing concerns—including the possibility that investments in the industry aren't as diversified among therapeutic categories as they should be and that seed capital for the youngest, most experimental biotechs is lagging—read BioPharma Dive's in-depth look at VC funding in the industry.
5. Traditional biopharmas and biotech upstarts are teaming up
This trend is related in many ways to the "Wild West" M&A environment of the last several years. The worlds of biotech and big pharma have been on a collision course, with the lines separating the sectors blurring—and judging by the licensing agreements and partnerships being struck among such companies, this may be a persistent trend.
For instance, mRNA biotech darling Moderna won (another) $50 million in funding from pharma giant Merck at the beginning of 2015, adding to its gargantuan haul from big-name companies like AstraZeneca and Alexion.
Some companies are better at the licensing game than others. Earlier this year, a Bloomberg report dubbed Celgene the biotech partnering king for striking 10 licensing deals with young biotechs in 2014. Only long-standing pharma giants made bigger upfront payments to team up with such firms.
Celgene also turned heads over the summer when the company paid a staggering $1 billion upfront to team up with Juno Therapeutics on red-hot CAR-T and T-cell receptor immuno-oncology therapies. Juno had one of the biggest biotech IPOs ever in 2014 despite not having any approved assets.
There's obviously plenty of excitement surrounding "young buck" biotechs that range from early to late stages in the clinic. That's not surprising. Companies like Alnylam, Clovis, Moderna, Juno, and many others are working on truly exciting scientific advances that could potentially upend the nature of American medical care. But the business and financial process informing that process is also being upended in some ways—and the bets being placed by major institutions will be heavily scrutinized over the long term.
6. Tech giants see healthcare and pharma as the next big thing
Ten years ago, the names Apple, Google and IBM likely brought to mind images of computers, search engines, and those newfangled devices called "iPods." For the most part, they likely still do today—but now, all three companies are also major players in the healthcare game. They have been forging partnerships with biopharma firms and asserting their ambitions in healthcare.
There's no shortage of ambitious life science projects being pursued by the tech sector. In August, Google announced a massive restructure into a holding company called Alphabet that would house a multitude of separate firms, including Google Ventures, Google X and Calico.
All three of those companies are focusing on drug development. Calico, which was created to tackle aging-related diseases such as Alzheimer's, has struck struck a $1.5 billion R&D pact with pharma giant AbbVie to fight age-related diseases and a development deal with the University of Texas Southwestern Medical Center for investigational ALS- and Parkinson's-fighting compounds. Google Ventures also significantly bolstered its funding of healthcare-related ventures, and Google has teamed up with Novartis to develop "smart contacts" that correct for age-related degeneration in eyesight.
Not to be left out, IBM and Apple have also joined forces with Medtronic and Johnson & Johnson to examine reams of clinical trial data to come up with better targeted therapies for patients and to ensure patients' compliance with their drug regimens. Apple's HealthKit and ResearchKit technologies are a natural fit for such partnerships (especially considering their intimate involvement in the burgeoning mobile health device market), as is IBM's supercomputer Watson.
"If you’re an oncologist, there are 170,000 clinical trials going on in the world every year," explained IBM Watson VP Steve Gold in an interview with Forbes. A supercomputer and one of the world's leading tech firms could go a long way towards consolidating and analyzing all that data.
Big-name scientists are joining the tech foray into the life sciences, too. To cite just one recent example, 13-year National Institute of Mental Health (NIMH) vet/director Dr. Thomas R. Insel announced in September that he would be leaving his government post to join Google Life Sciences.
7. Biopharma's jobs landscape is undergoing a sea change
There are several major sets of changes flowing through jobs in the life sciences, and they are likely to continue in an environment where major M&As are a regular occurrence and payers are flexing their muscles against biopharma.
First, M&As almost always portend job cuts. As companies consolidate their resources, they often hack away at duplicative parts of their workforces as they realize synergies from a merger or acquisition. That's not particularly shocking. But what may come as an unpleasant surprise to workers at certain firms is that companies may also use M&As as an opportunity to "rightsize" portions of their employment base in order to help restructure a company. For instance, Amgen used this strategy to cut R&D and manufacturing jobs in the wake of its Onyx Pharma acquisition.
The other significant change in the pharma workforce is the rapidly shifting role of the pharmaceutical sales rep. Many physicians have cut off access to pharma reps, for instance. The job is by no means dying off—but as payers and government programs become increasingly involved with the drug marketing realm, a "door to door salesman" approach to hawking pharma products is no longer cutting it.
A successful contemporary pharma sales rep has to be able to show a sophisiticated understanding of therapies' scientific merits and be able to communicate patient-centric and value-based outcomes. He or she must also understand the cost-conscious landscape that payers and government health programs are operating in.
8. Big legislative and regulatory changes are coming to the industry
The 1,000 pound gorilla known as the 21st Century Cures Act has been steadily winding its way through Congress. It easily passed the House of Representatives earlier this summer on a 344-77 vote. And if the bill ultimately winds up passing both chambers and heading to President Barack Obama's desk, he's likely to sign it—which would be a massive boon the biopharma companies.
The legislation, as it currently stands, would speed up drug development efforts, provide more funding to the NIH and FDA, grant exclusivity to orphan drug products, make it easier for pharma companies to make the economic, value-based case for their drugs to providers, integrate patient voices into the regulatory and drug development process, allow for the use of surrogate endpoints to expedite the clinical trial process, and much more.
Cures has enjoyed both bipartisan and cross-industry support by attracting a powerful coalition of players to its defense, including pharmaceutical companies, patient advocacy groups, and even federal regulatory and research agencies.
But not everybody is quite that excited about the prospect of 21st Century Cures. In fact, some have argued that the bill could actually be dangerous from a patient safety perspective by relaxing certain FDA regulatory hurdles (such as allowing for the use of surrogate endpoints and antibiotic approvals based on early-stage clinical trials).
Generic manufacturers have also criticized the bill's orphan drug exclusivity measures, arguing that they will increase costs and decrease access for rare disease patients. On the other hand, pharma companies and patient groups might respond that when it comes to unmet needs, the more options there are for patients, the better, and that exclusivity provisions are a needed carrot for encouraging development for diseases that won't have a particularly wide market reach.
The big question now is: What will the Senate's version of the legislation look like? And will the recent focus on pharma's pricing practices make it less likely that Cures will keep sailing through Congress? It's already widely expected that the Senate will water down major components of the bill. But if Senate Democrats insist on infusing pharma price check measures into the legislation in exchange for enhanced exclusivity, it could wind up running a buzzsaw into the bill.
9. The FDA is approving a record number of drugs—and that's likely to persist
An excellent Forbes post from Matt Herper earlier this summer proclaimed that the FDA "is basically approving everything." As he points out, the agency has approved 89% of applications for uses of new chemical entities (and by some accounts, as much as 96%). In fact, former FDA Commissioner Margaret Hamburg touted her record in her farewell speech this year by noting that the FDA had approved the most new drugs in 2014 in 20 years.
It's not as if the FDA has always been a paragon of rapid fire and widespread drug approvals. But in recent years, the agency has been on a mission to approve drugs for unmet medical needs; orphan drug products; drugs that show a benefit over existing medications; and, as critics point out, also some drugs that don't show much of an improvement over existing therapies.
Some of these approals have been far more controversial than others. For instance, Sprout Pharma's women's libido drug Addyi has invited plenty of criticism conerning both safety and efficacy worries. The medication has adverse interactions with alcohol and certain hormone therapies, for instance. But a vigorous marketing campaign painting the drug as an issue of women's rights wound up convincing the FDA that it was worth approving despite the risks.
Critics point out that this "approve everything" dynamic could lead to negative externalities, including finding out down the line that a drug isn't quite as safe as once thought. But others say that having more drugs on the market is one way to ensure that prices come down to some extent, since payers can increase their negotiating power.
10. Exciting new therapeutic classes are fueling enthusiasm—but will have to prove themselves
Last year, BioPharma Dive reported on the 11 biggest drug launches to watch in 2015. By now, almost all of those launches are underway, including the immuno-oncology superstars from Bristol-Myers Squibb and Merck (Opdivo and Keytruda); PCSK9 inhibitor cholesterol-lowering drugs from Amgen and Sanofi/Regeneron; Sanofi's Lantus followup Toujeo; and Novartis' groundbreaking heart failure therapy Entresto.
But now that the hard part's over, these therapies will have to prove themselves in a tough marketplace—not just with sales, but tried-and-true positive results in massive patient populations. And the steep prices of some of these medications are already eliciting blowback from insurers and other payers. For instance, insurers and even some of the nation's top cardiologists are already trying to heavily restrict the potential patient pool for PCSK9 inhibitors.
Furthermore, other investigational products that have yet to reach market but will be some of the most closely watched launches of 2016 and 2017 will also have to gird themselves for the potential of less-than-stellar clinical trial results. For instance, Biogen and Eli Lilly both revealed some mixed bags when it came to their investigational Alzheimer's medications (aducanumab and solanezumab, respectively) over the summer, showing modest improvements in cognitive decline. Before the data were released, industry observers and investors were hoping for far more impressive results based on promising early-stage trial numbers.
Other therapeutic classes that will see put-up-or-shut-up clinical trial moments over the next several years include Gilead's next-gen pangenotype hepatitis C combo (which has been very impressive in trials so far); CAR-T cancer therapies; and gene therapies for conditions such as sickle cell disease from companies like bluebird bio.