What keeps pharma execs up at night? Apparently a lot, says new report
- Big life science companies may differ in what products they make or clients they serve, but they can agree that competition, patents loss, lawsuits and the inability to commercialize products pose significant risks to their businesses.
- In fact, literally all of the 100 largest, publicly traded life science companies in the U.S. cited those factors as potentially damaging in their most recent 10-K filings with the Securities and Exchange Commission, according to an analysis from financial services provider BDO USA LLP.
- While competition, intellectual property infringement and the like have topped BDO's list of risk factors over the past few years, companies are also increasingly concerned about executing corporate strategy or growth initiatives — with 93% including that risk in their latest annual filing, up from 84% in 2016 and 69% back in 2013.
Competition has been coming from all sides in the pharmaceutical industry. Therapeutic areas such as diabetes and cancer are growing increasingly crowded as more companies usher their branded, innovative products to market. Generic developers are making their presence known too, knocking down patents and securing approvals for copycat versions of high-priced medicines.
Though their impact has been relatively muted thus far in the U.S., biosimilars also stand to change market dynamics. The Food and Drug Administration has already green lit seven, most of which look to snag market share from blockbuster therapies like AbbVie Inc.'s Humira (adalimumab) and Roche AG's Avastin (bevacizumab).
Fortunately for reference products owners, patent battles have largely kept the biosimilar threat at bay. But seeing as lawsuits are the main line of defense against new — and likely cheaper — versions of a biologic coming to market, it's understandable why attacks on corporate copyright, trade secrets and trademarks would weigh so heavily on the minds of biopharma execs. In the last five years, BDO found the percentage of big life science companies that identify those challenges as risk factors has increased from 96% to 100%.
Of the top 25 risk factors noted in BDO's latest report, the biggest changes were seen in inadequate liquidity or capital, which jumped from being included in 85% of 10-K filings in 2015 to 94% in 2016, and failure to properly execute corporate strategy and growth, which jumped from 84% in 2015 to 93% in 2016 and encompassed things like R&D setbacks, lacking product innovation and inability to create new drugs.
"With only one of every 10 products making it to market, recouping this investment is challenging," the report said. "Successful products often must drive profits until their patents expire. In 2015, 80% of the growth in profits among the 20 largest drug companies resulted from price increases, rather than from the addition of new products, according to research by Robin Feldman, director of the Institute for Innovation Law at UC Hastings College of Law."
Yet, even if a drug gets commercialized, estimates say the manufacturer still spent about $2 billion to $2.5 billion to develop it in the first place. Accessing enough capital to fund such research has become another key focus, and dilemma, for pharmas as of late.
"The challenging funding environment threatens research and product development efforts that are critical to keeping product pipelines active. BDO’s risk analysis found that worries about having to reduce or eliminate product development programs rose 11 percentage points from 2016 (56%) to 2017 (67%)," BDO said.
- BDO USA LLP Report
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