Edward S. Price, President, PCI03.07.17
There are several key trends that will affect the emerging biotech and generic drug sectors, as well as contract research organizations (CROs) and contract manufacturing organizations (CMOs), in 2017. We see the potential for significant change in 2017, including a possible reduction in FDA red tape, tighter capacity because of the industry’s current growth, and a speedier FDA approval process that could reduce its backlog by the end of this year. But we also expect significant uncertainty due to the new administration. To successfully navigate the uncertainty, which includes a promise to reduce drug prices, companies need to remain agile and creative to find ways to keep costs down. The following are several trends that will impact the industry in 2017.
Capacity is tightening
Over the past three years, we’ve seen rising concerns that capacity for early stage programs could be an industry issue, but 2017 could see a real shortage. Factors include the increasing number of virtual biotechs with no manufacturing capability along with the rising number of drug discovery projects; and double-digit patent expiries. While not at the patent cliff levels—from 2009 through 2014—nearly 30 patents will expire by 2018, fueling a rise in the number of drug discovery programs.
More CRO/CMO consolidation
The CRO and CMO sectors saw dozens of acquisitions in 2016, and that trend is expected to continue in 2017. Whether the deals are driven to enter new markets or to extend capabilities/expertise, M&A deals are disruptive and potential clients should ask key questions, including: What happens to the people working on my current team?; and, What controls are in place to reduce the likelihood of disruption to my project, especially with regard to timeline, personnel, budget and other resources?
Big Pharma consolidation to pick up
Although two of the biggest acquisitions in 2016 involved Big Pharma—Shire’s $32 billion purchase of Baxalta and Abbott Laboratories’ $25 billion purchase of St. Jude Medical—the year saw a 65% drop in life sciences deals compared to 2015, a record-setting year. However, expect Big Pharma to get busy in 2017, driven by increased valuations, a possible change in tax codes to allow U.S.-based Big Pharma to repatriate dollars being “hoarded” overseas, and because biotechs have a strong innovation track record.
Innovation by small biotechs
Instead of going it alone, Big Pharma now turns to small biotechs—a big change over the past two decades. According to a Boston Consulting Group survey, today about 70% of new sales come from drugs initially developed by small companies, up from 30% in 1990. That may be due to an increase in the number of companies developing small molecules into drugs as well as an increase in the number of drugs approved by the FDA, thanks to a streamlined, speedier approval process.
FDA and drug pricing uncertainty
There’s good news in the promise to reduce FDA red tape or at least a halt in a process that consistently added regulations over the past eight years. It’s gotten to the point that regulatory affairs is a significant part of drug discovery, especially if regulations changed after a project’s start. There’s also good news that the new administration may support easing restrictions on off-label use, though insurance companies may not cover a new indication without specific clinical trials. But there’s potential bad news in President Trump’s vow to reduce drug prices and to repeal all or parts of ObamaCare, which may cause insurance companies to reduce coverage for new medicines. This uncertainty may cause clients to hold off drug discovery, and in turn, CMOs to reconsider investing in additional capacity.
Edward S. Price
Edward S. Price is a founding member of the New England CRO/CMO Council and the president of PCI, a custom chemical manufacturer of new chemical entities (NCEs), generic active pharmaceutical ingredients (APIs), and other specialty chemical products. He can be reached at ed.price@pcisynthesis.com.
Capacity is tightening
Over the past three years, we’ve seen rising concerns that capacity for early stage programs could be an industry issue, but 2017 could see a real shortage. Factors include the increasing number of virtual biotechs with no manufacturing capability along with the rising number of drug discovery projects; and double-digit patent expiries. While not at the patent cliff levels—from 2009 through 2014—nearly 30 patents will expire by 2018, fueling a rise in the number of drug discovery programs.
More CRO/CMO consolidation
The CRO and CMO sectors saw dozens of acquisitions in 2016, and that trend is expected to continue in 2017. Whether the deals are driven to enter new markets or to extend capabilities/expertise, M&A deals are disruptive and potential clients should ask key questions, including: What happens to the people working on my current team?; and, What controls are in place to reduce the likelihood of disruption to my project, especially with regard to timeline, personnel, budget and other resources?
Big Pharma consolidation to pick up
Although two of the biggest acquisitions in 2016 involved Big Pharma—Shire’s $32 billion purchase of Baxalta and Abbott Laboratories’ $25 billion purchase of St. Jude Medical—the year saw a 65% drop in life sciences deals compared to 2015, a record-setting year. However, expect Big Pharma to get busy in 2017, driven by increased valuations, a possible change in tax codes to allow U.S.-based Big Pharma to repatriate dollars being “hoarded” overseas, and because biotechs have a strong innovation track record.
Innovation by small biotechs
Instead of going it alone, Big Pharma now turns to small biotechs—a big change over the past two decades. According to a Boston Consulting Group survey, today about 70% of new sales come from drugs initially developed by small companies, up from 30% in 1990. That may be due to an increase in the number of companies developing small molecules into drugs as well as an increase in the number of drugs approved by the FDA, thanks to a streamlined, speedier approval process.
FDA and drug pricing uncertainty
There’s good news in the promise to reduce FDA red tape or at least a halt in a process that consistently added regulations over the past eight years. It’s gotten to the point that regulatory affairs is a significant part of drug discovery, especially if regulations changed after a project’s start. There’s also good news that the new administration may support easing restrictions on off-label use, though insurance companies may not cover a new indication without specific clinical trials. But there’s potential bad news in President Trump’s vow to reduce drug prices and to repeal all or parts of ObamaCare, which may cause insurance companies to reduce coverage for new medicines. This uncertainty may cause clients to hold off drug discovery, and in turn, CMOs to reconsider investing in additional capacity.
Edward S. Price
Edward S. Price is a founding member of the New England CRO/CMO Council and the president of PCI, a custom chemical manufacturer of new chemical entities (NCEs), generic active pharmaceutical ingredients (APIs), and other specialty chemical products. He can be reached at ed.price@pcisynthesis.com.
