The New Normal

The new annual industry reports from Burrill and Company and Ernst & Young share many themes. Both reflect the hard times just past and ahead, and discuss how companies must adapt to survive, and hopefully thrive, in the hostile environment that is "the new normal."

Laura Bush

As possible solutions to the industry's challenges, the reports focus on innovative approaches to financing, and sharing risk; opportunities in global markets; new models for research and development; and how recent major mergers and acquisitions, and future partnerships, can help companies compensate for the $140 billion in annual revenues lost from drugs going off patent by 2014.

Indeed, companies are trying new approaches to filling their pipelines. One of the latest industry strategies is to explicitly outsource large amounts of R&D (instead of just doing so tacitly, by buying drugs and whole companies). Others are talking about "smarter" R&D, such as pairing diagnostics with drugs in early development.

All of these models must be tried, but it will take time to see if they work. In the meantime, a different kind of threat is on the horizon: "biobetters."

US healthcare reform legislation has created a pathway for the approval of biosimilars. But as John Engel of Engel & Lovitt, LLP, pointed out during the Interphex keynote panel that I chaired in April, the patent provisions in the biosimilars legislation—particularly the system that allows an innovator almost nine months to examine a biosimilar applicant's dossier and its manufacturing processes before deciding whether to file a claim for patent infringement—make biosimilars applications unattractive and even prohibitive, especially in cases where the biosimilar sponsor has its own trade secrets and patents.

As a result, unless those rules are significantly modified in subsequent legislation, most companies will probably forego biosimilars and opt to develop "biobetters"—new versions of existing drugs that are somehow improved, such as through a better safety profile or longer half life for less frequent dosing. These drugs will go through the full development process and standard BLA filing, rather than following an abbreviated approval pathway that comes with restrictions in price.

Yet such drugs are unlikely to fulfill the goal of biosimilars of lowering prices and increasing access to medicine. That means they won't free up healthcare dollars; instead, they will just distribute those monies differently among companies, as second-in-class drugs take market share from the first-in-class.

They may offer some value for patients. The biggest benefit of biobetters, however, will be adding certainty to the drug development process for the companies that bring them to market. If this is done to boost revenues while R&D teams work on riskier, first-in-class drugs, I'm all for it. But if the effect is simply to prolong unsustainable business models, and takes the focus away from true lifesaving innovation, then we will all lose.

Before healthcare reform was passed, Matthew Hudes of Deloitte—another member of my Interphex keynote panel—warned that reduced appetites for drug development risk was a potential outcome of the price pressures expected to accompany biosimilars. But even without a viable biosimilars option, other market conditions could push companies in that direction.

The "new normal" is full of threats. Let's hope that one of them is not to lose the focus on life-saving innovation that has always been the heart and soul of biotech.

Laura Bush is the editor in chief of BioPharm International, lbush@advanstar.com