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Scientific advances and renewed investment may infuse biopharma for growth.
Advances in science captured the biggest biopharma headlines in 2017, with FDA’s approval of two cell-based chimeric antigen receptor (CAR)-T cell therapies. The approvals of Kymriah (tisagenlecleucel) from Novartis on Aug. 30. 2017 and Yescarta (axicabtagene ciloleucel) from Kite Pharma, a Gilead Company, on Oct. 18, 2017 marked a next step forward in personalized medicine. The approvals also signaled a shift in manufacturing from traditional, large batch bioprocessing to an individual patient manufacturing model.
Despite these scientific successes, financial and policy issues once again may be the dominant factors in thebiopharma industry outlook. Looking back to the first weeks of 2017, uncertainty was the underlying theme as the industry waited to see how the political agenda of the incoming Trump administration would affect healthcare reform, drug pricing, R&D investment, and regulations.
In the ensuing 12 months, the industry witnessed a record number of drug approvals, including a new commissioner at FDA, a major overhaul to US corporate tax structure, and the announced move of the European Medicines Agency to Amsterdam. Unfinished business-open questions about the fate of the US healthcare system, an unresolved federal budget, and ongoing debate over drug pricing-have extended the air of unpredictability into 2018.
Efforts to replace the Affordable Care Act (ACA) failed in 2017; only one component, the individual mandate, was repealed as part of the Tax Cuts and Jobs Act (TCJA) of 2017.
The Congressional Budget Office estimated that by 2027, 13 million fewer people would have insurance coverage if the mandate were repealed, potentially reducing the number of patients seeking prescription or generic drugs (1). Fewer insured patients could translate into a decline in drug sales. In addition, the future funding for Medicaid and children’s health programs remained uncertain at the beginning of 2018.
Thanks to the overhaul of the tax system enacted in late December 2017, US-based bio/pharma companies started 2018 with a lower corporate tax rate, lower taxes on income earned abroad, and simplified rules for expensing new investment purchases. What biopharma companies will do with the tax savings or repatriated funds-invest in R&D, return it to stockholders, or shop for acquisitions-was not clear as 2018 began.
The tax law overhaul had one negative element: the orphan drug tax credit was reduced from 50% to 25% of qualified research and clinical testing activities.
Through the third quarter of 2017, pharma and biotech transactions declined for a second year compared with the active markets of 2014 and 2015, according Evaluate Pharma (2). The decline was attributed to uncertainty over tax law changes.
Companies with legacy drug products in large therapy areas may spur mergers and acquisitions activity to refill pipelines. In the report, experts noted that early-stage companies developing immune-oncology drugs were overvalued, creating a “seller’s market.” The valuations of large-cap biotech companies were depressed, the report argued, creating opportunity for now cash-rich pharma companies to make a large acquisition.
Strong financial markets also could spur more initial public offerings; small biotechs may also look to independently fund later-stage development, the report authors note.
Despite a decline in the number of drug approvals in 2016, the US drug market is on an upswing; 46 new molecular entities were approved in 2017 compared with 22 in 2016. FDA’s accelerated approval pathways continue to cut review and approval times. FDA also approved five biosimilars in 2017, however, legal action delayed the marketing of some approved products.
FDA’s fast track, breakthrough therapy, accelerated approval, and priority review pathways continue to reduce review time and expedite approvals (3). Some analysts have suggested greater leniency on the part of FDA has contributed to the increase in approvals, a notion the agency denies (2).
PhRMA notes that 240 immuno-oncology treatments are in development, including adoptive cell therapies, bi-specific antibodies, cytokines, immune checkpoint modulators, oncolytic virus therapies, and vaccines (4). Research in immuno-oncology therapies will be closely watched, Evaluate Pharma reports, and could be targets for investment.
Although promising platforms such as gene therapies are emerging, the challenge for bio/pharma is to develop these platforms in an efficient way to create “near-term value for all stakeholders,” according to the authors of Deloitte’s annual study on industry return on investment (5).
The report--based on analysis of estimated return on investment from late-stage pipelines of 12 large-cap biopharma companies--noted that projected R&D returns continued to decline from 10.1% in 2010 to 3.7% in 2016 and 3.2% in 2017. The average cost to bring a drug to market continued to increase from $1.188 billion in 2010 to $1.992 billion in 2017.
While scientific breakthroughs improve the lives of patients, they also can richly reward the drug’s creators, note the analysts at Evaluate Pharma (2). Recent successes and the implementation of the US tax cuts may spur renewed investment and acquisitions in 2018. The drug therapy successes need to continue, however, to keep investors interested in the market. The bar for success is set high with rapid progress during the past few years, Evaluate Pharma reports, and disappointments would remind investors that, in biopharma, “failure is a fact of life.”
While lower tax bills may help fill biopharma company coffers, the debate over the high cost of prescription drugs remains a threat to profitability. A 2017 survey (6) by PwC’s Health Research Institute found that, in general, bio/pharma executives recognize that the industry has a drug pricing problem. Executives are split, however, as to how-or if-the problem should be addressed.
The survey assessed opinions of executives from pharma and insurance companies on drug prices and value-based payment models; 45% of the respondents expect the Trump administration to accelerate downward pressure on drug prices. More than half of the respondents (54%) thought new federal or state drug pricing laws were very or somewhat likely to be enacted.
Respondents were equally split (44% responding “yes,” 44% responding “no”) on the question: Do you think the industry should consider limiting the growth of drug prices during the next fiscal year? However, more than half (53%) said their organization was not considering limiting the growth of drug prices during the next fiscal year; only 23% said their organization was considering limits to growth of drug prices.
The PwC report explored the potential of value-based contracts: a drug’s price is set based on how it performs in real-world settings versus the current approach of basing pricing on data collected during controlled clinical trials. Successful therapies would create rewards; drugs that did not perform may result in reimbursements to patients.
Pharma and health industry executives surveyed expressed enthusiasm for value-based contracts; however, participation is limited. Only one-quarter of the surveyed pharma executives reported that their organizations had participated in a value-based program; however, 80% of those that participated said the contracts were successful. More than one-third (38%) said the potential rewards of a value-based contract were worth the risks.
Value-based pricing models face a number of operational hurdles, including the lack of measurable outcomes regulatory questions, data sharing, and establishing agreement on performance metrics. The value for the patient must also be assessed.
Reducing the number of regulations was a key component of the Trump administration’s 2017 agenda. FDA Commissioner Scott Gottlieb (1) noted the agency must recognize “when scientific innovations warrant new, more flexible regulatory approaches in order to make sure advances in care can reach patients.” To accomplish this, he wrote, the agency must “continually adapt our regulations to enhance efficiency, improve our effectiveness, and update old and out-of-date requirements (7).”
Planned 2018 regulations for drug compounding facilities would clarify which drugs may be compounded and promote more efficient, streamlined manufacturing standards, while ensuring safety and quality measures. Another proposed rule would establish national standards for the licensing of prescription drug wholesale distributors and third-party logistics providers, as part of track-and-trace requirements.
Clearly defined standards must not place unnecessary burdens on regulated companies, Gottlieb wrote, and should reflect the latest science. Outdated rules will be removed, he noted, singling out “an outdated inspection provision for biologics and outdated drug sterilization requirements to remove barriers to the use of certain sterilization techniques.”
The agency also faces 2018 deadlines associated with the 21st Century Cures Act including drafting guidance documents for patient-focused drug development; reporting to Congress on standards for advanced regenerative therapies, compliance activities, and hiring authority or scientific, technical, and professional personnel; and holding public meetings on the qualification of drug development tools.
A key deadline-Nov. 26, 2018-looms for bio/pharma companies to comply with requirements for product identifiers and verification in accordance with the US Drug Supply Chain Security Act.
1. Congressional Budget Office, “The Bipartisan Health Care Stabilization Act of 2017 and the Individual Mandate,” Nov. 29, 2017.
2. A. Brown, E. Elmhirst, J. Gardner, EP Vantage 2018 Preview, Evaluate Pharma, December 2017.
3. C. Challener, “FDA Drug Approvals Hit Record Levels in 2017,” BioPharm International 31 (1) (2018).
4. PhRMA, Medicines in Development: Immuno-oncology, 2017.
5. C. Terry and N. Lesser, A New Future for R&D?, Deloitte, 2017.
6. PwC, Launching to Value: Pharma’s Quest to Align Drug Prices with Outcomes, September 2017.
7. S. Gottlieb, “Looking Ahead: Some of FDA’s Major Policy Goals for 2018,” FDA Voice, Dec. 14, 2017.
Volume 31, Number 11
When referring to this article, please cite it as R. Peters, “Science and Funding Inject Excitement into Biopharma," BioPharm International 31 (1) 2018.