BioPharma, Pharma

Is the biotech boom slowing down?

As Ernst & Young noted on several occasions, the biotech sector has matured and must now face adult problems.

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The cover of Ernst & Young’s 2016 biotech report has a picture of a parachutist and the subtitle, “Returning to Earth.” According to EY, the biotech industry has experienced explosive growth over the past few years, but that appears to have slowed in 2015. On its own, a 13 percent increase in biotech revenue looks impressive – unless it’s compared to the 18 percent increase in 2014.

So let’s take a few moments to dissect the report. Are biotechs descending, and if so, can we expect a soft landing?

There’s actually a lot of good news in the EY report. In addition to the 13 percent increase in revenue:

  • R&D spending increased by 16 percent to $40.1 billion;
  • Merger and acquisition value increased 120 percent to $102.2 billion, a 10-year high;
  • Biotechs raised close to $71 billion, fueled by increased venture capital interest;
  • Smaller companies (revenue under $500 million) raised more than $41 billion;
  • 40 new drugs were approved, 22 with orphan designation.

But the report also makes an important caveat: In 2015, Gilead produced almost 25 percent of the industry’s total revenue.

In addition, the equity markets have not been so upbeat. Biotech-sector market capitalization grew 65 percent in 2013, 28 percent in 2014 and a comparatively anemic 5 percent in 2015. Plus, its $1.1 trillion market cap has since fallen to around $918 billion as of May 31.

Why are biotech investors going AWOL? In a word, pricing. Payers have grown larger and more powerful and are not nearly as agreeable to approving biotech treatments as they once were. Factor in presidential politics and high-profile outlier Martin Shkreli and drug pricing becomes the political cause du jour.

The report notes that “biopharmaceutical companies struggle to make value-based arguments for their medicines. Fear that they will ultimately fail to do so has contributed to ebbing investor sentiment toward the sector.”

And with biosimilars on the way in, it’s no time for biotechs to dither.

Dr. Michael Sherman, CMO at Harvard Pilgrim Heathcare, offered some thoughts on how to put the value in value-based pricing. Pilgrim has partnered with Amgen, offering exclusivity for cholesterol drug Repatha. However, how much Amgen actually earns will be influenced by how well the drug performs in patients.

There are other ideas for addressing the potential slowdown. Roger Longman, CEO of analytics company Real Endpoints, noted that payers are not homogeneous, saying, “Different kinds of payers have different economic incentives.” Biotechs should plan their rollouts accordingly.

On the cost side, James Mullen, CEO of contract drug manufacturer Patheon, suggested companies should consider outsourcing their supply chain, creating leaner, more nimble organizations.

Ultimately, the EY report paints a picture of a strong biotech industry that isn’t quite as strong as it used to be. No need to panic or sit still. As EY noted on several occasions, the biotech sector has matured and must now face adult problems.

Photo: Ernst & Young

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