A panel of mainly biopharma experts pontificated on trends that are sure to shape the life sciences industry this year and beyond. The panel was hosted by management consulting firm Boston Consulting Group on Tuesday in San Francisco. Here are some key takeaways:
The slow pace of fast change
One theme that emerged – and perhaps one that is not new but has become more magnified in the pandemic years – is the reality that advances in technology is far outpacing the regulatory framework meant to guide its use in the medical world.
This is because non-traditional players are increasingly participating in healthcare innovation – especially in the realm of artificial intelligence and machine learning. Eli Casdin, founder and chief investment officer of Casdin Capital, a hedge fund manager, reflected how 40 years ago J.P. Morgan attracted about a 100 people to the conference and now in its 41st year, the conference has created a whole ecosystem with dozens of satellite conferences drawing thousands of people and not just in biotech.
“You are seeing the convergence of therapeutics companies and device/data companies [and they are] starting to get closer and closer,” Casdin said noting how retail companies are now getting into healthcare.
“Everything is starting to converge and you’ll find these therapeutics companies talk about data and how to find the patient and data companies talking about using AI and how to find a better molecule.”
While all this is great, the changes couldn’t come soon enough.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“It’s just that this is going to happen slower than we want it to,” Casdin said.
To which the BCG moderator – Romney Resney, managing director and senior partner, West Coast healthcare leader – quipped: “We all hear you on the slow pace of fast change.”
It’s not all doom and gloom in biotech
For an industry that has had high valuations and easy financing and access to capital market, 2022 was a horror story. The spigot suddenly turned off. Only 11 companies went public last year as the IPO market contracted more than 90%, said Matthew Leskowitz, managing director of healthcare investment banking at Goldman Sachs. So is the future of biotech this year as dark and stormy as the skies over San Francisco?
Apparently not.
Leskowitz said that after analyzing the market data, he realized that the follow-on market for biotechs that are already public really rebounded in the second half of 2022 to a level that is comparable to what it was in 2021.
“If you actually parse through the data, it’s not all doom and gloom – there is capital available,” Leskowitz contended, noting that it is available to “higher quality teams and higher quality assets.”
Private companies have also seen their valuations lowered and while capital is available to them, it is more “discerning and disciplined in this environment,” he explained
Leskowitz predicted that ultimately the public markets will open though a lot of depends on what the Federal Reserve does.
“I do think that sometime this year the markets will reopen more broadly, Leskowitz said. “A lot of that is a factor of when the feds take the foot off the breaks – hopefully this year.”
2023 will see more bolt on-acquisitions as opposed to biotech mega mergers
Like in other industry verticals within healthcare industry, biopharma will see it share of consolidation, Casdin said. But BCG’s Resney said that the consolidation won’t be of large companies in search of synergies. That’s unlike in the hospital world, which has seen a fair share of large cross-market mergers that continued even in 2022.
Three deals announced on the first day of J.P. Morgan show that large companies are engaged in tuck-in acquisitions.
“We are not necessarily seeing very large-scale M&A, we are seeing single-digit billion-dollar type bolt-on deals,” Leskowitz said. “Many of the deals in this environment are of commercial or near commercial assets.”
Big Pharma is still interested in partnerships and collaborations
Another panelist, Michael Klobuchar, chief strategy officer of Merck, suggested that aside from M&A, large pharmaceutical companies continue to be deeply interested in partnerships and collaborations. He noted that in the past 12 months, the majority of transactions that Merck did were collaborations. In doing these collaborations, the starting point for Merck is the quality of the science and how compelling the approach is, Klobuchar said. Merck also reviews its portfolio and finally evaluates whether there is a clear enough path to actual value creation to decide whether to move ahead with a collaboration.
“When those three things line up and we have clarity of intention, we will pursue these opportunities in the right form,” he said. “Most of these in recent times have been classic collaboration and I suspect that will continue.”
FDA’s regulatory framework will continue to be behind the pace of innovation in biopharma
On the medtech side, things are actually not all that bad compared to the therapeutics end of the market as it relates to FDA regulating AI and machine learning. Laura Mauri, senior vice president and chief scientific, medical and regulatory officer of Medtronic, applauded the agency for its “incredible commitment” to developing frameworks for how AI and machine learning can be leveraged thoughtfully and responsibly in the medtech world.
Another panelist disagreed.
“I think innovation is moving so fast, whether it be biologics or AI or devices, I don’t think the regulatory agencies can keep up with the transformation…. I don’t know the answer but it seems like we are about to have a big car crash in the regulatory world,” Casdin said.
Aside from addressing trends, the panel also took questions from the audience and one of them centered around where in the life science value chain, can one eliminate cost. Not surprisingly, Casdin hinted at the product development cycle.
“Ten years to develop a product is insane,” he declared. “Anything you can do … to find patients faster, cheaper and get them into clinical trials will change the ROI dramatically.”
Merck’s Klobuchar also chimed in saying that improving the “probability of “technical and regulatory success” as truly valuable for biopharma companies.
“Ten percent savings just in expense has pretty much no consequence but if you inject that investment into improving 10% of probability of technical success you get a 30x multiplier in your economic model,” he explained.
Photo: nevarpp, Getty Images
