By Geoff Penney, Vice President
Biologic medications have brought tremendous relief to a multitude of sufferers across indications, and in an environment of shrinking pipelines and patent cliffs, is one area where there is still room to grow and reason for promise. The science of biologics has not yet been saturated, with new arrivals expected from successful biologic suppliers as well as from hopeful biotechs.
However, the peril cannot be understated, as biologic development faces a complex and evolving competitive landscape. These include emerging biosimilars, the current economic climate and potential future political developments.
The patent cliff has been on the horizon for years. While pharmaceuticals are preparing for the follow-on biologics (note Merck’s recent announcement forming its new BioVentures division dedicated to the manufacturer of follow-on biologics), the hurdles for these manufacturers are considerable. Notably, the manufacturing of biotechnology medicines is significantly more complex than traditional chemical entities and as a result biosimilars (as the term implies) will be similar but by no means nearly identical to the innovator’s biological entity. The consequences are many, but it is certain that regulatory approval processes and generic substitution rules will be vastly different from those currently in place.
The generalized economic recession has put added stresses on pharmaceutical companies, and there will almost certainly be more effects as this malaise grinds on. This puts different kinds of stresses on biologic providers. First, while biologic medications can return incapacitated patients to normal daily life, they are expensive. Expect insurance providers to push back even harder against physicians wanting to prescribe biologics. This would be true in any circumstance, and even more so in a contracting economy.
This is in addition to the simple pain of a tight economy. Along with the layoffs making the news in the well-known companies, smaller biologic companies are being hit as well. Auxilium Pharmaceuticals Inc. recently issued a press release in which it warned of potential deleterious effects of the macroeconomic situation on its 2009 business; Cell Therapeutics Inc. is closing overseas offices; and a BioInformatics report set to be released in March is finding that nearly half its respondents (senior scientists and lab managers at universities, pharmaceuticals and biotech companies) are very concerned about economic impacts on operations in 2009.
Second, mergers and acquisitions among the larger companies leave less money for the smaller hopefuls. Large acquisitions consume billions of dollars that are pulled off the table for potential small companies. Further, how much venture capital will be available for the small companies when some of the largest players in the American economy are suddenly undercapitalized? The Biotechnology Industry Organization reports that funds raised by initial public offerings in 2008 fell 97 percent compared to 2007. We may witness a wave of attrition among the smaller companies that has little to do with the strength of their science or the potential of their molecules.
The economic crisis won’t last forever, but not all biologics’ challenges disappear with the economic crisis.
PricewaterhouseCoopers and others are projecting that much of the expected growth in pharmaceuticals in the future is expected to happen outside of the United States and Western Europe in the BRIC (Brazil, Russia, India, China) countries. This also means that much of the growth is going to happen in single-payer health care economies where cost sensitivities are going to continue to be a concern.
Even in a vibrant economic climate, operating in single payer countries presents challenges. Regulation on drug delivery to patients, manufacturer’s access to physicians, advertising and price ceilings are just a few such challenges.
In these new growth areas, pricing and volume must be finely balanced to maintain the profitability to continue drug development and economic growth – even more than they already are. It may be the case that in some of the growing markets, providing these promising drugs does not make economic sense. Where does that leave an industry which makes its living improving lives, but with a somewhat more contentious reputation among segments of the public?
Finally, this discussion so far has assumed little change in the health care arena other than the individual points being mentioned. Such stability may well be an incorrect assumption with the ascendant Obama administration in the White House. Already in the new budget, biosimilar competition is included and encouraged as the way to fund larger health care initiatives.
The president’s election rhetoric about health care has momentarily been eclipsed by the economic crisis, but many on the left see this as the time to push single-payer health care in the United States. Regardless of whether one thinks this would be a good or bad development, it represents anything but a stable environment for pharmaceutical firms developing and marketing biologic medications. And if the United States were to go the route of national health care, then we may expect many of the same issues here that we already see in other single payer countries.
Biologic medications remain a bright spot in the pharmaceutical industry, both for helping patients’ quality of life, as well as business growth for a mature industry. Biologic development faces a number of serious challenges however. First, the arrival of biosimilar biologics heralds increasing generic competition in the field. Second, the current economic climate has already squeezed the use of many pharmaceuticals and it has contracted the amount of investment capital available to biologic providers. Third, the areas of projected growth in global pharmaceutical sales are those in which by necessity, profits on expensive biologics are going to be slimmer. And finally, the political environment in the United States is by no means a given. Great care is going to be needed to successfully navigate this emerging terrain.
