How growth strategies are exposing areas of risk in biopharma, which requires careful navigation in this new territory.
With so many saturated markets, many pharmaceutical/biopharmaceutical companies look to expand their operations to other drug products or entirely different regions, in general. However, manufacturers face countless challenges as they enter into new and unfamiliar geographies, replenish pipelines, and broaden their offerings into novel areas such as gene and cell therapies (which require more complex development and production).
The Economist Intelligence Unit (EIU) conducted a survey—the results of which were featured in the EIU report The Changing Biopharma Risk Equation—which takes a look at “how new growth strategies are creating exposure to different types of risk and explores options for successfully navigating this unexplored territory,” according to the press release.
The survey, sponsored by MilliporeSigma, surveyed 250 global biopharmaceutical executives with regards to how their companies manage (or intend to manage) new risks associated with the changing biopharma landscape.
Some of the survey highlights, according to the press release, include:
- 48 percent of respondents are developing (or will develop) novel therapies, such as gene and cell therapies
- Many biopharma companies anticipate entering South Korea, Indonesia, and Taiwan in the next five years
- 32 percent of biopharma executives report regulatory uncertainty as the highest potential disruption of their company’s strategy in the next five years
- 80 percent of biopharma executives are highly optimistic about their company’s ability to bring new drug products to market over the next five years
Andrew Bulpin, Head of Process Solutions, MilliporeSigma, participated in an exclusive Q&A about the findings of this survey. His edited responses are below.
In your opinion, how does the biopharma landscape look today, and how does that differ from what it was in years past?
Five to 10 years ago there was a large amount of M&A activity among the larger players, with consolidation in the market. There were high barriers to entry, and to succeed you had to be big and benefit from economies of scale. Today, there is a proliferation of emerging biotechs that have varying business models—from those that grew out of academia to virtual biotechs led by former venture capitalists. The demographics of the EIU survey respondents reflect this, as 50 percent were from companies that have less than $500M USD in annual revenue.
Emerging biotechs are a major pipeline source for the larger players. Around 60-65 percent of molecules approved by the FDA in recent years went through multiple hands during development and, in the end, the company that launched the drug was not the same company that discovered the drug.
We’ve also seen the emergence of biosimilars, which has changed the game for pharma companies. These therapies need to be produced to meet the same high quality and safety standards, but in a more efficient and cost effective way.
From a geographic perspective, the traditional model was for established players to manufacture in established markets and then distribute the product globally. We are seeing a shift away from this with increased interest in setting up local manufacturing capabilities in emerging markets. Within the EIU survey, “investing in production facilities in emerging markets” was the top cited strategy for manufacturing new drug and therapy products, with 30 percent of respondents selecting this option. By comparison, only 26 percent said they planned to set up production facilities in established markets.
Some of this shift is to meet local production mandates. But also, it could be surmised that the biopharmas believe it makes good business sense to have their manufacturing operations closer to the patient populations they are trying to access, while also taking advantage of lower costs and tax incentives.
One of the things that hasn’t changed over the years is that this is a highly regulated industry where the path of discovering, developing, and commercializing new drugs takes a long time and is resource intensive. The science behind these molecules is complex, the failure rate of drugs in development remains high, and regulatory scrutiny is only becoming more intense.
What are some of the risks that biopharma companies are facing with the changing biopharma landscape that they may not have faced five to 10 years ago (or more)?
There is a lot of uncertainty tied to the ways in which biopharmas plan to grow in the next five years. There are novel therapies emerging where the science looks promising, but there is uncertainty on the feasibility of scaling-up to meet patient need and the regulatory requirements are not yet well-defined. When it comes to geographic expansion, essentially each country has its own regulatory requirements and its own cultural factors that lead to questions about local workforce capabilities, IP retention, and political stability—to name a few. Biopharma companies are in the process of learning how to answer these questions and navigate these disruptions.
What are some of the risks that have been constant over time?
Over the past 10 years, there has been consistent uncertainty for pharma companies around scaling up. . . . For pharma companies, once a therapy has been developed, approval to launch often needs to be immediate due to IP or first-to-market factors. Therefore, de-risking scale up and capital investments is a real value add.
What does a typical biopharma risk-management model look like?
In terms of risk-management, the survey findings pointed toward the preference of a blended model of building internal capabilities and departments (55 percent) and using outside experts (51 percent). This is in line with how we are seeing our customers operate. It is imperative to biopharma companies that they stay in control of their most critical functions. In some areas, in order to maintain that control, there has been movement away from outsourcing. Risk-management is one of those critical areas, and so many companies have developed internal capabilities. However, there is still a great benefit to harnessing that external expertise. The key is to ensure that those you choose to partner with function like an extension of your own team. When you achieve this balance, the blend of internal capabilities and outside expertise can prove to be invaluable.
Describe some of the key risks along the various stages of development.
Clinical – Does the drug candidate work?
Technical – Can you make it efficiently, safely, and economically?
Regulatory – Can you get approval and will it be refunded?
Commercial – Can you take share vs. your competition?
What were some of the key findings in the EIU survey? Did any of these findings surprise you?
When looking at ways to manage the increased risks of developing new and different drug products, the survey respondents pointed to using a blend of both building internal capabilities and departments (55 percent) and using outside experts (51 percent). At face value this may seem contradictory; however, it is not surprising. Through our decades of experience in working with biopharmas and being a source of outside consultation, we know that you need someone on the inside working with the contractors and consultants in order to execute and put your plans into practice. This is also an issue of control. We hear repeatedly from our customers (biopharma companies) that they are trying to seek a balance between cost, efficiency, and maintaining oversight of their molecule. Taking a dual-pronged approach to managing the risk, by building internal capabilities and eliciting the support of outside experts, gives them the best of both worlds—control of the process and top-rate know-how.
In the EIU survey, it’s mentioned that not only are companies expanding their drug pipeline, but they are also planning to expand geographically. How do some of these challenges in biopharma compare across different countries?
When asked which risks, from a list of eight, were most important related to the countries where the biopharmas are currently operating, regulatory and policy risks were top of mind. These included:
- Local regulatory environment (20 percent)
- Political/governance issues (16 percent)
- Ability/willingness of local payers to purchase drugs (14 percent)
These are the known risks, where biopharma companies are running up against these challenges as part of their current operations.
When you look at the risks our customers are most concerned about, related to where they want to be in five years, operational risks became more important. “Lack of cultural/country-specific knowledge” (23 percent), “Ability to access/retain local quality labor” (18 percent), and “Local production mandates” (14 percent) were the top cited risks. These are the unknowns that are harder to plan for and influence.
The current concerns can be managed—customers can mitigate these risks lobbying and building close relationships with local authorities. The future risks require a broader network of feet on the ground in local markets and a heightened need to understand the population as a whole.
Risks do differ country by country. A major consideration for biopharmas is how broadly a local government offers IP protection and how strictly they enforce it. Another consideration is the payer model in a given country, this influences the willingness and ability for the market to pay for the drugs. When setting up operations, companies, of course, seek out countries with political stability.
After regulatory uncertainty, funding (or a lack thereof) was the second biggest concern for respondents in the EIU survey. Why do you think that funding is an increasing concern for many companies?
While venture capital funding for biopharma is on the rise, there is also an increasing number of startups in the emerging space. Funds, however, aren’t increasing as rapidly and don’t meet the demand of this uptick.
You also have increased scrutiny being put on drug prices in many markets, including the U.S., and how much payers, including governments, are willing to pay for them. For established players, the amount of revenue that companies are able to obtain on their existing drug products influences the amount they are able to invest back into their pipeline and other growth opportunities.
Were there any survey results that you expected to see and didn’t?
One of the survey questions asked respondents if they plan to outsource certain drug development and manufacturing functions more or less in the future. For almost every function listed, from pre-clinical research and molecule screening to production scale manufacturing, half of respondents thought they would either keep their level of outsourcing the same or decrease it. Only 10-20 percent thought they would increase the amount of outsourcing done for each part of development or manufacturing listed.
In some ways this was surprising because, a few years ago, there was a lot of talk about the trend toward outsourcing for the industry. However, when we discussed this finding internally, we picked up on that trend—we are increasingly hearing our customers say that they are moving key functions internally to increase their level of control over their molecule.
I think these findings are most relevant when biopharma looks at outsourcing in the transactional way, where they are handing over the function and to a degree their control to an outside provider. There are ways though to form partnerships that allow for the use of external services for parts of the process, with the intention of doing less outsourcing at the commercial scale.
Of the survey results that were recorded, which do you think is the most indicative/telling of the current state of the biopharma industry?
There is currently an incredible amount of optimism in the industry regarding near-term growth plans. Eighty percent of survey respondents are either “optimistic” or “very optimistic” about their company’s ability to bring new drug products to market over the next five years.
There is also incredible optimism about the ability of the identified growth strategies to produce greater ROI in the next five years than they have in the past five years. Forty-six percent believe their future plans for expanding into new product categories will increase ROI compared to the last five years. Forty-nine percent have this same expectation related to expanding into new therapeutic areas, and 48 percent have the same expectation for their investments in entering emerging markets.
It is a great time to be in the biopharma industry. It is an exciting time for the science with many highly anticipated therapies, like cell and gene therapy, closer to becoming a reality. Demographics for patient populations are in favor of a growing biopharma industry with an aging population, increases in western-life-style-related ailments, and a growing middle-class in certain countries. You also have many countries actively looking to attract biopharmas to set up local operations, and creating positive regulatory environments for life science companies.
What made you/the EIU decide to do a full survey on this topic (The Changing Biopharma Risk Equation)? Why did you feel it was important?
We are hearing from our customers that a main challenge for them is making good decisions that strike a balance between their need for speed, control, and managing risks.
We want to inform our current and future customers about the changing nature of risk and associated mitigation strategies in the biopharmaceutical industry. This is a time of incredible growth in the industry. These growth opportunities are changing the types of risks that are top of mind for biopharma executives and they will require new ways of managing the risks.
What are some of the implied upcoming trends in the biopharma industry, according to these survey findings?
There is a high prevalence of companies already developing or planning to develop novel therapies (48 percent of survey respondents). While novel therapies, such as viral and gene therapy, cell therapy, and RNA therapy, still represent a small portion of the market size, this survey gives an indication in the level of interest in these therapeutics for the future. It will likely be in the next five years that we will really see if this can come to proof of concept and can be profitable.