The biopharmaceutical industry and its bioprocessing component continue to incrementally and over time dramatically expand in most aspects. 2018 saw several first-in-class approvals as well as red-hot levels of venture capital financings and robust initial public offering (IPO) activity. But with signs of slower economic activity in the US and China, continuing uncertainty over the UK’s future in the European Union, and unresolved issues surrounding the delivery of healthcare and especially the price of treatments, it remains to be seen whether 2019 will be as good a year for biopharma as 2018 has been in many ways. Public criticism and scrutiny from lawmakers will likely remain, keeping biotech and pharma under pressure. At the same time, a cooperative FDA and scientific advances in oncology, cell, and gene therapy should continue to serve as a tailwind, generating new approvals and investor optimism. Digital opportunities, including in artificial intelligence, have also proved attractive to drugmakers, spurring changes among executive teams. Here are few trends to watch as 2019 unfolds:
Price hikes remain, but companies become more selective
January 1 brought fresh price increases on dozens of major drugs, marking a return to what Pfizer CEO Ian Read last year termed business as normal. Unsurprisingly, drugmakers were largely undeterred, with many moving ahead with increases ranging between low- to mid-single digits. While seemingly a provocative move, the underlying rationale is clear, biotech and pharma companies depend on price increases for revenue growth, particularly for older products. Pharma companies are becoming more selective in which drugs they take increases on. Price increases taken by each company were largely kept to products crucial to future growth or limited to a select basket of products. Merck, for example, in November increased the prices of its top-selling cancer drug Keytruda and its vaccine Gardasil, along with three other products. In announcing late last year price increases for 41 drugs, Pfizer emphasized that for about 90 percent of its product portfolio, prices would remain the same. Such an approach could reflect pharma efforts to walk a fine line between limiting their exposure to criticism while retaining pricing as a lever to pull for higher revenue and profit. Many of these firms are simply taking more of a wait-and-see approach, with a greater number of increases anticipated in the weeks ahead.
FDA keeps pace of approvals high — presuming shutdown does not linger
The Food and Drug Administration set a record last year for the number of new drugs approved, greenlighting 59 novel therapies — well above the regulator’s 10-year average of 33 per year. That rising tempo looks likely to continue in 2019, provided a government shutdown that’s hampered the agency does not continue for much longer. Part of that upward trajectory is due to the increasing use of expedited development and review pathways by FDA. Last year, 41 percent of OK’d medicines were granted Fast Track status, while 73 percent had Priority Review tags. Surging investment in cancer and rare disease research is likely helping as well since many medicines in either field are able to reach regulators with smaller datasets and genetically defined patient populations. As long as the government shutdown continues, however, the FDA is unable to accept new drug applications and user fees. The agency has been able to continue work on applications already submitted, but an enduring lapse in funding could have a large impact on the number of new medicines reaching patients in 2019.
Oncology remains a top draw for biopharma
In recent years, pharma companies have consistently prioritized investment into cancer drug development, making for an industry-wide turn toward oncology. USD 90 billion in cancer-focused deal-making between December and the opening weeks of 2019 show that emphasis has not waned. Uniting deals by Bristol-Myers Squibb, Eli Lilly, and GlaxoSmithKline is a shared desire to deepen cancer drug pipelines and strengthen commercial presence in what has become the industry’s hottest field. AstraZeneca, Gilead Sciences, Regeneron, and Sanofi, meanwhile, have all made a concerted effort in the space than in the past. Scientific and clinical advances have catalyzed drug development, but so too has a cooperative regulator and a market accepting of price tags stretching past USD 100,000 per year. Those tailwinds look likely to persist in 2019. Companies remain eager to invest, even as competition increases and pipelines swell.
The FDA, meanwhile, waved through 17 cancer drugs last year — adding to a 5-year total of nearly 60 new treatments. And while cancer drug prices have faced scrutiny, criticism to date has fallen most heavily on drugs in other therapeutic areas. Payers, meanwhile, appear generally willing to cover newly approved therapies.
Growing mergers and acquisitions
About USD 265 billion in M&A activity had taken place in biopharma during 2018 as of December 11—a 26 percent jump from the USD 210 billion seen in all of 2017. It does not seem like the market is really slowing down from an M&A standpoint. The types of deals may be shifting, but it does not really seem like the market itself is slowing down. One factor driving M&A deals has been a desire by a growing number of companies to narrow their therapeutic focus by spinning off non-core or outlying assets. A lot of companies are going through reprioritization of their portfolios. It is expected that the market is probably going to see more of divestitures and spinoffs of large companies as they continue to specialize more. And then in return, they will do more M&A, and they acquire something that fits with their specialty better, rather than trying to focus on everything.
Another driver in biopharma M&A expected to continue into 2019 is the rise of nontraditional disruptive deals. During 2018, these included the Amazon-Berkshire Hathaway-JPMorgan Chase & Co. employee healthcare venture launched January 30 and Cigna’s USD 67 billion acquisition of Express Scripts, completed December 20.
New digital therapeutics to enter the market
Therapeutics and electronics are expected to forge more and closer connections, based on progress seen in recent years, and especially in 2018. The FDA rang out 2018 by approving Teva Pharmaceutical Industries’ ProAir Digihaler inhalation powder. According to Teva, the respiratory digital therapeutic is the first and only digital inhaler with built-in sensors and a companion mobile app designed to provide inhaler use information to people with asthma and COPD. According to the Digital Therapeutics Report 2018–2025 by Research and Markets, investments in digital therapeutics stood at USD 179.6 billion at the end of 2016, and are projected to grow to USD 536.6 billion by the end of 2025. PwC has projected a total USD 12 billion in venture capital investment in digital health ventures were been made in 2017–2018. In 2019, new entrants and biopharma and medical device companies will bring to market new digital therapies and connected health services that can help patients make behavioral changes, give providers real-time therapeutic insights, and give insurers and employers new tools to more effectively manage beneficiaries’ health.
Ecosystem supporting cell and gene therapy grows
Deal activity involving regenerative medicine developers—including companies focused on cell and gene therapy and tissue engineering—heated up during 2018. During the first three quarters of this past year, according to Informa Pharma Intelligence, USD 18.9 billion in upfront payments in M&A transactions involving these companies had taken place—compared with USD 13.5 billion in all of 2017, and just USD 1 billion in 2016. By 2025, the FDA predicts it will be approving between 10 and 20 cell or gene therapy products each year. That expected boom reflects the significant progress of the science surrounding the use of genetic tools to construct new therapeutics. All of this makes for what the FDA calls a turning point in the field, one akin to the turn toward monoclonal antibodies in the 1990s. Contract manufacturers, as well as drugmakers, have invested in expanding production capacity for both cell and gene therapies. The extent to which companies with unproven technologies can maintain their billion-dollar-plus valuations next year will signal the depths of any downturn.
Perhaps the most important trend, one that ultimately drives many or most of the others, is the continued expansion of biopharmaceutical industry sales, revenue, and profits. Industry worldwide revenue is now at ~USD 275 billion/year and will exceed USD 300 billion in 2019. The importance of biopharmaceuticals as a portion of total pharmaceutical revenue will also continue to expand, with ≥40 percent of overall pharmaceutical industry R&D (thoroughly dominated by big [bio]pharma companies) and products in the development pipeline being biopharmaceuticals (versus drugs), and this percentage expected to further incrementally increase. Biopharmaceuticals have simply proven themselves to be readily developable products with eager markets!