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Biotech research spend increases but model 'must change'

Transformation of R&D to sustain biotech industry is in big pharma's interest says Ernst & Young report

The global biotech industry's spending on research increased by 9 per cent from 2010 to 2011, but changes to the R&D model need to be made to ensure its ongoing stability claims a new report.

Beyond borders: Global biotechnology report 2012 from Ernst & Young said that research spending had recovered from the steep drop of 21 per cent it saw in 2009 to have two consecutive years of growth.

In the established biotech markets of the US, Europe, Canada and Australia the industry even recorded 10 per cent growth in revenues, which rose last year to $83.4bn. These figures are normalised to account for the acquisition of formerly leading biotechs Cephalon, Genzyme and Talecris, all of which were acquired by other businesses in 2011.

However, despite these recent positive steps in research spend and market performance, the report claimed the traditional model for funding for biotech companies is “under unprecedented strain” due to economic cutbacks and continued inefficiencies in research.

“More than ever, the industry needs to remove duplication, encourage pre-competitive collaboration, pool data and allow researchers to learn in real time,” said Glen Giovannetti, Ernst & Young's global life sciences leader.

New R&D model

The consultants recommend a number of changes to the biotech R&D model, including the creation of networks of different shareholders, including pharma companies, patient groups and social media communities, that could pool data and insights from across the healthcare market and quickly adapt to changes in circumstances.

According to the report, shared data could include genetic information from patients; outcomes data from electronic health record systems; and data on failed clinical trials.

A lack of clinical trial transparency is a criticism that's also been levelled at the pharma industry, the British Medical Journal, European Medicines Agency (EMA) and the UK's Ethical Standards in Health and Life Sciences Group (ESHLSG) calling for greater openness about data.

Ernst & Young's report also highlights the potential of having open research networks, saying they would create uniform standards for data; lead to greater engagement with regulators about approaches to R&D and clinical trial design; and the development of “more enduring” relationships with patients.

“To shift the R&D paradigm, companies will need to recognise that in some situations sharing information may create more value than protecting it,” said Giovannetti.

This method of increased collaboration and sharing between big pharma and biotech was backed by GlaxoSmithKline's (GSK) chair of R&D, Dr Moncef Slaoui.

Describing the current ecosystem as “threatened”, Slaoui described in the report the efforts GSK had made to adapt, including developing its venture capital business; building alliances with biotechs; buying up the initial public offerings of biotechs when they change from a private company to a public one; and improving pre-competive collaboration, especially in such areas where research is slow and expensive like Alzheimer's.

“Now, more than ever, we need game changers,” he wrote. “Sustaining the biotech ecosystem is not an act of charity or corporate social responsibility — it is in the self-interest of big pharma companies. The good news is that through approaches such as the ones described here, we can use our extensive resources to really make a difference.”

Biotech pipelines

The current US biotech pipeline is mainly dominated by cancer, with 44 per cent of drugs in development to be used in the therapy area.

Neurology, is in second place with 10 per cent, although is predicted to become increasingly important in the coming years due to the ageing population and need to treat neurodegenerative diseases.

It is a similar story in Europe with 33 per cent of pipeline products for cancer and 12 per cent in neurology. 

US and Europe

The report also highlighted differences and similarities between the US and European biotech industries.

Both achieved double-digit growth in revenues between 2010 and 2011, with the US increasing by 12 per cent and Europe by 10 per cent. Research spending was equal at 9 per cent for both regions.

But there was a noticeable difference when it came to the net profit of companies. While, in the US, profits dropped 12 per cent to $3.3bn, in Europe this figure climbed from a loss of $568m in 2010 to a loss of $0.3m in 2011.

However, according to Ernst & Young, this was primarily driven by Ireland-based Elan's sale of its drug technology to US-based Alkermes for $500m.

The number of employees was up for both regions, increasing in Europe by 4 per cent and by 5 per cent in the US.

Mergers and acquisition trends

Last year also saw greater deal activity in the sector, with mergers and acquisitions involving European or US biotechs increasing from 49 deals in 2010 to 57 deals in 2011.

However, big pharma was the buyer in only 7 of these 57 deals, according to the report, with Ernst & Young describing this as a “potentially troubling trend” given pharma's role in supporting biotech innovation.

This is not expected to improve with pharma facing even more pressures from patent expiries and economic issues.

“We are unlikely to see many (if any) additional mega-deals involving big pharma in the foreseeable future, as most companies have announced their intention to focus on smaller 'tuck-in' deals (acquisitions of products and technologies) valued below $5bn, and quite often below $1bn,” said the report.

Examples of such deals in 2012 are already evident and can be seen in the shape of GSK's attempts to buy Human Genome Sciences and Bristol-Myers Squibb's acquisition of Inhibitex.

20th June 2012

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