Global pharma and biotech companies need to boost the efficiency of their R&D operations or face dwindling returns on investment that could threaten the viability of the industry, says a new report.
The latest Beyond Borders report from Ernst & Young has plenty of positive and negative news, but on balance concludes the industry had a good year. Revenue for US and European biotechs rose 7% on last year for instance, although net income went into decline. Meanwhile early-stage venture capital remained plentiful, with China emerging as a new source although overall financing was down on the prior year.
Biotech companies poured record amounts of capital into R&D in 2016 – with the spend reaching $45.7bn last year, up 12%. But while that level of investment is impressive, the sector needs to drive “efficiency improvements to achieve better returns and ultimately to drive greater affordability of its products”, according to EY’s life sciences leader Pamela Spence. No longer can companies rely on premium pricing to offset a high R&D spend.
The report notes there is quite a lot of overlap in R&D, with a concentration of resources into rare diseases and oncology for example. There are more than 20 antibodies targeting PD-1 and related checkpoint inhibitor targets, which EY says may turn out to be “disproportionate to even rosy market predictions” for the class.
“With pricing pressures expected to escalate, firms will need to incorporate new digital and artificial intelligence technologies into their traditional drug target selection and overall R&D processes to achieve those returns – or risk being outdone by firms that do,” she added.
AI and computer processing can’t do the job of boosting efficiency on their own, but they can have a profound impact in some areas such as drug discovery and improving the efficiency of clinical trials.
Competitors like Apple or Alphabet might be novices when it comes to therapeutics R&D, but they are streets ahead in skills that are expected to be increasingly important in healthcare, such as “understanding consumer behaviour, brand building, big data analysis, IT and short-cycle innovation”, notes the report.
“Make no mistake: technology firms, wellness companies and other non-traditional players awash in consumer and patient data are encroaching on traditional biopharmaceutical territory,” says EY.
“It’s not hard to imagine a near future where a digital tool can improve patient outcomes as well – or almost as well – as a traditional drug therapy.”