IMS data for 2015 highlighted that six out of ten of the world’s best-selling medicines were biologics: $18bn for Harvoni, a new medicine; $15bn for Humira and $6bn for Avastin.
European Patent Office data shows that the biotech sector – both innovator and generic – is still filing more European patents than many other sectors. UK reports and the OECD highlight biotech’s importance globally.
These unrivalled sales of biotech products increasingly fund R&D in the pharma sector. Will the pace of R&D innovation continue to drive growth in pharma? Will funding into biotech detract from funding other pharma research? Or will pharma become ‘biopharma’?
Importantly, will cost containment applied to biotech products stem the flow of funds?
IP, innovation and transparency
Patents are a key component of significant investments to develop biotech and generate substantial rewards. Nevertheless, there is still opposition to granting monopoly rights in respect of genes and living matter, a potential obstacle to R&D.
In Europe the patentability of biotech inventions was settled by the EU Biotech Directive, which was adopted in 1998. The Directive only lists four specific types of invention as being unpatentable on moral grounds:
- processes for cloning human beings
- processes for modifying the germ line genetic identity of human beings
- uses of human embryos for industrial or commercial purposes
- processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such processes.
It also confirms that elements of the human body, such as genes, can be patentable when isolated from the human body.
EU and US IP laws are not harmonised, though R&D incentives support similar and competing research. Academic centres continue to be talent incubators on both sides of the Atlantic.
IP litigation is increasing as are challenges to regulatory exclusivities. In Europe there are plans to review certain exclusivities and detailed guidance is expected in 2017. This litigation is costly and unpredictable, and competition authorities have challenged settlement agreements that provide business efficiencies.
This has not affected technology transfers, an important method of transfering value. Biotech businesses must be vigilant, prepare their IP strategies and the defence of their freedom to operate effectively.
Initiatives in Europe to provide transparency, for example by the EMA, are being challenged, often by biotechs. The European courts will rule on this early in 2017. Nevertheless, biotech businesses must be ready to apply transparency guidance both within their business and with their outsourced R&D and clinical trial partners.
How to access, assess and grow the global biotech ‘knowledge bank’, and still protect essential proprietary interests, continues to generate debate for regulators and courts. Timely expert advice as well as early consultation with regulators is essential.
Faster routes to approval and contract structure
Initiatives to regulate biotech research must not over-regulate and stifle innovation or overburden the costs already incurred by biotech businesses.
EMA and national authorities have introduced new review and approval routes, conditional approvals and pragmatic guidance to enable swifter approvals and ease access to funding. Relying on the right legal basis for initial and follow-up proposals and applications is key.
Strategic licensing and contract structures can yield maximum gain from product development. They can however lead to higher market shares and scrutiny by competition authorities, competitors and payers.
Specific legal definitions apply to each regulation, and there are limited opportunities to challenge them. To compete successfully, companies should ensure they are informed of developments and the ways in which they may rely on them.
Affordability and future cost containment
Recent outcries and public debates about the price of highly effective Hep C treatments has turned the focus of payers to biotech products and their biosimilar competitors. There is a high awareness that patent protection on 11 biotech products expires between 2014 and 2022.
In developed markets, incentives to adopt cheaper products have already been implemented in some markets, and are likely to be followed in others. Value dossiers and pre-launch price negotiations currently apply to most biotech products at national levels in Europe. In the US there may be federal developments. In the UK it has led to fragmented access to some orphan medicines, an unwelcome development for patients with very limited treatment options.
France recently introduced automatic substitution of selected biosimilars. Health insurers in other markets like Germany are preparing for accelerated uptake and reimbursement of biosimilars. Italy has introduced innovative schemes to link pricing with value and use of registries. Patient choice will increasingly be turned towards cheaper biotech treatments.
In emerging markets, several national authorities have introduced regulations to adopt biosimilars. Patients in those markets will be encouraged to select treatments that offer value. In other developing markets authorities are planning to introduce forms of universal health coverage, which may not support the innovation incentives that smaller biotech businesses will need.
In developing markets the key issue remains unmet need. There is limited access to treatment although biotechs have recently made significant contributions to respond to these needs through patient pools and other initiatives.
Pharma and equity investment
Biotech companies still make attractive investments. In the UK, equity market and venture capital funding in 2014 in those businesses were at their highest since the 1990s.
Biotechs are also likely to be targets for M&A, both by investors, pharma companies and larger biotechs. There are several reasons. The combination of the Human Genome Project and the commercial application of diagnostics have created opportunities to develop more personalised and effective treatments. Interest in the Human Genome Project began more than 15 years ago, but it has taken until recently for these genome-sequencing advances to result in therapies.
The biotechnology industry is also unusual in that it contains high-growth companies at the forefront of innovation, but is relatively insulated from traditional economic cycles.
The pharma industry has shifted its own investments towards biotech: Sanofi with Genzyme, or Abbott’s spin-off of Abbvie. This trend is likely to continue as the costs of R&D, trials and payer assessments increase.
M&A will raise questions about market share, regulatory and IP due diligence, and sophisticated contracts to transfer assets and shares.
Patient and payer expectations remain high for biotech
Specificities of biotech
The biotech sector can involve practical considerations and associated cost impacts. For example, biotech molecules tend to be thousands of times the size of traditional pharma product molecules. They are also complex and may require specialist storage, temperature controls and more expert medical professionals to administer them.
Their trials, production and supply are therefore more likely to be more expensive, and require more skilled resource to perform these complex operations. They also are subject to heightened regulatory scrutiny and increasing awareness of the complexity of predicting how the human body will react to biotech products.
These characteristics will lead to innovation for all fields of pharma and in the near future biotech businesses will be able to generate efficiencies to produce higher yields.
All this raises cross-border legal issues regarding quality controls, exports, releases and in some cases recalls of products. Inspectors and agencies also routinely exchange information.
A new biopharma sector
Overall, the growth of the biotech sector is a likely evolution of decades of research and funding, providing much needed life-saving and effective treatments.
Patients are provided with more choice (subject to affordability) and in many cases are able to have access to the first potential treatment. Children have frequently benefited from these new treatments.
There continues to be global interest in areas such as immunotherapy, antibody drug conjugates, and new gene and cell therapies. Ageing populations seek to invest in tests and treatments for Alzheimers and faster, more reliable DNA and pathology tests. Patient and payer expectations remain high, setting a high innovation threshold for biotech and biosimilar entrepreneurs.
Increased reliance on biotech has yielded valuable innovation and benefits for patients. To successfully meet future challenges, the industry must continue to reinvent itself.