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Amid corporate restructurings, regulatory initiatives, and aging R&D assets, will drug development accelerate or stall in 2016?
The open road can symbolize the freedom to explore, access to a destination, or a solid infrastructure. Signs point travelers in different directions and warn of hazards. As the bio/pharma industry embarks on its journey through 2016, there are signs to observe and consider, traffic and potholes to avoid, and decisions to make about the best route forward.
In the past 20 years, bio/pharma companies enjoyed smooth travels as blockbuster drugs dominated the market, slowed for warning lights as the patent cliff approached, and in some cases, detoured from existing R&D programs to seek alternate, more profitable routes. Counterfeit drugs and drug shortages disrupted the delivery of safe, effective therapies to patients. Some research projects and unprofitable drugs were abandoned along the way. Oversized, inefficient research, development, and manufacturing engines were traded in for more streamlined and less costly models.
In 2014, FDA’s Center for Drug Evaluation and Research (CDER) approved a near-record 40 new drugs, and topped that number in 2015 with 45 new molecular entity and new biologic license application approvals (1). These numbers, and types of drugs approved, indicate that the drug-development market may be headed in a new direction, raising questions about the ability of the current R&D and manufacturing infrastructure to adapt to the changing market. While approvals are up, FDA cautions that the number of new drug applications has been flat, indicating the potential of a slowdown ahead.
Breakthroughs and braking mechanisms
Between 2005 and 2009, in what KPMG called “the end of the blockbuster era,” FDA approved an average of 22 new molecular entity drugs per year, a drop from an average of 31 approvals per year from 1996 to 2004. From 2010 to 2014, the number of approvals rebounded back to historical averages. Promising late-stage pipelines may generate 40 approvals per year from 2015 to 2020, KPMG reports, ushering a “breakthrough innovation era,” marked by the need to balance a rebound in innovation with more limited internal and external spending (2).
Many of the new molecular entities-41% of the approvals in 2014 and 47% of the approvals in 2015-were for rare diseases that target smaller patient populations and, therefore, require smaller quantities of drug doses required compared to blockbuster drugs. This shift in production requirements--combined with lower profit margins for former blockbuster brand drugs now prescribed as lower-cost generic drugs--has implications for drug development and manufacturing processes.
FDA’s expedited pathways for drug approval have proved successful; 60% of the 2015 approvals were designated in one or more of the expedited pathways (fast track, breakthrough, priority review, and accelerated approval). While this faster route to market of needed therapies is good news, FDA’s inspection process, and the inability of drug manufacturers to accelerate production timeframes, are potential roadblocks. John Jenkins, director of CDER’s Office on New Drugs, reported at the FDA/CMS Summit in December 2015 that manufacturing and inspections--not clinical development--are often the “rate-limited steps” for expedited approval.
Investing in infrastructure
Also in December, CDER Director Janet Woodcock told participants at the Winter Meeting of the Center for Structured Organic Particulate Systems (C-SOPS) that breakthrough drugs will push manufacturing processes to work faster, and clinical implications will lead to manufacturing changes. Technology advances such as continuous manufacturing, 3-D printing of drug doses, and compact manufacturing units that can be located where geographically needed are potential alternatives to aging, unreliable manufacturing processes. New technologies also are required for rapid manufacturing to meet the nation’s needs during terrorism or epidemic threats, Woodcock said.
Attractive credit terms in recent years prompted some bio/pharma manufacturers to invest in facilities and equipment. Encouraging companies to make capital improvements to avoid future quality and manufacturing potholes, however, can be a tough financial and regulatory road to travel.
In a 2015 survey of 100 executives from top bio/pharma companies (3), less than half said they planned to increase investments in late-stage R&D. Instead, marketing/distribution (79%), drug discovery/early stage R&D (70%), clinical trials (60%), technology acquisition (59%), and patenting (50%) were higher investment priorities.
To encourage manufacturers to adopt new production technologies, FDA issued a draft guidance document (4) in December 2015 that provides a framework for drug manufacturers and FDA to discuss manufacturing design and development issues early in the process. The goal is to educate FDA staff about the new technologies in advance of chemistry, manufacturing, and controls (CMC) submission, thereby expediting the approval process.
Quality warning signs
FDA plans to use quality metrics to develop risk-based inspection scheduling of drug manufacturers; to improve its ability to predict and mitigate drug shortages; and “encourage the pharmaceutical industry to implement state-of-the-art, innovative quality management systems for pharmaceutical manufacturing” (5). After publishing the draft guidance document in July 2015, the agency sought formal comments, and bio/pharma manufacturers, contract service providers, and industry associations responded in force. Comments reflected concerns about how FDA will use the reported data to guide further regulatory action, what players in the supply chain were responsible for reporting to FDA, how the data would be interpreted to assess overall product quality, and factors used to determine the success of a quality program. A key issue was the perceived burden and additional resources needed to perform quality testing.
The acquisition strategy
In 2015, bio/pharma companies and contact service organizations actively repositioned their business profiles though mergers, acquisitions, and collaboration agreements, as well as divestitures of specific product lines or business units.
Senior executives of large biotechnology and pharmaceutical companies surveyed by ReedSmith (3) plan to stay on the investment track; 94% plan to initiate an acquisition over the next 12 months; more than one-third plan to divest assets. The search for external opportunities was a priority; more than half of the respondents said they are planning peer-to-peer research partnerships; 85% report that they plan to hire a contract research organization.
More respondents (74%) said major pharmaceutical producers would target companies with strong drug discovery or early-stage R&D potential versus companies involved in late-stage R&D (69%). Companies focused on personalized medicine or diagnostics were expected to be popular targets by 70% of those responding. Less than 30% predicted companies will look to build on their own areas of expertise through acquisitions; 58% said major pharmaceutical producers will seek companies outside their current areas of expertise (3).
Right-sizing R&D efforts
For the past six years, Deloitte and GlobalData analysts examined R&D results for the top 12 publicly held, research-based life science companies (measured by R&D spending in 2008-2009); in 2015, four mid- to large-cap companies were added to the study. Analysis of the pharma industry’s performance in generating return on investment in new drug development revealed a continuing pattern of declining returns, from 10.1% in 2010 to 4.2% in 2015. While the cost to develop an asset increased 33%, from $1.188 billion in 2010 to $1.576 billion in 2015, the average peak sales per asset dropped 50%, from $816 million in 2010 to $416 million in 2015. The numbers, the report authors say, “do not add up for life-sciences R&D to generate an appropriate return” (6).
There was some good news; the mid- to large-cap companies outperformed the top 12 publicly held companies, indicating that different R&D business models could produce better results.
Despite the decline in return on investment, the companies in the study continued to increase investment in R&D as a proportion of cash generated, from 25.5% in 2004 to 29.4% in 2014. Investors, however, seek returns. Companies are more likely to return cash to shareholders via dividends and share buybacks than they are to invest in acquisitions, product licenses, and internal R&D, the study concludes.
At larger R&D companies, legacy infrastructure, which may be difficult to improve, and excess overhead are major contributors to R&D costs. The smaller companies in the study did not have the large infrastructure, but risk becoming too complex and lose their R&D productivity advantage as they grow. Both groups must challenge additional investments at each phase and evaluate returns for each asset, the study reports.
The authors suggest that focusing R&D efforts on stable therapy areas and specialty therapeutics will add to scientific, regulatory, and commercial value propositions. Agility, flexibility, and a focus on science will allow external sources of innovation to be optimized. Reducing development complexity by streamlining functions and addressing unproductive infrastructure can improve returns.
The 2016 journey
Early indications are for mergers and acquisitions activity to continue in 2016, and prospects for new drug approvals also are strong. FDA has a busy agenda of legislative approvals ahead, complicated by an election year. Among these distractions, the industry must drive ahead to seek shareholder value and affordable, effective patient therapies on the same route.
1. FDA, Novel New Drugs Summary 2015, online, www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm474696.htm, accessed, Jan. 5, 2016.
2. B. Shew and P. Gilmore, A Bittersweet Pill (KPMG, 2015).
3. ReedSmith, Life Lines: Life Sciences M&A and the Rise of Personalized Medicine (London, 2015).
4. FDA, Advancement of Emerging Technology Applications to Modernize the Pharmaceutical Manufacturing Base Guidance for Industry, Draft Guidance (Rockville, MD, December 2015).
5. FDA, Request for Quality Metrics Guidance for Industry, Draft Guidance (Rockville, MD, July 2015).
6. Deloitte Centre for Health Solutions, Measuring the Return from Pharmaceutical Innovation 2015 (London, 2015).
Vol. 40, No. 1
When referring to this article, please cite it as R. Peters, " Bio/Pharma Navigates New Routes to Drug Development," Pharmaceutical Technology 40 (1) 2016.