S&P ex­pects steady ero­sion in Big Phar­ma's cred­it pro­file in 2021 as new M&A deals roll in — but don't un­der­es­ti­mate their un­der­ly­ing strength

S&P Glob­al has tak­en a look at the dom­i­nant forces shap­ing the phar­ma mar­ket and come to the con­clu­sion that there will be more down­grades than up­grades in 2021 — the 8th straight year of steady de­cline.

But it’s not all bad news. Some things are look­ing up, and there’s still plen­ty of mon­ey to be made in an in­dus­try that en­joys a 30% to 40% prof­it mar­gin, once you fac­tor in steep R&D ex­pens­es.

What’s dri­ving the down­grades?

First, added debt to pur­sue new M&A, which S&P ex­pects will con­tin­ue to be a reg­u­lar part of the news for the rest of the year. In part, that’s be­cause biotech com­pa­nies still see the need for a Big Phar­ma play­er when it comes to their glob­al mar­ket reach. And then there are all the same, per­sis­tent fac­tors that push phar­ma to the buy­out ta­ble.

Many in­dus­try par­tic­i­pants are ea­ger to in­vest in the very at­trac­tive, rapid­ly ex­pand­ing, and high­ly prof­itable ther­a­peu­tic ar­eas of on­col­o­gy and au­toim­mune dis­eases on the heels of mean­ing­ful ad­vance­ments in med­ical knowl­edge and phar­ma­ceu­ti­cal tech­nolo­gies. More­over, most Big Phar­ma com­pa­nies view M&A as an es­sen­tial el­e­ment of their long-term drug de­vel­op­ment strat­e­gy along­side in­ter­nal R&D ef­forts (which av­er­age about 20% of rev­enues). In ad­di­tion, some com­pa­nies have po­ten­tial patent ex­pi­ra­tions or gaps in their de­vel­op­ment pipelines of new drugs that could lead to pe­ri­ods of stag­nant or de­clin­ing rev­enues over the medi­um term. We ex­pect those com­pa­nies to be par­tic­u­lar­ly ea­ger to ad­dress this by ac­quir­ing drugs with high growth po­ten­tial.

S&P then turns to di­vesti­tures, which is re­duc­ing prof­its, like the big Pfiz­er move to merge Up­john and My­lan in­to Vi­a­tris. In Pfiz­er’s case, S&P ex­pects CEO Al­bert Bourla to spend much of the mon­ey they gained on new prod­ucts for the pipeline. That doesn’t trans­late in­to im­me­di­ate new prof­its, though, and di­vesti­tures add to the pres­sure to boost div­i­dends, al­so ham­string­ing com­pa­nies when they may need the flex­i­bil­i­ty to spend more on the busi­ness.

Then there’s the pric­ing is­sue — both from pric­ing con­straint as well as the added shot at pric­ing re­form with a new Biden ad­min­is­tra­tion.

PBMs con­tin­ue to ex­ert their mar­ket lever­age to weigh in on prices, which S&P ex­pects to con­tin­ue. New moves to in­te­grate on the PBM side of the busi­ness are al­so adding to their abil­i­ty to keep prices down.

Net re­sult:

Al­though this con­straint has been in place the last few years, we ex­pect it to per­sist this year and net brand­ed phar­ma prices to be rel­a­tive­ly flat, pos­si­bly nom­i­nal­ly neg­a­tive.

Then there’s pric­ing re­form af­ter the Dems gained con­trol of the Sen­ate and the White House.

As the De­mo­c­ra­t­ic Par­ty con­trols both the ex­ec­u­tive and leg­isla­tive branch­es, and amid bi­par­ti­san sup­port for re­duc­ing pre­scrip­tion drug spend­ing in the U.S., we be­lieve it’s more like­ly some com­bi­na­tion of pro­pos­als could ad­vance in 2021 and be a mod­er­ate drag on prof­it mar­gins. We al­so be­lieve fed­er­al and state bud­getary pres­sures fol­low­ing the pan­dem­ic and re­lat­ed eco­nom­ic stim­u­lus pack­ages could es­ca­late this.

None of this, though, presents game-chang­ing threats to the phar­ma mod­el. And S&P is al­so care­ful to list all the strengths that Big Phar­ma can con­tin­ue to re­ly on in 2021. That list in­cludes:

— An end to rapid price ero­sion on the gener­ic side.

— The loom­ing end to opi­oid lit­i­ga­tion.

— An im­proved rep with the pub­lic fol­low­ing the Covid-19 cam­paign, which may blunt pric­ing re­form.

— Risk shar­ing gets a big thumbs-up. “Big Phar­ma is in­creas­ing­ly uti­liz­ing part­ner­ships, roy­al­ties, and mile­stone-based agree­ments in place of out­right ac­qui­si­tions to mit­i­gate the de­vel­op­ment and reg­u­la­to­ry risks. We view these as less neg­a­tive for cred­it­wor­thi­ness than out­right M&A.”

— New prod­uct launch­es should out­weigh gener­ic com­pe­ti­tion.

— And the growth of dig­i­tal mar­ket­ing should play out with low­er costs.

Add it all up and phar­ma is look­ing at an­oth­er year of ups and downs.

BY­OD Best Prac­tices: How Mo­bile De­vice Strat­e­gy Leads to More Pa­tient-Cen­tric Clin­i­cal Tri­als

Some of the most time- and cost-consuming components of clinical research center on gathering, analyzing, and reporting data. To improve efficiency, many clinical trial sponsors have shifted to electronic clinical outcome assessments (eCOA), including electronic patient-reported outcome (ePRO) tools.

In most cases, patients enter data using apps installed on provisioned devices. At a time when 81% of Americans own a smartphone, why not use the device they rely on every day?

Voting in the 2020 election (AP Images)

The right to vote is fun­da­men­tal — a let­ter from biotech­nol­o­gy in­dus­try lead­ers

Biotech Voices is a collection of exclusive opinion editorials from some of the leading voices in biopharma on the biggest industry questions today. Think you have a voice that should be heard? Reach out to senior editors Kyle Blankenship and Amber Tong.

We oppose all attempts to introduce laws that reduce the rights of US citizens to vote or that restrict them from exercising that right. The right to vote is fundamental to democracy. States that have enacted, or are proposing to enact, legislation to restrict voting are undermining our democracy and posing a threat to our nation. As leaders of the life sciences industry, we stand for what we believe is right for our country, our enterprises, our employees and those who benefit from our work. We join the first groups of business leaders who have challenged these laws and will continue to make our collective voices heard on this matter.

Pascal Soriot (AstraZeneca via YouTube)

Af­ter be­ing goad­ed to sell the com­pa­ny, Alex­ion's CEO set some am­bi­tious new goals for in­vestors. Then Pas­cal So­ri­ot came call­ing

Back in the spring of 2020, Alexion $ALXN CEO Ludwig Hantson was under considerable pressure to perform and had been for months. Elliott Advisers had been applying some high public heat on the biotech’s numbers. And in reaching out to some major stockholders, one thread of advice came through loud and clear: Sell the company or do something dramatic to change the narrative.

In the words of the rather dry SEC filing that offers a detailed backgrounder on the buyout deal, Alexion stated: ‘During the summer and fall of 2020, Alexion also continued to engage with its stockholders, and in these interactions, several stockholders encouraged the company to explore strategic alternatives.’

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Near­ly a year af­ter Au­den­tes' gene ther­a­py deaths, the tri­al con­tin­ues. What hap­pened re­mains a mys­tery

Natalie Holles was five months into her tenure as Audentes CEO and working to smooth out a $3 billion merger when the world crashed in.

Holles and her team received word on the morning of May 5 that, hours before, a patient died in a trial for their lead gene therapy. They went into triage mode, alerting the FDA, calling trial investigators to begin to understand what happened, and, the next day, writing a letter to alert the patient community so they would be the first to know. “We wanted to be as forthright and transparent as possible,” Holles told me late last month.

The brief letter noted two other patients also suffered severe reactions after receiving a high dose of the therapy and were undergoing treatment. One died a month and a half later, at which point news of the deaths became public, jolting an emergent gene therapy field and raising questions about the safety of the high doses Audentes and others were now using. The third patient died in August.

“It was deeply saddening,” Holles said. “But I was — we were — resolute and determined to understand what happened and learn from it and get back on track.”

Eleven months have now passed since the first death and the therapy, a potential cure for a rare and fatal muscle-wasting disease called X-linked myotubular myopathy, is back on track, the FDA having cleared the company to resume dosing at a lower level. Audentes itself is no more; last month, Japanese pharma giant Astellas announced it had completed working out the kinks of the $3 billion merger and had restructured and rebranded the subsidiary as Astellas Gene Therapies. Holles, having successfully steered both efforts, departed.

Still, questions about precisely what led to the deaths of the 3 boys still linger. Trial investigators released key details about the case last August and December, pointing to a biological landmine that Audentes could not have seen coming — a moment of profound medical misfortune. In an emerging field that’s promised cures for devastating diseases but also seen its share of safety setbacks, the cases provided a cautionary tale.

Audentes “contributed in a positive way by giving a painful but important example for others to look at and learn from,” Terry Flotte, dean of the UMass School of Medicine and editor of the journal Human Gene Therapy, told me. “I can’t see anything they did wrong.”

Yet some researchers say they’re still waiting on Astellas to release more data. The company has yet to publish a full paper detailing what happened, nor have they indicated that they will. In the meantime, it remains unclear what triggered the events and how to prevent them in the future.

“Since Audentes was the first one and we don’t have additional information, we’re kind of in a holding pattern, flying around, waiting to figure out how to land our vehicles,” said Jude Samulski, professor of pharmacology at UNC’s Gene Therapy Center and CSO of the gene therapy biotech AskBio, now a subsidiary of Bayer.

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Launched by MIT grads, a small start­up gets $20M to back a ro­bot­ics rev­o­lu­tion in cell ther­a­py man­u­fac­tur­ing

As co-director of an experimental cellular therapy process development and manufacturing group at UCSF specializing in T cell therapies for autoimmune conditions, Jonathan Esensten has learned a lot about the challenges involved when his group hand-fashions a cell therapy. Esensten — who was a postdoc in Wendell Lim’s lab and counts the legendary Jeffrey Bluestone as a mentor — gives them all high marks at being great at what they do, but time and again there are variations in the treatments they construct.

Anand Shah (FDA)

For­mer head of FDA’s med­ical and sci­en­tif­ic af­fairs on Covid: ‘FDA has nev­er been test­ed like this’

Anand Shah has served the American public in a unique way, crisscrossing over the last two administrations between serving as an attending radiation oncologist focused on prostate cancer at NIH, serving as CMO at the Center for Medicare and Medicaid Innovation, and most recently, leading the FDA’s operations on medical and scientific affairs from within the commissioner’s office.

Shah, who stepped down from the FDA in January, caught up with Endpoints News in a phone interview on Tuesday afternoon, offering his thoughts on the agency’s latest decision to pause the J&J vaccinations in the US, and reflecting on his time at an agency during this once-in-a-lifetime pandemic.

UP­DAT­ED: J&J paus­es vac­cine roll­out as feds probe rare cas­es of blood clots

The FDA and CDC have jointly decided to stop administering J&J’s Covid-19 vaccine after reviewing data involving six reported US cases of a rare and severe type of blood clot in individuals after receiving the vaccine.

CDC will convene a meeting of its Advisory Committee on Immunization Practices on Wednesday to further review these cases and assess their potential significance. “FDA will review that analysis as it also investigates these cases. Until that process is complete, we are recommending a pause in the use of this vaccine out of an abundance of caution,” Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research and Anne Schuchat, Principal Deputy Director of the CDC, said in a joint statement Tuesday morning.

Patrizia Cavazzoni, new CDER director

Pa­trizia Cavaz­zoni named per­ma­nent di­rec­tor of CDER, adding to ques­tions around where Wood­cock will end up

Patrizia Cavazzoni on Monday became the permanent director of the FDA’s Center for Drug Evaluation and Research, which puts to rest the idea that Janet Woodcock, Cavazzoni’s predecessor, might return to lead CDER if she isn’t made permanent commissioner.

Woodcock, who’s currently serving as acting commissioner and principal medical advisor to the commissioner, a position she was detailed to last year, may not make the move to permanent commissioner because of lingering questions from Senate Democrats. She previously served as director of CDER since 1994. Cavazzoni took over as acting director of CDER when Woodcock moved over to Operation Warp Speed to run the therapeutics side of the Trump-era program.

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Fifth Cir­cuit sides with FTC in ma­jor pay-for-de­lay set­tle­ment case

The US Court of Appeals for the Fifth Circuit on Tuesday upheld the Federal Trade Commission’s ruling that generic drugmaker Impax Laboratories should be charged with antitrust violations for accepting payments worth about $100 million to delay the entry of a generic opioid for more than two years.

The court’s opinion upheld the FTC’s anticompetitive findings on the deal between Impax (now owned by Amneal Pharmaceuticals) and Endo Pharmaceuticals, under which Endo committed to not market an authorized generic, which increased Impax’s projected profits by $24.5 million. Endo agreed to pay Impax credits for the shrunken market that Impax would inherit if, as expected, Endo made a successful hop to a reformulated Opana ER.