Can Biotech Innovation Withstand Disruption?
From the FDA overhauling the accelerated approval process to the widespread implementation of artificial intelligence across the industry, biotech is experiencing disruptive forces across numerous fronts. Here are some of the key disrupters to watch leading into 2024.
- Several manufacturing-related disruptions for high-profile drugs have left the biopharma industry scrambling.
- The long-term impact of the Inflation Reduction Act (IRA) remains to be seen and there is the potential for even more punitive provisions on the horizon.
- Congress moves to increase the FDA’s enforcement powers for the accelerated approval process which has potential to affect the industry in numerous ways.
- Climate change poses both challenges and opportunities for the biotech industry at large.
Manufacturing quality and capacity
In an era of staggering biotech innovation and increasingly sophisticated therapies, companies are running into manufacturing issues. There have been several manufacturing-related disruptions for high-profile drug approvals and launches, which has left the biopharma industry scrambling to address these operational failures.
However, as process complexity is increasing due to next-generation drugs, third-party manufacturers are becoming spread-thin. CAR-T, radioligand, and gene therapies are key areas where manufacturing setbacks have already been noted; their production timeline and QC will be closely watched in the second half of 2023.
The long-term consequences of the IRA
The Inflation Reduction Act includes three noteworthy provisions that have sent shockwaves through the biopharma sector:
- Up to 20 drugs per year will have mandatory discounts of 25%, 35%, and 60% after 9, 12, and 16 years on the market, with small molecules eligible for negotiation after 9 years and biologics after 13.
- Medicare price increases are capped to the rate of inflation.
- Companies will be responsible for a 20% rebate for patients in the catastrophic coverage phase.
The long-term impact of these provisions remains to be seen, particularly given that there could be more punitive healthcare reform ahead. Some members of Congress are advocating for further expansion of the IRA to include fifty drugs and commercial plans, along with cost effectiveness reviews. However, Congress has historically struggled with passing reform, which can mitigate the risk somewhat.
Increasing scrutiny for accelerated approvals
The accelerated approval process is under public scrutiny in 2023 and facing reform. Congress moved to increase enforcement powers and tighten loose ends by signing into law the FDORA bill, which allows the FDA to require confirmatory trials to be underway before AA and the authority to withdraw the drug from the market if these trials fail. The FDORA bill includes numerous other requirements that are aimed at addressing public concerns and restoring faith in this process. However, while it is in the best interest of all stakeholders involved to restore the integrity of AA, these modifications to the process could increase development and revenue tail risk.
Rising interest rates
Rising interest rates may increase the cost of capital, which is particularly damaging for early-stage biotechs that need to raise money in order to continue drug research and development. While a full out recession is looking less likely given strong stock performance, investors are still wary of riskier ventures. Historical analysis provides some comfort given that drug demand tends to be inelastic, the industry has the power to set prices (though this may have been weakened somewhat by the IRA), and companies generally have less reliance on raw materials and better margins than other industries. While it has been a tough market environment for early-stage biotech’s, convincing clinical data should still be enough to gain financing.
In vivo gene editing
In vivo gene editing is a groundbreaking technology that has the promise to treat the root cause of many genetic diseases by directly targeting and correcting DNA mutations, and the scope of this technology that allows for precise DNA modification has the potential to address cancer and infectious diseases as well with high durability and efficiency. The disruptive nature of in vivo gene editing stems not only from its applicability to numerous indications, but also its potential to supplant existing therapeutic approaches, including gene therapy, antisense knockdown, and even small molecule drugs.
In Q1 of 2023, the FDA cleared its first IND for an in vivo CRISPR/Cas9 treatment — a noteworthy milestone. Further progression is expected as other companies are exploring using in vivo gene editing to target indications beyond the liver. An additional development is the discovery out of CRISPR pioneer Professor Feng Zhang’s lab, which suggests that eukaryotes may also carry gene editing enzymes, which could have higher specificity relative to bacteria-derived CRISPR systems. However, long-term safety profiles have yet to be characterized, so while this tool remains an exciting area of interest, there is no reason yet to pivot away from existing and established technologies.
The age of AI
Artificial Intelligence has the potential to revolutionize how technology is utilized in the biotech sector, and many leading companies believe AI could enhance molecule design, enable identification of new targets, facilitate clinical trial conduct, and improve both R&D and SG&A expenses. Some companies predict that the more data intensive components of biotech could be dramatically altered by the implementation of AI; it may soon be possible to reduce research processing times from weeks to hours using this tool and increase target identification by 20-30%.
However, AI will have to be particularly sophisticated to represent an advantage over current approaches, given that computational biology and high–throughput data analysis is already readily utilized in biological sciences.
“With AI, it may soon be possible to reduce research processing times from weeks to hours and increase target identification by 20-30%.” – Brian Abrahams, M.D., Head of Biotechnology Research, RBC Capital Markets
Ever warming temperatures are bringing tropical diseases further north, with Florida and Texas experiencing an endemic Malaria outbreak, which, according to the CDC, is the first time this mosquito-borne disease has been locally acquired in the U.S. since 2003. Experts are predicting that warming global temperatures will precipitate a notable increase in mosquito-borne disease cases in previously unaffected geographic locations.
The emergence of Neglected Tropical Diseases in the United States is not the only casualty of climate change; an already stressed biotech production line is likely to experience further pressure as severe weather patterns put infrastructure at risk. Infrastructure challenges due to climate change have already been noted, with the destruction of Pfizer’s North Carolina manufacturing facility in the wake of an EF3 tornado. Even more basic research is under threat as Biotech’s Boston hub is at risk of flooding, with water levels predicted to rise 1-2 feet by 2050.
The impact to biopharma infrastructure can be mitigated by preemptive planning and management in at-risk areas; ensuring that local facility structures are resilient and robust supply chains are established will go a long way towards diminishing the effect of climate change on the biotech sector.
Inform your decision making with insights and analysis on the change drivers impacting biotech. Learn more.