Regulatory Dynamics: The BioPharma industry is highly regulated. The FDA is armed with strict federal legislations that are implemented to tightly regulate the drug approval procedure and subsequent commercialization of these drugs. The sole focus of FDA for such stringent regulatory measures is to offer safer and effective medicines to the consumers. A BioPharma company’s innovative instincts are protected through patents for ~20 years that allows the companies to recoup the huge costs incurred in developing the drug and give them reasonable profits to keep them interested in future innovations. Trade restrictions are in place to prohibit reimportation, which helps the drug companies to ward off unfair competition. In fact, PPACA was implemented to provide better access to healthcare and contain costs. The Biosimilar legislation was introduced as an adjunct to this legislation, which is also directed at reducing indiscriminate cost rise. Cumulatively, the prevalent regulatory nature of the industry and regular introduction of new reforms has disproportionately increased the regulatory costs for the companies. Additionally, product liability law suits have led to hundreds of millions of dollars in settlements with plaintiffs and a few companies also ended up paying hefty fines to the regulators.
Economic Drivers: Two factors that have positively influenced the growth of the BioPharma industry are the GDP growth and the affordability of health care products and services. Currently prescription drugs account for approximately 10% of $2.7 trillion spent in healthcare. Pricing strategies have ensured healthy profit margins for the BioPharma companies; however, introduction of generics have eroded much of that in recent times. Demand for drugs is projected to increase as the population ages, new pathogenic conditions are diagnosed, and personalized treatment regimen comes to the fore. R&D investments will continue to face significant scrutiny until the productivity starts increasing. Most recent R&D restructuring efforts started showing promise as the number of NMEs approved in the last twelve months is on pace to exceed the rates that the industry has seen over the last few years. The industry is still profitable and biotech is thriving—however, the drug prices will continue to face significant downward pressure from all stakeholders, which can be addressed through value-based drugs and pricing strategies.
Social Dynamics: Social dynamics play an important role in determining the demand for existent and new drugs. Lifestyles (lack of exercise, lack of intake of required vitamins/minerals through food), lack of sufficient awareness of healthy habits, work-related stress, aging population, are all expected to increase the demand for products and put additional burden on healthcare costs. Additionally, scientific advancements in diagnostics are causing more diseases to be identified and treated earlier. Today’s society is much more knowledgeable about their healthcare needs and the new era of information technologies and social media have further increased the awareness of health and care requirements. Climate changes and globalization are profoundly influencing the life styles and will positively impact the industry.
Unmet Needs: Unmet needs continue to exist in virtually every disease category and new diseases are emerging as socio-economic and environmental conditions change. Government continues to support orphan drugs by putting them on the fast track process. Increases in life expectancy, changes in social lifestyles and environmental changes are leading to new and attractive opportunities for BioPharma companies. As an example, Alzheimer’s disease is one of the most debilitating progressive brain disorders that patients suffer and are desperately seeking innovative medicines. A number of investigational therapies are actively being developed to target a sticky substance called amyloid, which is thought to be one of the disease contributors. The drug companies are also partnering with device companies to develop better ways for imaging Alzheimer’s disease pathology in living brains. All these efforts are geared towards addressing unmet needs which is a positive development for patients as well as for the BioPharma companies.
New Technologies: New technologies (genomics, nanotechnology) are enabling companies to discover drugs at a much faster pace. With some of the recently discovered/invented research and manufacturing tools, faster and efficient development of drugs will be the new order for the next few decades. New technologies will allow companies to realize better economics around drug development and not to forget; new technologies continue to enable the industry to innovate.
Evidence and Value: More than 300 new medicines have been approved by the FDA over the last 10 years. Traditionally, BioPharma companies have focused more on crossing regulatory hurdles while showing clinical “evidence” as it relates to safety and effectiveness of the drug. However, today, almost all stakeholders are demanding “value” which includes both clinical as well as economic value of the drug. For example, antidepressants are widely prescribed class of medications in the U.S. and are mostly prescribed by non-psychiatrists. Though they are considered to be safe, it’s not clear how effective these medications are, which raises significant concerns to all stakeholders as it gets difficult to manage quality of care as well as cost of care if evidence and value are not clear.
Given the escalating healthcare costs and lack of adequate quality standards in care provided to patients, the key stakeholders are evaluating drug evidence and value along the treatment paradigm. Increasing need to show evidence and comparative effectiveness of drugs, post the PPACA legislation, will put additional cost burden on BioPharma companies. However, the overall scenario is optimistic and investors are still attracted to this industry even though the risk vs. reward profile has significantly changed and will continue to change.