Forecasting Bio/Pharma in 2018

This article was published in Pharmaceutical Technology Europe, Volume 30, Issue 1, January 2018.

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Implications of the United Kingdom’s exit from the European Union (EU) cast a shadow over Europe’s bio/pharmaceutical market in 2017, as well as its prospects for 2018. While one major question--the relocation of the European Medicines Agency--was answered in late 2017 with the announced move to Amsterdam, many unresolved issues, including regulatory approvals and supply chain monitoring, remained (1).

In 2017, the European Medicines Agency’s (EMA’s) Committee for Medicinal Products for Human Use recommended marketing authorizations for 92 innovator and generic drugs, an increase from 81 authorizations in 2016 (2-3). US drug approvals hit record levels; 46 new molecular entities were approved in 2017 compared with 22 in 2016 (4). This big rebound, plus the approval of the first gene therapies, created a more positive outlook in the United States.

Regulatory changes pending

As Brexit negotiations defining the terms of the UK’s departure progressed, an agreement for cooperation between regulatory authorities that could reduce inspection bottlenecks was launched. A mutual recognition agreement, effective 1 Nov. 2017, enables drug regulatory authorities of Austria, Croatia, France, Italy, Malta, Spain, Sweden, the UK, and the US to use each other’s good manufacturing practice (GMP) inspections of pharmaceutical facilities (5). 

Sterile drug manufacturers faced major changes in operating procedures; Annex 1, Manufacture of Sterile Medicinal Products of the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) and EU GMP guide is under revision (6). 

Annex 1 has been updated since it was first published in 1971 but has not had a full review. The purpose of the revision, according to an European Commission announcement, is to add clarity, introduce the principles of quality risk management, include new technologies and processes, and change the document structure to a more logical flow. Proposed changes include the introduction of sections on utilities, environmental and process monitoring, and a glossary.

The proposed revised version was prepared in cooperation with, and is subject to, parallel public consultation with the World Health Organization and PIC/S. The consultation document was issued on 20 Dec. 2017; the European Commission is collecting comments until 20 March 2018.

Great expectations

Analysts at Evaluate Pharma (7) note that scientific breakthroughs improve the lives of patients and can richly reward the drug’s creators. The successes need to continue, however, to keep investors interested in the market. The bar for success is set high with rapid progress during the past few years, Evaluate Pharma reports, and disappointments would remind investors that in biopharma, “failure is a fact of life.”

Through the third quarter of 2017, pharma and biotech transactions declined for a second year compared with the active markets of 2014 and 2015, according Evaluate Pharma (7). In the US, the decline was attributed to uncertainty over tax law changes. 

In 2018, companies with legacy drug products in large therapy areas may seek mergers and acquisitions to refill depleted pipelines. In the Evaluate Pharma report, experts noted that early-stage companies developing immune-oncology drugs were overvalued, creating a “seller’s market.” The valuations of large-cap biotech companies were depressed, the report argued, creating opportunity for cash-rich pharma companies to make large acquisitions.

Strong financial markets also could spur more initial public offerings and small biotechs may also look to independently fund later-stage development, the report authors note. Venture funding, which slowed in 2017, but could pick up again, the report suggests, benefiting start-up companies in Europe. A competitive market in the US has pushed up prices for acquisitions; investors are looking to Europe for alternative opportunities (7).

Cost of innovation

Although promising platforms such as gene therapies are emerging, the challenge for bio/pharma is to develop these platforms in an efficient way to create “near-term value for all stakeholders,” according to the authors of Deloitte’s annual study on industry return on investment (8). The report--based on analysis of estimated return on investment from late-stage pipelines of 12 large-cap biopharma companies--noted that projected R&D returns continued to decline from 10.1% in 2010 to 3.7% in 2016 and 3.2% in 2017. 

Perspectives from bio/pharma personnel

Pharmaceutical development and manufacturing experts shared their opinions about the state of the industry and prospects for 2018 In the 2017. Pharmaceutical Technology/Pharmaceutical Technology Europe annual employment survey (9). Respondents from around the globe shared similar perspectives about employment-related prospects, but also expressed varying opinions about business prospects for bio/pharma.

Bio/pharma business activity in Europe was up in 2017, the survey respondents reported. One-half of the EU-based respondents reported an increase in business at their company over the previous year, a significant jump from 42.3% in 2016 (10) and 40% in 2015; only 10.9% reported a decrease. In comparison, only 35.6% of the global audience of respondents reported an increase in business in 2017; 16% reported a decrease.  

The positive trends in Europe continued in other business areas at bio/pharma companies, as compared with observations from the global audience. Companies hired additional employees (37.5% EU vs 22.67 global), expanded business operations (18.8% EU vs. 11.1% global), and experienced less downsizing (12.5% EU vs 18.2% global). In line with the reports of increased business, the EU-based respondents also noted that more tasks previously done inhouse were outsourced to contract service providers (17.2% EU vs 11.1% global).

Mixed outlook

The positive feelings from 2017 fueled an optimistic outlook from EU-based bio/pharma employees for 2018; 62.5% of the respondents predicted that their company’s business would improve in 2018, up from 50.4% for 2016. Less than 10% said business would decline. In contrast, only 52.9% of the respondents from the global audience said business at their companies would improve and 14.7% predicted business would decline.

The EU-based audience, however, was less positive in their outlook for the bio/pharma industry in general for 2018: 37.5% said business would improve in 2018, down from a prediction of 46.4% for 2017. Almost half of the global audience surveyed expected business to increase.

Predictions for business growth in the bio/pharma industry as a whole over the next five years were more optimistic and similar to responses in 2016. Nearly two-thirds (64.1%) of the EU-based respondents predicted that business will improve; however, 12.5% expect business to improve overseas, but not domestically.

US taxing decisions: R&D, M&A, or investor windfall?

In the United States in 2017, the bio/pharma industry witnessed a record number of drug approvals including the first gene therapies and a digital pill, a new commissioner at the US Food and Drug Administration, and a major overhaul to the US corporate tax structure. Unfinished business--open questions about the fate of the US healthcare system, an unresolved federal budget, and ongoing debate over drug pricing--have extended the air of unpredictability into 2018 for bio/pharma companies in the US and around the world.

Thanks to the overhaul of the tax system enacted in late December 2017, US-based bio/pharma companies started 2018 with a lower corporate tax rate, lower taxes on income earned abroad, and simplified rules for expensing new investment purchases. 

The tax law overhaul had one negative: the orphan drug tax credit was reduced from 50% to 25% of qualified research and clinical testing activities. 

What biopharma companies will do with the tax savings or repatriated funds--invest in R&D, return it to stockholders, or shop for acquisitions--was not clear as 2018 began. While the intent of tax law changes is to expand investment and create more jobs in the US, companies may continue to invest overseas. A previous “tax holiday” for repatriated funds in 2004 resulted in minimal job creation; analysts and critics of the tax cuts expect a similar result with this round of cuts (1).

References

1. S. Milmo, Pharmaceutical Technology Europe 30 (1) 6-8 (2018).
2. EMA, Monthly Statistics Report, November 2017.
3. EMA, “EMA Meeting highlights from the Committee for Medicinal Products for Human Use (CHMP) 11-14 December 2017,” Press Release, 15 Dec. 2017.
4. FDA, Novel Drug Approvals for 2017.
5. “FDA to Recognize Inspections from EU Drug Authorities,” PharmTech.com, 31 Oct. 2017.
6. European Commission, Targeted Stakeholders Consultation on the Revision of Annex 1, on Manufacturing of Sterile Medicinal Products, of the Eudralex Volume 4.
7. A. Brown, E. Elmhirst, J. Gardner, EP Vantage 2018 Preview, Evaluate Pharma, December 2017. 
8. C. Terry and N. Lesser, A New Future for R&D?, Deloitte, 2017.
9. Pharmaceutical Technology/Pharmaceutical Technology Europe Employment Survey 2017.
10. Pharmaceutical Technology/Pharmaceutical Technology Europe Employment Survey 2016.
11. J. Wechsler, “Tax Overhaul a Plus for Pharma,” PharmTech.com, 20 Dec. 2017.

Article Details

Pharmaceutical Technology Europe
Vol. 30, No. 1
January 2018
Pages: 22–23

Citation

When referring to this article, please cite it as R. Peters, “Forecasting Bio/Pharma in 2018,” Pharmaceutical Technology Europe 30 (1) 8–9 (2017).