By Jill E. Sackman, D.V.M., Ph.D., Senior Consultant, and Matt Levy, J.D., Business Analyst, at Numerof & Associates, Inc. (NAI)
The pharmaceutical industry has entered a critical period of transition. Business models that have proven remarkably successful over the past 20 years are now encountering major challenges. As biotech companies grapple with the leading symptoms of these challenges – pricing pressures, pipeline productivity concerns, a growing public distrust, and greater political and regulatory scrutiny – it is becoming increasingly clear that a profound shift is underway in what it takes to be successful in this environment.
Biotech business strategy has tended to emphasize market size above all else. This has been translated into a focus on blockbuster drugs and mega mergers, passing on “singles” and “doubles” in the quest for “home run” opportunities. Heavy reliance on such home runs raises the inherent risks, costs, and time involved in clinical development, especially in an environment of heightened regulatory scrutiny. At the same time, the pharmaceutical industry’s increasing reliance on external sources of novel compounds has bid up the price of the compounds, further exacerbating the cost and risk of drug development — and as a result, the public backlash over rising drug costs.
The natural dynamics of maturing markets have become increasingly problematic. With a tradition of reliance on patent protection, brand-focused pharmaceutical companies cannot avoid competing with their own past success. Once generic equivalents are available, the economic attractiveness of other, new branded drugs for a given disease declines rapidly, particularly drugs in the same class. While new drugs typically offer some important advantages over existing therapies, these advantages must offset massive price differentials when compared to generics.
With the management of healthcare costs reaching crisis proportions, payers are raising the bar … insisting on hard evidence of clinical and economic value in comparison to therapies that already exist. In practice, the FDA has also begun factoring unofficial requirements for superior clinical value into the approval process. In this environment, innovation and differentiation play a more significant role than ever before.
Many biotech companies have implemented changes to their R&D process and capabilities. Most haven’t gone far enough. Sustainable leadership in this market requires a radically different development engine. The key requirement is to build a scientific foundation for highly differentiated and sustainable franchises around selected disease states — based on integrated diagnostic and therapeutic capability, extensive product portfolios that address needs over a disease continuum, strategic market insight, and in-depth preclinical and clinical expertise.
While excellent science must be a given, it is not enough by itself. Biotech companies will also need to master several critical building blocks:
Build critical supporting infrastructure and core competencies in strategic marketing, economic and clinical value, and portfolio management. Most development programs have appropriate focus on the pathway for regulatory approval of new products. In the current market environment, it is equally important to make optimal decisions on which compounds to move forward, which indications to pursue and in what order, how to position products competitively based on relative economic and clinical value, and what evidence needs to be generated in support of the value proposition. Most companies do not currently have the capabilities in place at a sufficiently sophisticated level to do this work well.
Integrate development programs more effectively to improve the risk/return profile of the pipeline. Without constant diligence, R&D practices easily devolve in ways that run counter to effective program management. One common example is the evolution of organizational silos that limit effective engagement across critical boundaries, such as the division of preclinical and clinical research. Companies must thoughtfully redesign processes, redefine roles, and ensure competencies are in place to capture the benefits of integration.
Reduce clinical development costs through integrated global programs, comprehensive outsourcing strategies, and improved program management capabilities. In addition to making wise portfolio management decisions, companies must find ways to take cost and risk out of their product development process. Most of the easy savings have already been found. The next steps will require more sophisticated program management capabilities at a strategic and operational level to streamline programs, access lower-cost resources, and leverage global synergies while remaining responsive to local market needs.
Realistic implementation of any major organizational transformation also needs to limit the risks of disrupting the current business. Fortunately, you don’t need to execute a monolithic solution all at once. Instead, you can select one or two “lead” therapeutic areas to build true franchise capabilities in alignment with your commercial strategy. Because a siloed organization will not be able to execute such an integrated approach, you must break down barriers across the company and build new, cross-cutting capabilities around your franchise focus.
Leaders throughout the biotech industry need to be proactive in their preparation for a market where new winners and losers will be determined based on their ability to create a new product development infrastructure — one that delivers new products with differentiated economic and clinical value propositions … with lower risks and costs.
Jill E. Sackman, D.V.M., Ph.D. is a Senior Consultant, and Matt Levy, J.D., is a Business Analyst at Numerof & Associates, Inc. (NAI). NAI is a strategic management consulting firm focused on organizations in dynamic, rapidly changing industries. We bring a unique cross-disciplinary approach to a broad range of engagements designed to sharpen strategic focus, increase revenues, reduce costs, and enhance customer value. For more information, visit our website at www.nai-consulting.com. Dr. Sackman and Mr. Levy can be reached via email at info@nai-consulting.com or by phone 314-997-1587.
Leading biotechnology companies are partnering with the International Center for Professional Development (ICPD) to support a training and mentoring program at the 2012 BIO International Convention that encourages workforce diversity in the biotechnology industry.
The Scientist Mentoring and Diversity Program (SMDP) encourages graduate and post-doctoral science students from underrepresented racial and ethnic groups to consider careers in biotechnology. Thirty students will be awarded scholarships for the year-long program. A vital component of the program is student attendance at the BIO International Convention, which will be held in Boston, June 18-21, 2012.
“Minorities are underrepresented in the biotechnology industry as in many other science, technology, engineering and math professions, and the biotechnology industry is doing something about it,” says Scott May, executive director at the International Center for Professional Development. “This effort is important for many reasons, but in particular, a diverse workforce is more productive as it brings a larger pool of ideas, skills, and experiences that collectively increase the knowledge base required for scientific innovation.”
Minority populations in the United States experience higher rates of mortality due to diseases such as cancer, diabetes, cardiovascular disease, and HIV/AIDS. These disparities may be partially attributed to a low number of minorities in the biomedical workforce. Increasing the diversity of perspectives in science research will lead to better opportunities for scientific advancements and eventually reduced health disparities among ethnic and racial groups.
In addition to three days of career training, the Scientist Mentoring & Diversity Program will provide participants with personalized mentoring and direct access to industry contacts. Participants receive scholarships to attend the SMDP training and the 2012 BIO International Convention. They also receive one year of mentoring and access to an exclusive online mentoring portal that provides ongoing support and connectivity.
The Lead sponsors of the 2011-2012 Scientist Mentoring and Diversity Program are BIO and Amgen. Additional SMDP sponsors include Johnson & Johnson, Baxter, Onyx Pharmaceuticals, Deloitte, and Howard University. Sponsors of the program receive extensive ongoing professional development for their mentor employees and easy access and recruitment of pre-qualified and top-quality ethnically-diverse researchers.
“This initiative has enjoyed the support of the industry for more than a decade,” says May. “We are currently seeking the support of other companies who want to join us in this important effort.”
ICPD also supports the annual Diversity Summit held at the BIO Convention. The summit brings science and healthcare thought leaders together to address health issues affecting underserved populations.
This year ICPD will launch a Scientist and Mentoring and Diversity Program training session focused on careers in the medical device industry. It will be held in conjunction with AdvaMed: The Med-Tech Conference in Boston, MA.
For more information, visit the International Center for Professional Programs at www.icpdprograms.org.
Jeff Ghannam is the Communications Director for the International Center for Professional Development (ICPD). ICPD offers continuing education programs for students and professionals using personalized, face-to-face experiential training and ongoing web-based support. Please contact him at jghannam@icpdprograms.org.
2012 Annual Study shows budgets, optimism taking a big jump
It looks like the biopharma industry is actually weathering the economic downturn quite comfortably. This year we’ve surveyed hundreds of biomanufacturers and suppliers, and the industry is expressing more raw optimism and confidence than at any time in the past 9 years we’ve been surveying this industry.
More Spending
What this means is that wallets are more open, and investments are being made for the future:
The firings and hiring freezes that have taken place since 2007, at least within areas that affect productivity, are reversing, and hiring budgets are back up,
Vendors are spending more on developing new and better technologies,
Pent-up demand for skilled scientists, and operations staff among biomanufacturers is resulting in more hiring,
Outsourcing, and off-shoring are being done more rationally, and are no longer a synonym for ‘you’ve just been laid off.’
Our 9th Annual Report and Survey of Biomanufacturing1 surveys 400 biomanufacturers in 31 countries ever year. And along with the 180 vendors surveyed, we get a good picture of industry trends, problems, and opportunities. This year, we found that both biologics manufacturers and their vendors are spending more, demanding better technologies, and expressing greater optimism for the future than we would expect, given some of the recent gloomy economic trends, and “end-of-world” catastrophe predictions.
Below are just a few of the trends associated with the industry’s buoyant atmosphere. We will continue this discussion during the coming year, and share some of the data from our studies. With a whopping 37.3 percent of suppliers to this industry indicating that their company did either “better” or “much better” than expected in 2011, and with 49.4 percent expecting they will do even better in 2012, I expect this broad optimism will be translating into increased spending, stronger R&D budgets, more capital expenditures, and more hiring.
Short Answer: If you haven’t invested in this industry in some way, now’s probably a good time. Here’s why:
Industry Growth Rate—Sales growth among vendors is a leading indicator of how the overall bio/pharma industry is doing. On average, sales growth to this industry is currently at around 14 percent annually. This compares to 13.0 percent in 2010, and 14.1 percent in 2007. Most IRAs don’t return growth rates like that.
Budget Trends—Budgets are also a good indicator of industry strength. And budget estimates for 2012 are, once again, up strongly for areas such as acquisition of new technologies, capital equipment, and training. In fact, early returns from respondents to our 9th Annual Report are projecting increases in all 12 areas measured in 2012, except for outsourcing. Spending this year, in particular, is occurring in:
New technology;
Capital equipment;
Process development and optimization; and
Personnel training and development.
Other Positive Trends:
Biopharmaceutical markets—The world market for biopharmaceuticals is now about >$140 billion2; growing at 15-18 percent annually, definitely a very healthy rate.
Approval-related Innovation and Progress—Good news: In 2011 FDA biopharmaceutical approvals involved genuine innovation and advances, with nearly all products being approved for new indications or for which the last product approval was granted well over a decade ago.
Biopharmaceutical Approvals—Despite increasing sales, the rate of biopharmaceutical approvals in the U.S. is flat (12 biopharmaceuticals in 2011). (see www.bioplanassociates.com/biopharma).
Company and country approval trends—A record number, four (33 percent), of newly-approved U.S. biopharmaceuticals are manufactured outside the U.S. — in the United Kingdom, Germany, Mexico and Italy.
Biosimilars (biobetters / biogenerics)—Patents are expiring and biosimilars are accelerating worldwide. Expect the entrance of many new manufacturers, and multiple biosimilars for each currently successful biopharmaceutical. Our global facilities analysis3, indicates that biosimilar/biobetter companies are present in virtually every biotechnology-capable region.
Internationalization—The biopharma industry continues to expand its presence worldwide, particularly in developing countries.
Internationalization of Manufacturing—Much of the industry growth involves new capacity being added at existing foreign facilities. This is illustrated by BioPlan’s Top 1000 Global Biopharmaceutical Facilities Index, which ranks facilities in terms of capacity, employment, and production.
Internationalization of R&D—Large international (Big Pharma) companies continue their expansion and off-shoring of R&D.
Demand for Local Production of Biologics—Companies are developing manufacturing strategies that include local manufacture of vaccines, for example. This contributes to developing countries’ scientific/technical infrastructure and provides continued availability and price stability.
World Standardization of Manufacturing—As more biopharmaceutical manufacturing is performed worldwide, product developers are working to standardize their products and manufacturing processes.
Internationalization of Single-use Manufacturing—The increasing adoption of single-use/disposable bioprocessing equipment allows products to be developed, standardized and the same manufacturing systems shipped and installed at multiple facilities; benefitting emerging markets.
Single-use Bioprocessing Technologies—In 2011, single-use/disposable bioprocessing systems further increased their dominance for the manufacture of biopharmaceuticals for pre-clinical R&D and clinical testing. In 10 years about half of new commercial biopharmaceutical manufacturing systems can be expected to single-use based.
Microbial manufacturing—Most industry attention in recent years has concentrated on mammalian cell culture-produced recombinant proteins. A confluence of trends is contributing to increased use of microbial (bacteria, yeasts, other fungi, etc.) host cells for recombinant proteins manufacture.
Outsourcing—Companies of all sizes worldwide continue to increase their outsourcing, particularly R&D, and increase use of CROs, particularly for screening, and clinical research. Based our global survey of biomanufacturing, among 24 areas of outsourcing, the primary outsourced activities included product characterization testing, with 70 percent of biopharmaceutical companies outsourcing at least some activity.
The Economy—The worldwide economic downturn continues to impact biopharma. Yet, with its underlying sales revenue, the industry has remain insulated. Financial issues affect most companies; however, demand for new, profitable products, ensures R&D will continue; ≥$70 billion is being invested by the pharmaceutical industry in R&D.
Mergers/Acquisitions—The trend for industry mergers, acquisitions will continue. However, some companies are recognizing that gutting their core competencies such as R&D and manufacturing is counterproductive.
Summary
Most of the fundamental indications are pointing to a positive, healthy industry; and bio/pharma is emerging from the current global economic situation by spending more, becoming more efficient, and, perhaps most importantly, showing great optimism.
I welcome comments on these trends and their impact on the industry.
Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports. You can contact him at: elanger@bioplanassociates.com or 301-921-5979.
For every job created in the biotech industry, up to five additional jobs are created to build research facilities; maintain laboratory and computer equipment; supply laboratory and office equipment, and provide basic services to even the most modest biotechnology facilities.
David Miller of the Illinois Biotechnology Industry Organization is well aware of the above statistic. He shared his views on the challenges and payoffs tied to establishing Chicago as a high-tech employment hub earlier this month at conference held at Northwestern University.
Eric S. Langer is president and managing partner at