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BioPharm Executive: Lucky 2013: The Biotech Year In Review


12/16/2013 3:33:53 PM

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December 18, 2013

China's Slowdown and the Bribery Scandal; Hiring and Firing; The IPO Window; Not So Few Approvals; and A Political Morass.

By Karl Thiel for BioSpace.com

With 2013 now ticking into its final days, it's time to take a last look over our shoulder. It was an exciting year in a number ways, but there are a few stories and trends that stick out—industry developments likely to reverberate in 2014 and beyond. Here's a quick look:

China's Slowdown and the Bribery Scandal.

This one promises to carry well into 2014. It began, of course, with revelations that GlaxoSmithKline employees in China were funneling bribes to doctors and officials in exchange for prescriptions and other favors, and has since grown to envelope a number of western pharma companies. With investigations still in the early stages, there's surely more to come.

Moreover, the scandal may be taking more shine off an apple that was already losing its luster for Western pharma companies. Chinese pharma sales, up a stunning 40% in 2011, were up "just" 20% in 2012--actually well below projections—and look to be further decelerating, especially with a (much-needed) crackdown on corruption underway. Chinese GDP is projected to grow 7.4% in 2014--the slowest rate in seven years—and that number may still be exaggerated.

In the wake of the scandal, the investigations, and the backlash, companies have all but halted drug promotion efforts in China, and GlaxoSmithKline saw regional sales decline 61% in the third quarter. It throws into question some of the huge investments made in China over the past few years.

Hiring! (And Firing).

Job cuts in the life sciences are old news, but the picture gets more complex as you dig down, and this year's trend is a little sunnier that it might first appear. Job cuts continue, of course, but more pharma companies have become net hirers in the past year. The most successful biotechs, meanwhile, are aggressively adding positions. Gilead Sciences, Celgene, and Biogen Idec have added tens of thousands of positions between them over the past several years.

Among big pharma, the most aggressive hirers are European companies, but while they are often looking to fill positions in Europe and China, most of the new jobs are in the U.S. And refocusing attention on the U.S. may accelerate as growth in China slows down to the single digits (see above).

Novartis, in particular, increased its headcount 9% in 2012 and is on track to do so again this year. While it recently announced some new cuts, those are somewhat offset by new hiring at its Cambridge, Mass., research headquarters and additions in neuroscience. The same goes for Johnson & Johnson. While many other pharma companies have seen heavy attrition in the last few year--most notably AstraZeneca, Eli Lilly, Bristol-Myers Squibb--the pace has slowed. Lilly and Bristol were net hirers last year according to EvaluatePharma. GlaxoSmithKline may particularly have to rethink its strategy. While it has only cut global positions by 4% since 2007, it slashed employment 31% in the U.S. and did much of its hiring in China. It may have to do some backtracking in the coming years.

The IPO Window.

Of course, one way to get a job is to join (or start) a new company. There has been plenty of activity in that regard this year an an IPO window that opened in 2012 has roared through this year. Some 45 biotech companies have gone public so far this year, raising over $3 billion...and they are still lining up. Last year, the Wall Street Journal announced that for biotech, "the gravy days are over," with many venture capitalists turning their back on the sector altogether.

Now, of course, all these IPO returns are starting to filter back to the VCs—which are raising new funds. OrbiMed, the world's largest life science-dedicated VC, recently brought in $735 million for their fifth fund, but they are not alone (see Money Talk). While VC investment has stayed fairly tepid in 2013, look for that to change next year.

Not So Few Approvals.

The bottom line for all these biopharmaceuticals companies is drug approvals, and 2013 has had a decent showing with 26 new chemical entities approved so far. That's of course less than the bumper crop of 39 approved in 2012, and less than the 30 approved in 2011. Still, it's better than the average of 23 NCE approvals from 2005-2012, better than the average of 23.8 for 2000-2012, and way better than the average of 21.2 from 1940-2012. Moreover, the trend has been toward a higher percentage of submissions being approved--last year 39 of 41 applications (95%) were approved, which is a far cry from 2007-2009, when only 64% of filings for NCEs were approved.

The number of applications is staying fairly steady, however, so it seems that either higher quality applications or a more flexible and helpful FDA—or both—is behind rising productivity. What would be really great to see in 2014 is the number of applications rising. That could point to a lasting rise in productivity.

A Political Morass.

Finally, we can't look back on 2013 without acknowledging the sorry state of political discourse in the U.S. The year began with the sequester, necessitating indiscriminate budget cuts that cut funding to the National institutes of Health and other agencies, causing what long-term damage we don't know. We then proceeded (again) to the seemingly endless debt ceiling debate, which has infinitely higher stakes for the welfare of the nation, and moved right into the government shutdown.

Still, we're ending the year on a brighter note: A bipartisan budget deal now working its way through Congress that would eliminate the sequester cuts, raise a tiny bit of revenue, and make some very modest cuts. (It doesn't do anything to prevent another debt ceiling battle in a few months, however). Hardly great shakes, but any hint of grownup behavior is to be encouraged.

Here's looking forward to a great 2014!

-Karl Thiel

Read the BioPharm Executive online newsletter December 18, 2013.

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