Biotech needs to get tougher on pipeline decisions, according to BDO’s recently released annual Biotech Briefing.
Biotech needs to get tougher on pipeline decisions, according to BDO’s recently released annual Biotech Briefing.
The industry is facing multiple pressures, not only from the pandemic, but from public demands to curb product prices, looming patent expirations that give rise to new competitors and shifting reimbursement models. With many clinical trials postponed or halted entirely because of COVID-19, companies need to optimize their R&D to survive the immediate environment and position themselves for future growth. And, they need to engage in collaborations.
Realigning their R&D pipelines with the federal priorities outlined in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) should be a priority.
“This is a good way to hit the refresh button,” Patti Seymour, managing director of BDO’s BioProcess Technology Group, told BioSpace.
It provides an opportunity to pivot efforts away from already bloated fields to focus on programs with novel mechanisms or higher probabilities of success. This may involve reprioritizing some products and repurposing others to match federal goals, or putting some intellectual property on the shelf, at least temporarily.
The CARES Act calls attention to zoonotic diseases – diseases that can jump from animals to humans and pose a public health threat – providing an opportunity to veterinary medicines to expand into human health.
Developers of scientific and manufacturing equipment also have opportunities under the CARES Act. The Act granted $3.5 billion to the Biomedical Advanced Research and Development Authority (BARDA) to support manufacturing, production and procurement of vaccines, therapeutics, diagnostics and active pharmaceutical ingredients. Likewise, the NIH received funding to study, construct, demolish, renovate and acquire equipment for the vaccine and infectious disease research facilities it uses, thus offering opportunities for those with NIH grants.
Expanding production from one to multiple sites is a looming challenge.
“It is difficult in terms of technology and regulations,” Seymour said. “If regulators can relieve the regulatory burden, it allows pandemic agents to be manufactured in multiple sites.”
The issue, she explained, is that product approvals are site-specific – the actual site is licensed – so you cannot easily move production to another site. To expand, you must transfer the technology to that site, perform an additional validation process at that site, and submit that data to the FDA for review and approval.
“It’s not always successful, and it’s very subjective,” Seymour said. “The FDA and EMA don’t necessarily agree, and there are a lot of risks involved. It usually takes two years to complete,” which is slower than the pandemic response can tolerate.
Seymour said this means it’s good to be the company that owns capacity. Particularly with COVID-19 scale up looming, biopharma companies are scouring the landscape to find the manufacturing capacity to make those products.
Seymour added that “the government wants to ensure some collaboration and cooperation among those with capacity to ensure a level playing field, and that the best vaccine (or therapeutic) can be manufactured,” even if it originated from a company without manufacturing capacity.
Collaboration at previously unheard of levels, therefore, is required, not only to advance scientific programs but to also companies’ financial outlooks.
The COVID-19 Technology Access Pool (C-TAP) is just one example of broad collaborations this year. Companies in this global consortium have pledged to share the intellectual property from their COVID-19 programs to support the equitable distribution of vaccines and therapeutics globally.
When COVID-19 put the brakes on many clinical trials early in the year, the slowdown threatened the survival of many small-cap companies. Although many of those trials are now resuming, partnering with stronger companies is one of the best ways to assure continued survival.
Financially, joint ventures and collaborations continue to make sense, especially when R&D expenses are either outpacing or increasing at almost the same rate as revenue across the industry.
To hone the point, companies listed on the NASDAQ Biotechnology Index showed an average growth in revenue of 2% between 2018 and 2019, but average R&D expenses grew nearly 22% during that timeframe.
For small-cap companies, the situation was amplified. Their revenue declined 41% while R&D expenses increased 38%. Mid-cap companies saw revenue increases of 29% and R&D expenses increased 21%. For large cap companies, revenues increased about 6%, while R&D expenses increased 23%.This means companies need to maximize their financial assets going forward.
Among its several strategies, BDO advises companies to claim the available R&D tax credits.
“Billions…go unclaimed at the federal, state and local levels because companies don’t fully understand the credit,” the report states.
Organizations developing or improving new or existing products, processes or software generally are eligible, especially if they are supporting the fight against COVID-19.
This year is obviously challenging, particularly for small-cap companies where revenues often depend on non-recurring licensing fees and equity financing.
“The good news is that the equity markets are holding up, IPOs continue to close and venture funding continues to be robust, albeit somewhat soft in the early-stage deals,” the report noted.
The need for small companies to survive and mid- and large-cap companies to innovate may trigger a new round of M&A activity and investment.
In the current climate, venture capital may be appealing. “But,” she cautioned, “VCs may not have the appetite for the risk. They may look more critically at the targets, rather than casting a wide net.”
For many, the goal may be to maintain VC funding as long as possible. Going public dilutes investment, and “IPOs require more regulatory oversight from more regulatory bodies, so a lot of companies try to stay with VC investors if they can be well-funded,” Seymour said. “The take home message for us is around open innovation and tech transfer as a way to help local manufacturing and supply chains.”
