Published February 29, 2024 | 3 min read
Key Points
- Patent march-in rights hang heavy over biopharma, but near-term implementation appears unlikely.
- The SCOTUS mifepristone case in Q2 of 2024 threatens regulatory stability and innovation across the industry.
- IRA's shadow looms large as pharma braces for potential policy expansion and commercial pricing pressure from Medicare discounts.
- The M&A landscape offers a chance for mid-cap mergers to shine in a time of uncertainty.
- While in vivo gene editing stands poised to revolutionize therapeutic landscapes, critical roadblocks remain.
- Next-generation GLP-1s hold the promise of overcoming current limitations and an expanded scope beyond metabolic disorders.
The biopharmaceutical landscape in 2024 presents a captivating narrative, characterized by significant disruptions across diverse realms. From the potential regulatory ramifications of the upcoming Supreme Court decision on Mifepristone to the evolving implications of the Inflation Reduction Act's (IRA) targeted drug pricing measures, industry stakeholders are attentively monitoring these pivotal developments.
1. Government intervention looms
The specter of patent march-in rights, a rarely utilized government power that can waive IP protection for federally funded drugs deemed inaccessibly priced, has cast a long shadow over the biopharmaceutical sector given its potential impact on the drug pricing landscape. This issue is top of mind in Q1 of 2024 as The National Institute of Standards and Technology (NIST), a non-regulatory agency within the US Department of Commerce, has released draft guidance for agencies considering using march-in rights under the Bayh-Dole Act. While this issue remains an item to watch, there is limited precedent, strong industry opposition, and potential political and legal ramifications that still stand in its way.
“The Supreme Court's forthcoming decision on mifepristone, the abortion pill, extends far beyond reproductive rights. A reversal or significant revision could create a precedent for challenging other "controversial" drugs.”
Brian Abrahams, M.D. Managing Director, Co-Head of Biotechnology Research.
The Supreme Court's forthcoming decision on mifepristone, the abortion pill, extends far beyond reproductive rights. A reversal or significant revision could create a precedent for challenging other "controversial" drugs. This includes emerging areas like stem cell therapies, gene editing, and even high-priced medications deemed insufficiently differentiated. Such challenges could originate from both political spheres and competing companies, creating a climate of uncertainty and unpredictability for drug developers and investors alike.
2. Regulation drives price pressures
IRA mandatory discounts in public pay channels, Medicare price caps, and revamped rebates are driving further concern due to their potential influence on commercial pricing.
Additionally, beyond the IRA, a patchwork of state-driven regulations could also significantly disrupt the market, particularly for companies deemed insulated from federal price pressures. Initiatives like drug transparency laws, affordability boards with price-setting power, and even drug importation programs are gaining traction, potentially squeezing profit margins and creating an unpredictable regulatory landscape.
While Colorado was recently unsuccessful in setting an upper price limit (UPL) on Trikafta, multiple other drugs are being reviewed. The possible expansion of price control legislation in other states adds meaningful risk to the sector; currently, four states have active price review boards, and many others are considering adopting this model. Therefore, investors are paying close attention to this evolving front, as proactive engagement and navigating the diverse state-by-state landscape could become key differentiators for success moving forward.
3. FTC intensifies focus on dealmaking
While 2023 saw a decline in blockbuster deals due to heightened scrutiny from the Federal Trade Commission (FTC), recent acquisitions indicate continued confidence among certain players. However, the FTC's intensified focus on M&A activity is undeniable.
Despite recent unsuccessful attempts to block major mergers, the implementation of stricter review guidelines and increased attention to potential "improper" Orange Book listings paint a picture of heightened challenges for future deals and raises concerns for brand-name drug manufacturers, potentially limiting their ability to secure 30-month stays from generic competition and impacting patent-driven revenue streams.
“The FTC's recent openness to smid-cap M&A offers a glimmer of hope for strategic consolidation within this segment.”
Gregory Renza, M.D., Senior Biotechnology Research Analyst
Further uncertainty arises from potential shifts in leadership and resource allocation within the FTC and regulatory bodies, depending on the upcoming elections. However, amidst these concerns, recent sizeable acquisitions suggest harbors of opportunity. Mid-cap deals appear less contested, possibly perceived as lower risk by acquirers. Additionally, the FTC's recent openness to smid-cap M&A offers a glimmer of hope for strategic consolidation within this segment.
4. Revolutionary platforms to watch
In vivo gene editing stands poised to rewrite the script for treating rare diseases, cancers, and even infectious diseases. By directly correcting disease-causing mutations within the body, this technology promises long-lasting therapies with unparalleled efficiency. If in vivo gene editing fulfils its epic potential and its efficacy and durability are confirmed, it could pose a serious challenge to established players in the therapeutic landscape, leading to a shift away from conventional approaches like gene therapy or antisense knockdown, particularly for larger disease indications.
However, roadblocks remain; delivering gene-editing tools beyond the liver and ensuring long-term safety are crucial hurdles.
Notably, in vivo gene editing isn't the only revolutionary platform to watch; RNA editing programs are also making rapid advancements, and could be favored over gene editing for safety reasons, including their transient nature.
5. Manufacturing presents a crucial bottleneck
As the biopharmaceutical industry pushes the boundaries with cutting-edge drug modalities like gene therapies, CAR-T cells, and radioligands, a crucial bottleneck is emerging — manufacturing. These complex treatments present unique challenges, stretching traditional facilities and expertise thin, and resulting in unpredictable drug approvals, supply chain constraints, and even drug shortages.
Gene therapies often face lengthy production times, exceeding two months in some cases, while CAR-T therapies may require extensive manufacturing networks, creating logistical hurdles. Even some established modalities like injectable antibodies are struggling, with delays due to third-party manufacturing issues. However, companies are working to address these issues and streamline production when possible. Additionally, advancements in automation and point-of-care production have the potential to alleviate pressure on centralized facilities.
“As experience with these modalities grows, the industry can leverage accumulated knowledge to optimize production processes, anticipate demand, and prepare for smoother launches. Ultimately, navigating these manufacturing challenges is crucial for unlocking the full potential of these transformative therapies.”
Leonid Timashev, Biotechnology Analyst, RBC Capital Markets
As experience with these modalities grows, the industry can leverage accumulated knowledge to optimize production processes, anticipate demand, and prepare for smoother launches. Ultimately, navigating these manufacturing challenges is crucial for unlocking the full potential of these transformative therapies.
6. Acute therapies disrupt the depression landscape
The landscape of psychiatric care, dominated by chronic medication regimens, might be facing a pivotal moment. The emergence of acute-dosage or short-course therapies, particularly those utilizing psychedelics or targeting receptors like GABA and NMDA, could usher in a new treatment paradigm with significant market implications for numerous companies in this space. Psychedelics like psilocybin and LSD show promise, with early results suggesting rapid antidepressant effects exceeding traditional SSRIs. However, logistical challenges in administration and potential risks like suicidal ideation raise questions about real-world use. Drugs targeting GABA and NMDA receptors are also gaining increased attention, but overall, concerns about side effects and long-term efficacy remain top of mind.
Furthermore, established chronic treatment models may prove entrenched, especially considering the durability uncertainties of many acute therapies and the continued affordability of generic SSRIs. Additionally, a history of mixed results with other novel mechanisms targeting GABA and NMDA dampens investor enthusiasm.
7. Next-generation GLP-1 drugs expand their reach
Glucagon-like peptide-1 (GLP-1) receptor agonists have emerged as disruptive forces in the metabolic/diabesity field. While their full potential remains under investigation, their impact may be significant. Continued clinical outcomes data and widespread adoption could, over time, lead to a reduction in the demand for existing cardiometabolic drugs.
Furthermore, the development of "next-generation" GLP-1s, exploration of alternative mechanisms, and the introduction of follow-on therapies offer promise to address current limitations and further expand their reach. For instance, ongoing studies investigating the application of GLP-1s in conditions like non-alcoholic steatohepatitis (NASH), chronic kidney disease (CKD), and heart failure with preserved ejection fraction (HFpEF) have the potential to significantly alter the therapeutic landscape for these conditions.
“The ambitions of GLP-1 drugs extend beyond their traditional role in metabolic disorders. Recent clinical trials indicate potential benefits on cardiovascular outcomes, while preliminary explorations in peripheral conditions like Alzheimer's disease suggest broader applications based on their ability to reduce neuroinflammation and oxidative stress.”
Luca Issi, Ph.D., Senior Biotechnology Research Analyst
However, the ambitions of GLP-1 drugs extend beyond their traditional role in metabolic disorders. Recent clinical trials indicate potential benefits on cardiovascular outcomes, while preliminary explorations in peripheral conditions like Alzheimer's disease suggest broader applications based on their ability to reduce neuroinflammation and oxidative stress.
Despite encouraging findings regarding the numerous applications of GLP-1 drugs, real-world challenges persist. Issues such as low long-term adherence due to GI side effects, cost, weight regain upon withdrawal, and concerning observations of lean muscle mass loss during treatment raise questions about the ultimate market penetration and overall impact of GLP-1s.
