The annual biotechnology report from Ernst & Young claims that the major players continue to perform well but claims that in a challenging environment, the rest of the sector needs to up its game in demonstrating value.
The study, launched at BIO 2013 in Chicago, notes that companies in the industry’s established biotech centres (the USA, Europe, Canada and Australia) achieved revenues of $89.8 billion in 2012, an 8% increase from the year before. This, combined with R&D cutbacks, resulted in a record high in net income of $5.2 billion, a $1.4 billion increase from 2011.
E&Y noted that the European biotech industry "reached aggregate profitability for the first time in its history in 2012". However, it claims that this was "a largely symbolic milestone given that it was reached in part due to widespread cost-cutting".
In terms of funding, biotechs in North America and Europe raised $28.2 billion, down from $33.3 billion in 2011, driven by a reduction in debt funding. The initial public offering market "remained tepid", the analysis states, with aggregate proceeds of only $805 million, down from $857 million in 2011, but venture capital was "resilient" in the aforementioned territories, down 5% to $5.4 billion.
However, much of the survey focuses on what E&Y calls an “implementation gap” at most small- to mid-size companies "when it comes to gathering evidence to demonstrate the value of products under development". This gap has "implications on the future ability of these companies to raise capital, obtain attractive deal valuations and be successfully reimbursed for their drugs upon approval".
To see how companies are adapting to the shift to evidence-based healthcare, E&Y surveyed US and European biotech executives from 62 companies with revenues below $500 million. 94% or more of respondents agreed it is “important” or “very important” for biotechs to have a strategic focus on matters of efficiency and evidence.
Little reimbursement expertise
However, most companies indicated that they are unlikely to undertake specific evidence-focused initiatives. Only 11% of respondents have added payer/reimbursement expertise to their management teams, while just 13% have done so in terms of their clinical development staff. A "scant" 4% have selected people with such knowledge to their boards of directors.
Glen Giovannetti, E&Y’s global life sciences leader, said biotechs "cannot afford to pursue an R&D strategy that only focuses on whether or not their drug works. They need to also understand whether it will be valued and reimbursed by payers".
He added that “if you wait to address questions of value only as a product launch approaches, you do so at your own peril" because pharmaceutical partners, "still the most viable exit option for most biotechs , now consider such data to be key drivers of their product and company valuations".
Mr Giovannetti went on to claim that the shift to evidence "is happening faster than many might have expected, and it affects companies regardless of their size, maturity or disease focus".
He argues that many evidence-focused initiatives, "engaging stakeholders earlier on issues of value and reimbursement, rethinking trial design or exploring pre-competitive data collaborations, don’t cost much and could even avoid of the expense of additional studies". Mr Giovanetti concluded by saying that "the question is not whether you can afford to do this, but whether you can afford not to".