The growing caution of regulators in assessing new biotechnology medicines is combining with a fragile economic climate to fuel conservatism among both biotech innovators and the sector’s investment base, a new report warns.

Launching their latest annual biotechnology report, solicitors Marks & Clerk said a “much more cautious” attitude among regulatory bodies, and in particular the US Food and Drug Administration (FDA), was “making it considerably harder for biotechs to get the marketing approval they need for drug development”.

This in turn was affecting investor sentiment, noted Dr Gareth Williams, partner at Marks & Clerk and co-author of the report. In a survey of nearly 500 executives across the biotechnology and pharmaceutical industries, conducted mainly in the US and UK as well as in Europe and Asia during April-May 2008, 68% of respondents felt the drug approval process must become less risk-averse if investment levels were to be maintained, with 72% regarding this factor as essential to the delivery of future drug pipelines.

The research for the report found that 83% of respondents believed the current pressures on the biotechnology sector were making it less attractive to many investors, while 90% were worried that secondary and further funding would become increasingly difficult to secure as market conditions deteriorated, with investors reducing their exposure by focusing on less risky latter-stage development projects.

At the same time, 83% of respondents felt that biotech companies themselves would focus increasingly on drug modifications and more mature pipeline opportunities, at the expense of more speculative innovation. And 78% saw a danger of biotechs bringing more ‘me-too’ products to market, rather than investing in real innovation, if the threshold for approving new drugs were set too high.

“Where capital is available, the terms for funding may become simply uneconomic,” Marks & Clerk warned. In the survey, 80% of respondents believed key investors would either take a larger equity stake in the biotech concerned or might look to secure their capital against the innovator’s intellectual property (IP) assets. “This reflects a trend gathering momentum within the industry where investors focus much more intently on the strength of valuable IP rights,” Marks & Clerk commented.

Patent life hit

Yet it also pointed out that slower drug approvals were eating into patent life. In the report survey, 91% of respondents felt the time it now took for drugs to get through the approval system was cutting into the period in which those products could reap the reward of patent protection.

Overall, 78% of respondents agreed that the climate for enabling biotech innovation had deteriorated within the last year, while 89% believed some small and/or early-stage companies would either fail or be snapped up at unattractive prices.

“Biotechnology represents the future of modern medicine, where yesterday’s innovators now struggle with dwindling pipelines, generic competition and a chequered R&D record,” Williams said. “Whilst the long-term view has not changed, we are seeing a short- to mid-term funding gap in the current climate, which poses a genuine risk to essential, early-stage research and development.”

“We can expect the shock to be partially absorbed by alternative means, such as more academic research and through public bodies,” Williams added. “These groups remain key drivers of R&D, although it must be said that Europe has a poorer track record than its competitors in the US when it comes to turning its public research into a commercial success. Europe’s innovation record is likely to suffer until conditions ease.”