In Choppy Waters

Biotech drugs have been slated to become the blockbuster drugs of the future amidst speculations that the bubble is about to burst. A looming question mark hangs as investors fled US biotechnology shares a month ago, turning fund flows negative for the year to date as the Federal Reserve voiced concerns over high valuations in the sector. The sector has always been a risky proposition, but despite enjoying such a status, it has been a boom sector in recent years with smaller companies on the cutting edge of research and development attracting significant sponsorship from investors prepared to bet big on a major drug or medical breakthrough. There are no guarantees though. Out of many who fail, there are success stories which generate huge returns.

Blockbuster on the block?

A record 10 biotech drugs were approved in 2013, with the most prominent one being Sovaldi, that was approved by the FDA in December 2013 for the treatment of hepatitis C infections, putting Gilead Sciences on track for a potential blockbuster several times over. The drug has since generated more than $2 billion in sales in its first quarter of full approval alone and has raised enough eyebrows over its cost of $1000 a day, even soliciting congressional inquiries. Another recent blockbuster crossover is from Cubist Pharmaceuticals whose Cubicin, which treats hospital-borne infections, has now crossed over the line of $1 billion in annual sales. As compared to 2013, 2014 looks bleak. There are only three drugs to be launched which include: GlaxoSmithKline’s combination COPD therapy, Anoro Ellipta, Lundbeck’s Brintellix for major depressive disorder and Celgene’s psoriatic athritis drug, Apremilast. These are expected to attain blockbuster status by 2018. While small molecules still dominate new medicines, 2014 could be one of the biggest years for biological drug launches, particularly if the PD-1 antibodies make it to market. The industry’s move to ‘nichebuster’ drugs may explain the switch from blockbuster drug development, but billion-dollar drugs remain an indicator of the sector’s productivity, says a report by EvaluatePharma.

It is to be noted that the past two years witnessed a surge of R&D productivity, driving investor confidence and increasing market performance. However, analysts strongly feel that giant new products are needed to restore faith in R&D productivity. It will be worthwhile to see how the lack of blockbuster drug launches will affect investor’s views of the biotech sector. When it comes to India, new biological entities remain out of picture even as there is a strong thrust on biosimilars, however, most companies are in early stages. It is felt that although India has gained reputation as the generic capital of the world through reverse engineering, winning the biosimilar battleground is a formidable challenge.

“Indian companies have biosimilar programmes, however, the guidelines are still evolving, both in the EU and US as well as India. There is regulatory uncertainty even as investors are looking for an assured return on capital.” Mahadevan Narayanamoni, Partner, Advisory Services, Grant Thornton India

“Indian companies have biosimilar programmes, however, the guidelines are still evolving, both in the EU and the US as well as India. There is regulatory uncertainity even as investors are looking for an assured return on capital,” says Mahadevan Narayanamoni, Partner, Grant Thornton India LLP. Biosimilar development is all about molecule selection, quality control, right infrastructure and innovation. Many companies have been struggling to keep their biosimilar pipelines in order.

A conducive environment

A report published few months back by PwC suggests that India needs an investment of Rs 30,000 crores annually in the next five years for the biotech industry to grow to $100 billion by 2025. In his recommendations to the new government, ABLE President, PM Murali has been quoted as saying that, “Biotechnology and life sciences industries need a road map of growth, opportunity and fiscal responsibility for bio-economy. We strongly recommend transparent regulatory framework, bio-manufacturing infrastructure, investment in R&D and a very rational tax structure.” This is even more relevant given the fact that chemical product pipelines are drying up, and innovation is the way forward. But companies are not performing as per investor expectations. “There are no companies who specialise in biotech products trading at high valuations, if we take out vaccines and biosimilars,” says Narayanamoni. Not only is the investment climate discouraging for the sector, VC funds in India are not genuinely investing in such products.

The future then lies in partnerships with global biotech players to identify products for development and chart out a viable marketing strategy. Partnerships also become critical in the light of the changing R&D environment, as the life sciences industry continues to change into an industry in which collaboration becomes critical for innovative success. However, it remains to be seen if this would help uplift investor sentiment and recharge pipelines of companies. With few breakthrough ideas that would translate into the medicine of the future and even fewer biotech investors, with little focus on early stage company creation, the challenges of operating in the space are not getting any lesser.

All this makes it even tough for entrepreneurs to navigate through the choppy waters of drug discovery and early development, not to mention the regulatory hurdles.

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