Risk aversion from investors is posing a serious threat to drug development according to the Biotechnology Report 2008, brought out by giant UK-based patent and trade mark attorneys Marks & Clerk under the direction of Dr Gareth Williams. The research identifies unique challenges currently facing the biotech sector which adversely affect investment, stemming in particular from growing caution in the granting of marketing approval for new drugs by the US Food and Drug Administration (FDA). This caution places added pressure on the patent life. The report suggests that drug modification or late-stage development will become increasingly popular, at the expense of genuine innovation.
The international research is based on the views of 484 executives across the biotechnology and pharmaceutical sectors, principally in the US and UK markets as well as Europe and Asia. 83 per cent of respondents feel that the pressures currently facing biotech make it less attractive in the eyes of many investors. 90 per cent believe secondary and further funding will become increasingly difficult to secure as market conditions deteriorate, and that investors will focus on less risky, latter-stage drug development in a bid to limit their exposure to risk. Correspondingly, 83 per cent think that biotech companies will themselves focus increasingly on drug modifications as well as more mature drugs in the pipeline.
Where capital is available, the terms for funding may become simply uneconomic. 80 per cent of respondents believe key investors will either take a greater equity stake, or may seek to secure their capital against the drug-makers’ IP assets. This reflects a trend gathering momentum within the industry where investors focus increasingly on the strength of IP rights. Overall, 78 per cent agree that the climate for enabling biotechnology innovation has deteriorated within the past year, and 89 per cent believe some small and/or early stage companies will either fail or be bought out at unattractive levels.
The genesis of the funding issue is not solely attributable to current economic fragility. A much more cautious attitude from regulatory bodies (specifically the FDA), is making it considerably harder for biotechs to get the marketing approval they need for drug development. This, in turn, is affecting investor sentiment. 68 per cent of respondents believe that the drug approval process must become much less risk-averse if investment levels are to be maintained, with 72 per cent viewing this as essential to the delivery of future drug pipelines.
One of the most important consequences of sluggish drug approvals is its impact on the lifetime under which a new drug is protected by its patent. 91 per cent of respondents feel that the time it now takes for drugs to get through the system is eating into the time those drugs enjoy the rewards of patent protection. 78 per cent warn that there is a danger of biotech companies bringing more "me too" drugs to market, rather than investing in real innovation, if the threshold for approving new drugs is set too high.
The patent system emerges as a key tool in overcoming the barriers faced in the current crisis. 84 per cent believe that recognising secondary patents is an important means of encouraging and rewarding drug development. This “evergreening” process helps shore up new patent protection for later modifications to an existing drug, and may cover anything from dosage to form. Extensions to the existing patent term are also advocated by 73 per cent of respondents to promote more R&D investment, whilst 88 per cent would like to see patent approvals secured more quickly.
The research finds that perceived weakness in foreign intellectual property systems and the difficulties posed by competition, are adding to concern about profit margins. Whilst 72 per cent agree that investors and biotech companies see a lot of potential coming from new super-economies, 85 per cent believe weak IP protection in the world’s largest emerging markets (China and India) is a threat to future margins.
Price reduction on a global scale is viewed as a “serious threat” as a result of parallel trading – the importing of drugs at a cheaper price from a lower-cost area. 79 per cent view parallel trading as a “significant” or “very serious” threat to the industry, with 91 per cent believing this threat will only increase as global trade continues to grow. 73 per cent think it likely biotech companies will reduce the availability of drugs in some territories if parallel trading begins to threaten profits in key, high-margin markets.
The report also finds that biotech margins are facing certain pressure as generic competition emerges among the biotechnology sector. 76 per cent of respondents believe that the enforceability of patents against generic competitors is proving much harder than in the past, although 58 per cent feel confident about the validity of patents being upheld in the courtroom. 89 per cent feel that the promotion and approval of cheaper copies of biologics, or copycats, is likely to result in more “me too” drugs coming to market. Yet 74 per cent recognise that competition will have a positive impact on drug affordability.
Copies of the report may be obtained from Marks & Clerk (London office), via Joanna Colton, +44 (0) 207 420 0000.
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