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Partnering, Business Development & Licensing

How Industry Trends are Evolving Biotech Innovation

Posted by on 22 November 2023
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In a sector that really understands evolution at the molecular level, it should be no surprise that rapidly changing trends are causing companies to adapt in a myriad of ways to ensure they thrive in their specific niche.

There are multiple global trends in play, from transformative AI tools to patent cliffs driving lifecycle compression and innovation, influencing which therapeutic areas and modalities are poised for success. As with most industries, success is often driven by supply and demand.

The biotech sector has seen many trends wax and wane, but a sadly enduring one is difficulty in access to finance. It’s looking like we’re back to pre-pandemic levels of financing, around what was last seen in 2019, with an expectation of $75bn in 2023, just half of 2020’s record-breaking peak of around $150bn. This time the tightening financial environment is not driven by industry fundamentals but global economic crises, with very little IPO action in 2023, apart from Paris’s Abivax raising over $235 million from its Nasdaq listing, which looks to be the exception that proves the rule.

The word of the zeitgeist, as heard in a standing-room only plenary at BIO-Europe in Munich, is compression. This refers to the current competitive intensity and policies across developed markets accelerating life cycle compression where the time to 50% of sales for a marketed pharma product has decreased by two years since 2000. This gives less time to capture the value of innovation and is having a powerful domino effect on strategic decision making about asset progression, drug development, and associated M&A and deal making activity.

The demand is also being driven by the looming patent-cliff that 40% of pharma revenues go off patent in six years that means global pharma urgently needs to refill its pipeline as well as the need for biotech companies to reach proof of concept inflexion points even more quickly to secure funding.

Biotech companies are the wellspring of the unprecedented innovation pharma desires, with hugely promising science including CAR-T cell therapy, RNA-based therapeutics, stem and cell therapies, and AI-driven advanced analytics that are reshaping the sector. On the positive side, the fundamentals of the sector are as productive as ever. There’s a third wave of innovation coming with fifty cell and gene therapy products alone that are due to have launched by end 2025, and that is just one of many biologics modalities, building on the second wave of over 100 monoclonal antibodies already on the market.

This can feel like the Netflix and other streaming services playbook being transplanted into our industry’s DNA: there’s an insatiable appetite for content (assets), and everyone is working furiously to produce it, but the pricing model has changed beyond recognition, and the owners of content distribution (in this case the pharma payers) call the shots.

So what assets are hot right now? Impressively comprehensive Citeline data revealed that oncology is around 40% of R&D, with sophisticated biologics soon to reach 50% of assets in development. It is also a good time to be in rare diseases, as there are well over 700 active R&D programs in that area of great unmet medical need, accounting for around 10% of the drugs in the pipeline.

But it is back to being a bad time to be in infectious diseases, as McKinsey’s forensic analysis showed that as covid has receded from political and public view (if not from reality), infectious disease funding is down 65% in just one year.

Another strategic shift caused by compression is that partnerships are tipping towards earlier stages, including preclinical (61% year to date for 2023, up 13% from just 54% in 2019), whilst investment is running in the other direction. It is of mutual benefit to drug hunters to engage earlier in drug development alliances, to push therapeutic assets further, faster, harder, until they can deliver good clinical results. This earlier-stage partnering can be an important source of non-dilutive financing, and potential milestones.

But good is simply not good enough now, and companies must plan for a higher global evidence threshold and pre-empt the political pressures on pricing and profitability. Which means it is a matter of survival to harvest every insight possible from a clinical trial, which needs to deliver efficacy read-outs, not just pass the safety test. To squeeze every drop of data from a trial, companies are jumping on AI-driven analytics, digital-twins, real world data, and biomarkers, plus anything else that can push productivity and boost differentiation.

And when you have data: ensure you make the timelines for inflexion points clear so that investors understand why it is important to get in now. Everyone in biotech is racing towards their data-drop announcements and will be making the most of those precious moments to secure partners and investors and perhaps new employees too.

Have your messages straight and be ready to communicate them: refresh the company website, rehearse your corporate presentation, produce a polished press release that targets the key trade press, and be poised to post engagingly on LinkedIn, as a targeted social media channel to disseminate the news to your followers, or to reach new followers through paid for LinkedIn advertising.

Don’t forget non-dilutive financing through corporate partnerships can be helpful during a tough financing market. Do the research so you know which big pharma companies are right for you, and the way they talk about your therapeutic area so you can fluently speak their language. They are not all the same. And check out how your close competitors are talking up what they do and assess their relative positioning against your offering. There may be lessons to learn.

Is there an antidote to compression? Biologics may be more resistant to its strangling effects, as competitor molecules can be technically more challenging to bring to market, but AI enables much faster cycle iteration with small molecules and is quickly making small look the new big: McKinsey’s data showed a significant uptick in partnerships here.  AI is beginning to transform the full pharma value chain and is expected to become an integral part of the industry.

Don’t be deluded by the lure of AI though: AI based drug discovery deals are down 42% according to McKinsey. That trAIn has long left the stAtIon. McKinsey’s analysis also revealed that compression has caused platform plays to crumble: the average VC funding round for a Series C therapeutic asset is a healthy $103m but just $51m for a platform.

Better to lean hard into compression, as it provides a crystal clear direction of where the future is heading and use that knowledge wisely to advance your company. Focus on your lead therapeutic asset as the output of your platform, race towards meaningful clinical data, and communicate consistently to ensure your value is visible and easily understood.

Remember that what we do in life sciences can make an amazing difference to people, patients, economies, and society all around the world. Make sure you look up from the bench so that you can keep the end goal in sight. Factor in new ways of incorporating data and how changing regulatory policies may provide opportunities for compression to reach those inflexion points more quickly. Finally make sure you effectively communicate the timelines for the data supporting those inflexion points to secure that elusive financing or the next partnership.

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