Trends affecting the generic drugs sector in 2017

Published: December 26, 2016

PCI Synthesis, a pharmaceutical manufacturer of new chemical entities (NCEs), generic APIs and other specialty chemical products, has issued its annual list of trends that will affect the emerging biotech and generic drug sectors, as well as Contract Research Organizations (CROs) and Contract Manufacturing Organizations (CMOs) in 2017. Ed Price, President of PCI Synthesis, predicts that tighter capacity, more consolidation and unknown regulatory impact of FDA will affect the sector.

“We see the potential for significant change in 2017, including a possible reduction in FDA red tape, tighter capacity because of the industry’s current growth, and a speedier FDA approval process that could reduce its backlog by the end of next year. But we also expect significant uncertainty due to the new administration,” said Ed. “To successfully navigate the uncertainty, which includes a promise to reduce drug prices, companies need to remain agile and creative to find ways to keep down costs.”

This is the list of the main trends that Ed thinks will impact the industry next year: tighter capacity; more industry consolidation; small biotech innovation; and significant uncertainty around the FDA and drug pricing.

Tighter capacity

Capacity is tightening. Over the past 3 years, we have seen rising concerns that capacity for early stage programs could be an industry issue, but Ed thinks 2017 could see a real shortage. Factors include the increasing number of virtual biotechs with no manufacturing capability along with the rising number of drug discovery projects; and double-digit patent expiries. While not at the patent cliff levels (from 2009 through 2014), nearly 30 patents will expire by 2018, fueling a rise in the number of drug discovery programs.

Industry consolidation

Ed predicts more CRO/CMO industry consolidation in 2017. The CRO and CMO sectors saw dozens of acquisitions in 2016, and he expects that trend to continue in 2017. Whether the deals are driven to enter new markets or to extend capabilities/expertise, M&A deals are disruptive and potential clients should ask key questions, including:

What happens to the people working on my current team?
What controls are in place to reduce the likelihood of disruption to my project, especially with regard to timeline, personnel, budget and other resources?

In addition, Ed thinks that Big Pharma consolidation is likely to pick up in 2017. Although two of the biggest acquisitions in 2016 involved Big Pharma (Shire’s $32 billion purchase of Baxalta and Abbott Laboratories’ $25 billion purchase of St. Jude Medical) this year saw a 65% drop in life sciences deals compared to 2015, a record-setting year. However, he expects Big Pharma to “get busy” in 2017, driven by increased valuations, a possible change in tax codes to allow US-based Big Pharma to repatriate dollars being “hoarded” overseas, and because biotechs have a strong innovation track record.

Small biotech innovation

“More innovation is being done by small biotechs,” says Ed. Instead of going it alone, Big Pharma now turns to small biotechs, and this represents a big change over the past two decades. According to a Boston Consulting Group survey, today about 70% of new sales come from drugs initially developed by small companies, up from 30% in 1990. That may be due to an increase in the number of companies developing small molecules into drugs as well as an increase in the number of drugs approved by the FDA, thanks to a streamlined, speedier approval process.

Uncertainty around the FDA

There is significant uncertainty around the FDA and drug pricing, explains Ed. There’s good news in the promise to reduce FDA red tape, or at least a halt in a process that consistently added regulations over the past eight years. It has reached the point where regulatory affairs is a significant part of drug discovery (especially if regulations changed after a project's start). There’s also good news that the new administration may support easing restrictions on off-label use – though insurance companies may not cover a new indication without specific clinical trials. But there’s potential bad news in President-elect Trump’s vow to reduce drug prices and to repeal all or parts of ObamaCare, which may cause insurance companies to reduce coverage for new medicines. This uncertainty may cause clients to hold off drug discovery, and in turn, CMOs to reconsider investing in additional capacity.



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