Cash management and access to capital continue to be a challenge for biopharma companies.
Key takeaways
The sector has shifted from traditional therapeutics to biologics, cell and gene therapies and other specialty products.
As the industry focuses on acute conditions, smaller patient populations and complex products, trial designs and manufacturing must evolve.
Middle market biopharma companies have a challenge competing with large biopharma companies for talent.
Many industries have experienced a lack of growth and innovation over the last several years as the world navigated through a global pandemic, significant geopolitical events, limited capital investments and high interest rates. Biopharma companies have largely avoided this fate and continue to drive innovation despite several headwinds, including difficulty accessing capital, few mergers and acquisitions, difficult clinical trial recruitment and a tight labor market. Despite these struggles, new and different products are thriving and becoming a focus for the industry. The paradigm has shifted from traditional therapeutics treating patients chronically to innovative orphan drugs curing rare diseases with a one-time treatment.
Following is an overview of trends, innovations and barriers affecting middle market biopharma companies.
Capital markets remain muted, but changes are anticipated later in the year
“Cash management and access to capital are the biggest challenges facing middle market biopharma companies today. Investors are hesitant to deploy capital or invest in mergers and acquisitions, and we anticipate that to be the case until interest rates stabilize and stock market volatility declines,” said Steve Kemler, RSM principal and life sciences senior analyst. “We anticipate a stabilization of the market and an increase in investments no earlier than the end of 2023.”
Given the focus on drug and vaccine development during the pandemic, many middle market biopharma companies raised significant private and public capital in 2020 and 2021. Given this, they still have capital to work with to continue research and development activities in the short term. The long term is more uncertain, leading to minimized spending and risk mitigation efforts.
Several blockbuster biologics will soon be facing competition from biosimilars. It is a treacherous period for drug manufacturers, as they will need to replenish their pipelines and replace significant lost revenue. One of the fastest and most efficient ways manufacturers will fill these gaps is through licensing deals and strategic mergers and acquisitions.
Biopharma is increasingly focused on biologics and specialty products
Biologics represented approximately 50% of U.S. Food and Drug Administration approvals in 2022 and continue to be a focus for the industry overall. The three most advanced and expensive drugs ever were approved during that time. Patients, health care providers and insurers have accepted these high costs since the new products represent a one-time curative treatment versus traditional chronic therapies. As most complex, high-cost drugs are approved, payers will face increasing pressure to cover these life-changing treatments without driving insurance costs to unmaintainable levels.
Biopharma manufacturers have shifted their attention from traditional small molecule therapeutics to biologics, cell and gene therapies and other specialty products. The market is facing patent expirations of several biologics, and it isn’t completely clear how the manufacturers of those products prepare to blunt sales of biosimilars in the face of new, significantly lower-priced products. Cell and gene therapies are also something to watch. They represent a small portion of overall sales in the market but are growing rapidly.
Clinical trial recruitment continues to be a big challenge
Clinical trial activity has normalized following disruptions and a shift of focus from the pandemic, and there are currently more than 16,000 active trials in the U.S. alone. Clinical trials are taking longer and longer to complete based on several confounding factors; over the past 10 years, the average length of a clinical trial has increased from two to three and a half years on average.
Drug sponsors are still mainly conducting clinical trials in a model designed for small cell molecules based on well-established experts and timelines, dependency on brick-and-mortar sites and complex regulatory requirements. As the industry focuses on more acute conditions, smaller patient populations, and much more complex products, the manufacturing processes and trial designs also need to evolve.
The U.S. population has become increasingly diverse, and ensuring meaningful representation of racial and ethnic minorities in clinical trials for regulated medical products is fundamental to public health. Going forward, achieving greater diversity will be a key focus throughout the FDA to facilitate the development of better treatments and better ways to fight diseases that often disproportionately impact diverse communities.
Robert M. Califf, M.D. , FDA Commissioner
The pandemic and other factors resulted in both the FDA and the industry overall putting the importance of diversity in clinical trials front and center. Traditional clinical trials rely on major academic centers, requiring trial participants to live in or travel to metropolitan areas for treatment and monitoring at brick-and-mortar sites. These requirements limit participation from geographically and ethnically diverse participants.
“Sponsors are shifting from a traditional clinical trial model to a hybrid approach in which the trial is managed centrally, and decentralized clinical trial solutions are introduced to solve for barriers, speed up enrollment and keep participants engaged throughout the process,” said Adam Lohr, RSM partner and life sciences senior analyst. “Developers are introducing hybrid clinical trial solutions that supplement in-person visits with solutions that help with enrollment, consents, monitoring and more. These technologies and solutions help to reach more diverse and vulnerable participants.”
Tight labor market and cost containment persist
The labor market is still tight, and middle market biopharma companies have a challenge competing with large biopharma companies for talent. To contain costs and solve vacancies, many companies outsource positions and back-office functions like information technology (IT) and finance. It is important that companies are strategic about outsourcing and keep key leadership talent retained to avoid the high expenses affiliated with outsourcing key executive roles.
It is human nature to batten down the hatches and minimize spending when the economy is uncertain, and interest rates are high. To continue to drive innovation and do more with tighter funding, middle market biopharma companies are outsourcing key positions and delaying investment in technology upgrades and other back-office functions, as executives look to balance cash management with risk mitigation and increased efficiency.
Brian Winne, Senior manager and life sciences senior analyst, RSM US LLP
Supply chain disruptions have mostly stabilized from the disruptions caused by the pandemic and geopolitical events. Middle market biopharma companies are shifting supply chain management strategies to take possession of inventory later in the development process and not tie up significant capital with significant time before a product approval and launch.
For more, watch this video to learn how one biopharma is successfully scaling its growth efforts.
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