Interview with Jean-Laurent Bonnafé, Director and Chief Executive Officer of BNP Paribas - by...
Biotechs investments disrupt Big Pharma business model
The pharmaceutical industry is in a state of flux, with traditional business models replaced with agile biotech firms driving innovative new treatments supported by corporate finance partners like BNP Paribas.
The traditional pharmaceutical industry business model has long relied on mass-market therapies providing solid profits year-on-year.
However, this “in-house” business model is being dramatically recast as new, costly treatments begin to hit the market developed by a new generation of biotech firms, who combine the agility of the start-up sector with the technical prowess of cutting-edge research institutions.
This new model comes at a price–and banks like BNP Paribas, have a key role to play to cover the cost of new treatment R&D and provide financial support to both established firms and smaller biotech firms that are generating new treatments.
The expiry of lucrative 1980s drug patents has coincided with the development of treatments moving medicines away from mass-market molecule solutions and towards more tailored, patient-centred treatments. More and more, biologics and cell-based therapies are taking centre stage to treat diseases previously regarded as unprofitable - and such pioneering treatments are increasingly being developed outside the Big Pharma bubble.
The pricing structure of such therapies often involves large, often one-off payments, rather than the daily cycle of prescribed medications, but according to biologics manufacturers, they are cheaper when compared to the overall in-patient and out-patient costs of treating people throughout the span of their lives.
The high development cost of such biologic treatments is driving established pharmaceutical giants to switch from a “profit alone” strategy, where all stages of product R&D - from drug conception and experimentation through to mass marketing – are kept in-house, to a new outsourcing model, where innovative biotech start-ups pioneer new therapies and sell-in to pharma companies further down the development cycle.
Jeb Keiper, CFO and Chief Business Officer at Nimbus Therapeutics, a biotech firm that creates treatments for metabolic disorders, oncology and immunology, says the numbers speak for themselves.
“Waves of entrepreneurial biotech companies are responsible for around half of the entire industry’s pipeline of new medicines,” he says. Data from healthcare investment firm HBM Partners agrees, estimating that as many as 64% of recently approved drugs have been developed by start-ups or small academic- and biotech-driven ventures.
“What’s more, the biotech sector has been at the cutting edge of perfecting and industrializing the latest breakthroughs in biology, such as gene therapy and cell therapy,” Keiper continues. “They are pioneering new applications to drug discovery, including computational approaches.”
the biotech sector has been at the cutting edge of perfecting and industrializing the latest breakthroughs in biology, such as gene therapy and cell therapy.
In biotech, when you see exciting biology emerge, you can quickly ramp up with the best brains and technology to explore the new area.
Fast-moving science in pharmacology means nimble biotechs are perfectly placed to exploit new scientific breakthroughs, collaborating with research institutes and monetizing the work of academics.
“In biotech, when you see exciting biology emerge, you can quickly ramp up with the best brains and technology to explore the new area,” explains Keiper. “You can work collaboratively across disciplines, draw on top-flight external resources, and advance drug discovery programs out of the gate – all a lot faster and more nimbly than you could ever do in pharma.”
Georges Rawadi, CEO at LNC Therapeutics, which develops microbiome therapies for metabolic diseases, says that while the expiration of mass-market patents has played a role in the changing industry landscape, it’s the boom in gene- cell- and microbiome-based technology that has pushed the boundaries of research in new and exciting ways.
“The pharma industry for a long time relied on big companies like Pfizer, Sanofi and others to develop molecules to treat symptoms of diseases,” says Rawadi. “So if you had a headache, you took a tablet and it took away the pain. This new business model takes a very novel idea from the scientific community and develops therapies to address the actual cause."
“This is very high-risk because often these treatments are being tested for the first time in a clinical setting. Biotechs understand these risks – a 90 or 95% probability that you will never reach the commercial phase. They are built by entrepreneurs and backed by investors and venture funds who know [when it works,] the rewards are high. Whether it’s in therapeutics, in medical devices, in diagnostics, or in digital health – without these biotechs, these innovations would not exist.”
“ This new business model takes a very novel idea from the scientific community and develops therapies to address the actual cause ”
CEO at LNC Therapeutics
Reshaping the economic landscape
This new model is dramatically reshaping the industry’s economic landscape.
Many gene therapy treatments rely on a single treatment rather than regular daily, weekly or monthly interventions, meaning they are priced high to allow companies to recover R&D costs.
“Some treatments are priced at $1 million or $1.5 million dollars, which on the face of it seem astoundingly high,” says Dr Anthony Walker, Managing Partner of expertise-based life science consultancy Alacrita.
However, according to the manufacturers of such new biologics, these costs are comparable with standard treatments if you take account of the fact that as part of a traditional treatment programme a patient may be receiving drugs treatments for 10 or 20 years or more.
For cell therapy treatments, which tend to be more patient-specific compared to gene therapies that are more disease-specific, the costs can remain in the mid-six-figure bracket due to the personalised nature of the approach.
For example, CAR T-therapy, which is at the cutting edge of cancer treatment, combines a patient’s own T cells extracted from their blood with a specially modified chimeric antigen receptor (CAR). This is then re-injected back into the patient and attacks the cancer cells.
Such labour-intensive treatments are recording high levels of success but the high upfront price tag is leaving health insurers struggling to adapt to the new pricing environment, adds Walker.
“CAR T treatments are among the hottest sectors of investment right now,” he adds. “There is huge potential but the high prices have an impact. Basically, you have a small number of patients using high priced drugs, so everyone’s insurance premiums go up.”
Another cutting-edge approach attracting the attention of pharmaceutical firms – not to mention investment fund managers – is microbiome-based therapy, which manipulates the natural bacteria present in the human body to treat a variety of conditions, at a fraction of the price of cell and gene therapies.
Ripe investor opportunity
The new business environment presents a ripe opportunity for investors. In 2016, PwC analysts estimated that biotech firms drew more than $5 billion in investment, providing the cash for research – and the talent – to fund and successfully commercialize therapies that have traditionally been difficult to develop under former marketing models.
At the same time, this new landscape enables biotechs to position themselves for sale to Big Pharma at a premium. Sanofi’s buyout of biotech Genzyme – the first time the French giant turned its attention to so-called “orphan drugs”, pharmaceutical agents developed specifically to treat rare disease – is just one high-profile example.
The new business environment is heralding a new era of collaboration between biotechs and pharmas, as the industry giants seek to adapt to the “biotech way” of working, says Rawadi.
It has also fuelled innovative investment strategies among the pharmas, with more and more creating their own venture capital funds to invest in biotechs – to give themselves the opportunity to understand how the science develops and to position themselves to partner with biotechs or acquire the technology, he continues.
“Others are developing external innovation centres where they house biotechs – Johnson & Johnson is doing this, so is Merck. They know biotechs will continue to innovate and they want to capture this innovation at the right time at the right price so they don’t miss the next blockbuster,” adds Rawadi.
With biotech therapies set to become ever more mainstream and no shortage of investors hungry to plough capital into promising new treatments, tomorrow’s pharmaceutical industry is set to be a more agile, dynamic and patient-centred environment.
Photo credit ©dusanpetkovic1
Read moreAll news
The Luxembourg-based bank BGL BNP Paribas celebrates its centenary! Over a period of 100 years,...
Investing in businesses that are taking firm action to promote the circular economy can be a...