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October 2017 Vol 10, No 7 - Editorial
David B. Nash, MD, MBA
Editor-in-Chief, American Health & Drug Benefits Founding Dean, Jefferson College of Population Health, Philadelphia, PA
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I’m confident that many of our readers are familiar with the Biotechnology Innovation Organization (BIO), “the world’s largest trade association representing biotechnology companies, academic institutions, state biotechnology centers, and related organizations across the United States and in more than 30 other nations.”1

I’ve been a longtime member of Pennsylvania BIO (recently renamed as Life Sciences Pennsylvania), headquartered in Malvern, PA, approximately 45 minutes from our college. I’ve also had the privilege of being one of the judges in the annual competition of Pennsylvania BIO. In addition, I’ve attended the national BIO meeting when it rotates through Philadelphia, approximately once in a decade. I’m a strong believer in BIO, because it represents an important component of the healthcare system in our country. For this reason, when BIO publishes a new report, I’m always interested in their findings.

With this in mind, in early fall 2017 I read the organization’s recent report, Emerging Therapeutic Company Investment and Deal Trends,2 coauthored by David Thomas, CFA, and Chad Wessel, 2 experienced BIO industry analysts from BIO’s headquarters in Washington, DC. I’d like to review key findings from this very important report, and then add my analysis and interpretation of the take-home messages.

According to Thomas and Wessel, “more than 90% of the biopharmaceutical industry is made up of small emerging companies.”2 As a result, “it is important for BIO to better understand early-stage investor and deal-making trends in order to determine where scientific or policy issues may be impacting the industry’s ability to maintain its pipeline of innovative medicines.”2 As the authors point out, “the ability to access capital and form strategic alliances” is central to the success of small companies focused on therapeutic products, and therefore, for BIO at large.2

Thomas and Wessel discuss in the Appendix the methodology they used in this report to scour the national investment picture, which is a very comprehensive and thorough approach to this topic. They point out 6 key findings from the report, which are summarized below2:

I. With regard to the pipeline of new medicines, emerging biopharmaceutical companies are responsible for 70% of the global new drugs in the pipeline, and 84% of all orphan drug development. To me this means that many of these emerging companies are at great economic risk, because, by their very nature, they pin their future economic hopes on a very narrow number of drugs in a narrow clinical pipeline. We will come back later on to the topic of which specific clinical categories dominate the current pipeline.

II. Regarding venture capital, it’s no surprise to our readers that “2016 was a decent year for US venture capital,”2 but far below—by nearly $2 billion—the money raised through venture capital in 2015. It remains to be seen what the rest of 2017 brings. I believe that the key message here is that the number of companies receiving any venture financing dropped to a decade low. My interpretation of this finding is that the competition in the marketplace is tough, with many more companies chasing a smaller “pot of gold.” That is, if you hope to get any venture capital for a biopharmaceutical company, you better have a very compelling clinical story to tell.

III. Initial public offerings (IPOs)—that is, when private companies go public—continued to show strength in 2016, but below the levels seen in 2014 and in 2015. I was very surprised to learn that only 23 companies went public under the BIO membership umbrella in 2016. The data for 2017 are not complete, obviously, but this is a very important trend. We have to find better ways for emerging biopharmaceutical companies to reduce the burden of an IPO, while still accruing the capital necessary to bring innovative medicines through clinical trials to the bedside.

IV. After IPOs come follow-on public offerings, and it’s no surprise that these follow-on public offerings were down as well—by a level of 56% fewer dollars raised in 2016 compared with 2015. I think that this deficit in follow-on public offerings will improve if we could once again connect companies to appropriate capital and reduce the regulatory burdens on them.

V. Licensing remains a challenge in the marketplace. According to this report, the number of research and development (R&D)-stage licensing deals that were valued at ≥$10 million declined by 19% in 2016; this ended a 3-year uptrend. Whatever your politics, the current leadership of the US Food and Drug Administration (FDA), I believe, is turning an important corner by recognizing that the FDA has to get medicines to the market through its regulatory process faster.

VI. Finally, in terms of acquisitions, in 2016 the total number of R&D-stage companies was the highest level reached in the past 8 years; but, paradoxically, “the total amount paid was only half the level seen in 2015.”2 My interpretation is that venture capitalists are becoming more cautious, and the total amount of dollars available—whether from an “angel,” a syndicate, or an experienced firm—has not completely rebounded from the “great recession” of 2009.

In the discussion section of the report, what I found most intriguing was the research finding that, “Overall, across both investments and deal-making, there continues to be an emphasis on oncology and rare diseases over high prevalence disease areas such as cardiovascular and psychiatry. More broadly, investors and companies have shifted their attention to the Preclinical stage where they can play a larger role in shaping the drug candidates and their pathway into the clinic.”2

Although the report does not state this, I believe that investors are seeking a faster path to get their product to market, with a bigger return on the dollars spent; therefore, it is not surprising that “all roads lead to oncology.” If we look at acquisition costs in a major teaching hospital, such as Thomas Jefferson University Hospital, during my 27-year tenure on our Pharmacy & Therapeutics Committee, I’ve seen the top acquisition costs change dramatically in one practice lifetime. That is, in 1991 through 1993, our top acquisition costs were for antibiotics. In 2017, this class is not even in the top-10 drug categories. The greatest percentage of our acquisition costs today is in oncology—to support the activity in the bone marrow transplant unit, solid organ transplant unit, and similar areas.

It will be interesting to see how various payment schemes, such as bundled payment and pay for performance, influence the finding that oncology deal-making is the top priority in the biopharmaceutical industry. I think this could change quickly as new regulations, with regard to physician payment, are implemented and the MACRA (Medicare Access and CHIP Reauthorization Act of 2015) evolves over time.

Finally, the report calls for political support for the biopharmaceutical industry, noting that “Continued investment requires strong intellectual property protections, a regulatory system that is reflective of current and emerging medical science, incentives for private and public sector investment in this innovative industry, and a biopharmaceutical marketplace that appropriately values and rewards such high-risk investment.”2 I certainly understand the sentiment and support the contention; however, we still need great science and investors who are willing to take a longer-term view to support so many biopharmaceutical emerging companies.

In my view, for the United States to remain a recognized global leader in “emerging therapeutic company investment and deal trends,”2 as the title of the report suggests, we have to decrease the regulatory burden, educate the public and our providers, and realign economic incentives so that our healthcare system can reduce waste, and then potentially reinvest those dollars in better science for the future. I’m glad that BIO is on top of all of these trends, and I highly recommend their reports to our readers.

As always, I am interested in your views, and you can reach me via e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it..

David B. Nash, MD, MBA is Editor-in-Chief, American Health & Drug Benefits; Founding Dean, Jefferson College of Population Health, Philadelphia, PA.

1. Biotechnology Innovation Organization. About BIO. Accessed September 23, 2017.
2. Thomas D, Wessel C. Emerging therapeutic company investment and deal trends: BIO industry analysis. Biotechnology Innovation Organization; June 2017. Accessed September 12, 2017.

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Last modified: August 30, 2021