Marks & Clerk Survey Predicts Rise in Consolidation as Biotech/Pharma Industry Nears Patent Cliff

    By James DeGiulio --

Despite the global economic outlook improving considerably over the last year, an industry survey by international intellectual property group Marks & Clerk suggests that the biotech and pharmaceutical industry may be entering a critical phase in terms of drug innovation and development.  The research identifies a number of industry-specific problems, the most urgent being the patent cliff facing innovator pharmaceutical companies, where a large number of blockbuster drugs are set to come off patent between now and 2014.  The Marks & Clerk survey indicates that biotech/pharma companies intend to overcome this obstacle through strategic mergers and acquisitions, while increasingly relying on patent term extensions to safeguard essential blockbuster revenue.  Interestingly, the survey further suggests that members of the biotech/pharma industry favor recent U.S. healthcare reforms.

Marks & Clerk conducted the survey of 381 executives across the biotech/pharma sector.  The study involved respondents from the U.S., U.K., Europe, and Asia.  Over half of those responding were from commercial pharmaceutical and biotechnology companies, with the remainder coming from academic and R&D environments.  A small number were from the venture capital industry with a specialty interest in life sciences angel investment.

Overall, the outlook within the industry has improved since last year, with 63% of respondents indicating that the climate for doing business and access to funding has improved in the past 12 months.  However, the results of the survey indicate a pessimistic outlook towards the innovation capabilities of big pharma.  The research reveals that 82% of respondents predict that big pharma will be unable to innovate sufficiently from within to replenish dwindling drug pipelines.  Thus, many predict a substantial increase in acquisitions to augment this insufficiency.  68% forecast substantial acquisition activity within the next two years, with 19% anticipating major activity within the next year.  Further, 65% believe the improved economic situation means the industry now has the confidence to go ahead with those mergers.

Marks & Clerk predict that large innovator companies will begin to look to biotechnology startups as the source for drug development pipelines of the future.  Marks & Clerk also predicts that the industry is likely to observe innovator companies move into some areas of generic competition, particularly in the area of biosimilars where they identify considerable commercial opportunity or threat.

The study also confirmed the increased importance of patent term extensions within the biotech/pharma industry.  Previously viewed as merely one tool among many for securing future revenue, 97% of respondents believe that the industry's reliance on patent term extensions, or supplementary protection certificates (SPCs) in Europe, will intensify as blockbuster drugs near the end of their patent life.  87% of respondents believe that dwindling drug pipelines at innovator companies drives this reliance.

This reliance on patent term extensions has fueled the push for reform in Europe.  The biotech/pharma industry is calling for reform of the European system, since SPC protection is only granted to the product subject to initial marketing approval.  Incremental improvements to the drug are not eligible for SPC protection.  82% of respondents believe innovators ought to be given a longer term in which they can market their products exclusively due to the increasing cost of R&D.  Further, 79% favor reform where SPC protection is broadened to protect the underlying invention, as in the U.S., rather than the more narrow protection of the active ingredient the SPC provides now.

Interestingly, the Marks & Clerk research shows the biotech/pharma sector has a much more favorable view of the intellectual property system in the United States than it does of the European system.  62% of survey respondents felt that the U.S. intellectual property system has better managed to reward innovation and meet the changing needs of the industry than that in Europe.  Further, despite the recent healthcare reform in the U.S., the clear majority rejects the notion that healthcare reform will ultimately harm drug innovation in the U.S.  Indeed, 65% of the respondents believe that the reforms will benefit U.S. innovation in the long run.  The findings display considerable confidence in the U.S. regime overall, with 89% of respondents believing lasting capital will be attracted back into the U.S. market for the long term as a result of the reforms.

The Marks & Clerk press release discussing the research can be found here.

James DeGiulio has a doctorate in molecular biology and genetics from Northwestern University and is a third-year law student at the Northwestern University School of Law.  Dr. DeGiulio was a member of MBHB's 2009 class of summer associates, and he can be contacted at [email protected].

Comments

[BigRedBruce]

I think it is self-evident that the industry will go through a shake out/consolidation period. I would expect more pharma/biotech mergers. I think companies will develop product portfolios that include branded small & large molecules, generics and biosimilars. There will be more partnering too. And, there will be greater geogrpahic dispersion amongst the 'world class' companies - they won't all end up being in US and EU. The AP and other pharmerging regions will grow as predicted and will spawn some heavyweights of their own.

bigredbruce http://bit.ly/aD2oJV

[max hensley]

Back in the biotech pleistocene I was under the naive impression that the molecular biologists would unleash a flood of new pharma targets and unwind the etiology of many diseases, all of great benefit to pharma. I had less hopes for iterative drug design, but what the heck - it was bound to help! Oh well. I'm now reduced to placing my bets on Indian/Chinese knock-off artists deciding to go innovator because they can do drug research at small fractions of the cost in major industrialized countries. But they would need a change in attitude, not likely. So I guess I should be grateful I'm retired. The Golden Age of pharmaceuticals is behind us, and Obamacare will deliver the coup de grace despite the authors' conclusions.