Rita Peters is the former editorial director of 

Pharmaceutical Technology, Pharmaceutical Technology Europe

Rita C. Peters

	In a series of speeches in the latter half of 2017, FDA Commissioner Scott Gottlieb said that high costs and delays in early development efforts are setting the stage for more expensive drugs-and drug program failures. The agency is introducing initiatives to improve drug development efforts, but industry also needs to change preclinical, development, and clinical trial efforts.

	While researchers have been able to use science to reduce the time from a breakthrough discovery to the creation of patient therapies, the process for developing such opportunities is more costly, uncertain, and prolonged, especially for new drug development, he said.

	“We’re on an unsustainable path, where the cost of drug development is growing enormously, as well as the costs of the new medicines. We need to do something now, to make the entire process less costly and more efficient. Otherwise, we won’t continue to realize the practical benefits of advances in science, in the form of new and better medicines,” he said (1).

	The cost of a drug product is based on many factors, Gottlieb noted, including development expenses and the cost of the capital required to develop the drug; the greatest factor in the cost of capital is the risk of failure.

	To support an investment with a high risk of failure, investors expect a higher potential return, which contributes to unaffordable drug products. If a drug development program will take a long time to get to market-and pay off-investors will pursue alternative funding opportunities that offer faster returns and fewer risks.

	Access to affordable drugs is a public health concern and FDA must “consider all of the factors that impact the cost of new products. That includes the cost of discovery and development,” said Gottlieb (1).

	The same policies that the agency pursued to advance the science of drug development and make that process more efficient must be directed toward lowering the cost of developing medicines, he said, and more focused clinical trials can help reduce overall development costs. However, he said, “on a relative basis, in many cases the cost of early stage drug development has grown at a proportionally faster rate than the cost of late-stage drug development” (1).

	“By front-loading the cost of drug discovery, the broader biomedical community is making it harder to advance new ideas. It’s economically harder to capitalize the cost of an early-stage drug program, relative to funding a later-stage project. So, frontloading the costs are a recipe for reducing the amount of new ideas that can be advanced,” he said (1).

	Gottlieb outlined broad strokes for FDA initiatives that emphasize the modernization of the agency’s science, technology, and information foundations to meet the demands of new therapies in development, including gene and cell therapies.

	“FDA’s goal is to make sure that our policies are as scientifically advanced as the products we’re being asked to evaluate. We need to make certain our principles for regulation allow and facilitate beneficial new innovation while making sure that FDA continues to meet its gold standard for safety and effectiveness,” he said (2).

	The Center for Drug Evaluation and Research is piloting the creation of a common review memorandum to ensure early, cross-disciplinary interaction among scientists and clinicians who have specialized knowledge in disease that informs product review.

	The agency is encouraging early engagement with product developers, especially small biotechnology companies who may not be familiar with the regulatory filing process. Some sponsors sometimes overestimate the amount of information needed to file an investigational new drug application, front-loading the costs of development, he explained. FDA’s review staff may be able to recommend steps to streamline the early development process by eliminating unnecessary preclinical tests or by suggesting optimal pre-clinical or clinical designs, he said.

	“Ideally, it would be easier to get products into development, with more of the costs pushed further out, after some of the initial pre-clinical work is already done, and there’s a better understanding of whether a new product has clinical promise,” he said.

	1. FDA, Dr. Gottlieb’s Speech to the Regulatory Affairs Professionals Society (RAPS) 2017 Regulatory Conference, Sept. 11, 2017, Washington, DC.
	2. FDA, Speech by Commissioner Gottlieb to Research America 2017 National Health Research Forum, Sept. 7, 2017, Washington DC.

	When referring to this article, please cite it as R. Peters, “FDA: Early Stage Drug Development Costs Trigger Higher Drug Costs" 

Articles

Drug companies must consider all factors impacting the cost of drugs, including high costs of early development stages.

FDA: Early Stage Drug Development Costs Trigger Higher Drug Costs

	Frustrated by drug shortages and high costs, hospitals adopt a DIY approach. As a consumer, I get frustrated with the lack of service or skills offered by local business establishments. For example, the counter staff at the neighborhood franchise of a national coffee shop cannot master the skill of pouring coffee and milk into a cup without overfilling it or spilling it down the side of the container. Sometimes I need to remind them that the coffee should be hot.

	Then, there is the bagger in the supermarket who likes to mix cans of soup and fresh tomatoes in the same bag. Fortunately, the store does not charge extra for the bruised produce.

	In these situations, I want to grab the coffee or groceries and say: “just let me do it myself!”

	This venting is a long introduction to a recent news story with a message for pharma. A consortium of four healthcare groups, citing frustration with ongoing shortages and high costs of generic medications, announced that they would form a not-for-profit generic drug company. The new company intends to provide patients “an affordable alternative to products from generic-drug companies whose capricious and unfair pricing practices are damaging the generic-drug market and hurting consumers,” according to a joint press statement.

	The healthcare groups, Ascension, Intermountain Healthcare, SSM Health, and Trinity Health-working in consultation with the US Department of Veterans Affairs (VA)-represent more than 450 hospitals in the United States.

	In announcing the new venture, the groups said they want to stabilize the supply of essential generic medications used in hospitals, many of which have been subject to chronic shortages; make drugs more affordable; and bring competition to the market for generic drugs. The founding members report that other health systems will soon join the initiative.

	Drug shortages are a source of pain for hospitals. As of Jan. 23, 2018, FDA listed more than 80 drugs in shortage--including sterile water--and almost 125 as discontinued. Drug price hikes have been well documented. It is easy to understand the frustrations of the founding organizations and their desire to “do it themselves.” The execution of the plan, however, faces major hurdles.

	The new, unnamed company plans to be an FDA-approved manufacturer or will sub-contract manufacturing to contract manufacturing organizations. At the time of the announcement, details about production facilities, the types of drugs to be manufactured, and other information were not available. The planning, development, construction, and validation of a manufacturing facility will be a lengthy, expensive process. One advantage the consortium will have over legacy facilities is access to newer technologies and processes for drug manufacturing, which could offer better production efficiencies.

	An advisory committee from pharma, business, and government includes Madhu Balachandran, retired executive vice-president of global operations, Amgen; Martin VanTrieste, retired senior vice-president and chief quality officer, Amgen; Don Berwick, president emeritus and senior fellow, Institute for Healthcare Improvement and former CMS administrator; Clayton Christensen, professor at the Harvard Business School and founder of Innosight; Bob Kerrey, managing director, Allen & Company and former Nebraska governor, US senator, and pharmacist; and senior-level leaders from the organizations founding the company.

	The initiative has lofty goals, framed around the need to serve patients. While some pharma manufacturers may shrug off this initiative as unachievable, impractical, or not a threat, they should consider the reasons behind the action: generic-drug manufacturers are failing to deliver quality drug products or are charging unaffordable prices. In other words, they are not serving patients, their customers.


	Vol. 42, No. 2
	February 2018
	Page: 10

	When referring to this article, please cite it as R. Peters, " Finding the Right Mix for 2018 Bio/Pharma Success," 

Hospitals form not-for-profit drug company to combat drug shortages and high prices. 

A New Business Model for Pharma?

The information technology industry is noted for rapid development of innovative new products and advanced manufacturing practices that produce affordable products. The impact of digital technologies can be found in all areas of consumer, transportation, manufacturing, and business life.

	Digital technologies and information sciences also have helped advanced medical science and research, a lesson that was obvious to Dr. Tae Han Kim, CEO and president of Samsung BioLogics, when he was researching new business areas for Samsung about 10 years ago. His recommendation--to enter the biologics drug contract manufacturing market, an area in which it had no prior experience--leveraged the company’s manufacturing and plant construction expertise.

	While solar power, electric cars, or LED lighting may have been obvious choices for the diversified industrial and technology conglomerate known widely for its consumer electronics and appliances, Kim observed that the biotech industry was at a transition point due to advances in genome science. Therapies were needed to treat disease conditions of an aging global population and the drugs had to be affordable. 

	 “What could be the major industry which could lead future global industry? I thought it could be the healthcare industry in addition to the IT industry,” Kim told 

. “Of course, the healthcare industry evolution is based on the powerful information technology. For example, you cannot develop genome science without information technology.”

	For biopharma to emerge as a force in advanced manufacturing, however, the industry needed to learn some lessons from other industries. Most people developing biopharma facilities are from the biopharma industry and lack exposure to practices from other industries, Kim said. 

	While other industries such as aerospace, ship building, chemical, semiconductors, automobile, or steel use concurrent processing to construct facilities, biopharma uses step-by-step processes to build bioprocessing plants.

	“In conventional step-by-step processes, you spend six months for basic design and spend another six months for detailed design. And you spend three to four months for procurement of equipment. Then you build a building. Then you have to fabricate. You have to validate. That’s why they need the five years or six years,” he explained. “In parallel processing or concurrent processing, you put as many processes in parallel as possible so that you can reduce the timeline.”

	There are two reasons biopharma companies are slow to adopt innovative practices. First, he says, the profit in biopharma industry is very large and the cost of goods is typically less than 10% of the revenue. “So even if you innovate dramatically for the manufacturing processes, you are talking about 10% of a revenue. From the CEO and management point of view, innovation in manufacturing has not been very valuable. They have been more interested in discovery, development, marketing, and sales,” he said.

	The second reason-a complicated regulatory environment-causes biopharma companies to take a relatively conservative approach to adopting innovative ideas.

	Kim was convinced that Samsung could be not only an IT-oriented company but also a healthcare and biotech company. After analyzing supply and demand opportunities and evaluating the industry attractiveness and competitive environment, the company targeted contract manufacturing and biosimilar development versus the innovator drug route. 

	The high value nature of the novel biologics drug market makes it attractive, he said, however, thousands of small biotech companies, plus big pharma companies compete in the drug discovery and development arena. Only a few large biologics contract manufacturers and approximately 80 small contract manufacturing organizations (CMOs), served the industry. He believed that Samsung could compete against and catch up to the capabilities of the big CMOs in a short time. 

	“In addition to the attractiveness of the CMO industry, I could be more competitive in the CMO industry from the viewpoint of quality and compliance,” he said. The company’s construction capabilities and ability to reduce capital expenditures and the construction timelines could lead to client satisfaction, he said.

	The company was formed in April 2011 in Incheon, South Korea as a joint venture between Samsung affiliate companies and Quintiles Transnational Corp. To date, the company has invested approximately $1.7 billion in three manufacturing facilities for monoclonal antibody (mAb) drug substance and drug product.

	The company’s first plant, with 30,000-L of bioreactor capacity, received FDA approval 25 months after the plant started operation; full commercial operation began in November 2015. The facility is also certified by the European Medicines Agency (EMA) and Japan’s Pharmaceuticals and Medical Devices Agency.

	The second plant for mAb manufacturing--currently the world’s largest single plant--is five times larger than the first plant, features 10 bioreactors with 152,000-L capacity, and received FDA approval in 19 months, in October 2017 (1). Two months later, EMA licensed the facility (2). 

	Each facility has upstream, downstream, and fill/finish suites, bonded warehousing, as well as process development and quality control laboratories. The company has 50-L, 200-L, and 1000-L bioreactors for preclinical and clinical production.

	A third plant-a $740-million investment-was completed in late 2017 and has 180,000-L capacity, bringing the company’s total capacity to 362,000 L. The company expects it to be operational in 2018 with commercial production starting in 2020.

	In 2017, Samsung BioLogics added cell-line development, process development services, and clinical trial drug manufacturing as additional revenue sources and to satisfy client requests to obtain multiple services from one provider.

	As of January 2018, the company reported contracts totaling $3.3 billion with 10 drug companies including Roche and Bristol-Myers Squibb (3).

	Why bigger is better for CMO and clients

	Samsung BioLogics chose to build “jumbo” manufacturing facilities to handle large volume demands and because it saw greater opportunity for differentiation in larger room, Kim said. Building a larger size facility is more complex; however, this approach offers opportunities to save on capital expenditures and construction timelines, if executed properly.

	Contract manufacturers compete against other CMOs for business but also against drug companies choosing to manufacture in-house. The latter scenario is not an apples-to-apples comparison, Kim said, but is “a CMO’s dilemma.” A CMO’s service price--the cost of goods and a profit margin--competes against the drug manufacturer’s in-house cost of goods. Variable expenses, such as the cost of supplies and materials are borne by the drug company. Therefore, fixed costs of facility expenses and labor costs are key factors in the overall cost of drug manufacturing.

	Samsung BioLogics was able to use lessons learned from other industries to reduce its capital expenditures, build more efficiently, and reduce the number of operators required to run the plants, Kim said. While the second plant is five times the size of the first plant, the number of operators in the second plant is only 1.5 times the number employed in the first plant. By managing its fixed costs, Samsung BioLogics can be more competitive with other CMOs and with in-house drug manufacturing, he concludes.

	1. Samsung Biologics, “Samsung BioLogics Receives the 1st FDA Approval at the World’s Largest Plant,” Press Release, Oct. 11, 2017.
	2. Samsung Biologics, “Samsung BioLogics Receives the 1st EMA Approval for its Plant No. 2 Production,” Press Release, Dec. 13, 2017.
	3. Sohn Ji-young, “

Samsung BioLogics Says 4th Plant Production Plans ‘Still Under Review

	When referring to this article, please cite it as R. Peters, “Bigger is Better in Samsung’s Approach to Biomanufacturing," 

A different perspective on controlling fixed costs of biomanufacturing, based on know-how from other industries, provides a competitive edge, says the CEO of Samsung BioLogics. 

Bigger is Better in Samsung's Approach to Biomanufacturing

	In the first year of the Trump administration, people have learned to expect the unexpected. Executive orders and policy statements issued by the administration in the first few months of 2017 were at times contradictory and conflicted with bio/pharma operations.

	President Trump promised to streamline FDA approvals, promote market-based reforms to create competition and lower drug prices, and cut regulations. A temporary hiring freeze, however, delayed FDA from filling hundreds of positions needed to fulfill agency goals. The administration’s agenda to move drug manufacturing back to the United States from cheaper offshore locations ran counter to the goal of reducing drug prices (1). A directive to curb immigration from certain regions spurred worry about restrictions on foreign-born researchers working in the US (2).

	The confirmation of Scott Gottlieb as FDA commissioner provided some stability for the agency, as did renewal of the user fee programs. The slashing of corporate taxes at the end of 2017 promised more financial options for bio/pharma companies.

	Uncertainties surrounding the healthcare reform and funding for Medicaid and children’s health programs lingered as 2018 began. The threat of drug shortages continued as Puerto Rico, a major pharma manufacturing region, struggled to recover from the effects of Hurricane Maria (3).

	While such macro events may be beyond the control of most bio/pharma professionals, see daily business operations up close and form opinions about the outlook for 2018.

 sampled opinions of more than 480 bio/pharma professionals from around the world (4) about job security, trends in the industry, how changes impact their daily work, and future business prospects. The survey was conducted in September and October 2017.

	Fewer respondents (39%) said business at their company increased in 2017 compared with 2016 (44%) (5); however, fewer (14.9%) respondents also said business decreased in 2017 compared with 2016 (19.3%). The number of respondents reporting a downsizing was up slightly (17.9% in 2017 vs. 16.9% in 2016). The percentage of workers reporting work moving to contract service providers was up slightly (12.5% in 2017 vs. 10.5% in 2016).

	Respondents were slightly less upbeat about the prospects of business improvements at their companies; 54.2% predicted that their company’s business would improve in 2018, compared to 59.1% predicting improvements for 2017. The percentage predicting business would decline in the next year (14%) was slightly higher than the previous year.

	The one-year outlook for the bio/pharmaceutical industry as a whole was a bit more positive after sliding in recent years. More than half (54.2%) of respondents said business would improve for 2015; however, only 47.8% expected improvement in 2016 and 45.6% in 2017. For 2018, 47.6% expressed a positive one-year outlook.

	For the longer term (five years), respondents were less optimistic than the previous year. Fewer respondents said business would improve (59.3% in 2017 compared with 63.3% in 2016). However, fewer respondents anticipated declines in business and more expected business stability in the longer term.

Biotech Executives Express Concern Over Immigration Order

FDA Commissioner Gottlieb Gives Update on Saline and Amino Acid Shortages

2017 Pharmaceutical Technology/Pharmaceutical Technology Europe Annual Employment Survey

. 2016 Pharmaceutical Technology/Pharmaceutical Technology Europe Annual Employment Survey

	When referring to this article, please cite it as R. Peters, " New Year, New Questions," 

Bio/pharma professionals manage expectations amid industry uncertainty.

New Year, New Questions

Uncertainty was the theme for the bio/pharma companies at the start of 2017 as the industry waited to see how the political agenda of the incoming Trump administration would affect healthcare reform, drug pricing, R&D investment, and regulations.

	In the ensuing 12 months, the industry witnessed a record number of drug approvals including the first gene therapies and a digital pill, a new commissioner at FDA, a major overhaul to US corporate tax structure, and the announced move of the European Medicines Agency to Amsterdam. Unfinished business-open questions about the fate of the US healthcare system, an unresolved federal budget, and ongoing debate over drug pricing-have extended the air of unpredictability into 2018.

	Despite bio/pharma’s strong emphasis and success in science and technology, financial and policy questions may be the dominant factors in the outlook for 2018.

	Efforts to replace the Affordable Care Act (ACA) failed in 2017; only one component-the individual mandate-was repealed as part of the Tax Cuts and Jobs Act (TCJA) of 2017. The future funding for Medicaid and children’s health programs remained uncertain at the beginning of 2018.

	A reduction in the number of insured patients could translate into a drop in drug sales. The Congressional Budget Office estimated that by 2027, 13 million fewer people would have insurance coverage if the mandate were repealed, potentially reducing the number of patients seeking prescription or generic drugs (1).

	Thanks to the overhaul of the tax system enacted in late December 2017, US-based bio/pharma companies started 2018 with a sharp reduction in the corporate tax rate, lower taxes on income earned abroad, and simplified rules for expensing new investment purchases. On the negative side, the orphan drug tax credit was reduced from 50% to 25% of qualified research and clinical testing activities.

	While lower tax bills may help fill bio/pharma company coffers, the debate over the high cost of drugs remains a threat to profitability. A 2017 survey by PwC’s Health Research Institute (2) found that, in general, bio/pharma executives recognize that the industry has a drug pricing problem. Executives are split, however, as to how-or if-the problem should be addressed.

	The survey assessed opinions of executives from pharma and insurance companies on drug prices and value-based payment models; 45% of the respondents expect the Trump administration to accelerate downward pressure on drug prices. More than half of the respondents (54%) thought new federal or state drug pricing laws were very or somewhat likely to be enacted.

	Respondents were equally split (44% responding “yes,” 44% responding “no”) on the question: Do you think the industry should consider limiting the growth of drug prices during the next fiscal year? However, more than half (53%) said their organization was not considering limiting the growth of drug prices during the next fiscal year; only 23% said their organization was considering limits to growth of drug prices.

	The PwC report explored the potential of value-based contracts: a drug’s price is set based on how it performs in real-world settings versus the current approach of basing pricing on data collected during controlled clinical trials. Successful therapies would create rewards; drugs that did not perform may result in reimbursements to patients.

	Pharma and health industry executives surveyed expressed enthusiasm for value-based contracts; however, participation is limited. Only one-quarter of the surveyed pharma executives reported that their organizations had participated in a value-based program; however, 80% of those that participated said the contracts were successful. More than one-third (38%) said the potential rewards of a value-based contract were worth the risks.

	Value-based pricing models face a number of operational hurdles, including the lack of measurable outcomes regulatory questions, data sharing, and establishing agreement on performance metrics. The value for the patient must also be assessed.

	Although promising platforms such as gene therapies are emerging, the challenge for bio/pharma is to develop these platforms in an efficient way to create “near-term value for all stakeholders,” according to the authors of Deloitte’s annual study on industry return on investment (3).

	The report--based on analysis of estimated return on investment from late-stage pipelines of 12 large-cap biopharma companies--noted that projected R&D returns continued to decline from 10.1% in 2010 to 3.7% in 2016 and 3.2% in 2017. The average cost to bring a drug to market continued to increase from $1.188 billion in 2010 to $1.992 billion in 2017.

	Innovation appears to be on the upswing, however, particularly in the biologics drug arena. FDA’s approval of the first gene-therapy drugs and the rebound in the number of new molecular entities approved (46 in 2017 compared with 22 in 2016) are signs of payoffs for research efforts.

	Analysts at Evaluate Pharma (4) note that such scientific breakthroughs improve the lives of patients, and can richly reward the drug’s creators. They also credit FDA’s efforts to speed approvals of new therapies and generic drugs.

	Recent successes and the implementation of the US tax cuts may spur renewed investment and acquisitions in 2018. The successes need to continue, however, to keep investors interested in the market. The bar for success is set high with rapid progress during the past few years, Evaluate Pharma reports, and disappointments would remind investors that in biopharma, “failure is a fact of life.”

	Reducing the number of regulations was a key component of the Trump administration’s 2017 agenda. FDA Commissioner Scott Gottlieb (1) noted the agency must recognize “when scientific innovations warrant new, more flexible regulatory approaches in order to make sure advances in care can reach patients.” To accomplish this, he wrote, the agency must “continually adapt our regulations to enhance efficiency, improve our effectiveness, and update old and out-of-date requirements.”

	Planned 2018 regulations for drug compounding facilities would clarify which drugs may be compounded and promote more efficient, streamlined manufacturing standards, while ensuring safety and quality measures. Another proposed rule would establish national standards for the licensing of prescription drug wholesale distributors and third-party logistics providers, as part of track-and-trace requirements.

	Clearly defined standards must not place unnecessary burdens on regulated companies, Gottlieb wrote, and should reflect the latest science. Outdated rules will be removed, he noted, singling out “an outdated inspection provision for biologics and outdated drug sterilization requirements to remove barriers to the use of certain sterilization techniques.”

	The agency also faces 2018 deadlines associated with the 21st Century Cures Act including drafting guidance documents for patient-focused drug development; reporting to Congress on standards for advanced regenerative therapies, compliance activities, and hiring authority or scientific, technical, and professional personnel; and holding public meetings on the qualification of drug development tools.

	A key deadline-Nov. 26, 2018-looms for bio/pharma companies to comply with requirements for product identifiers and verification in accordance with the US Drug Supply Chain Security Act.

The Bipartisan Health Care Stabilization Act of 2017 and the Individual Mandate

Launching to Value: Pharma’s Quest to Align Drug Prices with Outcomes

, September 2017.
	3. C. Terry and N. Lesser, 

 Deloitte, 2017.
	4. A. Brown, E. Elmhirst, J. Gardner, EP Vantage 2018 Preview, 

Looking Ahead: Some of FDA’s Major Policy Goals for 2018

Vol. 42, No. 1
	January 2018
	Pages: 14–16

Will business decisions and drug pricing policies help or hinder science and drug approval advances in 2018?

Finding the Right Mix for 2018 Bio/Pharma Success

Implications of the United Kingdom’s exit from the European Union (EU) cast a shadow over Europe’s bio/pharmaceutical market in 2017, as well as its prospects for 2018. While one major question--the relocation of the European Medicines Agency--was answered in late 2017 with the announced move to Amsterdam, many unresolved issues, including regulatory approvals and supply chain monitoring, remained (1).

	In 2017, the European Medicines Agency’s (EMA’s) Committee for Medicinal Products for Human Use recommended marketing authorizations for 92 innovator and generic drugs, an increase from 81 authorizations in 2016 (2-3). US drug approvals hit record levels; 46 new molecular entities were approved in 2017 compared with 22 in 2016 (4). This big rebound, plus the approval of the first gene therapies, created a more positive outlook in the United States.

	As Brexit negotiations defining the terms of the UK’s departure progressed, an agreement for cooperation between regulatory authorities that could reduce inspection bottlenecks was launched. A mutual recognition agreement, effective 1 Nov. 2017, enables drug regulatory authorities of Austria, Croatia, France, Italy, Malta, Spain, Sweden, the UK, and the US to use each other’s good manufacturing practice (GMP) inspections of pharmaceutical facilities (5). 

	Sterile drug manufacturers faced major changes in operating procedures; 

Annex 1, Manufacture of Sterile Medicinal Products

 of the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) and EU GMP guide is under revision (6). 

 has been updated since it was first published in 1971 but has not had a full review. The purpose of the revision, according to an European Commission announcement, is to add clarity, introduce the principles of quality risk management, include new technologies and processes, and change the document structure to a more logical flow. Proposed changes include the introduction of sections on utilities, environmental and process monitoring, and a glossary.

	The proposed revised version was prepared in cooperation with, and is subject to, parallel public consultation with the World Health Organization and PIC/S. The consultation document was issued on 20 Dec. 2017; the European Commission is collecting comments until 20 March 2018.

	Analysts at Evaluate Pharma (7) note that scientific breakthroughs improve the lives of patients and can richly reward the drug’s creators. The successes need to continue, however, to keep investors interested in the market. The bar for success is set high with rapid progress during the past few years, Evaluate Pharma reports, and disappointments would remind investors that in biopharma, “failure is a fact of life.”

	Through the third quarter of 2017, pharma and biotech transactions declined for a second year compared with the active markets of 2014 and 2015, according Evaluate Pharma (7). In the US, the decline was attributed to uncertainty over tax law changes. 

	In 2018, companies with legacy drug products in large therapy areas may seek mergers and acquisitions to refill depleted pipelines. In the Evaluate Pharma report, experts noted that early-stage companies developing immune-oncology drugs were overvalued, creating a “seller’s market.” The valuations of large-cap biotech companies were depressed, the report argued, creating opportunity for cash-rich pharma companies to make large acquisitions.

	Strong financial markets also could spur more initial public offerings and small biotechs may also look to independently fund later-stage development, the report authors note. Venture funding, which slowed in 2017, but could pick up again, the report suggests, benefiting start-up companies in Europe. A competitive market in the US has pushed up prices for acquisitions; investors are looking to Europe for alternative opportunities (7).

	Although promising platforms such as gene therapies are emerging, the challenge for bio/pharma is to develop these platforms in an efficient way to create “near-term value for all stakeholders,” according to the authors of Deloitte’s annual study on industry return on investment (8). The report--based on analysis of estimated return on investment from late-stage pipelines of 12 large-cap biopharma companies--noted that projected R&D returns continued to decline from 10.1% in 2010 to 3.7% in 2016 and 3.2% in 2017. 

	Pharmaceutical development and manufacturing experts shared their opinions about the state of the industry and prospects for 2018 In the 2017

. Pharmaceutical Technology/Pharmaceutical Technology Europe

 annual employment survey (9). Respondents from around the globe shared similar perspectives about employment-related prospects, but also expressed varying opinions about business prospects for bio/pharma.

	Bio/pharma business activity in Europe was up in 2017, the survey respondents reported. One-half of the EU-based respondents reported an increase in business at their company over the previous year, a significant jump from 42.3% in 2016 (10) and 40% in 2015; only 10.9% reported a decrease. In comparison, only 35.6% of the global audience of respondents reported an increase in business in 2017; 16% reported a decrease.  

	The positive trends in Europe continued in other business areas at bio/pharma companies, as compared with observations from the global audience. Companies hired additional employees (37.5% EU vs 22.67 global), expanded business operations (18.8% EU vs. 11.1% global), and experienced less downsizing (12.5% EU vs 18.2% global). In line with the reports of increased business, the EU-based respondents also noted that more tasks previously done inhouse were outsourced to contract service providers (17.2% EU vs 11.1% global).

	The positive feelings from 2017 fueled an optimistic outlook from EU-based bio/pharma employees for 2018; 62.5% of the respondents predicted that their company’s business would improve in 2018, up from 50.4% for 2016. Less than 10% said business would decline. In contrast, only 52.9% of the respondents from the global audience said business at their companies would improve and 14.7% predicted business would decline.

	The EU-based audience, however, was less positive in their outlook for the bio/pharma industry in general for 2018: 37.5% said business would improve in 2018, down from a prediction of 46.4% for 2017. Almost half of the global audience surveyed expected business to increase.

	Predictions for business growth in the bio/pharma industry as a whole over the next five years were more optimistic and similar to responses in 2016. Nearly two-thirds (64.1%) of the EU-based respondents predicted that business will improve; however, 12.5% expect business to improve overseas, but not domestically.

	US taxing decisions: R&D, M&A, or investor windfall?

	In the United States in 2017, the bio/pharma industry witnessed a record number of drug approvals including the first gene therapies and a digital pill, a new commissioner at the US Food and Drug Administration, and a major overhaul to the US corporate tax structure. Unfinished business--open questions about the fate of the US healthcare system, an unresolved federal budget, and ongoing debate over drug pricing--have extended the air of unpredictability into 2018 for bio/pharma companies in the US and around the world.

	Thanks to the overhaul of the tax system enacted in late December 2017, US-based bio/pharma companies started 2018 with a lower corporate tax rate, lower taxes on income earned abroad, and simplified rules for expensing new investment purchases. 

	The tax law overhaul had one negative: the orphan drug tax credit was reduced from 50% to 25% of qualified research and clinical testing activities. 

	What biopharma companies will do with the tax savings or repatriated funds--invest in R&D, return it to stockholders, or shop for acquisitions--was not clear as 2018 began. While the intent of tax law changes is to expand investment and create more jobs in the US, companies may continue to invest overseas. A previous “tax holiday” for repatriated funds in 2004 resulted in minimal job creation; analysts and critics of the tax cuts expect a similar result with this round of cuts (1).

, November 2017.
	3. EMA, “EMA Meeting highlights from the Committee for Medicinal Products for Human Use (CHMP) 11-14 December 2017,” Press Release, 15 Dec. 2017.
	4. FDA, 

FDA to Recognize Inspections from EU Drug Authorities

, 31 Oct. 2017.
	6. European Commission, 

Targeted Stakeholders Consultation on the Revision of Annex 1, on Manufacturing of Sterile Medicinal Products, of the Eudralex Volume 4

.
	7. A. Brown, E. Elmhirst, J. Gardner, 

, Evaluate Pharma, December 2017. 
	8. C. Terry and N. Lesser, 

Pharmaceutical Technology/Pharmaceutical Technology Europe Employment Survey 2017

Pharmaceutical Technology/Pharmaceutical Technology Europe Employment Survey 2016


	Vol. 30, No. 1
	January 2018
	Pages: 22–23

	When referring to this article, please cite it as R. Peters, “Forecasting Bio/Pharma in 2018,” 

Brexit-related challenges cast shadows on prospects for the European bio/pharma market in 2018, but optimism may let some sun shine through.