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Pharma comment: Notes from an evolving landscape for innovation

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By Rafaat Rahmani, CEO at Lifescience Dynamics, shares his reflections and predictions for the pharmaceutical industry.

The pharmaceutical and medical industry is experiencing greater focus and priority this year, with the 2024 spring budget including a £92 million investment in facilities expansion and R&D, highlighting the need for development and manufacturing of life-saving medicines and diagnostic products.

Whereas 2023 proved to be a year of correction for the pharma industry, this has continued into 2024. Following the departure of casual investors who found their way to the market during the COVID-19 pandemic, came the tightening of pharma budgets and slowing down of the Inflation Reduction Act, leading to a current high demand for investment into research and development for the industry.

These rapid changes and movements can be traced back to 2020, when the pandemic impacted the industry, the rates of clinical trials slowed down and investments in the race to create COVID-19 vaccines flooded.

The pharma and biotech industries initially experienced increased funding, supported by the surge of new investors, spurring on M&As and numerous transactions.

As 2022 came to an end, so did the period of overspending which had greatly shaped the industry over the previous couple of years with 2023 experiencing a further reduction in spending which facilitated a shakeout of the industry.

Changing demands in an overwhelmed supply chain

Looking back over the last few years it is clear that consumer demands are changing. Customers in the UK are increasingly interested in personalised medicine and tailored treatment plans, including a growing trend towards natural and plant-based alternatives which is applying a heavy pressure on manufacturers and the supply chain to meet a surplus of demands and needs.

Following the pandemic there was an inevitable change in consumer spending patterns after several years of reduced spending and limited freedom led to an accumulation of constrained demand.

As the lockdown ended, and restrictions eased across the globe, the industry experienced several challenges in traffic, resignations, redundancies, job losses, and supply chain issues, resulting in overwhelmed supply chain capacities unable to meet the increasing demands.

There were simply insufficient numbers of workers in many sectors.

One instance in San Diego port saw over 100 cargo ships waiting to be unloaded which was, in part, a consequence of labour shortages. This was not helped by the blockage in the Suez Canal that further stressed the supply chain, holding up approximately $400 million per hour in trade.

The overconsumption of digital technology during the pandemic led to a limited supply of chip microprocessors.

Imperative to quotidian digital practices, chip microprocessors are dominated by TSMC with the company controlling more than half (56.4%) of their production. Their influence on the industry also exacerbated this bottleneck.

A rise to interest rates

The combination of these conditions created pressure on interest rates. In the USA, inflation was running high, and, for the first time in a long time, all three core legislative powers of the US government were with the Democrats.

Biden’s presidency, the House of Representatives, and the Senate were all aligned. With this mandate, they passed the Inflation Reduction Act to address the USA economy, such as creating an environment for green industries.

The act also stipulated cost containment of prescription drug price, including discounting overused drugs for the elderly.

The energy crisis has further exacerbated inflation, especially in EU regions. Since the Russian invasion of Ukraine, gas imports from Russia to the EU have been significantly reduced from over a third (35.7%) to one-tenth (12.9%) of the total gas imports of the EU.

European countries were forced to seek alternative sources to ensure supply security. While higher LNG imports were pursued, they came at a steep cost.

Increasing usage in LNG resulted in EU countries facing a bill of €70 billion ($78 billion) to refill the gas storage facilities this summer, a cost six times higher than the previous year.

Last year was shaped by high inflation worldwide, which has declined from peak pandemic levels, though remained as of October 2023 at 3.2% in the US, 3.6% in EU regions, and 4.6% in the UK.

In the pharmaceutical sector, companies have faced substantial increases in expenses as the cost of capital surged, which made investment in biotech and research more costly, prompting a reduction in funding.

Investors who entered the market in 2020 and 2021, particularly those non-specialist investors, have withdrawn their investments. Moreover, excessive spending in recent years prompted a reduction of financial commitments in recent years.

The shakeout has influenced every industry related to pharma, from major consulting firms to boutique operations. The year began with mass layoffs in the tech industry, swiftly followed by more of the same in pharma (inc. Pfizer, Novavax,Amgen) and consulting firms (inc. McKinsey, EY, Deloitte, Accenture). The knock-on effect of this has been the increase in competition with more people chasing scarce investments.

Predictions for the pharma industry

As we make our way through 2024, we can expect the pharma industry to come back stronger. This will be driven by the low cost of capital, and the steadying inflation rates in the US and Europe.

It is, of course, near impossible to have a conversation about the future without mentioning AI – Artificial Intelligence and Machine Learning.

The ability to leverage AI will be a differentiating factor and we anticipate greater focus and scrutiny on AI generally. AI can be applied across drug development stages, from discovery of candidate molecules to streamlining clinical trials, with potential to reduce both the time and cost involved in bringing a new drug to market.

Companies will continue to be at the frontier of bringing safer and more effective drugs in areas with huge unmet need. Areas that will grow include obesity / diabetes, oncology, neuroscience.

The market for anti-obesity treatments is relatively new, but is expected to grow rapidly with Goldman Sachs predicting a $100 billion global market by 2030.

a Oncology will continue to be targeted as there remains unmet need for patients and companies will explore novel combinations, cell therapies and precision medicine. Neuroscience will also be a growth area, with demand for Alzheimer’s treatments such as Eisai’s Leqembi and Lilly’s donanemab (if approved) increasing as the population ages.

This year we can expect to see the pharma industry come back stronger with the European industry landscape change, influenced by Chinese pharma.

As showcased by Pfizer’s purchase of Seage for $43 billion, we can expect to see more M&A this year and companies will seek to grow their competitive advantage and strengthen their pipelines, through acquisitions of clinical or commercial stage businesses.

Following a surge in pharmaceutical research and development, the UK is positioning itself as a global hub for industrial innovation, proving that the pharma industry will continue to thrive and evolve across a shifting landscape.

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