Looking Ahead in Biopharma: 2024

Speaker 1: 
Welcome to Insight Exchange, presented by L.E.K. Consulting, a global strategy consultancy that helps business leaders seize competitive advantage and amplify growth. Insight Exchange is our forum dedicated to the free, open, and unbiased exchange of the insights and ideas that are driving business into the future. We exchange insights with the brightest minds of the day, the most daring innovators, and the doers who are right now rebuilding the world around us.

Jenny Mackey: 
Welcome to Insight Exchange. I'm Jenny Mackey, Director of L.E.K.'s Healthcare Insight Center. In this episode, we'll look ahead to the key trends and challenges shaping the biopharma industry in 2024. First, we'll discuss the continued biopharma market correction and its implications for fundraising and M&A. Then, we'll talk about new drug pricing legislation, including what we'll learn this year from the IRA's continued rollout, along with what the potential PBM legislation could mean for the industry.

Next, we'll discuss artificial intelligence, both its transformative potential and drug discovery, as well as other applications for operational efficiency. We'll also talk about how commercial leaders are leveraging new technologies as part of a digital-two approach to sales and marketing. Lastly, we'll turn to the advanced modality pipeline and review some key potential developments in cell therapy, gene therapy, and other advanced modalities.

To provide their perspectives on these topics, I'm joined by three partners in our biopharma practice, Peter Rosenorn, Alex Guth, and Matt Mancuso. Would you please each take a moment to introduce yourselves?

Peter Rosenorn: 
Sure. Thank you, Jenny. Hi, I'm Peter Rosenorn, a partner in our Boston office.

Alex Guth: 
Hi, I'm Alex Guth, partner in our Boston office and a leader of our pricing and market access practice. 

Matt Mancuso: 
And I'm Matt Mancuso, a partner in our Boston office and a leader in our innovation and biopharma practice.

Jenny Mackey: 
Thank you all for being here. So, to start out, as we all know, the biotech capital market is in a correction period. Peter, how is that influencing financing in M&A in 2024?

Peter Rosenorn: 
Yeah. To start, you're absolutely right. We are still in a correction. The S&P Biotech index is down about 60% compared to its height in 2021. And the last time we saw that was all the way back in the early 2000s. And at that time, it took almost 10 years to get back to normal.

So, you're asking, what does that mean? Well, the good news is that if you have good clinical data, you can still get funding. Now, it may take a little longer. Investors now are looking for proof of concept more than they have just a couple of years ago. And if you look at the different sources of funding, VC is pretty much back to where it was before the pandemic, but the IPO market is still down dramatically.

Some people are starting to look even at PE, but otherwise, it's more alternative fundings like royalty monetization, maybe pipes, other things like that. So, net-net, it's not an easy situation. It's something everybody will have to keep an eye on. That's for sure.

Alex Guth: 
Absolutely, Peter. Ultimately, based on the financing dynamics, you mentioned a lot of biotechs may be looking toward M&A for their next value inflection point, for a few reasons. Starting now with, there's a lot of dry powder out there. Larger biopharma firms are searching for compelling, deal-making opportunities. And a recent Stifel report estimated that amongst the top 16 large pharma, there was at least 500 billion in deal-making firepower to be deployed.

Countering this, there's the limited supply of relevant M&A targets left. There's been high level of deal-making. There are a number of smaller organizations whose boards are still really locked in to pre-correction valuation and hesitant to pursue acquisition at these values. And then, additionally, the supply is below at top of the funnel. Market conditions have depressed new biotech company formation. And IPOs are well below pre-pandemic levels, which is limiting the overall pool of acquisition targets out there.

Matt Mancuso: 
Yeah. I agree with all of that, Alex, but how do you think about the possibility of larger deals taking place? I know we're recording this a little in advance, but just this morning, Pfizer-Seagen announced that it was completely closed. We saw last week, two big purchases from AVI between Cerevel and ImmunoGen, both for like 10 billion each.

Alex Guth: 
Do you think we'll see larger deals or any more merger-looking transactions?

Matt Mancuso: 
Yeah, I think that's something we're all looking for. And it's certainly possible that we see some consolidation in the industry with real scale-multiplying M&A. If you look at the spread in market cap between the largest and the smallest of those top 10 pharma, it's grown wider ever before. And it's becoming harder and harder for what was once larger pharma companies to compete at a scale with this emerging class of mega pharma, companies with $200 billion market caps.

So, instead of smaller, bolt-on transactions, many larger biopharma are turning toward even greater and larger deals to navigate some of the challenges they're facing, including some really substantial looming revenue gaps that a number of companies are anticipating at the end of the decade due to some patent cliffs for blockbusters, as well as the impact to the IRA.

Jenny Mackey: 
Thanks, Alex, Peter, and Matt. Definitely a lot to watch out for on the financing front. Now, Alex, we know, obviously, in the last year-and-a-half, there's been a lot of movement on the pricing and market access front, especially in the US. What are you looking forward towards for 2024?

Alex Guth: 
Well, obviously everyone is closely monitoring the next steps for the Inflation Reduction Act, the IRA. And next year is going to be a big year. First and foremost, the maximum fair price or the MFP for the first 10 drugs that were selected for Medicare negotiation last year will be announced in September of 2024. So, the stakeholders across the industry are going to be closely watching for that initial MFP publication, to understand the degree to which CMS will exercise its option to negotiate for a greater-than-mandated discount.

As you may know, the IRA specifies a ceiling that these negotiated prices may reach, but not a floor. And so, there remains a lot of uncertainty around the degree to which CMS may push for even lower pricing. And we're likely to not have insight into that until the second half of next year.

Now, when we get those published prices in September, what we won't be seeing is the rationale and what data has driven that decision-making. But even so, we anticipate that when those prices come out, we're going to be able to gain some insights into what are the key drivers of that negotiated price from CMS. Beyond that, the other big thrust of change is in the judicial realm. There are multiple ongoing lawsuits from the majority of companies with agents that are set for negotiation.

These lawsuits are challenging the price negotiation provisions constitutionality across a number of fronts, and judicial resolution isn't likely until well into next year.

Jenny Mackey: 
And beyond that, there's also the presidential election coming up.

Alex Guth: 
That's right, Jenny. And the election adds a great deal of uncertainty on top of a lot of questions about IRA implementation that already exist. So, our expectation is that, while Democrats remain in power in 2024, holding both the Presidency and the Senate, we're not anticipating any significant revision to the IRA laws during that time. However, there is a possibility we will see legislative revision if Republicans take power in 2024 in the elections. As background, Republicans universally voted against the IRA when it was first passed in 2022, and so we may see significant repeal were they to take power.

One complicating factor, though, is that Donald Trump, who at the moment is the front-runner for the Republican presidential nomination, has actually been quite aggressive in discussing drug pricing in the past. Previously, he's taken a strong stance on lowering pharma prices, and has been supportive of Medicare drug price negotiation. And so, it remains unclear if he were to take the presidency and Republicans take the legislature, whether there would, in fact, be any changes to the IRA's pricing negotiation components.

Matt Mancuso: 
Thanks, Alex. It really doesn't feel like either side of the political aisle is on the side of pharma on this issue. Before we even get to the election, can you talk to me a little bit about the changes we may see in the interim? I know there's some talk about reforms to how pharmacy benefit managers operate. There's also something going on with threats to pharma patents and what that could all look like. Are you able to elaborate on either of those issues?

Alex Guth: 
Yeah. Happy to talk about that. So, we've seen some real strong momentum toward addressing particularly the topic of pharmacy benefit managers or PBMs in the back half of this year that's likely to carry through to next year. So, both the House and Senate have bills that have been proposed, calling for greater PBM transparency on the rebates they're receiving, and potentially restricting a number of elements related to the PBM business model today, including spread pricing and pharmacy clawback fees.

The House and Senate are both moving forward with these bills, so it's likely that we're going to see them at least come up for voting consideration this year. And if they do pass, one of the things we anticipate is that if this legislation is passed, it may lead to reduction in the gross-to-net bubble that we see today, and also better help align PBM incentives with healthcare cost reduction generally.

Jenny Mackey: 
Thanks so much for that, Alex. The last couple of years have certainly been more active from drug pricing reform than before. And there's a lot that could continue to evolve in 2024, so definitely critical to monitor. And companies need to be thinking about how this might impact their strategy.

Now, so far, we've covered some headwinds facing biopharma in 2024, but there's a lot of exciting new technologies that are impacting the industry; things like artificial intelligence, advanced modalities that are creating new growth opportunities. So, to begin with, Matt, how is artificial intelligence going to impact the biopharma industry in 2024?

Matt Mancuso: 
Yeah. You've got it, Jenny. For every policy headwind we're facing, we have some bit of innovation and techno-capitalist development helping improve things. And one of the big stories of this year and, indeed, next year, will be what's going on in AI-driven drug discovery. And it's not just drug discovery, but it's really all parts of the pharma value chain and organization and how they'll be updated and evolved, given these new technologies.

If we start on drug discovery specifically, in the last year, we've seen a lot of advances both in generative AI and all the hype that's come out of the GPT models, as well as just other machine learning technologies. And we're really starting to see an expansion in the repertoire of drugs in our arsenal. And we'll see what happens in 2024, but there really are a lot of notable readouts coming out.

You have Insilico Medicine, Relay Therapeutics, probably a number of others. And if we start seeing real signals here, I think it just helps validate the technology and what computers could do for drug discovery.

Peter Rosenorn: 
Yeah. So, Matt, we clearly see it in discovery. You mentioned it's also in other parts of the value chain. Could you speak a little bit more to that?

Matt Mancuso: 
Yeah. Of course, Peter. This is a topic that really is at the intersection of what you and I do, you, organizationally, and me, from an innovation perspective. But it's really across all functions and pharma companies that we're seeing various AI technologies being rolled out. From some big pharmas, we're seeing announcements in the clinical side of things in terms of trial designs and protocols, patient monitoring and all of the things that go on there. We're seeing this in branded drugs. We're seeing it in generics, too, where a significant number of regulatory documents are involved.

If you think about the types of changes AI will bring on, on the drug discovery side of things, we may see some really transformational change. We may see a new paradigm in how we do high throughput drug discovery and new molecules come out. But if we look at other functions, there's a significant amount of operational improvement we may realize as well. So, again, clinical trial designs I've spoken about a little, but manufacturing and supply chains can be optimized. Even more corporate functions, competitive intelligence, and strategy and portfolio planning are all places where we could see significant innovation going forward.

Last and not least is commercial, where we can continue to think about how we optimize and deliver products to healthcare practitioners and how we introduce and explain our offerings. There are challenges. We'll see them across both the operational and transformational side of things here. But 2024 will be a big year to see some of the early sides and signals of, is this is going to be real or not?

Peter Rosenorn: 
Matt, if I can just add one comment around manufacturing and supply chain. Because I know we often talk about AI and discovery. We talk a lot about what you can do with commercial. We'll get back to that a little bit. But an area where I think there is a tremendous opportunity is really within manufacturing and supply chain, both to design and in a more optimal way, run those very complex systems. So, curious to see how that plays out in '24, and maybe you have some additional to add to that as we get into the year.

Matt Mancuso: 
I find that space very interesting, Peter. I think one of the reasons that discovery often looks so transformational is because of the large amounts of data that they already collect and work with. And they're very interested to see in manufacturing and supply chain, where there's also a significant amount of data, how that could be deployed, but also how these complex supply chains can collect more data. I'm thinking Internet-of-Things type technologies, so that they can better utilize AI for their own planning, whether it's on the manufacturing side or supply side going forward.

Jenny Mackey: 
Thank you, Matt and Peter, for that insight on AI. Another important topic for next year is continued evolution in commercial models. We've heard a lot during the pandemic about how digital technologies have really helped continue the conversation with physicians amid restrictions on in-person interaction. And post-pandemic, we are seeing companies reinvesting in those in-person interactions with physicians.

Peter, how are commercial leaders leveraging the new technologies in order to balance the in-person approaches that we're seeing come back with the benefits of digital?

Peter Rosenorn: 
Yes, it's very interesting. And before we talk about '24, I just want to pick up what you said about the pandemic. Because the pandemic was a huge experiment, a complete paradigm shift from a lot of in-person, we were dabbling into digital. And suddenly, everything was virtual. But as you pointed out, you're now seeing almost eight out of 10 interactions being back to being in-person. So, as we go into 2024, of course, all these advances in technology will continue to be important, but it's much more of a digital tool as opposed to a digital-first.

So, specifically, what we are talking about is Fidelity's investments, that companies need to think both about the field force, but also their back office. And if we just start with the field force, some of the more savvy companies, they are upskilling their sales representatives and other customer-facing roles to think about digital. And almost profile their customers from a digital footprint perspective, and customize how they engage accordingly. So, that's definitely one thing to keep in mind, how that evolves.

Matt Mancuso: 
Yeah. Peter, can you talk a little more about that? I was on site with a client just yesterday and they were telling me about all of the changes that are going on in their commercial org, and how much they're being pushed towards a more digital approach going forward. How should companies be thinking about this, and how should we be advising companies to position themselves best for these new digital capabilities?

Peter Rosenorn: 
Great question. I think the first is to just get a handle of what some of these technologies are, and then think about all the implications that has, again, not just for the people that are directly customer-facing, but also the back office. So, some of the tools that you may have heard about in your discussions are things like single-customer views, where you can further customize based on the signals and insights, preferences from the individual customer. And that'll allow you to much better reuse more modular content on a one-on-one basis.

Then, you may also have heard about next-best action, which is really deploying the analytical capabilities we have now to almost calculate the next-best thing you should be doing. Another tool or approach you may have heard about is zero-party data analytics, where we collect data directly about our customers and use that to better understand what the preferences are and how we should engage with them.

Matt Mancuso: 
Peter, before we move on from this topic, can you help me understand how real some of this is and what the goals of it all are? Are we trying to reduce our cycle times in commercial? Are we trying to reduce our resource requirements in commercial? What are all these digital tools building towards?

Peter Rosenorn: 
I think all of the above. To take your first question, is it real? Well, the individual tools are real. The challenge is, how do you tie it all together? If you effectively can capture the data, clean the data, integrate the data, and make decisions based on the data, the idea is that that will allow you to then, in a more customized manner, deliver messages. So, it means I can engage with you with the things that are important to you in a way that you are more receptive to. And that means, or the idea is that the cost of delivering impactful messages goes down compared to more traditional mass communication. So, that's the idea.

Matt Mancuso: 
So, you think this is real, Peter, that this is really going to work and change things for how commercial organizations are operating? How should we be advising companies to position themselves? Or maybe more importantly, how should companies be positioning themselves to take advantage of all these digital offerings?

Peter Rosenorn: 
Yeah. Again, the tools are there to make it real. And I think companies need to look very hard at their business insight and analytics teams and make sure that they are upskilled and appreciate the complexities of these tools and how they work together. So, that's one area. Because again, the requirements to managing and analyzing all this data is different from the old days, which is just a year or two or three or four ago. So, that's one important part.

The other is the medical, legal regulatory review process. And anyone that's been part of getting promotional materials ready to go to the field will know how that can be time-consuming and require a lot of adjustments. So, if you now want to be much faster and much more customized, you will fundamentally have to change how that process takes place. So, you can have more modular things approved and you can have freedom to adjust how that gets delivered. But that will, for many companies, mean changing how you've been operating these things for a long time.

And then, thirdly, it does require that your frontline, your customer-facing employees not only appreciate the support and the guidance they can get to customizing, but also have a certain level of digital savviness in order to fully utilize these systems. So, again, if you go back 15, 20 years, when we started having CRM systems and the challenges of getting that implemented, you're looking at the next generation of technology implementation challenges from a commercial standpoint.

But again, we have tools now we did not have, and the good companies are implementing this. And everybody should look at what the model is and determine how best to harness and integrate digital. It's not going to be all digital as we are seeing, but fundamentally, having people on the ground, having people communicate is critical. But we want to make sure that we use technology in the best possible way.

So, again, at the end of the day, we get the right message to the right customers at the right time, in a way that they prefer.

Matt Mancuso: 
Peter, on that last point, can you help me better understand where this is realist and where this is least real in markets? So, I guess I'm trying to understand a little bit of, is this more true in some countries than other, in some situations like new launchers versus mature products? Where are these tools having the biggest impact today?

Peter Rosenorn: 
Considering that this requires a lot of data, you're asking about different markets, a country like the US is obviously better positioned to utilize some of these tools for a couple of reasons. One, in the US, we have access to a lot more data than we have in most other markets. And we have the opportunity to communicate directly to consumers and patients in ways we don't have in other markets. So, the interplay of channels and data is greater. We also generally have had larger budgets. So, from a market perspective, I would say more US.

In terms of diseases, modalities, and lifecycle stage, which I think was your other question, you could argue that the larger the market, the more data, the more people to influence, the more money almost at stake, the more relevant. So, to contrast that, if you are launching a first rare-disease treatment that is a significant improvement, of course, you can do some of these things. And you may still want to deploy it for say, patient finding. But in terms of physician interaction and communication, it may be less important. So, those would just be a couple of examples.

Matt Mancuso: 
Thanks, Peter. Makes sense.

Jenny Mackey: 
Thanks, Peter. It's definitely clear there's a lot of promise here from these technologies, and there's a lot of opportunities for pharma. But there's a lot that needs to be done to get the most out of all of them.

So, to transition, we've been discussing quite a number of trends, but one thing we haven't talked about yet is the pipeline. Last but certainly not least, wanted to touch upon developments in the advanced modality pipeline.

There's a lot to discuss here, but Matt, could you maybe start with your thoughts on cell therapy? What are some of the developments you're looking ahead to this year?

Matt Mancuso: 
Yeah. There is a lot to talk about here. I'll try and keep it brief for the purpose of this conversation, and folks can review the article we're putting out for additional information. I think, Jenny, maybe three buckets of innovation to talk about in cell therapy. We've obviously seen tremendous outcomes for patients in hematology with the first generation of autologous therapies. And I'm really looking forward next year to hopefully see some data on allogeneic cell therapies, as we start seeing some of the large B-cell lymphoma trials begin to read out. If we could get that right, we could really fix a lot of the manufacturing and COGS problems and just make these technologies more accessible for patients. So, that's one on the hematology side.

Two is solid oncology. Despite all of the promise, data and real change in solid oncology via cell therapies has been a lot more limited. And with new classes like all of the TCR-based therapies and NK-based therapies advancing, some of them have phase-two readouts coming up. And I'm really excited to see in the next few quarters what we start seeing from all of these players. The third area, and this one's a little bit of a back and forth, given the recent FDA action, is the autoimmune space. Up until a few weeks ago, the space was looking incredibly promising, as it's been nothing but great responses from patients, as we take these early B-cell targeted cell therapies and use them in immune diseases. SLE most notably.

The early cases have really been showing durable complete remissions. There are now dozens of companies pursuing the space, and it's really ripe for innovation. If we rewind just a few weeks though, the FDA reported some investigations in the secondary T-cell malignancies following treatment with the existing CD19 and BCMA CAR-T therapies. There are up to 19 or so cases at the time of the report they put out. And in hematology, the risk-reward looks very clear, that for the benefit these patients are getting, the risk of secondary T-cell malignancies, where the engineering we're performing to these cells is actually causing a secondary cancer, is well worth the risk.

I think it'll play out similarly in immunology. The need for some of these patients is so high. Severe lupus patients are so severe that it may look like hematology, but the story's a lot more muddled now of, if the trade-off of those secondary risks are really worth the reward. So, it'll be an interesting year for cell therapy next year, as we see all of this play out, the new efficacy signals across areas, as well as the challenge of these secondary malignancies.

Alex Guth: 
Agreed, Matt. It was really a disappointing setback for the cell therapy market, that news on the malignancies. And we'll be closely monitoring the FDA investigation well into next year. What are your perspectives on gene therapy in 2024?

Matt Mancuso: 
Yeah. I'm excited to see where the FDA investigation goes. I'm optimistic that the number of cases is still low versus the number of patients who have benefited, and we have a lot of new tools we could use in next-gen cell therapies. So, fingers crossed, the setback is small.

If we are talking about gene therapy in the case of in vivo gene therapies, it should be an exciting year there, too. Advanced Biologics are really having a good moment right now. I think the key for next year is that gene therapy developers really need that to show that they can translate some of the exciting science we've been talking about for so long into commercial success.

With the exception of one gene therapy, most of the approved ones have really struggled to live up to their forecast to date. It'll be really interesting to track the real-world evidence that continues to come out and see how these past drugs are performing, as well as what happens with the recent launches.

If you think of what's happening with ZOLGENSMA, we're seeing that the one-time dosing guarantee isn't necessarily clear. I think we're hearing somewhere in the order of 20% to almost one-in-three SMA patients are receiving additional treatments after ZOLGENSMA. And we saw some signs of that in the approvals for the hemophilia treatments as well and what data actually made it into the labels.

There'll be challenges next year, but really, despite this, it should be a big year for the field, as we have a good number of approvals to look forward to. We'll keep tracking the data. I think it'll be important to keep our eyes on the commercial data especially, and whether or not some of this promise materializes.

Alex Guth: 
Yeah. It should be a really big year, another big year for gene therapy next year. What about some of the other advanced modalities that you're tracking? What are you looking at outside of gene therapy?

Matt Mancuso: 
Yeah. So, perhaps, most adjacent to gene therapy is in vivo gene editing, where we're set for a number of clinical milestones next year. So, we'll be keeping our eye on the gene editing space to see if it's real or not, what the safety risk really looks like, if that's real or not, and where that field may go.

As you start moving further abreast from there, you get into the mRNA space. Everyone's obviously very familiar with the mRNA vaccines right now, but we'll start seeing some of the early oncology and ongoing oncology data come out in the space, and if these can really transform how we think about treating cancer patients.

ADCs continue to drum up more interest. I think after AZ and Daiichi's deal worth up to 22 billion, we've seen continued commercial success in ENHERTU and PADCEV. I know, again, we're recording this a little in advance, but it was just three days ago that BMS announced their deal with SystImmune as well. So, there's a good amount of promise and ADCs going forward, too.

There's really a whole host of new therapies to keep our eyes on. Radios and bispecifics are going to continue to be on the radar for a while. We'll see billion-dollar deal-making going forward there as well. Just earlier this week, C4 announced a deal in the degradation space.

I think 2024 could really shape up to be an interesting year for the next wave of modalities. And we'll see if some of these can really live up to what the biologics did a few decades ago and usher in a new wave of medicines here for patients with high unmet need.

Jenny Mackey: 
Thank you all for a really useful discussion. If you're interested in more details on these topics, please see our executive insight titled Looking Ahead in Biopharma: 2024 published on our website. I'd like to thank all of the leaders of our biopharma practice beyond Peter, Matt, and Alex, who contributed to that.

We're happy to provide more detailed discussions on request. And as always, we look forward to helping our clients navigate these ongoing challenges and new frontiers in the coming months. Thank you for listening.

Speaker 1: 
Thank you, our listeners, for joining us today at the Insight Exchange, presented by L.E.K. Consulting. Links to resources mentioned in this podcast can be found in the show notes. Please, subscribe or follow for future episodes wherever you listen to your podcasts. Also, we encourage you to submit your suggestions for future insights online at lek.com.