We talked to Jeff Stoll, KPMG’s US life sciences strategy leader, to get his take on why C-suite representatives of pharma players [with over US$500m a year in revenue] are expressing such optimism about the industry’s prospects over the next three years.
Has the pandemic had much of an influence then on their outlook?
“Actually COVID-19 is only a small aspect of all this. Certainly, it has benefitted companies like Moderna and BioNTech big time. They have grown in leaps and bounds; if the pandemic had not occurred, they would still be relatively small biotech companies. Moderna was mid-sized in terms of capitalization but had no commercial revenue pre-COVID-19. The pandemic transformed those companies into much larger players in the biotech space, and it really accelerated the mRNA platform, turning it into a commercially viable platform, which is wasn’t, pre-COVID-19,” said the analyst.
However, in terms of pharma CEO confidence topping pre-pandemic levels, and the strong M&A appetite in the broader industry, he said there are multiple factors behind those developments:
“Firstly, we are in a significant innovation era in the pharmaceutical industry. If you look across to R&D work in genomics, in proteomics and in drug targeting, and look also to what is happening around cytokines, in cell and gene therapies, and in nucleic-acid technology developments, there is a growing maturity, and the understanding of how to use those technologies and develop drugs rapidly is [at a level] never seen before.
“Indeed, the global pharmaceutical pipeline right now is larger than it has ever been in the history of the industry. In fact, if you look at those more complex or newer generation technologies, all those nucleic-acid therapies, the size of that pipeline is bigger than the mAb biologics one, and it is growing at a faster rate.”
KPMG Pharma Survey Findings
KPMG polled executives around the world in 11 separate industries. The number of pharmaceutical/biotech sector participants in the survey, conducted during July and August 2021, topped 90.
Some of the key findings from the survey of pharma CEOs include:
As much as 96% of the executives are confident in their company’s prospects for the next three years, compared to 75% in 2020 and 95% in 2019. Some 88% are confident in their industry’s prospects for the next three years as opposed to 70% in 2020 and 83% in 2019.
In terms of top risks for pharma companies in 2021, the respondents identified the following:
- Supply chain risk (17%)
- Environmental/climate change risk (16%)
- Operational risk (15%)
Only 4% said it is unlikely that they will make any acquisitions compared to 16% in 2020 and 20% in 2019.
When it comes to priorities tied to corporate purpose, 42% said they will focus on rewarding and incentivizing people and 15% will make a priority on communicating performance to investors and stakeholders. Institutional investors were seen as the biggest drivers for greater ESG reporting among a majority of pharma CEOs.
Regarding cyber security preparedness, of those polled, 57% claim to be well prepared, up from 38% the prior year. Those claiming to be “very well prepared” was flat at 11%, but down from 29% in 2019.
Capital flow
Along with the explosion in innovation, the available capital to finance early stage research, all the way through to later stage research, is greater than ever, said Stoll.
As capital is relatively cheap, he continued, there has been a huge flow of funding, along with enabling services, into the pharma industry.
The convergence of both cash and innovation, then, is creating this thrilling environment.
"And when the bigger pharmaceutical and biotech companies are evaluating where the growth is likely to come from in the next five to 10 years, and what are the types of technologies they need to have to maintain a competitive advantage, whether that is in oncology or in rare diseases, it really is centering on the nucleic-acid based therapies.
“Everyone is rushing in and trying to find ways of getting access to these kinds of technologies and realizing they are going to have to transform their R&D and manufacturing capabilities if they are going to develop such therapeutics.”
Along with that, other categories of innovation are proving attractive. Antibody-drug conjugates (ADCs) are now commercially viable and the market is really dynamic, after around 15 to 20 years of development, he said. “We are seeing something similar in the cytokine-based therapy space,” added Stoll.
“The large companies see they have to make acquisitions or creative deal structures that give them access to early stage assets.”
As long as there is reasonable pricing power in the US, the rate of M&A activity is not going to slow down, continued the analyst.
“The US is, in many ways, enabling the innovation around a lot of this technology, and so, as long as that is still in play, you are going to see the pharma industry thriving and being able to create these deals.”
‘It’s an arms race’
Executives believe they need to keep acquiring new capabilities in order to still be relevant ten years down the line. “In oncology, it is a massive arms race, essentially. Everybody is trying to build up their portfolios in that space because it is so competitive.”
All such developments, of course, will continue to support the growth of the CDMO space.
“The number of deals and investment we have seen in the contract development and manufacturing sector has been huge and I don’t see that slowing down. We know there is a massive capacity issue around viral vectors, plasmid manufacturing and in some of the other raw materials needed for cell and gene therapies, and organizations are stepping up to try and find ways to meet that demand.”
Headwinds
What about recent gene therapy woes, have some recent clinical holds in that segment dented confidence in advanced therapies?
“Gene therapy is just one sliver of the category. There has been a little bit of an emerging headwind, in that there have been some safety signals. Perhaps AAV based therapies are not going to be as successful as we once thought or limited to certain populations. But that does not mean we won’t find ways of engineering around [such challenges], there are non-viral approaches emerging along with a wide range of technologies coming down the road that are designed to get around AAV limitations.”
The threat of new legislation around drug pricing is always hovering over the US industry, he said.
A KPMG report from April, Biopharmaceuticals Deal Trends, noted how industry is moving away from medicine for large populations in favor of smaller-population, specialty areas like cancer and other rare diseases, and that for pharmaceutical companies to pursue the development of lifesaving, small-population therapies, they have to price drugs at high prices given the massive investment required in innovative R&D, new manufacturing capacity and supply-chain requirements.
"Policy makers will need to balance the goal of checking drug price rises for consumers with their interest in encouraging the pharmaceutical industry to keep developing innovative drugs."
Process control
And what is demand like currently for tools that provide enhanced process control, and how much of a growth driver is such technology?
“There is a ton of appetite for improved efficiency, for targeting more effectively, for having better quality controls with better analytics. Such [process improvements] are certainly a big part of the growth that is happening in the industry right now. Analytics is another huge investment area that we see private equity and other players investing in. Pharma is investing in it.
“The challenge, though, is that a lot of [bioprocess control technology] is still at a very nascent stage. There is a lot of noise around AI and machine learning and the analytics around those. There are so many different, niche players out there claiming they have something special and unique in terms of a capability and the pharma industry is filtering through it right now, just trying to figure out what technology is [robust] and what is not.”