Epoch 25: BIOPHARMA HISTORY & BEYOND (Part 2 of 3)

The Polyindication Era (2022-2035)

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Hello Avatar! Welcome back for another week of biotech analysis. Today we will continue our much anticipated 3 part series on the history of the biopharma industry and where the path forward leads.  The saying goes, “you can’t know where you are headed unless you know where you came from.”  Last week we brought you up to speed on the early history of the industry as it matured into the “Blockbuster Era” of the 1990s into the early 2000s.  We then moved to the “Specialization Era” of the mid-2000s which we are just transitioning out of.  Today we will go into detail on the next phase of the industry which is just kicking off - the “Polyindicaton Era.”  A time in which growth will be delivered via mega-blockbuster franchises for common disease which can be characterized as rapid franchise builds.  Next week the discussion moves toward the future state of biopharma - a world where classical big pharma R&D infrastructure integrates with digital technologies to usher in a new paradigm of modern medicine - the “Algorithm Era”.

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Enough shilling for the day, lots to cover this week, let's get started!

THE POLYINDICATION ERA 

This week we are back with Part 2 of our focus on industry strategy.  For the purpose of the discussion we will continue to follow the framework introduced by Torreya (now Stifel) characterizing the different eras of the pharma industry - both past and future.  Apologies, links to the full length report are now disabled.

The main purpose of us going into detail on industry history is so that we can eventually shift the discussion to focus on forward looking topics in order to prepare ourselves to be competitive in the future.  As a reminder we will run through the analysis as follows:

Epoch 24: (1980’s-2021) both the “Big Pharma Era” and “Specialization Era”

Epoch 25: (2022-2035): the “Poly-Indication Era”

Epoch 26: (2036-2050): the “Algorithm Era”

Now that you are up to speed on the “Big Pharma” and “Specialization Eras” we will shift to the current and near future - accurately titled the “Polyindication Era.”  As operators in the biotech space our job is to build what pharma will buy.  Readers should pay close attention here because what we are about to describe is the product profile pharma desires today and in the near term.

The COVID pandemic seemed to open many management teams eyes to the super sized revenue potential of the pandemic product (e.g., COVID products).  As we touched on in last week’s write up, for big pharma, the top line has gotten so large that they NEED blockbusters to move the needle on delivering EPS growth.  In the previous era a blockbuster was defined as having $1B+ in peak year revenue.  If there is a target product profile (TPP) that can deliver substantially higher revenues (such as a pandemic product) that is what they want more of!

Shortly after the arrival of the COVID products, Lilly and AbbVie began to share data around product profiles in Obesity and Alzheimers. These are MASSIVE market opportunities and have quickly fallen back into favor with pharma executive teams despite the higher costs of development and lengthier timelines.  As a result we have seen quite a bit of refocusing in the pharma space as smaller indications are deprioritized and R&D resources are being shifted to focus on larger product profiles.

Also it is important to note, that the impacts of the Innovation Reduction Act are going to result in about 40-50% less time for pharma to capture unencumbered profit as successful drugs quickly move into price controls.  As a result, companies will look to run multiple indication studies in parallel (as AbbVie has done with Rinvoq and Skyrizi).  Don’t be surprised to be seeing basket studies happening more often outside of oncology as building franchises will now be required to happen upfront rather than in sequential order as has been the standard development path of the past.

If you missed last Thursday’s MARKET UPDATE we went into detail on the latest modeling around IRA impacts.  Those interested can access the FREE analysis here: Epoch 24: Regulatory & Macro Concerns Persist