Thanks in part to billions of dollars in investment from its capital markets, the U.S. leads the world in the rapid growth of biotechnology and the revolution it has created in new medical treatments, participants in SIFMA’s recent Biotech roundtable agreed.
“It takes a fortune to bring a new drug to market,” said Rep. Leonard Lance (R-NJ). “It’s a much more sophisticated, and complicated, situation than a 10-second soundbite can do justice to.” Michael Yee, senior biotech analyst at RBC Capital Markets, added: “We need people to recognize that not only do investments sometimes take a long time to pay off for investors, but their benefits sometimes take decades to show themselves,” as the time from initial development through testing and trials to market can take a decade or more.
One of several SIFMA roundtables this year on capital markets and current issues, the biotech-focused event examined a number of industry trends and developments and explored ways that the financial services industry helps provide funding to companies and scientists on the cutting edge of biotechnology medical research. A 2016 study found the U.S. biopharmaceutical industry, which develops dozens of new treatments every year, employs 850,000 people in the U.S., who earn twice the average private sector compensation.
Rep. Scott Peters (D-CA) outlined several factors constraining the industry from further growth, from a shortfall of U.S. graduates with degrees in science, technology, engineering and math (known as the STEM fields) and the ever-growing overall cost of higher education to restrictions on visas for highly-skilled immigrants and outdated intellectual property protections at the U.S. Patent & Trademark Office. “We need … a patent system that incentivizes people to continue to take risks and reap the rewards,” Peters said – complemented by a renewed national focus on the kind of basic research that is difficult for the private sector to afford but pays big dividends to society over time.
Peters also called for repeal of the Obama administration’s medical device tax, noting that it exacerbates the current burden of slow FDA approval and shrinking Medicare and Medicaid reimbursement rates to the point that “patients in Europe are getting these products 3-5 years before our own patients are.”
Brian Abrahams, a medical doctor and biotech equity analyst at Jefferies, said that venture capital and public equity financing are common forms of funding for smaller biotech research companies, which are often nimbler than their larger competitors. America’s capital markets have played a critical role in the rapid recent growth of such firms, he said, from an average size of 42 employees and research budget of $16 million in 2013 to more than 100 employees and $57 million in R&D last year.
This funding has helped create a “wave of innovation in drug development,” Abrahams said, “and many of these agents are having a profound effect on how major diseases are being treated and approached.” Hepatitis C, for example, which afflicts more than 3 million Americans, could until recently only be treated with a difficult, year-long regimen that had a relatively low success rate. Today, Abrahams said, drugs “are completely eliminating the virus in 95 percent of people with a daily pill they only have to take for two to three months.”
Capital market funding has also allowed companies to increase their focus on developing treatments for “orphan,” or relatively rare diseases, such as cystic fibrosis, Abrahams said, and have helped launch an entirely new field of “personalized medicine” – drugs that are “geared specifically for patients with certain biomarkers, gene mutations or other very specific characteristics.”
Without such funding, and the ability to recoup their investment in sales, companies are less likely to be able to invest the billions of dollars required to develop new miracle cures. “Biotech is different from regular pharma companies,” said Yee. “It focuses on the newest technologies and breakthroughs, often for some of the most difficult diseases and most unmet needs where there are no good approved therapies. This extraordinary innovation takes a lot of capital, and young companies don’t have that kind of money on their own.”
Congressional participants urged the U.S. Senate to join the House in approving the 21st Century Cures Act, which Rep. Lance called “the most fundamental legislation we have passed in some time.” The bill includes provisions to: remove barriers to research collaboration; incorporate the patient perspective into the drug development and regulatory review process; promote personalized medicine; and modernize clinical trials and other regulatory systems.
Provided with adequate funding, American biotech companies have plenty of room to grow, Yee said, noting an estimated 5,000 new drugs now in clinical trial pipelines and “waiting for money.” They include a revolutionary new approach to treating cancer known as immuno-oncology, Abrahams added, as well as promising treatments for Alzheimer’s that have the potential to significantly reduce its enormous economic and social costs.