FDA Drug Approvals in 2012 Highest in 16 Years
The U.S. Food and Drug Administration approved eight new drugs in December pushing the year's total to 39, its highest level since 1996 when the agency cleared a backlog of applications.
Though December's newly approved drugs cover a broad range of conditions, the agency had granted orphan drug status to six of the eight medicines. Orphan drug status confers financial and other benefits to a drug's sponsor to encourage the development of drugs to treat patient populations of 200,000 or less in the United States. In fact, nearly half of the 39 drugs approved in 2012 had orphan drug designations.
"We've seen drugmakers embrace orphan drugs for a variety of reasons including the opportunity to win faster approvals and run smaller, less costly clinical trials, and better chances of success," says G. Steven Burrill, CEO of Burrill & Company, a global financial services firm focused on the life sciences. "The passage in 2012 of new incentives for developing rare disease drugs will only further fuel this trend, particularly as more precision therapies are developed to target subpopulations of patients with a given disease."
Trading activity of biotech stocks echoed the positive year for new drug approvals as life sciences stocks soared in 2012. The Burrill Select Index ended the year up 40.5 percent. That compares to a 7.3 percent increase in the Dow Jones Industrial Average, a 13.4 percent gain for the S&P 500, and a 15.9 percent rise in the Nasdaq Composite Index. An improving economy, clinical advances, new product approvals, and M&A activity drove the gains. Sarepta Therapeutics posted the biggest gain in 2012 with its shares rising 477 percent. The company in 2012 reported that its mid-stage experimental muscular dystrophy drug demonstrably improved the ability to walk for boys taking the drug.
Congress also helped biotech stocks stay on track in 2012 with smooth passage of legislation to renew the Prescription Drug User Fee Act, which provides for the U.S. Food and Drug Administration authority to collect fees from industry for reviewing products in exchange for assurances that it will act on applications in a timely manner. The legislation, approved as part of the Food and Drug Administration Safety and Innovation Act, also provided for accelerated approval paths and other incentives for drugmakers developing new therapies to treat rare disease and could help the development of personalized medicines that target small subpopulations of patients.
With a U.S. Supreme Court decision that left most of President Barack Obama's landmark healthcare reform legislation intact, and Obama's reelection, the fight over healthcare reform is shifting from efforts to repeal the legislation to fights over its implementation.
The past year also saw the passage of the Jumpstart Our Business Startups or JOBS Act, which seeks to make it easier for emerging growth companies to access capital through the public markets. The act provides exemption from compliance with costly regulations for smaller companies. It also allows companies to test investor interest before having to make sensitive information public in securities regulatory filings.
U.S. life sciences companies raised a record amount of capital in 2012 with a total of $71.1 billion in public and private financings, up from $57.4 billion in 2011, a 23.9 percent increase. When the potential value of partnering transactions are included in the numbers, the total for 2012 grows to $91.7 billion, a 13.9 percent increase over the $80.4 billion raised through financings and partnering transactions in 2011.
Global life sciences venture financings totaled more than $12.4 billion in 2012, an increase of nearly 23 percent over 2011. Venture investors, however, are moving away from early-stage financings. Companies are relying more on alternative sources of financing, including accelerators, angel capital, corporate venture sources, and private equity investment. In fact, of the top 10 private financings in 2012, all but one had significant backing from private equity firms or strategic investors.
When venture investors do fund early-stage companies, increasingly they are providing large rounds to carry a company to proof-of-concept when investments can be exited or new financing at higher valuations can be raised. While privately held therapeutics developers grabbed the largest portion of funding with a total of $5.1 billion in 2012, digital health and life sciences information technology deals showed the biggest jump in activity, with a 58.5 percent increase to $748 million.
A total of 16 life sciences companies completed initial public offerings in the United States through December 31, the same as last year. Shares of U.S. life sciences IPOs returned an average of 15.3 percent from their initial offering price through the end of 2012. Of the 16 issues, 12 came in below their target range. Overall, these companies sold their shares at an average of 23.2 percent below the median of their target price. The 12 therapeutics companies that debuted in public markets in 2012 outperformed life sciences IPOs as a whole. Those issues rose 25.9 percent for the year.
Companies in 2012 announced a total of $109.2 billion in M&A transactions, down 31.2 percent from the activity a year ago. Big Pharma and Big Biotech continue to be the most active acquirers. While generic drugs and consumer health were big areas of activity, the top deals involving innovative biopharmaceuticals in 2012 included Bristol-Myers Squibb's $7 billion acquisition of Amylin Pharmaceuticals, GlaxoSmithKline's $3 billion purchase of Human Genome Sciences, and Dainippon Sumitomo Pharma's $2.6 acquisition of Boston Biomedical, which is developing drugs to target cancer stem cells.
Global partnering deals were valued at $37.6 billion in 2012, a 1.3 percent decline over the same period a year ago. Discovery deals led the way with a total of 70 transactions, followed by preclinical (45), phase 2 (43), already marketed (40), phase 1 (28), and phase 3 (25) transactions. Most deals are back-end loaded with significant milestones tied to the achievement of sales targets for drugs that are approved and marketed. Besides AstraZeneca's $3.4 billion buy-in to collaborate with Bristol-Myers' newly acquired Amylin diabetes franchise, Allergan's agreement with Swiss biotech Molecular Partners to develop and commercialize a class of biologics aimed at treating serious eye diseases was the largest deal of the year with $62.5 million in upfront payments and a potential total value of $1.4 billion.
The U.S. Food and Drug Administration's approval of 39 new drugs and biologics represented a 14.7 percent increase from the 34 approved in 2011. These approvals included Vertex Pharmaceuticals' Kalydeco, a targeted therapy for cystic fibrosis patients who have a specific gene mutation that drives their disease. Pfizer won approval for Xeljanz, the first oral disease-modifying drug for rheumatoid arthritis in more than a decade. The year also saw the European Medicines Agency issue the first approval in the western world for a gene therapy, UniQure's Glybera, a treatment for a rare, inherited disease where patients are unable to handle fat particles in their blood plasma.
There were also some notable innovations in 2012 in the way approved drugs were made. Pfizer, along with its partner Protalix Biotherapeutics, won approval for the Gaucher disease drug Elelyso, the first drug to be manufactured using genetically engineered plant cells. Novartis, notably won approval for Flucelvax, the first seasonal influenza vaccine licensed in the United States produced using cultured animal cells instead of fertilized chicken eggs.
Despite ongoing financial concerns in Europe and the United States, as well as tensions in the Middle East, the life sciences are poised for positive results in 2013. The arrival of the $1,000 genome is rapidly advancing the clinical applications of whole genome sequencing and the promise of personalized medicine to improve care and cut costs is starting to be realized.
Emerging digital health technologies are pushing this trend further. As the demand to transition healthcare to a value-based system continues, the importance of digital health technologies will reverberate through virtually every aspect of healthcare. In 2013, these technologies will grow in importance as they empower patients to take greater control over their own health and wellness, provide real-time monitoring to improve efforts to prevent disease and improve outcomes, and help payers and providers harness vast amounts of new data, transforming it into actionable information that improves care and reduces costs.
For the life sciences in 2013, Burrill expects the following:
Capital Market: While the world economy continues to improve, turmoil in the Middle East, economic instability in Europe, and political dysfunction in the United States threaten to disrupt a tenuous recovery.
Fundraising: Expect to see the financing environment improve once the fight in the United States over budget cuts and taxes is resolved. In 2013, expect the industry to raise $100 billion in capital, with financings heavily weighted to the large companies and to the use of debt.
Private Financings: Traditional venture investors will become less relevant to start-ups as they continue to migrate not only toward later-stage deals, but public company investments as well. Angel, corporate venture, disease advocacy groups, and philanthropic organizations will fill the growing gap. In order to get funding, companies will need to convince investors they have a clear path to market, ability to get paid for their products, a way to demonstrate value to customers or payers, and an exit opportunity for their investors. Larger financing rounds that get a company to proof-of-concept will become the norm, not the step financings of the past. With growing wealth in emerging markets, investors in these parts of the world will become more prominent and new cultures of entrepreneurship will give rise to a growing number of life sciences startups outside the United States. Expect private financings to grow 20 percent in 2013. IPOs: Bolstered with increased public market activity, the JOBS Act, and more realistic outlooks about the pricing of their offerings, the number of life sciences IPOs will grow to 25 in 2013. Mergers & Acquisitions: Expect this number to increase by at least 20 percent with a pick-up in acquisitions of mid-cap life sciences companies and at least one Big Pharma or major biotech merger in 2013. Deals targeting drug companies that reach into Latin America, the Middle East, and Southeast Asia, will also drive activity.
Partnering: Pharmaceutical companies in 2012 focused much of their partnering efforts on discovery collaborations as they worked to externalize their research operations. This trend will continue as drugmakers seek to reduce their costs and broaden their sources of innovative ideas. Competition to license experimental drugs will increase; however, pharmaceutical companies will insist on sharing risk with their partners and provide small upfront payments with rewards coming only if milestones are met.
Global Dealmaking: As developing countries look to grow their economies and provide for their growing populations and rising middle classes, companies will have more opportunities to take advantage of local needs to obtain capital and market access on more attractive terms. Latin America will be hot, as life sciences companies look beyond just Brazil to other countries in the region. China will continue to be a desired place for dealmaking. India will be seen as a big opportunity for bioinformatics as the country's information technology strengths and lower cost services are embraced by the life sciences. Even Russia will become a bigger player with more acquisitions than sales of companies.
Clinical trials: In an effort to reduce development costs, drugmakers will increase their use of adaptive trial designs that allow them to modify studies in ways that make use of data as it is collected, but don't compromise the validity of the study.
Reimbursement: Payers will increasingly reimburse whole genome sequencing selectively on an individual patient basis as the falling cost of sequencing drives doctors' interest in making use of the tool for diagnostic purposes. Comparative effectiveness will become a reality for drugmakers in 2013 as they prepare to meet the growing demand of payers to demonstrate value and justify pricing of their new products. Investors will shift emphasis from a focus on whether a drug will be approved, to whether payers will see value in a product and if companies will be able to capture value.
Regulatory: We expect a total of 35 new drugs to be approved in 2013 as drugmakers take advantage of mechanisms to accelerate approval. FDA will enter into public-private partnerships to reach earlier into the product development pipeline of both drug and device makers to work with industry to improve the tools they use to evaluate biomedical innovation. Cooperation between regulators around the world will increase to improve post approval monitoring of regulated products. '
National Institutes of Health: Regardless of what happens with sequestration, expect NIH funding to decrease in real dollars. It will force researchers that relied on grants to find alternative sources of funding and lead to new initiatives to fund academic research.
Diagnostics: As there will be increasing pressure on drugmakers and payers to define the subpopulation of patients that respond to therapies, there will be a shift in value towards diagnostics from drugs.
Sequencing: Focus in 2013 will shift from the $1,000 genome to the $100 genome. It's real. It's happening. It's the diagnostic of tomorrow.
Healthcare: A new cost-consciousness will permeate patients and providers as new value-based approaches to healthcare take hold. Patients will look past the traditional delivery of healthcare and rely on new digital tools to comparison shop for services. Providers will place a greater emphasis on cost control within their facilities as they move toward billing for outcomes rather than services.
Digital Health: Digital health technologies will grow ubiquitous as doctors and patients grow comfortable with using their everyday digital devices to manage health. As comfort levels grow, increasing sophistication will be layered on to monitor patients and share information with doctors. The convergence of wireless technologies, social medial, and low-cost monitoring devices and sensors will provide consumers with new ways to take control of their own health and wellness.
Agricultural: In 2013, there will be expanded use of biopesticides to combat insects and microoganisms that damage crops. Plant breeders will harness emerging technologies, such as RNAi, to produce a new generation of products that allow for greater crop yields without the stigma of producing foods that are considered genetically modified.
GMOs: Despite the defeat of California's Proposition 37, anti-GMO sentiment will continue to be a problem for the industry, particularly in Europe and increasingly in Asia.
Biorenewables: The biorenewables industry will begin to see the first commercial projects come on line but until the industry starts to generate real revenues, raising capital will remain difficult and partnering will remain a critical lifeline for its growth.
Industrial Biotechnology: Advances in synthetic biology will begin to transform manufacturing of everything from fragrances to fabrics as engineered organisms produce materials traditionally derived from plants and petroleum.
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