As 2017 comes to a close, what are key trends and emerging areas of interest for the pharmaceutical industry overall and in manufacturing?

From the new health economy, to drug pricing, to new product developments, and manufacturing service models, DCAT Value Chain Insights takes a look at the top 10 trends emerging from 2017.

Top 10 trends emerging from 2017

1. The new health economy. An overarching theme for 2017 and for 2018 is the move to what PwC termed in a recent analysis of the “new health economy,” which describes a wave of challenges pharmaceuticals and life sciences companies are facing. These include consolidation among providers, especially hospitals, to produce efficiency gains; a more patient-centric focus whereby patients seek a greater role in their own care; increasing cost pressures from payors leading a move to pricing reform; and the declining role of the individual physician as rule-based, protocol-driven care rise. “The resulting healthcare system will focus increasingly on paying for the value rather than the volume of medical care; in other words, it will be a more consumer-facing industry,” according to the PwC analysis.

2. Transparency initiatives in drug pricing. The issue of drug pricing is always in the news, but it has taken on increased focus with several policy moves, chief among them legislative activity for drug-pricing transparency. A recent PwC analysis says that following the trend that has accelerated in recent years, states in 2018 will continue to address rising healthcare costs through pricing and transparency initiatives. A case in point occurred in October 2017 when California Governor Edmund G. Brown Jr. signed legislation, Senate Bill (SB) 17, Healthcare: Prescription Drug Costs, to increase transparency in prescription drug pricing by requiring pharmaceutical companies to give notice before raising prices. SB 17 requires drug manufacturers to provide a 60-day notice if prices are raised more than 16% in a two-year period. The bill applies to drugs that have a wholesale price of more than $40 for a 30-day supply. SB 17 also requires health plans and insurers to file annual reports outlining how drug costs impact health care premiums in California. On the federal level, as part of the healthcare reform policy debates in 2017, the issue of drug pricing also emerged for policy consideration with legislative proposals calling for the federal government to negotiate lower prescription drug prices for Medicare and requiring drug manufacturers to publically release data and information justifying any significant price increase.

3. Corporate tax reform in the US. Another policy issue with potential implications in the pharmaceutical industry is corporate tax reform. Legislation, passed in the US Senate and US House of Representatives, calls for a reduction of the corporate tax rate from 35% to 20%. A reconciliation bill to marry the Senate and House tax bills is underway with a new proposal for a 21% rate. At issue for the pharmaceutical industry is if a new corporate tax rate is established in the US how that may affect manufacturing investment and mergers and acquisitions (M&A) activity.

Historically, pharmaceutical manufacturing hubs in Ireland, Singapore, and Puerto Rico were established in part due to the tax-advantaged position of these areas. Whether a change in the corporate tax rate would encourage pharmaceutical manufacturing investment in the US is one issue to consider.

In terms of M&A, the pharmaceutical industry has seen several recent high-profile deals that were in part sought for financial reasons to achieve an improved tax position through corporate inversion. A corporate inversion occurs when a US-based multinational corporation restructures itself so that the US parent is replaced by a foreign parent and the original US company becomes a subsidiary of the foreign parent. Increased use of corporate inversions led to a reform of US Treasury rules for this practice during the Obama administration and the termination of several large deals in pharmaceutical M&A in which the companies cited uncertainty over future policy changes regarding corporate inversion as one factor in ending the deals. Pfizer terminated two large deals: a proposed $160-billion merger with Allergan (headquartered in Dublin, Ireland) in 2016 and a $119-billion proposal to acquire AstraZeneca (headquartered in Cambridge, UK) in 2014. AbbVie also ended a proposed $55-billion acquisition of Shire (headquartered in 2014).

4. Manufacturing, supply, and climate issue.The hurricanes in the US, including Puerto Rico, underscored the role of climate and weather-related issues impacting manufacturing operations and supply chains. A recent PwC analysis places natural disasters as one of the key issues of note to watch for in 2018 for the healthcare industry, including manufacturing.

5. Technologies and products to address the opioid crisis. US Food and Drug Administration (FDA) Commissioner Scott Gottlieb, who became head of the FDA in May 2017, has said that one of his highest priorities is to work on multiple fronts to reduce the scope of the opioid epidemic in the US. He said that the FDA has an important role to play in curbing new addiction, reframing the evaluation of the benefits and risks of opioids as part of the agency’s pre- and post-market efforts, and providing direction to prevent the serious adverse effects associated with these medications.

Within the pharmaceutical industry, this has led to further development and application of abuse-deterrent technologies and non-opioid pain treatments. To date, the FDA has approved 10 opioid drugs with abuse-deterrent technologies, and the FDA is seeking to facilitate the development of generic drugs with these properties. In November 2017, the FDA issued final guidance to assist the industry in its development of generic versions of approved abuse-deterrent formulated opioids.

Companies are also developing non-opioid drugs in pain management. As an example, in June 2017, Pfizer and Eli Lilly and Company received FDA fast-track designation for the companies’ drug candidate, tanezumab, a non-opioid treatment of chronic pain in patients with osteoarthritis and chronic low back pain. Tanezumab is an investigational humanized monoclonal antibody that selectively targets, binds to and inhibits nerve growth factor (NGF). NGF levels increase in the body as a result of injury, inflammation or in chronic pain states. By inhibiting NGF, tanezumab may help to keep pain signals produced by muscles, skin, and organs from reaching the spinal cord and brain. Tanezumab has a mechanism that acts in a different manner than opioids and other analgesics, including nonsteroidal anti-inflammatory drugs. In 2013, Pfizer and Lilly entered into a worldwide co-development and co-commercialization agreement for the advancement of tanezumab.

6. Cell therapies enter the market. The year 2017 saw the approval of the first two chimeric antigen receptor T-cell (CAR-T) therapies approved by the US FDA. In August 2017, the FDA approved Novartis’ Kymriah (tisagenlecleucel) as the first CAR-T therapy available in the US. The approval was for certain pediatric and young adult patients with a form of acute lymphoblastic leukemia. In October 2017, the FDA approved Kite Pharma’s Yescarta (axicabtagene ciloleucel), a CAR-T therapy to treat adults with certain types of large B-cell lymphoma. Gilead Sciences is making a large play in the emerging field of cell therapies with its $11.9-billion acquisition of Kite Pharma, a deal that was announced in August 2017 and completed in October 2017. It later added to its position in cell therapies with a proposed acquisition of Cell Design Labs, a company with expertise in custom cell engineering, in a $575-million deal that was announced in December 2017 and is expected to close shortly.

Pfizer has said it aims to build an industry-leading gene therapy platform with a strategy focused on establishing a portfolio through in-house capabilities and enhancing those capabilities through strategic collaborations as well as potential licensing and merger and acquisition (M&A) activities. In 2017, Pfizer, along with the French pharmaceutical company, Servier, and Cellectis, a French biopharmaceutical company, received FDA clearance to proceed in the US with the clinical development of UCART19, an allogeneic, gene-edited cellular therapy candidate to treat relapsed/refractory acute lymphoblastic leukemia. In 2015, Servier acquired exclusive rights from Cellectis for UCART19, which is being co-developed by Servier and Pfizer. UCART19 has the potential to overcome limitations of the current autologous approach (i.e., autologous CAR-T cells engineered using a patient’s own T cells) by providing an allogeneic (i.e., allogeneic CAR-T cells engineered using T cells from a single donor that are utilized in multiple patients) frozen, “off-the-shelf” T cell based product.

In 2017, Pfizer formed an exclusive, global collaboration and license agreement, worth up to $545 million, with Richmond, California-based Sangamo Therapeutics, for the development and commercialization of gene-therapy programs for hemophilia A, including SB-525, one of Sangamo’s four lead product candidates. In 2016, Pfizer acquired Bamboo Therapeutics, a privately held biotechnology company based in Chapel Hill, North Carolina, focused on developing gene therapies, and subsequently announced in 2017 a $100-million expansion of a Phase I/II gene-therapy manufacturing facility that Bamboo had earlier acquired from the University of North Carolina. Also in 2016, Pfizer and its collaboration partner, Spark Therapeutics, a Philadelphia, Pennsylvania-based gene therapy company, received FDA breakthrough therapy designation for SPK-9001, the companies’ lead investigational candidate for treating hemophilia B. The compound is a bio-engineered AAV capsid that is in an ongoing Phase I/II trial.

7. Digital medicines. The year 2017 saw FDA’s approval of the first digital medicine, Otsuka Pharmaceuticals’ and Proteus Digital Health’s Abilify MyCite (aripiprazole tablets with sensor), the first drug in the US with a digital ingestion tracking system. It has an ingestible sensor embedded in the pill that records that the medication was taken. The product is approved for the treatment of schizophrenia, acute treatment of manic and mixed episodes associated with bipolar 1 disorder and for use as an add-on treatment for depression in adults. The system works by sending a message from the pill’s sensor to a wearable patch. The patch transmits the information to a mobile application so that patients can track the ingestion of the medication on their smart phone. Patients can also permit their caregivers and physician to access the information through a web-based portal. Abilify as a traditional tablet was first approved by the FDA in 2002 to treat schizophrenia. The ingestible sensor used in Abilify MyCite was first permitted for marketing by the FDA in 2012. And now in 2017, the combination of the ingestible sensor in the pill was approved by the FDA. Although a very niche product, it offers the potential for further development of digital pills.

8. Moves in the end-to-end service model. The end-to-end service model, by which contract service providers provide development and manufacturing services for active pharmaceutical ingredient (API) and drug-product manufacturing, took further steps in 2017 with several deals. Chief among them was Lonza’s $5.5-billion acquisition of Capsugel. Lonza’s pharmaceutical and biotechnology segment, which includes its contract API (small molecules and biologics) services as well as its biosciences business, posted 2016 sales of CHF 1.849 billion ($1.864) and with the acquisition of Capsugel, Lonza positions itself in the drug-product services sector by gaining oral dosage delivery technologies, including a position in hard-capsule technologies. The acquisition followed Lonza’s opening in November 2016 of a new 1,300-square-meter facility in Basel, Switzerland with drug-product services laboratories with an initial focus on formulation development, drug product analytical development, and quality control for parenteral dosage forms.

Catalent made another large move to build its position in contract biologics manufacturing with its $950-million acquisition of Cook Pharmica, a contract development and manufacturing organization of biologic-based drug substances and parenteral drug products. For the fiscal year ending June 30, 2017, Catalent posted revenues of $2.075 billion with $855.3 million in softgel technologies, $910.1 million from drug-delivery solutions, and $348.8 million from clinical supply services The acquisition of Cook Pharmica provides Catalent capabilities in biologics development, clinical and commercial cell-culture manufacturing, formulation, finished-dose manufacturing, and packaging. The acquisition complements Catalent’s existing capabilities in cell-line engineering, bioconjugate development, analytical services, biomanufacturing, prefilled syringe, and blow/fill/seal technologies. Catalent operates a biologics manufacturing facility in Madison, Wisconsin and has proprietary cell-line technology, GPEx. Its operations also include fill/finish services in Brussels, Belgium and Limoges, France; conjugation technology in Emeryville, California; and a network of biologics analytical locations.

Over the past several years, other companies have built on an end-to-end- service model, notably Patheon, which was acquired by Thermo Fisher Scientific for $7.2 billion, and which added API capabilities (both small molecules and biologics). The key deal for Patheon dates back to 2014 with the formation of DPx Holdings B.V., privately owned by the private-equity firm JLL Partners (51%) and Royal DSM (49%), which was the result of a $2.65-billion deal between Patheon and DSM completed in March 2014. Since 2012, in addition to DSM Pharmaceutical Products, Patheon has been active on the acquisition front with key acquisitions to build both its API capabilities and formulation development and drug product manufacturing capabilities: Banner Pharmacaps, Gallus BioPharmaceuticals, Agere Pharmaceuticals, IRIX Pharmaceuticals, and a former Roche API manufacturing facility in Florence, South Carolina.

Alcami, a contract development and manufacturing organization (CDM) of both APIs and drug products, is the result of the 2013 merger of AAIPharma Services, a CDMO of drug products and Cambridge Major Laboratories, a contract provider of small-molecule APIs and intermediates. Other companies also have the end-to-end model in play, such as Almac, AMRI, and CordenPharma, to name a few. So going forward, the key question is will more companies adopt the end-to-end model or will the traditional boundaries in API and drug-product contract services prevail?

9. Blockchain and the pharma supply chain. Blockchain is still an emerging technology, but it is gaining increased interest for potential use in the pharmaceutical supply chain. With first use in the banking and financial services industries, blockchain technologies leverage advances in software, communications, and encryption to enable organizations to move from maintaining a separate, fragmented database structure to a shared, distributed database that spans organizations. With the technology, transactions reside in a tamper-evident data structure that provides the necessary levels of data security and access for each user. In June 2017, the Institute of Electric and Electronic Engineers (IEEE) held the first of a series of education programs on the use of blockchain in the pharmaceutical industry with the first program focused on the pharmaceutical supply chain. The IEEE Standards Association is sponsoring a research study on the unresolved issues, expectations, and commitment toward adoption of blockchain for the pharmaceutical supply chain.

10. Real-world data in drug development. Cited by a PwC analysis as a key issue for 2018 is the challenges presented to pharmaceutical and life-science companies of their ability to collect and use real-world data, which is patient health and outcomes data gathered outside of randomized controlled trials. The PwC analysis points out that he FDA routinely accepts real-world data for postmarket commitments such as safety monitoring but had not used for new drug approvals or label revisions.The 21st Century Cures Act of 2016, which requires the FDA to consider additional uses of evidence drawn from real-world data for drugs and devices, changed that, and a framework for applying the law to drug companies is expected by the end of 2018, with guidance to follow in 2021. These include replacing clinical trials with “real-world evidence” to support new indications. The PwC analysis says that industry may see new opportunities to use such data for faster, less costly FDA approvals and freer communication with payer formularies.