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Expert: Biopharma companies accelerates with AI, competition

Katie Tabeling
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Olivier Leclerc, a senior partner of McKinsey & Company who works with pharmaceutical, biotech, and medical products clients, discusses the market complexities of the biopharma sector. | DBT PHOTO BY KATIE TABELING

NEWARK — While the biopharmaceutical industry has historically been a treadmill — or a continuous cycle of innovation and capital — pharma companies are looking into new strategies while contending with growing emphasis on technology, lower prices and a highly competitive market.

Olivier Leclerc, a senior partner of McKinsey & Company who works with pharmaceutical, biotech, and medical products clients, told the hundreds of attendees at the 2024 Delaware DNA conference on May 9 that the treadmill is getting faster. But he also noted that the rapidly growing investment will be critical in moving the entire industry forward, particularly as companies look to treat uncommon or rare diseases

“Of course, it gets more expensive to develop the molecule for the right target, so at some point, the price needs to come up. But what you’re seeing is that companies are targeting smaller patient populations, but increasing the price to do so,” he said.

The biopharma industry is roughly 27% of the total profit of the health care sector. But looking in the past decade, Leclerc said that half of the top 15 pharmaceutical companies have been lost due to loss of exclusivity of a drug. It’s forecasted that $128 billion would be lost from top 15 biopharma companies between now and 2030. 

That stands to impact 30% of the top 15 biopharma companies.

“But what’s really interesting is that during the last 10 years, the industry lost half its revenue but was able to grow and sometimes double,” he said. “That really shows how dynamic industry innovation really creates and can be monetized.”

He also noted in the last decade, companies have been diversifying their portfolio across treatments like production therapy, RNA, vaccines and other modalities. Recently, the focus has been on gene therapy and viral vectors and other cutting-edge technology. 

However, funding can still be uncertain in part because of the treatment’s long life cycle. There were eight times as many companies that filed for initial public offerings, collectively seeing $16 billion, in 2021 compared to 2022. Two years ago, only 2 companies received less than $5 billion.

Leclerc noted there was room for optimism, though, as venture capital funding was more sustained at stable levels. 

“What’s going on is if you’re seeing that standard valuation become very reduced, and companies are taking advantage of that. The mergers and acquisitions environment is accelerating,” he said. “I think we already had nine acquisitions already.”

The biopharma sector faces headwinds such as companies attempting to “herd” treatments and therapies for certain targets, crowding out products once they make it to market. It’s estimated that oncology treatments have 5 times the amount of products compared to the target, and twice as many possible treatments for the illness. But it’s also pushing top companies to get to market faster.

With possible treatments and therapies focused on a smaller patient population, companies can also maximize their revenue. In comparison, 26 million patients for top 20 drugs generated $64 billion in revenue for biopharma companies. In 2023, companies generated $137 billion on drugs treating 14 million patients, barring COVID-19 vaccines.

Net drug prices continue to drop but Leclerc said that there are many companies that are looking into using artificial intelligence to maximize the rate of return by reducing costs. Funding from venture capital firms for AI-backed technology in drug discovery has leaped forward, even in tighter financial markets. It also reduced costs at least by 40%.

“That bottleneck is healing, but the next one is having to test that data and see if it’s created a feedback loop. It’s still in a stumble and fall stage, but you’re already seeing the massive impact AI is having on the industry,” Leclerc said.

But critically, AI tools has the ability to put potential drugs and other treatments to market faster. To validate  — or test and confirm whether a drug works consistently — it can take between two and two and a half years. Leading companies have found it can take between 10 and 20 months.

“AI has the potential to accelerate the volumes of molecules in terms of patient recruitment and submission. It’s a lot faster than it used to be,” Lecleric. “It’s quite exciting.”

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