Most biotech executives would have said a few years ago that the FDA was the No. 1 barrier standing in the way of business success. It was the one thing they worried about most. But now biotech CEOs appear to be more concerned about a new kind of threat, coming from the people who pay for new medicines.
Biotech CEOs in California, the biggest state for biomedical innovation in the U.S., reported they saw improvements in FDA regulatory processes, and that fewer projects were delayed by regulatory issues in 2012, according to a survey of 157 executives being released today by BayBio, the California Healthcare Institute, and PwC. While the FDA presented a less daunting barrier, more than half of the CEOs said that securing insurance coverage and reimbursement for their products became more difficult in the past year.
The response from California’s biotech CEOs comes at a time when two highly visible trends have been at work. The FDA, under the leadership of commissioner Margaret Hamburg, approved 39 new medicines for sale in 2012—the highest number of new product approvals in 15 years. But healthcare spending has continued to rise, and insurers are asking harder questions now about the value they are getting when they spend money on new drugs, diagnostics, and medical devices. The re-election of President Obama and the U.S. Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act of 2010 dashed whatever hopes biotech executives may have had for a return to the days of virtually unlimited product pricing power.
“Getting FDA approval is now one step in the process,” says Gail Maderis, the CEO of BayBio, the San Francisco-based trade group for biotech companies. “We’re seeing a shift in concern from the FDA to insurance coverage. From a company’s very early days, corporate partners and venture capitalists now want to know that if a product gets to the market, will it be reimbursed?”
The California Biomedical Industry Report, which also includes data on biotech jobs, federal grant support for biomedical research, and venture capital financing, is being released today as the industry convenes for the 31st annual JP Morgan Healthcare Conference in San Francisco. The survey was sent to 175 biotech CEOs in California in November. The response rate was high among small, medium, and large companies, with a total of 157 responses, Maderis says.
Since response rates vary, especially from the various subgroups of small, medium and large companies, it’s difficult to compare survey results from one year to the next. That said, here are some of the highlights of the survey, which includes some perspective on how attitudes shifted in the past year.
According to the report:
• About 14 percent of respondents said that the FDA regulatory process had improved over the prior year.
• 16 percent of biomedical companies delayed a project because of regulation this past year, a 17 percent decline from the previous year.
• 59 percent of CEOs cited limited or lack of access to capital as the most threatening issue to the short-term health of biomedical innovation.
• More than 50 percent of CEOs report that health insurance coverage and reimbursement issues have become more difficult in the past year.
Some executives on the leading edge are paying attention and adjusting their business models to the new environment, says Alkermes CEO Richard Pops, a member of the board of the Biotechnology Industry Organization. One way to adapt is by conducting clinical trials that can demonstrate a new drug saves money on hospitalization costs—rather than strictly designing a trial to meet safety and effectiveness criteria laid out by the FDA.
But old habits die hard, and it’s not obvious in many cases how to navigate the landscape for developing new therapies. Many biotech executives will surely be talking this week about how to adapt to a world in which payers hold stronger cards.
“It’s important for all of us developing drugs. Economic considerations are really important,” Pops says. “It’s not a foregone conclusion that payers are going to pay.”
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