The biopharmaceutical industry is setting its sights on a recovery in 2025, aiming to reverse last year’s decline in investor returns. However, uncertainty looms large as the industry awaits clarity on the new administration’s stance on critical issues like drug pricing and vaccines.
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The Inflation Reduction Act (IRA) of 2022, a landmark piece of legislation, introduced significant regulatory changes, enabling Medicare to negotiate drug prices for the first time. This move injected considerable uncertainty into the sector, impacting investment.
“Nothing kills investment like uncertainty. The IRA led to a lot of uncertainty in the sector,” remarked Steve Ubl, CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), at the JP Morgan Healthcare Conference.
PhRMA hopes the new administration will shift its focus from perceived “attacks” on the industry and instead collaborate on streamlining processes to lower costs for patients.
The initial round of Medicare price negotiations for 10 drugs, announced last August, resulted in prices largely consistent with existing rates after factoring in discounts and rebates. The next 15 drugs slated for negotiation are expected to be identified soon.
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Last year saw mixed performance in the market: the Nasdaq Biotechnology Index dipped 3%, while the S&P 500 surged 23% and the tech-heavy Nasdaq soared nearly 29%. The NYSE Arca Pharmaceutical Index managed a 1% increase. This divergence occurred despite record highs for obesity drug manufacturers Novo Nordisk and Eli Lilly.
“Growth has been uneven across the sector. There are haves and have nots,” observed Roel Van den Akker, pharma deals leader at PwC, attributing this to investor assessments of how companies are handling upcoming patent expirations.
Looming Patent Expirations and Dealmaking
A significant portion of biopharma revenue, estimated at $175 billion, faces patent expiration by the end of the decade. To offset this loss, companies require new products, either through internal research or acquisitions. However, dealmaking activity slowed considerably last year.
Mergers and acquisitions in the life sciences sector totaled around $80 billion through November, less than half of the 2023 figure, according to the Iqvia Institute for Human Data Science. Notably, no deals exceeding $5 billion were finalized last year.
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Anticipation of a more deal-friendly Federal Trade Commission under new leadership is seen as a positive sign for the industry. Recent announcements, including a substantial acquisition by Johnson & Johnson, reflect this optimism. However, other appointments have generated concern, particularly regarding potential impacts on vaccine policy.
Navigating Uncertainty and Seeking Common Ground
Biogen CEO Chris Viehbacher emphasized the industry’s commitment to public health, stating, “I think the objective will also be to find common ground. Making America healthy is what we are all about.”
Pfizer CEO Albert Bourla acknowledged the prevailing uncertainty but expressed his intention to actively engage with the new administration. Similarly, J&J CEO Joaquin Duato highlighted the difficulty in predicting future developments but affirmed his commitment to advocating for policies that promote innovation and access.
Investor attention remains fixed on the implications of government policy for drug pricing, especially potential modifications to the IRA affecting the timeline for Medicare price negotiations. However, such changes are unlikely in the near term due to the complexities of amending existing legislation.
While recent interactions between industry leaders and the incoming administration have offered a glimmer of hope, past pronouncements on drug pricing suggest potential challenges ahead. The biopharmaceutical industry is poised to navigate this complex landscape, striving for a rebound in 2025 while adapting to evolving policy dynamics.
