More competition in oncology, state regs may impact biopharma

By Alex Blair, senior manager, and Namrita Negi, head, Life Sciences Knowledge Center, Deloitte Consulting LLP

The environment in which biopharmaceutical companies operate appears to be changing at a dramatic pace. Companies that can keep up with this change will likely be best positioned to create value for their shareholders, their clients, and society at large. In response to this changing market landscape, we are accelerating our efforts to provide our clients with data and evidence-driven insights. We are launching this blog series to share key trends and drivers that we believe could shape the market in the near to mid-term. Here are three key trends to consider:

Trend #1: Increasing competition in oncology — Competition appears to be growing within and across pharmacological classes and tumor types in oncology. Oncology represents about 20% of all drug spending today¹ and 36% of the biopharma research and development (R&D) pipeline.² We have been seeing increased competition in this space—not just across cancer indications, but also within drug classes and Mechanism of Actions (MOAs). About 45 drugs are currently marketed for non-small cell lung cancer (NSCLC), and more than 70 are in pipeline.^3,4 Eight PD-1/PD-L1 inhibitors are on the market today, and more than 100 are in development.^5,6 As the market grows more competitive, some drugs might spend less time designated as “only in class.” This potential trend, coupled with rising pressure on health care financing, and the launch of oncology biosimilars, could give health plans and other payers more control over which drugs get prescribed.

• Our analysis: These changing market dynamics can bring about changes in oncology care pathways and increased ability for payers to apply utilization management. This could have a significant impact on products that are late to market. Those products will likely need a strong value proposition to demonstrate clinical and cost benefit vis-a-vis the first-in-class drug that might already be embedded as the standard-of-care. Historically, payers may not have actively managed access for oncology drugs, but, overall, we are beginning to see this change as competition increases. Companies should consider updating their capabilities and strategies—specifically around clinical-trial design and endpoints, real-world evidence, and commercial execution—if they intend to grow their oncology business.
  

Trend #2: State policy efforts to regulate drug pricing may compound IRA’s impact — In August, the Centers for Medicare and Medicaid Services (CMS) identified the first high-cost drugs that will be subject to price negotiation under the Inflation Reduction Act (see How might IRA’s drug-pricing provisions affect stakeholders). In parallel, we have noticed an increasing number of states adopting Prescription Drug Affordability Boards (PDABs) to manage drug costs. This trend has accelerated since the enactment of the IRA. PDABs aim to cap and control the price of drugs that manufacturers can charge; some can set upper payment limits (UPLs) for drugs. So far, nine states have enacted legislation to create PDABs, and two others have created a Drug Utilization Review Board, which is similar to a PDAB.^7,8 In addition, at least 21 states have passed drug pricing transparency laws.⁹

• Our analysis: The IRA seems to be having a notable impact on biopharma business decisions. The rising momentum behind state drug pricing policies, including state transparency regulations and the rise of PDABs, could create additional challenges for biopharma companies. The effectiveness of the affordability boards remains an open question given that many have been established recently. But biopharma company leaders should try to monitor the progress of these policies, as well as the processes to select drugs. They should also consider the implications of upper payment limits (UPLs) on their portfolios and markets. Moreover, the variability in states’ approaches to these boards—including the scope, authority, covered markets, and targeted drugs—can add more complexities to commercialization. Pricing changes resulting from PDAB activities could impact Medicaid best-price calculations and the 340B drug pricing program. 340B of the Public Health Service Act requires pharmaceutical manufacturers that participate in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients. This program has traditionally been a federal program, but some states are beginning to get involved in managing it.¹⁰
  

Trend #3: Emerging climate disclosure requirements — In March 2022, the Securities and Exchange Commission (SEC) proposed rule changes requiring companies to disclose certain climate-related information, ranging from greenhouse gas emissions to expected climate risks.¹¹ While the final rule and timelines have not yet been released, compliance will likely be a massive undertaking for public companies. The 32 largest companies in the pharmaceutical industry have already committed to reduce emissions by 45.8% over the next 12 years. Supply chains might represent more than 90% of an organization's greenhouse gas emissions, making this function the primary target for ESG activities and reporting.¹² Some biopharma companies are increasing their use of sea transportation over air transportation to reduce greenhouse gasses. Others are working to develop sustainable packaging, consolidating their supplier base and/or switching to more sustainable suppliers.¹³

• Our analysis: Many biopharma companies are likely under pressure—from investors, the government, regulators, customers, and their own employees—to reduce and report their environmental footprint. Many of the largest biopharma companies may have set ambitious goals. However, meeting those targets and goals could be difficult. External reporting is generally a big challenge, especially for organizations new to ESG. For companies that have more mature ESG processes and functions, the challenge tends to shift from external reporting to data collection. Biopharma supply chain executives will likely play an important role as their organizations navigate a complex ESG policy landscape and work toward their Net Zero and Sustainability goals. Some companies may have stated long-term strategies and goals to help ensure sustainable supply chain practices (see Making biopharma’s supply chains more environmentally sustainable). However, they might struggle to bring the required cultural change and measure and report their progress. Given the complex and evolving regulatory environment, companies should consider investing in a comprehensive and data-driven, end-to-end view of their supply chains and assess how they can be positioned to meet the sustainability targets.
  

The health care ecosystem is undergoing a rapid evolution. Industry stakeholders should continually monitor their environment for the forces and trends that will shape their businesses, strategic choices, and decisions. As we guide our clients on the business of science, we welcome the opportunity to discuss these trends with you and will continue to post here with regular updates on our observations.

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Endnotes:

^{1_{Evaluate: Pharma commercial intelligence, October 2023; Deloitte analysis}}

^{2_{Biomedtracker, October 2023; Deloitte analysis}}

3_{Evaluate: Pharma commercial intelligence October 2023; Deloitte analysis}

^{4_{Biomedtracker, October 2023; Deloitte analysis}}

^{5_{Evaluate: Pharma commercial intelligence October 2023; Deloitte analysis}}

^{6_{Biomedtracker, October 2023; Deloitte analysis}}

^{7_{State laws passed to lower prescription drug costs: 2017-2023, National Academy for State Health Policy, October 10, 2023}}

^{8_{This panel will decide whose medicine to make affordable, KFF Health News, May 25, 2023}}

^{9_{What's been happening in state legislatures on health care, Bio.News, August 21, 2023}}

^{10_{SEC proposes rules to enhance and standardize climate-related disclosures for investors, press release, US Securities and Exchange Commission, March 21, 2022}}

^{11_{Information for organizations interested in reducing supply chain emissions, US Environmental Protection Agency}}

^{12_{How medical packaging is changing amid environmental concerns, Earth.org, March 27, 2023}}

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