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Inflation Reduction Act and AI set the tone for biotech

New report discusses factors shaping the biotech landscape

Inflation Reduction Act and AI set the tone for biotech

4 October, 2023

Biotechnology is an industry in constant change, and it is currently characterised by regulatory shifts and the embracing of AI. In a newly released report, RBC Capital Markets discusses the factors it believes will shape the biotech landscape going forward. The report focuses on manufacturing challenges, the long-term effects of the Inflation Reduction Act, and the opportunities that the AI implementation brings.

At a time when treatments are becoming increasingly sophisticated, manufacturing has also become more complicated. This has led to problems in several recent high-profile drug launches RBC Capital Markets writes in a new report, that discusses what factors it believes will shape the biotech industry going forward.

Pharmaceutical manufacturers are under increasing strain in the wake of the increased process complexity. Capacity is strained and the companies are experiencing, among other things, a shortage of trained staff. There does not appear to be a simple solution to the problem at present. Areas particularly hard hit by production disruptions are CAR-T treatments, radioligands and gene therapies.

The consequences of the IRA remain unclear

Something that, according to RBC Capital Markets, will also affect the industry going forward is the incorporation of the Biden administration’s Inflation Reduction Act (IRA), which, among other things, has taken aim at the high drug prices in the United States.

It is still difficult to predict what the long-term consequences of the IRA will be, but the legislation has already sent shockwaves through the biotechnology sector. Among other things, some medicines will be forced to pay mandatory discounts of up to 60 per cent, depending on how long they have been on the market. In addition, price increases in Medicare will be limited to the rate of inflation.

There are also voices in the US Congress who want politicians to go further in these reforms. RBC Capital Markets expects this to have a major impact on the companies’ profits, strategies and business development going forward. It notes, however, that Congress has historically had difficulty implementing reforms, which may reduce the risk to some extent.

A tighter approval process

Another key point that will affect drug developers going forward is the new U.S. FDORA law, which came as a response to the controversy surrounding the accelerated approval of Biogen’s Alzheimer’s drug Aduhelm. The law gives the FDA the ability to require confirmatory studies before an accelerated approval. It also allows the agency to withdraw drugs from the market if these studies fail. The law also includes several other requirements aimed at restoring public confidence in the accelerated drug approval process.

“While it is in everyone’s interest to restore the integrity of these approvals, the changes could increase the risk in development,” the bank reasoned.

Rising interest rates are putting pressure

Rising interest rates are also highlighted as a risk going forward. They increase the cost of capital, which is particularly painful for early-stage biotech companies that need capital injections to continue their development. The new global macroeconomic challenges make investing in risky biotech stocks even riskier.

While a recession doesn’t seem very likely, given the strong overall performance of the stock market, investors are still cautious about high-risk stocks. But even though the stock market climate has been challenging for many early-stage biotech companies, convincing clinical data should still be sufficient to fund the development further.

Gene editing a technology to keep an eye on

In vivo gene editing is identified as an important and exciting technology in drug development in the future. The technology has the potential to address the underlying causes of many genetic diseases, by directly targeting and correcting DNA mutations. At the beginning of the year, the FDA approved its first Investigational New Drug for an in vivo CRISPR/Cas9 treatment. This is one of many advances expected in the field going forward, as many companies are exploring in vivo gene editing in a variety of indications.

Sees potential for AI

The buzzword of 2023 is undoubtedly AI and there are many who believe that AI has the potential to revolutionise the biotech sector. Among other things, AI is believed to improve molecular design, enable identification of new targets, facilitate the implementation of clinical studies and reduce development costs. Above all, it is believed that the more data-intensive parts of the development can benefit from the implementation of AI. It may soon be possible to shorten the time for some development processes from weeks to hours.

However, according to RBC Capital Markets, AI will need to be particularly sophisticated within biotechnology to provide an advantage over current methods, given that computational biology and big data analysis are already widely used. Biological systems are more complex and variable than many other areas where AI is used today, and the bank believes that the technology will need further development before it can truly change the biotech industry.

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