E&Y biotech report says start-ups have to quickly catch-up to reality

Ernst & Young's yearly report on the biotechnology industry, entitled Beyond Borders: Matters of Evidence, was released Tuesday.

Ernst & Young issued its yearly report on the biotechnology industry and one key takeaway is that young companies need to more quickly assess their value to patients and payers.

The report is entitled Beyond Borders: Matters of Evidence, and was released Tuesday.

E&Y's surveyed biotech leaders and found that 57 percent have already raised capital more aggressively from financial investors and 39 percent have had layoffs or downsized the facilities. But only 11 percent added payer reimbursement expertise to the management ranks.

Brian Edelman is vice president of corporate finance and investment banking at Eli Lilly and Co. In part, he wrote in the E&Y report:

"At Lilly, our due diligence process has evolved to become much more focused on market access and reimbursement issues. We now include senior marketing and/or market research people in the process. Each of our business units has several people who conduct business development forecasting. These forecasts are developed in close conjunction with our pricing, reimbursement, access and/or business-to-business components, so that their input is also factored into valuations.

"However, we frequently find that the venture-backed biotech companies we encounter in deal discussions have not spent any time thinking about the competitive landscape and are unprepared to differentiate their pipeline products. Biotech firms do best in situations where the molecule is a new mechanism of action or addresses an untreated disease — making the health economic benefit intuitively obvious. But when companies are coming into a crowded disease state where there are competing therapies, we tend to see clinical data packages that do not differentiate products relative to the standard of care."

Edelman wrote later, "This inevitably reduces the valuations that biotech companies receive for their assets because of the additional delays and costs involved in developing the product. Why are biotech companies so frequently unprepared to demonstrate the differentiated value of their products? I believe that underlying this development is a paradigm shift. Our society has decided that it’s only willing to pay for innovation up to a point. Effectively, this translates into a situation in which only one or two agents will be reimbursed in any area of care."

A link to E&Y's full report is here.