Deal-making
The current financial environment is challenging and unlikely to change dramatically in coming months, suggesting that predictions for deal activity in general are likely to be somewhat mixed. Whilst inflationary pressures and an uncertain economic outlook have been real challenges to the financing of acquisitions, some commentators suggest these factors may be stabilising and that deal activity generally could pick up in 2024. The last twelve months did see growth in global M&A activity in the biopharma sector and many commentators believe that pharma will remain active in deal making in 2024, not least because of pressures to fill pipeline gaps and address the impact of patent cliffs. Many of the world’s top selling drugs, such as AbbVie’s adalimumab, Merck’s pembrolizumab and Bristol Myers Squibb’s lenalidomide will face key patent expirations in the next few years. Although every company has years to prepare for loss of exclusivity, the fact that so many top selling drugs are facing key patent expirations suggests this will be an important factor fuelling M&A activity in the sector in 2024. What seems less likely however are the mega-deals of previous years. Many believe it is more likely we will see an increase in strategic bolt-on acquisitions of riskier early-stage assets, given the very limited de-risked late-stage assets available and their high valuations, coupled with a desire by companies to access innovation and replenish pipeline and growth gaps.
So, if companies are focusing on deals which offer high strategic value, which therapy areas are likely to be a focus for deal-making and where else can we see growth in 2024?
Therapy Area Growth
According to EY, it is expected that oncology will dominate dealmaking in 2024 because of the unmet clinical need. This focus also mirrors clinical trial activity where oncology is again the top-ranking development area, taking the top spot back from COVID-19 after two years. Within oncology, bladder, prostate and ovarian cancers are likely to be in the spotlight with a good number of key late-stage trial data readouts and approvals coming in 2024.
Unsurprisingly perhaps, many pharmaceutical companies are now making the move away from COVID-19 research and development, to assets with more long-term commercial potential. Companies who were significant players in the COVID-19 vaccine market, such as Pfizer, have
announced cost realignment programmes in light of the transition from government sponsored to privately funded programmes. There is still interest in COVID, but it is refocusing on next generation monoclonal antibodies and variant specific adaptations of currently marketed vaccines.
Other growing therapy areas include obesity. Sales of Novo Nordisk’s semaglutide (for weight management/obesity) grew rapidly in 2023 and are expected to further grow in 2024 as the company expands its manufacturing capacity to address shortages of the drug. Other treatment options for obesity are also emerging and analysts expect this market to expand significantly in coming years.
2023 saw the landmark FDA approvals of aducanumab and lecanemab for the treatment of Alzheimer’s disease. The FDA is also expected to make a decision about Eli Lilly’s donanemab early in 2024. With further important clinical trial readouts for Alzheimer’s disease expected in 2024, this is a therapy area with considerable research and development focus. Although uncertainties around efficacy and barriers to access remain, the market has significant potential, given the huge unmet clinical need, so it is still very much one to watch.
Artificial Intelligence (AI)
Our reflection on what’s coming in 2024 wouldn’t be complete without saying something about artificial intelligence. This has already been much discussed in 2023 as the industry grapples with how to leverage promising generative AI tools to e.g. to identify unmet clinical needs or expedite clinical planning and execution, whilst dealing with the inherent challenges, such as data quality, ethical considerations and clinical validation. As the industry seeks solutions for these challenges and the technology development continues apace in 2024, regulatory changes are coming this year which are likely to have quite an impact.
Hot EU/UK Legal and Compliance Topics for Pharma in 2024
Artificial Intelligence
In 2023 we heard a lot about initiatives which were being undertaken by governments and regulators seeking to provide some guiding principles to navigate the risks and challenges posed by AI, including several aimed at medicines and health, such as the European Medicine Agency’s (EMA) reflection paper on the use of AI in the lifecycle of medicines, the Joint Heads of Medicines Agencies (HMA)/EMA AI workshop and the EMA/HMA Artificial Intelligence Workplan to guide use of AI in medicines legislation, which was published in December 2023. WHO has also published its regulatory considerations for AI in Health and most recently, at the start of this year, its Ethics and Governance Guidance of AI for Health: guidance on large multi-modal models. These welcome initiatives are likely to continue in 2024, as is further international cooperation on AI, following the first international AI Safety Summit held in the UK in November 2023. However, 2024 will also see the first comprehensive legislation on AI, when the EU’s AI Act comes into force in the first half of 2024.
The EU’s proposed AI Act sets out an ambitious legal framework governing the entire value chain of AI systems in the EU and is underpinned by a risk categorisation system for AI. Whilst most of the Act won’t apply in full until 2026, several provisions, such as bans on high-risk AI are expected to come in within six months. The EU has led the way on AI specific legislation, but other countries have also set out proposals to tackle the issue in varying ways.
The UK outlined its proposals in its 2023 White Paper on AI, proposing a different, tailored sector approach to AI, rather than specific AI legislation. This approach is intended to be flexible, but it’s expected the government will still legislate on specific issues, including those relevant to the pharma and biotech industries, where necessary. For instance, in its proposals for the future regulatory framework for medical devices, it has stated that core regulations will be introduced to bring the essential requirements for medical devices being placed on the market in Great Britain into greater alignment with those in the EU, including requirements for artificial intelligence.
Data Privacy and Data Regulation
2024 looks as though it will be a busy year again when it comes to privacy and data regulation, with a number of new laws expected to be implemented this year. In the UK, the Data Protection and Digital Information Bill (DPDI Bill), which reforms the UK’s data protection regime, as well as the Privacy and Electronic Communications Regulations, is expected to become law in 2024. Although the DPDI Bill in its current form does diverge from the European framework, it still retains a good deal of UK GDPR and is not expected to differ so significantly from the EU framework as to jeopardise EU adequacy. Companies will nevertheless still need to carefully consider whether they can adopt a single approach to compliance.
Both the EU and UK adopted adequacy decisions in relation to data transfers to the United States in 2023. Unfortunately, it seems unlikely this will be the end of the story on transatlantic data transfers however, as NOYB, the organisation founded by Max Schrems, has stated it intends to challenge the EU-US Data Privacy Framework. It remains to be seen whether the framework will be declared invalid, like its predecessors, but it is a near certainty we will see Schrems III litigation in 2024 to cast further uncertainty in this area.
In terms of data regulation, The EU Data Act became effective on 11th January this year, though won’t be generally applicable until late 2025. The Act aims to facilitate data sharing within the EEA by removing barriers and giving businesses access to data they contribute to creating. It also gives individuals more control over all their data (not just personal data).
There are a variety of other proposals regarding data regulation which are likely to gain more focus in 2024, including the Common European Data Spaces. The first of these is the European Health Data Space, which comprises a governance framework for the primary and secondary use of health data across the European Union, including allowing for the use of health data for research and innovation and supporting individuals to take control over their own health data. Agreement on the Council’s proposals was reached in December 2023 and the EU Council presidency will now begin negotiations with the European Parliament with a view to reaching a provisional agreement on the proposed regulation.
EU Pharmaceutical Law Reform
The biggest reform of EU pharmaceutical legislation in twenty years was proposed in April 2023 when the European Commission issued its legislative package of reform of pharmaceutical law comprising a new directive and regulation to replace the existing Directive 2001/83/EC and Regulation (EC) 726/2004. The proposals also incorporate and consolidate legislation on orphan and paediatric medicines. The changes proposed are significant and have given rise to much criticism, particularly proposals relating to the reduction of periods of regulatory data protection and market exclusivity for new medicines. Uncertainty around the package of reforms therefore continues and 2024 will see ongoing debate and discussion on the proposals with legislation unlikely to be adopted any time before 2025 or 2026.
EU Supplementary Protection Certificate Reform
In addition to the pharmaceutical law reform, the European Commission also published far-reaching proposals in 2023 to reform the law governing the prosecution, grant and litigation of supplementary protection certificates (SPCs) as well as introduce new routes for centralised grant and unitary SPCs. Many have criticized the reforms, including the German Federal Council (Bundesrat), which filed observations on the reform in November 2023 and in particular criticised the pre-grant opposition procedure. The four draft regulations which set out the new regime are now being scrutinized by the European Parliament’s Committee of Legal Affairs and by the Council, with a tentative date of 26th February set for their first reading in Parliament. Whether this timetable will be adhered to remains to be seen, but there could well be pressure to finalise and adopt the legislation before June 2024, when European elections take place.
Intellectual Property
The Unified Patent Court (UPC) is now seven months old and has proved popular with patentees bringing infringement actions as well as those parties seeking revocations, with 24% of the pending UPC actions involving pharmaceutical companies. In the first six months, 16,000 requests for patents were received, of those 3.6 % related to pharmaceuticals and 11.5 % to medical technology. By general consensus the UPC has had a solid start, with UPC case law expected to increase predictability of the system and approaches applied.
The last few years has seen a rapid expansion in Gene Editing Technologies such as CRISPR (Clustered Regularly Interspaced Short Palindromic Repeat), resulting in an increase in patent applications relating to CRISPR technology and potential for new commercially viable therapies. 2023 saw the first regulatory approval in the world for CRISPR based gene-editing therapy for the treatment of sickle cell therapy or transfusion-dependent beta thalassemia. Given the huge potential of these gene editing technologies and number of recent patent cases relating to CRISPR technology already seen in the USA and Australia, it is anticipated we will see a significant increase in patent applications, oppositions and infringements relating to these technologies in Europe in 2024.
In 2023 the UK Court of Appeal (CoA) confirmed the invalidity of Bristol Myers Squibb’s (BMS) apixaban patent in its ruling in Sandoz & Teva V Bristol Myers Squibb. The ruling looked at the question of plausibility and was the first UK decision to consider plausibility since the EPO Enlarged Board’s decision in G2/21. Notwithstanding the CoA decision in Sandoz, the law on plausibility remains far from settled, so it is worth noting that the UK Supreme Court is due to hear the appeal in proceedings between FibroGen and Akebia in March 2024. This case raises different issues to those in the Sandoz case, but also concerns plausibility, so it is going to be very interesting to see how the Supreme Court addresses G2/21 and the position taken by the EPO, which appears at odds with the UK position.
As far as United Kingdom (UK) specific topics are concerned, 1st January 2024 saw the introduction of the new International Recognition Procedure, which provides a fast-track procedure for medicinal products which have been approved by one of the specified reference regulators. Additionally, the new voluntary scheme for medicines pricing, access and growth (VPAG) came into force on 1st January and will be valid for five years. Other important UK reforms to watch this year include:
UK ABPI Code of Practise Revision
As we previously highlighted, the ABPI and PMCPA are currently consulting on the 2021 Code of Practise for the Pharmaceutical Industry (Code), with the consultation open until 29th February 2024. Many of the proposed amendments to the Code are relatively minor in nature, but a number of proposed changes are more significant and aimed at tightening governance and addressing potential problems in high-risk areas. See our earlier article for more details of the proposed changes. The new Code is expected to be published in Q2 2024 and will be eagerly awaited by the UK pharmaceutical industry, not least for the colour of its cover!
UK Reform of Medical Devices Regulation
The UK government has just announced its roadmap towards the future regulatory framework for medical devices, which sets out its timescales for the introduction of the future regulations. It is proposing that priority measures to enhance post market surveillance will be put in place first in 2024, with core regulations expected to be in place in 2025. In the first half of 2024 stakeholder discussions will be run on the core regulations. Although the new regulations are intended to enable greater international collaboration and the government is keen to stress the reforms will result in more patient-centred, proportionate requirements for medical devices, which are responsive to technological advances, we have yet to see the real detail. This is very much one to watch therefore, as a great deal more information on both the post market surveillance regulations and the core regulations will be forthcoming over the course of 2024.
All in all, 2024 is set to be another year of transformation for pharma. Filling pipelines for long term sustainable growth and bringing new medicine to patients who need them will remain demanding key priorities, whilst regulatory changes will create new challenges. 2024 will very likely also be a year which sees considerable investment in new digital technologies such as AI, data analytics and machine learning as companies try to leverage the potential of these new technologies to increase speed across the value chain, from drug development to approval and faster uptake in the market.