The future of biotech is preventive — and global

Biotech’s recent downturn is often framed as a necessary correction after years of excess. But that narrative obscures two deeper, independent shifts now reshaping the industry’s trajectory: Growth is moving away from U.S.-centric blockbuster economics toward global markets, and away from reactive treatment toward large-scale preventive medicine.

Together, these forces — and not a simple cyclical reset — will define the industry’s next phase of expansion.

Behind biotech’s reset

Simply put, over the last 25 years, biopharma’s business model has grown unsustainable. In Deloitte’s annual analysis of biopharma R&D productivity, the industry’s internal rate of return (IRR, a common measure of investment profitability) from drug discovery fell to just 1.2% in 2022. The dismal data echoes the infamous “Eroom’s Law” (Moore’s Law backward), the observation that, unlike the famously improving productivity of microchips, the number of drug approvals per billion dollars invested has been declining for at least 30 years.

The industry’s response to these trends was to increase unit prices. In an amusing coincidence, the Wall Street Journal reported in 2015 that price increases on older drugs were almost exactly equal to the industry’s entire profit growth over a 10-year period. Price increases outpaced inflation even faster for drugs with falling demand, the opposite of what happens with normal products.

More industry embarrassment came in 2020 when the U.S. House of Representatives Committee on Oversight and Reform published the results of an investigation into pricing practices for Revlimid, the Celgene blockbuster. Internal company emails revealed that actual price increase decisions had little to do with PBM rebates or R&D expenditures; they were primarily driven by earnings imperatives.

Congress passed the Inflation Reduction Act 24 months later, imposing price controls on branded drugs for the first time.

Neither of these is good for the industry. A healthy sector grows its markets by launching innovative new products, selling more units, and steadily lowering prices to unlock larger and larger markets. Clearly, biopharmaceutical companies need to move away from a growth model heavily reliant on legacy blockbusters catering to shrinking patient populations.

Fortunately, there is good reason to think that an industry pivot is already underway, thanks in particular to two emerging global trends.