The future of biotech is preventive — and global

From scarcity pricing to a billion patients a day: the structural forces shaping biotech’s next phase

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.

Emergence of the global middle class

The first important new trend is the dramatic growth in the size and affluence of the global middle class (Figure 1).

While the industry was historically focused single-mindedly on creating oncology drugs and other high-priced products for the U.S. market, large portions of the global population have moved into income brackets that support far greater healthcare consumption than in prior decades.

They may not be rich enough to afford Keytruda ($12,031 WAC) or the leading GLP-1 drug Mounjaro ($1,112/month WAC). But many certainly have enough income to afford second-generation GLP-1s, such as generic Victoza (~$22/month in India).

While that price level may sound miserly to a conventional biopharma business plan, Pfizer taught the world that with volume, an affordable, scalable product can generate large returns. In 2021, the pharma earned $55 billion selling just two products in this price range (Comirnaty and Paxlovid), with a majority of sales coming from outside the U.S. Unsurprising given that, after all, outside the U.S. is where most people live!

COVID was an exceptional case, but it showed that volume can more than compensate for lower unit pricing when markets are truly global.

The opportunity in weight management is even bigger.

Recall that Deloitte’s analysis shows that a big part of declining R&D productivity is the shrinking addressable markets for biopharma products. It therefore would not be surprising if the next wave of biotechnology giants were companies with technologies able to service the large and rapidly growing global middle class. This means products and technologies that are able to—like Pfizer in 2021—manufacture products at far larger scale than our industry was accustomed to in the last boom, and at a far lower price per unit.

So what does this mean for biotech companies? It creates both a dilemma and an opportunity.

Reaching an expanding global middle class requires products that can be priced for volume rather than scarcity, which in turn demands greater development efficiency. For biotech, the opportunity lies upstream: building platforms and development models that lower the cost and risk of generating high-quality clinical assets that can ultimately be scaled and commercialized globally by larger partners.

It also places companies in an economic range that Chinese players have proven better able to access and monetize. However, the global uptake of Pfizer’s and BioNTech’s COVID vaccines over comparable Chinese alternatives shows that effective products with a solid reputation can readily establish large markets quickly.

The GLP-1 analogue drugs from Novo Nordisk and Eli Lilly perfectly capture this dynamic: a fierce rivalry is already developing in India.

Similar volume-driven dynamics are likely to emerge in other large, chronic, and preventable conditions—particularly where long-term risk reduction, high prevalence, and scalable manufacturing intersect. Lilly CEO David Ricks echoed this sentiment in a recent podcast interview, sharing his enthusiasm for the potential for RNAi drugs for heart disease.

Patient empowerment and the rise of preventative medicine

A second underappreciated global trend is the rising importance of preventive health (Figure 2). Until recently, the U.S. health care system (and therefore the drug developers that cater to it) focused primarily on treating disease reactively—after illness or disability emerges.

By contrast, today’s consumers are increasingly taking control of their own healthcare decision-making—and they don’t want to just stand around waiting until sickness strikes. This trend was arguably sparked by the internet (remember WebMD?) but it has been turbocharged by ChatGPT and other AI models. This trend gathers further tailwinds from the current administration’s focus on chronic disease under the “MAHA” political slogan.

Why does this matter? Preventive markets tend to be far larger than treatment markets for the simple reason that many more people are at risk of a disease than actually suffer from it. The blockbuster markets for products that prevent COVID (vaccine) and heart disease (statins) are obvious examples.

The GLP-1 analog drugs are again an excellent example of this phenomenon: weight loss is nice for the consumer, of course, but the health economic value of the drugs lies primarily in their role in preventing cardiometabolic disease.

However, catering to this trend also carries an embedded challenge: preventive drugs require greater safety and tolerability, and lower unit prices to make economic sense to payers and consumers. This will again tend to favor companies and technologies that can efficiently and cheaply scale to match demand on the manufacturing side with superior safety and tolerability. (In both respects, current GLP-1 drugs fall short: they have encountered supply shortages and come with high rates of vomiting and diarrhea.) For companies and technologies that can meet these rigorous demands, vast opportunities await.

In sum, the winning strategies for the next wave of biotechs are staring us in the face. Just like the rise of cloud computing and mobile were obvious to certain tech entrepreneurs amid the carnage of the dot-com bubble burst, the seeds of the next wave of innovation are quietly germinating right now. A few lucky investors will find them.

Brian Finrow is co-founder, co-chairman, and CEO of Lumen Bioscience, a clinical-stage biotechnology company in Seattle. Kevin Klowden is an economist and executive director at the Milken Institute.

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