This is an exciting time for pharmaceutical and biotechnology companies. New breakthroughs are moving the life sciences industry forward and opening the door to treatments that would not have been possible just a few years ago. At the same time, though, these innovations are creating new exposures, precipitating the need for robust insurance coverage.
Recent Innovations
Recent innovations are shaping life sciences trends in 2024. A few recent breakthroughs that could play a role this year include:
- CRISPR Gene-Editing Cures. According to MIT Technology Review, scientists developed the gene-snipping tool CRISPR 11 years ago. Now, it’s been used to deliver the first gene-editing cure – for sickle-cell disease. Although this treatment is expected to cost $2 million to $3 million, patients call it life changing.
- AI-Discovered Drugs. Discovering new drugs is often a long and difficult task, but new AI tools are making this faster and easier. According to the Petrie-Flom Center at Harvard Law School, the first AI-designed drug molecule to enter human clinical trials was announced in 2020. Since then, there have been several more breakthroughs, including the first drug to be discovered and designed using AI to receive FDA Orphan Drug Designation. Meanwhile, Scientific American says researchers have used AI to discover a new class of antibiotic candidates.
- Lab-Grown Organs and Blood. Recent progress in lab-grown organs and blood could save lives while reducing or even eliminating the need for donors. According to the NHS, one of the first people to receive a transfusion of lab-grown red blood cells spoke positively about the experience. Meanwhile, Fortune reports that 3D-printed organs could soon be available. At least one patient has already received a 3D-printed ear, developed by using the patient’s own cartilage cells.
Cybersecurity Risks and Insurance for Life Sciences
Cyber exposures continue to be a major exposure for the life sciences sector. Ransomware attacks were on the rise again in 2023. According to Corvus Insurance, attacks increased by 95% in the third quarter. The average cost of a data breach has also increased, according to IBM, reaching $4.45 million in 2023.
Some attacks against the healthcare industry have garnered widespread media coverage due to the impact on patient care. According to Pharmaceutical Technologies, pharma and medical device companies have also experienced cyberattacks. Generative AI platforms present a new exposure. Companies must train team members to avoid inputting sensitive data, product specifications or marketing plans into generative AI platforms to avoid inadvertent leaks according to Digital Adoption.
Data breaches are always concerning, but they can be especially troubling for life sciences companies that hold sensitive information. A paper from Palmer & Dodge explains that HIPAA does not directly cover biotech companies but that HIPAA rules are being applied to these companies indirectly. Additionally, medical device companies may be considered healthcare providers and therefore HIPAA-covered entities.
The growth of internet-enabled medical devices is also increasing exposures. Allied Market Research says the global smart medical device market was valued at $31.5 billion in 2021 and is expected to reach $132.1 billion by 2031. Unfortunately, while these devices are promising, like all internet-connected devices, they are also vulnerable to cyberattacks and hacks. The U.S. Government Accountability Office recently called on the FDA to and CISA to collaborate for better medical device cybersecurity.
As concern over data breaches grows, governments are also imposing new and stricter data privacy laws that could apply to life sciences companies. Applied Clinical Trials says at least 11 states have adopted new genetic privacy laws over the past three years and more states have considered legislation.
International Growth and Biotech Insurance Needs
The Biotechnology Innovation Organization says pharma and biotech companies have seized the globalization trend to cut costs, increase profits, and sell to underserved markets.
Although international activity can benefit life sciences companies, it also poses risks. Harvard Business Review says cross-border trade rebounded after the COVID-19 pandemic, but global war poses another threat.
Increased regulatory activity is another issue for international biotech companies, which now need to comply with an increasingly complicated tapestry of regulations, including new data privacy laws and ESG regulations. ESG Book found that ESG regulation has increased by 155% over the past decade.
Sustainability and Ethical Considerations
Many companies are trying to curb their carbon footprint. According to McKinsey & Company, this includes life sciences companies. Between 2019 and 2022, the number of life sciences companies that committed to science-based targets to reduce emissions increased from just seven to 104.
New breakthroughs are also creating ethical considerations, touching on everything from data privacy to the morality of genetic manipulation and cloning. Some of these ethical considerations have been codified into law. For example, Rice University says 30 countries ban human cloning, whereas another 15 companies ban human reproductive cloning but permit therapeutic cloning.
Other Regulatory Changes and Pharmaceutical Risk Management
New regulatory changes could create additional risk exposures for biotech and pharmaceutical companies. For example, the EU Medical Devices Regulation went into effect in 2021, but a transition period has given manufacturers time to adjust. According to Lexology, this has led to a “crisis” in the EU and UK. Manufacturers are being urged to make applications as early as possible but also need to ensure their documentation is correct and complete, all with little regulatory guidance.
In the U.S., state and federal government action is taking aim at drug prices. New gene therapy drugs have created breakthrough treatment options, but they can cost millions of dollars a dose. Even less expensive drugs can be costly. The Center for American Progress says drug companies have raised prices above inflation. Deloitte says drug pricing is a top concern among pharmaceutical executives, noting that CMS has identified the first high-cost drugs to be negotiated under the Inflation Reduction Act and that many states are passing drug price transparency laws.
Life Sciences Trends Affecting Risk Management
Many life sciences trends involve new breakthroughs and exciting technological advancement, but life sciences companies should also be aware of several litigation trends impacting risk management.
- Class action lawsuits. The Lawsuit Information Center says lawsuits alleging a link between Tylenol and autism have been filed in all 50 states. Although the federal cases have been dismissed, the site is adamant that the issue is not over. Meanwhile, opioid class action lawsuits have resulted in large settlements. Class action lawsuits are a growing challenge, and even devices and drugs that have been on the market for years may be targeted. Figures from Duane Morris show that class action settlement levels have surged.
- Social inflation. According to the Insurance Information Institute, data shows that the rise of third-party litigation funding may be increasing litigation costs, a trend known as social inflation. More frequent lawsuits, longer trials and larger settlements and jury awards are all possible threats.
- Rapid development. The Congressional Budget Office says spending on research and development reached $83 billion in 2019, which is amount 10 times higher than it was in the 1980s. The number of new drugs approved for sale increased by 60% between 2010 and 2019. While all this development can lead to breakthroughs that improve lives and generate profit, the rapid pace of development also exposes companies to lawsuits when unforeseen side effects occur.
Insurance for Life Sciences: Key Considerations
Life sciences risk management is becoming more complicated amid major breakthroughs, rising cyber exposures, and increased global regulatory activity. It’s a good time to review your insurance coverage for gaps and sufficient limits.
- Limits: In light of rapid research and development, increased class action lawsuit activity and social inflation, life sciences companies may want to protect themselves with higher liability limits.
- Gaps: Coverage must be well-coordinated and dovetailed to maximize your protection for current and emerging exposures. It’s crucial that coverage for product liability, intellectual property, clinical trials, cyber liability and other exposures is reviewed and updated frequently.
A broker can help you review your insurance coverage and discuss whether you need more coverage. Contact the team at Watkins Insurance Group for assistance.
