Big pharma/cancer: the allure of a cure
Commercial rewards will be elusive in a crowded market
Nearly 50 years ago, Richard Nixon declared “war on cancer”. Hopes of a quick victory were shortlived. Yet scientific understanding has deepened. The number of recent new cancer drug approvals is “staggering”, says the US regulator’s new acting head. That is good news for patients. Investors should brace for trouble ahead.
Drugs companies are investing heavily, for reasons that are not hard to fathom. There is a lot of unmet need. Prices are high. However cash-strapped the health system, insurers have to pay for whatever oncologists prescribe in most US states.
The annual cost of treatment with a new cancer drug in 2017 averaged more than $150,000, nearly twice the price in 2013, says research group Iqvia. Revenues can be as much as 10 times higher than research costs.
The market is accordingly crowded and competitive. More than 700 cancer drugs are in late-stage development — up more than 60 per cent from a decade ago. The proportion in the late-stage pipeline of the 14 biggest pharma companies has more than doubled since 2010 to nearly 40 per cent, says Deloitte. Given that cancer drugs now generate just a tenth of industry sales, pharma groups may see poor returns on their research and development, says UBS. It detects signs of a R&D bubble.
Such concerns fuelled recent debates over the value of Celgene’s pipeline. The US biotech group has some of the sector’s highest cancer drug revenues, says Evaluate. But it faces expiring patents. Starboard, the activist that campaigned against its purchase by Bristol-Myers Squibb, raised doubts over the blockbuster potential of some of its hotly tipped new drugs.
Survival rates have improved dramatically since President Nixon’s time. Some cancer drugs have superstar status. Former president Jimmy Carter was saved from dying from skin cancer in 2015 after being treated with Merck’s immune response booster Keytruda. Its sales are tipped to hit $16bn a year by the mid-2020s.
Such forecasts underline the sector’s potential. But investment has outpaced the market. For many, commercial rewards will be elusive.