By Barney Brodie Even as pharmaceutical giant Merck (MRK
; ranked hold, recent price: $28) reels from the impact of losing a critical lawsuit over its painkiller, Vioxx, other drugmakers and biotech concerns continue to research and develop new medication to bring to market. Specifically, research into cancer treatments and cures is paramount, given the huge demand.
The cancer-therapies market is estimated to be approximately $32 billion and is forecast to grow to between $55 billion and $70 billion by 2010, according to a report by market research firm Frost & Sullivan. The disease's high incidence rate and the lack of drugs and therapies that can either cure it or increase the life-expectancy period of patients is driving the discovery of novel agents.
BE WARY. Some factors expected to speed market growth include: the successful drugs and candidates offering a unique way of targeting cancer cells; continued success in technological innovations, including the proteomics and genomics platforms; and the failure of traditional techniques such as chemotherapy and radiation to increase life-expectancy rates, says the Frost & Sullivan report.
Standard & Poor's pharmaceutical analyst Herman Saftlas says a decision to invest in pharmaceutical and biotech outfits because of their oncology drugs depends upon the relative importance of those treatments to their producers. It also depends on the prospects of successful commercialization based on the size of the specific market, competitors, and the compound's stage of development.
Saftlas also warns investors to be prepared for risks. Anyone with any mileage on Wall Street can tell a cautionary tale of a pharmaceutical or biotechnology stock being bid up on what seems to be a promising treatment for a life-threatening or debilitating disease, only to see the share price collapse after failing a clinical trial or regulatory hurdle.
An investor can choose a large pharmaceutical company that has many diverse revenue streams, including cancer drugs, or a smaller biotech concern with just one drug. The biotech investor likely is taking on a higher degree of risk.
NEW CLASS OF DRUGS. Among the pharmaceutical giants, Pfizer (PFE
; ranked hold; $25) recently submitted a new drug application for its cancer medicine SU11248 (sunitinib malate), known as Sutent, to the Food & Drug Administration. Sutent is an oral, multitargeted cancer therapy that combines anti-angiogenic treatment to stop the blood supply to cancerous cells and anti-tumor action to directly attack tumor cells.
Pfizer is seeking to obtain clearance to market Sutent for stomach and kidney cancers in those patients whose tumors do not respond to or do not tolerate standard treatment options such as Gleevec from Novartis (NVS
; ranked hold; $49). Since Sutent may provide significant benefit over existing therapies, the FDA has granted the drug a "fast-track" review -- meaning an FDA decision on Sutent can be expected by early 2006.
Sutent is also being studied alone and in combination with other medicines for use against a number of other solid tumors, including breast, lung, prostate, and colorectal cancers. Sutent is one of the first in a new class of drugs that selectively targets multiple protein receptors, called receptor tyrosine kinases (RTKs). Inhibition of RTKs is believed to starve tumors of blood and nutrients needed for growth and simultaneously kill the cancer cells that make up tumors.
CHECK THE RECORD. However, Sutent is unlikely to be as successful as Pfizer's blockbuster drugs. Saftlas sees Sutent achieving sales of about $150 million by 2008, representing a relatively minor product for Pfizer. The drugmaker had $52 billion in revenues in 2004, from such blockbuster products as its Lipitor cholesterol-lowering treatment, its Zoloft antidepressant, and its Viagra drug for erectile dysfunction. Lipitor alone was responsible for $10.4 billion in revenues last year. S&P expects Pfizer to generate total revenue of more than $50 billion in 2005.
German drugmaker Bayer AG (BAY
; ranked hold; $36) and U.S. partner Onyx Pharmaceuticals have also developed an anticancer compound, called sorafenib, which is similar to Sutent. That drug application was filed about a month ago and is likely to obtain FDA clearance about a month before Sutent.
For investors willing to take on the extra risk of investing in biotech companies, S&P analyst Frank DiLorenzo recommends looking at businesses that have a positive track record of drug development and possess clinical candidates that have already shown positive results. He believes valuations should also be reasonable relative to peers.
SAME MEDS, NEW USES. DiLorenzo notes there are a number of promising anticancer drugs approved and in development that have the potential to move into new indications, meaning they could get FDA approval to treat diseases other than those for which they were initially approved.
Foremost among these is the colorectal cancer treatment Avastin, from Genentech (DNA
; ranked strong buy; $90). DiLorenzo looks for the company to submit supplemental filings in the first half of 2006 for expanding the drug's use to include first-line treatment of metastatic breast cancer and first-line non-small-cell lung cancer.
In partnership with OSI Pharmaceuticals (OSIP), Genentech promotes Tarceva, approved as a treatment for second- or third-line non-small-cell lung cancer. Tarceva is also under FDA review to treat advanced pancreatic cancer.
Genentech's Herceptin, approved to treat metastatic breast cancer, has also shown promise in the treatment of early-stage breast cancer. An FDA filing for this expanded indication may occur in early 2006.
PROLONGING LIVES. Aside from Genentech, ImClone Systems' (IMCL
; ranked buy; $31) Erbitux, approved to treat certain types of colorectal cancer, has shown solid results in first-line head and neck (H&N) cancer. S&P looks for ImClone to file for FDA approval for the drug to treat H&N cancer by third-quarter 2005.
Additionally, Celgene's (CELG
; ranked hold; $47) Revlimid is under FDA review to treat myelodysplastic syndrome patients with deletion 5q, a rare chromosomal abnormality. However, S&P thinks Revlimid holds more promise in the treatment of multiple myeloma and expects the company to file for FDA approval in this setting by the end of 2005.
DiLorenzo notes that with the exception of Revlimid, all of these drugs are designed to target specific growth factors of cancerous tumors or their related receptors and pathways. For the cancer patient, the benefit could mean anything from a few more weeks of life to a few more years, depending on the study, patient, and indication. Certain new treatment regimens can be viewed as major breakthroughs, while others offer incremental benefits over prior treatment paradigms.
Brodie is a financial reporter for Standard & Poor's MarketScope