How To Attract Investors
The precarious climate in the US might have spooked some pharma investors – but others are looking to targeted therapies to get more bang for their buck.
Amid the pell-mell of proclamations and pledges made by Donald Trump upon becoming US President, one of the more unusual policies to emerge was the threat to bring down drug prices.
On the eve of his inauguration in January 2017, Trump told a press conference that pharmaceutical companies had been “getting away with murder” and vowed to put the squeeze on prices.
It’s the sort of stance one would more commonly associate with Bernie Sanders’ brand of democratic socialism, rather than that of a dyed-in-the-wool Republican. But then again, President Trump is anything but predictable.
The idea of new price controls – always a hot potato – sent shivers down the spine of the global pharma industry. There appears to be little appetite among players for the US to have the same bureaucratic controls around drug prices as there are in place in the likes of Japan and Germany.
Rather, conventional wisdom suggests the more profitable a pharma company – driven by a value-based pricing model – the more attractive it is to investors.
“Investors are still very much focussed on the US pricing environment and its sustainability,” says Tara Raveendran, healthcare analyst at Shore Capital.
Yet, price controls – much like the notion of a Mexican border wall – appear to remain rooted in hypothesis. In 2017, Novartis finally managed to get the FDA’s seal of approval for CAR-T drug Kymriah, used to treat children with acute lymphoblastic leukaemia. Each treatment costs $475,000. Hardly a snip.
Similarly, Luxturna, a new drug from Spark Therapeutics, which treats a genetic form of childhood blindness, is currently priced at $850,000 for a one-time treatment.
There are, says Raveendran, “valid concerns about how the health system will be able to absorb and handle these ballooning costs”. At the same time, it reflects a readiness among investors to back the development of certain new drugs.
“In terms of investor appetite, cancer and rare disease remain, without doubt, two of the most attractive spaces,” she says.
“This is, in part, related to the pricing issues, insofar as they are two sectors in which premium pricing appears to be ‘accepted’ by payers and patients. We are also seeing remarkable innovation in these markets.”
Nonetheless, R&D returns in pharma remain disappointing. According to Deloitte’s latest annual survey of the space, the world’s 12 largest drug companies achieved a relatively paltry return of 3.2% on their R&D spending in 2017. In 2010, that figure stood at 10.1%.
More concerning still for investors, the average cost of bringing a drug has skyrocketed to a record $2 billion, marking a 33% increase, year on year.
There are exceptions though, says Raveendran, of companies pushing the envelope when it comes to their R&D programmes.
She cites the example of AstraZeneca, which last year announced that the FDA had granted Breakthrough Therapy Designation for Tagrisso, a first-line treatment for patients with locally-advanced or metastatic epidermal growth factor receptor (EGFR)-mutated non-small cell lung cancer.
“Big pharma has struggled with R&D, but companies like AstraZeneca seem to be bucking the trend,” she says. “Astra’s third generation EGFR inhibitor Tagrisso is targeted at a very specific population within lung cancer and moved through development at rapid pace.
“The focus is shifting towards more targeted therapies. I’d also say that the idea of ‘following science’ is more relevant than ever; a compelling mechanistic rationale, in a targeted population, betters the chances of success in drug development.”
Asked to pick her most notable pharma investment of the past year, Raveendran plumps for Roche’s acquisition of cancer-focussed start-up Flatiron Health, announced in February. The deal – which is expected to close later this year – will see Roche pay out $1.9bn for Flatiron’s in-house technology, which collects and analyses data from the electronic medical records of cancer patients.
“The Roche acquisition of Flatiron is quite remarkable my view,” she says. “It represents the first big investment from pharma into the sphere of real-world big data analytics, dominated until now by Silicon Valley start-ups and tech companies. So, seeing pharma as an industry getting involved is pretty exciting.”
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