Diversifying into oncology if ROI on bugs is too low

As with other economic sectors, cyclicality is also seen in biopharmaceuticals, though over a longer period of time. A prevailing megacycle of today’s healthcare industry is found in the expanding oncology market. Key drivers for its lasting and far-reaching growth are increasingly personalised treatment regimens, triggered by a series of innovations including: 1) diagnostic tests for biomarkers, or direct tumour sequencing; 2) an increasing number of drugs selectively targeting vulnerable points of tumours; 3) novel means to mobilize the immune system against cancer cells like checkpoint inhibitors. At the same time, these novel cancer drugs are more profitable due to a double multiplier, i.e. prolonged survival entails longer treatment multiplied by the lifted price point that is justified by the drugs’ improved risk-benefit ratio.

Novel antibiotics, by contrast, were expected to provide higher returns on R&D, which eventually couldn’t be met because: 1) diagnostics for identifying the causative microbe take too long vs the quick manifestation of the infection thus putting the patient’s life at risk; 2) some infections are caused by more than a single agent; 3) under all these premises, broad spectrum antibio­tics continue to prevail over novel narrow spectrum drugs; 4) despite their truly curative benefit, the price of antibiotics remains low.

What has been the consequence of the diverging economics of both therapeutic areas? Big Pharma’s original enthusiasm reverted into deprioritizing R&D on antibiotics, e.g. in favour of oncology. By contrast, only a few biotechs initiated such a reversal, but investors do not necessarily welcome such a move. They could be hidden gems if their valuation is depressed. Swiss Basilea is a prime example: its pipeline has been consistently expanded into oncology, starting ten years ago, yielding BAL101553 (now in Phase II for glioblastoma and ovarian cancer); BAL3833 (in Phase I); and in-licensed derazantinib (in pivotal Phase II for intrahepatic cholangiocarcinoma); while the antibiotic Zevtera (approved in the EU; US Phase III ongoing) and the antifungal Cresemba (approved in the US and EU) are being commercialized by various distributors (e.g. Correvio and Hikma) and partners (e.g. Astellas and Pfizer) in an increasing number of markets. Convincing clinical trial success is needed to see companies like Basilea, Idorsia, and Polyphor properly valued, a breakthrough in oncology could be an occasion.