The next blockbuster drugs

The launch of such a successful drug - known as a blockbuster - is a major score for any pharmaceutical company; for Pfizer, Lipitor was at one time generating almost a quarter of the company's overall turnover. But the nature of healthcare intellectual property laws ensures blockbusters don't remain dominant forever. In fact patent protection for branded products normally only lasts between 10 and 20 years and, once it is lost, cheaper generic versions flood the market. For Lipitor the arrival of competitive products in 2011 shook annual sales which, by 2015, had fallen to $1.8bn.

Lipitor isn't the only former blockbuster to face competition from unbranded products recently. However, unlike in years gone by, pharma companies have failed to launch new big-selling drugs to make up lost revenue. That's because, after a wave of new drug launches at the turn of the millennium, many companies saw fit to invest more in marketing than in scientific development, which left gaping holes in their drug pipelines. For pharma investment that's created something of a problem as many former gems of the market have suffered diminished earnings and cash flows, causing investors to fall out of love with the sector.

But the tides are turning thanks to the advent of biotechnology and the genetics revolution, which have kicked big pharma back into action. Scientific development in recent years has motored, leaving the global drugs pipeline looking more exciting than ever. But the increasing number of drugs in the late stages of clinical development makes determining any potential future blockbusters a tricky task.

In this series of features we aim to keep tabs on the global clinical development pipeline and help pick out the companies with blockbusters up their sleeves. In this first part of the series, we've taken a closer look at the areas of disease where drugs have historically made big money and, thanks to large populations or major scientific developments, are likely to do so again.

  

The phases of drug discovery The drugs development pathway is a long one. The time between discovering a potential new drug and launching that drug on to the market, can be around a decade. On the one hand, that’s why the current global drug development pipeline is so exciting – many companies have come through the early stages of development and are now undergoing pivotal phase three trials. However, for those drugs in the early stage of human trials, extensive time and cost pressures are still to come and this must be taken into account when assessing the likelihood of that drug becoming a blockbuster.

 

Respiratory

Almost every major pharmaceutical company has a respiratory division, which, considering the attractiveness of the market, is not altogether surprising. Patient populations are extensive and their need for regular, long-term medication helps pharma companies generate high commercial returns on drugs. Plus, with inflammatory problems lying at the heart of both chronic obstructive pulmonary disease (COPD) and asthma, the majority of drugs are approved for both illnesses.

Respiratory illnesses are among the most well understood of all diseases and this means that the gold standard of treatment has gone largely unchanged for many years. For immediate relief from a respiratory attack, salbutamol has been the uncontested king since it was first discovered in 1966 by a company that was to become GlaxoSmithKline (GSK). To this day, the branded product Ventolin generates significant returns for the company.

Steroids and long-acting beta-agonists are considered best-in-class for the long-term management of respiratory disease, and the success of drugs such as GSK's Advair and AstraZeneca's (AZN) Symbicort proves their efficacy. Dr David Cox, healthcare analyst at Panmure Gordon, says he can't see these products ever falling out of favour and "like paracetamol is for pain relief", they are always going to be crucial in treating respiratory disease. But others argue that it's high time for a changing of the guard. Jan-Anders Karlson is the chief executive of small respiratory company Verona Pharma (VRP). His view is that respiratory drug developers have become lazy and a lack of innovation has come at a cost to patient populations inflicted with the most severe respiratory disorders.

For example, for COPD patients, steroids are not terribly reliable and so Verona aims to target that population with its drug, currently in phase 2 clinical trials. RPL554, as it is currently known, will be the first long-acting bronchodilator to not use steroids. Early results have been extremely promising, patient feedback good and, by targeting a specific patient population, Verona goes pretty much uncontested as it attempts to launch its drug. Should it succeed, there could be opportunity for blockbuster status, particularly if RPL554 is approved for asthma and cystic fibrosis, as well as COPD.

Also targeting the severe patient population is Mereo BioPharma (MPH), again undergoing a phase 2 clinical trial. BCT-197 is a pill that helps improve symptoms for COPD patients whose illness has got dramatically worse. The group's chief executive, Denise Scots-Knights, denies that Verona's RPL554 will be a competitor. However, should the latter be approved and launched first (and perform as well as Verona says it will) we struggle to see how Mereo will generate big sales.

For smaller companies, targeting these specific populations is a very wise decision as the wider respiratory market is tough to crack. Today drug development is more of a case of reinvention than innovation and therefore marketing budgets play a big role in elevating sales. Vectura (VEC) aims to benefit from the strength of big pharma's commercial arm through partnering its respiratory products and receiving royalty payments. Its Breezhaler range generates significant sales for Novartis (CH:NOVN), while GSK's Ellipta is edging towards blockbuster status having generated £220m of revenue in the second quarter of 2016. But GSK has recently announced that it plans to terminate its agreement with Vectura, perhaps hinting that it no longer sees Ellipta as a big moneymaking product.

In the coming years, blockbuster respiratory drugs are most likely to come from triple combination management products - so called because they contain three different drugs in one inhaler. GSK and Astra both have products in development, with GSK's likely to hit the market first. These two UK giants have, however, both been beaten by a little-known private Italian respiratory specialist, Chiesi. Early in September this company became the first to complete clinical trials to show the benefits of its triple combination inhaler compared with the standard dual therapy.

However, the most innovative area of respiratory drug development is undoubtedly injectable biologicals, which use biotechnology (living organisms) to target the excessively high levels of white blood cells experienced by certain asthma patients. GSK's Nucala was the first to be launched on the market, after its November 2015 approval, with Teva's (il:TEVA) reslizumab not far behind. Astra also has a product, Benralizumab, which is currently in the final phase of clinical development. But many sector specialists can't see these drugs reaching blockbuster status. The problem lies in the relatively low number of asthma patients who can actually benefit from this type of treatment. The delivery method is also a cause for concern as injections require a trip to the doctors, taking away the ease of use of traditional inhalers.

 

Oncology

Most of us will have seen the adverts; "today more people survive cancer than die from cancer". That incredibly exciting statistic is due to the strides taken by oncology researchers in recent years, and drug development is now accelerating faster than ever.

Cancer treatment has historically centred on the toxic and bulky methods of chemotherapy and radiotherapy, which often have serious side-effects for patients. But, increased knowledge of genetics could revolutionise cancer treatment. Drugs in the pipeline today are targeted to specific types of cancer cell - rather than the chemo technique of blowing out all cells, healthy or not. This makes the global cancer drug pipeline both exciting and absolutely vast.

But where are the blockbusters going to come from? Experts consider the oncology marketplace to be much more data-driven than other areas of pharmaceutical development. This means that the biggest-selling drugs are likely to be those that generate the best results in clinical trials - put simply, those that make the highest number of cancer sufferers better for the longest period of time. This puts pharmaceutical companies of all sizes on a level playing field, as marketing budgets don't play a role in the chance for commercial success. In fact, some of the most innovative drugs with the highest potential to cure cancer are being developed by very small companies. But the 'first-mover advantage' must also be taken into account. Cancer patients are often desperate for treatment and therefore the instant a company receives regulatory approval it is likely to start being prescribed, putting any competitors out of the picture.

Current cancer development is heavily focused on immuno-oncology - teaching the body's own immune system to fight the cancer. Chimeric antigen receptor T Cell technology, colloquially named CAR-T, is one of the most talked about areas of immuno-oncology, for the simple reason that developers have been able to use the word 'cure' when describing the outcomes of treatment. In early-stage clinical trials Juno Therapeutics (US:JUNO), a small US company, eradicated acute lymphoblastic leukaemia - a notoriously aggressive type of cancer - in a small number of patients.

The treatment involves extracting immune system cells, correcting them in a laboratory and then reinserting them into the patient. The complexity of this procedure means some believe that this type of treatment is not commercially viable. Gareth Powell, healthcare fund manager at Polar Capital, can't see CAR-T therapy being widely prescribed as it is so expensive. Others disagree and think whichever company launches its CAR-T therapy first will have scored a blockbuster. At present that first-mover advantage is likely to go to Novartis, which expects to file its drug, CTL019, with US and EU regulatory bodies in 2017. Development at Juno Therapeutics was set back after three patients died on its phase II trial, while clinical trials at Kite Pharma (US:KITE), another small US contender, are running behind those at Novartis.

UK investors can get a slice of the CAR-T market through Oxford BioMedica (OXB), which is providing the UK batches of CTL019 for Novartis. The company has recently expanded its manufacturing facilities in order to cope with the demand from the Novartis trials.

Poly ADP ribose polymerase (Parp) inhibitors are another hot topic of oncology research. Parp was thrust into the spotlight in August when Pfizer paid $14bn for Medivation - a small US company with a Parp inhibitor in the pipeline. Parp is a checkpoint inhibitor, a type of immuno-oncology that aims to sidestep one of cancer's dirtiest tricks - identity theft. Tumour cells are able to disguise themselves as normal human cells, which stops the immune system from recognising them. Checkpoint inhibitors operate by identifying disguised cancer cells, thus allowing the immune system to launch an attack.

The first checkpoint inhibitors have already reached the market, with Merck's (US:MRK) Keytruda claiming the first-mover advantage. Keytruda has been approved for use in melanoma and is currently undergoing accelerated trials in neck cancer, lymphoma and non-small-cell lung cancer (NSCLC). Fellow US giant Bristol-Myers Squibb (US:BMY) also has a drug, Opdivo, approved for melanoma, but it recently failed a NSCLC trial, potentially putting it out of the running for blockbuster contention. This failure was good news for AstraZeneca - which saw its share price rocket to its all-time high following BMS's announcement - as the UK giant also has a checkpoint inhibitor in development. Astra's drug is a bit different as it targets two different immune checkpoints, PD-L1 and CTLA-4. The trial, code-named Mystic, is due to announce results soon and, if all goes well, Astra is likely to be the first company in the world to file a combination cancer therapy. Consensus analyst forecasts have the drug reaching peak annual sales of $3bn.

Small UK company Scancell (SCLP) also has a drug to treat melanoma. This drug is not in direct competition with Astra or Merck, however, as it operates in yet another area of immuno-oncology. Scancell's SCIB1 is a glycoprotein 100 vaccine, which is used to stimulate an immune response to melanoma cancer cells. Chairman Dr John Chiplin therefore sees it as an excellent combination product to be used alongside a drug such as Keytruda. "Keytruda applies the breaks to ensure cancer cells are recognised as foreign, while SCIB1 accelerates the immune system to attack." Launch is a long way off, though, with phase 2 trials in combination with a checkpoint inhibitor only due to start in the latter half of 2017. But if management is to be believed that "this is the best melanoma drug in the world", Scancell could be sitting on a gold mine.

The same could be said about many small companies with early-stage oncology drugs. RedX Pharma (REDX) has recently initiated clinical trials in pancreatic cancer for its 'porcupine' inhibitor drug in combination with another checkpoint inhibitor. Tiziana Life Sciences (TILS) is undergoing phase 2 trials for its inhibitor, Milciclib, for liver cancer. These are early-stage, but are unique types of treatment, which make the companies both high risk and potentially high reward investments.

 

 

Cardiovascular

Statins, which are used to treat patients at high risk of a heart attack or stroke, are some of the best-selling drugs of all time. Lipitor is a statin, as is AstraZeneca's Crestor, which generated peak sales of $5.2bn in 2013. But statins have been so efficient in lowering blood cholesterol - the main cause of heart disease - that research into cardiovascular disease (CVD) has rather fallen out of fashion with pharmaceutical companies. Furthermore, today people are more aware of the dangers of high blood cholesterol and a lot more of the work into CVD has been about educating people to eat a healthy diet and exercise well.

That's not to say that CVD isn't still a major problem, particularly in the western world where heart disease is the leading cause of death in both men and women. And big patient populations means big money for drug companies. But the importance of brand awareness in CVD drugs means that, as with respiratory, operation in this area is almost exclusively restricted to the largest pharmaceutical companies.

Some of the most exciting current data is coming out of research into PCSK9 inhibitors, dubbed "the next statins" by many. These blood thinners are actually said to be more efficient than statins as they target a specific enzyme responsible for causing high blood cholesterol. The PCSK9 market has been the battle ground for a particularly fierce competition for sales between two new drugs; Amgen 's (US:AMGN) Repatha and Praulent, created by Sanofi (FR:SAN) and Regeneron (US:REGN). Both drugs hit the market within a month of each other in 2015 having proved their efficacy at lowering blood cholesterol. But the key to sales growth is likely to be data from ongoing follow-up studies that are attempting to show that the drugs have a significant effect in lowering the risk of heart attack or stroke.

These drugs could become competition for AstraZeneca, whose blood thinner Brilinta has been marked as one of its most promising drugs. Brilinta has been approved for acute coronary syndrome having demonstrated that it significantly reduces the risk of a repeat heart attack in patients who have already suffered their first. In the first half of the 2016 financial year Brilinta generated $395m of revenue. However, its chances of reaching blockbuster status were diminished when, in March, it failed to significantly reduce the likelihood of stroke patients suffering a second stroke. That said, Brilinta is also being tested in 80,000 high-risk cardiovascular patients - the largest clinical trial the company has ever undertaken - for the prevention of heart attack, with results expected in 2018.

Management of type 2 diabetes is another big area of research, and results from new Glucagon-like peptide-1 (GPL-1) studies have proved that these injections have better safety profiles than the current standard of care. GSK has a GPL-1 drug, Tanzeum, which launched in the US earlier this year and saw early sales of £54m. Astra has two drugs: daily treatment Byetta and weekly Bydureon. The market is crowded, with eight drugs currently vying for sales, but management at two of the biggest companies Novo Nordisk (DK:NOVO) and Eli Lilly (US:LLY) have each said that they believe the GLP-1 category can grow fast enough to accommodate all drugs.

 

Favourites: PCSK9 inhibitors

Both of the UK's pharma giants seem to be desperately clinging on to a market that had previously served them very well. Neither of the group's cardiovascular pipelines is particularly impressive and competition is fierce. We therefore don't see much hope for blockbuster status, although Astra's Brilinta could generate big sales if its ongoing clinical trial is a success.

 

More to watch

While respiratory, oncology and cardiovascular diseases are a good place to start in looking for a potential blockbuster, they are not the only areas of exciting drug development. In fact, the extent of innovation today means future blockbusters are likely to come from wider-reaching disease types than ever before. Plus, the launch of the Orphan Drug Act has made the rare disease marketplace significantly more lucrative, meaning it now hosts many blockbuster opportunities. Below are some of our UK favourites to keep an eye on.

 

Company	Drug	Details
GW Pharma (GWP)	Sativex	Earlier this year, Sativex became the first cannabinoid-derived medicine to pass clinical trials in the US. Recent data indicates that it can relieve spasticity in multiple sclerosis sufferers and clinical trials are also ongoing to assess the efficacy in alleviating pain in cancer patients.
Shire (SHP)	Xiidra	The only prescription eye drop cleared in the US for the treatment of signs and symptoms of dry-eye disease. This gives it a wider label than its closest competitor, Restasis, which has led analysts to believe annual sales could reach at least $1bn.
Allergy Therapeutics (AGY)	Pollinex Quattro	This vaccine is currently registered in the EU for the treatment of grass allergies. But trials are under way to expand into more plant, animal and food allergies and launch in the huge US market awaits.

 

The future

GlaxoSmithKline's new chief executive has called research and development the "beating heart" of pharmaceutical companies and it's a heart that is currently beating faster and stronger than ever before. From an investment perspective that is a real bonus as the current commercial opportunities for these companies are enormous. But more than that - like Alexander Flemming's discovery of penicillin, Edward Jenner's smallpox vaccine and the combined efforts of a group of US scientists that led to the commercialisation of paracetamol; today's researchers have a very real opportunity to change the future landscape of human disease. And that's what makes the pharmaceutical industry so exciting.