The Straightest Line to Commercialization

5 Feb

2 Major Investment trends in Life Sciences in 2013, and what’s driving them

By Max Klietmann, VP of Research, LSN

In recent months, LSN’s research team has interviewed a large number of investors that are increasingly targeting their investment criteria in two key areas: orphan drugs and targeted therapies & companion diagnostics. This article seeks to explain exactly what defines these spaces, and what makes them so attractive given the current environment.

Trend 1: Therapeutics Targeting Orphan Indications

Orphan diseases are rare diseases defined by the FDA as having fewer than 200,000 afflicted persons in the United States – an approximate incidence of 1 in 1,500 people. These indications were historically unattractive due to the limited number of target patients, but now enjoy significant regulatory advantages due to incentives granted by the FDA.

The resulting benefits of targeting an orphan designation include a faster regulatory path, decreased regulatory scrutiny, and premium pricing. As attractive as this may have been historically, it is becoming even more interesting from an investment perspective today as many industry experts believe that FDA regulation is likely to become more restrictive in coming years, and cost pressures will force down the prices of many therapeutics that do not enjoy the “pricing buffer” that orphan drugs do. This is an important consideration for investors, especially in early stage companies, since the nature of the FDA during preclinical trials today may be very different from phase III trials a few years further down the road.

Trend 2: Targeted Therapies & Companion Diagnostics

The second major trend of high interest to strategic investors across the board in the coming year is targeted therapeutics & companion diagnostics. The concept here is also driven by regulatory pressures, and aims to carve out “micro-indications” within major disease categories. For example, if a firm is seeking to develop an oncology therapeutic targeting breast cancer, they have the opportunity to target only a specific subset of patients who exhibit a specific biomarker that correlates to a higher efficacy rate for the paired therapeutic. Essentially, this comes down to finding a target niche within an indication, which yields the best possible clinical results, expediting the regulatory path. Once the drug has made it to market, early trial data can be recycled as the indication scope is expanded to cover more populations while the company enjoys an active revenue stream.

Fundamentally, both of these trends reflect a growing understanding among investors in life sciences that the days of “hot-potato-ing” an asset on to the next investor are over. The industry requires long-term investors with a genuine willingness to bring drugs to market, and therefore, the active capital is streaming towards those product areas that are not targeting the blockbuster indications, but can make it to market fastest. The trend for 2013 is most certainly “bunt to market” rather than “swing for the fences.

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