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In the pharmaceutical industry, a "blockbuster" is any drug that brings in $1 billion or more in revenue per year.
It's the prize that every biotech hopes to win – and every biotech investor hopes to cash in on.
So how do you spot one in the making? If the market suspects a drug candidate has blockbuster potential, catalysts (events like positive clinical study results and regulatory milestones) will give its manufacturer's share price a big, big boost.
There is no crystal ball that's 100% accurate when experimental drugs are concerned, but here are some telling questions that can narrow your search.
Questions to Answer Before You Buy In
- Does the drug fulfill an unmet need?
Alexion Pharmaceuticals Inc.'s (Nasdaq: ALXN) Soliris (eculizumab) is the only drug approved to treat paroxysmal nocturnal hemoglobinuria (PNH), an extremely rare, lethal blood disorder. It is also the only therapy approved to treat atypical hemolytic uremic syndrome (aHUS), a genetic condition that can result in sudden and progressive damage to vital organs, leading to stroke, heart attack, and kidney failure. Five years ago, ALXN shares were selling for about $18.50. They recently hit a high of $180.51 – thanks to Soliris, and Soliris alone.
- Is it a "breakthrough" drug?
A "Breakthrough Therapy" (BT) is actually a designation awarded by the FDA for a drug that "…is intended alone or in combination with one or more other drugs to treat a serious or life-threatening disease or condition and [has] preliminary clinical evidence [that] indicates the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development." In 2012, the FDA granted Roche/Genetech's Gasyva a BT designation and then approved it for marketing in 2013. It treats chronic lymphocytic leukemia (CLL) and is expected to be a big blockbuster – as are the other three breakthrough therapies that were approved last year.
- Can its market produce blockbuster income?
This can mean a huge market, such as patients with high cholesterol – think Pfizer Inc.'s (NYSE: PFE) Lipitor (atorvastatin calcium), the bestselling drug of all time – or a small market that will pay for highly priced orphan drugs for rare diseases. BioMarin Pharmaceutical Inc. (Nasdaq: BMRN), a company that specializes in the development of drugs for rare diseases, for example, has increased its share price 460% over the past five years by following this strategy.
Where to Find These Big Winners
One great place to look for potential blockbuster drugs is in the pediatric market. Drugs for children with serious medical problems seem to have a special attraction for investors. For example:
Aegerion PharmaceuticalsInc. (Nasdaq: AEGR) developed a drug, Juxtapid, for a rare genetic condition called homozygous familial hypercholesterolemia, or HoFH, that can raise a person's cholesterol levels to more than 1,000 mg/dL. A healthful level is considered to be less than 200 mg/dL. The disease largely affects kids, who can die of heart attack by age 2. Most are dead by age 11. When Juxtapid hit the market, it was the only therapy available. ISIS Pharmaceuticals Inc. (Nasdaq: ISIS) would soon join in the competition with its less expensive injectable drug, Kynamro, but Juxtapid had fewer side effects and could be administered orally.
There are only about 2,000 cases of HoFH in the United States, but Aegerion charged $250,000 per year for its medication.
About the Author
Ernie Tremblay has more than 25 years of experience in following and analyzing the latest developments in health, medicine, and related technologies. He understands the FDA approval process, as well as the "hard science" behind new, experimental drugs and the market demand for them - and has a comprehensive grasp of the complex dynamics that determine whether a new drug will be a breakthrough winner, or just another casualty of the FDA approval process.