A series of disastrous drug-development trials sent the biotechnology sector into a tailspin over the last two months, prompting some to speculate that the way new drugs are financed and brought to market will soon be overhauled.
The bad news started when San Diego-based Ligand Pharmaceuticals revealed on March 28 that its Targretin chemotherapy trial for lung cancer had failed, causing a 28 percentage point drop in its stock by April 26.
Then Elan Pharmaceuticals, once an industry powerhouse, saw its stock fall 43 percent after its March 30 announcement that two patients had died while taking its newly approved multiple sclerosis drug Tysabri.
The proverbial nail in the coffin was then hammered home when one most highly watched cancer vaccine trials, CancerVax’ Canvax, imploded on March 5. Since then, the company’s stock has since declined by 54 percent.
The high-profile busts, helped along by an already sluggish market, dropped the TR Small-Cap 50 Biotechnology sector down 2 percent since December 31. As the stocks continue to decline, the reality is that it will become much more difficult to raise operating capital from both the public markets and private equity sources.
The drop has already had an effect on venture capital sources. According to a PricewaterhouseCoopers survey, venture investments in the biotech arena dropped to $1.08 billion in the first quarter of 2005, down from $1.6 billion the previous quarter.
The empty well couldn’t come at a worse time, either, as biotech firms need cash to capitalize on the sector’s predicted growth. The biotechnology industry as a whole is on the verge of a golden age of new drug approvals. According to the Pharmaceutical Research and Manufacturers Association (PhaRMA), there were 324 biotech drugs in clinical trials at the end of 2004. Even more impressive is the fact that there are more than 250 phase III trials of biotechnology compounds, many of them on different applications for the same drug.
Since three out of four phase III trials historically make it to approval, there should be hundreds of new biotechnology drugs available in a next few years to add to the handful that are already in circulation.
The rub, though, is that it takes at least $100 million to market a drug once it has been approved. And it takes even more (the industry standard is $800 million from discovery of a molecule to FDA approval) to guide the hundreds of other compounds that are in earlier phases of trials through to the approval finish line.
“We’re seeing a dramatic limitation in drug development,” says Brian R. Buxton, a co-founder of Easton Associates, a biotechnology consulting firm. “Now companies have to pick and choose the very best drug candidates and invest only in those. That means that a lot of potential treatments aren’t being developed.”