Healthcare stock indices enjoyed a decade-long growth-phase until and including 2017. IPOs within the sector, at arguably far too steep valuations, continued riding on this growth phase, peaking somewhat later in 2020-2021. This phase culminated with a growing number of disappointments between 2020-1H 2022, driven first by gene therapies, then oncology and in neurodegenerative diseases. Multiple therapies in these areas demonstrated initially encouraging results which subsequently failed to translate into effective therapies for patients.
As a result of these direct disappointments and multiple failures to translate into marketed therapies, the healthcare sector has begun performing poorly, where often many previously gained billions of dollars in market capitalizations have been lost.
For instance, the complexity surrounding gene therapy, especially when it comes to delivery and durability of effect have stalled some of the progress for the time being. But also, the multimillion-dollar price tag coupled with few patients, which already failed to translate into a success earlier as in the case of Europe’s first approved gene therapy in 2012 (Glybera for lipoprotein lipase deficiency), which was eventually pulled from the market due to too little demand.
“A few semi-successful (low market penetration) exceptions include the gene therapies Luxturna, the first US FDA approved gene therapy (2018) enabling previously blind persons suffering from a specific genetic defect to gain a certain degree of their vision back (or for the first time) and Zolgensma, a drug for the deadly genetic disease spinal muscular atrophy enabling patients to see prolonged survival.”
A few semi-successful (low market penetration) exceptions include the gene therapies Luxturna, the first US FDA approved gene therapy (2018) enabling previously blind persons suffering from a specific genetic defect to gain a certain degree of their vision back (or for the first time) and Zolgensma, a drug for the deadly genetic disease spinal muscular atrophy enabling patients to see prolonged survival.
In oncology, cancers continued to prove resilient to many treatments, highlighting over and over again the need for patient-tailored (e.g. profile of tumor mutations and drugs targeted against them) combination treatments – which are still at a nascent stage. Drugs demonstrating single-agent efficacy became rarer while toxicities remain, thus making it difficult to combine multiple drugs. Rare neurodegenerative diseases have remained difficult to treat – Parkinson’s is still treated with the same ineffective standard of care for a long while and in Alzheimer’s, one failure has followed the other.
“There is however a new wave on the horizon, at least within neurodegenerative diseases, oncology and other previously insufficiently treatable diseases.”
There is however a new wave on the horizon, at least within neurodegenerative diseases, oncology and other previously insufficiently treatable diseases. While just this summer [2022], targeted drugs for cancer mutations such as KRAS G12C and the “TIGIT” drugs still led to disappointments, we see novel drugs in the earlier stage pipelines demonstrating promising efficacy and robust safety profiles. Safety is proving to be just as important as efficacy, as only then larger combination treatment regimens can be pursued, which will ultimately be key to being able to cure several cancer types, where today most patients do not respond to treatment or relapse after a short while.
At the same time, the checkpoint inhibitor class PD-1/PD-L1 (allowing immune cells to detect cancer cells) is seeing success in more and more patients across different treatment settings, as reflected by the PD-1 inhibitor Keytruda’s sales figures, which have grown from USD 14 billion in 2020 to USD 17 billion in 2021.
“Vicore reported in the deadly lung disease idiopathic pulmonary fibrosis (IPF), for the first time ever, disease stabilization and large lung function increases after week 18 of treatment.”
In rare diseases we saw some positive headlines recently, for instance with the two Swedish companies Calliditas Therapeutics and Vicore Pharma, who both achieved big milestones in their respective areas. Calliditas received FDA approval for their candidate in IgA nephropathy, making it the first drug on the market specifically targeting the rare kidney disease. Vicore reported in the deadly lung disease idiopathic pulmonary fibrosis (IPF), for the first time ever, disease stabilization and large lung function increases after week 18 of treatment.
To add a third Swedish company to the mix, BioArctic together with its partners Eisai and Biogen saw the first real positive readout with an early Alzheimer’s drug (Lecanemab) in September 2022 – in strong contrast to the controversial approval and underwhelming uptake of Biogen’s previous drug Aduhelm (Aducanumab).
“This hypothesis is further supported by the significant amounts of new capital being raised by specialist investors in 2022 – over USD 15 billion to date – as well as large private equity firms partnering with or acquiring healthcare specialist funds.”
In summary, we are confident that we are at the cusp of a new growth phase supported by recent, fundamentally positive developments – just as the negative developments were followed by an underperformance. This hypothesis is further supported by the significant amounts of new capital being raised by specialist investors in 2022 – over USD 15 billion to date – as well as large private equity firms partnering with or acquiring healthcare specialist funds. We see these as clear signs that new capital is being lined up for deployment in the sector, which will eventually meet with the fundamentally strong stories recently produced.
This commentary was written by Dan Akschuti, Biotech analyst at Pareto for NLS magazine No 04 2022, published in November 2022
Photo: Anna W Thorbjörnsson
