To answer that question, let’s take a look at three successful anti-inflammatory drugs: Humira from AbbVie Inc (NYSE:ABBV), Remicade from Johnson & Johnson (NYSE:JNJ), and Enbrel from the trio of Amgen, Inc. (NASDAQ:AMGN), Pfizer Inc. (NYSE:PFE), and Takeda. The three drugs combined for more than $23 billion in 2012 sales and offer a great blueprint for investors looking for the next big drug. Here are three characteristics of a megablockbuster.
1. Treat causes, not symptoms
The emergence of biologics has allowed the pharmaceutical industry to treat the underlying causes of diseases more effectively, rather than simply treating the symptoms that arise from a condition. This isn’t a staple of blockbusters, but future billion-dollar drugs that treat causes will have an efficacy edge over others that don’t. A study published last summer demonstrated that rheumatoid arthritis patients taking one of the three biologic treatments above saw mortality rates drop by half. This and an early start have allowed Amgen, Inc. (NASDAQ:AMGN), Johnson & Johnson (NYSE:JNJ), and AbbVie Inc (NYSE:ABBV) to capture huge swaths of the immunology market.
Another characteristic of successful drugs is that they treat chronic diseases — in this case, autoimmune diseases. Patients will likely need to take medication for years or even the rest of their lives to maximize their standard of living. That provides a steady and relatively predictable future market for anti-inflammatory drugs.
2. Drastically improve treatment
Biotech investors have likely read the term “unmet medical need” several gajillion times. But let’s face it, developing a safe and effective treatment for diseases that leave patients with few or no options can be a successful endeavor. By default, meeting an unmet medical need or drastically improving upon current treatments yields first-to-market status. Figuring out how to treat once “untreatable” immune diseases has paid off immensely for the four companies:
| Company | Drug | 2012 Sales |
|---|---|---|
| AbbVie | Humira | $9.27 billion |
| Johnson & Johnson | Remicade | $6.14 billion |
| Amgen | Enbrel | $4.24 billion |
| Pfizer | Enbrel | $3.73 billion |
Source: SEC filings.
The three injectable drugs above provided the health care industry with convenient solutions to big problems, but that could also hasten their decline. Oral treatments are never far behind, and new injectable drugs add even more convenience to patient’s lives while also reducing dosing regimens.
3. Treat multiple indications
Treating multiple diseases (or sub-groups) with one compound can significantly increase annual sales. Drugs that can be used to combat several unmet medical needs are perfect candidates for megablockbuster status. Take a look at the approved uses for Humira, which this year will become the second drug ever to eclipse $10 billion in annual sales.
| Condition | Market |
|---|---|
| Rheumatoid arthritis | North America, Europe |
| Psoriatic arthritis | North America, Europe |
| Ankylosing spondylitis | North America, Europe |
| Crohn’s disease | North America, Europe |
| Plaque psoriasis | North America, Europe |
| Juvenile idiopathic arthritis | North America, Europe |
| Ulcerative colitis | United States, Europe |
| Axial spondyloarthritis | Europe |
| Pediatric Crohn’s disease | Europe |
Source: AbbVie 10-K.
Some of these markets may not be very large on their own, but together they represent millions of potential patients. Keep in mind that there is no free pass: Companies have to conduct clinical trials for each new indication. Nevertheless, maintaining a relatively clean safety profile (Humira, Enbrel, and Remicade) can go a long way in cementing a drug’s reputation with doctors — ultimately leading to more prescriptions.
Boon for business or ticking time bomb?
There is no denying that the investors in the four companies above have all benefited from the development of the megablockbuster anti-inflammatory drugs. But with patent expirations looming it may be time to begin questioning the sustainability of relying on one drug for such a large portion of sales. All one needs to do is look at the havoc caused by the patent cliff to see how far sales can fall.
These record setters are nearing the end. Humira’s composition-of-matter patent expires at the end of 2016 in the United States and in early 2018 in Europe. Remicade loses European exclusivity in 2015, while Enbrel recently gained another 17 years of protection through the end of 2028. Each company is working feverishly to replace the lost sales set to kick in — and each has great pipeline candidates that could help fill the voids.
Foolish bottom line
When combing the market for the next big drug remember to be on the lookout for the three areas outlined above. While several new anti-inflammatory treatments will undoubtedly reach blockbuster status, the market is getting pretty crowded. Therefore, I find it unlikely that any drugs currently in development will ever reach the $5 billion mark. Investors haven’t seen the last megablockbuster, but the next batch will probably target a new market opportunity. What treatment or disease will that be? Stem cells? Obesity? Leave your thoughts in the comments section below.
The article 3 Hallmarks of a Megablockbuster originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
