Medical Technology and the Fight Against Cancer

Art by Simone Virgini

The fight against cancer has gone on for decades, and today, a better understanding of biology has led to greater innovation, more effective products and significant profits for successful companies.

Take the drug pembrolizumab, sold by Merck under the brand name Keytruda as an example. First approved by the Food and Drug Administration in 2014, it is a PD-1 immunotherapy, which helps the body’s immune system detect and fight tumor cells. It is approved to treat 17 types of cancer, including certain early-stage and advanced cancers and Merck is expected to earn $30 billion in sales by 2026 before it loses exclusivity.

Blockbuster drugs pique investor interest, but there are plenty of risks. It can take at least a decade to develop a drug, and fewer than 10% of drugs in initial, phase one clinical trials eventually get FDA approval. It’s also costly. Nick Galakatos, global head of Blackstone Life Sciences, says the costs to develop a drug from phase one to phase three can range from $2 billion to $4 billion, with phase three clinical trial costs accounting for nearly half of the expense.

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Even with recent medical advances, there are still unmet needs and ways to improve standards of care. Researchers and investors are excited about a few commercially viable innovations being developed by private and public companies.

“In my opinion, there’s never been a more innovative period in the history of pharmaceutical medicine development and devices as well,” Galakatos says.

Anna Turetsky, principal of venture investments at The Mark Foundation for Cancer Research, concurred. “In many ways, we are still in the golden age of innovation for biomedical research,” she says.

Promising Treatments

Agustin Mohedas, research analyst and portfolio manager for biotech strategies at Janus Henderson Investors, says research on antibody-drug conjugates, known as ADCs, a field that dates to the 1980s, is particularly exciting.

“We have finally figured out how to optimize all the different components that are associated with developing antibody-drug conjugates, and ADCs can essentially replace chemotherapy,” he says.

ADCs are biopharmaceutical drugs combining antibodies—proteins produced by a person’s immune system—and drugs to target and kill tumors with less toxicity for healthy tissue. Several companies are focusing on ADCs, and many of the biggest pharmaceutical companies are working with or buying smaller firms for their technologies in this class of drugs, Mohedas says.

AstraZeneca is collaborating with Japanese drugmaker Daiichi Sankyo for a number of its ADCs, including Enhertu, which targets metastatic breast cancer and was submitted for FDA review this year. Pfizer acquired Seagen in 2023 for $43 billion giving it access to Seagen’s portfolio of ADCs in development, including one for metastatic bladder cancer. This year AbbVie completed its $10 billion purchase of ImmunoGen, which included its flagship ADC targeting ovarian cancer.

“Two-thirds of new drugs that are approved were developed at some point by small biotech companies. It’s really where the majority of the innovation lies today,” Mohedas says.

Not all small caps in the space have been acquired. Gregg Fisher, portfolio manager at Quent Capital, who focuses on small-cap public companies, says ADC Therapeutics has developed a drug called Zynlonta, which treats high-grade and large B-cell lymphoma.

Other Treatments Show Promise

Targeted radiotherapy could also be successful, Mohedas says, and he believes radiopharmaceuticals are where ADCs were five to 10 years ago. Interest in the area increased when Novartis acquired Endocyte in 2018, and launched the drug Pluvicto, which targets metastatic prostate cancer. The drug had $980 million in 2023 sales, and Mohedas says it is on track to have as much as $4 billion in , “which really perked everyone’s interest.”

The therapy uses targeted, high doses of radiation to penetrate cancer cells, killing from within, rather than exposing healthy tissue to radiation. Two recent deals were Bristol Myers Squibb acquiring RayzeBio this year and Eli Lilly buying Point Biopharma in 2023, hoping to procure similar treatments and repeat Novartis’ success.

The Mark Foundation for Cancer Research’s Turetsky says the organization is seeing “exciting developments” in small-molecule chemistries that allow scientists to address a wider range of drug targets essential for cancer cells. One company they are backing is Hyku Biosciences, which uses a novel chemistry platform to enable drug discovery.

Another company they are backing is Immunitas Therapeutics, which is developing novel immunotherapies aimed at the majority of cancer patients who do not respond to currently available treatments.

Not all new research is just into new drugs; sometimes it is researching ways to improve technology. Galakatos says Blackstone, which invests in a company’s specific product in exchange for royalties, invested up to 300 million euros ($321.3 million) in French drugmaker Sanofi’s study to improve the delivery of an existing immunotherapy drug to treat multiple myeloma, Sarclisa. Sanofi seeks to develop a subcutaneous formulation for delivery of the drug, which, if it works, would deliver a higher standard of care.

Tempering Expectations

The advances in cancer research are exciting, but Mike Maguire, portfolio manager of Putnam Global Health Care Fund, reminds investors to be level-headed. Drugs not only need to be clinically successful, but be commercially viable, especially when some blockbuster drugs can cost tens of thousands each month for patients and insurers.

There are also increased pressures from single-payer health systems such as in the European Union to keep drug costs down, and the industry also faces uncertainty under the U.S. Inflation Reduction Act of 2022, where Medicare is negotiating directly with pharmaceutical manufacturers for pricing to lower drug costs. Investors are watching and wondering about the potential ramifications of Medicare pricing pressure and ripple effects.

“Folks like me, and those that are invested in these pharma companies, (are watching) how dramatic of a decline could this be in terms of pricing and will this spill over into other drugs in that therapeutic class,” Maguire said.