Cell therapy, gene editing, and other medical technologies that focus on the human genome are more than science fiction. Find out how shifts in personalized medicine are transforming healthcare when we sit down with William Blair healthcare analysts Camilla Oxhamre Cruse, Ph.D., and Tommy Sternberg, CFA.
Camilla's and Tommy's comments are edited excerpts from our podcast, which you can listen to in full below.
What are the big changes you've seen in healthcare over the past 15 years?
Tommy: The major themes in healthcare don't change dramatically. At the end of the day, we want innovation to help people live longer, healthier lives, but how do we pay for it?
With that theme as context, I've seen three major changes in the pharmaceutical industry: pharmaceutical pricing; a change in business models; and an emphasis on personalized medicine.
The first, drug pricing, feels more and more center stage. Are prices too high?
Tommy: It's a fascinating debate, and there are arguments on both sides. Clearly, we've reached a tipping point where affordability is an issue for the average American. This is largely a U.S. phenomenon, and what's unique in the United States is that drug companies have the freedom to set drug prices.
But list prices are making headlines. Net pricing (what the drug companies collect) is a different story. The rate of increase has declined substantially. Early this decade, net pricing was rising by 9% per year. From 2013 to 2015, it declined to about 4%. And in 2018, net pricing was flat.
Why is this happening?
Tommy: There are two main reasons. First, with media and political scrutiny, more self-policing is occurring in the industry.
Second, there's been consolidation in the supply chain. Pharmaceutical benefit managers (PBMs) have gained more buying power over the last several years. They're negotiating prices and driving formulary decisions (deciding which drugs will get reimbursed and which ones won't).
Will prices rise or fall as we try to cure more complex diseases?
Tommy: The manufacturing cost of a drug often is not very high relative to the overall price of the drug. But it takes hundreds of millions, if not billions, of dollars to develop a single new drug. But the hope is that with advances in our understanding, the industry will improve when it comes to identifying which drugs to develop. Then you will start to see that cost curve come down a bit.
The second change you mentioned is a change in business models. What does that mean?
Tommy: Few new drugs that reach the market were discovered by the company that sells them. Only 6% of the industry's pipeline today actually resides within the top 10 pharmaceutical companies. And pharmaceutical companies have decided to outsource other functions as well—running clinical trials, for example, and manufacturing services.
One reason is risk reduction—if something happens at your plant, you want a backup. Another reason is the rise of virtual biotech companies. If you're a small biotech company with a promising drug in the pipeline but no sales, it can be very risky and expensive to build a new manufacturing plant, so you outsource the manufacturing function.
Outsourcing allows bigger drug companies to focus on their core competencies, which is not the discovery of new drugs, but the selling and the marketing of drugs.
The third big change you mentioned was personalized medicine. That sounds like an opportunity for pharmaceutical companies that are starved for growth, but what is it?
Camilla: Personalized medicine is tailoring medical treatment to our individual characteristics. The concept is nothing new; think about organ donations and blood transfusions, which need to be tailored to the recipient to avoid severe reactions.
But recently there's been a shift in personalized medicine based on our understanding of the human genome. So now when we refer to personalized medicine, we mean our understanding of the person's unique genetic profile and how that plays into the treatment of diseases.
How has our increased understanding of the genetic profile and the correlation to various diseases changed the pharmaceutical industry?
Camilla: Historically, the industry has focused on developing blockbuster drugs. While many of these drugs are helpful, their one-size-fits-all approach is not optimal for all diseases—particularly those where genetic background plays a significant role, such as various cancers.
Historically we've treated cancer patients pretty much the same way, using surgery, radiation, and chemotherapy.
But based on our understanding of the human genome, we can now select a treatment protocol based on the individual patient's profile, with the aim of a more successful outcome, fewer side effects, and a better cost-benefit profile.
Can you provide an example?
Camilla: About 30% of breast cancer patients are HER2 positive, meaning their tumor over-expressed the protein HER2. Herceptin treatment targets HER2. Using Herceptin in HER2 patients has shown to significantly reduce the occurrence of the diseases compared to using traditional treatments.
When talking about personalized medicine, we should probably mention developments we've seen in immuno-oncology.
Camilla: Absolutely. Immuno-oncology drugs take advantage of the body's own immune system to fight cancer. This is a rather delicate business because overactivating the immune system can be lethal. But in recent years, there's been tremendous development.
Last year, the scientists who detected the key mechanism behind immuno-oncology drugs received a Nobel Prize in medicine, which is unique, because it usually takes decades of research to achieve that.
I was at the medical conference where the breakthrough data on one of the first immuno-oncology drugs was presented, and there was euphoria. Doctors who have been treating cancer for 20 years with little development see the potential for a cure. It's truly revolutionary. We don't often see medical history being written.
You said we're in the early stage of personalized medicine. What do we need to progress? Is it a matter of dollars, data, computing power?
Camilla: It will take time because there's so much to do. We're just scratching the surface. The further we dig, the more we learn. That's why it's so interesting being a healthcare analyst. It's an extremely dynamic environment.
At the moment, there are three big technology trends that are making a huge impact on the industry: gene therapy, cell therapy, and gene editing.
What would be a good example of gene therapy?
Camilla: Gene therapy refers to any treatment that adds, removes, or changes a patient's genetic material. There are a couple drugs on the market that do this.
One, approved just a few months ago, offers a potential cure for a truly horrible chronic neurological disease called spinal muscular atrophy (SMA), which affects babies. It does so at the jaw-dropping price of $2 million per patient, but it shows the potential of gene therapy.
Tommy: A specific gene was identified in infants with SMA, and there's when gene therapy is relevant—where genes are missing or it's not working properly. Other examples are sickle cell disease, muscular dystrophy, hemophilia, and some eye diseases.
What's really exciting, as Camilla said, is these can be curative, one-time treatments because you're not addressing the symptoms but the underlying cause of the disease.
How does cell therapy differ from gene therapy?
Camilla: Cell therapy involves transplantation of human cells. Bone marrow transplantation is an example, but we've recently seen the development of cell therapies focused on boosting the patient's immune system.
One such immunotherapy approach that's getting a lot of attention right now is CAR-T. Basically, doctors extract T-cells (the immune system's infantry) from a patient, then modify and amplify them and reinstate them back into the patient.
There are currently two CAR-T treatments on the market that are approved for different types of blood cancer.
And gene editing?
Camilla: Gene editing is earlier in its development than gene therapy and cell therapy. There are no approved treatments today, but the development of a technology called CRISPR has recently accelerated development. CRISPR is used to edit genes. It's basically a pair of molecular scissors. It cuts open a DNA strain, then edits a specific piece.
It's a bit of science fiction, but there's huge potential. The first patients are actually going into clinical trials for a specific cancer indication.
This is different from gene therapy, correct? It's more preemptive?
Camilla: They're in the same bucket, but different. With gene editing, you change smaller pieces of the gene. If you have any ambition of creating your own Jurassic Park, this would be the technology you would use.
In fact, an American scientist claims he can bring back the mammoth using CRISPR technology. So while CRISPR comes with huge scientific potential, it also comes with a lot of ethical responsibility.
If the pharmaceutical industry starts curing everyone rather than treating everyone, does that lead to a loss of revenues?
Tommy: You could go down that route, but I don't think that we'll start seeing it occur in mass in our lifetime. First, we have a long way to go in the development of these technologies.
At the same time, I don't know that these technologies are all that different from other technologies that moved the needle. Drugs lose patent exclusivity after a certain number of years. New drugs come out and replace the older ones.
Camilla: And from a scientific perspective, this is really a dynamic setting. It's constantly changing. For example, we're now finding out the tumor cells are developing resistance to Herceptin. That will definitely keep us all busy for a very long time.
Tommy: Even if we live to 150, we'll want to start living to 200. We'll always find something to try to fix.
Tipp: Dieser Beitrag ist auch im "Investment Insights"-Blog von William Blair verfügbar.