Placing Bets on Biotech

With the fast-growing trend toward personalized cancer medicine, investors are particularly intrigued by opportunities to package treatments with diagnostics.

Bruce Booth, PhD, a partner in the life sciences group of Atlas Ventures, says he saw the future of cancer care in August, when the U.S. Food and Drug Administration (FDA) approved Pfizer's lung cancer drug crizotinib (Xalkori) alongside a diagnostic test by Abbott Molecular that determines whether a patient has the EML4-ALK fusion attacked by the drug. Research identified that molecular target only in 2007—a “staggering” pace from lab to patient, Booth says.

Such drugs that target a small population and are approved in tandem with a therapeutic look very promising, Booth says. “The challenge is how many of those opportunities are out there, and how do you define them at the start rather than having to learn about them later?”

Cancer drugs are popular targets for venture investments, Amgen's Naeve adds, in part because they don't require the enormous clinical trials of a heart disease or diabetes drug. By targeting one particular use with specific molecular targets, trials can be much smaller—and cheaper.

Then, after FDA approval for one indication, firms may be able to expand a drug's use without hugely expensive trials, notes John Carroll, editor of the newsletter Fierce Biotech. He cites Novartis's success in expanding indications for its kidney cancer drug everolimus (Afinitor)—which received federal approval after phase III testing in just 410 patients—to breast and other cancers.

Some clinical trials can begin by gathering a limited amount of data for a very small, orphan market, he says. “Once you've got approval, you can keep on building. You don't see that in other areas much.”

Of course that approach doesn't always work, as Genentech is learning with its anti-angiogenesis drug bevacizumab (Avastin), initially okayed for use against metastatic colorectal cancer. Although the FDA subsequently approved Avastin for breast cancer as well, it is reconsidering that decision.

Drug pricing also may be a challenge. Last year, stock analysts “swooned” when Dendreon released its metastatic prostate cancer drug sipleucel-T (Provenge) with a $93,000 price tag, Carroll of Fierce Biotech notes. “People did the math on the $93,000 and came up with some blockbuster figures,” he says. But partly because of sticker shock, sales have been much lower than expected, leading to layoffs and a meltdown in Dendreon stock.

Many biotech startups today are practically “virtual companies” that outsource most of their work. This strategy means that initial venture investments can be relatively modest. Small size also can make these firms more flexible—and easier to sell or shut down.

At startup, academic researchers decide how the molecule is designed, and the work is farmed out to a lab-for-hire. “You say ‘build us a molecule.’ They ship you the drug. You send it to your partner doing your cell work or animal model work,” says Booth of Atlas Ventures. “You can effectively run a biotech without having your own bench-top equipment and test tubes.” He estimates that about one third of his company's portfolio is invested in virtual companies.

For more news on cancer research, visit Cancer Discovery online at www.AACR.org/CDnews.