BioTech and Pharma Analysis Part 1 - How Disease Target Affects Go-to-Market Strategy and Market Share

Investing in the biotech and pharmaceutical space presents unique challenges. With an average of 12 years to FDA approval for a drug, significant time can pass before investors see profits from a compound. With fierce competition and steep costs, only 2% of drugs make it to market. While the returns can be extraordinary, with such low probability of success, investors must make sure to invest wisely. To improve their odds of investing successfully in this market, investors must understand the basics of disease indications in the biotech and pharma space. This post will outline how to harness basic disease knowledge to evaluate the target market of a company, introducing basic questions that investors can ask themselves to guide their industry analysis. 

Evaluating the market in which a company competes is an inherent part of any investment analysis. When developing a novel therapeutic, the market is determined (in part) by which diseases scientists believe their drug will effectively target. Diseases (termed “indications”) are staged by severity, cell markers, and more. Drug approvals are based on this staging, with different stages of disease having different recommended first, second, and third-line therapies. Lines of therapy indicate a recommended order in which drugs ought to be administered. In melanoma first-line recommended therapy might be surgery; however, if surgery is not possible (or fails) then doctors would proceed with the second-line therapy of targeted or immune drugs. Both market analysis and go-to-market strategy ought to be specific for an indication and line. While a certain indication may seem large, new compounds, if competitive, can generally hope to capture only a small share of that market. Approved drugs face the additional challenge of being adopted by providers, who have their own preferences and experiences with administering different therapies. 

Both investors and investees must also consider what properties make their drug unique. Gaining FDA approval of a therapeutic requires that the therapy provides a measurable benefit over existing therapies. These benefits may come in the form of improved efficacy, longer acting time, fewer side effects, or more. Interested investors should identify what benefit the novel agent (therapeutic) maintains over existing agents and look for evidence of this benefit in the preclinical and clinical data available. It is worth noting that positive preclinical data does not always correlate to the same improvement in clinical trials. Consequently, compounds with limited or marginal benefit compared to the current standard of care risk rejection by the FDA. 

In certain cases, avoiding the potential profit-limiting consequences of an already-approved plethora of drugs in the same indication can lie in the market strategy and indication target of the drug. The use of multiple therapeutics for combination effect can not only enhance efficacy but also maximize the ability for two drugs to garner profits within the same indication. Any market strategy that includes a plan for combining therapeutics must include clinical trials with that doublet or triplet, increasing the cost and potential time-to-market for the drug. Overall, a defensible market strategy should include a cost-estimated clinical trial schedule and consequently, a plan for funding. With drug clinical trial costs averaging 4, 13, and 20 million for phase I, II, and III trials respectively (trials increase in size by phase) the biotech and pharma industry has high research and overhead costs. 

Thorough market analysis includes not only identification of the disease-target, but also a plan for which stage and line the therapeutic is hoping to target. Investors must watch out for investees overinflating potential market size numbers by insufficiently homing in on their target population. (As an example, Company A might claim their market to be the 541,000 people in the U.S. that live with lung cancer, while their drug only targets mesothelioma, a lung cancer subtype which afflicts only 3,000 of the U.S. population) 

Asking the below questions can help investors better evaluate the niche market the company targets. Novartis’ Kymriah, a targeted cell-based immune therapy will be used as an example of how to home in on market potential. 

  1. For which indications is this therapeutic targeted?

Kymriah targets receptor CD19 on malignant cells and is approved in two indications: Adult relapsed/remitting diffuse large B-cell lymphoma (DLBCL) and pediatric/young-adult relapsed/remitting acute lymphoblastic leukemia (ALL) 

  1. How is the target disease staged? Does the therapeutic target a specific stage?

Both DLBCL and ALL are types of blood cancers. Staging is determined by how many lymph nodes have been invaded by the cancer and the location of those lymph nodes5. Kymriah is approved only in relapsed/remitting settings, meaning the first, second, and third-line chemotherapy, targeted therapy, and other regimens must fail before Kymriah is considered. 

  1. What qualitative/qualitative improvement did the current standard of care in this indication show in clinical trials? Can the novel therapeutic beat this?

Kymriah’s complete responses rate (meaning patients are cancer-free) in DLBCL was 40% and the objective response rate (includes cancer-free patients and patients who exhibit a partial response) was 54% in a patient population that had failed on every other therapy6. 

  1. Will this therapeutic be a monotherapy or a combination therapy? Is this accounted for?

Kymriah is currently only approved as a monotherapy; however, other agents are administered simultaneously, such as interleukin-2, which prolongs the life of the cell therapy in the patient, and other drugs that help mitigate the side effects of Kymriah. This regimen was included in the clinical trials. 

Understanding the target market of a therapeutic can help investors better predict the profit-making potential of a drug. While biotech companies may focus on a smaller array of drugs, larger companies have a greater diversity of compounds in their pipeline. Using indication analysis can help investors evaluate a company’s current and future positioning in its industry. 

Please see Yana's next post, Biotech and Pharma Analysis Part 2 -Using Clinical Trial Knowledge to Understand Competition, for further information.

This page was written by Yana Kropotova and ​Jeffrey Camp​ . Ms. Yana Kropotova is a member of the Cane Angel Network investment team and is pursuing her MD/MBA at UM graduating in 2024. Mr. Camp is the Managing Director of the Cane Angel Network.