Biopharma knows this industry plague all too well: One company finds a new way to tackle a disease and a whole bunch of rivals pile in. And that overcrowding raises the risks for all players—and raises doubts about the optimistic valuations investors are placing on these companies.
In fact, 15 disease areas will become dangerously overcrowded over the next five years, Leerink analysts figure, putting a dozen companies at risk, from big names like Amgen and Biogen to smaller players such as Assembly Biosciences and Dova Pharmaceuticals.
Leerink’s list spans a range of diseases both rare and common. There are the well-covered diseases like wet age-related macular degeneration (AMD) and multiple sclerosis, as well as rare illnesses like the blistering skin condition pemphigus and the blood disorder paroxysmal nocturnal hemoglobinuria (PNH). The analysts ignored drugs that only treat symptoms and focused instead on medicines that change the course of disease.
Even when Leerink assumed a modest 35% success rate of all the drugs in the pipeline addressing these diseases, the analysts concluded competition will intensify more than twofold across the categories over the next five years. But some diseases, such as atopic dermatitis and PNH, will see competitive intensity rise by more than 200%, the analysts predicted.
The companies facing the biggest risks from stepped-up competition aren't those vying for large patient populations. Instead, it's those in smaller specialty markets, Leerink contends. Investors have plowed plenty of capital into rare diseases, and that's caused a pile-up.
All of that investment has allowed companies to invest in "highly directed, relatively cost-efficient research and development,” the analysts wrote, given the small trials required to win approval for rare disease drugs. “Multiple companies are now pouring resources into research for these small indications with relatively undifferentiated medicines or by applying modular or off-the-shelf technologies to develop new medicines for such indications.”
What if current pipelines produce a 100% success rate? That would multiply treatment options for two rare diseases—spinal muscular atrophy (SMA) and pemphigus—by a factor of five. Bad news for Biogen, a contender in the SMA market with its fast-launching Spinraza, and for pemphigus drug developer Principia, Leerink said—and their investors. Biogen's market cap now stands at $65.4 billion, partly in thanks to Spinraza's success, and it's trading at a price-earnings ratio of 21. Principia, which went public in September, is trading at nearly double its IPO price of $17 a share.
Even if there are failures in the pipeline, history shows just how competitive markets can become in just a few short years, the analysts point out, citing wet AMD and multiple myeloma as examples. Both markets were already well established in 2013, but competitive intensity still increased over the following five years.
In wet AMD, competitive intensity was up 230% over the past five years. Leerink expects that intensity to grow even more over the next five years, by 330%.
The competitive landscape is even more crowded in multiple myeloma. Competitive intensity grew 340% in the last five years and Leerink expects it to skyrocket 440% through 2023. That will present risks to Celgene and Amgen, both of which are active in that market.
In fact, it was all of the multiple myeloma data presented at the recent American Society of Hematology (ASH) meeting that inspired the Leerink team to issue its warning about overcrowded markets. At the confab, “we were presented with no less than a dozen different multiple myeloma therapeutic programs targeting B-cell maturation antigen (BCMA), at least a year in advance of the first conceivable approval of any treatment addressing this target,” the analysts wrote.
“This crowding seems to now be typical of promising new indications, targets and pathways,” Leerink added.