Innovation in healthcare: a long-term opportunity

By: Andy Buden, Investment Director, Capital Group

Many of Capital Group's analysts and managers believe that we are entering a ‘golden age’ of healthcare innovation. One reason is that biopharma appears to be in a ‘third wave’ of innovation.

The first focused mainly on chemistry - simple compounds created in laboratories - to treat everyday diseases and ailments. The second moved from mainly inorganic chemistry to organic chemistry, with large organic molecules or protein-based therapies much more effective and with fewer side effects.

We are now at the beginning of the third wave, the genetic era, which could transform healthcare. Breakthroughs in genomic sequencing and data processing are enabling pharmaceutical laboratories to research, develop and implement highly targeted and precise interventions, such as gene therapy and even gene editing.

The confluence of these new technologies and the pace of innovation are paving the way for novel treatments that address large-scale but largely untapped diseases worldwide. Examples of areas where encouraging rates of development are taking place include the following:

Obesity

Chronic metabolic diseases are arguably the greatest public health burden of this generation, with more than five million deaths per year worldwide from obesity-related diseases. Companies such as Novo Nordisk have recently introduced a class of ‘GLP-1’ drugs to the market, which act by stimulating the release of insulin in the pancreas, blocking the useless release of glucagon after meals and slowing gastric emptying, which together reduce food intake. More importantly, these drugs are highly effective, inducing weight loss of around 15-20%, with minimal side effects.

Although GLP-1s and the companies that produce them have recently attracted a great deal of investor interest, we believe that we are still in the early stages of a long race for the potential of these drugs. One reason for this is simply the size of the market. In 2022, about nine million people in the US were prescribed GLP-1s, compared to a global obesity population of more than one billion.

Currently, GLP-1s are administered by injection, which is creating well-known bottlenecks in the delivery of the drug. However, several companies are working on a new generation of small molecule GLP-1s, which should be faster to manufacture, deliver and administer, which would expand the market.

Finally, GLP-1 drugs have shown potential efficacy in changing the progression of other associated comorbidities in heart, liver and kidney disease, which in turn could have far-reaching effects on the global healthcare system. New-age slimming drugs may have far-reaching benefits.

Global patient populations in potential treatment areas for GLP-1 class drugs

Cancer

As the world's second leading cause of death, the fight against multiple forms of cancer is a key focus to which many companies devote significant resources. One example is the British-Swedish pharmaceutical company AstraZeneca, which has undergone a major transition in the last 10 years from a focus on primary care to concentrating more than half of the company on oncology, a market estimated to be worth more than $250 billion by 2030.

Cognitive impairment

Alzheimer's disease is the seventh leading cause of death in the United States and the most common among adults. Again, several companies are currently working on drugs to delay or prevent its onset, such as Eli Lilly's monoclonal antibody-based donanemab.

Unlike currently available options, which only alleviate symptoms, donanemab is a ‘disease-modifying’ treatment designed to fight the underlying disease. In 2023, Eli Lilly published results from a phase 3 study of donanemab in which the drug reduced amyloid accumulation, on average, by 84% among participants. More importantly, participants who received the drug showed, on average, a 35% slowing of clinical cognitive decline, and a 40% decrease in the ability to perform activities of daily living.

While the company acknowledges that there are still associated risks and side effects that require further study, the results are very encouraging for the prospect of one day being able to tackle this disease.

Pain

Pain is the most commonly suffered form of disease, affecting more people than diabetes, heart disease and cancer combined. The most common over-the-counter painkillers, such as aspirin and Tylenol, have limited effectiveness, while opioids - stronger painkillers used in more severe cases - work by convincing the brain that pain does not matter. Opioids also have a number of side effects, including the potential for addiction. Companies such as Vertex Pharmaceuticals are developing drugs that block the signal in peripheral nerves outside the central nervous system, targeting the source of pain. The additional advantage of this approach is that, by not acting on the brain, there are fewer potential side effects.

Generation of platform technologies

At the core of potential treatments and therapies for a wide range of diseases is a new generation of platform technologies, which gained attention during COVID, where vaccines based on mRNA technology were successfully developed and deployed worldwide on a large scale.

Platform technologies are fundamental scientific discoveries that change our understanding of biology or engineering inventions that expand our tools for understanding and intervening in human disease. To borrow a phrase from the venture capital firm Andreesen Horowitz, ‘if blockbuster therapies are the golden eggs of the biopharmaceutical industry, platforms are the geese’. One of the most attractive features of these technologies is their scalability, given that they are platform agnostic.

One example of a promising platform technology is RNA interference (RNAi). Many diseases arise due to the accumulation of mutated proteins; with RNAi, we can now ‘cut off’ the signal to those proteins. Alnylam Pharmaceuticals has been developing RNAi technology for 15 years. The company introduced the world's first approved RNAi therapy and now has a portfolio of investigational RNAi therapies for genetic, cardiometabolic, infectious and central nervous system diseases.