Infectious Disease Technologies Could Open Investment Opportunities in 2012: Stephen Dunn

Stephen Dunn: Most people don't realize that globally more people die from infectious diseases than from cancer. We currently think of cancer as a terminal disease of the developed world while we believe infectious diseases are a third-world problem and are treatable if only they had proper access to medical care. The fact of the matter is that increasing human population density combined with cheaper global travel between poor and developed regions has magnified the risk of infectious disease outbreaks in the developed world. Even now, our community and healthcare facilities are seeing all sorts of new strains of infections. In addition, human encroachment with wildlife and increasing contamination in the water and food chain have caused a number of deaths and triggered multiple food recalls.

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Infectious diseases require a significant expenditure of drug developer time and money. As a result, oncology drug development appears more attractive. The development and regulatory hurdles are usually much lower for oncology drug development since most cancers affect fewer than 200,000 people a year, qualifying them as orphan drugs requiring just a single Phase 3 trial with a shorter review period.

Today, approximately 60% of new biotechnology companies are focused on oncology and they attract almost 70% of the venture capital and public market capital for biotech. However, the U.S. National Institutes of Health (NIH) is expected to fund $15 billion (B) for infectious diseases, excluding HIV, during 2012 versus only $8B for cancer. While Wall Street has been somewhat ambivalent, the U.S. government clearly sees the growing threat and is funding significant research for infectious diseases. We expect investor sentiment to grow during 2012 as we are beginning to see more and more pathogens that are resistant to current vaccines and antibiotics.

TLSR: What about profitability? How do you make money in the infectious disease space when most, even viral diseases nowadays, are not chronic diseases once they are treated? Even hepatitis C (HCV) is curable.

SD: Profitability is certainly an issue for those routine vaccines such as the seasonal influenza shot that you can get at the drugstore for $30 or the normal childhood vaccination regimens. But investors know there are multibillion-dollar markets as we've seen with the prophylactic vaccines for the human papilloma virus (HPV). The increasing threat from emerging infectious diseases, some with significantly higher transmissibility and mortality, can drive the economics closer to the oncology space. For example, the headlines over the past few years have brought increasing investor awareness to the MRSA (methicillin-resistant Staphylococcus aureus) threat in the healthcare and community settings. Savvy investors are also aware that MRSA is mutating into even more lethal strains.

There are over 300 infectious diseases with only 15% of them having an effective prophylactic therapy. However, since it is usually not financially practical to develop prophylactics, most of the industry and investors have turned to post-infection therapeutic treatments. For example, we have seen both medical and financial success in HIV and in HCV therapies to the point where they could be considered chronic conditions. But these infections require human blood-to-blood transmission, which is relatively difficult.

We believe the best investments will be in the emerging infectious disease space where the transmission vector is faster along with rapidly mutating pathogens that develop drug resistance. For example, Tuberculosis is spread via coughing and sneezing and is so easy to catch that it is believed 30% of the global population carries the latent form. It also has a 50% mortality rate if it becomes active and is left untreated. Due to the prevalence of this infection, Tuberculosis has now mutated from drug-resistant to multi-drug resistant to extremely drug-resistant strains. I expect this resistance pattern to be seen across a number of infectious diseases in the future and the financial opportunities are increasing along with them.

TLSR: Just addressing viral and bacterial disease for a moment, how can we keep pace with drug resistance? It takes 10-15 years to develop an antibiotic or antiviral. Then, the developer of an antibiotic could be asked by the FDA to hold the antibiotic back as second- or third-line use to delay resistance. How is a developer incentivized to expend the resources for such a project?

SD: During the relatively short history of antibiotics, we typically see resistance develop in humans within four or five years and turn into a significant problem within 10 years. This is a result of the multiple pathways for resistance to form. For example, research just published in the New England Journal of Medicine on gonorrhea, which became resistant to sulfanilamide in the 1940s, penicillin and tetracycline in the 1980s and fluoroquinolone by 2007, is now showing resistance to third-generation cephalosporin. Unfortunately, this antibiotic-resistance issue also means that drug developers are not incentivized to develop new antibiotics. The risk/reward for developing an antibiotic, even if it is successful, is unfavorable as the drug might be held in reserve by prescribing physicians to reduce developing resistance. This makes it a risky area for investors.

TLSR: Relatively few new antibiotics have come along recently. Is there a play here for investors?