How Global Growth of Cancer Can Make You Money
Ron is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
That sounded to be rather rude, eh?
But to be honest, cancer is one of the most feared diseases of all (A February 2011 study conducted by Harris Interactive for MetLife Foundation found that 41% of Americans shudder when they hear the word "cancer"). According to the National Institutes of Health (NIH), medical costs due to cancer in 2007 are reported at around $226.8 billion, and we have over 1.6 million new cases in 2012 as of yet.
In 2008, 2.5 million people were diagnosed with cancer in the European Union (EU27). Cancer is also the second most common cause of death in the Union (29% of deaths for men or 3 out of 10 deaths, 23% for women or 2 out of 10 deaths) - a figure that is expected to rise due to the aging European population.
As my learned Alpha colleague, Alberto, said in his article:
According to the College of America Pathologist, over 60% of all decisions related to a patient's treatment, hospital admission and discharge are based on laboratory results. Such laboratory results coupled by home based diagnostic testing have created a global diagnostic industry worth $26 billion. Cancer testing is estimated at over $2 billion a year, in addition to being one of the fastest growing sectors amongst the diagnostics testing market.
How Fast Growth Rate of Cancer Has Led To Development of the Biotech Industry
Last year in June, Roche (NASDAQOTH: RHHBY), the world's largest maker of cancer drugs, announced that it was to buy mtm laboratories, a global leader in developing in vitro diagnostics, with a focus on early detection and diagnosis of cervical cancer.
This August, Roche seems to be trying hard to get the UK drug-cost agency's approval for their latest Zelboraf skin-cancer treatment.
Here's an excerpt directly from the source:
Zelboraf won European approval in February and is among the new medicines the Basel, Switzerland-based company is counting on to boost growth as sales for its tumor drug Avastin decline. Zelboraf was backed by the U.S. Food and Drug Administration in August 2011 and competes with New York-based Bristol-Myers Squibb Co. (NYSE: BMY)'s Yervoy treatment.
Roche, in collaboration with small biotech companies, is also focusing on launching their first DNA methylation-based tests next year. DNA-methylation screening is designed to be highly accurate in identifying the people who really don't have cancer so that they won't needlessly undergo more invasive and expensive testing such as colonoscopy. Still, the tests will first need to be fast and cheap enough for routine use in hospitals and diagnostic labs. This is supposed to be a hit in the market when they arrive.
Forward Financial Analysis: The stock price has risen 8.14% since June 2011. As per financial records, diagnostics sales increase 6%, significantly ahead of the market totaling 9.7 billion Swiss francs in 2011. The company launched 50 diagnostic tests and 13 instruments in key markets. On the other hand, pharmaceutical sales doesn't seem to show any positive growth results. With the acquisition of mtm laboratories, the company seems to be focusing on capitalizing on the diagnosis market. Moreover, if the skin cancer treatment is approved in UK, we might be able to see some progress on the pharmaceutical end. 2012-2013 is going to be an interesting time phase for Roche.
Since January 2011, Johnson & Johnson (NYSE: JNJ) has been working with a team of doctors from Harvard University and Boston Mass General hospital to create a new blood test for cancer detection. This would be a test that can capture and analyze a single cancer cell in the bloodstream after it has escaped from a variety of types of cancer. The new test is described as the next generation of circulating tumor cell (CTC) technology in a January 3rd press release.
This is how it is described:
The current generation of CTC testing, called CellSearch, is able to count the number of cancer cells in the bloodstream with similar sensitivity, but is not able to analyze details about the genes or other features of those cells. CellSearch is approved for monitoring certain types of advanced cancer but has not been shown to detect or analyze early forms of cancer. The new test may have the ability to detect cancers earlier and analyze them in detail, potentially reducing the need for more invasive and risky biopsy procedures. Even more exciting is the idea that a blood test could detect cancer very early in people at risk.
Forward Financial Analysis: The stock price has increased by 8.07% since January 2011. Looking at the financial segment reports, total consumer health care sales (for the first six months) have fallen by 2% within US and 4.3% outside US since last year. Pharmaceutical sales within the US fell by 7.7% yet rose outside US by 11.3% since last year. Medical devices and diagnostics sales rose by 1.6% within US and fell by 1.6% outside the US. And 40% of the total revenue came from the medical devices and diagnostics segment, followed by 37% from the pharmaceuticals and 23% from the consumer healthcare.
If this blood test gets approved, we can surely see some improvement in the last area, and that also within US. Maybe, the management is going by the concept: "make the strong stronger". Remember, Johnson & Johnson is still the world's largest medical device company.
In September 2011, MELA Sciences Inc. (NASDAQ: MELA) acquired the premarket approval from the US Food and Drug Administration (FDA), after seven long years of litigation, for its latest skin cancer detection tool.
The detection tool, called MelaFind, allows doctors to diagnose melanoma in a systematic way by using a specialized camera to capture an image of the lesion that is then analyzed by a computer using an algorithm developed on thousands of previous patients.
Forward Financial Analysis: The stock price rose by over 14% since September 2011. Well, if not something that we are unaware of, this stock price increment is because of the new skin cancer detection tool. Otherwise the company is running at a loss for three straight years, and the only positive side I see is that it has invested over millions last year in purchasing property and equipment. Though I would not vouch for MELA Sciences now. But let's wait and watch.
On April this year, Abbott Laboratories (NYSE: ABT) acquired an exclusive license for several biomarkers from Stanford University for use in developing a diagnostic test that could differentiate aggressive from non-aggressive prostate cancer.
"This is a meaningful breakthrough for men who have to make the agonizing decision regarding treatments for prostate cancer," said Stafford O'Kelly, head of Abbott's molecular diagnostics business. "Without knowing if the cancer is life threatening, men have no way to know if prostate surgery or chemotherapy is the right option. This newest advance in personalized medicine will provide individualized genetic evidence for informed clinical decision making in choosing the right approach to prostate cancer treatment."
Forward Financial Analysis: The stock price has increased by over 10% since April this year. But this stock price increment is not totally accredited to the acquisition of the license, but because of the strong fundamentals with which Abbott Laboratories operate. Net sales have grown to $38.9 billion in 2011 against $26 billion in 2007 (the start of Great Recession). Although operation income in 2011 showed some slack compared to the last two years before that, I supremely believe that the extra money was utilized in research and development activities.
Abbott has a line of products in the pipeline, including more than 15 new molecular diagnostics products over the next few years, including several novel oncology and infectious disease assays. If we check the financial statements, total sales in the diagnostics segment 2011 vs. 2010 grew by 8.8%, just behind 11% of proprietary pharmaceutical products and 19.8% of established pharmaceutical products. So, Abbott seems to be going in the right direction, and needless to say, if you are invested in Abbott, you might reap well in the coming few years.
This newly gained license is just a small act of the whole play.
Verisante, a Canada-based biotech firm led by CEO Thomas Braun, has received some media attention lately because of its two upcoming Raman spectroscopy technology device, viz. Verisante Aura (already approved in Europe, Canada and Australia), to be mainly used for skin cancer detection, and Verisante Core (under construction), for lung, colon and cervical cancer detection.
As a recent press release says:
Verisante Aura was recently awarded Popular Science Magazine`s "Best of What`s New Award" for 2011, and Verisante Core was named one of the top 10 cancer breakthroughs of 2011 by the Canadian Cancer Society. In addition, the Company was named a finalist for the 2011 Regional Awards for New Technology by the Canadian Manufacturers & Exporters and the National Research Council of Canada and named as the year`s top ranking Technology and Life Sciences Company on the TSX Venture 50.
Discussion with the US FDA will start very soon, and following the preliminary clinical trial and the successive approval, Verisante Aura is expected to be launched in the US markets by 2014. In Europe, Canada and Australia, it is expected to start selling by the fourth quarter of this year.
Forward Financial Analysis: The stock price has actually fallen by over 22% since December last year, when the company started the US FDA approval process for Verisante Aura. If you ask me, Verisante clearly looks undervalued at this point, especially when compared to MELA Sciences, Inc. , whose technology is less effective and far more cumbersome - yet trades at many multiples higher.
If you look at the 2011 annual report, you might not be impressed with what happened so far, but who cares about the past? Intangible assets went up to being worth CAD$2.5 million in 2011 from CAD$922 million in 2010. Huge general and administration costs (which includes advertising) and huge shareholders' equity just leads me to one conclusion: the company is up for something big and the only benefitors will be the investors. What do you say?
As they say, business value is just about market equity.
And other companies are not lagging behind. Zila Inc., a privately owned company based in Colorado, is already making lives better with its new oral cancer detection system, ViziLite Plus. Manufactured and distributed by another Canadian company LED Dental, Inc., VELscope Vx is claimed to increase detection of mucosal abnormalities when used in conjunction with conventional head and neck exams. Another privately owned company, Dune Medical Devices, has its first offering, a real-time breast cancer detection device called MarginProbe System, already under the clinical trials with US Food and Drugs Association. Based in Rochester, USA, the management team of Lucid Inc. seems also pretty excited with their new product lines, VivaScope and VivaNet to provide secure, HIPAA approved near real-time cellular imaging systems.
Who knows, one of these small companies might apply for public listing any day.
Who knows when one of them catches market attention and the price soars in double digits?
Who knows who is going to be the next Johnson & Johnson anyway?
Of course, no one is so cruel to think of making money this way. But then again, you are an Alpha investor, aren't you? You know the fact for a fact.
Fool blogger Suman Chatterjee does not own shares in any of the companies mentioned in this entry. The Motley Fool owns shares of Abbott Laboratories and Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.