Billions upon billions of dollars are now spent each year by the health-care industry researching new drugs targeted at improving patients' quality of life. For the most part, this research has resulted in longer life expectancy, and helped reduce and/or eradicate some serious diseases during the past century.

However, according to the World Health Organization, cancer is one disease where the rate of incidence is only expected to rise. While medical advances have worked to lower the mortality rate, generally speaking, researchers still have a lot to learn about what triggers some types of cancers, and how best to treat them. This unknown factor provides a lot of promise for drug developers and investors -- if they can find companies working on the next breakthrough cancer drug.

Unlocking the secret to success when it comes to investing in this industry comes down to simply understanding what you're investing in, and what factors influence the companies developing these potentially life-saving drugs.

What are cancer drugs?

According to the National Cancer Institute, "Cancer is a term used for diseases in which abnormal cells divide without control and are able to invade other tissues." There are more than 100 different types of cancer that range in severity from minor and/or easily treatable to aggressive and difficult to treat. 

Therefore, cancer drugs are designed to inhibit or suppress the growth of abnormal cells. Because there are so many different types of cancer, there is no one-size-fits-all therapy. It often requires physicians and pharmaceutical companies to take a different approach based on cancer type, and even on a personalized basis.

But, even back then, global therapeutic agents were often used because of a lack of gene-based technology, which resulted in both healthy cell and cancer cell death. Today, company-specific proprietary technology, along with incredible improvement in diagnostic technologies, is involved in the development of just about every cancer drug, allowing them to be more focused than ever. Even the pathways in which cancer is treated today -- immunotherapies and targeted therapies, for example -- are continuing to grow.

What is the history behind cancer drugs?

The idea of using surgery to remove cancerous growth has been around for several years. However, the idea of treating cancer with pharmaceutical products originally made its first appearance in the 1950s through the use of chemotherapy.

One of the earliest cancer drugs credited as being a game changer was Gleevec, which helped chronic myeloid leukemia patients move toward a more targeted therapy. Although clinical studies of the drug didn't begin until the late 1990s, research into its creation began with Dr. Janet Rowley in the 1960s.

Since Gleevec's development, we've seen science and research push cancer drugs into a number of new pathways. For example, cancer drug developers are using proprietary linking technology to attach chemotherapy drugs to antibodies. These drugs are released only when the antibody comes in contact with, and is absorbed by, a targeted cancer cell. This implies that antibody-drug conjugates are more targeted, and will result in less healthy cell death as opposed to global chemotherapy.

Another pathway drug developers are currently experimenting with is immunotherapy. These are vaccine treatments that retrain the body's own immune system to better recognize and fight cancer. 

How many cancer drugs are there?

Including available generic drugs, the National Cancer Institute, a division of the National Institutes of Health, lists more than 300 cancer drugs currently approved by the U.S. Food and Drug Administration. Keep in mind that some of these drugs are approved to treat more than a single indication. This means that some patients have a bevy of choices for their physicians to select from when treating their type of cancer, while other patients could find their selection limited based on their cancer type.

This list of approved drugs is only expected to grow in the coming years as a number of pharmaceuticals and biotechs turn their attention toward cancer research. Of course, as the number of approvals rise, the number of failures could be poised to increase, as well.

What drives cancer drug developers?

Now that you have a better understanding of cancer drugs and their history, let's look at the three primary catalysts that tend to influence cancer drug developers. Like all pharmaceutical and biotech drug developers, cancer drugs are developed along the same pharmaceutical timeline as any standard drug:

  • Discovery of an investigational compound in the lab.
  • Preclinical studies.
  • Investigational new drug application filed and approved by the FDA.
  • Phase 1 trials.
  • Phase 2 trials.
  • Phase 3 trials.
  • New drug application filed with the FDA, and (possible) approval.

Early-stage events, such as drug discovery in the lab, pre-clinical studies, and even IND filings, tend to not draw a lot of attention. This is primarily because so many investigational compounds will fail in the lab, or before they reach human trials. However, phase 1, 2, and 3 clinical trials, and/or a decision from the FDA, are often heavily weighted binary events that can send a cancer drug developer soaring or plummeting, depending on the outcome. Generally speaking, the later in development of the drug, or the greater the potential patient pool it can treat, the more weighted the binary event.

Secondly, partnerships or collaborative deals can be important. Although collaborative deals aren't required for cancer drug developers to succeed, they can make the difference for smaller drug developers that either lack the expertise to market their prospective drug, or the capital to finish their clinical studies or bring their developing drug to market. Collaborations can supply smaller companies with upfront capital, as well as regulatory milestones and net sale royalties. Larger companies get the pleasure of leveraging their premier sales force, and licensing out game-changing cancer drugs in an effort to boost their profitability.

The third catalyst is peak sales potential and profitability. Roughly 20 years ago, simply getting a drug approved by the FDA likely meant it would be successful and profitable for the innovating company. That's not necessarily true anymore. Now, cancer drug developers have to be concerned with factors that include increasing competition, pricing of their drug and, potentially, even litigating factors, such as protecting their patent rights against other drug developers.

Combined, these factors all determine how successful a cancer drug developer -- and perhaps its licensing partner -- is at launching and marketing the drug, which, in turn, helps investors determine what the maximum annual sales of the drug in question might be, and how profitable that might make the company in question.