Make Money From 2020's Blockbuster Drugs

Looking for trends to invest in can be difficult. Finding the next hot electronic device or game-changing industry can take a lot of sleuthing.

And then sometimes, a reporter just hands you the information.

Reuters had an interesting "Factbox" on its website this month, breaking down the top 10 drugs by the sales analysts predict for this year, and then another for 2014, after generic competition begins for the current No. 1 and No. 2 drugs: Plavix from Bristol-Myers Squibb (NYSE: BMY  ) and sanofi-aventis and Pfizer's (NYSE: PFE  ) Lipitor.

Here are the three most interesting changes I noticed from the two tables:

  • This year, the top three are expected to be traditional small-molecule drugs. In 2014, the top three spots are expected to belong to protein-based biologics.
  • Also this year, there aren't any diabetes drugs in the top 10; in 2014, there are two.
  • The forecast for combined sales of the top 10 drugs in 2014 is lower than it is for this year.

Big pharma biotech finally grows up
The first biotech drug, recombinant insulin, was approved in 1982, but it's taken a while for the protein-based drugs to dominate the megablockbuster list. While we usually think of biotech drugs coming from small drugmakers, the top three spots on the 2014 list will be held by biologics from large pharmaceutical companies: Roche's Avastin, Abbott Labs' (NYSE: ABT  ) Humira, and Pfizer and Amgen's (Nasdaq: AMGN  ) Enbrel.

How long biologics will be able to keep the top spots remains to be seen. The new health-care reform bill sets up a pathway to approve copycat versions of biologic drugs. These follow-on biologics may not dent sales as much as generics do for small-molecule drugs, but you can expect that generic-drug makers will be gunning for a piece of biotech's newfound mega-success.

Diabetes is the new cardiology
Two statins, Lipitor and AstraZeneca's Crestor, bookend this year's list, which also contains blood thinner Plavix and blood-pressure medication Diovan from Novartis (NYSE: NVS  ) . All but Crestor are on their way out because of generic competition, being replaced by next-generation insulins from Sanofi and Novo Nordisk. With the number of diabetics trending up, that's something to keep an eye on.

Drugs that treat type 2 diabetics earlier in its disease progression, like Merck's (NYSE: MRK  ) Januvia, Takeda's Actos, and Amylin Pharmaceuticals' Byetta, didn't make the list, but that doesn't mean they're not a good place to invest. The bottom drug on the 2014 top 10 is expected to bring in $5.7 billion per year. Even half of that would be a substantial increase in sales for a company the size of Amylin.

The death of the super-megablockbuster
The top 10 drugs in 2014 are expected to bring in $74.1 billion, less than the $76.2 billion that analysts are expecting from the top 10 drugs next year. Put another way, the top drug in 2014, Avastin, is predicted to have lower sales in 2014 than the top three drugs this year. Apparently, analysts believe that the ability to take a large portion of a large market will become increasingly difficult. The nearly $12.9 billion that Pfizer's Lipitor managed in 2006 may never be matched by a drug again.

But would that really be all that bad? As my colleague Robert Steyer put it, four singles can be just as good as a home run.

What'll be on 2020's list?
While the 2014 list is useful for looking for trends, analysts have already incorporated the forecasts into their valuations. You're going to have to look beyond 2014 to get an edge.

With 10 years to go, current drugs in phase 3 trials have the potential to make 2020's list. In addition to the previously mentioned diabetes drugs, new treatments for hepatitis C have a good chance of making it big. The current drugs are very ineffective, and the disease progresses fairly slowly, which has caused many patients to wait for approval of second-generation drugs currently in development, rather than getting treated now. The $2 billion market for hepatitis C drugs could increase fivefold after new drugs like Merck's boceprevir and Vertex Pharmaceuticals' (Nasdaq: VRTX  ) telaprevir are approved.

What do you think will be the next big drug? Let us know in the comment box below.

Vertex is a Motley Fool Rule Breakers pick. The newsletter is always on the hunt for cutting-edge trends. Click here to see all of our latest discoveries with a free 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is an Inside Value pick. Novartis is a Global Gains selection. The Fool has a disclosure policy.


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