WHO WILL PAY THE BIG BILL FOR CANCER TREATMENT?

FOR THE first time in years there is a real buzz in the scientific
community dealing with the causes and treatment of cancer. Part of the
reason is increasing optimism about major advances in cancer therapies.
Breakthroughs in our understanding of the biology of cancer are enabling
companies to design and develop drugs that strike at the core of cancers -
their genetic structures without side-effects or damaging surrounding
healthy tissue.

With the newer technologies of molecular biology we are able to understand
the problem of cancer much better. It allows for better targeting of
drugs," says Dr Langdon Miller, Pharmacia & Upjohn's (P&U's) vice-president
for clinical development in oncology - the study and treatment of cancer.

Being able to fire a direct hit instead of badly aimed broadsides promises
cures for patients and big profits for pharmaceuticals firms that develop
the right weaponry to attack the various forms of cancer.

As a result, the business of cancer, already big, is set to boom. The "Big
C" is the second most common cause of death in the western world. Only
heart disease kills more. Cancer touches everyone. We all know somebody who
suffers or has suffered from it in some form. The harsh statistical truth
is that one in three people will contract a form of cancer during their
lifetime and, as things stand now, one in four will die from the disease.

Our lifestyles mean that we are willing to play roulette with those odds.
We smoke, we eat fatty foods and we turn up our noses at fresh fruit and
vegetables: thereby increasing our cancer risk. But there is still no
preventive treatment for cancer on the horizon and it remains one of the
most difficult diseases to treat. By creating the business cancer brings in
its wake, we are our own worst enemies.

If - and it remains a big if - a drugs company could find the perfect magic
bullet, a medicine that eradicates all cancers, it would be worth billions.
Approximately $9 billion globally is spent on pure anti-cancer drugs but
the total amount spent on cancer expands as medicines to treat
side-effects, pain relief and drugs to complement surgery are factored in.
Because of the absence of a cure, opportunities for expanding the sector
remain almost limitless.

The big players are global giants. Bristol-Myers Squibb (BMS), Zeneca and
P&U are the three multinational pharmaceuticals firms with the biggest
cancer drug portfolios. BMS holds pole position but its dominance is under
threat from Zeneca, which is determined to be N01.

The nature of the market means that there is also plenty of room for
smaller players, in particular from the biotechnology sector, to make their
mark. The next anti-cancer blockbuster is as likely to emerge from a small
biotechnology laboratory as from a large pharmaceuticals firm's new drugs
pipeline. The development history of Rituxan proves the point. Rituxan, the
first targeted drug against cancer (for non-Hodgkin's lymphoma) was
developed by Idec Pharmaceuticals (with a market capitalisation of $550m)
before being licensed to Genentech and Roche.

The renewed excitement is the result of a series of developments. Herceptin
is part-drug, part-cruise missile. It seeks and destroys its enemy - cancer
cells - with pinpoint accuracy. Genetically engineered, smart and
tailor-made, Herceptin is the latest drug to emerge from the laboratories
of Genentech, the world's first biotechnology company.

It is also the latest compound in the pharmaceuticals industry's growing
arsenal in the war against cancer. At the start of September the advisory
panel to the US Food and Drug Administration (FDA) gave its approval for
Herceptin to be marketed as a treatment for breast cancer. Full approval
could come in November. Although Herceptin is being heralded by some as a
watershed in the fight against cancer, it is not the first of these
site-specific compounds to hit the bull's eye. Rituxan was launched last
year. However, Herceptin's approval provides added credibility for this
emerging field of targeted drugs.

Herceptin is not a cure but a new way of treating identifiable patients at
risk of recurrent breast cancer. In the world of cancer care, that is
reason enough to be cheerful. Lehman Brothers is predicting that sales of
the anti-cancer cruise missile will soon reach $250 million a year.

A wave of cruise missile drugs from pharmaceuticals and biotech companies
is expected to target a widening range of cancers in the next few years.
P&U is developing a targeted anti-cancer compound designed to instruct our
bodies that malignant tumours are "foreign". This induces our body's
natural defences - our immune system - to attack and kill the malignant
cells.

Not only targeted drugs are generating excitement. On the same day that
Genentech heard the good news for Herceptin, Zeneca, a British firm, got
the tentative thumbs-up for one of its anti-cancer weapons, Tamoxifen.
Zeneca is seeking approval for use of Tamoxifen as a preventive treatment
for breast cancer.

A major leap forward is being made in the treatment of colorectal (bowel)
cancer. P&U's drug, Camptosar, received full approval from the FDA at the
beginning of September. This is the first new drug in 40 years for the
treatment of colorectal cancer - the second largest cancer killer after
lung cancer. FDA approval has led to a growing conviction that the war
against cancer is about to enter a new phase and that the market will
continue to mushroom.

Another important factor in the growing cancer market is that the world's
population is ageing. Scientists now believe that malignant growths are
continuously forming during an individual's lifetime but that a healthy
immune system knows how to clean them up, or contain them, before they
become life-threatening tumours. Hence cancer is predominantly a disease of
the elderly - the older you are, the more likely you are to develop the
disease.

To generate returns, companies are now investing in cancer care in a
broader way. Cancer differs markedly from many other diseases in the way it
drives up treatment costs. Although the market for anti-cancer medicines is
worth billions of dollars, the heaviest cost of cancer treatment arises
from the need for long-term care.

The drugs bill is thought to represent as little as six per cent of the
total cost of comprehensive cancer care. The majority of cancer costs arise
from palliative care in hospitals, clinics and hospices, or drugs to treat
the side-effects of chemotherapy and radiotherapy. The costs of diagnosis
and surgery have to be factored in too.

Firms with strong cancer franchises, such as Zeneca and P&U, are building
on that business, entering the disease-management arena in an effort to
access this lucrative hidden market for cancer. Providing comprehensive
treatment packages holds the most reliable guarantee of profits for players
in the cancer industry.

Zeneca is showing the way. It took over control of the American cancer care
company, Salick Health Care, in April last year, after buying a 50 per cent
stake in 1995. It paid $236m for the firm, which operates seven dedicated
cancer centres across the US.

Zeneca's entry into the "for-profit" healthcare system was unique: the
first time a drugs company bought a medical services supplier that also
prescribes medicines. Both Salick and Zeneca are quick to stress that
Salick is not intended as a vehicle to promote Zeneca's anti-cancer drugs
and the deal does not influence which drugs are supplied by Salick to
patients.

Salick was acquired "to enable Zeneca to access the 94 cents of every
dollar of cancer care that is not drug-related", says the British firm. "I
think the world is looking to the 'for-profit' industry to define how
healthcare should be done," says Dr Lawrence Piro, Salick's president and
chief executive officer.

Salick centres offer innovations such as 24-hour outpatient chemotherapy.
From the disease-management angle, they provide Salick and Zeneca with the
vast amount of medical information necessary to analyse and interpret which
drugs treatments and regimens are effective from both a clinical and cost
point of view.

Piro believes that most hospital or healthcare providers waste at least 10
to 20 per cent of resources because of a lack of focus. He points to the
spiralling costs of healthcare in European countries, where there is very
little consensus on how to treat complex diseases such as cancer.

But all that may be about to change. Europe may soon have its own
"for-profit" cancer care centres, courtesy of Zeneca and Salick. "We have
talked to a number of clients in Europe and it's a definite possibility,"
says Piro.

European governments are struggling to find a way to curb mounting
healthcare bills. Germany, France, Italy and Britain spend a total of
$54.2bn a year on prescription pharmaceuticals, says Datamonitor.

Anti-cancer drugs, including anti-emetics (drugs to control vomiting),
represent approximately five per cent of this bill but this is before the
long-term costs of cancer are factored in. Disease management is looking
increasingly attractive to governments battling to bring down their
healthcare bills. Convincing them of the benefits of "for- profit" medical
centres may not be difficult.

Three months ago the British government unveiled plans for a National
Institute for Clinical Excellence (Nice). Its brief is to provide
guidelines on which medicines, treatments and procedures are effective and
which are not, both from a clinical and cost perspective. There seems to be
little limit on the growth of the cancer industry. Because of the lack of
any preventive cancer drug, practically any drug approved can command sales
of between $200m and $300m.

"These markets are quite attractive," says Joe Rubinfeld, head of an
American cancer company, SuperGen, and the former vice-president and
director of research and development at Bristol-Myers.

The emergence of a new generation of genetic weaponry against cancer is set
to boost the markets potential size and send treatment costs soaring. The
majority of the medicines routinely used to treat cancer are older drugs,
often off-patent, and hence relatively cheap. New cancer drugs have had a
lead time of at least 10 years and had at least $400m of research and
development money poured into them. These anti-cancer drugs command a huge
premium. Rituxan, for example, costs $8,904 for one course of treatment.

Targeted drugs are set to drive growth in other healthcare sectors.
Diagnostics - kits to test for cancer - is one such area. Herceptin is the
first medicine to have its application for approval running in parallel
with a test kit. Technological advances such as the "gamma knife" (above)
are boosting the medical device market.

Targeted treatments will improve the market for conventional therapies,
because their effectiveness is improved when used in combination with the
older drugs. There is little fear of one blockbuster anti-cancer medicine
coming along and grabbing the entire sector. By contrast, because cancer
remains an unmet medical need, the market for cancer therapies will
continue to grow.

Not everyone believes that the war against cancer is at a watershed.
SuperGen's Rubinfeld is one of the sceptics. "I feel there is a lot of
promise but it is in the future. There is no major breakthrough. Were still
a long way from the magic bullet. I havent seen it on the drawing boards of
any companies. The companies, markets and cancer sufferers are still
waiting for a cure.

Checked-by: Joel W. Johnson