Professional Documents
Culture Documents
Investor's Guide To Clinical Trials - Phase Success Rates For Introductory Pipeline Analysis - Seeking Alpha
Investor's Guide To Clinical Trials - Phase Success Rates For Introductory Pipeline Analysis - Seeking Alpha
y Portfolio Strategy
Summary
Investors new to biotech and pharma stocks can get a quick overview of a
company's pipeline health with phase success rates.
A leading biotech trade group has broken down success rates by phase and
indication to help craft an overview.
Case study of Gilead Sciences shows the potential for this method -- and the
devil in the details.
Later in this series, I will delve into how to understand the details on ongoing trials
and provide guidance for reading reported trial results. This is meant as more of a
quick guide that can help you get a general gut feeling for a company's pipeline at
a glance. You should not use this guide to form the backbone of your biotech
investment decision.
Focus your attention on Phase II and Phase III projects. The earliest phase has
too few participants for the results to mean much and companies seldom report
detailed data for earlier stages. Phase III trials will have the most patients and data
and can provide the best idea about a drug's chances of approval. Note that one
drug can appear in multiple phases at the same time if a company is pursuing
different indications, or treatment purposes, for the same drug. Evaluate each
indication separately.
What are the chances that a drug will make it all the way from Phase I to
approval?
Biotechnology trade association group BIO published topical research: Clinical
Development Success Rates 2006 - 2015 (PDF link.) Here's a snippet from the
Introduction section that shows how BIO came up with the data:
One of the key measures of success used in this report is the Likelihood of
Approval (LOA) from Phase I. This LOA success rate is simply a multiplication
of all four Phases success rates, a compounded probability calculation. For
example, if each phase had a 50% chance of success, then the LOA from
Phase I would be 0.5 x 0.5 x 0.5 x 0.5 = 6.25%.
The success probability of a drug making it from one stage to the next shows how
quickly the field narrows as only 63.2% of drugs make it from Phase I to Phase II
but the larger participant group and narrowed focus drops the success rate of
Phase II drugs down to about 31%. The drugs that do make it to Phase III have a
58.1% chance of making it on to the NDA / BLA approval process. These numbers
again show why you want to put more of your investment focus on those latter two
stages.
Indications Matter
I mentioned above the need to evaluate the same drug for each indication as
though the indications represented different drugs. Different indications have
different likelihoods of approval especially when you move to a more complicated
treatment area like oncology.
BIO's report breaks down the Phase III success rates of drugs according to
indication and oncology comes in at the bottom with 40%:
The report further breaks down the success rates by several narrowed oncology
indications and I encourage curious investors to read the report to read the
detailed information. For this general overview, we will stick with the broader
oncology success rate.
Gilead breaks its pipeline into sections according to indication: HIV / AIDS, Liver
Diseases, Hematology / Oncology, Inflammation / Respiratory, and Other.
(Image source: All Gilead pipeline images from the company's website)
Ignore that early stage drug at the bottom ad you have one late-stage HIV / AIDS
drug and one for PrEP, or pre-exposure prophylaxis, which is a type of drug taken
by high risk individuals to lower the chances of getting HIV. Use the BIO indication
graph above and these both have about a 71% chance of approval in the late
stage.
There's one drug up for approval already and one in Phase III for the treatment of
NASH, or nonalcoholic steatohepatitis, which is a type of fatty liver disease that
causes inflammation and organ damage. Refer again to BIO's Phase III success by
indication graph and gastroenterology drugs have about a 61% chance of making it
out of that phase alive.
The BIO report contains a similar graph for Phase II success rates and
gastroentology treatments have about a 36% chance of making it through to the
final stage.
Phase II oncology drugs have about a 25% chance of making it on to the last
phase. The general oncology Phase III success rate is 40%.
The inflammation / respiratory segment has more of a mixed bag of indications and
thus of success probabilities. In Phase III, the same drug is up for three indications:
Crohn's and ulcerative colitis both fall under the gastro indication at 61% while
rheumatoid arthritis is autoimmune and 62%.
The lone member of the Other segment is a Phase II treatment for Ebola and the
mid-stage success probability for infectious diseases is 43%.
Two late-stage HIV drugs look likely for approval with over 70% chance of making
it to the regulatory stage. Three mid-stage oncology drugs only have about a 25%
chance of making it on to the next phase so while you can keep an eye out for
data, the odds aren't great for those drugs. The late-stage oncology drugs have a
better chance but this is still an indication where you really want to do a deeper
dive into the data before you make any bets on specific drugs.
The mid-stage Inflammation and Respiratory drugs have very low chances of
survival so, again, look for what data becomes available from trials but don't be
surprised to see drugs getting scrapped. The later-stage drugs have a better
chance at approval than oncology but a bit less of a chance than the HIV drugs. If
you were going to blindly bet on two segments, HIV and those late-stage
Inflammation / Respiratory drugs would be the top choices.
The Liver Diseases segment looks strong due to the higher success rates for
gastro but the actual leading indication, NASH, shows why the devil is still in the
details with a pipeline analysis.
This guide, again, is meant to help form a back of the envelope idea of where a
company's pipeline stands before you start making the deeper dives into
evaluating the potential market for each drug and reading trial results to find out
whether a specific drug looks likely to win approval and a sizeable market share
due to some distinct treatment potential.
The BIO chart, for example, would give the GS-4997 late-stage entry for the NASH
indication a 61% chance of success in that phase. But there currently aren't any
treatments for NASH and untreated diseases are that way because the
development and approval process has yet to turn out a safe and effective
solution. Gilead could end up with the first approved NASH drug, which would
prove wildly profitable, but the drug could also flunk out in the final stages. Tricky
situations like this are why overviews are great starting points but not the best
backbone for an investment decision.
Final Thoughts
New to investing in healthcare? Use the BIO success rates as a guide to give you
a quick overview of what drugs or segments look the most likely to succeed. You
can then use that narrowed view to start diving deeper into potential market sizes
and into the trial data reporting for specific drugs.