In February, millions of people observed World Cancer Day, which also posed an opportunity for biotechnology investors to take stock of the progress made in the treatment of this cruel disease. 
At first glance, it appears there is little to celebrate. The number of deaths from cancer increased significantly over the 20th century. In the US, approximately 60,000 people died from cancer in 1900 compared with almost 570,000 by the end of the century.
But this trend is not as gloomy as it first appears to be. The increase in cancer rates is a function of improvements in longevity. Better treatments have lowered death rates from other diseases, allowing people to live longer. This has led to a natural increase in the number of people dying from cancer. A better measure of whether the treatment of cancer is improving is to focus on the survival rates of those who have been diagnosed with the disease.
Between 1977 and 2013, the percentage of people living five years or longer since diagnosis for stomach cancer increased from 15.2 per cent to 30.8 per cent. For breast cancer, the survival rate increased from 74.9 per cent to 89.7 per cent over the same period.
The increased survival rates are being driven partly by more accurate diagnosis at an earlier stage but also by the proliferating number of therapies. For example, in 1996 there were only eight approved drugs to treat breast cancer from two different drug classes. Twenty years later there are 19 products using five different mechanisms. The newer therapies are also more targeted and less toxic. This more targeted approach to the treatment of cancer has been driven by an ever-increasing understanding of the underlying biology.
This approach not only means that the disease is more effectively treated, but it also ensures that the side effects are more manageable. Another reason survival rates have increased is because chemotherapy treatments were so toxic they often killed as well as cured patients.
While good progress has been made in the treatment of this disease, cancer is far from defeated and investors can play their part in improving the outlook for those unfortunate enough to be afflicted.
There is a good incentive to invest in biotechnology companies specialising in oncology: the return is greater than for other disease categories. The unmet medical need means both governments and wider society are prepared to pay higher prices for these treatments.
However, a new drug may only be available to those patients with sufficient wealth or insurance to access it. But once the patent has expired, expensive drugs usually become available to people around the world for pennies in the pound. Investors can therefore be satisfied that in the longer term they are helping people live longer, healthier lives.
But investing in oncology is not straightforward. It requires skill to choose companies with the best chance of addressing unmet medical need.
It’s becoming more complex to select the right companies as the field is increasingly crowded. Picking the most effective drug requires a deep scientific understanding of both the disease and the competitive environment.
Competition is a key factor. Even highly effective treatments may not be able to demand high prices if there are many competing drugs.
And as the treatment of cancer becomes more defined to each patient, some drugs are likely to treat only a small number of patients. This in turn reduces the sales potential.
However, legislators compensate medical companies for this reduced revenue potential by offering them “orphan drug” status. This allows them to operate without competition for seven years in the US and for 10 years in Europe.
Drug development is still, a risky business. The probability of failure remains significant up to the point the drug is approved by the regulator.
It is better to invest in a company with a product approved for treating patients where other therapies have failed. A truly innovative treatment for an unmet medical need will therefore create a monopoly.
This is also why there are many acquisitions in the oncology sector. Once there is efficacy data for a drug to treat an unmet medical need, it’s fairly certain the drug will have a bright future. Such a treatment will be a very attractive acquisition target for larger companies wishing to build a pipeline of new drugs.
Carl Harald Janson is lead investment manager of International Biotechnology Trust. The views expressed above are his own and should not be taken as investment advice.