In May Cougar Biotechnology Inc., a six-year-old company developing treatments for prostate cancer, was acquired by Johnson & Johnson for roughly $1 billion. Meanwhile, last month Biogen Idec Inc. announced a hostile bid to acquire Facet Biotech Corp. (launched in 2008 as a spinoff of PDL BioPharma Inc.) that valued Facet at roughly $344 million. Every investor seeks to achieve a good rate of return over a reasonable time horizon while minimizing risk. This applies even more so to those investing in startup or early-stage companies. As a result of the convergence of a number of considerations, for those investing in the healthcare industry, carefully selected novel cancer therapeutics currently represent attractive investment targets providing the potential to fulfill these investment goals.

Many companies are starved for capital. Compared to just a short while ago, with the current condition of the capital markets, startup and early-stage companies, including those in the pharmaceutical and biopharmaceutical space, find themselves with few options to raise the capital they need to support the research and development essential for their growth; they are thus much more receptive to new routes toward capital. Therefore, well capitalized private equity and venture capital funds as well as individual private investors have an opportunity to structure deals that can provide high rates of return commensurate with their assessment of the risk. The net result is the opportunity to invest in very promising companies at reasonable cost. For the reasons detailed below, companies developing cancer treatments are particularly attractive.

The potential market for these products (and by inference, the opportunity) is huge and can be expected to increase. Approximately 1.4 million Americans are diagnosed with cancer each year and about 560,000 of them will die from their disease. Only heart disease is a bigger national killer. As baby boomers enter the years at which cancer becomes more prevalent, the incidence of cancer can be expected to rise after a decline due to various public health initiatives such as anti-smoking policies over the past few years. At the same time, patients with cancer are living longer as a result of improved care, often as a result of new agents, which in turn can be expected to increase the demands for newer and more effective treatments. Meanwhile, improved insurance coverage, either though increased participation in Medicare or though the healthcare reform currently before Congress, can be expected to result in many more patients having access to and demanding newer, more effective treatments as they come on-line.

At the same time, an explosion of knowledge about the biology of cancer has provided insights into the development and evolution of this disease, along with a clearer understanding of how such information may be utilized to develop new approaches. Possibly for the first time in history a solid scientific understanding has begun to allow researchers to develop innovative new treatments utilizing carefully crafted "designer molecules." For example, an explosion of knowledge about the role of tyrosine kinases in cancer has resulted in the development of many highly successful drugs, including such compounds as Tarceva and Iressa, along with other new-generation cancer drugs. From an investor's perspective, the improved scientific foundation for a new drug's development has, in many cases, allowed the design of drugs to interact with specific molecular targets involved in well-defined biologic pathways. The carefully targeted approach of such research, with its well defined scientific foundation, enables those skilled to design a more efficient development pathway and, equally, to better evaluate the commercial prospects of an investment target. Using the requisite scientific, medical and legal experts, an investor can more accurately gauge the prospects of a new company, including the vitally important integrity of its intellectual property, and guide its drug development program, reducing some of the speculation involved in financing a company with a limited pipeline.

Possibly the single greatest risk to investments in the pharmaceutical industry is the hurdle presented by the need to obtain Food and Drug Administration (or foreign regulatory authority) approval to market a new drug, and in many respects the pathway to approval is simpler for anti-cancer treatments. Many drugs with proven effectiveness in treating a variety of diseases have fallen by the wayside as a result of unacceptable side effects discovered as a result of lengthy and extremely expensive clinical studies. But within medicine, cancer therapeutics occupy a unique place. By virtue of many of the most common cancers being incurable and often rapidly lethal with current treatments, a different standard is applied to these drugs. Side effects that would doom a drug being developed for other less severe medical conditions are routinely considered quite acceptable for cancer therapeutics, and long-term toxicity studies are unlikely to delay the approval of an effective cancer treatment. Thalidomide underscores this point. Removed from the market when it was found to cause severe birth defects, it now is FDA approved as an anti-cancer agent and has even resulted in a highly profitable follow-on product. Even a propensity to cause cancer itself -- which would be the death knell for a drug for some other condition -- does not preclude approval of a drug as an anti-cancer treatment. To be clear, this different perspective toward adverse events is completely appropriate but nonetheless means that clinical trials can accrue fewer patients and typically can be completed more quickly than for drugs being developed for nonlethal conditions. All this translates into potentially faster clinical development with consequent economies, and of course, an earlier opportunity to get to market to help patients.

Finally, over the years Big Pharma, rather than relying solely on in-house development of new products, has looked more and more to collaborate with or to acquire smaller companies as a means to fill its development pipeline. Recently, much has been written about how many blockbuster drugs are coming off patent, how this, coupled with the need for Big Pharma to replenish its pipeline, will affect its bottom line. A well positioned early-stage company with a carefully designed and protected intellectual property position that has adopted the appropriate drug development program should be able to position itself to capitalize on this, and similarly, those investors who properly recognize the potential of startups should be able to reap the benefits of an earlier investment in carefully selected companies.

It is an ill wind that blows no good, and the present economic climate, coupled with recent changes in scientific knowledge, medical practice, and political and social consideration, has provided great opportunities for those willing to invest in cutting-edge cancer research. It is for the investment community to take advantage of this confluence of events.

Stefan C. Grant, M.D., of Duane Morris LLP practices in the area of intellectual property law with a focus on the pharmaceutical, biopharmaceutical, biotechnology and medical industries.