Ben Hirschler and Bill Berkrot London and New York

Drug makers are betting that a new wave of medicines for cancer, diabetes, heart disease, multiple sclerosis (MS) and hepatitis will become blockbusters in the coming year.

With the industry regaining some of its swagger after winning 39 new drug approvals last year – a record only beaten in 1996 – there are signs the improving trend could continue.

Roche, GlaxoSmithKline, Eli Lilly, Biogen Idec, Gilead Sciences and Novo Nordisk are among those with big new products reaching a critical point in development this year.

The industry needs a winning streak after delivering poor returns for years due to a wave of patent expiries. Now companies are emerging from that patent “cliff” and the balance of losses to new opportunities is improving.

European drug makers, for example, have the potential to deliver new drugs from 2013 to 2015 with peak annual sales of $64 billion (R557bn), or $27bn after adjusting for the risk of failure, while fresh patent losses in the period will be only $12bn, according to Deutsche Bank estimates.

Simon Friend, the global pharmaceutical leader at PwC, agrees that the picture is improving. But he warns it is still too early to say that drug companies are out of the woods, especially with governments and insurers taking an increasingly tough line on paying for new medicines.

“Productivity is starting to turn the corner – but the other big issue is whether the industry can get the prices it needs for new products,” he said.

Still, analysts say interest in the sector from growth funds is now picking up and investors are taking a closer look at drug pipelines – a trend to watch as Johnson & Johnson and Novartis kick off the reporting season next week.

Several key research and development (R&D) bets on potential multibillion-dollar-a-year products will play out this year.

One of the most highly anticipated approvals of the year is for Biogen’s MS drug BG-12.

It will be the third oral MS drug to market after Gilenya from Novartis and Sanofi’s Aubagio, but many investors already see it as the best. That helped Biogen shares nearly treble over the past three years.

“It’s going to be priced very high, it will have a rapid market uptake and it’s going to have a timely approval because the Food and Drug Administration can’t afford to keep a drug like this off the market,” Aegis Capital health care equity research head Raghuram Selvaraju said .

Doctors treating diabetes are also likely to have new drugs before the year is out, with a new class of medicines that work via the kidneys seen entering the fray.

Cancer, the disease with the highest R&D investment, offers openings for several firms, with particular excitement centred on Eli Lilly’s ramucirumab, which could be filed to treat gastric cancer this year and has a far bigger commercial potential in breast cancer.

Drug development still remains a risky business.

Last year’s tally of drug approvals was lifted in part by a large number of niche drugs for rare diseases. Success in drugs for common diseases was more elusive, as highlighted by the failure of clinical trials for two Alzheimer’s drugs.

“The industry has done a lot to try and improve productivity and has corrected a lot of past mistakes,” said Deutsche Bank analyst Richard Parkes.

“It’s too early to say whether this is going to be a sustained break-out from the trend but the efforts that have been put in place should at least improve the efficiency of what is being spent.” – Reuters