Among the rapidly-growing fields on the frontiers of medical science is gene therapy, in which genetic, or inherited, diseases are treated by repairing or replacing the faulty genes that cause them. This segment of the biotech industry includes a mix of large and small firms, and the opportunities for investors fall within three main categories: companies that are attractive as standalone entities, companies that are likely M&A targets, and companies that are growing through M&A. The table below lists ten noteworthy players, per a recent article in Barron's.
10 Gene Therapy Plays
- uniQure NV (QURE), $1.9 billion
- Regenxbio Inc. (RGNX), $2.0 billion
- Audentes Therapeutics Inc. (BOLD), $1.5 billion
- Solid Biosciences Inc. (SLDB), $0.4 billion
- MeiraGTx Holdings PLC (MGTX), $0.5 billion
- Voyager Therapeutics Inc. (VYGR), $0.6 billion
- Sarepta Therapeutics Inc. (SRPT), $9.7 billion
- Roche Holding AG (RHHBY), $230.9 billion
- Novartis AG (NVS), $227.6 billion
- Spark Therapeutics Inc. (ONCE), $4.3 billion
Significance For Investors
An estimated 5,000 rare diseases are each caused by a single mutation, or flaw, in an individual's genes that theoretically can be corrected with a targeted therapy, Barron's indicates. While many, if not most, of these diseases afflict relatively limited numbers of people, a successful treatment nonetheless may generate annual revenues of $1 billion or more, due to high prices, the article adds.
However, although gene therapy has decades of research behind it, the concept is still very much in the developmental stage, with widespread commercialization still off into the future. Indeed, the only gene-replacement therapy that has been approved so far by the FDA was developed by Spark Therapeutics to treat a rare eye disorder that can lead to blindness. In its first full year on the market, 2018, it generated revenue of only $27 million.
Key Therapies Under Development
- UniQure: hemophilia B, Huntington's disease; potential $1 billion annual revenue from hemophilia B treatment
- Regenxbio: produces viral vectors used by other companies to deliver gene therapies; potential $1 billion annual sales to Novartis alone
- Audentes: fatal muscle condition XLMTM, ultra-rare Crigler-Najjar disease that inhibits the body's processing of bilirubin
- Solid: Duchenne muscular dystrophy (DMD); very poor trial puts company's future in doubt; CEO's son has this disease which causes early death
- MeiraGTX: rare eye diseases, ALS (Lou Gehrig's disease); Johnson & Johnson (JNJ) owns a stake in the company
- Voyager: Parkinson's and similar diseases; deal with AbbVie Inc. (ABBV) will provide up to $1.5 billion of payments
- Sarepta: first FDA-approved drug for Duchenne muscular dystrophy (DMD); over 70,000 patients globally, cost can exceed $500,000
- Spark: rare retinal disease that causes blindness, hemophilia A
Spark technically no longer is an investment opportunity, given that Roche Holding is buying it at a 122% acquisition premium versus its pre-offer closing price on Feb. 22, 2019. Spark closed on March 8 within 0.6% of Roche's $114.50 per share offer. This illustrates how big drug companies such as Roche and Novartis are willing to pay top dollar to purchase smaller biotech firms engaged in promising R&D.
"Five billion dollars for Spark now makes virtually everything else in gene therapy look exceedingly cheap on a relative basis," as Josh Schimmer, an analyst with Evercore ISI, wrote in a research note cited by Barron's. Marshall Gordon, a senior research analyst at ClearBridge Investments, which holds shares in Spark, says that its strong research staff and manufacturing capabilities were key factors that attracted Roche.
As noted above, the actual commercialization of gene therapies is proceeding at a slow pace, meaning that many of the smaller players are largely R&D shops with limited revenues and large costs. With anticipated price tags in the hundreds of thousands, if not millions, of dollars, many of the gene therapies under development do not need vast numbers of patients to be lucrative. On the other hand, these stratospheric costs are bound to prompt intense pushback by private insurers and government-run programs such as Medicare.