It’s a big day for gene therapy. A panel of independent FDA advisors is meeting today to consider the merits of Luxturna, a one-time gene therapy developed by Spark Therapeutics (ONCE) meant to treat a rare form of childhood blindness.
If the panel votes to recommend the drug’s approval, and the FDA follows that recommendation (as the agency usually does), Spark’s drug becomes the first therapy meant to replace or repair a defective gene approved in the U.S.
There is a pack of other drug makers developing gene therapies, seveal of which were highlighted by Barron’s in a recent cover story. And today, Raymond James analyst Reni Benjamin published a 239-page report that launched coverage on Sparks and a handful of other companies, proclaiming that gene therapy is “a paradigm shift whose time has come.”
While the pessimist might view the turbulent history of the gene therapy space as more of what’s to come, we view this field as a potential revolution. In short, within the next few years, we expect multiple U.S. approvals of gene therapy products, with Spark’s LUXTURNA leading the pack in January 2018 (PDUFA). In addition, bluebird bio’s LentiGlobin appears to have achieved durable RBC (red blood cell) transfusion independence in patients with β-thalassemia, with Phase III studies underway. Last but not the least, promising clinical results have also been generated in Hemophilia A and B (e.g., Spark and BioMarin), spinal muscular atrophy (AveXis), and Parkinson’s disease (Voyager).
It’s a big market. Right now, there are 33 public companies and 27 private companies working on therapies for 59 diseases, addressing market opportunities worth more than $100 billion. But Raymond James is initiating coverage on just five names, with Outperform ratings on Spark, REGENXBIO (RGNX), Voyager Therapeutics (VYGR), and Adverum Biotechnologies (ADVM). Meanwhile, Audentes Therapeutics (BOLD) is rated a Market Perform.
Here are some details:
We are initiating coverage of: 1) Spark Therapeutics with an Outperform rating and a price target of $96 given an approval expected in the near future, encouraging clinical data seen with the hemophilia A program, a marquee partner (Pfizer) driving development in hemophilia B, a platform technology to address large areas of unmet need; 2) REGENXBIO with an Outperform rating and a price target of $39 given a powerful AAV technology platform that has generated 10 partnerships with leading biotech/gene therapy companies (e.g., Biogen, Shire, and AveXis), resulting in over 25 partnered and unpartnered assets; 3) Voyager Therapeutics with an Outperform rating and a price target of $35 given the clinically meaningful improvements on multiple efficacy endpoints among patients with Parkinson’s disease (PD); 4) Adverum Biotechnologies with an Outperform rating and a price target of $6 given a negative enterprise value and multiple product candidates slated to enter the clinic in the near future; and 5) Audentes Therapeutics with a Market Perform rating since, in our opinion, the company’s current market capitalization adequately reflects the solid preclinical results seen to date.
Gene therapy is certainly not the first cutting-edge therapy to mezmorize Wall Street. It’s just thelatest, and there are plenty of risks for investors.
Granted, the returns generated so far are alluring. The total market capitalization of the gene therapy companies tracked by Raymond James has more than doubled since the start of the year to $20.7 billion, says Benjamin.
Still, investors need to be careful. As Barron’s has warned repeatedly over the years, small drug companies with high-flying stocks can turn on a dime. The FDA remains unpredictable, and even a truly innovative drug can flop commercially if insurers don’t cover it, doctors don’t prescribe it, and patients don’t use it.
Gene therapies in particular face big issues regarding not just cost and insurance reimbursement, but also uncertain commercial demand.
As Benjamin explains, not all gene therapies are the same.
The concept of gene therapy sounds easy…However, in reality, there are several important pieces that must all come together, including the selection of the correct vector, development of an optimal transgene, and the most expedient route of administration, which is very much dependent on the indication. Therefore, in our view, the success or failure of one product in one indication does not necessarily mean that other products are slated to the same fate. For example, Spark’s product for hemophilia B has delivered promising products, whereas Dimension’s solution for the same indication was disappointing in the clinic.
…While the first two gene therapy products approved in Europe have yet to deliver on the promise of gene therapy, we believe the future remains bright…in our opinion, the lack of commercial adoption is largely due to the ultra-rare nature of the indications pursued, and not a reflection of the efficacy and safety of the therapies. That said, gene therapy product candidates currently in development could face similar problems, especially if the targeted patient population is small. In addition, patient indications for some rare diseases could face initial commercial challenges if the group as a whole is under-diagnosed. The flip side? Other indications such as hemophilia, Parkinson’s disease, and wet age-related macular degeneration (AMD) should not have patient identification issues, but rather, the competition to displace existing therapies. Regardless, we believe each of these scenarios can result in profitable businesses over time.