Gene Therapy: For Investors, a Source of Dreams—and Duds
Ingenious science, when it doesn’t pan out, can bring volatile stock performance.
Art by Qieer Wang
Miracle cures are welcome in medical science and in the stock market. The advent of gene therapy has caused a lot of excitement among investors, but lately a lot of disappointment as well. Result: wild rides for investors as they sink money into companies that tinker with DNA to cure diseases.
The reason for the volatility is that many of these much-vaunted panaceas don’t turn out to be that great, and sometimes don’t work at all or cause bad side effects. This year, several unpleasant developments have hammered their share prices and spread to the wider biotech category.
The exchange-traded fund following the S&P Biotech Index vaulted 30% in 2019 until April, then on a rash of bad news lost almost all its gains. Much of that resulted from troubles among gene therapy shares. In early April, amid more positive developments, the index recovered and now is up 14% for the year.
The roller-coaster performance of gene therapy stocks specifically and of the wider biotech category in general, mirrors that of medical research-oriented firms in the 1970s and 1980s that specialized in interferon, which are proteins that certain viruses produce. This substance was expected to be the cure for cancer, in effect stimulating the body’s defenses against mutating growths. Although interferon today is used to combat some malignancies, it hasn’t yet lived up to its earlier promise.
Good Genes
Gene therapy is a relative of interferon, to some extent. Genes are a component of DNA that tells cells how to construct proteins. Sometimes, though, this task goes haywire, and proteins are churned out that do no one any good. With gene therapy, medical scientists aim to restore protein functioning or shut down rogue proteins that harm people.
Genomic science has made major strides so far, mainly against rare diseases. But the hope endures that editing DNA strands, through the good offices of a tool like CRISPR (it stands for “clustered regularly interspaced short palindromic repeats”), will deliver widespread benefits to humanity.
In both scientific and investing senses, there’s justifiable enthusiasm when a small firm—it usually is a small outfit, because they tend to take more risks—creates something special, and a pharma giant acquires them.
That’s the case with Spark Therapeutics, which Roche move to buy earlier this year. As the big Swiss drug company bid double Spark’s stock price at the time, the market price shot up to match it. Then US and European regulators weighed in with antitrust doubts about the $4.3 billion union, so consummating the deal is off until 2020. What has happened to the stock price? It has stayed at its lofty level, a sign that investors think the buyout will eventually happen.
Nobody doubts that Roche has gotten its hands on a good property. In late 2017, Spark received Food and Drug Administration approval for luxterna, a treatment for a rare eye disease. Beyond that, its pipeline is long and promising, such as treatments for a type of hemophilia, a nervous system disorder, and a blindness-inducing disease.
Biotech Bummers
Investors can be impatient. While many leads that biotech companies, and their gene therapy cohorts, pursue go nowhere, a number eventually do turn out well. The road to success, however, is long and bumpy. The FDA can be extremely exacting.
Biogen, for instance, pulled an Alzheimer’s drug from testing, which hurt its stock in the spring. The drug, which isn’t strictly the outcome of gene therapy, now is back in favor after Biogen recently found more extensive tests yielded better outcomes. Guess what? Biogen’s shares have rallied.
“There’s this phase, not just in gene therapy, but in most companies or technologies, where it’s all exuberance and development,” Tyler Van Buren, an analyst at Piper Jaffray, told industry newsletter Biopharma Dive. “A lot of that can end once rubber hits the road and you have to launch a product.”
Consider the tribulations of Sarepta Therapeutics, whose muscular dystrophy therapy, named golodirsen, showed some bad reactions among some test participants. Fortunately, Sarepta already has another muscular dystrophy treatment on the market, which gives it hope for the future. From July to late September the stock was halved to $73. It has since bumped back up to $92 amid a better outlook for the other product.
Not all stocks suffer from bad gene therapy news. Look at Novartis, when regulators halted a trial of its zolgensma treatment for spinal muscular atrophy in small children. An animal study raised safety concerns over possible nerve damage, the company reported. The drug already has been OK’d in the US but is pending in Europe and Japan.
Novartis, though, hasn’t seen its stock suffer much. The difference is that, as a mega-company (market cap: $192 billion, compared to Sarepta’s $6.2 billion), Novartis has many more product lines. Turns out zolgensma was developed by a much smaller company named AveXis, which Novartis bought last year for $6 billion.
As happens often, this contrast illustrates the promises and perils of gene therapy for investors: The small fry come up with the breakthroughs, and hope to get purchased by the big boys, who can give them cover if things go wrong.
In this dynamic field, things can and do go wrong. Yet when they go right, all benefit.
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