The honeymoon period for gene therapy developers was short-lived. Shares of at least 26 are trading lower now than they were a year ago, amounting to roughly $18 billion in lost market value.
Relief may not come soon, either. Analysts suspect investors aren't just looking for promising safety and efficacy data anymore; they want to know how companies intend to make money off these treatments. Most don't have answers to that question yet.
"There's this phase, not just in gene therapy, but in most companies or technologies, where it's all exuberance and development," said Tyler Van Buren, an analyst at Piper Jaffray. "A lot of that can end once rubber hits the road and you have to launch a product."
Bluebird bio is having this problem. The Boston biotech's share price is down 41% from a year ago and 26% since mid-June, when executives said the European launch of its Zynteglo gene therapy would be pushed back from 2019 to 2020.
Mani Faroohar of investment bank SVB Leerink argues the delay has dimmed investor confidence in smaller biotechs working on "transplant" gene therapies like Zynteglo, which treats a blood disorder known as beta-thalassemia by harvesting a patient's stem cells, engineering them to produce a form of hemoglobin, and infusing them back into patients.
"If the bellwether can't launch a product that they've been spending billions of dollars on over the course of 10 years, how is a $400 million company somewhere going to do it?" Faroohar told BioPharma Dive.
Bluebird isn't the only gene therapy leader to get knocked recently.
Swiss pharma giant Novartis remains on damage control following a data scandal that, to some extent, tarnished the approval of its Zolgensma gene therapy. Roche's acquisition of Spark Therapeutics, meanwhile, is taking longer than expected because of antitrust concerns.
Delays to the Spark deal may be having a particularly outsized effect on gene therapy stocks. Signs that the Federal Trade Commission took issue with the pairing, which many analysts assumed would be a sort of "check-the-boxes" acquisition, started to show up in early April.
No gene therapy acquisitions have been announced since, and Faroohar doesn't expect that to change until buyers have more clarity on what's holding up Roche. With the deal's timeline already extended by months, shareholders of other companies might not be willing to wait around for a resolution.
"If you paralyze the acquirers, that makes it very difficult to make a compelling case for a lot of these companies that certainly wouldn't be able to commercialize their own products without raising a lot of diluted capital," Faroohar said.
Van Buren sees the Spark deal as a more minor issue, given that gene therapy continues to be one of the hottest areas in drug development. Even so, he acknowledged that it could discourage "natural bidders" from coming to the table, which lowers the probability of certain acquisitions.
A strategy beyond positive readouts
The gene therapy field evolved rapidly over the last decade and, by 2025, the Food and Drug Administration expects to clear for market 10 to 20 cell or gene therapy products annually.
Investor sentiment is shifting with the times. As Bluebird, Novartis and Spark Therapeutics proved these treatments can move through the clinic and gain regulatory approval, investors became increasingly interested in marketing and manufacturing strategies — even for drugs in early development.
"For so long, [gene therapy companies] didn't really trade on, 'What's my margin structure going to be? What's my distribution method? How do I realize attractive pricing in Europe versus Japan versus the U.S.?'" Faroohar said.
Now, investor awareness "about some of these very nuanced commercial questions is catching up."
One of their biggest commercial concerns revolves around insurance coverage, since the U.S. insurance system wasn't designed to handle incredibly expensive, potentially one-time treatments like Zolgensma, which Novartis offers at $2.1 million through a five-year installment plan.
Another commercial sticking point has been manufacturing. Bluebird, for example, pinned Zynteglo's slower launch on tweaks the company was making to the therapy's production process.
Ensuring consistent and quality manufacturing will likely be a challenge for others too. PwC proposes in a new report that the growing interest in gene therapy will lead to greater competition for the time and resources of contract manufacturers working in the space. The competition could, in turn, result in higher costs or supply constraints, and may force companies to invest more in their own manufacturing — a development seen with projects begun by Novartis, Pfizer, Sarepta and Bluebird.
"The days of 100% outsourcing and letting somebody else deal with it — I don't see that being the standard model," said Karen Young, U.S. Pharmaceutical and Life Sciences Leader at PwC.
The industry, however, is still getting acclimated to the small-scale, highly personalized, logistically daunting processes required for cell and gene therapy production. Building in-house capabilities and a team with the technical know-how to run them would likely be an expensive, time-consuming endeavor.
These challenges are, of course, predicated on a gene therapy having positive clinical data. On that measure, analysts have observed investors becoming harder to impress.
Van Buren noted to BioPharma Dive how shares of Adverum Technologies, which is working on gene therapies for eye and rare diseases, plummeted in mid-September because investor expectations about one of the company's trial readouts were "almost impossibly high."
"It got crushed as if a trial failed, when it was actually an objectively positive outcome," he said.
Adverum's therapy targets an eye disease known as wet AMD, which already has treatment options in Regeneron's Eylea and Roche's Lucentis. Both Van Buren and Faroohar expect that in markets where patients respond well to the standards of care, such as wet AMD and hemophilia, there will be even more pressure for gene therapy developers to show their treatments are safe and long-lasting.
Data and post-approval obstacles, combined with potentially diminished M&A prospects, set the stage for a tough road ahead for gene therapy stocks.
"It becomes harder to put together a compelling long-case for a lot of gene therapy stocks, even if they continue to produce a very attractive set of data and potentially transformative clinical products," Faroohar said.
Editor's Note: Paper losses for the group of gene therapy companies included in BioPharma Dive's analysis were calculated by using historical valuations compiled by Koyfin, measured against current market capitalizations. Stock change over 52 weeks was measured from Oct. 1, 2018 to Oct. 1, 2019.
Publicly traded biotechs were included based on whether gene therapy, or gene editing, made up the bulk of their pipeline, yielding a list that's representative of the field but not exhaustive. Large pharmas involved in gene therapy were not included, nor were companies dedicated to autologous or allogeneic cancer cell therapies.