By Owen Marino
What if it were possible to correct the genetic mistakes that cause disorders such as down syndrome, cystic fibrosis, and sickle cell anemia? What if it were possible to alter any gene in the composition of living organisms so that nature would behave exactly as we want it to?
These ideas are no longer straight out of science fiction. Groundbreaking innovations in the emerging field of genetic engineering have made it so that scientists now have the potential to use operational methods to directly alter an organism’s genetic composition, meaning that traits such as eye color, hairstyle, and even sex can be directly designed and controlled by man made technology. What do these new developments mean for the future of modern medicine, and what do investors need to know about new biotechnology companies that seek to take the market by storm?
Genetic engineering is a relatively recent development in the medical community that has the potential to advance medical practices exponentially in the coming years. Unnatural Selection, a four-part Netflix docuseries produced in 2019, details the possibilities and ethical concerns of gene-editing technologies such as CRISPR to fundamentally alter the genetic way of life developed throughout millenia by evolution. Aside from the potential of genetic engineering to create bioluminescent dogs and “designer babies” with customized traits, the series details the possibility of this technology to eradicate diseases such as malaria by reducing mosquito populations as well as editing out the genes that cause mosquitoes to inherit the parasite, and to eliminate an entire species of rats from New Zealand.
CRISPR – short for Clustered Regularly Interspaced Short Palindromic Repeats – is a revolutionary gene-editing technology that uses Cas9 enzymes to “cut” DNA at a specific position in the genetic sequence. The location of this cut is determined by a guiding RNA molecule, and the natural repair mechanisms of the organism’s DNA repair the cut, subsequently correcting the mistake that was there before. Using this technology, scientists can manually activate or silence a chosen genetic sequence, therefore correcting defects caused specifically by mutations in DNA. The series follows Jackson Kennedy, a boy from New Jersey who was born legally blind as a result of Leber Congenital Amaurosis, a rare degenerative condition that affects eyesight because of errors in a person’s RPE65 gene. Filmmakers focus specifically on the complicated process Jackson’s family undergoes in order to get him approved to undergo surgery to receive Luxturna, a recently-developed method of gene therapy that works by delivering a normal copy of the RPE65 gene directly to a patient’s retinal cells, allowing the body to have a new functional copy of the gene to replicate. The procedure improved Jackson’s eyesight from 20/10,000 to 20/80, a previously unimaginable development.
One of the biggest implications of these genetic therapy treatments, if successful remedies continue to be developed, is that they will fundamentally alter the financial landscape of the medical industry. As effective as many current medicines are for treating and mitigating the symptoms of diseases such as AIDS and diabetes, they still do only that – manage the symptoms of a disease well enough so that it afflicts the life of the patient as minimally as possible. The root cause of the ailment is not fundamentally addressed, however, so the central problem never actually goes away. Because of this, patients necessarily become reliant on their treatments in regular intervals depending on the nature of the disease and treatment. This results in a consistent stream of payments that providers can expect no matter what, because people have no choice but to treat their conditions no matter how expensive they are. Many gene-editing treatments would be able to stop the problem at its source so that people who suffer from them would not have to keep going back for treatments, but in order to recoup the financial deficits created by a loss of dependence, patients would instead see massive upfront costs for these treatments so that the companies that produce and distribute them will still be profitable. At one point, the documentary follows Nick Piazza, a patient with Spinal Muscular Atrophy, whose parents finally reach an agreement with an insurance company to try a new treatment where the first dose costs $750,000. Likewise, the reason Jackson’s family was finally able to set him up for surgery was because insurance finally agreed to cover a significant portion of the $800,000 upfront cost of the two procedures he would have to undergo – one for each eye.
New successful treatments are not only a godsend for individuals stricken with previously incurable ailments, but just one flagship treatment can generate immense amounts of profit for a company, leading to gains such as Novavax 1023% growth from August 2005 to March 2006. The potential for exponential profits with a hit treatment is one of the most attractive aspects of biotech investing, but investors should be wary to consider the risks these startups come with. One extremely important thing to keep in mind is that many biotech products have little scientific research thus far to back them up. This is not to say that biotech is some sort of pseudo-science void of actual benefit to patients – but since there is so little peer-reviewed research out there, the industry remains extremely volatile and unpredictable by nature. Many of these remedies have not gone through any clinical trials (or are still in preclinical stages) to determine their efficacy, making them extremely risky investments for investors and patients alike.
Clinical testing is a long and complicated process. People can be encouraged by early indications of success in a drug’s ability to counteract genetic disease, but these drugs often have many more trials and tribulations along the way before they are actually approved for use.
A typical drug testing cycle involves three phases of assessments, increasing in size as the product moves through trials, where volunteers take the drug in question so that researchers can determine its effectiveness, possible side effects, and correct dosages. However, the process is hardly as simple as it may seem. While most drugs showing some promise are likely to move on the phase II of testing, where researchers use placebo treatments as well as varying level of the drugs in a pool of around 300 patients to try and determine the most effective dosage, only 33% of treatments move onto the third and final phase of clinical trials. This final phase of testing alone can cost companies anywhere from $11 million to $52 million, and the entire process takes an average of six to seven years. The problem is that circumventing the typical lengthy process of approval through clinical trials can lead people to derive a false sense of hope when it comes to a drug’s effectiveness.
The past few years, however, have provided a sense of real hope on the horizon for genetic therapy treatments. In 2018, then-President Donald Trump passed the Right to Try act into law. The act, already passed in 41 states prior to Trump’s signing, allows terminally ill patients to legally self-experiment with treatment methods not approved by the FDA after exhausting their government-regulated medicinal options. This opens the door for companies with drugs undergoing active development (the law permits clears drugs that have passed phase I for self-experimentation) to help recoup research and development costs incurred during production, although the law does not yet allow companies to make profits on drugs not approved by the FDA. Right-to-try allows patients like Tristan Roberts, an HIV-positive individual the series follows, to self-administer DNA antibody treatment for his condition with the help of biotech startup Ascendance Biomedical. Roberts injects himself with the therapy on FaceBook Live as a way of promoting non-conventional, unofficial alternatives to highly priced government regulated treatments for HIV, although Unnatural Selection documents the many uncertainties surrounding Roberts’ status as a test patient.
So, what are the business implications of these new, untested methods, and what essential things should investors keep in mind while weighing the benefits and drawbacks of investing in these companies? Here are three key takeaways that should be at the forefront of any investors mind when examining biotech stocks.
Be Aware of the Volatile Nature of These Stocks
While massive gains in short periods of time are possible due to the enormous impact of these medical breakthroughs, investors should keep in mind that relying on the fate of just one or two products, as most of these companies do, leaves them completely at the mercy of regulatory groups such as the FDA. In 2015, Threshold Pharmaceuticals, which had in-licensed to Merck & Co. for production of its TH-302 cancer therapy, saw its stock price drop by 83% on December 7th as the latter announced the drug’s failure to pass clinical trials. Investors should make sure that their stocks are diversified and that only a small portion of their assets are dedicated to any one stock, especially among early-stage biotech stocks which are very high in risk-to-reward.
Understand the Potential for Market Growth
While the fate of individual stocks remains unpredictable, the biotech sector is expected to fare extremely well in the coming years as a result of larger investments into research as well as government policies such as right-to-try. As a result, the industry as a whole is expected to grow at a CAGR of 15.3% through 2028. A well-researched and diversified biotech portfolio should continue to create positive returns for investors as more and more resources are dedicated to product development.
Perform Adequate Research
While research into a company’s operations is always important to gain some understanding of its products and future profitability, this is especially essential with developments that are so new to the market such as those in biotech. Investors should make sure they understand how exactly the company generates value, how it is funded, and how factors such as new legislation around medicine will affect each company’s specific products. The biotech sector, more than most others in the market, can be a game of chance, and interested investors must make sure their picks are as educated as possible in order to get the most lucrative possible returns.