Drug discovery primarily falls to small companies under the biotechnology label and larger Pharmaceutical companies. This means that drug discovery is ultimately within the arena of the Pharmaceutical Industry, which is located within the Health Care sector.Today we venture into the bowels of the stock market to a world that is oft-likened to the casino of stock market investments. Drug discovery has changed. The industry has shifted and transformed significantly over the last twenty years. The responsibilities of drug discovery, once confined to the heavily capitalized and often “wasteful” (ie inefficient) laboratories of Big Pharma (think Pfizer, Novartis, Eli Lilly, Merck, and the like) has now been relegated to lean, startup-esque companies focused on ONE drug or therapy; these tiny companies burn through cash – often tens of millions of dollars per year – and they either sink or swim with the success or failure of their tests. Many of the initial workers at these companies will see their hard-earned stock options either make them millionaires or expire worthless.
Public investors in a biotech company’s stock move in AFTER private money (ie venture capital) has already been present for some years. These initial backers will get a portion of their money back and more at the IPO, while passing some ownership and associated risk out to public investors who choose to partake in the venture. These public investors will now also have the potential for outsized gains or crippling losses.
A land of speculators (ie clueless retail investors), smart institutional investors, and savvy market-manipulators, many seasoned investors prefer to simply gain exposure to the sector through blanket exchange-traded vehicles (baskets of the individual companies, if you will, matching the "diversification is good" mantra touted by advisors). During boom times, this is indeed the safest avenue to gain alpha while protecting initial capital (risk first, reward second - ceteris paribus - as any good advisor will be sure to say).
But what about those analysts and institutional investors who specialize in public drug discovery companies? These have access to resources well beyond the scope, scale, and scientific prowess of the average investor (remember, these investors – as well as most good investors – will also implement a solid hedging strategy to minimize risk exposure from outsized holdings). Indeed, even with access to these resources, these investors sometimes experience staggering losses, since no one can protect against the fact that a drug may fail at any point during testing, even prior to going before the all-important and all-powerful FDA approval committee.
Therefore, retail investor, beware! Dreadful monsters lurk here. This world is rarely the right place for you.
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That being said, Gene Therapy has been HOT this past year and high-quality companies located within the space have benefited from some solid test results and major acquisitions.
About Gene Therapy. Many diseases exist or occur today because of problems with DNA imperfections. Whether from genetics (hereditary) or otherwise, some diseases could in theory simply cease to exist if some genes were slightly modified. Or perhaps with some slight alterations your body’s immune system could be directed to attack cancer cells. In search of these objectives, two methodologies are being pursued with Replacement Gene Therapy: using viral vectors (ie CAR T-cell therapies; remember how Gilead acquired Kite Pharmaceuticals last year? Article by Forbes) and utilizing CRISPR technology, which is used to edit genes by DNA insertion.
Gene Therapies: Read about the science behind viral vectors and their uses in gene therapy from the journal Nature. Read about the science behind CRISPR technology from Live ScienceJust yesterday, Novartis announced that it is acquiring clinical-stage gene therapy company AveXis for $8.7 billion, nearly 90% above its previous closing share price. All this for a company that doesn’t yet have a treatment that has been approved by the FDA (approval is NOT a guaranteed outcome, we must also note). The company has been working on treatment for spinal muscular atrophy in infants, an often-fatal condition. This also follows Novartis acquiring rights to Spark Therapeutics’ gene therapy treatment for a rare hereditary eye condition that leads to blindness (in this case, the therapy has FDA approval).
A very thorough, in-depth overview of companies in the biotechnology space that are experimenting using gene therapy treatments can be found at Barrons. Great article that covers some of the technology behind gene therapy, how it is currently being applied, and which diseases are being targeted by various companies. Read article here: https://www.barrons.com/articles/gene-therapy-is-nearing-a-major-breakthrough-1506140340Replacement Gene Therapy shows great promise for treating difficult and deadly conditions worldwide. One primary target (outside of oncology) is treatment of hemophilia (think recent Juno and Bioverative acquisitions by Sanofi and Celgene). Novartis’ latest acquisition continues its own buildout into Gene Therapy. Big Pharma is moving, and the Big Question for investors is, who’s next?
