Gene therapy is a fast-growing constituent of the healthcare market. In simple terms, it is a technique that cures or prevents difficult to treat inheritable diseases by repairing or replacing the problematic part of a human gene. Over time, gene therapy could allow doctors to treat a disorder by inserting a gene into a patient’s cells instead of using drugs or surgery, according to a report by the U.S. National Library of Medicine.
Leading companies in the gene therapy space are scrambling to develop treatments through in-house innovation or through acquisitions or partnerships with companies that specialize in the area of gene therapy. The race, industry watchers say, has only just begun as the market is projected to expand from US$584 million in 2016 to nearly US$4.5 billion by 2023, a staggering 33.3% annual growth.
Approvals for various gene-altering therapies from drug regulators in Europe and the U.S., have prompted these companies to ramp up research and clinical trials, to roll out cures for cancer, hemophilia, muscular degeneration, and other debilitating medical conditions. These companies are well positioned to benefit from the growing momentum in the application of genomics in healthcare. A promising pipeline of existing and upcoming products and potential breakthroughs could create a strong tailwind of growth and profitability for these companies.
| Biomarin Pharmaceutical Inc | ||
| Ticker: | BMRN | |
| Current yield: | - | |
| Forward P/E: | 59.88 | |
| Price: | US$85.45 | |
| Fair value: | US$118 | |
| Value: | 28% Discount | |
| Data as of Jan. 03, 2019 | ||
Biomarin (BMRN) develops and markets treatments for rare diseases. The biotech behemoth has a hemophilia A gene therapy and a treatment for achondroplasia in late-stage clinical trials.
“Biomarin is amassing a portfolio of genetic-disease therapeutics, making historical comparisons with Genzyme (now Sanofi) difficult to avoid,” says a Morningstar equity report. While marketing and R&D spending have weighed on the firm’s balance sheet, the sustainable profit-generating power of its rare-disease treatments is undeniable.
“With a deep in-house pipeline and the ability to supplement growth with strategic acquisitions, Biomarin is in a strong position,” says Morningstar sector strategist, Karen Andersen, who pegs the stock’s fair value at US$118, driven by international expansion and new product launches.
“Biomarin’s life-saving therapies may serve only a few thousand patients globally, but with six-figure price tags on most products and high barriers to entry, we see this as a very attractive marketplace,” says Andersen, who projects 22% average annual sales growth over the next five years.
| Alexion Pharmaceuticals Inc | ||
| Ticker: | ALXN | |
| Current yield: | - | |
| Forward P/E: | 10.98 | |
| Price: | US$101.06 | |
| Fair value: | US$172 | |
| Value: | 43% Discount | |
| Data as of Jan. 03, 2019 | ||
Alexion Pharmaceuticals (ALXN) specializes in drugs for life-threatening medical conditions. The biotech’s blockbuster drug Soliris is the only approved therapy for two ultra-rare blood disorders - paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome. Its portfolio also contains therapies for other ultra-rare metabolic diseases.
Alexion has been bulking up its pipeline through acquisitions such as the Swedish pharma Wilson Therapeutics and Syntimmune, firms that have treatments for rare diseases in various phases of the clinical trials. “[The latter] adds SYNT001, an early-stage antibody candidate for rare immunoglobulin-G-mediated diseases, to Alexion's portfolio,” says a Morningstar equity report, noting that while buyouts will weigh on the company’s bottom line shorter term, they will strengthen pipeline and strategically position the firm for future cash flow generation.
“Alexion Pharmaceuticals’ ultra-rare-disease focus allows the company to capture substantial pricing power in areas of high unmet need,” says Anderson, who recently raised the stock’s fair value from US$170 to US$172, prompted by a more optimistic 2018 sales guidance and recent acquisitions.
While she concedes that competition is growing with drug manufacturers flocking to the lucrative autoimmune market, Anderson argues that “Alexion’s first-mover status and next-generation pipeline mitigate this risk.”
| Pfizer Inc | ||
| Ticker: | PFE | |
| Current yield: | 3.33% | |
| Forward P/E: | 14.60 | |
| Price: | US$42.41 | |
| Fair value: | US$46 | |
| Value: | 6% Discount | |
| Data as of Jan. 03, 2019 | ||
With over US$50 billion in annual sales, Pfizer (PFE) is one of the world’s largest pharmaceutical firms. It sells prescription drugs and vaccines, which account for most sales, globally. International sales make up almost half of the firm’s total sales.
Pfizer has been bulking up its gene therapy portfolio and research and development capabilities through in-house capabilities, strategic tie ups, and merger and acquisitions. As part of that push, the U.S. pharma giant has collaborated with some of the foremost experts in the field, in order to develop gene therapies for rare diseases including amyotrophic lateral sclerosis (ALS) and hemophilia B, a rare blood disorder.
The company’s sustainable competitive advantage stems from economies of scale and a broad portfolio of patent-protected drugs, says Morningstar sector director, Damien Conover, who recently raised the stock’s fair value from US$45 to US$46, driven by higher projections for rare-disease drug tafamidis.
“Pfizer’s patent-protected drugs carry strong pricing power that enables the firm to generate returns on invested capital in excess of its cost of capital,” says Conover, who forecasts 3% annual sales growth and 8% bottom line growth over the next three years. The Viagra maker is in the process of launching a slew of important new drugs expected to be potential blockbusters in cancer, heart disease, and immunology.
| Novartis AG ADR | ||
| Ticker: | NVS | |
| Current yield: | 3.54% | |
| Forward P/E: | 15.22 | |
| Price: | US$84.91 | |
| Fair value: | US$87 | |
| Value: | 3% Discount | |
| Data as of Jan. 03, 2019 | ||
Swiss pharmaceutical heavyweight Novartis (NVS) develops and manufactures branded and generic healthcare products and sells them globally, with the U.S. making up close to a third of sales.
The firm is going full speed into gene manipulation for treatment of rare diseases. Novartis saw early success in 2017 when it won U.S. approval for its gene-modifying immunotherapy for leukemia, a $475,000 treatment, according to Reuters. Late last year, it followed it up with a nod from the EU for its gene therapy for a rare inherited retinal disease. Novartis has also been making strategic acquisitions to up its gene therapy game. It recently made an offer to acquire French cell and gene therapy firm CellforCure, which, if approved, will boost the former’s gene manufacturing capabilities with facilities on both sides of the Atlantic.
“With strong positions in multiple key healthcare businesses, Novartis is well positioned for steady long-term growth,” says a Morningstar equity report. “Novartis differentiates itself by its sheer number of blockbusters, including Gilenya for multiple sclerosis and Afinitor and Tasigna for cancer,” says Conover, who appraises the stock’s fair value to be US$87.
The combination of a strong pipeline of new products and a diverse, well-positioned operating platform should translate into steady growth despite recent patent losses, he notes.
