Anyone who likes a good underdog story will want to keep their eye on Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY) and GW Pharmaceuticals PLC (NASDAQ: GWPH) through this year and next as they launch their first products in the U.S. Smaller biotechs have a terrible track record when it comes to launching new drugs on their own, but most analysts expect these companies to buck the trend and propel their recently approved drugs to blockbuster status within a few years.
If the new U.S. sales teams these companies are forming meet the lofty expectations set before them, their shares would deliver some market-beating gains over the long run. If they put up an ordinary performance, though, investors could begin losing heavily in the quarters ahead. Let's see if either of these biotech stocks is worth the risk.
A discouraging track record
It doesn't happen often, but it seems like a few biotechs earn their first Food and Drug Administration approvals for new drugs that come with blockbuster expectations each year. With rare exception, however, their newly formed sales forces embarrass bullish analysts, and everyday investors tend to lose a bundle in the process.
Sarepta Therapeutics is an interesting outlier that has outperformed for investors since earning an extremely controversial approval for Exondys 51 in 2016. The stock has more than doubled since the FDA made it the first available treatment for Duchenne muscular dystrophy, a debilitating and ultimately fatal disease with no previous treatment options.
Onpattro: Another exception?
Like Sarepta before it, Alnylam Pharmaceuticals is launching a first available treatment option for a rare inherited and often fatal disease. It took a long time, but Onpattro is finally available for perhaps 15,000 Americans with a rare inherited disorder that leads to the buildup of faulty protein fragments that in turn cause nerve damage.
Onpattro is also the first RNA interference drug to earn FDA approval, and it's awfully important for Alnylam to get this one right because its entire pipeline is based on RNA interference. This class of drugs generally aims to silence troublesome genes, which in Onpattro's case is one that leads to the production of misfolded transthyretin.
Onpattro's first-mover advantage gives Alnylam a shot at avoiding the same fate as nearly every company that tries to launch a new drug with blockbuster potential on its own. That first-mover advantage isn't going to last very long, though, and competition isn't the only hurdle in front of this biotech's first drug launch.
Epidiolex: Big hurdles ahead
GW Pharmaceuticals needs Epidiolex to make a difference for its product sales figures because its first drug launch in a major market, Sativex in the EU, isn't going so well. The company launched the spasm-reducing drug in 2011 but it still isn't generating more than a few million in sales each quarter. Beyond Epidiolex, there isn't anything to get excited about in the company's development pipeline.
GW Pharmaceuticals recently earned its first FDA approval to treat a rare disease with marijuana-derived cannabidiol branded as Epidiolex, but investors should stop drawing parallels with Sarepta here. Lennox-Gastaut and Dravet syndrome are severe, drug-resistant forms of early-onset epilepsy that affect around 35,000 people in the U.S., but anti-epileptic drugs (AEDs) have been around a long time. Also, Sarepta's the only company allowed to sell Exondys 51. Unfortunately for GW Pharmaceuticals, the U.S. already has a thriving over-the-counter cannabidiol industry driven by patients who use this non-intoxicating portion of the plant to treat various ailments, including epilepsy.
Assuming the DEA applies favorable scheduling, reimbursement is a huge question mark. It's generally difficult to get reimbursed for drugs prescribed off-label when they're run-of-the-mill, but GW Pharmaceuticals needs to convince end payers to keep a marijuana-derived drug in a favorable copay tier for patients prescribed the drug off-label. Surging medical marijuana sales suggest adults don't mind using non-FDA approved means to treat whatever ails them.
At recent prices, GW Pharmaceuticals is a $4.0 billion company that lost $241 million over the past year because investors expect more than just Lennox-Gastaut and Dravet syndrome patients will be able to secure reimbursement and become regular customers soon. Around 3.5 million Americans have epilepsy, and lots of them would probably use Epidiolex if they can get someone else to pay for it. If these dreams don't materialize next year, though, the stock will tank.
Alnylam's a $9.8 billion company that lost $570 million over the past year, and investors are ignoring the losses now in hopes of blockbuster sales in a few years. Unlike GW Pharmaceuticals, Alnylam has a robust drug development pipeline that could produce a few more revenue streams within a couple years.
First-time new drug launches rarely work out without the help of a major industry player. At least, Alnylam shareholders have a lot less to lose if the company's first FDA-approved drug doesn't meet blockbuster expectations. That probably doesn't make it worth the risk at recent prices, however.
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