After Spark Therapeutics and competitor BioMarin Therapeutic (NASDAQ: BMRN) updated investors on the progress that they're making developing competing gene therapies for hemophilia, investors knocked more than one third off Spark Therapeutics' (NASDAQ: ONCE) valuation yesterday. The sell-off was undeniably painful for existing investors, but it could be creating an opportunity for new investors to pick up shares in this gene therapy leader.
Here's why Spark Therapeutics shares fell, and three reasons investors ought to consider adding this biotech to their portfolios.
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A bit of background
According to the World Federation of Hemophilia, there are 151,000 people with hemophilia A and nearly 30,000 people with hemophilia B worldwide. An inability to produce a protein necessary for clotting blood makes hemophilia patients continuously at risk of severe bleeding events and life-threatening hemorrhages. In hemophilia A patients, it's coagulant factor VIII that's missing or under-produce,; and in hemophilia B, it's coagulant factor IX.
To limit bleeds and prevent joint damage, doctors often prescribe prophylactic infusions of the missing coagulation factor. These treatments are effective, but they can require regular visits to specialized hemophilia treatment centers and can lead to complications, including an unwanted immune reaction to the clotting factor concentrates they're prescribed.
Since hemophilia is a chronic disease requiring lifelong treatment, treatment costs per patient can reach well into the six figures per year. Given the drawbacks of existing therapy and its cost, the market for hemophilia drugs is ripe for disruption.
A new paradigm
Spark Therapeutics and BioMarin are working on gene therapies that can restore a patient's ability to create their own clotting factor. If they're successful, then standard treatment could shift from a lifetime of infusions to a one-and-done treatment.
At the recent American Society of Hematology (ASH) conference, Spark Therapeutics and BioMarin reported what can only be described as remarkable progress.
Spark Therapeutics reported a nearly 100% reduction in bleeding events for its hemophilia B treatment, SPK-9001, and a 100% reduction in bleeding events for its hemophilia A treatment, SPK-8001.
Not to be outdone, BioMarin similarly reported that its valoctocogene roxaparvovec (formerly BMN 270) eliminated median annualized bleeds and factor VIII use in three patients who had been followed for 48 weeks. In those patients, factor VIII activity levels were at or near to the normal range with both median and mean values of 49%.
While both SPK-8001 and valoctocogene roxaparvovec eliminated bleeds in hemophilia A, investors dug into the comparative data and declared BioMarin the winner because its therapy produced higher activity levels of factor VIII. In Spark Therapeutics' trials, mean and median factor VIII activity was all over the place, ranging from the high single digits to 37%.
Why it might not matter
There are three reasons I think Spark Therapeutics shares can be bought, despite the variability in factor VIII activity in hemophilia.
First, the company recently secured a unanimous recommendation from a key FDA advisory committee for Luxturna, a gene therapy that can restore functional vision in a small subset of patients with a specific genetic make-up. The FDA is expected to announce its decision on Luxturna in January, and if it's approved, Luxturna will treat biallelic RPE65 mutation-associated retinal dystrophy. Luxturna restored vision to more than 90% of patients for up to three years in trials, suggesting doctors and patients will embrace it.
Although Luxturna can only help between 1,000 to 3,000 patients in the U.S., it could be a million-dollar per patient drug. Consider this point: If Luxturna is only used 1,000 patients and the net price is half the amount that's being discussed, we're still talking about $500 million in revenue.
Second, Spark Therapeutics' hemophilia B gene therapy appears to work very well, and if its efficacy and safety remain solid, SPK-9001 could generate hundreds of millions of dollars in annual sales. For perspective, sales of Pfizer's (NYSE: PFE) hemophilia B drug Benefix were $151 million, and sales of Bioverativ's (NASDAQ: BIVV) Alprolix were $88.5 million in the third quarter alone.
Spark Therapeutics' will have to out-compete Uniqure NV's (NASDAQ: QURE) clinical-stage gene therapy, but I wouldn't bet against SPK-9001. Pfizer owns the licensing rights to SPK-9001, and since it's already established in this marketplace, it has an edge in turning SPK-9001 into a success.
Thirdly, investors could be over-reacting to the Spark Therapeutics hemophilia A data.
Ultimately, what really matters to patients and doctors in this indication is the 100% reduction in bleeds, and what really matters to insurers is the ability to discontinue prophylactic treatment. Generally, patients with factor VIII activity above 12% generally don't bleed, no matter how poorly they adhere to their treatment. Since the company's already hitting levels at or above that level, and it thinks it can still optimize dosing, we could see activity improve from where it is now in the future. If so, then SPK-8001 could still successfully compete against BioMarin someday.
Things to keep in mind
Spark Therapeutics has one of the most intriguing gene therapy programs going, but it hasn't won any FDA approvals yet, and that makes it a risky stock to buy. There's always the chance that the FDA balks at approving Luxturna and that hemophilia results worsen over time. Nevertheless, I think Luxturna will get a green light and begin contributing revenue in the coming year, and if I'm right, then Spark Therapeutics' will have plenty of financial flexibility with which to successfully advance research on its gene therapies.
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