How the investment in biotech stocks could quickly change radically

If prevention is the best remedy, how much is healing value? What is the complete remedy compared to the ongoing treatment of a disease? That is a question that the healthcare industry now has to address.

Biopharmaceutical companies book more than ever before, not only in the treatment of diseases, but also in the development of healing methods and resources for these diseases. The ability of patients with severe diseases to fully regain their health can inspire you, not just the patients and their families, but also society as a whole.

But it can also lead to economic unrest in our health care. And biotech investors can radically change the way in which they radically change the shares of companies that develop healing methods and are currently developing treatments for diseases that are currently launching new healing modalities.

A brief history of the cure of the disease

This will not be a very long list. Because there are very few diseases for which remedies have been developed.

Some people think that diseases such as polio and smallpox that have plagued previous generations have been eradicated. It is true that these diseases are not nearly as problematic as they used to be. In the early fifties, more than 15,000 people were paralyzed every year by polio vaccination. At the end of the decade, the number began to decrease drastically. Since 1979 no cases of polio have been reported in the US. And worldwide, according to the WHO, polio cases have dropped by 99% since 1988.

But polio is not really healed. Instead, highly effective vaccines have been developed to prevent infection with the poliovirus. The situation is similar to smallpox, which has been declared completely extinct, and several other infectious diseases that have largely been eradicated.

However, there are two diseases that have actually been cured. In 2016, Margaret Anderson, managing director of the Faster Cures Organization of the nonprofit organization, said that she only knew one disease that had been cured, namely Hepatitis C. Gilead Sciences (WKN: A12HQS) obtained approval from the US Food and Drug Administration (FDA) for treatment with Sovaldi in December 2013. Subsequent drugs from Gilead and others subsequently cured up to 98% of hepatitis C patients.

Recently received Spark Therapeutics (WKN: A12HQS) received FDA approval in December 2017 for Luxturna, a gene therapy for the treatment of a rare retinal disease caused by a specific gene mutation. The press praised Sparks gene therapy as a cure for a rare form of blindness – and rightly so. Luxturna is a one-time treatment. In clinical trials, patients receiving gene therapy could see much better in low light than patients in the control group.

Always behind the money

The financial impact of a remedy can best be seen in the example of hepatitis C. Let's take a look at three pharmaceutical manufacturers – Bristol Myers Squibb (WKN: 850501), Gilead Sciences and Merck (WKN: 659,990).

Bristol-Myers Squibb (BMS) was not a major player in the treatment of hepatitis C until the launch of Daklinza in Europe in 2014 and in the US in 2015. Merck, on the other hand, has been using hepatitis C drugs such as Pegintron and Victrelis for many years. the market. Gilead's first full year of competition on the hepatitis C market came in 2014 with the introduction of Sovaldi.

Gilead's market entry caused quite a stir in the sector. The following two diagrams provide more information.

Source: SEC entries. Graph by the author

Source: SEC entries. Graph by the author

The first graph shows how Merck developed until 2014, when sales of hepatitis C declined dramatically. In 2015, Merck's revenue for Hep-C was only a shadow of what they once were. However, Merck managed to gain ground on the market through the introduction of Zepatier, a hepatitis C medicine that followed in the footsteps of Gilead's Sovaldi.

The latecomers BMS could enjoy the start of Daklinza for a few good years. The good times did not last long.

Gilead's success overshadowed the sale of other companies in the shade. Gilead's treatments for hepatitis C, led by Sovaldi and followed by Harvoni, Epclusa and Vosevi, dominated the market almost completely – at least for a while.

In 2016, however, a sharp decline in turnover started. This is partly due to the emergence of new competing products from Merck and Abbvie Both have developed their own hepatitis C treatments. An even bigger problem, however, was that not many patients remained to be treated after the first wave of hepatitis C patients had been cured.

What these two graphs do not show is that BMS and Merck are now essentially unimportant in the hepatitis C market. BMS reported a sales of Hep-C of just $ 15 million in the first half of 2018. Merck's sales of hepatitis C amounted to $ 243 million in the same period, almost as low as in 2015. The market for hepatitis C is just a battle between two treatments – Gilead and AbbVie. And both big companies are fighting for a smaller and smaller group of patients.

The stories behind these two graphs highlight two certainties that investors must recognize. First, companies that succeed with effective treatments for a disease can quickly see that the success is transient when treatment is started. Second, companies that develop treatments can generate huge revenues from the outset, but they too will likely experience a significant drop in revenue after the first flight.

It is too early to say what is happening with Spark Therapeutics. The biotech company assessed Luxturna for single treatment at $ 850,000 and $ 425,000 per eye, respectively. Although the price was below some of the $ 1 million expected by some observers, Luxturna was still one of the most expensive treatments on the market.

Some can be put off by the high costs. The Pharmacy Benefits Manager (PBM) of Fast scriptsHowever, Steve Miller stated that Spark praised his gene therapy "responsibly".

The coming golden age of medicine

A golden age of medicine could be on us. Gene therapies such as the Luxturna by Spark Therapeutics promise to cure a number of genetic diseases by introducing functional genes into the cells to correct missing or defective genes. An even greater chance could be provided by gene processing, where mutations are corrected by direct modification of the DNA.

Most efforts in the past have focused on the development of remedies for rare genetic diseases. The leading program's from CRISPR Therapeutics (WKN: A2AT0Z), for example, use CRISPR-Cas9 gene processing for the treatment of rare blood disorders such as beta-thalassemia and sickle cell disease. Editas Medications (WKN: A2AC4K) CRISPR-Cas9 is also used to treat the most common – but still rare – form of hereditary blindness in children, the congenital hepatic amaurosis type 10 (LCA10).

Both biotechs are still in their infancy. Both have not yet started clinical trials in humans, but hope to do so in the near future. What happens if they eventually succeed?

Editas Medicine could follow a similar path as Spark Therapeutics. The biotech should definitely award its LCA10 therapy very high. Many payers could agree with such a high price as Express Scripts for Luxturna, because there are not many patients with the disease and there are no other effective treatments.

If CRISPR Therapeutics is successful in beta-thalassemia, we can experience a similar scenario to hepatitis C. For example, Celgene believes that luspatercept is a potentially blockbuster beta thalassemia drug. An effective remedy for beta thalassemia could significantly reduce the sale of Celgene's drug.

But the greatest upheaval could come when remedies are developed for diseases that occur more often. Gilead is actively working on the development of a remedy for HIV. The company reported encouraging preclinical results with a combination of two experimental drugs that cure nearly half of the HIV-infected monkeys receiving the drugs.

Gilead represents an interesting dilemma. They want to heal HIV and make rapid progress with research. At the same time, the company earned $ 14 billion in HIV treatment in 2017. A complete cure would nullify these paragraphs.

New challenges for biotech investors

All this means a new paradigm for biotech investors: the competition for medicines for companies is one thing. But the prospects of healing the diseases to which these medicines are directed are naturally changing everything. How should one act as an investor?

Firstly, before buying a biotech or pharma stock, you must have a good understanding of the competitive dynamics on the markets. This is an important step, even if no potentially curative treatments are being developed for any of the intended indications of the company.

Secondly, one must be smart about the companies that develop the possible remedies. Discover how far they are and what the potential obstacles to technology can be. Another important thing that is often found in small biotech products that develop treatments is a potential acquisition by a major player in the sector – or even just an investment. If a big fish invests a lot of money in collaboration with a small biotech, this can be a good sign that you have to take the small biotech challenger seriously.

Third, listen to what the drugmaker's management says about potential competition. When the management has a good strategy, it is often reassuring.

Fourth, you can hedge your investments by buying a position in the shares of potential competitors who develop treatments. If investing in a biotechnology in a clinical or preclinical phase is too risky, you may want to invest in a larger player who has set up a smaller biotech – if there is such a partnership.

But there is one thing that biotech investors should not do: underestimate the threat of future treatments. Yes, it is still early. Some experimental treatments will not work. But Francis Collins, director of the Human Genome Project and the current director of the National Institutes for Health, said: "I think the development of remedies for all diseases is certainly something we can imagine in the course of this century." The emphasis in the sentence is on the word "everything".

So what is worth the remedy? Possibly billions of dollars for some companies. And it could cost others billions of dollars. For investors in biotech and biotech, the entire fortune is at stake.

The Motley Fool owns and recommends shares in Celgene and Gilead Sciences and holds shares in CRISPR Therapeutics.

This article by Keith Speights
It has been translated so that our German readers can participate in the discussion.

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