Groundbreaking work on potential treatments—and cures—for cancers and rare diseases is changing how companies and investors think about biotech.

Imagine a world where genetic blindness, severe muscular dystrophy, blood and bone marrow cancer, and many other diseases are not just treated, but cured. Thanks to groundbreaking work being done in gene therapy, what once was a dream is coming closer to reality. 

Instead of treating symptoms of disease, a prolonged and costly undertaking, a one-time gene therapy treatment has the potential to fundamentally address the root cause. This can be done by inserting a missing gene into a patient’s DNA—known as gene therapy—or repairing a defective gene, which is known as gene editing.

The treatment potential of gene therapy spans a wide variety of rare diseases, including single-gene disorders such as cystic fibrosis, hemophilia and sickle cell disease. And it also holds promise for the treatment and prevention of more complex diseases, such as cancer, heart disease, mental illness and HIV infection.

In our view, the perfect storm is taking shape for investment in gene therapy. Substantial unaddressed need, solid balance sheets of large pharmaceutical companies with excess cash for acquisitions, and maturing pipelines of gene therapy products should support the valuations of smaller gene therapy companies.

Meanwhile, the bigger pharmaceutical players, especially in Europe, should see their earnings growth improve meaningfully in the coming years1 as they replenish their pipelines—and gene therapy is likely to be a prominent feature.

Larger pharmaceutical companies in Europe should see their earnings growth increase

Source: BofA Merrill Lynch global research estimates, as of December 31, 2018. Above shows average earnings-per-share growth rates for the following large-cap European pharmaceutical companies: AstraZeneca, Bayer, GlaxoSmithKline, Merck KGaA, Novartis, roche Holdings, Sanofi, Nova Nordisk and Shire.
Bar chart showing average earnings-per-share growth rates for large-cap European pharmaceutical companies from 2010 to 2018, as well as our expectations for 2019–2021. The peak is 2010, then the bars gradually decline from 2011 to 2013, increase slightly from 2013 to 2016, then reach a negative in 2018. Our expectations show the bars reaching another peak in 2021.

Duchenne muscular dystrophy (DMD) is a severe and common type of muscular dystrophy, a condition that usually begins around age 4 in boys and worsens quickly, with most unable to walk by 12. Gene therapy could be used to deliver a correct form of the dystrophin gene, which is otherwise mutated in those who suffer from this condition. While this particular therapy has been challenging because of the size of the gene, another form of treatment aims to fortify the structural integrity of the muscle by increasing expression of other proteins not mutated or lost in the disease.

Cancer patients are also benefiting from cell and gene therapy. The Food & Drug Administration (FDA) approved two cancer therapy treatments in the United States in 2017 to treat childhood leukemia and adult large B-cell lymphoma. 

T cells, which are white blood cells, are collected and genetically modified to include a new gene that is infused into the patient. The new gene directs these modified T cells to target and kill cancerous cells. And it has been successful. In Novartis’s clinical trials of 63 children and young adults with a type of acute leukemia, 83% of the patients that received CAR T therapy experienced remission within three months. At 12 months, 79% had survived.2  The adult lymphoma treatment works in a similar way.

CAR T therapy

Image explaining the process of CAR T therapy

The first gene therapy treatment approved in the United States treats retinal dystrophy, an inherited eye disease that causes severe visual impairment beginning in infancy.3 Spark Therapeutics’ one-time treatment, known as Luxturna, targets the disease, which can eventually lead to blindness. In a Phase 3 clinical study with 31 participants, the group that received Luxturna demonstrated significant improvements in the ability to complete an obstacle course at low light levels compared to the control group.

While certainly not without risks and still in early stages, these types of gene therapies are promising, and the unmet need to treat or cure rare diseases is significant. National Institutes of Health (NIH) estimates there are about 7,000 rare diseases that affect more than 25 million Americans—and many have no approved therapies.

So, with all this potential, how far are we from commercial reality? Much closer.

  • The FDA has said it expects by next year to be receiving more than 200 new drug applications annually for gene therapies, building on the more than 800 applications it already has. By 2025, it expects to be approving 10 to 20 such products each year. And MIT’s New Drug Development Paradigms program estimates FDA approval of three dozen new gene therapies by 2022.
  • These types of treatments often receive priority designations, demonstrating the FDA’s commitment to expediting their development and review.
  • The number of gene therapy projects has increased rapidly in recent years. Deloitte estimates that recently launched and pipeline cell therapy products will reach 40% of Top 20 Pharma’s 2018–2024 cumulative sales, and gene therapy products specifically will reach 7%.4


The funding and number of gene therapy projects have increased in recent years

Source: National Institutes of Health (NIH). Data as of November 20, 2018. CRISPR: Clustered regularly interspaced short palindromic repeats. A family of DNA sequences found within the genomes of prokaryotic organisms such as bacteria and archaea.
Bar chart showing both the total National Institutes of Health (NIH) funding for CRISPR-related research (in millions of USD) and the number of CRISPR-related projects from 2011 through 2018. Both have increased dramatically over this time period, reaching peaks in 2018.

Even though the true potential of gene therapy will take years to realize, 2019 is shaping up to be a banner year for this industry because of three key catalysts:

1. The FDA is expected to introduce policies by the end of 2019 to further expedite development of gene therapy treatment

2. Approvals and clinical data expected throughout the year are likely to continue to draw investor attention to the space:

2019 gene therapy watch list

Note: Specific company names referenced in the table above are for illustrative purposes only. These are not investment recommendations.
Table showing upcoming events/approvals taking place in 2019 and 2020 within the gene therapy space.

3. Recent M&A activity confirms gene therapy is a big focus of larger pharmaceutical companies and investors, and that is likely to continue in 2019

  • In February, Roche announced it would acquire Spark Therapeutics for a 122% premium. In addition to the Luxturna therapy, Spark also brings to Roche four products in clinical trials and other programs in development for diseases such as hemophilia and Huntington’s disease.
  • Shortly after the Spark news, Biogen announced its acquisition of Nightstar Therapeutics for a premium of 68%. Nightstar’s array of gene therapies includes a potential treatment for a rare retina disorder, which could be the next treatment to receive approval

Despite all the potential, there are some tough issues to work through. For starters, these treatments come with hefty price tags. A one-time treatment for non-Hodgkin’s lymphoma can cost close to $400,000. And it can run as high as $850,000 for a gene therapy injection in each eye to treat hereditary vision loss.

Fortunately, there are ongoing discussions between payors, providers and gene therapy manufacturers meant to address this issue. Payors may be willing to pay for critical therapies if they are effective and can result in a lifetime of savings versus a conventional but often lifelong treatment plan.

In addition to the “sticker shock,” there are also difficulties with scalable manufacturing, transportation, administration and management, and unpredictable demand.

A lifetime of savings with a one-time treatment is a tangible, quantifiable figure. But the biggest benefit is immeasurable: the promise and potential for a better quality of life for patients, their families and caretakers.

Imagine a world where life-changing and life-saving gene therapy is an option available to anyone who needs it. That is the world we want to invest in.

1Bank of America Merrill Lynch, European Pharma Review, December 14, 2018.


3Two cell therapies (Kymriah and Yescarta) and one gene therapy (Luxturna) are currently FDA approved and have commercial scale. Others are available but are less used. The full list can be found here.

4Deloitte, Evaluate Pharma, May 31, 2018.