Although hematology represents a small portion of human diseases, its weight in the biotech equity markets is disproportionally high. Bluebird (BLUE), Agios (AGIO), Juno (JUNO), Kite (KITE), Cellectis (CLLS), Pharmacyclics (PCYC), Incyte (INCY), Genmab (GEN.CO), Seattle Genetics (SGEN) and Acceleron (XLRN) all derive the majority of their valuations from hematology drugs. This is also the case for larger companies such as Amgen (AMGN), Celgene (CELG) and Alexion (ALXN).
When normalized based on number of patients, hematology is probably the most profitable and successful segment in the industry. Diseases in the blood are much easier to understand and more amenable to treatment, which can explain the major advances in many hematological disorders (blood cancers, hemophilia, anemia, rare genetic diseases). Over the years, this translated to an impressive success rate (compared to other therapeutic areas like CNS and metabolism) and made hematology companies very popular among biotech investors.
In light of this, last week’s brutal reaction to the ASH (American Society of Hematology) meeting is yet another proof of the discrepancy between Wall Street’s expectations and the reality of drug development. Even in a segment where the odds are highly favorable and significant progress is being made, it has become impossible to satisfy a market with unrealistic expectations.
Bluebird and Agios as case studies
Bluebird and Agios were hit particularly hard following ASH and completed a 60%-70% fall in less than 6 months. In Bluebird’s case, its gene therapy failed to demonstrate a significant benefit in patients with sickle cell disease or a severe subtype of beta-thalassemia. Agios’ data included an underwhelming ~20% CR rate for its IDH inhibitors in AML patients with IDH mutations.
The companies still command valuations of >$2B but the market is clearly disappointed with their data. While I admit their results are far from perfect, I still view Bluebird and Agios as success stories that have a lot in common. Both companies pioneered an entirely new field in a consistent and systematic manner and are now at the forefront of their respective therapeutic areas (gene therapy and cancer metabolism).
To me, it’s amazing how successful these companies were at their first attempts given the fact it took other platform companies like Alnylam (ALNY) and Seattle Genetics many years and failed attempts to succeed in the clinic. Bluebird’s LentiGlobin may not cure every beta-thalassemia patient, but in some cases the effects are mind boggling. Agios’ inhibitors may have a limited effect as monotherapy, but their unique mechanism of action and excellent safety profile may still enable the majority of patients to derive some clinical benefit in a disease that hasn’t seen a new treatment for decades. Moreover, adding IDH inhibitors to approved regimens may enhance the effect and bridge more patients to potentially curative transplant.
Implications beyond hematology
Personally, the sobering ASH experience reinforces my concerns about investors’ unrealistic expectations that disregard the inherent risks of drug development. The fresh IPOs for Voyager (VYGR), CytomX (CTMX) and Wave (WVE) prove that companies with unproven treatments are still assigned very high price tags. Just like with Bluebird and Agios, these newcomers have promising technologies but their internal pipelines are way too early to justify their valuations.
Voyager has a single gene therapy program in phase I for Parkinson’s disease. To date, the company treated 8 patients and although encouraging signal has been generated in the first patient who received the high dose (sounds familiar?), it is hard to interpret the data without a control arm. The company’s platform is truly remarkable and a strategic partnership with Sanofi/Genzyme is an important validation but can this justify a $617M market cap.
CytomX and Wave don’t even have a drug in clinical testing but the two companies have market caps of $690M and $288M, respectively. Both companies are almost a year from P1 (best case scenario assuming no toxicology issues emerge) which means they might have meaningful clinical data in patients only towards the end of 2017. With such valuations, two years may be a long time to wait.
Portfolio holdings – Dec 13, 2015