September 30, 2019 BARRON’S 21
dystrophy. The patient population is meaningful,
at 13,000 to 18,000 in the U.S. There is only one
treatment now, which isn’t very good. Sarepta
has shown initial proof of concept for its micro-
dystrophin gene therapy with four patients.
Pfizer has a competing program, and its initial
data have independently validated that ap-
proach. Near term, Sarepta doesn’t have too
many catalysts, but we see upside longer-term
before the company releases important data in
the second half of 2020.
Hemophilia has been a battleground for biotech
companies. Which companies do you expect to
prevail with successful gene therapies?
Wang:BioMarin Pharmaceutical [BMRN],
Spark Therapeutics [ONCE], and Sangamo
Therapeutics [SGMO] are all developing one-time
gene-therapy treatments for hemophilia A. This is
a big disease, too, with a moderate and severe
patient population of about 12,000 in the U.S.
alone. We aren’t impressed by BioMarin’s data so
far. There is a lot of variability, and its drug’s du-
rability isn’t very good. Spark has a better clinical
profile. Sangamo’s data also looks good, but I
would like to see more about durability, which we
will get at ASH this year. [The annual American
Society of Hematology conference will be held in
December.] We favor Spark and Sangamo’s hemo-
philia A programs over BioMarin’s. Spark also
has reported good data on its hemophilia B treat-
ment, as has uniQure [QURE]. Based on clinical
profiles, they are close competitors.
Many people have focused on the $2 million price
tag on Zolgensma. Less attention has been paid to
the treatment’s effectiveness. Is it curing patients?
Wang: We have looked at all treatments for
spinal muscular atrophy, including Biogen’s
Spinraza, approved in 2016, and Roche’s ris-
diplam, partnered with PTC Therapeutics
[PTCT], comparing them side-by-side across
different patient populations. We still think
Zolgensma shows the best clinical benefit.
Thanks, Gena. Eli, which companies intrigue you?
Casdin: We have invested in the shares of Bi-
oLife Solutions, mentioned earlier, and gave the
company needed capital to aggregate smaller
businesses, building a one-stop bio-production
resource for gene- and cell-therapy companies.
Buying service providers to gene- and cell-ther-
apy companies like BioLife is a great way to
benefit from the industry’s growth without en-
countering the volatility of binary therapeutic
solutions. Every cell-therapy company we talk
with is looking for a strong provider of solutions.
BioLife has a market cap of about $415 mil-
lion. Through consolidation and execution, Bio-
Life should build a high-margin, high-revenue
growth company, with a diverse product port-
folio. Over the next few years, the company will
have a substantially bigger business and, as a
result, a much higher stock price.
One of the biggest barriers to the success of
cell therapy is the conditioning regimes that
patients must undergo. In the case of some
treatments, a patient’s entire immune system
must be ablated prior to treatment to allow the
new, genetically modified cells to engraft. David
can speak to this as a physician. We are in-
vested, along with GV, in Magenta Therapeu-
tics [MGTA], another small company developing
targeted conditioning regimes for cell therapy
and transplant patients, to make the procedures
less toxic and more accessible. If Magenta is
successful, it will build a company with multiple
high-value, high-margin products.
Does Magenta have any revenue yet?
Casdin: Like most early-stage drug-development
companies, it is pre-revenue, with little to show
but expenses and cash on the balance sheet. It
isn’t well appreciated by investors and today has
an enterprise value of just under $400 million. If
encouraging signs of success in its pipeline
emerge, which could occur in the next year and
a half, the stock would be significantly higher.
As demand for precision medicine and gene
and cell therapies grows, so will demand for
tests that diagnose these patients. Three or four
years ago, there weren’t many companies in the
molecular diagnostics space providing these
types of tests. Today, there is a whole ecosys-
tem of companies. Most are in cancer, some are
in transplants, and only a few are in the
broader inherited-genetic-disease testing space.
Price-to-revenue multiples are high. Growth
investors are buying into the expectation of ac-
celerating revenue growth and the broad value
and applicability of the genomic data these com-
panies are capturing. Invitae, which I mentioned
earlier, is a stock we own in this area.
Why Invitae?
Casdin: Invitae is a $1.9 billion-market-cap com-
pany. The stock trades for about $21. The com-
pany had $148 million of revenue last year. Invi-
tae has sold hundreds of thousands of genetic
tests since inception, and volumes are exploding.
While they aren’t making money on the bottom
line, it is only a matter of time before they start
generating substantial cash flow to reinvest in
the business. As the volumes grow, the value of
the genomic data they capture will grow, too. It
is a virtuous cycle that promises to create a
next-generation molecular information company,
which few investors appreciate today.
Any recommendations come with the caveat
that the stocks we invest in are extremely vola-
tile and can often go down before they go up.
Some never get off the mat, making sizing your
position critically important. My therapeutic pick
is MyoKardia [MYOK], which is developing tar-
geted small-molecule therapies for congestive
heart failure and hypertrophic cardiomyopathy
[thickening of the heart muscle]. Heart disease is
a big disease, but they’re thinking about it as a
rare disease, isolating the patient population with
a particular genetic makeup and providing solu-
tions to address that piece. The market cap is
about $2.5 billion. MyoKardia doesn’t have any
profits, but the data look really compelling. If
future data hold, the stock has a long way to go.
What metric do you use to value these compa-
nies in the absence of revenue and profit?
Casdin: First we ask, what would a perfect fu-
ture look like? What is the possibility the com-
pany could get there? How much market share
could it reasonably get, and what would it cost to
achieve that? Then you back into a reasonable
expectation of value. We create many scenarios.
With any given program, the chance of success is
low, so you need to size for the risk and make
sure the clinical trial is designed for unambigu-
ous data. As my father used to say, “If the data
is ambiguous, there is no ambiguity.” Meaning,
when a drug works, it is obvious, just as when it
isn’t working.
You also want to make sure to invest in com-
panies that have multiple programs, maybe
around a therapeutic identity or technology plat-
form, all at different stages of development. If
one fails, the company—and you, the investor—
aren’t out of the game. Unfortunately, this isn’t
value investing, where there are hard numbers to
anchor to. Biotech valuations are like a thermom-
eter that tells you how hot or cold the potential
is; they aren’t a precision instrument.
Bakri: In small- and mid-cap biotech, in particu-
lar, all your returns typically come from a small
percentage of winners. You can lose 100% of
your money, but you can make 500% or 1,000%
on an investment. When you do the decision-
tree analysis Eli described, you should hypothe-
size that one tree can grow to the sky. One of
your companies could become really big. You
don’t want to sell your winners early.
Ziad, which of your biotechs could be big winners?
Bakri:Vertex Pharmaceuticals [VRTX] is a
larger company that hits on a lot of themes we’ve
been discussing. Vertex generates more than $3
billion of revenue a year from cystic fibrosis
treatments. The company has developed trans-
formational drugs for a severe, life-threatening
disease. It has a defined patient population, and
no competition. It can reach 70,000 patients
around the world with a small sales force. This is
precision medicine at its finest, and also a really
good business. Its costs are relatively low.
Many biotech companies stumble as they be-
come bigger because they have to replicate their
success, and in a big enough way to move the
needle. This isn’t like Facebook [FB] or Google,
where the bigger you get, the bigger you’re go-
ing to get because of the network effect. In bio-
tech, past success often doesn’t correlate with
success in the future. This is why larger compa-
nies often buy other companies. Vertex will be
able to replicate its success. It is going after
other diseases, including Alpha 1-antitrypsin.
Vertex also has a business-savvy management
team. The pieces are in place for it to become
“Invitae has sold
hundreds of
thousands
of genetic
tests since
inception,
and volumes
are exploding.
As the volumes
grow, the value
of the genomic
data they
capture will,
too. It is a
virtuous cycle.”
Eli Casdin
X