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String of gene therapy deals spurs cautious optimism on Wall Street

Despite safety concerns and pushback from drug regulators, gene therapy continues to be an area of interest to biopharmaceutical dealmakers, as shown by a recent spate of activity.

In mid-October, Akouos, a Boston-based developer of gene therapies for hearing loss, agreed to be bought by Eli Lilly in a deal that could be worth north of $600 million. Less than a week later, on Oct. 23, Applied Genetic Technologies Corp. said it would be taken private through an acquisition by the life sciences investing company Syncona.

And the following day, the Japan-based pharmaceutical firm Astellas Pharma announced a $50 million investment in Taysha Gene Therapies, which is advancing treatments for rare neurological disorders.

To some on Wall Street, these deals are a positive sign for an area of drug research that drove immense excitement several years ago, but has since weathered setbacks. Safety scares like those seen in clinical trials run by Pfizer, UniQure, Bluebird bio and others drew scrutiny from the Food and Drug Administration, which last year held a special meeting to discuss the risks of gene therapy.

Safety hasn’t been the only issue, either. In recent years, experimental treatments from Biogen, Sarepta Therapeutics and Amicus Therapeutics came up short in key trials testing their effectiveness. And for Editas Medicine, positive, albeit early, results from a study of its CRISPR-based gene editing therapy were met with disappointment from some investors, with company shares subsequently sliding in value.

To Dae Gon Ha, an analyst at the investment firm Stifel, the fresh string of deals could be seen as a “boon” for gene therapies targeting rare diseases. “We agree that an onslaught of [mergers and acquisitions] in such a short period can add a much-needed sentiment shift to a sector that’s been in investors’ penalty box for much of 2022,” he wrote in an Oct. 25 note to clients.

However, Ha also wrote that these deals don’t necessarily mean the gene therapy space is “out of the woods yet.”

For example, Ha noted how these deals are “noticeably smaller” in value — both in comparison to the gene therapy acquisitions seen a few years ago, like that of AveXis and Spark Therapeutics, and to other, more recent ones targeting different drugmaking technologies.

Several factors may have influenced these lower deal values. A record amount of funding flowed into gene therapy research over the last few years, leading to the creation of more companies, many of which are still relatively small. Akouos, for instance, was founded in 2016, and by the end of this February had just over 100 employees.

But with greater competition, and amid a historic downturn in the biotechnology stock market, money has been harder to come by, forcing a number of companies to cut costs and trim their workforces. As a result, some gene therapy developers could be more willing to consider cheaper offers.

The investment firm Cantor Fitzgerald reviewed five gene therapy acquisitions, including Lilly’s planned purchase of Akouos, and found the more recent ones have taken longer to agree upon final costs. Cantor analyst Kristen Kluska wrote that her team suspects “most of this is driven by recent weakened market conditions.”

Given the setbacks experienced by the gene therapy field, the newer deals may also suggest buyers are more interested in programs that are “de-risked” to some degree. In the case of Akouos, the FDA in September cleared the company to begin human testing of its most advanced therapy — a milestone that regulatory filings show prompted Lilly to renew acquisitions talks.

Akouos also had a narrow focus, which has been true of other gene therapy acquisitions. Nightstar Therapeutics, purchased by Biogen for roughly $800 million, was developing treatments specifically for eye diseases, while Audentes Therapeutics and Prevail Therapeutics, bought respectively by Astellas and Lilly, centered their research around neurological conditions.

In spite of the caveats, the three deals from the past month could at least signal a growing comfort from buyers and investors “in the risk/reward profile of gene therapy, companies’ compelling valuation, or both,” according to Ha.

“In sum, the recent transactions and announcements are undoubtedly encouraging for the sector,” Ha wrote, “but the acquirer’s selectivity of assets, capital commitment, and what the acquirer ultimately brings to the table buffer greater enthusiasm, in our view.”